1) Under a perpetual inventory system, the cost of goods sold is determined each time a
sale occurs.
2) A loss on disposal of a plant asset can only occur if the cash proceeds received from
the asset sale are less than the asset’s book value.
3) In order to develop a budgeted balance sheet, the previous year’s balance sheet is
needed.
4) Both accounts receivable and notes receivable represent claims that are expected to
be collected in cash.
5) An exchange of plant assets has commercial substance if the future cash flows
change as a result of the exchange.
6) If a monthly cash budget is prepared properly, there will never be a cash deficiency
at the end of any month.
7) The margin of safety is the difference between actual sales and target net income
sales.
8) The operating cycle of a company is determined by the number of years the company
has been operating.
9) When control and subsidiary accounts are involved, there must be a dual posting.
10) In a decision to retain or replace old equipment, the salvage value of the old
equipment is relevant in incremental analysis.
11) Accounting information is used only by external users with a financial interest in a
business enterprise.
12) Under the allowance method, Bad Debts Expense is debited when an account is
deemed uncollectible and must be written off.
13) The margin of safety is the difference between contribution margin and fixed costs.
14) Operating leases are leases that the lessee must capitalize on its balance sheet as an
asset.
15) Standard cost is the industry average cost for a particular item.
16) Transactions that can be measured in dollars and cents are recorded in the financial
information system.
17) Gross profit is a measure of the overall profitability of a company.
18) When counting the exact number of days to determine the maturity date of a note,
the date of issue is included but the due date is omitted.
19) Double Nickels Company purchased equipment for $9,000 on January 1, 2014 . The
company expects to use the equipment for 3 years. It has no salvage value. Monthly
depreciation expense on the asset is
a.$0
b.$250
c.$3,000
d.$9,000
20) The income statement of Jues Luggage. includes the items listed below:
Net sales$900,000
Gross profit315,000
Beginning inventory80,000
Purchase discounts15,000
Purchase returns and allowances8,000
Freight-in10,000
Operating expenses300,000
Purchases560,000
Instructions
Use the appropriate items listed above as a basis for determining:
(a)Cost of goods sold.
(b)Cost of goods available for sale.
(c)Ending inventory.
21) Yankee Hotel Foxtrot initiated operations on July 1, 2014 . To manage the company
officers and managers have requested monthly financial statements starting July 31,
2014 . The adjusted trial balance amounts at July 31 are shown below.
DebitsCredits
Cash$ 7,680Accumulated Depreciation Equipment$ 840
Accounts Receivable 810Notes Payable6,000
Prepaid Rent 1,965Accounts Payable2,140
Supplies 1,160Salaries and Wages Payable360
Equipment11,400Interest Payable40
Owner’s Drawings 800Unearned Service Revenue580
Salaries and Wages Expense 7,145Owner’s Capital10,640
Rent Expense 2,740Service Revenue14,390
Depreciation Expense 665Total credits$34,990
Supplies Expense 580
Interest Expense 45
Total debits$ 34,990
(a) Determine the net income for the month of July.
(b) Determine the total assets and total liabilities at July 31, 2014 for Yankee Hotel
Foxtrot.
(c) Determine the amount that appears for Owners, Capital at July 31, 2014 .
22) Stop Light Bikes could sell its bicycles to retailers either assembled or
unassembled. The cost of an unassembled bike is as follows.
Direct materials$150
Direct labor70
Variable overhead (70% of direct labor)49
Fixed overhead (30% of direct labor) 21
Manufacturing cost per unit$290
The unassembled bikes are sold to retailers at $400 each.
Stop Light currently has unused productive capacity that is expected to continue
indefinitely; management has concluded that some of this capacity can be used to
assemble the bikes and sell them at $440 each. Assembling the bikes will increase direct
materials by $5 per bike, and direct labor by $5 per bike. Additional variable overhead
will be incurred at the normal rates, but there will be no additional fixed overhead as a
result of assembling the bikes.
Instructions
(a)Prepare an incremental analysis for the sell-or-process-further decision.
(b)Should Stop Light sell or process further? Why or why not?
23) For each of the following items, indicate by using the appropriate code letter, how
the item should be reported in the statement of cash flows, using the indirect method.
A.Added to net income
B.Deducted from net income
C.Cash outflowinvesting activity
D.Cash inflowinvesting activity
E.Cash outflowfinancing activity
F.Cash inflowfinancing activity
G.Significant noncash investing and financing activity
____1>Decrease in accounts payable during a period
____2>Declaration and payment of a cash dividend.
____3>Loss on sale of land.
____4>Decrease in accounts receivable during a period.
____5>Redemption of bonds for cash.
____6>Proceeds from sale of equipment at book value.
____7>Issuance of common stock for cash.
____8>Purchase of a building for cash.
____9>Acquisition of land in exchange for common stock.
____10>Increase in merchandise inventory during a period.
24) The category that is generally considered to be the best measure of a company’s
ability to continue as a going concern is
a.cash flows from operating activities
b.cash flows from investing activities
c.cash flows from financing activities
d.usually different from year to year
25) For a manufacturing firm, cost of goods available for sale is computed by adding
the beginning finished goods inventory to
a.cost of goods purchased
b.cost of goods manufactured
c.net purchases
d.total manufacturing costs
26) Vertical analysis is a technique which expresses each item within a financial
statement
a.in dollars and cents
b.in terms of a percentage of the item in the previous year
c.in terms of a percent of a base amount
d.starting with the highest value down to the lowest value
27) Mega Company has developed the following standard costs for its product for 2014:
MEGA COMPANY
Standard Cost Card
Product A
Cost ElementStandard QuantityStandard Price=Standard Cost
Direct materials4 pounds$3$12
Direct labor3 hours824
Manufacturing overhead3 hours4 12
$48
The company expected to produce 30,000 units of Product A in 2014 and work 90,000
direct labor hours.
Actual results for 2014 are as follows:
31,000 units of Product A were produced.
Actual direct labor costs were $746,200 for 91,000 direct labor hours worked.
Actual direct materials purchased and used during the year cost $346,500 for 126,000
pounds.
Actual variable overhead incurred was $150,000 and actual fixed overhead incurred
was $205,000.
Instructions
Compute the following variances showing all computations to support your answers.
Indicate whether the variances are favorable or unfavorable.
(a)Materials quantity variance.
(b)Total direct labor variance.
(c)Direct labor quantity variance.
(d)Direct materials price variance.
(e)Total overhead variance.
28) Sandor Manufacturing Inc.’s accounting records reflect the following inventories:
Dec. 31, 2013Dec. 31, 2014
Raw materials inventory$110,000$ 90,000
Work in process inventory156,000174,000
Finished goods inventory138,000150,000
During 2014, Sandor purchased $1,440,000 of raw materials, incurred direct labor costs
of $300,000, and incurred manufacturing overhead totaling $192,000.
How much is raw materials transferred to production during 2014 for Sandor
Manufacturing?
a.$1,530,000
b.$1,420,000
c.$1,460,000
d.$1,550,000
29) Manufacturing costs that cannot be classified as either direct materials or direct
labor are known as
a.period costs
b.nonmanufacturing costs
c.selling and administrative expenses
d.manufacturing overhead
30) If a transaction cannot be recorded in a special journal, it is
a.not recorded
b.a correcting entry
c.recorded in the general journal
d.an error
31) Penny Company owns 20% interest in the stock of Lynn Corporation. During the
year, Lynn pays $25,000 in dividends, and reports $200,000 in net income. Penny
Companys investment in Lynn will increase by
a.$25,000
b.$40,000
c.$45,000
d.$35,000
32) Match the items below by entering the appropriate code letter in the space provided.
A.Cost effectivenessF.Subsidiary ledger
B.Enterprise resource planning systemsG.Control account
C.General ledger accounting systemH.Accounts receivable ledger
D.Manual accounting systemI.Accounting information system
E.Special journalsJ.Flexibility
1>A general ledger account which summarizes detailed information in a subsidiary
ledger.
2>Benefits of information must exceed the cost of providing it.
3>The accounting system should accommodate a variety of users.
4>Software programs that integrate various accounting functions.
5>Group of accounts with a common characteristic which provides detailed
information.
6>Collects and processes transaction data and communicates financial information.
7>Integrate all aspects of the organization, including accounting, sales, and
manufacturing.
8>Used to record high volume, similar type transactions.
9>Transactions are journalized and posted by hand.
10>A subsidiary ledger that contains individual customer accounts.
33) A prior period adjustment for understatement of net income will
a.be credited to the Retained Earnings account
b.be debited to the Retained Earnings account
c.show as a gain on the current year’s Income Statement
d.show as an asset on the current year’s Balance Sheet
34) Soundgarden Company collected $18,200 in May of 2014 for 5 months of service
which would take place from October of 2014 through February of 2015 . The revenue
reported from this transaction during 2014 would be
a.$0
b.$7,280
c.$10,920
d.$18,200
35) The independent internal verification principle involves each of the following
except the ______________ of data prepared by other employees.
a.comparison
b.reconciliation
c.review
d.segregation
36) The Inventory account balance appearing in a perpetual inventory worksheet
represents the
a.ending inventory
b.beginning inventory
c.cost of merchandise purchased
d.cost of merchandise sold
37) The economic entity assumption requires that the activities
a.of different entities can be combined if all the entities are corporations
b.must be reported to the Securities and Exchange Commission
c.of a sole proprietorship cannot be distinguished from the personal economic events of
its owners
d.of an entity be kept separate from the activities of its owner
38) Corrington Manufacturing Company prepared a fixed budget of 80,000 direct labor
hours, with estimated overhead costs of $400,000 for variable overhead and $120,000
for fixed overhead. Corrington then prepared a flexible budget at 78,000 labor hours.
How much is total overhead costs at this level of activity?
a.$510,000
b.$400,000
c.$440,000
d. $520,000
39) The Molding Department of Bidwell Company has the following production data:
beginning work process 40,000 units (60% complete), started into production 680,000
units, completed and transferred out 640,000 units, and ending work in process 80,000
units (40% complete). Assuming materials are entered at the beginning of the process,
equivalent units for materials are:
a.720,000
b.600,000
c.640,000
d.760,000
40) Mandy, Annie, and Tammy formed a partnership with income-sharing ratios of
50%, 30%, and 20%, respectively. Cash of $300,000 was available after the
partnerships assets were liquidated. Prior to the final distribution of cash, Mandys
capital balance was $200,000, Annies capital balance was $150,000, and Tammy had a
capital deficiency of $50,000. Assuming Tammy contributes cash to match her capital
deficiency, Mandy should receive
a.$175,000
b.$168,750
c.$131,250
d.$200,000
41) (a)What is meant by trading on the equity?
(b)How would you determine the profitability of trading on the equity?
42) Given the following data for E-Z Company, compute cost of goods manufactured:
Direct materials used$130,000Beginning work in process$10,000
Direct labor210,000Ending work in process20,000
Manufacturing overhead160,000Beginning finished goods25,000
Operating expenses175,000Ending finished goods15,000
a.$500,000
b.$510,000
c.$480,000
d.$490,000
43) Faulkner Company has the following selected accounts after posting adjusting
entries:
Accounts Payable$ 45,000
Notes Payable, 3-month70,000
Accumulated DepreciationEquipment14,000
FICA Taxes Payable27,000
Notes Payable, 5-year, 8%30,000
Warranty Liability29,000
Payroll Tax Expense6,000
Interest Payable3,000
Mortgage Payable200,000
Sales Taxes Payable16,000
Instructions
(a)Prepare the current liability section of Faulkner Company’s balance sheet, assuming
$25,000 of the mortgage is payable next year. (List liabilities in magnitude order, with
largest first.)
(b)Comment on Faulkner ‘s liquidity, assuming total current assets are $450,000.
44) Investing activities include
a.collecting cash on loans made
b.obtaining cash from creditors
c.obtaining capital from owners
d.repaying money previously borrowed
45) Six internal control principles related to cash transactions are discussed in the
textbook. These principles, with code letters, are:
CodeInternal Control Principle
AEstablishment of responsibility
BSegregation of duties
CDocumentation procedures
DPhysical, mechanical, and electronic controls
EIndependent internal verification
FHuman resource controls
Instructions: Match the above principles to the following applications related to cash
receipts and cash disbursements by placing the code in the space provided. Each code
letter can be used once, more than once, or not at all.
1>Only the treasurer should be authorized to sign checks.
2>All personnel who handle cash should be bonded.
3>Blank checks should be stored in a safe, and access should be restricted.
4>Each check should be compared with approved invoices before being issued.
5>The duties of approving an item for payment and paying the item should be
performed by different individuals.
6>All checks should be prenumbered.
7>Cash register tapes should be used for over-the-counter receipts.
8>The duties of receiving and recording cash should be assigned to different
individuals.
9>Daily cash counts should be made by cashier department supervisors.
10>Cash receipts should be deposited in bank in total daily.
46) Prepare the necessary journal entry for the following transaction. Linton Company
sold $270,000 of its accounts receivables to a factor. The factor charges a 3% fee.
47) Shellhammer Company’s inventory records show the following data for the month
of September:
UnitsUnit Cost
Inventory, September 1100$3.34
Purchases:September 84503.50
September 183503.70
A physical inventory on September 30 shows 200 units on hand. Calculate the value of
ending inventory and cost of goods sold if the company uses FIFO inventory costing
and a periodic inventory system.
48) A major aspect of budgeting control is the use of budget reports that compare
_____________________ with _______________________.
49) Under ABC, costs are traced from ________________ to products.