1) A procedure called direct posting of sales invoices involves posting sales directly to
the customer accounts in the accounts receivable ledger, making a period end journal
entry, and avoiding the use of the sales journal.
2) FUTA requires employers to pay a federal unemployment tax on all salary or wages
paid to each employee.
3) It is acceptable to record cash received in advance of providing products or services
to revenue accounts if an adjusting entry is made at the end of the period to bring the
liability account balance to the correct unearned amount.
4) A company that uses a cost accounting system normally has only two inventory
accounts: Finished Goods Inventory and Work in Process Inventory.
5) The going concern assumption supports the reporting of plant assets at undepreciated
cost (book value) rather than market value.
6) A liability may exist even if there is uncertainty about whom to pay, when to pay, or
how much to pay.
7) Depreciation expense is not reported on a statement of cash flows prepared under the
direct method.
8) The master budget is a small component of the comprehensive budget.
9) Traditional budgeting is generally better than activity-based budgeting when
attempting to reduce costs by eliminating non-value-added activities.
10) Wickland Company installs a manufacturing machine in its production facility at
the beginning of the year at a cost of $87,000. The machine’s useful life is estimated to
be 5 years, or 400,000 units of product, with a $7,000 salvage value. During its second
year, the machine produces 84,500 units of product. Determine the machines’ second
year depreciation under the units-of-production method.
A.$16,900.
B.$16,000.
C.$17,400.
D.$18,379.
E.$20,880.
11) Jackson Consulting had the following accounts and balances at December 31:
Using the information in the table, calculate Jackson Consulting’s reported net income
for the period.
A.$16,800
B.$15,800.
C.$15,300
D.$10,300.
E.$32,000
12) Kendall Corp. purchased at par value $160,000 of Barker Company’s 7% bonds that
mature in 10 months. The bonds pay interest semiannually on June 1 and December 1.
Kendall plans to hold the bonds until they mature. The journal entry to record Kendall’s
purchase of the bonds is:
A.debit Short-Term Investments-HTM $160,000; credit Cash, $160,000.
B.debit Cash, $169,333; credit, Short-Term Investments-HTM $169,333.
C.debit Cash, $160,000; credit Short-Term Investments-HTM $160,000.
D.debit Long-Term Investments-HTM $160,000; credit Cash $160,000.
E.debit Cash, $160,000; credit Long-Term Investments-HTM $160,000.
13) The following information is available for Zephyr Company before closing the
accounts. After all of the closing entries are made, what will be the balance in the
Zephyr, Capital account?
A.$115,000.
B.$225,000.
C.$264,000.
D.$186,000.
E.$956,000.
14) A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On
July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due.
The correct journal entry to record the purchase on July 5 is:
A.Debit Merchandise Inventory $1,600; credit Cash $1,600.
B.Debit Merchandise Inventory $1,800; credit Accounts Payable $1,800.
C.Debit Merchandise Inventory $1,800; credit Sales Returns $200; credit Cash $1,600.
D.Debit Accounts Payable $1,800; credit Merchandise Inventory $1,800.
E.Debit Accounts Payable $1,800; credit Purchase Returns $200; credit Merchandise
Inventory $1,600.
15) On November 1, Jovel Company loaned another company $100,000 at a 6.0%
interest rate. The note receivable plus interest will not be collected until March 1 of the
following year. The company’s annual accounting period ends on December 31. The
adjusting entry needed on December 31 is:
A.No entry required.
B.Debit Interest Expense, $5,000; credit Interest Payable, $5,000.
C.Debit Interest Expense, $1,000; credit Note Payable, $1,000.
D.Debit Interest Receivable, $500; credit Interest Revenue, $500.
E.Debit Interest Receivable, $1,000; credit Interest Revenue, $1,000.
16) On May 1, Sellers Marketing Company received $1,500 from Franco Marcelli for a
marketing campaign effective from May 1 this year to April 30 of the following year.
The Cash receipt was recorded as unearned fees and at year-end on December 31,
$1,000 of the fees had been earned. The adjusting entry on December 31 would be:
A.A debit to Unearned Fees and a credit to Cash for $500.
B.A debit to Fees Earned and a credit to Unearned Fees for $500.
C.A debit to Unearned Fees and a credit to Fees Earned for $1,000.
D.A debit to Fees Earned and a credit to Cash for $1,000.
E.A debit to Fees Earned and a credit to Cash for $500.
17) Current assets minus current liabilities is:
A.Profit margin.
B.Financial leverage.
C.Current ratio.
D.Working capital.
E.Quick assets.
18) In the absence of a partnership agreement, the law says that income (and loss)
should be allocated based on:
A.A fractional basis.
B.The ratio of capital investments.
C.Salary allowances.
D.Equal shares.
E.Interest allowances.
19) The following is an account for a production department, showing its costs for one
month:
Assume that materials are added at the beginning of the production process and that
direct labor and overhead are applied uniformly. If the started and completed units cost
$41,850, what was the cost of completing the units in the beginning Work in Process
inventory?
A.$12,150.
B.$2,160.
C.$7,560.
D.$54,000.
E.$37,260.
20) A company had a profit margin of 10.5% and total asset turnover of 1.84. Its return
on total assets was:
A.5.71%
B.8.66%
C.12.34%
D.13.61%
E.19.32%
21) Part AR3 costs the Southwestern Division of Luxon Corporation $26 to make-direct
materials are $10, direct labor is $4, variable manufacturing overhead is $9, and fixed
manufacturing overhead is $3. Southwestern Division sells Part AR3 to other
companies for $30. The Northeastern Division of Luxon Corporation can use Part AR3
in one of its products. The Southwestern Division has enough idle capacity to produce
all of the units of Part AR3 that the Northeastern Division would require. What is the
lowest transfer price at which the Southwestern Division should be willing to sell Part
AR3 to the Northeastern Division?
A.$30
B.$26
C.$23
D.$27
E.$21
22) The term inadequacy, as it relates to the useful life of an asset, refers to:
A.The insufficient capacity of a company’s plant assets to meet the company’s growing
production demands.
B.An asset that is worn out.
C.An asset that is no longer useful in producing goods and services.
D.The condition where the salvage value is too small to replace the asset.
E.The condition where the asset’s salvage value is less than its cost.
23) Employees earn vacation pay at the rate of one day per month. During the month of
July, 25 employees qualify for one vacation day each. Their average daily wage is $100
per day. What is the amount of vacation benefit expense to be recorded for the month of
July?
A.$25
B.$100
C.$250
D.$2,500
E.$25,000
24) On January 1, a company issued and sold a $400,000, 7%, 10-year bond payable,
and received proceeds of $396,000. Interest is payable each June 30 and December 31.
The company uses the straight-line method to amortize the discount. The journal entry
to record the first interest payment is:
A.Debit Bond Interest Expense $14,000; credit Cash $14,000.
B.Debit Bond Interest Expense $28,000; credit Cash $28,000.
C.Debit Bond Interest Expense $14,000; debit Discount on Bonds Payable $200; credit
Cash $14,200.
D.Debit Bond Interest Expense $13,800; debit Discount on Bonds Payable $200; credit
Cash $14,000.
E.Debit Bond Interest Expense $14,200; credit Cash $14,000; credit Discount on Bonds
Payable $200.
25) Classify each of the following items as either:
A. Estimated liability
B. Contingent liability
C. Known liability
1> Lawsuit against the company
2> Warranty on products sold this year
3> Accounts payable
4> Income taxes payable
5> Vacation benefits
6> Accrued wages payable
7> Debt guarantees
8> Sales taxes payable
9> Payroll taxes payable
10> Unearned revenues
26) Accounting is an information and measurement system that does all of the
following except:
A.Identifies business activities.
B.Records business activities.
C.Communicates business activities.
D.Eliminates the need for interpreting financial data.
E.Helps people make better decisions.
27) Glade, Marker, and Walters are partners with beginning-year capital balances of
$100,000, $50,000, and $50,000, respectively. Partnership net income for the year is
$84,000. Make the necessary journal entry to close Income Summary to the capital
accounts if:
a. Partners agree to divide income based on their beginning-year capital balances.
b. Partners agree to divide income based on the ratio of 5:3:2 (Glade:Marker:Walters),
respectively.
c. Partnership agreement is silent as to division of income and less.
28) A remittance advice is a(n):
A.Explanation for a payment by check.
B.Bank statement.
C.Internal voucher.
D.Electronic funds transfer.
E.Cancelled check.
29) A July sales forecast projects that 6,000 units are going to be sold at a price of
$10.50 per unit. The management forecasts 2% growth in sales each month. Total July
sales are anticipated to be:
A.$63,000.
B.$67,500.
C.$61,250.
D.$64,260.
E.$60,000.
30) Record the following events and transactions for Leonard Company for the current
year.
1) On January 2, Leonard purchased a patent for $35,000 with a remaining useful life of
10 years. Prepare the journal entry to amortize the patent at the end of the first year.
2) On January 3, Leonard made an advance payment on a leasehold of $840,000. The
leasehold expires in 15 years. Prepare the journal entry to amortize the leasehold at the
end of the first year.
3) On January 4, Leonard purchased a music distributor’s collection of lyrics and songs
for $1,425,000. The copyrights have a remaining life of another 30 years. Prepare the
journal entry to amortize the copyright at the end of the first year.
31) What is the accounts receivable turnover ratio? How is it calculated and how is it
used to assess financial condition?
32) Washington Corp. held 1,500 of Vashon Company common stock with a cost of
$74,387. These shares were classified as a Long-Term available-for-sale investment. It
sold the shares on December 13 for $55,275. Prepare the journal entry to record
Washington’s sale.
33) A company reported average total assets of $501,000 in Year 1 and $611,000 in
Year 2. Its net operating cash flow in Year 1 was $41,500 and $55,250 in Year 2.
Calculate its cash flow on total assets ratio for both years. Comment on the results.
34) The process of identifying costs as direct or indirect is referred to as classifying
costs by _______________.
35) __________ are preset costs for delivering a product or service under normal
conditions.
36) A company purchased mining property for $1,837,500 containing an estimated
7,350,000 tons of ore. In Year 1, it mined and sold 857,000 tons of ore. Calculate the
depletion expense for Year 1 and prepare the journal entry to record the depletion.
37) J. Brown Consulting paid $500 cash for utilities for the current month. Given the
choices below, determine the general journal entry that J. Brown Consulting will make
to record this transaction.
