1) A company may use more than one inventory costing method concurrently.
2) Organizational costs are capitalized by debiting an intangible asset entitled
Organization Costs.
3) A ratio can be expressed as a percentage, a rate, or a proportion.
4) Research and development costs should be charged to expense when incurred.
5) The information in a statement of cash flows helps investors and creditors assess the
companys ability to pay dividends and meet obligations.
6) If the fair value of an available-for-sale security exceeds its cost, the security should
be written up to fair value and a realized gain should be recognized.
7) If the proceeds from the sale of a plant asset exceed its book value, a gain on disposal
occurs.
8) Flexible budgeting relies on the assumption that unit variable costs will remain
constant within the relevant range of activity.
9) A cash payments journal should not be used to record transactions which require
payment by check.
10) The human resources department documents and authorizes employment of new
employees.
11) A debit column for Sales Returns and Allowances may be found in the cash
payments journal.
12) An advantage of standard costs is that they simplify costing of inventories and
reduce clerical costs.
13) Cash provided by operations is generally equal to operating income.
14) The primary purpose of the statement of cash flows is to report
a.a company’s investing transactions
b.a company’s financing transactions
c.information about cash receipts and cash payments of a company
d.the net increase or decrease in cash
15) The following exhibit is for Target bonds.
BondsCloseYieldVolumeNet Change
Target 8 1/8 171008.235+7/8
The contractual interest rate of the Target bonds is
a.greater than the market interest rate
b.less than the market interest rate
c.equal to the market interest rate
d.not determinable
16) The statement that “Bond prices vary inversely with changes in the market interest
rate” means that if the
a.market interest rate increases, the contractual interest rate will decrease
b.contractual interest rate increases, then bond prices will go down
c.market interest rate decreases, then bond prices will go up
d.contractual interest rate increases, the market interest rate will decrease
17) The disposal of a significant component of a business is called
a.a change in accounting principle
b.an extraordinary item
c.an other expense
d.discontinued operations
18) Which of the following correctly identifies normal balances of accounts?
a.AssetsDebit
LiabilitiesCredit
Owner’s EquityCredit
RevenuesDebit
ExpensesCredit
b.AssetsDebit
LiabilitiesCredit
Owner’s EquityCredit
RevenuesCredit
ExpensesCredit
c.AssetsCredit
LiabilitiesDebit
Owner’s EquityDebit
RevenuesCredit
ExpensesDebit
d.AssetsDebit
LiabilitiesCredit
Owner’s EquityCredit
RevenuesCredit
ExpensesDebit
19) The initial budget prepared in the master budget is the:
a.production budget
b.sales budget
c.budgeted balance sheet
d.budgeted income statement
20) Lampim Industries produced 320,000 units in 160,000 direct labor hours.
Production for the period was estimated at 330,000 units and 165,000 direct labor
hours. A flexible budget would compare budgeted costs and actual costs, respectively, at
a.160,000 hours and 160,000 hours
b.165,000 hours and 160,000 hours
c.165,000 hours and 150,000 hours
d.165,000 hours and 165,000 hours
21) Which of the following is not a true statement about the daily posting of the sales
journal?
a.There is a debit posting to accounts in the accounts receivable subsidiary ledger
b.There is no credit posting
c.The reference column in the sales journal is checked when the posting is complete for
each entry in the journal
d.The invoice number supporting the sales transaction is posted to the reference column
in the subsidiary ledger
22) Koppernaes Company has total proceeds (before segregation of sales taxes) from
sales of $9,540. If the sales tax is 6%, the amount to be credited to the account Sales
Revenue is:
a.$9,540
b.$8,968
c.$10,112
d.$9,000
23) Strtson Parts has a current return on investment of 10% and the company has
established an 8% minimum rate of return for the division. The division manager has
two investment projects available, for which the following estimates have been made:
Project A – Annual controllable margin = $50,000, operating assets = $800,000
Project B – Annual controllable margin = $120,000, operating assets = $1,100,000
Which project should be funded?
a.Both projects
b.Project A
c.Project B
d.Neither project
24) Adjustments would not be necessary if financial statements were prepared to reflect
net income from
a.monthly operations
b.fiscal year operations
c.interim operations
d.lifetime operations
25) The partnership agreement should include each of the following except the
a.date of the partnership inception
b.principal location of the firm
c.surviving family members in the event of a partner’s death
d.Each of these should be included
26) Troy, Inc. decided on January 1 to discontinue its telescope manufacturing division.
On July 1, the divisions assets with a book value of $1,260,000 are sold for $840,000.
Operating income from January 1 to June 30 for the division amounted to $130,000.
Ignoring income taxes, what total amount should be reported on Troys income
statement for the current year under the caption, Discontinued Operations?
a.$130,000
b.$290,000 loss
c.$420,000 loss
d.$550,000
27) Checks received through the mail should
a.immediately be endorsed “For Deposit Only”
b.be sent to the accounts receivable subsidiary ledger clerk for immediate posting to the
customer’s account
c.be cashed at the bank as soon as possible
d.be “rung up” on a cash register immediately
28) If total liabilities increased by $25,000 during a period of time and owners equity
decreased by $9,000 during the same period, then the amount and direction (increase or
decrease) of the periods change in total assets is a(n)
a.$34,000 decrease
b.$16,000 decrease
c.$16,000 increase
d.$34,000 increase
29) Eaton Companys ledger at the end of the current year shows Accounts Receivable
of $150,000.
Instructions
a.If Allowance for Doubtful Accounts has a credit balance of $4,400 in the trial balance
and bad debts are expected to be 10% of accounts receivable, journalize the adjusting
entry for the end of the period.
b.If Allowance for Doubtful Accounts has a debit balance of $4,400 in the trial balance
and bad debts are expected to be 10% of accounts receivable, journalize the adjusting
entry for the end of the period.
30) Trading on the equity (leverage) refers to the
a.amount of working capital
b.amount of capital provided by owners
c.use of borrowed money to increase the return to owners
d.number of times interest is earned
31) A flexible budget:
a.is, in essence, a series of static budgets at different levels of activity
b.can be prepared for each of the types of budgets included in a master budget
c.increases budget allowances both directly and proportionately for variable costs as
production increases
d.All of the above
32) Assuming that the total manufacturing costs are $2,560,000, compute the cost of
goods manufactured using the information below.
Raw materials inventory, January 1$ 35,000
Raw materials inventory, December 3150,000
Work in process, January 118,000
Work in process, December 3127,000
Finished goods, January 148,000
Finished goods, December 3160,000
Raw materials purchases1,100,000
Direct labor700,000
Factory utilities225,000
Indirect labor105,000
Factory depreciation500,000
Operating expenses630,000
a.$2,548,000
b.$2,569,000
c.$2,578,000
d.$2,551,000
33) A basic assumption of accounting that requires activities of an entity be kept
separate from the activities of its owner is referred to as the
a.stand alone concept
b.monetary unit assumption
c.corporate form of ownership
d.economic entity assumption
34) Which of the following valuations of operating assets is not readily available from
the accounting records?
a.Cost
b.Book value
c.Market value
d.Both cost and market value
35) During 2014, Parker Enterprises generated revenues of $90,000. The companys
expenses were as follows: cost of goods sold of $45,000, operating expenses of $18,000
and a loss on the sale of equipment of $3,000.
Parkers gross profit is
a.$24,000
b.$27,000
c.$45,000
d.$90,000
36) If accounts payable have increased during a period,
a.revenues on an accrual basis are less than revenues on a cash basis
b.expenses on an accrual basis are less than expenses on a cash basis
c.expenses on an accrual basis are greater than expenses on a cash basis
d.expenses on an accrual basis are the same as expenses on a cash basis
37) If the Manufacturing Overhead account has a debit balance at the end of a period, it
means that
a.actual overhead costs were less than overhead costs applied to jobs
b.actual overhead costs were greater than overhead costs applied to jobs
c.actual overhead costs were equal to overhead costs applied to jobs
d.no jobs have been completed
38) Nelson Company gathered the following information on power costs and factory
machine usage for the last six months:
MonthPower CostFactory Machine Hours
January$24,40013,900
February29,20017,600
March29,00016,800
April22,34013,200
May19,90011,600
June14,9006,600
Instructions
Using the high-low method of analyzing costs, answer the following questions and
show computations to support your answers.
(a)What is the estimated variable portion of power costs per factory machine hour?
(b)What is the estimated fixed power cost each month?
(c)If it is estimated that 11,500 factory machine hours will be run in July, what is the
expected total power cost for July?
39) If annual overhead costs are expected to be $800,000 and direct labor costs are
expected to be $1,000,000, then if the activity base is direct labor costs:
a.$1.25 is the predetermined overhead rate
b.for every dollar of manufacturing overhead, 80 cents of direct labor will be assigned
c.for every dollar of direct labor, 80 cents of manufacturing overhead will be assigned
d.a predetermined overhead rate cannot be determined
40) At August 31, Topatoes Company has the following bank information: cash balance
per bank $3,100; outstanding checks $310; deposits in transit $250; credit memo for
interest $15; bank service charge $30. How much is Topatoes adjusted cash balance on
August 31?
a.$3,025
b.$3,055
c.$2,805
d.$3,040
41) Meyer Products plans to sell 340 potted plants during April and 240 units in May.
Meyer Products keeps 15% of the next months sales as ending inventory. How many
units should Meyer produce during April?
a.325
b.355
c.340
d.376
42) The starting point of a master budget is the preparation of the:
a.cash budget
b.production budget
c.sales budget
d.budgeted balance sheet
43) Oetiz Company applies manufacturing overhead to jobs on the basis of machine
hours used. Overhead costs are expected to total $408,000 for the year, and machine
usage is estimated at 120,000 hours.
For the year, $431,000 of overhead costs are incurred and 125,000 hours are used.
Instructions
(a)Compute the manufacturing overhead rate for the year.
(b)What is the amount of under – or overapplied overhead at December 31?
(c)Assuming the under – or overapplied overhead for the year is not allocated to
inventory accounts, prepare the adjusting entry to assign the amount to cost of goods
sold
44) Raw materials inventory, January 1$ 20,000
Raw materials inventory, December 3110,000
Work in process, January 16,000
Work in process, December 319,000
Finished goods, January 116,000
Finished goods, December 3120,000
Raw materials purchases400,000
Direct labor200,000
Factory utilities75,000
Indirect labor45,000
Factory depreciation180,000
Selling and administrative expenses210,000
Assume your answer to question 8 above is $870,000. The cost of goods sold is:
a.$866,000
b.$867,000
c.$870,000
d.$874,000
45) Which of the following investment classifications are the same for GAAP and
IFRS?
a.Available-for-sale
b.Held-to-maturity
c.Non-trading
d.Trading
46) On January 1, 2014, Dumas Industries acquired a 18% interest in Arlongton
Corporation through the purchase of 12,000 shares of Arlongton Corporation common
stock for $250,000. During 2014, Arlongton Corp. paid $60,000 in dividends and
reported a net loss of $90,000. Dumas is able to exert significant influence on
Arlongton. However, Dumas mistakenly records these transactions using the cost
method rather than the equity method of accounting. Which of the following would
show the correct presentation for Dumas’s investment using the equity method?
InvestmentNet
AccountEarnings (loss)
a. $90,000 ($30,000)
b. $223,000($16,200)
c. $233,800($16,200)
d. $233,800($5,400)
47) In performing a vertical analysis, the base for cost of goods sold is
a.total selling expenses
b.net sales
c.total revenues
d.total expenses
48) The ______________ method tracks the actual physical flow of each unit of
inventory available for sale; however, management may be able to manipulate
______________ by using this method.
49) During 2014, Red Dragon Corporation had the following transactions and events:
1>Issued par value preferred stock for cash at par value.
2>Issued par value common stock for cash at an amount greater than par value.
3>Completed a 2 for 1 stock split in which the $10 par value common stock was
changed to $5 par value stock.
4>Declared a small stock dividend when the market value was higher than the par
value.
5>Declared a cash dividend.
6>Made a prior period adjustment for understatement of net income.
7>Issued par value common stock for cash at par value.
8>Paid the cash dividend.
9>Issued the shares of common stock required by the stock dividend declaration in 4.
above.
Instructions
Indicate the effect(s) of each of the foregoing items on the subdivisions of stockholders’
equity. Present your answers in tabular form with the following columns. Use (I) for
increase, (D) for decrease, and (NE) for no effect.
Paid-in Capital
Capital AdditionalRetained
Item StockPaid-in CapitalEarnings
50) Appalachian Company at December 31 has cash $40,000, noncash assets $200,000,
liabilities $110,000, and the following capital balances: Hoffman $90,000 and Mena
$40,000. The firm is liquidated, and $220,000 in cash is received for the noncash assets.
Hoffman and Mena income ratios are 60% and 40%, respectively.
Instructions
Prepare a cash distribution schedule.
51) The Western Transportation Company uses a responsibility reporting system to
measure the performance of its three investment centers: Planes, Taxis, and Limos.
Segment performance is measured using a system of responsibility reports and return
on investment calculations. The allocation of resources within the company and the
segment managers’ bonuses are based in part on the results shown in these reports.
Recently, the company was the victim of a computer virus that deleted portions of the
company’s accounting records. This was discovered when the current period’s
responsibility reports were being prepared. The printout of the actual operating results
appeared as follows.
Planes Taxis Limos
Service revenue$ ?$450,000$ ?
Variable costs5,000,000?320,000
Contribution margin ?180,000380,000
Controllable fixed costs1,600,000??
Controllable margin ?70,000160,000
Average operating assets20,000,000?1,600,000
Return on investment 12%8%?
Instructions
Determine the missing pieces of information above.
52) A __________________ is responsible for coordinating the preparation of the
budget in many companies.