1) Closing entries are unnecessary if the business plans to continue operating in the
future and issue financial statements each year.
2) A corporation is not an entity which is separate and distinct from its owners.
3) Operating expenses + an increase in prepaid expenses a decrease in accrued expenses
payable = cash payments for operating expenses.
4) The owner’s drawings account is closed to the Income Summary account in order to
properly determine net income (or loss) for the period.
5) If a company has excess capacity and present markets will not be affected, it would
be profitable to accept an order at a special unit price even though the price is less than
the unit variable cost to manufacture the item.
6) During the year, Income Tax Expense amounted to $30,000 and Income Taxes
Payable increased by $4,000; therefore, the cash paid for income taxes was $26,000.
7) Earnings per share is reported only for common stock.
8) Reports prepared in financial accounting are general-purpose reports, whereas
reports prepared in managerial accounting are usually special-purpose reports.
9) The current ratio permits analysts to compare the liquidity of different sized
companies.
10) Net income for the period is determined by subtracting total expenses and drawings
from total revenues.
11) The cost and fair market value of an asset are the same at the time of acquisition
and in all subsequent periods.
12) If more units are sold than are produced in a period, variable costing income will be
greater than absorption costing income.
13) Receivables may be sold because they may be the only reasonable source of cash.
14) Fringe benefits and payroll taxes associated with factory workers should be
accumulated as a part of Factory Labor.
15) In analyzing the financial statements of a company, a single item on the financial
statements
a.should be reported in bold-face type
b.is more meaningful if compared to other financial information
c.is significant only if it is large
d.should be accompanied by a footnote
16) The contribution margin ratio increases when
a.fixed costs increase
b.fixed costs decrease
c.variable costs as a percentage of sales decrease
d.variable costs as a percentage of sales increase
17) The ability of a corporation to obtain capital is
a.enhanced because of limited liability and ease of share transferability
b.less than a partnership
c.restricted because of the limited life of the corporation
d.about the same as a partnership
18) An appropriate activity index for a college or university for budgeting faculty
positions would be the
a.faculty hours worked
b.number of administrators
c.credit hours taught by a department
d.number of days in the school term
19) Additions and improvements
a.occur frequently during the ownership of a plant asset
b.normally involve immaterial expenditures
c.increase the book value of plant assets when incurred
d.typically only benefit the current accounting period
20) Which of the following is not considered an advantage of using standard costs?
a.Standard costs can reduce clerical costs
b.Standard costs can be useful in setting prices for finished goods
c.Standard costs can be used as a means of finding fault with performance
d.Standard costs can make employees “cost-conscious”
21) Fixed costs are $750,000 and the variable costs are 75% of the unit selling price.
What is the break-even point in dollars?
a.$562,500
b.$187,500
c.$1,000,000
d.$3,000,000
22) The dollar amount of the controllable margin
a.is usually higher than the contribution margin
b.is usually lower than the contribution margin
c.is always equal to the contribution margin
d.cannot be a negative figure
23) The two levels that standards may be set at are
a.normal and fully efficient
b.normal and ideal
c.ideal and less efficient
d.fully efficient and fully effective
24) The purchase of treasury stock
a.decreases common stock authorized
b.decreases common stock issued
c.decreases common stock outstanding
d.has no effect on common stock outstanding
25) Rae Company uses a perpetual inventory system made a purchase of merchandise
on credit from Tyree Corporation on August 3, for $9,000, terms 2/10, n/45. On August
10, Rae makes the appropriate payment to Tyree. The entry on August 10 for Rae
Company is
a.Accounts Payable9,000
Cash9,000
b.Accounts Payable8,820
Cash8,820
c.Accounts Payable9,000
Purchase Returns and Allowances180
Cash8,820
d.Accounts Payable9,000
Inventory180
Cash8,820
26) REM Real Estate received a check for $27,000 on July 1 which represents a 6
month advance payment of rent on a building it rents to a client. Unearned Rent
Revenue was credited for the full $27,000. Financial statements will be prepared on
July 31. REM Real Estate should make the following adjusting entry on July 31:
a.Debit Unearned Rent Revenue, $4,500; Credit Rent Revenue, $4,500
b.Debit Rent Revenue, $4,500; Credit Unearned Rent Revenue, $4,500
c.Debit Unearned Rent Revenue, $27,000; Credit Rent Revenue, $24,000
d.Debit Cash, $27,000; Credit Rent Revenue, $27,000
27) A company determined that the budgeted cost of producing a product is $32 per
unit. On June 1, there were 80,000 units on hand, the sales department budgeted sales of
300,000 units in June, and the company desires to have 120,000 units on hand on June
30. The budgeted cost of goods manufactured for June would be
a.$8,320,000
b.$12,160,000
c.$9,600,000
d.$10,880,000
28) Allowance for spoilage is part of the direct
a.materials price standard
b.materials quantity standard
c.labor price standard
d.labor quantity standard
29) The purchasing agent of the Eldridge Company ordered materials of lower quality
in an effort to economize on price. What variance will most likely result?
a.Favorable materials quantity variance
b.Favorable total materials variance
b.Unfavorable materials price variance
d.Unfavorable labor quantity variance
30) The record that provides a cumulative summary of each employees gross earnings,
payroll deductions, and net pay during the year and is required to be maintained to
comply with state and local federal law is the
a.register
b.employee earnings record
c.statement of earnings
d.wage and tax statement
31) Manufacturing overhead costs are applied to work in process on the basis of
a.actual hours worked
b.standard hours allowed
c.ratio of actual variable to fixed costs
d.actual overhead costs incurred
32) All of the following are reported as current liabilities except
a.accounts payable
b.bonds payable
c.notes payable
d.unearned revenues
33) A company will usually replace a manual accounting information system with an
electronic system as the operations increase in
a.efficiency
b.complexity
c.simplicity
d.productivity
34) Earnings per share is based on the:
a.weighted-average common shares issued
b.ending common shares issued
c.weighted-average common shares outstanding
d.ending common shares outstanding
35) The budget committee would not normally include the
a.research director
b.treasurer
c.sales manager
d.external auditor
36) Match the items below by entering the appropriate code letter in the space provided.
A.Deficit F.Return on common stockholders equity
B.Prior period adjustment G.Cash dividend
C.Liquidating dividend H.Declaration date
D.Retained earnings restrictions I.Stock dividend
E.Earnings per share J.Stock split
____1>A dividend declared out of paid-in capital.
____2>Retained earnings currently unavailable for dividends.
____3>The correction of an error in previously issued financial statements.
____4>A pro rata distribution of cash to stockholders.
____5>A debit balance in retained earnings.
____6>A pro rata distribution of the corporation’s own stock to stockholders.
____7>Shows how many dollars of net income were earned for each dollar invested by
the owners.
____8>The date the board of directors formally declares the dividend and announces it
to stockholders.
____9>The issuance of additional shares of stock to stockholders accompanied by a
reduction in the par or stated value per share.
____10>Widely used by stockholders and potential investors in evaluating the
profitability of a company.
37) The term “receivables” refers to
a.amounts due from individuals or companies
b.merchandise to be collected from individuals or companies
c.cash to be paid to creditors
d.cash to be paid to debtors
38) Data for the following subsidiaries of Orzo Manufacturing, which are operated as
investment centers, are as follows:
Rooks CompanyMcDonald, Inc.
Sales revenue$3,000,000$2,000,000
Controllable margin(1)(3)
Average operating assets(2)4,000,000
Contribution margin1,200,000800,000
Controllable fixed costs500,000300,000
Return on Investment10%(4)
Instructions
Compute the missing amounts using the ROI formula.
39) Specific Identification can be used for inventory valuation under
GAAPIFRS
a.YesNo
b.YesYes
c.NoNo
d.NoYes
40) The average collection period for accounts receivable is computed by dividing 365
days by
a.net credit sales
b.average accounts receivable
c.ending accounts receivable
d.accounts receivable turnover
41) The ending owner’s equity amount is shown on
a.the balance sheet only
b.the owner’s equity statement only
c.both the income statement and the owner’s equity statement
d.both the balance sheet and the owner’s equity statement
42) Copyrights are granted by the federal government
a.for the life of the creator or 70 years, whichever is longer
b.for the life of the creator plus 70 years
c.for the life of the creator or 70 years, whichever is shorter
d.and therefore cannot be amortized
43) If bonds are originally sold at a discount using the straight-line amortization
method:
a.Interest expense in the earlier years of the bonds life will be less than the interest to be
paid
b.Interest expense in the earlier years of the bonds life will be the same as interest to be
paid
c.Unamortized discount is subtracted from the face value of the bond to determine its
carrying value
Unamortized discount is added to the face value of the bond to determine its carrying
value
44) Marley Corporation desires to earn target net income of $180,000. If the selling
price per unit is $30, unit variable cost is $24, and total fixed costs are $720,000, the
number of units that the company must sell to earn its target net income is:
a.60,000
b.90,000
c.120,000
d.150,000
45) Companies frequently issue both preferred stock and common stock. What are the
major differences in the rights of stockholders between these two classes of stock?
46) A __________________ budget projects budget data for various levels of activity.
47) At Waterside Manufacturing, budgets are the responsibility of everyone. Each
department collaborates in determining its expected needs, and sales personnel
determine the likely sales volume. John Klinger, one of the production managers,
believes in building plenty of slack into everything, including his estimates of ending
inventory of work in process.
Required:
You are the accounting manager. Write a memo to Mr. Klinger. Explain why the ending
inventory figure should be extremely accurate, with as little slack as possible.
48) The income statement of Reagan Inc. for the year ended December 31, 2014,
reported the following condensed information:
Service revenue$700,000
Operating expenses 340,000
Income from operations360,000
Income tax expense 50,000
Net income$310,000
Roman’s balance sheet contained the following comparative data at December 31:
2014 2013
Accounts receivable$75,000$45,000
Accounts payable40,00050,000
Income taxes payable6,0004,000
Reagan has no depreciable assets. Accounts payable pertains to operating expenses.
Instructions
Prepare the operating activities section of the statement of cash flows using the direct
method.
49) The ledger accounts given below, with an identification number for each, are used
by Young Company.
Instructions: Indicate the appropriate entries for the month of May by placing the
appropriate identification number(s) in the debit and credit columns provided. Item 0 is
given as an example. Write “none” if no entry is appropriate.
1>Cash7>Salaries Payable13>Service Revenue
2>Accounts Receivable8>Accounts Payable14>Equipment Expense
3>Supplies9>Unearned Service Revenue15>Advertising Expense
4>Prepaid Insurance10>Notes Payable16>Supplies Expense
5>Prepaid Advertising11>Owners Capital17>Rent Expense
6>Equipment12>Owners Drawing18>Salaries and Wages Expense
EntryAccount(s)Account(s)
No. Entry InformationDebitedCredited
0>May 1Owner Steve Young invested $40,000 in the business.111
1>May 4Equipment was purchased at a cost of $7,000; a three-month, 10% note
payable was signed for this amount.
2>May 5Paid a supplier $1,500 cash on account.
3>May 8Paid $1,800 in cash to Sands Company for May rent.
4>May 10Purchased supplies for $2,500 cash. The supplies are expected to last through
July.
5>May14Paid $300 cash to the Times Daily News for advertisements run this past
week.
6>May16Billed customers $8,000 for services rendered.
7>May19Received immediate payment of $5,000 from customers for services rendered
during the week.
8>May25Additional supplies were purchased on account at a cost of $800 from Ace
Supplies. These supplies will be used during June.
9>May26Received $11,000 from customers for services to be rendered early in June.
10>May27Paid City News $300 for an advertisement that will run the first week in
June.
11>May28Received $4,000 on account from customers.
12>May30Owner Steve Young withdrew $500 for personal use.
13>May30Sue Lewis, Youngs administrative assistant, was paid $1,800 cash for her
salary.
50) What are the four perspectives used in the balanced scorecard? Discuss the nature
of each, and how the perspectives are linked.
51) The information needs of a specific user of financial accounting information
depends upon the kinds of decisions that user makes. Identify the major users of
accounting information and discuss what questions financial accounting information
answers for each group of users.
52) Safe Harbor Company prepared the following income statement for 2014:
SAFE HARBOR COMPANY
Income Statement
For the Year Ended December 31, 2014
Sales (20,000 units)$600,000
Variable expenses 360,000
Contribution margin240,000
Fixed expenses 150,000
Net income$ 90,000
Instructions:
Answer the following independent questions and show computations to support your
answers.
1>What is the company’s break-even point in units?
2>How many more units would the company have had to sell to earn net income of
$150,000 in 2014?
3>If the company expects a 25% increase in sales in 2015, what would be the expected
net income in 2015?
4>How much sales dollars would the company have to generate in order to earn a target
net income of $160,000 in 2015?
53) The Ulney Clinic has the following monthly telephone records and costs:
Calls Costs
2,000$2,400
1,5001,900
2,2002,600
2,5002,800
2,3002,700
1,7002,200
Instructions
Identify the fixed and variable cost elements using the high-low method.