1) Research and development costs can be classified as a property, plant, and equipment
item or as an intangible asset.
2) A statement of cash flows indicates the sources and uses of cash during a period.
3) A corporation incurs income tax expense only if it pays dividends to stockholders.
4) An interest allowance in sharing partnership net income (or net loss) is related to the
amount of partners’ invested capital during the period.
5) Using the indirect method, an increase in accounts receivable during a period is
deducted from net income in calculating cash provided by operations.
6) An accounting system has flexibility if it is able to be used by many different
companies at the same time.
7) The acquisition of a building by issuing bonds would be considered an investing and
financing activity that did not affect cash.
8) Gross profit represents the merchandising profit of a company.
9) If $150,000 face value bonds are issued at 103, the proceeds received will be
$103,000.
10) The amounts appearing on an income statement should agree with the amounts
appearing on the post-closing trial balance.
11) A variance is the difference between actual costs and standard costs.
12) The rate of return on total assets will be greater than the rate of return on common
stockholders’ equity if the company has been successful in trading on the equity at a
gain.
13) An unfavorable labor quantity variance indicates that the actual number of direct
labor hours worked was greater than the number of direct labor hours that should have
been worked for the output attained.
14) An incorrect debit to Accounts Receivable instead of the correct account Notes
Receivable does not require a correcting entry because total assets will not be misstated.
15) A responsibility center that incurs costs (and expenses) and generates revenues is
classified as a(n):
a.cost center
b.profit center
c.revenue center
d.investment center
16) Rubio Corporation began business by issuing 300,000 shares of $5 par value
common stock for $25 per share. During its first year, the corporation sustained a net
loss of $50,000. The year-end balance sheet would show
a.Common stock of $1,500,000
b.Common stock of $7,500,000
c.Total paid-in capital of $7,450,000
d.Total paid-in capital of $1,550,000
17) During 2014 Miami Inc. had sales revenue $1,328,000, gross profit $728,000,
operating expenses $398,000, cash dividends $90,000, other expenses and losses
$40,000. Its corporate tax rate is 30%. What was Miami’s income tax expense for the
year?
a.$60,000
b.$180,000
c.$398,400
d.$87,000
18) Indicate the worksheet column (income statement Dr., balance sheet Cr., etc.) to
which each of the following accounts would be extended.
AccountWorksheet Column
a.Accounts Receivable________________
b.Accumulated DepreciationEquip.________________
c.Service Revenue________________
d.Interest Expense________________
e.Owners Drawings________________
f.Unearned Service Revenue________________
19) Bonds that mature in installments are called:
a.callable bonds
b.serial bonds
c.registered bonds
d.term bonds
20) When a partner invests noncash assets in a partnership, the assets should be
recorded at their
a.book value
b.carrying value
c.fair value
d.original cost
21) Parnell Company prepared its income statement for internal use. How would
amounts for cost of goods sold and variances appear?
a.Cost of goods sold would be at actual costs, and variances would be reported
separately
b.Cost of goods sold would be combined with the variances, and the net amount
reported at standard cost
c.Cost of goods sold would be at standard costs, and variances would be reported
separately
d.Cost of goods sold would be combined with the variances, and the net amount
reported at actual cost
22) The book value of an asset will equal its fair market value at the date of sale if
a.a gain on disposal is recorded
b.no gain or loss on disposal is recorded
c.the plant asset is fully depreciated
d.a loss on disposal is recorded
23) Correcting entries are made
a.at the beginning of an accounting period
b.at the end of an accounting period
c.whenever an error is discovered
d.after closing entries
24) A daily cash count of register receipts made by a cashier department supervisor
demonstrates an application of which of the following internal control principles?
a.Independent internal verification
b.Documentation procedures
c.Establishment of responsibility
d.Segregation of duties
25) Indicate the respective effects of the declaration of a cash dividend on the following
balance sheet sections:
Total AssetsTotal LiabilitiesTotal Stockholders’ Equity
a.IncreaseDecreaseNo change
b.No changeIncreaseDecrease
c.DecreaseIncreaseDecrease
d.DecreaseNo changeIncrease
26) Fugazi City College sold season tickets for the 2014 football season for $240,000. A
total of 8 games will be played during September, October and November. Assuming all
the games are played, the Unearned Ticket Revenue balance that will be reported on the
December 31 balance sheet will be
a.$0
b.$90,000
c.$150,000
d.$240,000
27) The present value of $10,000 to be received in 5 years will be smaller if the
discount rate is
a.increased
b.decreased
c.not changed
d.equal to the stated interest rate
28) A standard which represents an efficient level of performance that is attainable
under expected operating conditions is called a(n)
a.ideal standard
b.loose standard
c.tight standard
d.normal standard
29) The final step in the recording process is to
a.analyze each transaction
b.enter the transaction in a journal
c.prepare a trial balance
d.transfer journal information to ledger accounts
30) Posting a sales journal to the accounts in the general ledger requires a
a.debit to Cash and a credit to Sales Revenue
b.debit to Sales Revenue and a credit to Inventory
c.debit to Accounts Receivable and a credit to Inventory
d.debit to Accounts Receivable and a credit to Sales Revenue
31) Sintex Company’s high and low level of activity last year was 60,000 units of
product produced in May and 20,000 units produced in November. Machine
maintenance costs were $104,000 in May and $50,000 in November. Using the
high-low method, determine an estimate of total maintenance cost for a month in which
production is expected to be 45,000 units.
a.$78,000
b.$112,000
c.$83,750
d.$60,750
32) Match the items below by entering the appropriate code letter in the space provided.
A.Serial bondsG.Straight-line method of amortization
B.Debenture bondsH.Bonds
C.Bond indentureI.Debt to total assets ratio
D.Premium on bonds payableJ.Capital lease
E.Discount on bonds payableK.Operating lease
F.Effective-interest method of amortizationL.Registered bonds
_____1>A contractual arrangement which is in effect a purchase of property.
_____2>A legal document that sets forth the terms of a bond issue.
_____3>Bonds that mature in installments.
_____4>Produces a periodic interest expense equal to a constant percentage of the
carrying value of the bonds.
_____5>Bonds issued in the name of the owner.
_____6>A form of interest-bearing notes payable used by corporations.
_____7>Occurs when the contractual interest rate is greater than the market interest
rate.
_____8>Unsecured bonds issued against the general credit of the borrower.
_____9>A contractual arrangement that gives the lessee temporary use of property.
_____10>A solvency measure that indicates the percentage of assets provided by
creditors.
_____11>Occurs when the contractual interest rate is less than the market interest rate.
_____12> Produces a periodic interest expense that is the same amount each interest
period.
33) A sales journal is used to record
a.only cash sales of merchandise
b.only credit sales of merchandise
c.sales of all assets on credit and for cash
d.credit sales of merchandise, sales returns and allowances, and sales discounts
34) A company has total fixed costs of $150,000 and a contribution margin ratio of
20%. The total sales necessary to break even are
a.$562,500
b.$750,000
c.$187,500
d.$150,000
35) Expenses incurred but not yet paid or recorded are called
a.prepaid expenses
b.accrued expenses
c.interim expenses
d.unearned expenses
36) Prior period adjustments are reported
a.in the footnotes of the current year’s financial statements
b.on the current year’s balance sheet
c.on the current year’s income statement
d.on the current year’s retained earnings statement
37) Fat Possums Service Shop started the year with total assets of $330,000 and total
liabilities of $240,000. During the year, the business recorded $630,000 in revenues,
$420,000 in expenses, and owner drawings of $60,000.
The net income reported by Fat Possums Service Shop for the year was
a.$150,000
b.$210,000
c.$240,000
d.$270,000
38) When an interest-bearing note matures, the balance in the Notes Payable account is
a.less than the total amount repaid by the borrower
b.the difference between the maturity value of the note and the face value of the note
c.equal to the total amount repaid by the borrower
d.greater than the total amount repaid by the borrower
39) Each of the following decreases total stockholders’ equity except a
a.cash dividend
b.liquidating dividend
c.stock dividend
d.All of these decrease total stockholders’ equity
40) The Petty Cash account should be debited:
a.whenever an expense is paid from the fund
b.whenever the fund is replenished
c.when the fund is established
d.when the fund is liquidated
41) Wilson Company reported net income of $105,000 for the year ended December 31,
2014 . During the year, inventories decreased by $15,000, accounts payable decreased
by $20,000, depreciation expense was $18,000 and a gain on disposal of equipment of
$9,000 was recorded. Net cash provided by operating activities in 2014 using the
indirect method was
a.$101,000
b.$109,000
c.$120,000
d.$118,000
42) Tracey Inc. applies overhead to production at a predetermined rate of 90% based on
direct labor cost. Job No. 130, the only job still in process at the end of August, has
been charged with manufacturing overhead of $5,400. What was the amount of direct
materials charged to Job 130 assuming the balance in Work in Process inventory is
$21,000?
a.$10,740
b.$9,600
c.$6,000
d.$4,860
43) The budget committee in a company is often headed by the
a.president
b.controller
c.treasurer
d.budget director
44) Castle and Berry are discussing how income and losses should be divided in a
partnership they plan to form. What factors should be considered in determining the
division of net income or net loss?
45) The following accounts are included in the ledger of Wainwright Company:
Advertising expense
Freight-in
Inventory
Purchases
Purchase returns and allowances
Sales revenue
Sales returns and allowances
Which of the accounts would be included in calculating cost of goods sold?
46) Excel Company makes 2 products, footballs and baseballs. Additional information
follows:
FootballsBaseballs
Units4,0002,500
Sales revenue$60,000 $25,000
Variable costs36,0008,000
Fixed costs 9,000 9,000
Net income$15,000$ 8,000
Profit per unit$3.75 $3.20
Instructions
Excel has unlimited demand for both products. Therefore, which product should Excel
tell his sales people to emphasize?
47) For each of the ratios listed below, indicate by the appropriate code letter, whether it
is a liquidity ratio (L), a profitability ratio (P), or a solvency ratio (S).
____1>Times interest earned ratio
____2>Asset turnover
____3>Accounts receivable turnover
____4>Debt to assets ratio
____5>Current ratio
____6>Payout ratio
48) On October 10, the board of directors of Pinto Corporation declared a 10% stock
dividend. On October 10, the company had 10,000 shares of $1 par common stock
issued and outstanding with a market price of $16 per share. The stock dividend will be
distributed on October 31 to shareholders of record on October 25 . Journalize the
entries needed for the declaration and distribution of the stock dividend.
49) Your friend Jenny has opened an office supply store. She will extend open credit to
local businesses and is concerned about potential bad debts. What can Jenny do to
reduce potential bad debts?
50) _______________ securities are bought and held primarily for sale in the near
future.