1) A hurdle rate is the rate of return set by applying ideal standards.
2) When plant assets are exchanged, the cost of the new asset is the book value of the
old asset plus any cash paid.
3) A distinction should be made between controllable and noncontrollable costs when
reporting information under responsibility accounting.
4) The supply chain is all the activities associated with providing a product or service.
5) Separate work in process accounts are maintained for each production department or
manufacturing process in a process cost system.
6) When debt investments, are sold, the gain or loss is the difference between the net
proceeds from the sale and the fair value of the bonds.
7) A current liability must be paid out of current earnings.
8) Many companies have significantly lowered inventory levels and costs using
just-in-time inventory methods.
9) The relevant range of activity is the activity level where the firm will earn income.
10) In general, documents should be prenumbered and all documents should be
accounted for.
11) Using borrowed money to increase the rate of return on common stockholders’
equity is called “trading on the equity.”
12) Vertical and horizontal analyses are concerned with the format used to prepare
financial statements.
13) The basic accounting equation is in balance when the creditor and ownership claims
against the business equal the assets.
14) Checks received in the mail should be immediately stamped “NSF” to prevent
unauthorized cashing of the check.
15) Equivalent units of production is the sum of units completed and transferred out
plus equivalent units of beginning work in process.
16) Revenues are a subdivision of owner’s capital.
17) When the due date of a note is stated in months, the time factor in computing
interest is the number of months divided by 360 days.
18) Consolidated financial statements present a condensed version of the financial
statements so investors will not experience information overload.
19) Payroll activities involve three functions: hiring employees, preparing the payroll,
and paying the payroll.
20) If total liabilities increased by $30,000 and owners equity increased 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
21) A trial balance would only help in detecting which one of the following errors?
a.A transaction that is not journalized
b.A journal entry that is posted twice
c.Offsetting errors are made in recording the transaction
d.A transposition error when transferring the debit side of journal entry to the ledger
22) The financial statements of Danielle Manufacturing Company report net sales of
$750,000 and accounts receivable of $60,000 and $90,000 at the beginning and end of
the year, respectively. What is the average collection period for accounts receivable in
days?
a.29.2
b.36.5
c.43.8
d.73
23) Which of the following is not an important element of JIT (just in time) processing?
a.A company must have dependable suppliers who are willing to deliver on short notice
exact quantities of raw materials according to precise quality specifications
b.A company must have a multiskilled work force, so that one worker can have the
responsibility to operate and maintain several different types of machines
c.A process cost accounting system must be in place
d.A total quality control system must be established throughout the manufacturing
operations
24) Identify the item below where the terms are not related.
a.Equipmentdepreciation
b.Franchisedepreciation
c.Copyrightamortization
d.Oil welldepletion
25) A bonus to a new partner
a.is prohibited by GAAP
b.results when the new partner’s capital credit is less than his or her investment of assets
in the firm
c.may occur when recorded book values are lower than market values
d.results when the new partner’s capital credit is greater than his or her investment of
assets in the firm
26) Scott Company purchased merchandise with an invoice price of $3,000 and credit
terms of 1/10, n/30. Assuming a 360 day year, what is the implied annual interest rate
inherent in the credit terms?
a.20%
b.24%
c.18%
d.36%
27) Total physical units to be accounted for are equal to the units
a.started (or transferred) into production
b.started (or transferred) into production plus the units in beginning work in process
c.started (or transferred) into production less the units in beginning work in process
d.completed and transferred out
28) Pan Company received proceeds of $188,000 on 10-year, 6% bonds issued on
January 1, 2013 . The bonds had a face value of $200,000, pay interest semi-annually
on June 30 and December 31, and have a call price of 101 . Pan uses the straight-line
method of amortization.
What is the amount of interest expense Pan will show with relation to these bonds for
the year ended December 31, 2014?
a.$12,000
b.$11,200
c.$13,200
d.$10,800
29) Cost of goods sold is computed from the following equation:
a.beginning inventory cost of goods purchased + ending inventory
b.sales cost of goods purchased + beginning inventory ending inventory
c.sales + gross profit ending inventory + beginning inventory
d.beginning inventory + cost of goods purchased ending inventory
30) Hagen Company’s budgeted sales and direct materials purchases are as follows.
Budgeted SalesBudgeted D.M. Purchases
January$300,000$60,000
February330,00070,000
March350,00080,000
Hagen’s sales are 40% cash and 60% credit. Credit sales are collected 10% in the month
of sale, 50% in the month following sale, and 36% in the second month following sale;
4% are uncollectible. Hagen’s purchases are 50% cash and 50% on account. Purchases
on account are paid 40% in the month of purchase, and 60% in the month following
purchase.
Instructions
(a)Prepare a schedule of expected collections from customers for March.
(b)Prepare a schedule of expected payments for direct materials for March.
31) Gross profit does not appear
a.on a multiple-step income statement
b.on a single-step income statement
c.to be relevant in analyzing the operation of a merchandiser
d.on the income statement if the periodic inventory system is used because it cannot be
calculated
32) Demsey Company reported the following results from the sale of 6,000 units in
May: sales $300,000, variable costs $180,000, fixed costs $90,000, and net income
$40,000. Assume that Demsey increases the selling price by 10% on June 1 . How
many units will have to be sold in June to maintain the same level of net income?
a.3,600
b.2,400
c.5,200
d.6,500
33) During the year, Sallys Pet Shops inventory account balance decreased by $29,000.
If the companys cost of goods sold for the year was $245,000, purchases must have
been:
a.$187,000
b.$216,000
c.$274,000
d.Unable to determine
34) Winfred Company sells radios for $50 per unit. The fixed costs are $420,000 and
the variable costs are 60% of the selling price. As a result of new automated equipment,
it is anticipated that fixed costs will increase by $120,000 and variable costs will be
50% of the selling price. The new break-even point in units is:
a.26,000
b.20,800
c.21,600
d.17,333
35) Effie Company uses a periodic inventory system. Details for the inventory account
for the month of January, 2014 are as follows:
UnitsPer unit priceTotal
Balance, 1/1/14200$5.00$1,000
Purchase, 1/15/141005.30530
Purchase, 1/28/141005.50550
An end of the month (1/31/14) inventory showed that 160 units were on hand. If the
company uses FIFO, what is the value of the ending inventory?
a.$800
b.$832
c.$848
d.$868
36) A payroll tax which is levied against the employee and the employer equally based
on the employee’s wages is the:
a.federal unemployment tax
b.state income tax
c.FICA tax
d.federal income tax
37) Which of the following is not true of a corporation?
a.It may buy, own, and sell property
b.It may sue and be sued
c.The acts of its owners bind the corporation
d.It may enter into binding legal contracts in its own name
38) Three items are missing in each of the following columns and are identified by
letter.
Sales revenue$ (a)$840,000
Sales returns and allowances15,00022,000
Sales discounts10,00015,000
Net sales440,000(d)
Beginning inventory(b)300,000
Cost of goods purchased220,000(e)
Ending inventory170,000303,000
Cost of goods sold252,000575,000
Gross profit(c)(f)
Instructions
Calculate the missing amounts and identify them by letter.
39) Robertson Company is considering an investment, which will return a lump sum of
$700,000 four years from now. Below is some of the time value of money information
that Robertson has compiled that might help in planning compound interest decisions.
Present Value of 1 for 4 periods at 10%0.68301
Future Value of 1 for 4 periods at 10%1.46410
Present Value of an Annuity of 1 for 4 periods at 10%3.16986
Future Value of an Annuity of 1 for 4 periods at 10%4.64100
To the closest dollar, what amount should Robertson Company pay for this investment
to earn a 10% return?
a.$220,830
b.$150,830
c.$478,108
d.$513,218
40) Premium on Bonds Payable
a.has a debit balance
b.is a contra account
c.is considered to be a reduction in the cost of borrowing
d.is deducted from bonds payable on the balance sheet
41) If the average collection period is 60 days, what is the accounts receivable
turnover?
a.6.0 times
b.6.1 times
c.12.2 times
d.None of these
42) Eneri Company’s inventory records show the following data:
UnitsUnit Cost
Inventory, January 110,000$9.20
Purchases:June 189,0008.00
November 86,0007.00
A physical inventory on December 31 shows 4,000 units on hand. Eneri sells the units
for $13 each. The company has an effective tax rate of 20%. Eneri uses the periodic
inventory method. Under the LIFO method, cost of goods sold is
a.$28,000
b.$169,200
c.$173,040
d.$178,000
43) The use of special journals to record transactions
a.eliminates the need for a general ledger
b.can save time in the posting process
c.eliminates the need for a general journal
d.should only be used if the volume of transactions is small
44) The ledger accounts should be arranged in
a.chronological order
b.alphabetical order
c.financial statement order
d.order of appearance in the journal
45) A partnership
a.has only one owner
b.pays taxes on partnership income
c.must file an information tax return
d.is not an accounting entity for financial reporting purposes
46) A payroll record that accumulates the gross earnings, deductions, and net pay by
employee for each pay period is the
a.withholding tax table
b.employee earnings record
c.payroll register
d.Wage and Tax Statement
47) Fleming Company purchased a machine on January 1, 2014 . In addition to the
purchase price paid, the following additional costs were incurred: (a) sales tax paid on
the purchase price, (b) transportation and insurance costs while the machinery was in
transit from the seller, (c) personnel training costs for initial operation of the machinery,
(d) annual city operating license, (e) major overhaul to extend the life of the machinery,
(f) lubrication of the machinery gearing before the machinery was placed into service,
(g) lubrication of the machinery gearing after the machinery was placed into service,
and (h) installation costs necessary to secure the machinery to the building flooring.
Instructions
Indicate whether the items (a) through (h) are capital or revenue expenditures in the
spaces provided: C = Capital, R = Revenue.
(a)_____________(b)______________ (c)______________(d)______________
(e)_____________(f)______________(g)______________(h)______________
48) In accounting for stock investments between 20% and 50%, the _______ method is
used.
a.consolidated statements
b.controlling interest
c.cost
d.equity
49) For each item listed below, enter a code letter in the blank space to indicate the
allocation terminology for the item. Use the following codes for your answer:
AAmortizationPDepletion
DDepreciationNNone of these
1> Goodwill7>Timberlands
2>Land8>Franchises (indefinite life)
3>Buildings9>Licenses (limited life)
4>Patents10>Land Improvements
5>Copyrights11>Oil Deposits
6>Research and development costs12>Equipment
50) An account is an important accounting record where financial information is stored
until needed. Briefly explain (1) the nature of an account, (2) the different types of
accounts, and (3) the manner in which an account is increased and decreased and its
normal balance.
51) If Betty Lauer invests $22,062 now she will receive $60,000 at the end of 13 years.
What annual rate of return will Betty earn on her investment?
52) Identify the impact on the accounting equation of the following transactions.
1>Purchased 36-month insurance policy for cash.
2>Purchased supplies on account.
3>Received utility bill to be paid at later date.
4>Paid utility bill previously accrued.
53) Of these three accounts; Raw Materials Inventory, Factory Labor, and
Manufacturing Overhead, ______________ is not a control account.
54) Knowledge of cost behavior is important in ______________________ analysis.
55) Discontinued operations refers to the disposal of a ______________ of a business.
56) The stockholders’ equity section of Echota Corporation at December 31, 2013,
included the following:
5% preferred stock, $100 par value, cumulative,
10,000 shares authorized, 8,000 shares issued and outstanding$ 800,000
Common stock, $10 par value, 250,000 shares authorized,
200,000 shares issued and outstanding $2,000,000
Dividends were not declared on the preferred stock in 2013 and are in arrears.
On September 15, 2014, the board of directors of Echota Corporation declared
dividends on the preferred stock for 2013 and 2014, to stockholders of record on
October 1, 2014, payable on October 15, 2014 .
On November 1, 2014, the board of directors declared a $.75 per share dividend on the
common stock, payable November 30, 2014, to stockholders of record on November
15, 2014 .
Instructions
Prepare the journal entries that should be made by Echota Corporation on the dates
indicated below:
September 15, 2014November 1, 2014
October 1, 2014November 15, 2014
October 15, 2014November 30, 2014
57) Goods in transit should be included in the inventory of the
seller when the terms are FOB shipping point
buyer when the terms are FOB destination
c.buyer when the terms are FOB shipping point
d.transportation company when the terms are FOB destination
58) The potential benefit that may be obtained by following an alternative course of
action is called an _________________ cost.