1) Average inventory is computed by adding the inventory at the beginning of the
period to the inventory at the end of the period and dividing by two.
2) The statement of cash flows reports a firm’s major sources of cash receipts and major
uses of cash payments for a period.
3) Net income and net profit do not mean the same thing.
4) Inventory turnover measures the length of time is takes to acquire, sell and replace
the inventory.
5) The Sarbanes-Oxley Act requires that financial statements of all public companies
report on management’s conclusions about the effectiveness of the company’s internal
control procedures.
6) The day on which the board of directors of the corporation distributes a dividend is
called the declaration date.
7) Revising depreciation estimates does affect the amounts of depreciation expense
recorded in past periods.
8) When a note is received from a customer on account, it is recorded by debiting Notes
Receivable and crediting Accounts Receivable.
9) Factors which reflect the ability of a business to pay its debts and earn a reasonable
amount of income are referred to as solvency and profitability.
10) A favorable cost variance occurs when actual cost is less than budgeted cost at
actual volumes.
11) Comprehensive income does not affect net income or retained earnings.
12) On the statement of cash flows, the cash flows from operating activities section
would include
A.receipts from the issuance of capital stock
B.payment for interest on short-term notes payable
C.payments for the purchase of investments
D.payments for cash dividends
13) The account Unrealized Gain (Loss) on Available-For-Sale Securities should be
included in the
A.Income statement as Other Revenue (Expenses)
B.Balance sheet as an adjustment to the asset account
C.Balance sheet as an adjustment to Stockholders’ Equity
D.Statement of Retained Earnings
14) All of the following are reasons to use an estimated method of costing inventory
except:
A.Perpetual inventory records are not maintained
B.Purchase records are not maintained
C.A disaster has destroyed the inventory records and the inventory
D.Interim financial statements are required but physical inventory is only taken at the
end of the financial accounting period
15) Elgin Company sells merchandise with a one year warranty. Sales consisted of
2,500 units in 2012 and 2,000 units in 2013. It is estimated that warranty repairs will
average $10 per unit sold, and 30% of the repairs will be made in 2012 and 70% in
2013 for the 2012 sales. Similarly, 30% of repairs will be made in 2013 and 70% in
2014 for the 2013 sales. In the 2013 income statement, how much of the warranty
expense shown will be due to 2012 sales?
A.$7,500
B.$17,500
C.$25,000
D.$0
16) The percent of fixed assets to total assets is an example of
A.vertical analysis
B.solvency analysis
C.profitability analysis
D.horizontal analysis
17) Which of the following costs is an example of a cost that remains the same in total
as the number of units produced changes?
A.Direct labor
B.Salary of a factory supervisor
C.Units of production depreciation on factory equipment
D.Direct materials
18) A corporation issues for cash $1,000,000 of 10%, 20-year bonds, interest payable
annually, at a time when the market rate of interest is 12%. The straight-line method is
adopted for the amortization of bond discount or premium. Which of the following
statements is true?
A.The amount of the annual interest expense is computed at 10% of the bond carrying
amount at the beginning of the year
B.The amount of the annual interest expense gradually decreases over the life of the
bonds
C.The amount of unamortized discount decreases from its balance at issuance date to a
zero balance at maturity
D.The bonds will be issued at a premium
19) The proper journal entry to record the receipt of inventory purchased on account in
a periodic inventory system would be:
A.Jan 1 Merchandise Inventory 1,600
Accounts Payable 1,600
B.Jan 1 Office Supplies 1,600
Accounts Payable 1,600
C.Jan 1 Purchases 1,600
Accounts Payable 1,600
D.Jan 1 Purchases 1,600
Accounts Receivable 1,600
20) A series of budgets for varying rates of activity is termed a(n):
A.flexible budget
B.variable budget
C.master budget
D.activity budget
21) Depreciation on equipment for the year is $6,300.
(a) Record the journal entry if the company adjusts its account once a year.
(b) Record the journal entry if the company adjusts its account on a monthly basis.
22) The amount of time spent by each employee and the labor cost incurred for each
individual job or for factory overhead are recorded on:
A.pay stubs
B.in-and-out cards
C.time tickets
D.employees’ earnings records
23) During a period of consistently rising prices, the method of inventory that will
result in reporting the greatest cost of merchandise sold is
A.FIFO
B.LIFO
C.average cost
D.weighted average
24) The following accounts appear in an adjusted trial balance of Brock Pool Service
Company. Indicate whether each account would be reported in the (a) current assets, (b)
property, plant, and equipment, (c) current liabilities, (d) long-term liabilities, or (e)
owners equity section of the December 31, 2010, balance sheet of Brock Pool Service
Company.
25) The expected average rate of return for a proposed investment of $600,000 in a
fixed asset, with a useful life of four years, straight-line depreciation, no residual value,
and an expected total net income of $240,000 for the 4 years, is:
A.40%
B.20%
C.60%
D.24%
26) Xavier and Yolanda have original investments of $50,000 and $100,000
respectively in a partnership. The articles of partnership include the following
provisions regarding the division of net income: interest on original investment at 10%,
salary allowances of $27,000 and $18,000 respectively, and the remainder equally. How
much of the net loss of $6,000 is allocated to Yolanda?
A.$1,000
B.$3,000
C.$5,000
D.$0
27) Which of the following describes the behavior of the fixed cost per unit?
A.Decreases with increasing production
B.Decreases with decreasing production
C.Remains constant with changes in production
D.Increases with increasing production
28) The following accounts were taken from the Adjusted Trial Balance columns of the
work sheet:
Net income for the period is
A.$3,200
B.$12,100
C.$17,400
D.$8,900
29) A chart of accounts for a merchandising business
A.usually is the same as the chart of accounts for a service business
B.usually requires more accounts than does the chart of accounts for a service business
C.usually is standardized by the FASB for all merchandising businesses
D.always uses a three-digit numbering system
30) The tendency of the rate earned on stockholders’ equity to vary disproportionately
from the rate earned on total assets is sometimes referred to as
A.leverage
B.solvency
C.yield
D.quick assets
31) Mallard Corporation uses the product cost concept of product pricing. Below is cost
information for the production and sale of 45,000 units of its sole product. Mallard
desires a profit equal to a 12% rate of return on invested assets of $800,000.
The cost per unit for the production of the company’s product is:
A.$13.15
B.$17.22
C.$15.40
D.$15.75
32) During the period, labor costs incurred on account amounted to $275,000 including
$200,000 for production orders and $75,000 for general factory use. In addition, factory
overhead charged to production was $32,000. From the following, select the entry to
record the direct labor costs.
A.Work in Process200,000
Wages Payable200,000
B.Work in Process275,000
Wages Payable275,000
C.Wages Payable 275,000
Work in Process275,000
D.Wages Payable200,000
Work in Process200,000
33) Taking a physical count of inventory
A.is not necessary when a periodic inventory system is used
B.should be done near year-end
C.has no internal control relevance
D.is not necessary when a perpetual inventory system is used
34) As of January 1 of the current year, the Grackle Company had accounts receivables
of $50,000. The sales for January, February, and March were as follows: $120,000,
$140,000 and $150,000. 20% of each months sales are for cash. Of the remaining 80%
(the credit sales), 60% are collected in the month of sale, with remaining 40% collected
in the following month. What is the total cash collected (both from accounts receivable
and for cash sales) in the month of February?
A.$129,600
B.$62,400
C.$133,600
D.$91,200
35) The cost system best suited to industries that manufacture a large number of
identical units of commodities on a continuous basis is:
A.process
B.departmental
C.first-in, first-out
D.job order
36) Cash dividends of $50,000 were declared during the year. Cash dividends payable
were $10,000 and $5,000 at the beginning and end of the year, respectively. The amount
of cash for the payment of dividends during the year is
A.$55,000
B.$50,000
C.$65,000
D.$60,000
37) Which of the following methods is appropriate for a business whose inventory
consists of a relatively small number of unique, high-cost items?
A.FIFO
B.LIFO
C.average
D.specific identification
38) The capital accounts of Hawk and Martin have balances of $160,000 and $140,000,
respectively, on January 1, 2010, the beginning of the current fiscal year. On April 10,
Hawk invested an additional $10,000. During the year, Hawk and Martin withdrew
$86,000 and $68,000, respectively, and net income for the year was $258,000. The
articles of partnership make no reference to the division of net income.
Based on this information, the statement of partners equity for 2010 would show what
amount as total capital for the partnership on December 31, 2010?
A.$384,600
B.$412,600
C.$404,000
D.$414,000
39) Which of the following is recorded in the cash payments journal?
A.adjusting entry for accrued salaries
B.receipt of cash on supplies returned
C.receipt of cash from services rendered
D.payment of employees’ salaries
40) Based on the following production and sales data of Shingle Co. for March of the
current year, prepare (a) a sales budget and (b) a production budget.
41) The particular analytical measures chosen to analyze a company may be influenced
by all of the following except:
A.industry type
B.capital structure
C.diversity of business operations
D.product quality or service effectiveness
42) The management of Wyoming Corporation is considering the purchase of a new
machine costing $375,000. The company’s desired rate of return is 6%. The present
value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the
foregoing information, use the following data in determining the acceptability in this
situation:
The cash payback period for this investment is:
A.4 years
B.5 years
C.20 years
D.3 years
43) If a company values inventory at the lower of cost or market, which of the
following is the value of merchandise inventory on the balance sheet? Apply the
lower-of-cost-or-market method to inventory as a whole.
A.$6,960
B.$7,700
C.$6,540
D.$7,280
44) The entry to record the issuance of common stock at a price above par includes a
debit to
A.Organizational Expenses
B.Common Stock
C.Cash
D.Paid-In Capital in Excess of Par-Common Stock
45) Perfect Stampers makes and sells aftermarket hub caps. The variable cost for each
hub cap is $4.75 and the hub cap sells for $9.95. Perfect Stampers has fixed costs per
month of $3,120. Compute the contribution margin per unit and break-even sales in
units and in dollars for the month.
46) The units of Manganese Plus available for sale during the year were as follows:
There are 15 units of the product in the physical inventory at November 30. The
periodic inventory system is used. Determine the difference in gross profit between the
LIFO and FIFO inventory cost systems.
47) The net income reported on the income statement for the current year was
$210,000. Depreciation recorded on equipment and a building amount to $62,500 for
the year. Balances of the current asset and current liabilities accounts at the beginning
and end of the year are as follows:
Required:
48) The Stewart Cake Factory owns a building for its operations. Stewart uses only half
of the building and is considering two options for the unused space. The Candy Store
would like to purchase the half of the building that is not being used for $550,000. A
7% commission would have to be paid at the time of purchase. Ice Cream Delight
would like to lease the half of the building for the next 5 years at $100,000 each year.
Stewart would have to continue paying $9,000 of property taxes each year and $1,000
of yearly insurance on the property, according to the proposed lease agreement.
Determine the differential income or loss from the lease alternative.
49) Complete each of the columns on the table below, indicating in which section each
item would be reported on the statement of cash flow (Operating, Investing, or
Financing), the amount that would be reported, and whether the item would create an
increase or decrease in cash. For item that affect more than one section of the statement,
indicate all affected. Assume the indirect method of reporting cash flows operating
activities.
The first item has been completed as an example.
50) Which of the following industries would normally use job order costing systems
and which would normally use process costing systems?