1) Manufacturers usually have three inventories: raw materials, work in process, and
finished goods.
2) Notes receivable are classified as current liabilities regardless of the time to maturity.
3) Debt securities are recorded at cost when purchased.
4) A partnership may allocate salary allowances to the partners reflecting the relative
value of services provided.
5) A high value for the times interest earned ratio means that a company is a lower risk
borrower.
6) Investments in held-to-maturity debt securities are always current assets.
7) Investments in trading securities are accounted for using the equity method with
consolidation.
8) Business activities that generate or use cash are classified as operating, investing, or
financing activities on the statement of cash flows.
9) Robin Company had net income of $67,000. The company had 9,000 weighted
average common shares outstanding. The basic earnings per share equal $7.44 per
share.
10) Lowden Company has an overhead application rate of 160% and allocates overhead
based on direct material cost. During the current period, direct labor cost is $50,000 and
direct materials used cost $80,000. Determine the amount of overhead Lowden
Company should record in the current period.
A.$31,250.
B.$50,000.
C.$80,000.
D.$128,000.
E.$208,000.
11) An exchange of value between two entities that yields a change in the accounting
equation is called:
A.The accounting equation.
B.Recordkeeping or bookkeeping.
C.An external transaction.
D.An asset.
E.Net Income.
12) A company had net sales of $21,500 and ending accounts receivable of $2,700 for
the current period. Its days’ sales uncollected equals:
A.8.0 days.
B.58.9 days.
C.45.8 days.
D.7.4 days.
E.45.2 days.
13) If a company wants to protect its three investors against personal liability risk,
which of the following business forms would not be a suitable option?
A.C Corporation
B.S Corporation
C.Limited liability partnership
D.Partnership
E.Limited liability company
14) Classifying costs by behavior with changes in volume of activity involves:
A.Identifying fixed cost and variable cost.
B.Identifying cost of goods sold and operating costs.
C.Identifying costs as financial or managerial.
D.Identifying costs in a physical manner.
E.Identifying both quantitative and qualitative cost factors.
15) Which of the following characteristics applies to process costing but not to job
order cost accounting?
A.Use of a predetermined overhead rate.
B.Identifiable units of production.
C.Equivalent units of production.
D.Determining cost of goods manufactured.
E.Use of a single Work in Process Inventory account.
16) Match the inventory valuation method from the list below that is being described in
each situation in letters a-e. In all cases, assume a period of rising prices.
_________ a. The method that is used if each inventory item can be matched with a
specific purchase and invoice.
_________ b. The method that will cause the company to have the lowest income taxes.
_________ c. The method that will cause the company to have the lowest cost of goods
sold.
_________ d. The method that will assign a value to inventory that approximates
current cost.
_________ e. The method that will tend to smooth out erratic changes in costs.
17) At the end of the current year, Leer Company reported total liabilities of $300,000
and total equity of $100,000. The company’s debt ratio on the last year-end was:
A.300%.
B.33.3%.
C.75.0%.
D.66.67%.
E.$400,000.
18) The calculation of annual net cash flow from a particular investment project should
include all of the following except:
A.Income taxes.
B.Revenues generated by the investment.
C.Cost of products generated by the investment.
D.Depreciation expense.
E. General and administrative expenses.
19) Clairmont Industries reported Net income of $283,000 and average Total assets of
$637,000. The Return on total assets is:
A.55.6%.
B.88.8%.
C.61.5%.
D.44.4%.
E.125.1%.
20) Pitt Enterprises manufactures jeans. All materials are introduced at the beginning of
the manufacturing process in the Cutting Department. Conversion costs are incurred
uniformly throughout the manufacturing process. As the cutting of material is
completed, the pieces are immediately transferred to the Sewing Department.
Information for the Cutting Department for the month of May follows.
Work in Process, May 1 (50,000 units, 100% complete for direct materials, 40%
complete with respect to conversion costs; includes $70,500 of direct material cost;
$34,050 of conversion costs).
Work in Process, May 31 (75,000 units, 100% complete for direct materials; 20%
complete for conversion costs).
If Pitt Enterprises uses the FIFO method of process costing, compute the cost per
equivalent unit for direct materials and conversion costs respectively for May.
A.$1.52; $1.81.
B.$1.50; $1.76.
C.$1.83; $1.72.
D.$1.71; $1.81.
E.$3.30; $3.30.
21) Which of the following is not one of the four steps in accounting for production
activity and assigning costs during a period under a process cost system?
A.Determine over or underapplied overhead.
B.Determine the physical flow of units.
C.Compute the equivalent units of production.
D.Compute the cost per equivalent unit of production.
E.Assign and reconcile costs.
22) A liquidating dividend is:
A.Only declared when a corporation closes down.
B.A return of a portion of the original investment back to the stockholders.
C.Not allowed under federal law.
D.Only paid in assets other than cash.
E.Only paid in shares of stock.
23) Christie and Jergens formed a partnership with capital contributions of $300,000
and $400,000, respectively. Their partnership agreement calls for Christie to receive a
$60,000 per year salary. Also, each partner is to receive an interest allowance equal to
10% of a partner’s beginning capital investments. The remaining income or loss is to be
divided equally. If the net income for the current year is $135,000, then Christie and
Jergens’s respective shares are:
A.$67,500; $67,500.
B.$92,500; $42,500.
C.$57,857; $77,143.
D.$90,000; $40,000.
E.$35,000; $100,000.
24) Which of the following is included in the cash flows from financing activities
section of the statement of cash flows?
A.Interest revenue.
B.Sale of equipment.
C.Interest expense.
D.Purchase of treasury stock.
E.Purchase of stock in another company.
25) Division X makes a part with the following characteristics:
Division Y of the same company would like to purchase 10,000 units each period from
Division X. Division Y now purchases the part from an outside supplier at a price of
$17 each. Suppose Division X has ample excess capacity to handle all of Division Y’s
needs without any increase in fixed costs and without cutting into sales to outside
customers. If Division X refuses to accept the $17 price internally and Division Y
continues to buy from the outside supplier, the company as a whole will be:
A.worse off by $70,000 each period.
B.better off by $10,000 each period.
C.worse off by $60,000 each period.
D.worse off by $20,000 each period.
E.better off by $60,000 each period.
26) A corporation declared and issued a 15% stock dividend on October 1. The
following information was available immediately prior to the dividend:
The amount that contributed capital will increase (decrease) as a result of recording this
stock dividend is:
A.$45,000.
B.$135,000.
C.$(45,000).
D.$(135,000).
E.$0.
27) CWN Company uses a job order costing system and last period incurred $80,000 of
actual overhead and $100,000 of direct labor. CWN estimates that its overhead next
period will be $75,000. It also expects to incur $100,000 of direct labor. If CWN bases
applied overhead on direct labor cost, its predetermined overhead rate for the next
period should be:
A.75%.
B.80%.
C.107%.
D.125%.
E.133%.
28) When the final production department completes goods, the cost of the completed
goods are transferred to ____________________.
29) A ______________________ is a separate record maintained for each job.
30) A company enters into an agreement to make 5 annual year-end payments of $3,000
each, starting one year from now. The annual interest rate is 6%. The present value of
an annuity factor for 5 periods at 6% is 4.2124. What is the present value of these five
payments?
31) In a decentralized organization, decisions are made by managers throughout the
company rather than by a few top executives.
32) On January 3, Kostansas Corporation purchased 5,000 shares of Morton, Inc. for
$40 per share plus $700 in broker commissions. These shares represent a 40%
ownership in Morton, Inc. Prepare the journal entry Kostansas Corporation should
record for the receipt of cash dividends of $2 per share from Morton on July 10.
33) When factory payroll is assigned to specific jobs, ______________________ is
debited.