1) The difference between the costs at the high and low levels of activity represents the
fixed cost element of a mixed cost.
2) The annual rate of return technique requires dividing a project’s annual cash inflows
by the economic life of the project.
3) Totaling the columns of a journal and proving the equality of the totals is called
footing and cross-footing a journal.
4) If the activity index decreases, total variable costs will decrease proportionately.
5) Manufacturing overhead is the only product cost that can be assigned to jobs as soon
as the costs are incurred.
6) If a company has sales of $110 in 2013 and $154 in 2014, the percentage increase in
sales from 2013 to 2014 is 140%.
7) Unearned revenue is a prepayment that requires an adjusting entry when services are
performed.
8) If a corporation issued bonds at an amount less than face value, it indicates that the
corporation has a weak credit rating.
9) If prepaid costs are initially recorded as an asset, no adjusting entries will be required
in the future.
10) The IRS does not require the taxpayer to use the same depreciation method on the
tax return that is used in preparing financial statements.
11) A current ratio of 1.2 to 1 indicates that a company’s current assets exceed its
current liabilities.
12) Changes in the level of activity will cause unit variable and unit fixed costs to
change in opposite directions.
13) In preparing net cash flow from operating activities using the direct method, each
item in the income statement is adjusted from the accrual basis to the cash basis.
14) The study of accounting is not useful for a business career unless your career
objective is to become an accountant.
15) The contribution margin ratio is calculated by multiplying the unit contribution
margin by the unit sales price.
16) Just-in-time strives to eliminate inventories by using a pull approach.
17) Direct materials become a cost of the finished goods manufactured when they are
acquired, not when they are used.
18) Ideal standards will generally result in favorable variances for the company.
19) Long-term liabilities are reported in a separate section of the balance sheet
immediately following current liabilities.
20) Current liabilities are obligations that the company is to pay within the coming year.
21) Match the items below by entering the appropriate code letter in the space provided.
A.Available-for-sale securitiesF.Consolidated financial statements
B.Subsidiary companyG.Controlling interest
C.Equity methodH.Fair Value Adjustment
D.Unrealized Gain or LossEquityI.Parent company
E.Fair valueJ.Long-term investments
____1>Valuation allowance account.
____2>Amount for which a security could be sold.
____3>Ownership of more than 50% of another company’s common stock.
____4>Securities that may be sold in the future.
____5>Investments that are not readily marketable and not intended to be converted
into cash within the next year.
____6>Financial statements that present the total assets and liabilities controlled by the
parent and the total revenues and expenses of the subsidiary companies.
____7>The Stock Investments account is adjusted for net income and dividends
received.
____8>A company that owns more than 50% of the common stock of another entity.
____9>Entity whose stock is owned by the parent company.
____10>An account that is reported in the stockholders’ equity section.
22) A company just starting business made the following four inventory purchases in
June:
June1150 units$ 390
June10200 units585
June15200 units630
June28150 units 510
$2,115
A physical count of merchandise inventory on June 30 reveals that there are 250 units
on hand. Using the average-cost method, the amount allocated to the ending inventory
on June 30 is
a.$683
b.$755
c.$825
d.$1,360
23) A company assigned overhead to work in process. At year end, what does the
amount of overapplied overhead mean?
a.The overhead assigned to work in process is greater than the estimated overhead costs
b.The overhead assigned to work in process is less than the estimated overhead costs
c.The overhead assigned to work in process is less than the actual overhead
d.The overhead assigned to work in process is greater than the overhead incurred
24) The net income reported on the income statement for the current year was
$220,000. Depreciation recorded on plant assets was $35,000. Accounts receivable and
inventories increased by $2,000 and $8,000, respectively. Prepaid expenses and
accounts payable decreased by $2,000 and $12,000 respectively. How much cash was
provided by operating activities?
a.$200,000
b.$235,000
c.$220,000
d.$255,000
25) Mary Jessicas capital statement reveals that her drawings during the year were
$50,000. She made an additional capital investment of $25,000 and her share of the net
loss for the year was $10,000. Her ending capital balance was $200,000. What was
Jessicas beginning capital balance?
a.$225,000
b.$185,000
c.$235,000
d.$260,000
26) Saira, Inc. has the following income statement (in millions):
SAIRA, INC.
Income Statement
For the Year Ended December 31, 2014
Net Sales$300
Cost of Goods Sold 180
Gross Profit 120
Operating Expenses 45
Net Income$75
Using vertical analysis, what percentage is assigned to Net Income?
a.625%
b.40%
c.25%
d.None of these answer choices are correct
27) Comparisons of data within a company are an example of the following
comparative basis:
a.Industry averages
b.Intercompany
c.Intracompany
d.Interregional
28) Which of the following statements reflects the transferability of ownership rights in
a corporation?
a.If a stockholder decides to transfer ownership, he must transfer all of his shares
b.A stockholder may dispose of part or all of his shares
c.A stockholder must obtain permission from the board of directors before selling
shares
d.A stockholder must obtain permission from at least three other stockholders before
selling shares
29) In Kapler Company, the Cutting Department had beginning work in process of
7,000 units, transferred out 20,000 units, and had an ending work in process of 4,000
units. How many units were started by Kapler during the month?
a.17,000
b.16,000
c.20,000
d.24,000
30) The discount on bonds payable or premium on bonds payable is shown on the
balance sheet as an adjustment to bonds payable to arrive at the carrying value of the
bonds. Indicate the appropriate addition or subtraction to bonds payable:
Premium onDiscount on
Bonds PayableBonds Payable
a.AddAdd
b.DeductAdd
c.AddDeduct
d.DeductDeduct
31) Eneri Company’s inventory records show the following data:
UnitsUnit Cost
Inventory, January 110,000$9.20
Purchases:June 189,0008.00
November 86,0007.00
A physical inventory on December 31 shows 4,000 units on hand. Eneri sells the units
for $13 each. The company has an effective tax rate of 20%. Eneri uses the periodic
inventory method. What is the difference in taxes if LIFO rather than FIFO is used?
a.$1,760 additional taxes
b.$992 additional taxes
c.$786 additional taxes
d.$992 tax savings
32) Under IFRS Liabilities are generally presented in
a.alphabetical order
b.order of liquidity
c.maturity date order
d.order of magnitude
33) Information that is not generally reported for each class of stock on the balance
sheet is
a.the market value
b.the par value
c.shares authorized
d.shares issued
34) In which journal would a cash purchase of inventory be recorded?
a.Purchases journal
b.General journal
c.Cash payments journal
d.None of these answer choices are correct
35) (a) When do companies normally post to (1) subsidiary accounts and (2) the general
ledger control accounts? (b) Describe the relationship between a control account and a
subsidiary ledger.
36) Presented below is an adjusted trial balance for Shawn Company, at December 31,
2014 .
Cash$ 7,700Accounts payable$10,000
Accounts receivable20,000Notes payable9,000
Prepaid insurance15,000Accumulated depreciation
Equipment35,000 Equipment14,000
Depreciation expense7,000Service revenue29,000
Owners Drawings1,500Owners capital24,000
Advertising expense1,400Unearned service revenue16,000
Rent expense800
Salaries and wages expense12,000
Insurance expense 1,600
$102,000$102,000
Instructions
(a)Prepare closing entries for December 31, 2014 .
(b)Determine the balance in the Owners Capital account after the entries have been
posted.
37) A contingent liability need only be disclosed in the financial statement notes when
the likelihood of the contingency is
a.reasonably possible
b.probable
c.remote
d.unlikely
38) The Molding Department of Bidwell Company has the following production data:
beginning work process 40,000 units (60% complete), started into production 680,000
units, completed and transferred out 640,000 units, and ending work in process 80,000
units (40% complete). Assuming conversion costs are incurred uniformly during the
process, the equivalent units for conversion costs are:
a.720,000
b.760,000
c.672,000
d.600,000
39) Liabilities
a.are future economic benefits
b.are existing debts and obligations
c.possess service potential
d.are things of value used by the business in its operation
40) The Cutting Department of Sawyer Manufacturing has the following production
and cost data for July.
Materials are entered at the beginning of the process. Conversion costs are incurred
uniformly during the process.
Instructions
(a)Determine the equivalent units of production for (1) materials and (2) conversion
costs.
(b)Compute unit costs and prepare a cost reconciliation schedule.
41) Cash receipts from interest and dividends are classified as
a.financing activities
b.investing activities
c.operating activities
d.either financing or investing activities
42) The principles of internal control include all of the following except
a.establishment of responsibility
b.combining of duties
c.physical, mechanical, and electronic controls
d.independent internal verification
43) Blake Company is planning to sell 800,000 units for $1.50 per unit. The
contribution margin ratio is 20%. If Blake will break even at this level of sales, what are
the fixed costs?
a.$240,000
b.$560,000
c.$800,000
d.$960,000
44) Under IFRS, the term reserves relates to each of the following except
a.asset revaluations
b.contributed (paid-in) capital
c.fair value differences
d.retained earnings
45) Madaas Company manufactures customized desks. The following pertains to Job
No. 987:
Direct materials used$11,450
Direct labor hours worked360
Direct labor rate per hour$15.00
Machine hours used300
Applied factory overhead rate per machine hour$22.00
What is the total manufacturing cost for Job No. 987?
a.$21,650
b.$23,450
c.$24,950
d.$26,750
46) The acquisition of treasury stock by a corporation
a.increases its total assets and total stockholders’ equity
b.decreases its total assets and total stockholders’ equity
c.has no effect on total assets and total stockholders’ equity
d.requires that a gain or loss be recognized on the income statement
47) Katy Hooper Inc. issued 6,000 shares of no-par common stock with a stated value
of $5 per share. The market price of the stock on the date of issuance was $14 per share.
The entry to record this transaction includes a
a.debit to Cash for $30,000
b.credit to Common Stock for $84,000
c.credit to Common Stock for $30,000
d.debit to Paid-in Capital in Excess of Par for $84,000
48) A company using the same accounting principles from year to year is an application
of
a.timeliness
b.consistency
c.full disclosure
d.meteriality
49) The following information pertains to Rural Company. Assume that all balance
sheet amounts represent both average and ending balance figures. Assume that all sales
were on credit.
Assets
Cash and short-term investments$ 40,000
Accounts receivable (net)30,000
Inventory25,000
Property, plant and equipment 215,000
Total Assets$310,000
Liabilities and Stockholders Equity
Current liabilities$ 60,000
Long-term liabilities75,000
Stockholders equitycommon 175,000
Total Liabilities and Stockholders Equity$310,000
Income Statement
Sales$ 130,000
Cost of goods sold 45,000
Gross profit85,000
Operating expenses 25,000
Net income$ 60,000
Number of shares of common stock5,000
Market price of common stock$22
Dividends per share1.00
What is the profit margin for Rural?
a.27.8%
b.70.6%
c.65.4%
d.46.2%
50) Management usually desires ________ financial statements and the IRS requires all
businesses to file _________ tax returns.
a.annual, annual
b.monthly, annual
c.quarterly, monthly
d.monthly, monthly
51) Ron Marden and Tip Baker operate separate auto repair shops. On January 1, 2014,
they decide to combine their separate businesses which were operated as
proprietorships to form M & B Auto Repair, a partnership. Information from their
separate balance sheets is presented below:
Marden Auto RepairBaker Auto Repair
Cash$10,000$14,000
Accounts receivable12,00010,000
Allowance for doubtful accounts1,000500
Accounts payable5,0006,000
Notes payable3,000
Salaries and wages payable1,0001,500
Equipment12,00024,000
Accumulated depreciationequipment2,0004,000
It is agreed that the expected realizable value of Mardens accounts receivable is
$11,000 and Bakers receivables is $7,000. The fair value of Mardens equipment is
$13,000 and the value of Bakers equipment is $20,000. It is further agreed that the new
partnership will assume all liabilities of the proprietorships with the exception of the
notes payable on Bakers balance sheet which he will pay himself.
Instructions
Prepare the journal entries necessary to record the formation of the partnership.
52) Raymond Corporation currently manufactures 3,000 units of component XYZ
annually for its main product. The costs per unit are as follows:
Direct materials$ 4.00
Direct labor7.00
Variable overhead3.20
Fixed overhead 7.00
Total$21.20
Dorie Company has contacted Raymond with an offer to sell it 3,000 components of
XYZ for $17.40 each. Sixty percent of the fixed overhead per unit is unavoidable.
Instructions
Prepare an incremental analysis for the make-or-buy decision.
53) The straight-line method of amortization allocates the same amount to
_______________ in each interest period.
54) Godwin Industries uses flexible budgets to control its selling expenses. Monthly
sales are expected to be from $200,000 to $240,000. Variable costs and their percentage
relationships to sales are:
Sales commissions6%
Advertising4%
Traveling5%
Delivery1%
Fixed selling expenses consist of sales salaries $42,000 and depreciation on delivery
equipment $10,000.
The actual selling expenses incurred in February, 2014, by Godwin Industries are as
follows:
Sales commissions$13,700
Advertising8,000
Traveling11,300
Delivery1,600
Fixed selling expenses consist of sales salaries $41,000 and depreciation on delivery
equipment $10,000.
Instructions
Prepare a flexible budget performance report, assuming that February sales were
$220,000.
55) Nison Company accumulates the following data concerning a mixed cost, using
miles as the activity level.
Instructions
Compute the variable and fixed cost elements using the high-low method.
56) How should mixed costs be classified in CVP analysis? What approach is used to
effect the appropriate classification?
57) Hedfield Corporation’s manufacturing costs for July when production was 2,000
units appears below:
Direct materials$10 per unit
Factory depreciation$14,000
Variable overhead10,000
Direct labor4,000
Factory supervisory salaries11,600
Other fixed factory costs3,000
Instructions
How much is the flexible budget manufacturing cost amount for a month when 2,200
units are produced?
58) A comparative balance sheet for Halpern Corporation is presented below:
HALPERN CORPORATION
Comparative Balance Sheet
2014 2013
Assets
Cash$ 36,000$ 31,000
Accounts receivable (net)70,00060,000
Prepaid insurance25,00017,000
Land18,00040,000
Equipment70,00060,000
Accumulated depreciation (20,000) (13,000)
Total Assets$199,000$195,000
Liabilities and Stockholders’ Equity
Accounts payable$ 11,000$ 6,000
Bonds payable27,00019,000
Common stock140,000115,000
Retained earnings 21,000 55,000
Total liabilities and stockholders’ equity$199,000$195,000
Additional information:
1>Net loss for 2014 is $20,000.
2>Cash dividends of $14,000 were declared and paid in 2014 .
3>Land was sold for cash at a loss of $4,000. This was the only land transaction during
the year.
4>Equipment with a cost of $15,000 and accumulated depreciation of $10,000 was sold
for $5,000 cash.
5>$22,000 of bonds were retired during the year at carrying (book) value.
6>Equipment was acquired for common stock. The fair value of the stock at the time of
the exchange was $25,000.
Instructions
Prepare a statement of cash flows for the year ended 2012, using the indirect method.
