1) The accounting cycle refers to the sequence of steps in preparing the work sheet.
2) One difference between financial and managerial accounting is that the external users
that use financial information must plan a company’s future, but the internal users of
managerial accounting information generally must decide whether to invest in or lend
to a company.
3) Net income for a period will be overstated if accrued salaries are not recorded at the
end of the accounting period.
4) Any cash dividends received from equity securities are recorded as Dividend
Expense.
5) A rolling budget is a specific budget application relevant only to a merchandising
company.
6) Depreciation expense is an example of an accrued expense.
7) Benson is a partner in B&D Company. Benson’s share of the partnership income is
$18,600 and her average partnership equity is $155,000. Her partner return on equity
equals 8.33.
8) Two important limitations of internal control systems are (1) human error or human
fraud, and (2) cost-benefit.
9) A company with a low level of liabilities in relation to stockholders’ equity is likely
to have a very high debt-to-equity ratio.
10) Recording revenues early overstates current-period income; recording revenues late
understates current period income.
11) Operating expenses are classified into two categories: selling expenses and cost of
goods sold.
12) Marble Company purchased a machine costing $120,000, terms 1/10, n/30. The
machine was shipped FOB shipping point and freight charges were $2,000. The
machine requires special mounting and wiring connections costing $10,000. When
installing the machine, $1,300 in damages occurred. Materials costing $1,500 are used
in testing and adjusting the machine to produce a satisfactory product. Compute the cost
recorded for this machine assuming Marble paid within the discount period.
A.$131,100
B.$134,800
C.$132,300
D.$133,600
E.$130,300
13) A pension plan
A.Is a contractual agreement between an employer and its employees in which the
employer provides benefits to employees after they retire
B.Can be underfunded if the accumulated benefit obligation is more than the plan assets
C.Can include a plan administrator who receives payments from the employer, invests
them in pension assets, and makes benefit payments to pension recipients
D.Can be a defined benefit plan in which future benefits are set, but the employer’s
contributions vary depending on assumptions about future pension assets and liabilities
E.All of these
14) A company had a market price of $37.50 per share, earnings per share of $1.25, and
dividends per share of $0.40. Its price-earnings ratio equals:
A.3.1
B.30.0
C.93.8
D.32.0
E.3.3
15) Refer to the following selected financial information from Fennie’s, LLC. Compute
the company’s inventory turnover for Year 2.
A.4.72
B.4.33
C.3.17
D.5.78
E.3.86
16) A limitation of the internal rate of return method is:
A.Failure to measure time value of money
B.Failure to measure results as a percent
C.Failure to consider the payback period
D.Failure to reflect changes in risk levels over project life
E.Failure to compare dissimilar projects
17) Sinking fund bonds:
A.Require the issuer to set aside assets to retire the bonds at maturity
B.Require equal payments of both principal and interest over the life of the bond issue
C.Decline in value over time
D.Are registered bonds
E.Are bearer bonds
18) Hal Smith opened Smith’s Repairs on March 1 of the current year. During March,
the following transactions occurred and were recorded in the company’s books:
1> Smith invested $25,000 cash in the business.
2> Smith contributed $100,000 of equipment to the business.
3> The company paid $2,000 cash to rent office space for the month.
4> The company received $16,000 cash for repair services provided during March.
5> The company paid $6,200 for salaries for the month.
6> The company provided $3,000 of services to customers on account.
7> The company paid cash of $500 for monthly utilities.
8> The company received $3,100 cash in advance of providing repair services to a
customer.
9> Smith withdrew $5,000 for his personal use from the company.
Based on this information, net income for March would be:
A.$10,300
B.$13,400
C.$5,300
D.$8,400
E.$13,500
19) Big River Rafting pays $310,000 plus $15,000 in closing costs to buy out a
competitor. The real estate consists of land appraised at $105,000, a building appraised
at $210,000, and equipment appraised at $35,000. Compute the cost that should be
allocated to the land.
A.$93,000
B.$186,000
C.$32,500
D.$195,000
E.$97,500
20) If it is a material amount, overapplied or underapplied overhead should be disposed
of by allocating it to:
A.Cost of goods sold and finished goods inventory
B.Finished goods inventory and goods in process inventory
C.Goods in process inventory, finished goods inventory, and cost of goods sold
D.Goods in process inventory
E.Raw materials inventory, goods in process inventory, and finished goods inventory
21) A dairy allocates the cost of unprocessed milk to the production of milk, cream,
butter and cheese. For the current period, unprocessed milk was purchased for
$240,000, and the following quantities of product and sales revenues were produced.
How much of the $240,000 cost should be allocated to milk?
A.$0
B.$86,400
C.$90,000
D.$133,333
E.$240,000
22) Saxon Manufacturing is considering purchasing two machines. Each machine costs
$9,000 and will produce cash flows as follows:
Saxon Manufacturing uses the net present value method to make the decision, and it
requires a 15% annual return on its investments. The present value factors of 1 at 15%
are: 1 year, 0.8696; 2 years, 0.7561; 3 years, 0.6575. Which machine should Saxon
purchase?
A.Only Machine A is acceptable
B.Only Machine B is acceptable
C.Both machines are acceptable, but A should be selected because it has the greater net
present value
D.Both machines are acceptable, but B should be selected because it has the greater net
present value
E.Neither machine is acceptable
23) A company was organized in January 2010 and has 2,000 shares of $100 par value,
10%, nonparticipating preferred stock outstanding and 30,000 shares of $10 par value
common stock outstanding. It has declared and paid cash dividends each year as shown
below. Calculate the total dividends distributed to each class of stockholder under each
of the assumptions given.
24) A company paid $200,000 ten years ago for a specialized machine that has no
salvage value and is being depreciated at the rate of $10,000 per year. The company is
considering using the machine in a new project that will have incremental revenues of
$28,000 per year and annual cash expenses of $20,000. In analyzing the new project,
the $10,000 depreciation on the machine is an example of a(n):
A.Incremental cost
B.Opportunity cost
C.Variable cost
D.Sunk cost
E.Out-of-pocket cost
25) Six months ago, a company purchased an investment in stock for $65,000. The
investment is classified as available-for-sale securities. The current fair value of the
stock is $68,500. The company should record a:
A.Debit to Unrealized Loss-Equity for $3,500
B.Credit to Unrealized Gain-Equity for $3,500
C.Debit to Investment Revenue for $3,500
D.Credit to Market Adjustment – Available-for-Sale for $3,500
E.Credit to Investment Revenue for $3,500
26) Axme Corporation uses a weighted-average perpetual inventory system.
August 2, 10 units were purchased at $12 per unit.
August 18, 15 units were purchased at $14 per unit.
August 29, 12 units were sold.
What was the amount of the cost of goods sold for this sale?
A.$148.00
B.$150.50
C.$158.40
D.$210.00
E.$330.00
27) The calculation of annual net cash flow from a particular investment project should
include all of the following except:
A.Income taxes
B.Revenues generated by the investment
C.Cost of products generated by the investment
D.Depreciation expense
E.General and administrative expenses
28) Steve’s Skateboards uses the periodic inventory system and had the following sales
transactions during April:
Prepare the journal entries that Steve’s Skateboards must make to record these
transactions.
29) A company had $9,000,000 in net income for the year. Its net sales were
$13,200,000 for the same period. Calculate its profit margin.
A.17.5%
B.28.0%
C.62.5%
D.160.0%
E.68.2%
30) During August, Arena Company sells $356,000 in product that has a one year
warranty. Experience shows that warranty expenses average about 5% of the selling
price. The warranty liability account has a balance of $12,800 before adjustment.
Customers returned product for warranty repairs during the month that used $9,400 in
parts for repairs. The entry to record the estimated warranty expense for the month is:
A.Debit Warranty Expense $17,800; credit Estimated Warranty Liability $17,800
B.Debit Warranty Expense $5,000; credit Estimated Warranty Liability $5,000
C.Debit Warranty Expense $14,400; credit Estimated Warranty Liability $14,400
D.Debit Estimated Warranty Liability $9,400; credit Warranty Expense $9,400
E.Debit Estimated Warranty Liability $17,800; credit Warranty Expense $17,800
31) The difference between actual and standard cost caused by the difference between
the actual quantity and the standard quantity is called the:
A.Controllable variance
B.Standard variance
C.Budget variance
D.Quantity variance
E.Price variance
32) A company borrowed $50,000 from a bank by signing a long-term note payable.
Identify the journal the transaction would be recorded in.
A.Cash disbursements journal
B.Sales journal
C.Cash receipts journal
D.Purchases journal
E.General journal
33) Martin Corporation issued $3,000,000 of 8%, 20-year bonds payable at par value on
January 1. Interest is payable each June 30 and December 31.
(a) Prepare the general journal entry to record the issuance of the bonds on January 1
(b) Prepare the general journal entry to record the first interest payment on June 30
34) The following is taken from Ames Company’s internal records of its factory with
two operating departments. The cost driver for indirect labor is direct labor costs, and
the cost driver for the remaining items is number of hours of machine use. Compute the
total amount of overhead allocated to Dept.1 using activity-based costing.
A.$18,720
B.$12,930
C.$13,400
D.$19,190
E.$19,440
35) Match each of the following items with the appropriate definitions.
1>Operating activities A. A calculation that reports net income and then adjusts the net
income amount by adding and subtracting items that are necessary to yield net cash
provided (used) by operating activities.
2>Statement of cash flows B. A financial statement that reports the cash inflows and
cash outflows for an accounting period, and classifies those cash flows as operating,
investing, or financing activities.
3>Financing activities C. A calculation of the net cash provided (used) by operating
activities that lists the major items of operating cash receipts, and then subtracts the
major items of operating cash payments.
4>Direct method D. Transactions that include making and collecting notes receivable or
purchasing and selling plant assets, or investments in other than cash equivalents and
trading securities.
5>Investing activities E. Transactions with a company’s owners and creditors that
include obtaining cash from issuing debt and repaying the amounts borrowed, and
obtaining cash from or distributing cash to owners.
6>Indirect method F. Activities that involve the production or purchase of merchandise
and the sale of goods or services to customers, including expenditures related to
administering the business.
36) A company issued 9%, 10-years bonds with a par value of $1,000,000 on September
1, Year 1 when the market rate was 9%. The bonds were dated June 30, Year 1 . The
bond issue price included accrued interest. Interest is paid semiannually on December
31 and June 30.
(a) Prepare the issuer’s journal entry to record the issuance of the bonds on September 1
(b) Prepare the issuer’s journal entry to record the semiannual interest payment on
December 31, Year 1
37) Which one of the following items is normally not a manufacturing cost?
A.Direct materials
B.Factory overhead
C.General and administrative expenses
D.Direct labor
E.Conversion cost
38) Grafton sells a product for $700. Unit sales for May were 400 and a 3% growth in
unit sales is forecasted for each month. Grafton pays a sales manager a monthly salary
of $3,000 and a commission of 2% of sales in dollars. Compute the projected selling
expense to be reported on the selling expense budget for the manager for month ended
June 30.
A.$8,600
B.$11,652
C.$8,652
D.$5,768
E.$8,768
39) Closing the temporary accounts at the end of each accounting period does all of the
following except:
A.Serves to transfer the effects of these accounts to the owner’s capital account on the
balance sheet
B.Prepares the withdrawals account for use in the next period
C.Gives the revenue and expense accounts zero balances
D.Has no effect on the owner’s capital account
E.Causes owner’s capital to reflect increases from revenues and decreases from
expenses and withdrawals
40) Known liabilities:
A.Include accounts payable, notes payable, and payroll
B.Are obligations set by agreements, contracts, or laws
C.Are measurable
D.Are definitely determinable
E.All of these
41) At Flint Company’s break-even point of 9,000 units, fixed costs are $180,000 and
variable costs are $540,000 in total. The unit sales price is:
A.$20
B.$40
C.$60
D.$80
E.$100
42) The adjusted trial balance of Sara’s Web Services follows:
(a) Prepare the closing entries for Sara’s Web Services.
(b) What is the balance of Sara’s capital account after the closing entries are posted?
43) The ability to generate positive market expectations is called:
A.Liquidity and efficiency
B.Liquidity and solvency
C.Profitability
D.Market prospects
E.Creditworthiness
44) Goods in transit are included in a purchaser’s inventory:
A.At any time during transit
B.When the purchaser is responsible for paying freight charges
C.When the supplier is responsible for freight charges
D.If the goods are shipped FOB destination
E.After the half-way point between the buyer and seller
45) If the Debit and Credit column totals of a trial balance are equal, then:
A.All transactions have been recorded correctly
B.All entries from the journal have been posted to the ledger correctly
C.All ledger account balances are correct
D.The total debit entries and total credit entries are equal
E.The balance sheet would be correct
46) Wilson Co. is preparing next period’s forecasts. Total fixed costs are expected to be
$300,000 and the contribution margin ratio is expected to be 30%. The applicable
income tax rate is 25%.
(a) Calculate the company’s break-even point in dollar sales.
(b) If sales are $1,800,000 above the break-even point, what will income be (i) pretax
income and (ii) after-tax income?
47) Samer Corp. uses a job order cost accounting system. The following is selected
information pertaining to costs applied to jobs during the year:
Samer Corp.’s predetermined overhead allocation rate is 60% of direct labor cost. At the
end of the year, the company’s records show that $189,000 of factory overhead has been
incurred.
(a) Determine the amount of overapplied or underapplied overhead.
(b) Prepare the necessary journal entry to close the Factory Overhead account assuming
that any remaining balance is not material.
48) What is one advantage and one disadvantage of using the accounting rate of return
to evaluate investment alternatives?
49) During the closing process, partner’s capital accounts are _______________ for
their share of net income and _________________ for their share of net loss.
50) The FASB requires a reconciliation of net income to net cash provided or used by
operating activities when the ______________ method is used.
51) _______________________ are deposits made and recorded by the depositor but
not yet recorded on the bank statement.
52) Explain how the amounts in the subsidiary ledgers are tested for accuracy.
53) Maia’s Bike Shop uses the perpetual inventory system and had the following
transactions during the month of May:
Prepare the required journal entries that Maia’s Bike Shop must make to record these
transactions.
54) Topflight Company had $1,500 of store supplies at the beginning of the current
year. During this year, Topflight purchased $8,250 worth of store supplies. On
December 31, $1,125 worth of store supplies remained. Calculate the amount of
Topflight Company’s store supplies expense for the current year.
55) The ________________________________ is a report of the amount of sales less
direct expenses for a department.
56) How is the retirement of stock recorded?