1) The future value is the value now of a given amount to be paid or received in the
future, assuming compound interest.
2) The accounting cycle begins at the start of a new accounting period.
3) The Financial Accounting Standards Board is a part of the Securities and Exchange
Commission.
4) If an investor owns between 20% and 50% of an investee’s common stock, it is
presumed that the investor has significant influence on the investee.
5) Each partner’s initial investment in a partnership should be recorded at book value.
6) Process cost systems are used to apply costs to a specific job, such as the
manufacturing of a specialized machine.
7) If a partner’s investment in a partnership consists of equipment that has accumulated
depreciation of $8,000, it would not be appropriate for the partnership to record the
accumulated depreciation.
8) The method of assigning costs is essentially the same in job order and process cost
accounting.
9) The budget committee has the responsibility for coordinating the preparation of the
budget.
10) A fixed cost remains constant in total and on a per unit basis at various levels of
activity.
11) A company which uses special journals should record a transaction involving the
purchase of merchandise for cash in a
a.one column purchases journal
b.multi-column purchases journal
c.cash payments journal
d.general journal
12) A cost that cannot be changed by any present or future decision is a(n)
a.incremental cost
bopportunity cost
c.sunk cost
d.variable cost
13) The per-unit standards for direct materials are 2 pounds at $5 per pound. Last
month, 11,200 pounds of direct materials that actually cost $53,000 were used to
produce 6,000 units of product. The direct materials quantity variance for last month
was
a.$4,000 favorable
b.$3,000 favorable
c.$4,000 unfavorable
d.$7,000 unfavorable
14) Which of the following is not an intangible asset arising from a government grant?
a.Goodwill
b.Patent
c.Trademark
d.Trade name
15) The cost of successfully defending a patent in an infringement suit should be
a.charged to Legal Expenses
b.deducted from the book value of the patent
c.added to the cost of the patent
d.recognized as a loss in the current period
16) A company is considering purchasing factory equipment which costs $480,000 and
is estimated to have no salvage value at the end of its 8-year useful life. If the
equipment is purchased, annual revenues are expected to be $225,000 and annual
operating expenses exclusive of depreciation expense are expected to be $95,000. The
straight-line method of depreciation would be used. If the equipment is purchased, the
annual rate of return expected on this project is
a.54.2%
b.14.6%
c.29.2%
d.27.1%
17) Which of the following is true?
a.Transaction analysis is completely different under IFRS and GAAP
b.Most transactions are recorded differently under IFRS and GAAP
c.Transaction analysis is the same under IFRS and GAAP, but some transactions are
recorded differently
d.All transactions are recorded the same under IFRS and GAAP
18) Which one of the following is not a cost element in manufacturing a product?
a.Manufacturing overhead
b.Direct materials
c.Office salaries
d.Direct labor
19) In periods of rising prices, the inventory method which results in the inventory
value on the balance sheet that is closest to current cost is the
a.FIFO method
b.LIFO method
c.average-cost method
d.tax method
20) Presented below is a flexible manufacturing budget for Jasmine Company, which
manufactures fine timepieces:
Activity Index:
Standard direct labor hours 2,8003,2003,6004,000
Variable costs
Indirect materials$ 5,600$ 6,400$ 7,200$ 8,000
Indirect labor3,2203,6804,1404,600
Utilities 7,280 8,320 9,360 10,400
Total variable16,10018,40020,70023,000
Fixed costs
Supervisory salaries1,0001,0001,0001,000
Rent 3,000 3,000 3,000 3,000
Total fixed 4,000 4,000 4,000 4,000
Total costs$20,100$22,400$24,700$27,000
The company applies the overhead on the basis of direct labor hours at $7.00 per direct
labor hour and the standard hours per timepiece is 1/2 hour each. The company’s actual
production was 5,600 timepieces with 2,800 actual hours of direct labor. Actual
overhead was $20,200.
Instructions
(a)Compute the controllable and volume overhead variances.
(b)Prepare the entries for manufacturing overhead during the period and the entry to
recognize the overhead variances at the end of the period.
21) A company decided to replace an old machine with a new machine. Which of the
following is considered a relevant cost?
a.The book value of the old equipment
b.Depreciation expense on the old equipment
c.The loss on the disposal of the old equipment
d.The current disposal price of the old equipment
22) Under GAAP, companies generally classify income statement items by
a.function
b.nature
c.nature or function
d.date incurred
23) If one company owns more than 50% of the common stock of another company,
a.the cost method should be used to account for the investment
b.a partnership exists
c.a parent-subsidiary relationship exists
d.the company whose stock is owned must be liquidated
24) The statement of cash flows reports each of the following except
a.cash receipts from operating activities
b.cash payments from investing activities
c.the net change in cash
d.cash sales
25) The final closing entry to be journalized is typically the entry that closes the
a.revenue accounts
b.owner’s drawings account
c.owner’s capital account
d.expense accounts
26) In the balance sheet, ending inventory is reported
a.in current assets immediately following accounts receivable
b.in current assets immediately following prepaid expenses
c.in current assets immediately following cash
d.under property, plant, and equipment
27) Presented below is information related to the operations of Voyage Corporation.
December
2014 2013 2014
Cash$110,000$ 80,000Sales$760,000
Accounts receivable115,00096,000Cost of goods sold 460,000
Inventory60,00044,000Gross profit300,000
Prepaid expenses30,00040,000Depreciation expense30,000
Land81,00040,000Other operating expenses 200,000
Building200,000200,000Income from operations70,000
Accumulated depreciationLoss on equipment sale 5,000
building(36,000)(16,000)Income before income taxes65,000
Equipment116,000160,000Income tax expense 18,500
Accumulated depreciationNet income$ 46,500
equipment (30,000) (40,000)
Total$646,000$604,000
Accounts payable$ 80,000$ 58,000
Bonds payable0200,000
Common stock400,000200,000
Retained earnings 166,000 146,000
Total$646,000$604,000
Additional information:
(a)In 2014, Voyage declared and paid a cash dividend.
(b)The company converted $200,000 of bonds into common stock.
(c)Equipment with a cost of $44,000 and a book value of $24,000 was sold for $19,000.
Land was acquired for cash.
Instructions:
Prepare a statement of cash flows in proper form for 2014, using the indirect method.
28) Which of the following would not be an adjustment to net income using the indirect
method?
a.Depreciation Expense
b.An increase in Prepaid Insurance
c.Amortization Expense
d.An increase in Land
29) The break-even point cannot be determined by
a.computing it from a mathematical equation
b.computing it using contribution margin
c.reading the prior year’s financial statements
d.deriving it from a CVP graph
30) The following data are available for Sampson Corporation.
Net income$200,000
Depreciation expense60,000
Dividends paid90,000
Loss on sale of land15,000
Decrease in accounts receivable30,000
Decrease in accounts payable45,000
Net cash provided by operating activities is:
a.$140,000
b.$260,000
c.$160,000
d.$240,000
31) A company regularly sells its receivables to a factor who assesses a 2% service
charge on the amount of receivables purchased. Which of the following statements is
true for the seller of the receivables?
a.The loss section of the income statement will increase each time receivables are sold
b.The credit to Accounts Receivable is less than the debit to Cash when the accounts are
sold
c.Selling expenses will increase each time accounts are sold
d.The other expense section of the income statement will increase each time accounts
are sold
32) Lynn Company owns equipment that cost $120,000 when purchased on January 1,
2011 . It has been depreciated using the straight-line method based on estimated salvage
value of $15,000 and an estimated useful life of 5 years.
Instructions
Prepare Lynn Company’s journal entries to record the sale of the equipment in these
four independent situations.
(a)Sold for $58,000 on January 1, 2014 .
(b)Sold for $58,000 on May 1, 2014 .
(c)Sold for $32,000 on January 1, 2014 .
(d)Sold for $32,000 on October 1, 2014 .
33) During 2014, Terra Manufacturing expected Job No. 59 to cost $700,000 of
overhead, $1,000,000 of materials, and $500,000 in labor. Terra applied overhead based
on direct labor cost. Actual production required an overhead cost of $580,000,
$1,200,000 in materials used, and $450,000 in labor. All of the goods were completed.
How much is the amount of over- or underapplied overhead?
a.$50,000 underapplied
b.$50,000 overapplied
c.$120,000 underapplied
d.$120,000 overapplied
34) The closing entry process consists of closing
a.all asset and liability accounts
b.out the owner’s capital account
c.all permanent accounts
d.all temporary accounts
35) Cost of goods manufactured is calculated as follows:
a.Beginning WIP + direct materials used + direct labor + manufacturing overhead +
ending WIP
b.Direct materials used + direct labor + manufacturing overhead beginning WIP +
ending WIP
c.Beginning WIP + direct materials used + direct labor + manufacturing overhead
ending WIP
d.Direct materials used + direct labor + manufacturing overhead ending WIP beginning
WIP
36) Quagle Company had the following transactions pertaining to debt securities held
as a short-term investment.
Jan.1Purchased 40, 8%, $1,000 Steve Company bonds for $40,000 cash. Interest is
payable semiannually on July 1 and January 1 .
July1Received semiannual interest on Steve Company bonds.
Oct.1Sold 24 Steve Company bonds for $26,000 plus accrued interest.
Instructions
(a)Journalize the transactions.
(b)Prepare the adjusting entry for the accrual of interest on December 31 .
37) The entry to record the receipt of payment within the discount period on a sale of
$2,000 with terms of 2/10, n/30 will include a credit to
a.Sales Discounts for $40
b.Cash for $1,960
c.Accounts Receivable for $2,000
d.Sales Revenue for $2,000
38) Job cost sheets constitute the subsidiary ledger for the
a.Finished Goods Inventory account
b.Cost of Goods Sold account
c.Work In Process Inventory account
d.Cost of Goods Manufactured account
39) Benet Company has budgeted the following unit sales:
20132013
Quarter UnitsQuarter Units
1105,000190,000
260,000
375,000
4120,000
The finished goods inventory on hand on December 31, 2012 was 21,000 units. It is the
company’s policy to maintain a finished goods inventory at the end of each quarter
equal to 20% of the next quarter’s anticipated sales.
Instructions
Prepare a production budget for 2013 .
40) Below is a partial listing of accounts in the general ledger of Warton Batteries Co.
Instructions: Place an X in the appropriate column to designate whether the account
should be closed at year end and, if so, whether the appropriate closing entry would
require a debit or credit to the account.
NotClosed
AccountClosedDebitCredit
1>Interest Expense
2>Freight-out
3>Owners Capital
4>Inventory
5>Sales Returns and Allowances
6>Owners Drawing
7>Cost of Goods Sold
8>Sales Discounts
9>Sales Revenue
10>Accumulated Depreciation
41) An examination of the accounts of Savage Company for the month of June revealed
the following errors after the transactions were journalized and posted.
1>A check for $800 from R. Wright, a customer on account, was debited to Cash $800
and credited to Service Revenue, $800.
2>A payment for Advertising Expense costing $630 was debited to Utilities Expense,
$360 and credited to Cash $360.
3>A bill for $850 for Supplies purchased on account was debited to Equipment, $580
and credited to Accounts Payable $580.
Instructions
Prepare correcting entries for each of the above assuming the erroneous entries are not
reversed. Explain how the transaction as originally recorded affected net income for the
month of June.
42) A bookkeeping student has come to you for tutoring on the recording process. She
is confused about the relationship between the chart of accounts and the ledger. Explain
the purpose of the chart of accounts and the general ledger. In your explanation indicate
the relationship between these two items as well.
43) When a new partner’s capital interest on the date of admittance is less than his or
her investment in the firm, a ______________ results for the ______________
partner(s).