1) On a work sheet, a loss is indicated if the total of the Income Statement Debit
column exceeds the total of the Income Statement Credit column.
2) Cost of goods sold represents the cost of buying and preparing merchandise for sale.
3) When a voucher system is used, recording a purchase is initiated by an invoice
approval and a voucher, not an invoice.
4) The units-of-production method of depreciation charges a varying amount of expense
for each period of an asset’s useful life depending on its usage.
5) Cash flow amounts and their timing should be considered when planning and
analyzing operating activities.
6) Before an adjusting entry is made to recognize the cost of expired insurance for the
period, Prepaid Insurance and Insurance Expense are both overstated.
7) Accumulated depreciation is shown on the balance sheet as a subtraction from the
cost of its related asset.
8) The debt-to-equity ratio is calculated by dividing total stockholders’ equity by total
liabilities.
9) Profitability is the ability to generate future revenues and meet long-term obligations.
10) A payroll register is a cumulative record of an employee’s hours worked, gross
earnings, deductions, and net pay.
11) Any material amount of under- or overapplied factory overhead must always be
closed to Cost of Goods Sold at the end of an accounting period.
12) Errors in the period-end inventory balance only affect the current period’s records
and financial statements.
13) Generally accepted accounting principles are the basic assumptions, concepts, and
guidelines for preparing financial statements.
14) The days’ sales uncollected ratio measures a company’s ability to manage its debt.
15) Two common subsidiary ledgers are cash receipts and cash disbursements.
16) Beginning merchandise inventory plus the net cost of purchases is the merchandise
available for sale.
17) Objectivity means that financial information is supported by independent unbiased
evidence.
18) A company entered into a 2-month contract for $50,000 on April 1. It earned
$25,000 of the contract services in April and billed the customer. The company should
recognize the revenue when it receives the customer’s check.
19) A purchase requisition is a document the purchasing department sends to the vendor
to place an order.
20) A company should report its portfolio of trading securities at its fair value.
21) The income statement reports all of the following except:
A.Revenues earned by a business
B.Expenses incurred by a business
C.Assets owned by a business
D.Net income or loss earned by a business
E.The time period over which the earnings occurred
22) What interest rate is required to accumulate $6,802.50 in four years from an
investment of $5,000?
A.5%
B.8%
C.10%
D.12%
E.15%
23) In preparing a budgeted balance sheet, the amount for Accounts Receivable is
primarily determined from:
A.The purchases budget
B.The sales budget
C.The capital expenditures budget
D.The budgeted income statement
E.The selling expenses budget
24) In a partnership agreement, if the partners agreed to an interest allowance of 10%
annually on each partner’s investment, the interest allowance:
A.Is ignored when earnings are not sufficient to pay interest
B.Can make up for unequal capital contributions
C.Is an expense of the business
D.Must be paid because the partnership contract has unlimited life
E.Legally becomes a liability of the general partner
25) Badger and Fox are forming a partnership. Badger invests a building that has a
market value of $350,000; the partnership assumes responsibility for a $125,000 note
secured by a mortgage on the property. Fox invests $100,000 in cash and equipment
that has a market value of $75,000. For the partnership, the amounts recorded for
Badger’s Capital account and for Fox’s Capital account are:
A.Badger, Capital $350,000; Fox, Capital $175,000
B.Badger, Capital $225,000; Fox, Capital $100,000
C.Badger, Capital $225,000; Fox, Capital $75,000
D.Badger, Capital $350,000; Fox, Capital $100,000
E.Badger, Capital $225,000; Fox, Capital $175,000
26) An accounting system that provides information that management can use to
evaluate the profitability and/or cost effectiveness of a department’s activities is a:
A.Departmental accounting system
B.Cost accounting system
C.Service accounting system
D.Revenue accounting system
E.Standard accounting system
27) A company is considering the purchase of a new piece of equipment for $90,000.
Predicted annual cash inflows from this investment are $36,000 (year 1), $30,000 (year
2), $18,000 (year 3), $12,000 (year 4) and $6,000 (year 5). The payback period is:
A.4.50 years
B.4.25 years
C.3.50 years
D.3.00 years
E.2.50 years
28) Intracompany standards for financial statement analysis:
A.Are often based on a company’s prior performance
B.Are often set by competitors
C.Are set by the company’s industry
D.Are based on rules of thumb
E.Are published in Dun and Bradstreet
29) A collection of all accounts and their balances used by a business is called a:
A.Journal
B.Book of original entry
C.General Journal
D.Balance column journal
E.Ledger
30) Endor Fishing Company exchanged an old boat for a new one. The old boat had a
cost of $260,000 and accumulated depreciation of $200,000. The new boat had an
invoice price of $400,000. Endor received a trade in allowance of $100,000 on the old
boat, which meant the company paid $300,000 in addition to the old boat to acquire the
new boat. If this transaction lacks commercial substance, what amount of gain or loss
should be recorded on this exchange?
A.$0 gain or loss
B.$40,000 gain
C.$40,000 loss
D.$60,000 loss
E.$100,000 loss
31) Groh and Jackson are partners. Groh’s capital balance in the partnership is $64,000,
and Jackson’s capital balance $61,000. Groh and Jackson have agreed to share equally
in income or loss. Groh and Jackson agree to accept Block with a 20% interest. Block
will invest $35,000 in the partnership. The bonus that is granted to Groh and Jackson
equals:
A.$1,500 each
B.$1,875 each
C.$3,750 each
D.1,920 to Groh; $1,830 to Jackson
E.$0, because Groh and Jackson actually grant a bonus to Block
32) Nguyen invested $100,000 and Hansen invested $200,000 in a partnership. They
agreed to share incomes and losses by allowing a $60,000 per year salary allowance to
Nguyen and a $40,000 per year salary allowance to Hansen, plus an interest allowance
on the partners’ beginning-year capital investments at 10%, with the balance to be
shared equally. Under this agreement, the shares of the partners when the partnership
earns $105,000 in income are:
A.$52,500 to Nguyen; $52,500 to Hansen
B.$35,000 to Nguyen; $70,000 to Hansen
C.$57,500 to Nguyen; $47,500 to Hansen
D.$42,500 to Nguyen; $62,500 to Hansen
E.$70,000 to Nguyen; $60,000 to Hansen
33) A system of assigning costs to departments and products on the basis of a variety of
activities instead of only one allocation base is called:
A.A responsibility accounting system
B.A cost center accounting system
C.Controllable costing
D.Activity-based costing
E.Performance costing
34) The following items appeared on a company’s December 31 work sheet for the
current period. Based on the following information, what is the net income for the
current period?
A.$1,400
B.$1,855
C.$1,905
D.$2,060
E.$4,670
35) Thelma Company reported cost of goods sold for Year 1 and Year 2 as follows:
Thelma Company made two errors: 1) ending inventory at the end of Year 1 was
understated by $15,000 and 2) ending inventory at the end of Year 2 was overstated by
$6,000. Given this information, the correct cost of goods sold figure for Year 2 would
be:
A.$291,000
B.$276,000
C.$264,000
D.$285,000
E.$249,000
36) B. Tanner contributed $14,000 in cash plus office equipment valued at $7,000 to the
JT Partnership. The journal entry to record the transaction for the partnership is:
A.Debit Cash $14,000; debit Office Equipment $7,000; credit B. Tanner, Capital
$21,000
B.Debit Cash $14,000; debit Office Equipment $7,000; credit JT Partnership, Capital
$21,000
C.Debit JT Partnership $21,000; credit B. Tanner, Capital $21,000
D.Debit B. Tanner, Capital $21,000; credit JT Partnership, Capital $21,000
E.Debit Cash $14,000; debit Office Equipment $7,000; credit Common Stock $21,000
37) A company issued a check for $7,900 in payment of merchandise. Identify the
journal the transaction would be recorded in.
A.Cash disbursements journal
B.Sales journal
C.Cash receipts journal
D.Purchases journal
E.General journal
38) Equivalent units of production are equal to:
A.The number of units that could have been completed if all effort had been applied to
units that were started and completed during a period
B.The number of finished units actually produced during a period
C.The number of units introduced into the process during a period
D.The number of units still in process at the end of a period
E.Physical units that were started and completed during a period
39) Perch Company reported the following purchases and sales for its only product.
Perch uses a perpetual inventory system. Determine the cost assigned to cost of goods
sold using LIFO.
A.$2,260
B.$3,180
C.$1,860
D.$3,580
E.$2,100
40) A method that estimates cost behavior by connecting the costs linked to the highest
and lowest volume is called the:
A.Scatter method
B.High-low method
C.Least-squares method
D.Break-even method
E.Step-wise method
41) During March, the production department of a process manufacturing system
completed a number of units of a product and transferred them to finished goods. Of the
units transferred, 25,000 were in process at the beginning of March and 110,000 were
started and completed in March. March’s beginning inventory units were 100%
complete with respect to materials and 55% complete with respect to labor. At the end
of March, 30,000 additional units were in process in the production department and
were 100% complete with respect to materials and 30% complete with respect to labor.
Compute the number of equivalent units with respect to both materials and direct labor
respectively for March using the FIFO method.
A.165,000; 165,000
B.135,000; 119,000
C.140,000; 130,250
D.165,000; 144,000
E.144,000; 144,000
42) Cabot Company collected the following data regarding production of one of its
products. Compute the direct materials quantity variance.
A.$2,430 unfavorable
B.$3,570 unfavorable
C.$2,430 favorable
D.$6,000 unfavorable
E.$3,570 favorable
43) Identify each of the following business activities 1 through 6 into the appropriate
category a, b, and c.
1Operating A. Paid utilities expenses.
2Financing B. Withdrawal of funds by owners.
3Investing C. Purchase of land.
4Investing D. Sale of used equipment.
5Operating E. Borrowed money from a bank on a long-term note.
6Financing F. Paid employee wages.
44) At the end of the accounting period, the owners of debt securities:
A.Must report the dividend income accrued on the debt securities
B.Must retire the debt
C.Must record a gain or loss on the interest income earned
D.Must record a gain or loss on the dividend income earned
E.Must record any interest earned on the debt securities
45) A company is considering purchasing a machine for $21,000. The machine will
generate an after-tax net income of $2,000 per year. Annual depreciation expense would
be $1,500. What is the payback period for the new machine?
A.4 years
B.6 years
C.10.5 years
D.14 years
E.42 years
46) On March 31, Phoenix, Inc. paid Melanie Publishing Company $15,480 for a 3-year
subscription for five different magazines. The subscriptions started immediately. What
amount should appear in the Prepaid Subscription account for Phoenix Company after
adjustments on December 31 each year assuming Phoenix using a calendar reporting
period?
A.$15,480; $11,610; $6,540; $1,290
B.$3,870; $5,160; $5,160; $1,290
C.$5,160; $5,160; $5,160
D.$11,610; $6,450; $1,290; $0
E.The answer cannot be determined based on the information given
47) A copyright:
A.Gives its owner the exclusive right to publish and sell a musical or literary work
during the life of the creator plus 70 years
B.Gives its owner an exclusive right to manufacture and sell a patented item or to use a
process for 20 years
C.Gives its owner an exclusive right to manufacture and sell a device or to use a
process for 50 years
D.Is the amount by which the value of a company exceeds the fair market value of a
company’s net assets if purchased separately
E.Gives its owner the exclusive right to publish and sell a musical or literary work
during the life of the creator plus 20 years
48) Lomax Enterprises purchased a depreciable asset for $22,000 on March 1, Year 1.
The asset will be depreciated using the straight-line method over its four-year useful
life. Assuming the asset’s salvage value is $2,000, Lomax Enterprises should recognize
depreciation expense in Year 2 in the amount of:
A.$19,166.67
B.$5,000.00
C.$5,500.00
D.$20,000.00
E.$4,166.67
49) Adams, Inc. uses the following standard to produce a single unit of its product:
overhead (2 hrs. @ $3/hr.) $6. The flexible budget for overhead is $100,000 plus $1 per
direct labor hour. Actual data for the month show overhead costs of $150,000, and
24,000 units produced. The overhead volume variance is:
A.$10,000 favorable
B.$12,000 favorable
C.$4,000 unfavorable
D.$16,000 unfavorable
E.$36,000 unfavorable
50) Clark Corporation purchased 40% of IT Corporation for $125,000 on January 1. On
May 20 of the same year, IT Corporation declared total cash dividends of $30,000. At
year-end, IT Corporation reported net income of $150,000. The balance in Clark
Corporation’s Long-Term Investment-IT Corporation account as of December 31 should
be:
A.$77,000
B.$125,000
C.$173,000
D.$197,000
E.$370,000
51) A promissory note received from a customer in exchange for an account receivable:
A.Is a cash equivalent for the recipient
B.Is an account receivable for the recipient
C.Is a note receivable for the recipient
D.Is a short-term investment for the recipient
E.Is a note payable for the recipient
52) The sales budget for Carmel shows that 20,000 units of Product A and 22,000 units
of Product B are going to be sold for prices of $10 and $12, respectively. The desired
ending inventory of Product A is 20% higher than its beginning inventory of 2,000
units. The beginning inventory of Product B is 2,500 units. The desired ending
inventory of B is 3,000 units. Budgeted purchases of Product B for the year would be:
A.24,500 units
B.22,500 units
C.16,500 units
D.26,500 units
E.20,500 units
53) Internal control procedures for cash receipts require that:
A.Custody over cash is kept separate from its recordkeeping
B.Cash sales should be recorded on a cash register at the time of each sale
C.Clerks having access to cash in a cash register should not have access to the register
tape or file
D.An employee (with no access to cash receipts) should compare the total cash
recorded by the register with the record of cash receipts reported by the cashier
E.All of these
54) The J. Godfrey, Capital account has a credit balance of $17,000 before closing
entries are made. If total revenues for the period are $55,200, total expenses are
$39,800, and withdrawals are $9,000, what is the ending balance in the J. Godfrey,
Capital account after all closing entries are made?
A.$8,000
B.$15,400
C.$23,400
D.$17,000
E.$32,400
55) Which of the following procedures would weaken control over cash receipts that
arrive through the mail?
A.After the mail is opened, a list (in triplicate) of the money received is prepared with a
record of the sender’s name, the amount, and an explanation of why the money is sent
B.The bank reconciliation is prepared by a person who does not handle cash or record
cash receipts
C.For safety, only one person should open the mail, and that person should immediately
deposit the cash received in the bank
D.The cashier should not also be the record keeper who records the amounts received in
the accounting records
E.All of these are good internal control procedures over cash receipts that arrive
through the mail
56) ____________________________ are debt and equity securities that a company
intends to actively manage and trade for a profit.
57) A ______________________________ accumulates and reports costs and expenses
that a manager is responsible for, including budgeted amounts.
58) A manufacturing company uses an overhead allocation rate based on direct labor
cost. The company’s Goods in Process Inventory account has a $15,000 debit balance
after all posting is completed, and the cost sheet of the one job still in process shows
direct material costs of $6,600 and direct labor costs of $3,000. What is the company’s
overhead application rate?
59) Solving problems to determine the relationship of cost, volume, and profit often
commences with the measurement of the _____________ point. Further analysis
emphasizing profitability may be accomplished by measuring the _______________
and ________________.
60) A company borrows money from the bank by promising to make 8 semiannual
payments of $9,000 each. How much is the company able to borrow if the interest rate
is 10% compounded semiannually?
61) A company established a petty cash fund of $100 on September 1. On September
10, the petty cash fund was replenished when there was $16 remaining and there were
petty cash receipts for: office supplies, $27; transportation-in on inventory purchased,
$32; and postage, $22. On September 15, the petty cash fund was increased to $125 in
total. Record the above transactions in general journal form.