1) If a partner is unable to cover a deficiency and the other partners absorb the
deficiency, then the partner with the deficiency is thus relieved of all liability.
2) Controllable costs are the same as direct costs.
3) Factory overhead includes selling and administrative expenses because they are
indirect costs of a product.
4) As long as a company accurately records total credit sales information, it is not
necessary to have separate accounts for specific customers.
5) Income Summary is a temporary account only used for the closing process.
6) Return on assets is also known as return on investment.
7) If insurance coverage for the next three years is paid for in advance, the amount of
the payment is debited to an asset account called Prepaid Insurance.
8) The break-even point is the sales level at which a company neither earns a profit nor
incurs a loss.
9) Adjusting entries are designed primarily to correct accounting errors.
10) A process cost summary includes the amounts of equivalent units of production for
the period.
11) Good ethics are good business.
12) Activity cost pools are an important part of the allocation of overhead costs using
activity-based costing.
13) A classified balance sheet organizes assets and liabilities into important subgroups
that provide more information to decision makers.
14) Flaxco purchases inventory from overseas and incurs the following costs: the cost
of the merchandise is $50,000, credit terms are 2/10, n/30 that apply only to the
$50,000; FOB shipping point freight charges are $1,500; insurance during transit is
$500; and import duties are $1,000. Flaxco paid within the discount period and incurred
additional costs of $1,200 for advertising and $5,000 for sales commissions. Compute
the cost that should be assigned to the inventory.
A.$50,000
B.$53,000
C.$52,000
D.$51,500
E.$53,200
15) The accountant for Robinson Company is preparing the company’s statement of
cash flows for the fiscal year just ended. The following information is available:
The amount of cash dividends paid during the year would be:
A.$70,000
B.$46,000
C.$22,000
D.$39,000
E.$24,000
16) A company’s income before interest expense and taxes is $250,000 and its interest
expense is $100,000. Its times interest earned ratio is:
A.0.40
B.2.50
C.1:2.5
D.2.5:1
E.0.50
17) A firm provides the following sales data:
Required: (a) Calculate the break-even point in dollar sales.
(b) Calculate the margin of safety in dollar sales.
18) Landlubber Company established a standard direct materials cost of 1.5 gallons at
$2 per gallon for one unit of its product. During the past month, actual production was
6,500 units. The material quantity variance was $700 favorable and the material price
variance was $470 unfavorable. The entry to charge Goods in Process Inventory for the
standard material costs during the month and to record the direct material variances in
the accounts would include:
A.A debit to Goods in Process for $19,500
B.A credit to Raw Materials for $19,270
C.A debit to Direct Material Price Variance for $470
D.A credit to Direct Material Quantity Variance for $700
E.All of these
19) Accounts payable appear on which of the following statements?
A.Balance sheet
B.Income statement
C.Statement of owner’s equity
D.Statement of cash flows
E.Transaction statement
20) Rent and maintenance expenses would most likely be allocated based on:
A.Sales volume by department
B.Square feet of floor space occupied
C.Number of hours worked
D.Number of invoices processed
E.Number of employees in each department
21) The balances in the unadjusted columns of a work sheet will agree with:
A.the balances reflected in the company’s financial statements
B.the balances reflected in the company’s unadjusted trial balance
C.whatever balances management has decided to report
D.the balances in the company’s post-closing trial balance
E.the balances management budgeted for the accounting period
22) Last year, Smith Company sold 10,000 units of its only product. If sales increase by
15% in the current year, how will unit variable cost and unit fixed cost be affected?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
23) Profit margin is defined as:
A.Revenues divided by net sales
B.Net sales divided by assets
C.Net income divided by net sales
D.Net income divided by assets
E.Net sales divided by net income
24) On a bank reconciliation, the amount of an unrecorded bank service charge should
be:
A.Added to the book balance of cash
B.Deducted from the book balance of cash
C.Added to the bank balance of cash
D.Deducted from the bank balance of cash
E.Noted in memorandum form only
25) A source document that production managers use to request materials for
production and that is used to assign materials costs to specific jobs or to overhead is a:
A.Job cost sheet
B.Production order
C.Materials requisition
D.Materials purchase order
E.Receiving report
26) Chen and Wright are forming a partnership. Chen will invest a building that
currently is being used by another business owned by Chen. The building has a market
value of $90,000. Also, the partnership will assume responsibility for a $30,000 note
secured by a mortgage on that building. Wright will invest $50,000 cash. For the
partnership, the amounts to be recorded for the building and for Chen’s Capital account
are:
A.Building, $90,000 and Chen, Capital, $90,000
B.Building, $60,000 and Chen, Capital, $60,000
C.Building, $60,000 and Chen, Capital, $50,000
D.Building, $90,000 and Chen, Capital, $60,000
E.Building, $60,000 and Chen, Capital, $90,000
27) Bonds can be issued:
A.At par
B.At a premium
C.At a discount
D.Between interest payment dates
E.All of these
28) The calendar year-end adjusted trial balance for Acosta Co. follows:
Required:
(a) Prepare a classified year-end balance sheet. (Note: A $7,000 installment on the
long-term note payable is due within one year.)
(b) Calculate the current ratio. Comment on the ability of Acosta Co. to meets its
short-term debts.
29) On January 1, a company issues bonds dated January 1 with a par value of
$400,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid
semiannually on June 30 and December 31. The market rate is 8% and the bonds are
sold for $383,793. The journal entry to record the first interest payment using the
effective interest method of amortization is:
A.Debit Interest Expense $12,648.28; debit Premium on Bonds Payable $1,351.72;
credit Cash $14,000.00
B.Debit Interest Payable $14,000.00; credit Cash $14,000.00
C.Debit Interest Expense $12,648.28; debit Discount on Bonds Payable $1,351.72;
credit Cash $14,000.00
D.Debit Interest Expense $15,351.72; credit Discount on Bonds Payable $1,351.72;
credit Cash $14,000.00
E.Debit Interest Expense $15,351.72; credit Premium on Bonds Payable $1,351.72;
credit Cash $14,000.00
30) Bentels Co. desires a December 31 ending inventory of 2,840 units. Budgeted sales
for December are 4,000 units. The November 30 inventory was 1,800 units. Budgeted
purchases are:
A.5,040 units
B.1,240 units
C.6,840 units
D.4,000 units
E.5,800 units
31) Financial reporting refers to:
A.The application of analytical tools to general-purpose financial statements
B.The communication of financial information useful for decision making
C.Financial statements only
D.Ratio analysis
E.Profitability
32) Preferred stock that the issuing corporation at its option may retire by paying a
specified amount to the preferred stockholders is called:
A.Convertible preferred stock
B.Callable preferred stock
C.Premium stock
D.Cumulative preferred stock
E.Participating preferred stock
33) Assuming unearned revenues are originally recorded in balance sheet accounts, the
adjusting entry to record earning of unearned revenue is:
A.Increase an expense; increase a liability
B.Increase an asset; increase revenue
C.Decrease a liability; increase revenue
D.Increase an expense; decrease an asset
E.Increase an expense; decrease a liability
34) A company that uses the percent of sales to account for its bad debts had credit sales
of $740,000 in Year 1, including a $720 sale to Helen Sweet. On December 31, Year 1,
the company estimated its bad debts at 1.5% of its credit sales. On June 1, Year 2, the
company wrote off, as uncollectible, the $720 account of Helen Sweet. On December
21, Year 2, Helen Sweet unexpectedly paid her account in full. Prepare the necessary
journal entries:
(a) On December 31, Year 1, to reflect the estimate of bad debts expense.
(b) On June 1, Year 2, to write off the bad debt.
(c) On December 21, Year 2, to record the unexpected collection.
35) General Chemical produced 10,000 gallons of Breon and 20,000 gallons of Baron.
Joint costs incurred in producing the two products totaled $7,500. At the split-off point,
Breon has a market value of $6.00 per gallon and Baron $2.00 per gallon. Compute the
portion of the joint costs to be allocated to Breon if the value basis is used.
A.$2,500
B.$3,000
C.$4,500
D.$5,625
E.$1,500
36) When analyzing the changes on a spreadsheet used to prepare a statement of cash
flows, the cash flows from financing activities generally affect
A.Net income, current assets, and current liabilities
B.Noncurrent assets
C.Noncurrent liability and the equity accounts
D.Both noncurrent assets and noncurrent liabilities
E.Equity accounts only
37) A line on a scatter diagram that is intended to reflect the past relation between cost
and volume is the:
A.Margin of safety line
B.Break-even line
C.Contribution margin line
D.Estimated line of cost behavior
E.Standard cost line
38) A company’s calendar-year financial data are shown below. The company had total
assets of $339,000 and total equity of $144,400 for the prior year. No additional shares
of common stock were issued during the year. The December 31 market price per share
is $49.50. Cash dividends of $19,500 were paid during the year. Calculate the following
ratios for the company:
(a) profit margin ratio.
(b) gross margin ratio.
(c) return on total assets.
(d) return on common stockholders’ equity.
(e) book value per common share.
(f) basic earnings per share.
(g) price earnings ratio.
(h) dividend yield.
39) A company had net income of $40,000, net sales of $300,000, and average total
assets of $200,000. Its profit margin and total asset turnover were respectively:
A.13.3%; 0.2
B.13.3%; 1.5
C.2.0%; 1.5
D.1.5%; 0.2
E.1.5%; 13.3
40) The use of a spreadsheet for analysis is especially useful when preparing the
statement of cash flows using the _____________ method.
41) A company’s only treasury stock transactions for the current year follow: (1) 1,000
shares of its common stock were purchased on June 1 for $40,000; (2) On July 1 it
reissued 500 of these shares at $45 per share; (3) On August 1 it reissued the 500
remaining treasury shares at $38 per share.
1) Prepare the journal entries required to record these transactions.
2) Calculate the balance in Paid-in Capital, Treasury Stock, on September 1 assuming
its beginning-year balance is zero.
42) A corporation has $1,750,000 in stockholders’ equity and 350,000 weighted-average
shares of common stock outstanding. Calculate the book value per common share.
43) Jacques Company planned to use 18,000 pounds of material costing $2.50 per
pound to make 4,000 units of its product. In actually making 4,000 units, the company
used 18,800 pounds that cost $2.54 per pound. Calculate the direct materials quantity
variance.
44) _________________________ is the use of electronic communication to transfer
cash from one party to another.
45) A company made the following merchandise purchases and sales during the month
of July:
There was no beginning inventory. If the company uses the first-in, first-out method and
the perpetual system, what would be the cost of the ending inventory?
46) The three main factors in computing depreciation are: ___________________,
___________________, __________________.
47) Describe the recording procedures for the issuance, retirement, and paying of
interest for notes.