1) If the liabilities owed by a business total $300,000 and stockholders equity is equal
to $300,000, then the assets also total $300,000.
2) Free cash flow is the measure of operating cash flow available for corporate purposes
after providing sufficient fixed asset additions to maintain current productive capacity
and dividends.
3) The issue price of zero-coupon bonds is the present value of their face amount.
4) Payroll taxes only include social security taxes and federal unemployment and state
unemployment taxes.
5) The chart of accounts, the journal, and the ledger are essential parts of the accounting
system.
6) For an automotive repair shop, the wages of mechanics would be classified as direct
labor cost.
7) When depreciation estimates are revised, all years of the assets life are affected.
8) Liabilities that will be due within one year or less and that are to be paid out of
current assets are called current liabilities.
9) When budget goals are set too tight, the budget becomes less effective as a tool for
planning and controlling operations.
10) If the adjustment for depreciation for the year is inadvertently omitted, the assets on
the balance sheet at the end of the period will be understated.
11) If a building is appraised for $85,000, offered for sale at $90,000, and the buyer
pays $80,000 cash for it, the buyer would record the building at $85,000.
12) The time expected to pass before the net cash flows from an investment would
return its initial cost is called the amortization period.
13) In the vertical analysis of a balance sheet, the base for current liabilities is total
liabilities.
14) If divisional income from operations is $75,000, invested assets are $737,500, and
the minimum rate of return on invested assets is 6%, the residual income is $36,750.
15) Explain the difference between
(a) Accrued revenues and unearned revenues.
(b) Accrued expenses and prepaid expenses.
(c) Give an example of each.
16) A fixed asset with a cost of $41,000 and accumulated depreciation of $36,500 is
traded for a similar asset priced at $60,000. Assuming a trade-in allowance of $3,000,
the recognized loss on the trade is
A.$3,000
B.$4,500
C.$ 500
D.$1,500
17) Allowance for Doubtful Accounts has a debit balance of $2,300 at the end of the
year (before adjustment). The company prepares an analysis of customers’ accounts and
estimates the amount of uncollectible accounts to be $31,900. Which of the following
adjusting entries is needed to record the Bad Debt Expense for the year?
A.debit Bad Debt Expense, $34,200; credit Allowance for Doubtful Accounts, $34,200
B.debit Allowance for Doubtful Accounts, $34,200; credit Bad Debt Expense, $34,200
C.debit Allowance for Doubtful Accounts, $29,600; credit Bad Debt Expense, $29,600
D.debit Bad Debt Expense, $29,600; credit Allowance for Doubtful Accounts, $29,600
18) Which of the accounts below would most likely appear on an adjusted trial balance
but probably would not appear on the unadjusted trial balance?
A.Fees Earned
B.Accounts Receivable
C.Unearned Fees
D.Depreciation Expense
19) The target cost approach assumes that:
A.markup is added to total cost
B.the selling price is set by the marketplace
C.markup is added to variable cost
D.markup is added to product cost
20) Indicate whether each of the following would be reported in the section of financial
statements identified as (a) current assets, (b) property, plant, and equipment, (c) current
liabilities, (d) revenues, or (e) expenses:
21) Which of the following is not one of the four basic financial statements?
A.balance sheet
B.statement of cash flows
C.statement of changes in financial position
D.income statement
22) Selected data for the current year ended December 31 are as follows:
During the current year, the cost of merchandise sold was $620,000 and the operating
expenses other than depreciation were $142,000. The direct method is used for
presenting the cash flows from operating activities on the statement of cash flows.
Determine the amount reported on the statement of cash flows for (a) cash payments for
merchandise and (b) cash payments for operating expenses.
23) Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to
a customer for $25,000. The seller paid freight costs of $2,000 and issued a credit
memo for $10,000 prior to payment. What is the amount of the cash discount
allowable?
A.$170
B.$150
C.$130
D.$250
24) A patient has a physical examination and asks the bookkeeper to mail the bill. The
bookkeeper should
A.make no entry until the cash is received
B.Cash, debit; Accounts Receivable, credit
C.Cash, debit; Fees Earned, credit
D.Accounts Receivable, debit; Fees Earned, credit
26) Analyze the following transactions as to their effect on the accounting equation.
(a) The company paid $725 to a vendor for supplies purchased previously on account.
(b) The company performed $850 of services and billed the customer.
(c) The company received a utility bill for $395 and will pay it next month.
(d) The stockholder of the company received a cash dividend of $1,000.
(e) The company paid $315 in salaries to its employees.
(f) The company collected $730 of cash from its customers on account.
Some of the possible effects of a transaction on the accounting equation are listed
below:
Put the appropriate letter next to each transaction.
27) Present entries to record the following selected transactions of Masterson Co.
(a) Purchased 600 shares of the 100,000 shares outstanding $10 par common shares of
Dankin Corporation for $5,100.
(b) Purchased 3,500 shares of the 10,000 shares no par common shares of Ramon Co.
for $45,700. The investment was accounted for by the equity method.
(c) Received a cash dividend of $1 per share on the Dankin Corporation stock acquired
in (a).
(d) Received a cash dividend of $2 per share on the Ramon Co. stock acquired in (b).
(e) Sold 100 shares of the Dankin Corporation shares acquired in (a) for $2,100.
(f) Dankin Corporation reported net income of $30,000 and Ramon Companys reported
net income was $50,000.
28) The standard price and quantity of direct materials are separated because:
A.GAAP reporting requires this separation
B.direct materials prices are controlled by the purchasing department, and quantity used
is controlled by the production department
C.standard quantities are more difficult to estimate than standard prices
D.standard prices change more frequently than standard quantities
29) Adjusting entries affect at least one
A.income statement account and one balance sheet account
B.revenue and the dividends account
C.asset and one stockholders equity account
D.revenue and one capital stock account
30) Armando Company owns 17,000 of the 70,000 shares of common stock outstanding
of Tito Company and exercises a significant influence over its operating and financial
policies. The investment should be accounted for by the
A.equity method
B.market method
C.cost or market method
D.cost method
31) The Designer Company issued 10-year bonds on January 1, 2011. The 6% bonds
have a face value of $800,000 and pay interest every January 1 and July 1. The bonds
were sold for $690,960 based on the market interest rate of 8%. Designer uses the
effective-interest method to amortize bond discounts and premiums. On July 1, 2011,
Designer should record interest expense (round to the nearest dollar) of
A.$27,638
B.$24,000
C.$48,000
D.$55,277
32) Which of the following is considered an unusual item affecting the prior periods
income statement?
A.Change in accounting principles
B.Fixed asset impairments
C.Extraordinary item
D.Discontinued operations
33) If fixed costs are $450,000, the unit selling price is $75, and the unit variable costs
are $50, what are the old and new break-even sales (units) if the unit selling price
increases by $10?
A.6,000 units and 5,294 units
B.18,000 units and 6,000 units
C.18,000 units and 12,858 units
D.9,000 units and 15,000 units
34) Match each of the following terms with the phrase that most closely describes it.
Each answer may be used only once.
1>Expenses of the current period. A. Activity based costing
2>Typically used by companies whose products are indistinguishable from each other.
B. Period costs
3>System that uses a different overhead rate for each activity. C. Overapplied overhead
4>Applied overhead is more than actual overhead incurred. D. Job order cost system
5>The stock ledger. E. Process cost system
6>Applied overhead is less than actual overhead incurred. F. Finished goods ledger
7>Typically used by companies that make custom products. G. Underapplied overhead
35) Which of the following is true?
A.If using the double-declining-balance the total amount of depreciation expense during
the life of the asset will be the highest
B.If using the units-of-production method, it is possible to depreciate more than the
depreciable cost
C.If using the straight line method, the amount of depreciation expense during the first
year is higher than that of the double-declining-balance
D.Regardless of the depreciation method, the amount of total depreciation expense
during the life of the asset will be the same
36) The term deficit is used to refer to a debit balance in which of the following
accounts of a corporation?
A.Retained Earnings
B.Treasury Stock
C.Organizational Expenses
D.Common Stock
37) Answer the following questions for each of the errors listed below, considered
individually:
(a) Did the error cause the trial balance totals to be unequal?
(b) What is the amount of the difference between the trial balance totals (where
applicable)?
(c) Which of the trial balance totals, debit or credit, is the larger (where applicable)?
Present your answers in columnar form, using the following headings:
38) A company purchases a one-year insurance policy on June 1 for $2,760. The
adjusting entry on December 31 is
A.debit Insurance Expense, $1,380 and credit Prepaid Insurance, $1,380
B.debit Insurance Expense, $1,150 and credit Prepaid Insurance, $1,150
C.debit Insurance Expense, $1,610, and credit Prepaid Insurance, $1,610
D.debit Prepaid Insurance, $1,380, and credit Cash, $1,380
39) Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, income
from operations amounting to $302,500, and a desired minimum rate of return of 15%.
The residual income for Chicks is:
A.$165,000
B.$302,500
C.$137,500
D.$191,500
40) Based on the following data, calculate the estimated cost of the merchandise
inventory on March 31 using the retail method.
41) Franklin Industries has several divisions. The Northern Division has $350,000 of
invested assets, income from operations of $200,000, and residual income of $158,000.
Determine the minimum acceptable rate of return on divisional assets.
42) During the current year, merchandise is sold for $137,500 cash and $425,600 on
account. The cost of the merchandise sold is $322,325. What is the amount of the gross
profit?
43) On January 1, 2012, Valuation Allowance for Available-for-Sale Investments had a
zero balance. On December 31, 2012, the cost of the available-for-sale securities was
$48,700, and the fair value was $39,200. Prepare the adjusting entry to record the
unrealized gain or loss for available-for-sale investments on December 31, 2012.
44) At December 31st, the Jeter Company had the following ending balances;
Retained Earnings – $100,000
Preferred Stock ($100 par, 7% cumulative, 10,000 authorized, 5,000 issued and
outstanding) – 500,000
Treasury stock – $35,000
Additional paid in capital – common stock – 400,000
Additional paid in capital – preferred stock – 50,000
Common stock ($5.00 par value, 100,000 shares authorized, 60,000 issued) – 300,000
Prepare the stockholders equity section of the balance sheet in good form with all of the
required disclosures. .
45) Carillion Company is considering the disposal of equipment that is no longer
needed for operations. The equipment originally cost $600,000 and accumulated
depreciation to date totals $460,000. An offer has been received to lease the machine for
its remaining useful life for a total of $310,000, after which the equipment will have no
salvage value. The repair, insurance, and property tax expenses that would be incurred
by Carillion Company on the machine during the period of the lease are estimated at
$75,800. Alternatively, the equipment can be sold through a broker for $230,000 less a
10% commission.
Prepare a differential analysis report, dated June 15 of the current year, on whether the
equipment should be leased or sold.
46) On October 30th, JumpStart paid its only stockholder, Damien Lawson, a $3,300
cash dividend. Journalize this event.
47) Lamar Industries warrants its products for one year. The estimated product warranty
is 3% of sales. Assume that sales were $190,000 for June. In July, a customer received
warranty repairs requiring $185 of parts and $50 of labor.
Required:
48) Laramie Technologies had the following data:
Cost of Materials Used $50,000
Direct Labor costs $56,000
Factory Overhead $28,000
Work in Process, beg. $45,000
Work in Process, end. $32,000
Show your calculations to determine the Cost of Goods Manufactured.
49) The Sawtooth Leather Company manufactures leather handbags and moccasins. For
simplicity reasons, they have decided to use the single plantwide factory overhead rate
method to allocate factory overhead. Calculate the amount of factory overhead to be
allocated to each unit using direct labor hours.