1) Retained earnings are a part of stockholders’ equity.
2) The accounts receivable turnover is computed by dividing total sales by the average
net receivables during the year.
3) Unit contribution margin is the amount that each unit sold contributes towards the
recovery of fixed costs and to income.
4) Period costs include selling and administrative expenses.
5) The denominator in the formula for calculating the return on investment includes
operating and nonoperating assets.
6) The cash proceeds from issuing par value stock may be equal to or greater than, but
not less than par value.
7) Net income of a corporation should be closed to retained earnings and net losses
should be closed to paid-in capital accounts.
8) Budgeting and long-range planning are two terms that describe the same process.
9) When constructing a building, a company is permitted to include the acquisition cost
and certain interest costs incurred in financing the project.
10) The act of any partner is binding on all other partners if the act appears to be
appropriate for the partnership.
11) The steps in the accounting cycle are different for a merchandising company than
for a service company.
12) The Fair Value Adjustment account can only have a credit balance or a zero
balance.
13) A company sells a product which has a unit sales price of $5, unit variable cost of
$2 and total fixed costs of $180,000. The number of units the company must sell to
break even is
a.90,000 units
b.36,000 units
c.540,000 units
d.60,000 units
14) Conversion cost per unit equals $7.00. Total materials costs are $40,000. Equivalent
units are 20,000. How much is the total manufacturing cost per unit?
a.$9.00
b.$7.00
c.$5.00
d.$2.00
15) In liquidation, balances prior to the distribution of cash to the partners are: Cash
$900,000; Peterson, Capital $420,000; Laney, Capital $390,000, and Howell, Capital
$90,000. The income ratio is 6:2:2, respectively. How much cash should be distributed
to Peterson?
a.$375,000
b.$408,750
c.$420,000
d.$450,000
16) If there were 160,000 pounds of raw materials on hand on January 1, 280,000
pounds are desired for inventory at January 31, and 840,000 pounds are required for
January production, how many pounds of raw materials should be purchased in
January?
a.720,000 pounds
b.1,120,000 pounds
c.560,000 pounds
d.960,000 pounds
17) Laser Inc., has 1,000 shares of 6%, $50 par value, cumulative preferred stock and
100,000 shares of $1 par value common stock outstanding at December 31, 2014, and
December 31, 2013. The board of directors declared and paid a $2,500 dividend in 2013
. In 2014, $12,000 of dividends are declared and paid. What are the dividends received
by the preferred stockholders in 2014?
a.$8,500
b.$6,000
c.$3,500
d.$3,000
18) Which of the following describes the process of identifying the economic events of
an organization?
a.Selecting the economic activities relevant to a particular organization
b.Quantifying events in dollars and cents
c.Keeping a chronological diary of particular events in an orderly and systematic
manner
d.Preparing accounting reports, including financial statements
19) A merchandising company using a perpetual system will make
a.the same number of adjusting entries as a service company does
b.one more adjusting entry than a service company does
c.one less adjusting entry than a service company does
d.different types of adjusting entries compared to a service company
20) Each of the following is a liquidity ratio except the
a.acid-test ratio
b.current ratio
c.debt to assets ratio
d.inventory turnover
21) Use the following table,
Present value of an Annuity of 1
Period 8% 9% 10%
1.926.917.909
21.7831.7591.736
32.5772.5312.487
A company has a minimum required rate of return of 9%. It is considering investing in a
project which costs $420,000 and is expected to generate cash inflows of $168,000 at
the end of each year for three years. The net present value of this project is
a.$425,208
b.$252,000
c.$5,208
d.$42,516
22) An enterprise which sells goods to customers is known as a
a.proprietorship
b.corporation
c.retailer
d.service firm
23) If manufacturing overhead has been overapplied during the year, the adjusting entry
at the end of the year will show a
a.debit to Manufacturing Overhead
b.credit to Finished Goods Inventory
c.debit to Cost of Goods Sold
d.credit to Work in Process Inventory
24) Mather Company purchased equipment on January 1, 2014 at a total invoice cost of
$336,000; additional costs of $6,000 for freight and $30,000 for installation were
incurred. The equipment has an estimated salvage value of $12,000 and an estimated
useful life of five years. The amount of accumulated depreciation at December 31, 2015
if the straight-line method of depreciation is used is:
a.$129,600
b.$132,000
c.$144,000
d.$148,800
25) Ultramega Company collected $19,600 in May of 2014 for 4 months of service
which would take place from October of 2014 through January of 2015 . The revenue
reported from this transaction during 2014 would be
a.0
b.$4,900
c.$14,700
d.$19,600
26) A company may purchase a noncontrolling interest in another firm in a related
industry
a.to house excess cash until needed
b.to generate earnings
c.for strategic reasons
d.for speculative reasons
27) Knox Manufacturing Company reported the following year-end information:
beginning work in process inventory, $270,000; cost of goods manufactured,
$1,074,000; beginning finished goods inventory, $380,000; ending work in process
inventory, $330,000; and ending finished goods inventory, $409,000. Knox
Manufacturing Company’s cost of goods sold for the year is
a.$1,483,000
b.$1,454,000
c.$1,103,000
d.$1,045,000
28) Match the items below by entering the appropriate code letter in the space provided.
A.WorksheetF.Common Stock
B.Permanent accountsG.Current assets
C.Closing entriesH.Operating cycle
D.Income SummaryI.Long-term liabilities
E.Reversing entryJ.Correcting entries
1>Obligations that a company expects to pay after one year.
2>A part of owners’ equity in a corporation.
3>An optional tool which facilitates the preparation of financial statements.
4>A temporary account used in the closing process.
5>Balance sheet accounts whose balances are carried forward to the next period.
6>The average time that it takes to go from cash to cash in producing revenues.
7>Entries to correct errors made in recording transactions.
8>The exact opposite of an adjusting entry made in a previous period.
9>Entries at the end of an accounting period to transfer the balances of temporary
accounts to a permanent owner’s equity account.
10>Assets that a company expects to pay or convert to cash or use up within one year.
29) Toolworks has a standard of 2 hours of labor per unit, at $18 per hour. In producing
2,000 units, Toolworks used 3,850 hours of labor at a total cost of $70,455. Toolworks
labor price variance is
a.$1,545 U
b.$1,200 U
c.$1,155 U
d.$2,895 F
30) As interest is recorded on an interest-bearing note, the Interest Expense account is
a.increased; the Notes Payable account is increased
b.increased; the Notes Payable account is decreased
c.increased; the Interest Payable account is increased
d.decreased; the Interest Payable account is increased
31) The partnership agreement of Alix, Gise, and Bosco provides for the following
income ratio: (a) Alix, the managing partner, receives a salary allowance of $108,000,
(b) each partner receives 15% interest on average capital investment, and (c) remaining
net income or loss is divided equally. The average capital investments for the year were:
Alix $600,000, Gise $1,200,000, and Bosco $1,800,000. If partnership net income is
$540,000, the amount distributed to Alix should be
a.$90,000
b.$162,000
c.$180,000
d.$198,000
32) (a)Brown Company purchased equipment in 2007 for $150,000 and estimated a
$10,000 salvage value at the end of the equipment’s 10-year useful life. At December
31, 2013, there was $98,000 in the Accumulated Depreciation account for this
equipment using the straight-line method of depreciation. On March 31, 2014, the
equipment was sold for $40,000.
Prepare the appropriate journal entries to remove the equipment from the books of
Brown Company on March 31, 2014 .
(b)Finney Company sold a machine for $15,000. The machine originally cost $35,000
in 2011 and $8,000 was spent on a major overhaul in 2014 (charged to the Equipment
account). Accumulated Depreciation on the machine to the date of disposal was
$28,000.
Prepare the appropriate journal entry to record the disposition of the machine.
(c)Stanley Company sold office equipment that had a book value of $12,000 for
$16,000. The office equipment originally cost $40,000 and it is estimated that it would
cost $50,000 to replace the office equipment.
Prepare the appropriate journal entry to record the disposition of the office equipment.
33) The potential benefit that may be obtained by following an alternative course of
action is termed a(n):
a.sunk cost
b.avoidable cost
c.incremental cost
d.opportunity cost
34) In applying the high-low method, which months are relevant?
Month MilesTotal Cost
January80,000$ 96,000
February50,00080,000
March70,00094,000
April90,000130,000
a.January and February
b.January and April
c.February and April
d.February and March
35) At April 1, 2014, Spiderland Company reported a balance of $20,000 in the Owners
Capital account. Spiderland Company earned revenues of $50,000 and incurred
expenses of $32,000 during April 2014 . The company had owner drawings of $10,000
during the month.
(a)Prepare the entries to close Income Summary and the Owners Drawings acccount at
April 30, 2014.
(b)What is the balance in Owners Capital on the April 30, 2014 post-closing trial
balance?
36) The activity index used in preparing the flexible budget
a.is prescribed by generally accepted accounting principles
b.is only applicable to fixed manufacturing costs
c.is the same for all departments
d.should significantly influence the costs that are being budgeted
37) The Raw Materials Inventory account is
a.a subsidiary account
b.debited for invoice costs and freight costs chargeable to the purchaser
c.debited for purchase discounts taken
d.debited for purchase returns and allowances
38) The entry to record depletion expense
a.decreases owner’s equity and assets
b.decreases net income and increases liabilities
c.decreases assets and liabilities
d.decreases assets and increases liabilities
39) A three column form of account is so named because it has columns for
a.debit, credit, and account name
b.debit, credit, and reference
c.debit, credit, and balance
d.debit, credit, and date
40) Mattox Company is building a new plant that will take three years to construct. The
construction will be financed in part by funds borrowed during the construction period.
There are significant architect fees, excavation fees, and building permit fees. Which of
the following statements is true?
a.Excavation fees are capitalized but building permit fees are not
b.Architect fees are capitalized but building permit fees are not
c.Interest is capitalized during the construction as part of the cost of the building
d.The capitalized cost is equal to the contract price to build the plant less any interest on
borrowed funds
41) The cost of land includes all of the following except
a.real estate brokers commissions
b.closing costs
c.accrued property taxes
d.parking lots
42) Accountants do not attempt to measure the change in a plant asset’s fair value
during ownership because
a.the assets are not held for resale
b.plant assets cannot be sold
c.losses would have to be recognized
d.it is management’s responsibility to determine fair values
43) Daytona Corporation had 800,000 shares of common stock outstanding during the
year. Daytona declared and paid cash dividends of $400,000 on the common stock and
$320,000 on the preferred stock. Net income for the year was $1,760,000. What is
Daytonas earnings per share?
a.$1.75
b.$1.70
c.$1.80
d.$1.30
44) If the adjusting entry for depreciation is not made,
a.assets will be understated
b.owner’s equity will be understated
c.net income will be understated
d.expenses will be understated
45) All of the following are owner’s equity accounts except
a.the Capital account
b.Capital Stock
c.Investment in Stock
d.Retained Earnings
46) Teamboo Companys owners equity at the beginning of August 2014 was $750,000.
During the month, the company earned net income of $175,000 and owners drawings
were $75,000. At the end of August 2014, what is the balance in owners equity?
a.$675,000
b.$750,000
c.$825,000
d.$850,000
47) Instructions: Designate the terminology that best represents the definition or
statement given below by placing the identifying letter(s) in the space provided. No
letter should be used more than once.
A.Additions and improvements N.Debit
B.Natural resourcesO.Declining-balance method
C.Allowance methodP.Depletion
D.AmortizationQ.Depreciable cost
E.Periodic inventory systemR.Direct write-off method
F.Book valueS.Economic entity assumption
G.Nominal accountsT.First-in, first-out method
H.Closing entriesU.Inventoriable costs
I.ComparabilityV.Going-concern assumption
J.Permanent accountsW.Internal control
K.ConsistencyX.Time period assumption
L.Contra assetY.Last-in, first out method
M.Cost principleZ.Retail inventory method
___1>The methods and measures adopted within a business to safeguard its assets and
enhance the accuracy and reliability of its accounting records.
___2>The pool of costs that consist of the cost of the beginning inventory and the cost
of goods purchased.
___3>Entries at the end of an accounting period to transfer the balances of temporary
accounts to permanent owner’s equity accounts.
___4>Assets such as timber, oil, coal, and mineral deposits.
___5>A system in which detailed records are not maintained and cost of goods sold is
determined only at the end of an accounting period.
___6>Revenue, expense, and drawing accounts whose balances are transferred to
owner’s capital at the end of an accounting period.
___7>An accounting principle that requires assets be recorded at their historical cost.
___8>An inventory costing method which assumes that the latest units purchased are
the first to be allocated to cost of goods sold.
___9>All accounts appearing on the post-closing trial balance.
___10>An assumption that requires that the activities of a company be kept separate
and distinct from the activities of its owner.
___11>Accumulated depreciation is an example of this term.
___12>This method of accounting for uncollectible accounts is required when bad
debts are significant in size.
___13>An inventory method that records the earliest goods purchased as cost of goods
sold.
___14>A depreciation method that produces decreasing periodic depreciation by
applying a constant rate to the book value of the asset.
___15>The periodic write-off of an intangible asset.
___16>The left side of an account.
___17>The cost of an asset less its accumulated depreciation.
___18>An assumption that the economic life of a business can be divided into artificial
time periods.
___19>The total amount subject to depreciation.
___20>Use of the same accounting principles and methods from period to period by the
same business enterprise.
48) Owner’s equity is decreased by
a.assets
b.revenues
c.expenses
d.liabilities
49) Under IFRS, Revaluation Surplus is part of
a.share premium
b.retained earnings
c.general reserves
d.contributed capital
50) Dolan Company exchanges equipment with Eaton Company and Pawnee Company
exchanges equipment with Fiero Company. The following information pertains to the
exchanges:
Dolan CompanyPawnee Company
Equipment (cost)$228,000$192,000
Accumulated depreciation100,00090,000
Fair value of the equipment150,00084,000
Cash paid90,000-0-
Instructions
Prepare the journal entries to record the exchanges on the books of Dolan Company and
Pawnee Company. The transaction has commercial substance.
51) On January 14, Balcom Corporation purchased 20, 11%, $1,000 Eiger Company
bonds for $20,000, plus brokerage fees of $400. On November 30, the company sold 10
of the Eiger Company bonds for $11,600. Prepare journal entries for the purchase and
sale of the Eiger Company bonds.
52) Columbia Manufacturing incurs unit costs of $15 ($9 variable and $6 fixed) in
making a subassembly part for its finished product. A supplier offers to make 10,000 of
the assembly part at $11 per unit. If the offer is accepted, all variable costs and $1 of
fixed costs per unit will be saved.
Instructions
1>Prepare an analysis to show whether Columbia Manufacturing should make or buy
the assembly part.
2>Would your answer be different if Columbia could earn $25,000 of income with the
facilities currently used to make the part?
53) The long-term liability section of Escovedo Companys Balance Sheet includes the
following accounts:
Notes Payable $100,000
Mortgage Payable 250,000
Salaries and Wages Payable 75,000
Accumulated Depreciation 125,000
Total Long-Term Liabilities$550,000
Escovedo Company is an established company and does not experience any financial
difficulties or have any cash flow problems. Discuss at least two items that are
questionable as long-term liabilities.
54) Lainey Company is considering an investment which will return a lump sum of
$300,000 six years from now. What amount should Lainey Company pay for this
investment to earn an 8% return?
55) Dolly’s Dream Homes, Inc. manufactures doll houses in a continuous process.
Various customizing features and furnishings are added at the end of the process to
create the various models that are sold. The basic design and floor plans of all the
houses are identical, however.
During the most recent month, the lumber used in trimming the houses was
inadvertently recorded as direct materials. At month end, when the error was
discovered, Susie Rief, the accountant, was told by the accounting manager, Karen Tate,
not to bother with correcting the error, because the dollar amount of the error was not
“worth it.” Susie believes that the dollar amount is not as important as the quality of the
reports. She wonders whether she would be committing an unethical act if she were to
make the changes anyway, despite her superior’s telling her not to.
Required:
1>Who are the stakeholders in this situation?
2>Was it unethical for the company to ask that the error not be corrected? Explain
briefly.
3>Would it be unethical for Susie to correct the error? Explain briefly.
56) What is the order in which assets are generally listed on a classified balance sheet?
Current and long-term
Current; property, plant, and equipment; long-term investments; intangible assets
Current; property, plant, and equipment; intangible assets; long-term investments
Current; long-term investments; property, plant, and equipment; intangible assets
57) A lease may be classified as an _______________ lease or as a ________________
lease.
58) A __________________ fund is used to pay relatively small expenditures.
59) The following information is available for Evans Corporation:
20152014
Average common stockholders equity$1,500,000$1,000,000
Average total stockholders equity2,000,0001,500,000
Common dividends declared and paid72,00050,000
Preferred dividends declared and paid30,00030,000
Net income350,000300,000
Instructions
Compute the return on common stockholders equity ratio for both years. Briefly
comment on your findings.
