1) Gross profit minus selling expenses equals net income.
2) The double-entry accounting system records each transaction twice.
3) Accounting systems evolve through a three-step process: analysis, design and
feedback.
4) The master budget of a small manufacturer would normally include all component
budgets that impact on the financial statements.
5) Depending on the capacity of the plant, a company may best be served by further
processing some of the product and leaving the rest as is, with no further processing.
6) The cost of computer equipment does not include the consultant’s fee to supervise
installation of the equipment.
7) The totals of the Adjusted Trial Balance columns on a work sheet will always be the
sum of the Trial Balance column totals and the Adjustments column totals.
8) Only callable bonds can be purchased by the issuing corporation before maturity.
9) A cost can be a payment of cash for the purpose of generating revenues.
10) A business is an organization in where basic resources or inputs, like materials and
labor, are assembled and processed to provide outputs in the form of goods or services
to customers.
11) On October 10th, Nikle Company purchased supplies worth $1,800 on account.
(a) Write the journal entry in the space below.
(b) Nikle Company paid this bill on October 25th. Write the journal entry in the space
below.
12) The accounting equation may be expressed as
A.Assets = Equities – Liabilities
B.Assets + Liabilities = Owner’s Equity
C.Assets = Revenues less Liabilities
D.Assets – Liabilities = Owner’s Equity
13) According to a summary of the payroll of Scotland Company, $450,000 was subject
to the 7.0% social security tax and $500,000 was subject to the 1.5% Medicare tax.
Federal income tax withheld was $98,000. Also, $15,000 was subject to state (4.2%)
and federal (0.8%) unemployment taxes. The journal entry to record accrued salaries
would include:
A.a debit to Salary Payable of $450,000
B.a credit to Salary Payable of $500,000
C.a debit to Salary Expense of $500,000
D.a credit to Salary Expense of $450,000
14) The par value per share of common stock represents
A.the minimum selling price of the stock established by the articles of incorporation
B.the minimum amount the stockholder will receive when the corporation is liquidated
C.an arbitrary amount established in the articles of incorporation
D.the amount of dividends per share to be received each year
15) The Bitterns Company produces their product at a total cost of $89 per unit. Of this
amount $14 per unit is selling and administrative costs. The total variable cost is $58
per unit. The desired profit is $25 per unit. Determine the mark up percentage on (a)
total cost, (b) product cost and (c) variable cost concepts.
16) From the following data, determine for the current year the (a) rate earned on total
assets, (b) rate earned on stockholders’ equity, (c) rate earned on common stockholders’
equity, (d) earnings per share on common stock, (e) price-earnings ratio on common
stock, and (f) dividend yield on common stock. Assume that the current market price
per share of common stock is $25. (Present key figures used in your computations.)
Round percentage values to one decimal place, dollar values to two decimal places, and
other ratios to one decimal place.
17) Bonds that are subject to retirement at a stated dollar amount prior to maturity at the
option of the issuer are called
A.debentures
B.callable bonds
C.early retirement bonds
D.options
18) A cost that will not be affected by later decisions is termed a(n):
A.period cost
B.differential cost
C.sunk cost
D.replacement cost
19) The following totals for the month of April were taken from the payroll register of
Magnum Company.
The journal entry to record the monthly payroll on April 30 would include a
A.credit to Salaries Payable for $8,150
B.debit to Salaries Expense for $7,902
C.debit to Salaries Payable for $8,150
D.debit to Salaries Payable for $7,902
20) Use the following worksheet to answer the following questions.
Based on the preceding trial balance, the ending balance in C. Finley, Capital is:
A.$33,000
B.$80,000
C.$30,000
D.$83,000
21) The management of River Corporation is considering the purchase of a new
machine costing $380,000. 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 average rate of return for this investment is:
A.5%
B.10.5%
C.25%
D.15%
22) If the actual direct labor hours spent producing a commodity differs from the
standard hours, the variance is termed a:
A.time variance
B.price variance
C.quantity variance
D.rate variance
23) Carter Co. sells two products, Arks and Bins. Last year Carter sold 14,000 units of
Arks and 56,000 units of Bins. Related data are:
Assuming that last year’s fixed costs totaled $960,000, what was Carter Co.’s
break-even point in units?
A.40,000 units
B.12,000 units
C.35,000 units
D.28,000 units
24) Details of the division of net income for a partnership should be disclosed
A.in the asset section of the balance sheet
B.in the partners subsidiary ledger
C.in the statement of cash flows
D.in the partnership income statement
25) Which transfer price approach is used when the transfer price is set at the amount
sold to outside buyers?
A.Market Price
B.Cost Price
C.Negotiated Price
D.Variable Price
26) Conversion costs are
A.direct materials and direct labor
B.direct materials and factory overhead
C.factory overhead and direct labor
D.direct materials and indirect labor
27) Tomas and Saturn are partners who share income in the ratio of 3:1. Their capital
balances are $40,000 and $60,000 respectively. Income Summary has a credit balance
of $20,000. What is Tomass capital balance after closing Income Summary to Capital?
A.$45,000
B.$55,000
C.$65,000
D.$75,000
28) The following is a list of costs incurred by several business organizations:
(a) Telephone cable for a telephone company.
(b) Subscription to a health club for executives.
(c) Salary of the Director of Internal Auditing.
(d) Long-distance telephone bill for calls made by salespersons.
(e) Carrying cases for a manufacturer of video camcorders.
(f) Cotton for a textile manufacturer of blue jeans.
(g) Bandages for the emergency room of a hospital.
(h) Cost of company holiday party.
(i) Electricity used to operate factory machinery.
(j) State unemployment compensation taxes for factory workers.
(k) Gloves for factory machine operators.
(l) Fees paid for lawn service for office grounds.
(m) Salary of secretary to vice-president of finance.
(n) Salary of secretary to vice-president of marketing.
(o) Production supervisor’s salary.
(p) Engine oil for manufacturer and distributor of motorcycles.
(q) Oil lubricants for factory plant and equipment.
(r) Cost of a radio commercial.
(s) Depreciation on factory equipment.
(t) Wages of check-out clerk in company-owned retail outlet.
(u) Maintenance and repair costs for factory equipment.
(v) Depreciation on office equipment.
(w) Bonuses paid to salespersons.
(x) Insurance on factory building.
(y) Training for accounting personnel on use of microcomputer.
(z) Steel for a construction contractor.
Classify each of the preceding costs as product costs or period costs. For those costs
classified as product costs, indicate whether the product cost is a direct materials cost,
direct labor cost, or factory overhead cost. For those costs classified as period costs,
indicate whether the period cost is a selling expense or an administrative expense. Use
the following tabular headings for preparing your answer. Place an X in the appropriate
column.
29)
30) The maturity value of a $40,000, 9%, 40-day note receivable dated July 3 is
A.$40,000
B.$40,400
C.$43,600
D.$44,000
31) Chang Co. issued a $50,000, 120-day, discounted note to Guarantee Bank. The
discount rate is 6%. Assuming a 360-day year, the cash proceeds to Chang Co. are
A.$49,750
B.$47,000
C.$49,000
D.$51,000
32) Merchandise with a list price of $4,700 is purchased on account, terms FOB
shipping point, 1/10, n/30. The seller prepaid freight costs of $100. Prior to payment,
$1,400 of the merchandise is returned. The correct amount is paid within the discount
period.
Record the foregoing transactions of the buyer in the sequence indicated below,
assuming a perpetual inventory system is used.
(a) Purchased the merchandise.
(b) Recorded receipt of the credit memo for merchandise returned.
(c) Paid the amount owed.
33) Miramar Industries manufactures two products, A and B. The manufacturing
operation involves three overhead activities – production setup, material handling, and
general factory activities. Miramar uses activity-based costing to allocate overhead to
products. An activity analysis of the overhead revealed the following estimated costs
and activity bases for these activities:
Each products total activity in each of the three areas are as follows:
What is the activity rate for Material Handling?
A.$1.50 per part
B.$3.75 per part
C.$7.50 per part
D.$2.50 per part
34) A manager is responsible for costs only in a(n):
A.profit center
B.investment center
C.volume center
D.cost center
35) An anticipated purchase of equipment for $580,000, with a useful life of 8 years and
no residual value, is expected to yield the following annual net incomes and net cash
flows:
What is the cash payback period?
A.5 years
B.4 years
C.6 years
D.3 years
36) Which of the following group of accounts increase with a credit?
A.Capital, revenues, expenses
B.Assets, capital, revenues
C.Liabilities, capital, revenues
D.None of these
37) A borrower has two alternatives for a loan: (a) issue a $480,000, 60-day, 8% note or
(2) issue a $480,000, 60-day note that the creditor discounts at 8%. (Assume a 360-day
year is used for interest calculations.)
Required:
38) Subsidiary ledgers
A.are used only for Accounts Payable and Accounts Receivable
B.may be used for various ledger accounts
C.may be used for only for the Cash account
D.are never used for more than four accounts
39) Dotterel Corporation uses the variable cost concept of product pricing. Below is
cost information for the production and sale of 35,000 units of its sole product. Dotterel
desires a profit equal to a 11.2% rate of return on invested assets of $350,000.
The dollar amount of desired profit from the production and sale of the company’s
product is:
A.$89,600
B.$39,200
C.$70,000
D.$84,000
40) Which of the following companies would be more likely to use the specific
identification inventory costing method?
A.Gordons Jewelers
B.Lowes
C.Best Buy
D.Wal-Mart
41) Which of the following would most likely use a job order costing system?
A.A paper mill
B.A swimming pool installer
C.A company that manufactures chlorine for swimming pools
D.An oil refinery
42) On January 1, 2010, Cary Parsons established a catering service. Listed below are
accounts to use for transactions (a) through (d), each identified by a number. Following
this list are the transactions that occurred during the first month of operations. You are
to indicate for each transaction the accounts that should be debited and credited by
placing the account number(s) in the appropriate box.
Transactions Account(s) Debited Account(s) Credited
a. Cary transferred cash from a personal bank account to an account to be used for the
business.
b. Paid rent for the period of January 3 to the end of the month.
c. Purchased truck for $30,000 with a cash down payment of $5,000 and the remainder
on a note.
d. Purchased equipment on account.
43) The following budget data are available for Oldest Company:
If factory overhead is to be applied based on direct labor hours, the predetermined
overhead rate is
A.$7.50
B.$.13
C.$.061
D.$16.50
44) As part of the initial investment, Omar contributes accounts receivable that had a
balance of $22,500 in the accounts of a sole proprietorship. Of this amount, $2,000 is
completely worthless. For the remaining accounts, the partnership will establish a
provision for possible future uncollectible accounts of $1,500. The amount debited to
Accounts Receivable for the new partnership is
A.$19,000
B.$22,500
C.$21,000
D.$20,500
45) Which of the following is not characteristic of a corporation?
A.The financial loss that a stockholder may suffer from owning stock in a public
company is limited
B.Cash dividends paid by a corporation are deductible as expenses by the corporation
C.A corporation can own property in its name
D.Corporations are required to file federal income taxreturns
46) Which of the following is not part of a three-step process that a growing business
uses for the evolution of its accounting systems?
A.analysis
B.design
C.implementation
D.feedback
47) On March 1, 2011, Chase Inc. purchases 35% of the outstanding shares of Glory
Corporation stock for $325,000. On December 31, 2011, Glory reports net income of
$162,000. On January 15, 2012, Glory pays total dividends to stockholders of $33,000.
Required: Journalize the three transactions described above.
48) Steven Company has fixed costs of $160,000. The unit selling price, variable cost
per unit, and contribution margin per unit for the companys two products are provided
below.
The sales mix for product X and Y is 60% and 40% respectively. Determine the
break-even point in units of X and Y.
49) The discovery and correction of errors is important in a computerized system. What
kind of error(s) might occur in these systems? What type of error(s) will be prevented in
a computerized system?
50) On January 1, DogMart Company purchased a two-year liability insurance policy
for $22,800 cash. The purchase was recorded to Prepaid Insurance. Prepare the January
31 adjusting entry.
51) Depreciation on Office Equipment is $3,300. The adjusting entry on December 31,
2011 would be:
52) Using the variable cost concept determine the selling price for 30,000 units using
the following data: Variable cost per unit $15.00, total fixed costs $90,000 and desired
profit $150,000.
53) On the first day of the fiscal year, a company issues a $500,000, 8%, 10 year bond
that pays semi-annual interest of $20,000 ($500,000 8% 1/2), receiving cash of
$530,000. Journalize the entry to record the issuance of the bonds.
54) Explain the meaning of the business entity concept.