1) A static budget is one that is geared to one level of activity.
2) The reconciling entry for depreciation expense in a worksheet is a credit to
Accumulated Depreciation and a debit to Operating-Depreciation Expense.
3) Dividends in arrears on cumulative preferred stock are considered a liability.
4) Income tax expense and the related liability for income taxes payable are recorded
when taxes are paid.
5) Stock can be issued only in exchange for cash.
6) Only large companies need to be concerned with a system of internal control.
7) If an incremental make or buy analysis indicates that it is cheaper to buy rather than
make an item, management should always make the decision to choose the lowest cost
alternative.
8) Freight-in is an account that is subtracted from the Purchases account to arrive at cost
of goods purchased.
9) The liquidation of a partnership means that a new partner has been admitted to the
partnership.
10) Salary allowances to partners are a major expense on most partnership income
statements.
11) The master budget is not used in the budgetary control process.
12) A standard is a unit amount, whereas a budget is a total amount.
13) Management is responsible for establishing a system of internal control.
14) The going concern assumption is that the business will continue in operation long
enough to carry out its existing objectives and commitments.
15) The materials price standard is based on the purchasing department’s best estimate
of the cost of raw materials.
16) If $800,000, 6% bonds are issued on January 1, and pay interest semiannually, the
amount of interest paid on July 1 will be $24,000.
17) Under a perpetual inventory system, inventory shrinkage and lost or stolen goods
are more readily determined.
18) Inventories are estimated
a.more frequently under a periodic inventory system than a perpetual inventory system
b.using the wholesale inventory method
c.more frequently under a perpetual inventory system than the periodic inventory
system
d.using the net method
19) A hybrid form of business organization with certain features like a corporation is
a(n)
a.limited liability partnership
b.limited liability company
c.”S” corporation
d.sub-chapter “S” corporation
20) Thirty $1,000 bonds with a carrying value of $39,600 are converted into 4,000
shares of $5 par value common stock. The common stock had a market value of $9 per
share on the date of conversion. The entry to record the conversion is
a.Bonds Payable 39,600
Common Stock 20,000
Paid-in Capital in Excess of Par19,600
b.Bonds Payable 30,000
Premium on Bonds Payable 9,600
Common Stock 30,000
Paid-in Capital in Excess of Par 3,600
c.Bonds Payable 30,000
Premium on Bonds Payable 9,600
Common Stock 20,000
Paid-in Capital in Excess of Par19,600
d.Bonds Payable 39,600
Common Stock 36,000
Paid-in Capital in Excess of Par3,600
21) The following exhibit is for Target bonds.
BondsCloseYieldVolumeNet Change
Target 8 1/8 171008.235+7/8
On the day of trading referred to above,
a.no Target bonds were traded
b.bonds with market prices of $3,500 were traded
c.at closing, the selling price of the bond was higher than the previous day’s price
d.the bond sold for $100.25
22) Knope Company has signed a capital lease contract for equipment that requires
annual rental payments of $40,000 to be paid at the end of each of the next 6 years. The
appropriate discount rate is 12%. What amount will be used to capitalize the leased
equipment?
a.$240,000
b.$164,456
c.$221,029
d.$154,199
23) The primary source of revenue for a wholesaler is
a.investment income
b.service fees
c.the sale of merchandise
d.the sale of fixed assets the company owns
24) A bond discount must
a.always be amortized using straight-line amortization
b.always be amortized using the effective-interest method
c.be amortized using the effective-interest method if it yields annual amounts that are
materially different than the straight-line method
d.be amortized using the straight-line method if it yields annual amounts that are
materially different than the effective-interest method
25) Presented here is a partial amortization schedule for Graceland Company who sold
$100,000, five year 10% bonds on January 1, 2014 for $108,000 and uses annual
straight-line amortization.
Which of the following amounts should be shown in cell (i)?
a.$10,800
b.$11,600
c.$10,000
d.$2,000
26) Which of the following pairs of terms in the area of financial statement analysis are
synonymous?
a.Ratio Trend
b.Horizontal Ratio
c.Vertical Ratio
d.Horizontal Trend
27) Nate is investing in a partnership with Deidre. Nate contributes as part of his initial
investment, Accounts Receivable of $60,000; an Allowance for Doubtful Accounts of
$9,000; and $6,000 cash. The entry that the partnership makes to record Nates initial
contribution includes a
a.credit to Nate, Capital for $66,000
b.debit to Accounts Receivable for $51,000
c.credit to Nate, Capital for $57,000
d.debit to Allowance for Doubtful Accounts for $9,000
28) Which of the following methods of computing depreciation is production based?
a.Straight-line
b.Declining-balance
c.Units-of-activity
d.None of these answer choices are correct
29) Newman Company sells MP3 players for $60 each. Variable costs are $40 per unit,
and fixed costs total $90,000. What sales are needed by Newman to break even?
a.$120,000
b.$225,000
c.$270,000
d.$360,000
30) The interest charged on a $50,000 note payable, at the rate of 6%, on a 60-day note
would be
a.$3,000
b.$1,667
c.$750
d.$500
31) Under a voucher system, a prenumbered voucher is prepared for every
a.cash receipt, regardless of source
b.transaction entered into by the business
c.expenditure except those made from petty cash
d.journal entry
32) If total liabilities decreased by $30,000 and owners equity decreased by $20,000
during a period of time, then total assets must change by what amount and direction
during that same period?
a.$50,000 decrease
b.$10,000 decrease
c.$10,000 increase
d.$50,000 increase
33) Giraro Company’s standard labor cost of producing one unit of product is 2 hours at
the rate of $14.00 per hour. During February, 52,000 hours of labor are incurred at a
cost of $13.80 per hour to produce 24,500 units of product.
Instructions
(a)Compute the labor price and labor quantity variances.
(b)Journalize the incurrence of the labor costs and the assignment of direct labor to
production, assuming a standard cost system is used.
34) A company budgeted unit sales of 204,000 units for January, 2014 and 240,000
units for February, 2014 . The company has a policy of having an inventory of units on
hand at the end of each month equal to 30% of next month’s budgeted unit sales. If
there were 62,200 units of inventory on hand on December 31, 2013, how many units
should be produced in January, 2014 in order for the company to meet its goals?
a.204,000 units
b.213,800 units
c.193,200 units
d.276,000 units
35) Using the indirect method, patent amortization expense for the period
a.is deducted from net income
b.causes cash to increase
c.causes cash to decrease
d.is added to net income
36) Which of the following statements concerning leases is true?
a.Capital leases are favored by lessees
b.The appearance of the account, Leased Asset, on the balance sheet, signifies an
operating lease
c.The portion of a lease liability expected to be paid in the next year is reported as a
current liability
d.Present value is irrelevant in accounting for leases
37) Farmer Company reports the following amounts for 2014:
Net income$270,000
Average, stockholders’ equity1,000,000
Preferred dividends70,000
Par value preferred stock200,000
The 2014 rate of return on common stockholders’ equity is
a.25.0%
b.22.5%
c.27.0%
d.33.8%
38) The current ratio is
a.current assets plus current liabilities
b.current assets minus current liabilities
c.current assets divided by current liabilities
d.current assets multiplied by current liabilities
39) October Inc. is considering purchasing equipment costing $46,300 with a 6-year
useful life. The equipment will provide cost savings of $10,950 and will be depreciated
straight-line over its useful life with no salvage value. October Inc. requires a 10% rate
of return.
Present Value of an Annuity of 1
Period 8% 9% 10% 11% 12% 15%
64.6234.4864.3554.2314.1113.784
What is the approximate internal rate of return for this investment?
a.9%
b.10%
c.11%
d.12%
40) State the effect of the following transactions on the current ratio. Use increase,
decrease, or no effect for your answer.
(a)Collection of an accounts receivable.
(b)Declaration of cash dividends.
(c)Additional stock is sold for cash.
(d)Short-term investments are purchased for cash.
(e)Equipment is purchased for cash.
(f)Inventory purchases are made for cash.
(g)Accounts payable are paid.
41) For each of the following accounts indicate (a) the type of account (Asset, Liability,
Owner’s Equity, Revenue, Expense), (b) the debit and credit effects, and (c) the normal
account balance.
Example
0>Casha.Asset account
b.Debit increases, credit decreases
c.Normal balance – debit
Accounts
1>Accounts Payable5.Service Revenue
2>Accounts Receivable6.Insurance Expense
3>Owners Capital7.Notes Payable
4>Owners Drawings8.Equipment
42) Lyleen Boat Company’s bank statement for the month of September showed a
balance per bank of $7,000. The company’s Cash account in the general ledger had a
balance of $5,459 at September 30. Other information is as follows:
(1)Cash receipts for September 30 recorded on the company’s books were $5,700 but
this amount does not appear on the bank statement.
(2)The bank statement shows a debit memorandum for $40 for check printing charges.
(3)Check No. 119 payable to Mann Company was recorded in the cash payments
journal and cleared the bank for $248. A review of the accounts payable subsidiary
ledger shows a $36 credit balance in the account of Mann Company and that the
payment to them should have been for $284.
(4)The total amount of checks still outstanding at September 30 amounted to $5,000.
(5)Check No. 138 was correctly written and paid by the bank for $409. The cash
payment journal reflects an entry for Check No. 138 as a debit to Accounts Payable and
a credit to Cash in Bank for $490.
(6)The bank returned an NSF check from a customer for $360.
(7)The bank included a credit memorandum for $2,560 which represents collection of a
customer’s note by the bank for the company; principal amount of the note was $2,500
and interest was $60. Interest has not been accrued.
Instructions
(a)Prepare a bank reconciliation for Lyleen Boat Company at September 30 .
(b)Prepare any adjusting entries necessary as a result of the bank reconciliation.
43) FICA taxes do not provide workers with
a.life insurance
b.supplemental retirement
c.employment disability
d.medical benefits
44) Parvin Company produces flash drives for computers, which it sells for $20 each.
Each flash drive costs $8 of variable costs to make. During April, 700 drives were sold.
Fixed costs for April were $4 per unit for a total of $2,800 for the month. How much
does Parvins operating income increase for each $1,000 increase in revenue per month?
a.$600
b.$400
c.$14,000
d.Not enough information to determine the answer
45) The direct materials and direct labor budgets provide information for preparing the
a.sales budget
b.production budget
c.manufacturing overhead budget
d.cash budget
46) The preparation of closing entries:
a.results in transferring the balances in all nominal accounts to owner’s capital
b.results in zero balances in all accounts at the end of the period so that they are ready
for the following period’s transactions
c.is an optional step in the accounting cycle
d.is necessary before financial statements can be prepared
47) In analyzing differences from planned objectives, management may take
___________________, or it could decide to modify ___________________.
48) The major advantages of the corporate form of organization include (1) limited
_________________ of owners, (2) continuous ____________________ and (3) ease
of transferring ___________________.
49) If a corporation’s stock is traded on the major stock exchanges, the corporation must
generally report periodically to a federal agency known as the ____________________.
50) Yurbank Manufacturing makes a single product. Expected manufacturing costs are
as follows:
Variable costs
Direct materials$6.50 per unit
Direct labor2.40 per unit
Manufacturing overhead1.10 per unit
Fixed costs per month
Supervisory salaries$25,200
Depreciation8,000
Other fixed costs4,400
Instructions
Determine the amount of manufacturing costs for a flexible budget level of 6,400 units
per month.
51) MK Company has a simple capital structure. At December 31, 2012, it had
$500,000 of $100 par value 6% preferred stock outstanding, and $1,000,000 of $5 par
value common stock outstanding. Net income for the year was $480,000.
Instructions: Compute the earnings per share of common stock assuming the dividend
on preferred stock was not declared and the preferred stock is cumulative. The common
shares remained unchanged during the year.
52) The ________________ method of computing depreciation expense results in an
equal amount of periodic depreciation throughout the service life of the plant asset.
53) The stockholders’ equity section of a corporation’s balance sheet is generally
divided in two major sections: (1) _____________ and (2) _______________.
54) Waegelein Company identifies the following items for possible inclusion in the
physical inventory. Indicate whether each item should be included or excluded from the
inventory taking.
1>Goods shipped on consignment by Waegelein to another company.
2>Goods in transit from a supplier shipped FOB destination.
3>Goods shipped via common carrier to a customer with terms FOB shipping point.
4>Goods held on consignment from another company.
55) Accounting for inventories is important because inventories affect the
______________ section of the balance sheet and the ______________ section on the
income statement.
56) Reo Supplies total material costs are $50,000 and total conversion costs are
$40,000. Equivalent units of production for materials are 10,000, and 8,000 for
conversion costs.
Instructions
Compute the unit costs for materials, conversion costs, and total manufacturing costs
for the month.