1) Average rate of return equals estimated average annual income divided by average
investment.
2) Nonmanufacturing costs are classified into two categories: selling and
administrative.
3) A check for $342 was erroneously charged by the bank as $4 In order for the bank
reconciliation to balance, you must add $90 to the bank statement balance.
4) A company is considering purchasing a machine for $21,000. The machine will
generate income from operations of $2,000; annual cash flows from the machine will be
$3,500. The payback period for the new machine is 6 years.
5) The method of analyzing capital investment proposals in which the estimated
average annual income is divided by the average investment is the average rate of
return method.
6) The revenue recognition concept states that revenue should be recorded in the same
period as the cash is received.
7) The unadjusted, adjusted, and final trial balances are prepared during the accounting
cycle of a period.
8) If in evaluating a proposal by use of the net present value method there is an excess
of the present value of future cash inflows over the amount to be invested, the rate of
return on the proposal exceeds the rate used in the analysis.
9) Using measures to assess a business’s ability to pay its current liabilities is called
current position analysis.
10) A gain can be realized when a fixed asset is discarded.
11) The amount of a corporation’s retained earnings that has been
restricted/appropriated should be reported in the notes to the financial statements.
12) Information about costs developed through a job order cost system can not be used
to evaluate an organizations cost performance.
13) A 15% change in sales will result in a 15% change in net income.
14) Unusual items affecting the current periods income statement consist of changes in
accounting principles and discontinued operations.
15) If merchandise inventory is being valued at cost and the price level is steadily
rising, the method of costing that will yield the highest net income is
A.periodic
B.LIFO
C.FIFO
D.average
16) Allowance for Doubtful Accounts is classified as a(n) ______ and has a normal
______ balance.
A.owners equity, credit
B.contra-asset, debit
C.owners equity, debit
D.contra-asset, credit
17) The formula to compute direct labor rate variance is to calculate the difference
between
A.actual costs + (actual hours * standard rate)
B.actual costs – standard cost
C.(actual hours * standard rate) – standard costs
D.actual costs – (actual hours * standard rate)
18) Which of the following accounts has a normal debit balance?
A.Accounts Payable
B.Sales Returns and Allowances
C.Sales
D.Interest Revenue
19) When a work sheet is complete, the adjustment columns should have
A.total credits greater than total debits if a net income was earned
B.total debits greater than total credits if a net loss was incurred
C.total debits greater than total credits if a net income was earned
D.total debits equal total credits
20) Some of the more common subsidiary ledgers are:
A.Accounts Payable, Accounts Receivable, and Owners Equity subsidiary ledgers
B.Accounts Receivable and Accounts Payable subsidiary ledgers
C.Accounts Receivable, Accounts Payable, Cash, Checking, Petty Cash, and Owners
Equity subsidiary ledgers
D.Cash and Owners Equity subsidiary ledgers
21) If the direct write-off method of accounting for uncollectible receivables is used,
what general ledger account is credited to write off a customer’s account as
uncollectible?
A.Uncollectible Accounts Expense
B.Accounts Receivable
C.Allowance for Doubtful Accounts
D.Interest Expense
22) The capital accounts of Harrison and Marti have balances of $160,000 and
$110,000, respectively, on January 1, 2014, the beginning of the current fiscal year. On
April 10, Harrison invested an additional $20,000. During the year, Harrison and Marti
withdrew $96,000 and $78,000, respectively, and net income for the year was $264,000.
The articles of partnership make no reference to the division of net income.
Based on this information, the statement of partners equity for 2014 would show what
amount in the capital account for Marti on December 31, 2014?
A.$216,000
B.$164,000
C.$380,000
D.$52,000
23) Cranston Company estimates the following overhead costs for the coming year:
Equipment depreciation $160,000
Equipment maintenance 60,000
Supervisory salaries 40,000
Factory rent 100,000
Total $360,000
Cranston is also budgeting $600,000 in direct labor costs and 15,000 machine hours for
the coming year.
Required:
a. Calculate the predetermined overhead rate using direct labor costs as the
allocation base.
b. Calculate the predetermined overhead rate using machine hours as the allocation
base.
24) Which of the following concepts of cash is not appropriate to use in preparing the
statement of cash flows?
A.cash
B.cash and money market funds
C.cash and cash equivalents
D.cash and U.S. treasury bonds
25) Equipment with an original cost of $75,000 and accumulated depreciation of
$20,000 was sold at a loss of $7,000. As a result of this transaction, cash would
A.increase by $48,000
B.decrease by $7,000
C.increase by $55,000
D.decrease by $27,000
26) Derek and Hailey, partners sharing net income in the ratio of 2:1, admit Ben to the
partnership in accordance with the following agreement:
Required:
27) What type of company would normally offer trade discounts to its customers?
A.Service companies
B.Retailers
C.Wholesalers
D.On-line retailers
28) A building with an appraisal value of $154,000 is made available at an offer price of
$172,000. The purchaser acquires the property for $40,000 in cash, a 90-day note
payable for $45,000, and a mortgage amounting to $75,000. The cost basis recorded in
the buyer’s accounting records to recognize this purchase is
A.$154,000
B.$172,000
C.$160,000
D.$120,000
29) Which of the following is not an advantage of issuing bonds instead of common
stock?
A.Tax savings result
B.Income to common shareholders may increase
C.Earnings per share on common stock may be lower
D.Stockholder control is not affected
30) Contribution margin is:
A.the excess of sales revenue over variable cost
B.another term for volume in the “cost-volume-profit” analysis
C.profit
D.the same as sales revenue
31) Which of the following is NOT an example of a cost that varies in total as the
number of units produced changes?
A.Electricity per KWH to operate factory equipment
B.Direct materials cost
C.Insurance premiums on factory building
D.Wages of assembly worker
32) One potential advantage of financing corporations through the use of bonds rather
than common stock is
A.the interest on bonds must be paid when due
B.the corporation must pay the bonds at maturity
C.the interest expense is deductible for tax purposes by the corporation
D.a higher earnings per share is guaranteed for existing common shareholders
33) The following lots of a particular commodity were available for sale during the
year:
The firm uses the periodic system and there are 20 units of the commodity on hand at
the end of the year.
What is the amount of cost of good sold for the year according to the average cost
method?
A.$1,380
B.$1,375
C.$1,510
D.$1,250
34) A factor in determining the rate of return on investment–the ratio of sales to
invested assets–is called:
A.profit margin
B.indirect margin
C.investment turnover
D.cost ratio
35) The number of times interest expense is earned is computed as
A.net income plus interest expense, divided by interest expense
B.income before income tax plus interest expense, divided by interest expense
C.net income divided by interest expense
D.income before income tax divided by interest expense
36) Accounts
A.do not reflect money amounts
B.are not used by entities that manufacture products
C.are records of increases and decreases in individual financial statement items
D.are only used by large entities with many transactions
37) The independent auditor’s report does which of the following?
A.describes which financial statements are covered by the audit
B.gives the auditor’s opinion regarding the fairness of the financial statements
C.summarizes what the auditor did
D.states that the financial statements were presented on time
38) Baxter Company reported a net loss of $13,000 for the year ended December 31,
2010. During the year, accounts receivable decreased by $5,000, merchandise inventory
increased by $8,000, accounts payable increased by $10,000, and depreciation expense
of $4,000 was recorded. During 2010, operating activities
A.provided net cash of $8,000
B.provided net cash of $2,000
C.used net cash of $8,000
D.used net cash of $2,000
39) What term is used to describe the process of developing the organizations objectives
and translating those into courses of action?
A.Supervising
B.Planning
C.Improving
D.Decision making
40) Pheasant Co. can further process Product B to produce Product C. Product B is
currently selling for $30 per pound and costs $28 per pound to produce. Product C
would sell for $60 per pound and would require an additional cost of $24 per pound to
produce. What is the differential cost of producing Product C?
A.$30 per pound
B.$24 per pound
C.$28 per pound
D.$60 per pound
41) Which of the following is not true of accounting principles?
A.Financial accountants follow generally accepted accounting principles (GAAP)
B.Following GAAP allows accounting information users to compare one company to
another
C.A new accounting principle can be adopted with stockholders approval
D.The Financial Accounting Standards Board (FASB) has primary responsibility for
developing accounting principles
42) Details of a purchase invoice and related credit memo are summarized as follows:
Assume that the credit memo was received prior to payment and that the invoice is paid
within the discount period. Determine the following:
(a) Amount of the cash discount allowed.
(b) Amount to be paid by the purchaser if the discount is taken.
(c) Cost of the merchandise to the purchaser if the discount is NOT taken.
43) Grayson Bank agrees to lend the Trust Company $120,000 on January 1. Trust
Company signs a $120,000, 8%, 9-month note. The entry made by Trust Company on
January 1 to record the proceeds and issuance of the note is:
A.Interest Expense 9,600
Cash 110,400
Notes Payable 120,000
B.Cash 120,000
Notes Payable 120,000
C.Cash 129,600
Interest Expense 9,600
Notes Payable 120,000
D.Notes Payable 120,000
Interest Payable 7,200Cash 120,000Interest Expense 7,200
44) A practical approach which is frequently used by managers when setting normal
long-run prices is the:
A.cost-plus approach
B.economic theory approach
C.price graph approach
D.price skimming
45) If the expected sales volume for the current period is 8,000 units, the desired ending
inventory is 1,400 units, and the beginning inventory is 1,200 units, the number of units
set forth in the production budget, representing total production for the current period,
is:
A.10,600
B. 8,200
C. 66,000
D. 6,800
46) At January 31, the end of the first month of the year, the usual adjusting entry
transferring expired insurance to an expense account is omitted. Which items will be
incorrectly stated, because of the error, on (a) the income statement for January and (b)
the balance sheet as of January 31? Also indicate whether the items in error will be
overstated or understated.
47) Cumberland Co. sells $2,000 of inventory to Hancock Co. for cash. Cumberland
paid $1,250 for the merchandise. Under a perpetual inventory system, which of the
following journal entry(ies) would be recorded?
A.Cash $2,000 Dr, Merchandise Inventory $1,250 Cr
B.Cash $2,000 Dr, Sales $2,000 Cr, and Cost of Merchandise Sold $1,250 Dr,
Merchandise Inventory $1,250 Cr.
C.Cash $1,250 Dr, Sales $1,250 Cr
D.Accounts Receivable $2,000 Dr, Sales $2,000 Cr, and Cost of Merchandise Sold
$1,250 Dr, Merchandise Inventory $1,250 Cr.
48) Which of the following measures a companys ability to pay its current liabilities?
A.earnings per share
B.inventory turnover
C.current ratio
D.number of times interest charges earned
49) Given the following cost data, what type of cost is shown?
A.mixed cost
B.variable cost
C.fixed cost
D.none of the above
50) List the accounts used in the cost flow for (a) a manufacturer and (b) a service
provider.
51) Which of the statements below indicates that a company earned a net income for the
period?
A.The sum of the credits exceeds the sum of the debits in the Balance Sheet columns on
the work sheet
B.The sum of the credits exceeds the sum of the debits in the Income Statement
columns on the work sheet
C.The sum of the debits exceeds the sum of the credits in the Income Statement
columns on the work sheet
D.Cash inflows exceeded cash outflows
52) Samuels, Inc. reported net income for 2011 is $105,000. During 2011 the company
had 5,000 shares of $100 par, 5% preferred stock and 20,000 of $5 par common stock
outstanding. Samuels earnings per share for 2011 is
A.$4.00
B.$5.25
C.$6.50
D.$5.00
53) The following data were taken from Bowman Inc.
Determine the inventory turnover ratio and the number of days sales in inventory for
Bowman Inc. Round to two decimal places.
54) The Stamping Department accepted Job 051507A on May 15th to make 1,000
funnels.
To complete the job they requisitioned 1,100 sheets at $1.20 per sheet and 1,150
grommets at $0.15 per set.
The cost driver that the Stamping Department uses is drop-forge strokes which are
counted on a machine mounted counter. $2.25 is applied as overhead for each
drop-forge stroke. Additionally $375.00 of overhead is applied to each job due to setup
and teardown.
Direct labor is applied at $22.50 per hour for the machine operator and $11.10 for the
machine loader. The job required 6 1/2 hours of labor by the team.
When the job was complete Job 051507A was transferred to Semi-finished Goods
Inventory (SFGI). When the job was transferred, 20 sheets were returned unused to raw
material inventory, 75 grommet sets were returned, and there were 1,115 strokes on the
counter.
Journalize all events depicted as of May 15th.
55) The cost of energy consumed in producing good units in the Bottling Department of
Mountain Springs Water Company was $36,850 and $39,060 for June and July,
respectively. The number of equivalent units produced in June and July was 55,000 and
62,000 liters respectively. Evaluate the change in the cost of energy between the two
months.
56) On March 4th, Micro Sales makes $4,850.00 in sales on bank credit cards which
charge a 2.5% service charge and deposit the funds into Micro Sales bank accounts at
the end of the business day. Journalize the sales and recognition of expense.
57) The following data is given for the Taylor Company:
Overhead is applied on standard labor hours.
Compute the direct material price and quantity variances for Taylor Company.
58) The Turtle Company has total estimated factory overhead for the year of
$1,200,000, divided into four activities: Fabrication, $600,000; Assembly, $240,000;
Setup, $200,000; and Materials Handling $160,000. Turtle manufactures two products:
Boogie Boards and Surf Boards. The activity-base usage quantities for each product by
each activity are as follows:
59) The Core Company had the following assets and liabilities as of December 31,
2012:
Calculate: Current Ratio, Working Capital and Quick Ratio
60) Describe and discuss e-commerce.
61) Farm Store, Inc. reported the following data in its December 31, 2011 annual report.
Required:
(1) What is the companys cash burn per month?
(2) What is the companys ratio of cash to monthly cash expenses?
(3) Interpret the ratio you computed in part 2. What are the implications for Farm Store,
Inc.