1) The cash flow on total assets ratio is computed by dividing average total assets by
operating income.
2) Inadequacy refers to the insufficient capacity of a company’s plant assets to meet the
company’s growing productive demands.
3) Short-term investments are intended to be converted into cash within the longer of
one year or the current operating cycle of the business, and are readily convertible to
cash.
4) A debit balance in the Cash Over and Short account reflects an expense and is
reported on the income statement as part of general and administrative expenses.
5) The extent, or relative size, of fixed costs in the total cost structure is known as
operating leverage.
6) Capital intensive companies have a relatively large amount invested in assets to
generate a given level of sales.
7) A preemptive right means shareholders can purchase their proportional share of
common stock issued later by the corporation.
8) Under the accrual basis of accounting, adjustments are often made for prepaid
expenses and unearned revenues.
9) LIFO assumes that inventory costs flow in the order incurred.
10) Failure to record depreciation expense will overstate the asset and understate the
expense.
11) Both U.S. GAAP and IFRS do not require the use of accrual basis accounting.
12) The going concern assumption supports the reporting of plant assets at book value
rather than market value.
13) The payee is the person who signs a check, authorizing its payment.
14) The revenue recognition principle is the basis for making adjusting entries that
pertain to unearned and accrued revenues.
15) The current ratio is used to help assess a company’s ability to pay its debts in the
near future.
16) Griggs Company holds $50,000 of 8% bonds as a held-to-maturity security. Which
of the following is the correct journal entry to record the receipt of the semiannual
interest payment?
A.debit Cash, $4,000; credit Long-Term InvestmentsHTM, $4,000
B.debt Cash, $2,000; credit Long-Term InvestmentsHTM, $2000
C.debit Cash, $2,000; credit Interest Revenue, $2,000
D.debit Unrealized Gain-Equity, $2,000; credit Cash, $2,000
E.debit Cash, $4,000; credit Unrealized Gain-Equity, $4,000
17) Maryland Company offers a bonus plan to its employees equal to 3% of net income.
Maryland’s net income is expected to be $960,000. The amount of the employee bonus
expense is estimated to be
A.$27,961
B.$28,800
C.$29,000
D.$29,691
E.$30,000
18) Use the information in the adjusted trial balance presented below to calculate
current assets for Jones Company:
A.$21,200
B.$45,600
C.$24,400
D.$95,600
E.$41,200
19) Accrued revenues:
A.At the end of one accounting period often result in cash receipts from customers in
the next period
B.At the end of one accounting period often result in cash payments in the next period.
C.Are also called unearned revenues
D.Are listed on the balance sheet as liabilities
E.Are recorded at the end of an accounting period because cash has already been
received for revenues earned
20) The rate established prior to the beginning of a period that uses estimated overhead
and an allocation factor such as estimated direct labor, and that is used to assign
overhead cost to jobs, is the:
A.Predetermined overhead allocation rate
B.Overhead variance rate
C.Estimated labor cost rate
D.Chargeable overhead rate
E.Miscellaneous overhead rate
21) Hankco accepts all major bank credit cards, including Omni Bank’s, which assesses
a 4% charge on sales for using its card. On June 28, Hankco had $3,500 in Omni Card
credit sales. What entry should Hankco make on June 28 to record the deposit?
A.Debit Cash $3,500; credit Sales $3,500
B.Debit Accounts Receivable $3,500; credit Sales $3,500
C.Debit Cash $3,640; credit Credit Card Expense $140; credit Sales $3,500
D.Debit Cash $3,360; debit Credit Card Expense $140; credit Sales $3,500
E.Debit Accounts Receivable $3,360; debit Credit Card Expense $140; credit Sales
$3,500
22) All of the following regarding reversing entries are true except:
A.Reversing entries are optional
B.Reversing entries are recorded in response to accrued assets and accrued liabilities
that were created by adjusting entries at the end of the previous accounting period
C.Reversing entries are used to simplify a company’s recordkeeping
D.Reversing entries are dated the first day of the new accounting period
E.Reversing entries are not the exact opposite of adjusting entries
23) Mace Department store allocates its service department expenses to its various
operating (sales) departments. The following data is available:
The following information is available for its three operating (sales) departments:
What is the total expense allocated to Department B?
A.$29,375
B.$30,462
C.$30,500
D.$30,775
E.$32,160
24) White Company has two service departments and two operating (production)
departments. The Payroll Department services all three of the other departments in
proportion to the number of employees in each. The Maintenance Department costs are
allocated to the two operating departments in proportion to the floor space used by
each. Listed below are the operating data for the current period:
The total cost of operating the Milling Department for the current period is:
A.$14,280
B.$15,912
C.$76,500
D.$90,780
E.$92,412
25) If a company uses a special payroll bank account:
A.The company does not need to issue paychecks
B.The company draws one check for the entire payroll on the regular bank account and
deposits it in the payroll bank account
C.The company must use a federal depository bank for the payroll bank account
D.There is no need for a payroll register
E.There is no need to issue W-2’s
26) Hancock Manufacturing allocates overhead to production on the basis of direct
labor costs. At the beginning of the year, Hancock estimated total overhead of
$396,000; materials of $410,000 and direct labor of $220,000. During the year Hancock
incurred $418,000 in materials costs, $413,200 in overhead costs and $224,000 in direct
labor costs. Compute the amount of overhead applied to jobs during the year.
A.$396,000
B.$424,450
C.$413,190
D.$413,200
E.$403,200
27) Use the following selected information from Farris, LLC to determine the Year 2
and Year 1 trend percents for cost of goods sold using Year 1 as the base.
A.36.4% for Year 2 and 41.1% for Year 1
B.55.0% for Year 2 and 56.0% for Year 1
C.4% for Year 2 and 100.0% for Year 1
D.117.2% for Year 2 and 100.0% for Year 1
E.65.1% for Year 2 and 64.6% for Year 1
28) Data pertaining to a company’s joint production for the current period follows:
Compute the cost to be allocated to Product A for this period’s $660 of joint costs if the
value basis is used.
A.$330.00
B.$440.00
C.$220.00
D.$194.12
E.$484.00
29) The dividend yield is computed by dividing:
A.Annual cash dividends per share by earnings per share
B.Earnings per share by cash dividends per share
C.Annual cash dividends per share by the market value per share
D.Market price per share by cash dividends per share
E.Cash dividends per share by retained earnings
30) The relevant factor(s) in computing depreciation include:
A.Cost
B.Salvage value
C.Useful life
D.Depreciation method
E.All of these
31) Quick Computer Service had revenues of $80,000 and expenses of $50,000 for the
year. Its assets at the beginning of the year were $400,000. At the end of the year assets
were worth $450,000. Calculate its return on assets.
A.7.1%
B.7.5%
C.6.7%
D.20.0%
E.18.8%
32) A company uses the following standard costs to produce a single unit of output.
During the latest month, the company purchased and used 58,000 pounds of direct
materials at a price of $1.00 per pound to produce 10,000 units of output. Direct labor
costs for the month totaled $56,350 based on 4,900 direct labor hours worked. Variable
manufacturing overhead costs incurred totaled $15,000 and fixed manufacturing
overhead incurred was $10,400. Based on this information, the direct labor rate
variance for the month was:
A.$1,200 favorable
B.$3,650 favorable
C.$2,450 favorable
D.$3,650 unfavorable
E.$1,200 unfavorable
33) The following information is available for the year ended December 31:
The amount of raw materials used in production for the year is:
A.$4,100
B.$5,100
C.$3,500
D.$6,500
E.$4,000
34) Classified balance sheets commonly include the following categories.
Indicate the typical classification of each item listed below by placing the letter of the
correct balance sheet category a through g in the blank space next to the item.
1>Equity A. Buildings used in business operations
2>Current assets B. Office Supplies
3>Long-term liabilities C. Land held for future plant expansion
4>Plant assets D. Long-term note payable
5>Intangible assets E. Accounts Receivable
6>Current liabilities F. Margarita Acosta, Capital
7>Long-term investments G. Accounts payable
8>Current assets H. Current portion of long-term debt
9>Current assets I. Patents
10>Current liabilities J. Wages payable
11>Current liabilities K. Prepaid insurance
12>Current assets L. Cash
35) Use the following information to prepare the June cash budget for Arbor Company.
It should show expected cash receipts and cash disbursement for the month and the cash
balance expected on June 30.
a. Beginning cash balance on June 1 is $52,000.
b. Cash receipts from sales: 40% is collected in the month of sale, 50% in the next
month, and 10% in the second month after sale (uncollectible accounts are negligible
and can be ignored). Sales amounts are: April (actual), $1,450,000, May (actual),
$1,600,000, and June (budgeted), $1,700,000.
c. Payments on merchandise purchases: 80% in the month of purchase and 20% in the
month following purchase. Purchases amounts are May (actual), $830,000; and June
(budgeted), $867,000.
d. Budgeted cash disbursements for salaries in June: $260,000.
e. Budgeted depreciation expense for June: $24,000.
f. Other cash expenses budgeted for June: $282,000.
g. Accrued income taxes due in June: $48,000.
h. Bank loan interest due in June: $8,000.
i. Loan payment of $50,000 if the preliminary cash balance is greater than $100,000.
36) NSC Corporation has invested in 10% of the outstanding stock of VC Corporation.
NSC intends to actively manage this investment for profit. This investment is classified
as:
A.an available-for-sale security
B.a held-to-maturity security
C.a trading security
D.a significant influence security
E.a controlling influence security
37) What amount can you borrow if you make six quarterly payments of $4,000 at a
12% annual rate of interest?
A.$24,838.00
B.$21,668.80
C.$31,049.00
D.$40,000.00
E.$44,800,00
38) On December 1, Martin Company signed a 90-day, 6% note payable, with a face
value of $5,000. What amount of interest expense is accrued at December 31 on the
note?
A.$0
B.$25
C.$50
D.$75
E.$300
39) A retail store has three departments, 1, 2, and 3, and does general advertising that
benefits all departments. Advertising expense totaled $50,000 for the year, and
departmental sales were as follows. Allocate advertising expense to Department 2 based
on departmental sales.
A.$11,000
B.$14,000
C.$16,667
D.$22,500
E.$50,000
40) During the month of March, Cooley Computer Services made purchases on account
totaling $43,500. Also during the month of March, Cooley was paid $8,000 by a
customer for services to be provided in the future and paid $36,900 of cash on its
accounts payable balance. If the balance in the accounts payable account at the
beginning of March was $77,300, what is the balance in accounts payable at the end of
March?
A.$83,900
B.$91,900
C.$6,600
D.$75,900
E.$4,900
41) A firm produces and sells two products, Mica and Plax. The following information
is available relating to setup costs (a part of factory overhead):
Using number of setups as the activity base, the amount of setup cost allocated to each
unit of product for Mica and Plax, respectively is:
A.$21.60; $.54
B.$54.00; $27.00
C.$60.00; $60.00
D.$108.00; $2.70
E.$200.00; $16,000.00
42) The following selected financial information for a company was reported for the
current year end. Calculate the following company ratios:
(a) Accounts receivable turnover.
(b) Inventory turnover.
(c) Days’ sales uncollected.
43) A company has 1,000 shares of $50 par value, 4.5% cumulative and
nonparticipating preferred stock and 10,000 shares of $10 par value common stock
outstanding. The company paid total cash dividends of $1,000 in its first year of
operation. The cash dividend that must be paid to preferred stockholders in the second
year before any dividend is paid to common stockholders is:
A.$1,000
B.$1,250
C.$2,250
D.$3,500
E.$4,500
44) The accrual basis of accounting:
A.Is generally accepted for external reporting because it is more useful than cash basis
for most business decisions
B.Is flawed because it gives complete information about cash flows
C.Recognizes revenues when received in cash
D.Recognizes expenses when paid in cash
E.Eliminates the need for adjusting entries at the end of each period
45) A company has the choice of either selling 1,000 defective units as scrap or
rebuilding them. The company could sell the defective units as they are for $4.00 per
unit. Alternatively, it could rebuild them with incremental costs of $1.00 per unit for
materials, $2.00 per unit for labor, and $1.50 per unit for overhead, and then sell the
rebuilt units for $8.00 each. What should the company do?
A.Sell the units as scrap
B.Rebuild the units
C.It does not matter because both alternatives have the same result
D.Neither sell nor rebuild because both alternatives produce a loss. Instead, the
company should store the units permanently
E.Throw the units away
46) Weston is preparing the company’s statement of cash flows for the fiscal year just
ended. Using the following information, determine the amount of cash flows from
investing activities:
A.$(107,700)
B.$107,700
C.$(200,000)
D.$(139,700)
E.$(207,700)
47) Harrow Co. is a multi-million business. The business results for the year have been
seriously impacted by a slowing economy. The company wants to improve its net
income. It has incurred $2,500,000 in unpaid salaries at the end of the year and wants to
leave those amounts unrecorded at the end of the year. (a) How would this omission
affect the financial statements of Harrow? (b) Which accrual basis of accounting
principles does this omission violate? (c) Would this be considered an ethical problem?
48) Burien, Inc., operates a retail store with two departments, A and B. Its departmental
income statement for the current year follows:
Burien allocates building depreciation, maintenance, and utilities on the basis of square
footage. Office expenses are allocated on the basis of sales.
Management is considering an expansion to a three-department operation. The
proposed Department C would generate $120,000 in additional sales and have a 17.5%
contribution to overhead. The company owns its building. Opening Department C
would redistribute the square footage to each department as follows: A, 19,040; B,
21,760 sq. ft.; C, 13,600. Increases in indirect expenses would include: maintenance,
$500; utilities, $3,800; and office expenses, $1,200.
Complete the following departmental income statements, showing projected results of
operations for the three sales departments. (Round amounts to the nearest whole dollar.)
49)
Match each of the following terms with the appropriate definitions.
1>Maker of a note A. Amounts due from customers arising from credit sales.
2>Promissory note B. A process of classifying accounts receivable by how long it is
past its due date for the purpose of estimating the amount of uncollectible accounts.
3>Realizable value C. A written promise to pay a specified amount either on demand or
at a definite future date.
4>Allowance for doubtful accounts D. The expected proceeds from converting an asset
into cash.
5>Interest E. The accounts of customers who do not pay what they have promised to
pay a company.
6>Matching principle F. The accounting principle that requires expenses to be reported
in the same period as the sales they helped to produce.
7>Payee of a note G. The cost of borrowing money for a borrower, alternatively the
profit from lending money for a lender.
8>Bad debts H. A contra asset account with a balance approximating the amount of
accounts receivable expected to be uncollectible.
9>Aging of accounts receivable I. One who signs a note and promises to pay it at
maturity.
10>Accounts receivable J. The one to whom the promissory note is made payable.
50) BVD Company uses a job order cost accounting system and last period incurred
$80,000 of overhead and $100,000 of direct labor. BVD estimates that its overhead next
period will be $75,000. It also expects to incur $100,000 of direct labor. If BVD bases
applied overhead on direct labor cost, their overhead application rate for the next period
should be:
A.75%
B.80%
C.107%
D.125%
E.133%
51) Explain how to record the receipt of a note receivable.
52) On May 31, a company had a balance in its accounts receivable of $103,895.
Prepare journal entries to record the following transactions for June.
53) What is a sales budget? How is the sales budget prepared?
54) _______________________ is the estimated sales price of damaged goods minus
the cost of making the sale.
55) Explain how cash flows from investing and financing activities are determined.
56) A corporation had stockholders’ equity on January 1 as follows: Common Stock,
$10 par value, 1,500,000 shares authorized, 600,000 shares issued; Paid-in Capital in
Excess of Par Value, Common Stock, $1,000,000; Retained Earnings, $2,500,000.
Prepare journal entries to record the following transactions:
57) You are little late planning your retirement, but are looking forward to retiring in 10
years. You expect to save $6,000 a year at an annual rate of 8%. How much will you
have accumulated when you retire?
58) Describe a work sheet and explain why it is useful.
59) Explain the purpose and format of the statement of cash flows. Also describe its
relevance to decision makers.
60) The payroll records of a company provided the following data for the current
weekly pay period ended March 7.
Assume that the Social Security portion of the FICA taxes is 6.2% on the first $106,800
and the Medicare portion is 1.45% of all wages paid to each employee for this pay
period. The federal and state unemployment tax rates are 0.8% and 5.4%, respectively,
on the first $7,000 paid to each employee.
Calculate the net pay for each employee.