1) A liabilityrevenue account relationship exists with an unearned rent revenue
adjusting entry.
2) Treasury stock purchased for $35 per share that is reissued at $31 per share, results in
a Loss on Sale of Treasury Stock being recognized on the income statement.
3) Interest expense on a note payable is only recorded at maturity.
4) Decision-making is an integral part of the planning, directing, and controlling
functions.
5) Revenue received before services are performed and expenses paid before being used
or consumed are both initially recorded as liabilities.
6) General ledger accounting systems are software programs that integrate the various
accounting functions related to sales, purchases, cash receipts and disbursements, and
payroll.
7) Partnership income is shared in proportion to each partner’s capital equity interest
unless the partnership contract specifically indicates the manner in which net income or
net loss is to be divided.
8) When no-par value stock does not have a stated value, the entire proceeds from the
issuance of the stock becomes legal capital.
9) Cash equivalents are highly liquid investments that can be converted into a specific
amount of cash.
10) Product costs are also called inventoriable costs.
11) Each bondholder may vote for the board of directors in proportion to the number of
bonds held.
12) If production exceeds normal capacity, the overhead volume variance will be
favorable.
13) In published annual reports, subdivisions within the stockholders’ equity section are
seldom presented, but additional information is frequently included in the footnotes to
the financial statements.
14) The duties of approving an item for payment and paying the item should be done by
different departments or individuals.
15) Under the cost method, the investment is recorded at cost and revenue is recognized
only when cash dividends are received.
16) Salvage value is not subtracted from plant asset cost in determining depreciation
expense under the declining-balance method of depreciation.
17) Extraordinary items are reported net of applicable taxes in a separate section of the
income statement.
18) If the board of directors authorizes a $1,000,000 restriction of retained earnings for
a future plant expansion, the effect of this action is to
a.decrease total assets and total stockholders’ equity
b.increase stockholders’ equity and decrease total liabilities
c.decrease total retained earnings and increase total liabilities
d.reduce the amount of retained earnings available for dividend declarations
19) Which of the following is not a necessary step in preparing a production cost
report?
a.Compute the equivalent units of production
b.Compute the physical unit flow
c.Prepare the job order cost sheet
d.Prepare a cost reconciliation schedule
20) The adjustments columns of the worksheet for Mandy Company are shown below.
Adjustments
Account Titles DebitCredit
Accounts Receivable800
Prepaid Insurance650
Accumulated Depreciation 770
Salaries and Wages Payable1,200
Service Revenue 800
Salaries and Wages Expense1,200
Insurance Expense650
Depreciation Expense 770
3,4203,420
Instructions
(a)Prepare the adjusting entries
(b)Assuming the adjusted trial balance amount for each account is normal, indicate the
financial statement column to which each balance should be extended
21) Vonak Co. estimates its sales at 240,000 units in the first quarter and that sales will
increase by 24,000 units each quarter over the year. They have, and desire, a 25%
ending inventory of finished goods. Each unit sells for $25. 40% of the sales are for
cash. 70% of the credit customers pay within the quarter. The remainder is received in
the quarter following sale.
Production in units for the third quarter should be budgeted at
a.294,000
b.276,000
c.366,000
d.288,000
22) Compute the missing amount for each of the following notes:
PrincipalAnnual Interest RateTimeTotal Interest
(a)$40,00010%2.5 years?
(b)$120,000?9 months$7,200
(c)?10%90 days$1,500
(d)$40,0009%?$1,200
23) A partnership
a.is dissolved only by the withdrawal of a partner
b.is dissolved upon the acceptance of a new partner
c.dissolution means the business must liquidate
d.has unlimited life
24) The subtotal net assets is used in
a.both GAAP and IFRS
b.GAAP but not IFRS
c.IFRS but not GAAP
d.neither IFRS nor GAAP
25) If a firm increases its activity level,
a.costs should remain the same
b.most costs will rise
c.no costs will remain the same
d.some costs will change, others will remain the same
26) Equipment with a cost of $400,000 has an estimated salvage value of $25,000 and
an estimated life of 4 years or 15,000 hours. It is to be depreciated using the
units-of-activity method. What is the amount of depreciation for the first full year,
during which the equipment was used 3,300 hours?
a.$100,000
b.$113,800
c.$82,500
d.$93,750
27) Using the percentage-of-receivables method for recording bad debts expense,
estimated uncollectible accounts are $32,000. If the balance of the Allowance for
Doubtful Accounts is $8,000 debit before adjustment, what is the amount of bad debt
expense for that period?
a.$8,000
b.$24,000
c.$32,000
d.$40,000
28) Budgeting in not-for-profit organizations
a.is not important because they are not profit-oriented
b.usually starts with budgeting expenditures, rather than receipts
c.is necessary only if some product is produced and sold
d.consists entirely of budgeted contributions
29) Determine the missing amount for each of the following.
Assets=Liabilities+Owner’s Equity
1>(a)$55,000$95,000
2>$125,000(b)$85,000
3>$160,000$65,000(c)
30) A company’s past experience indicates that 60% of its credit sales are collected in
the month of sale, 30% in the next month, and 4% in the second month after the sale;
the remainder is never collected. Budgeted credit sales were:
January$360,000
February216,000
March540,000
The cash inflow in the month of March is expected to be
a.$440,640
b.$403,200
c.$324,000
d.$388,800
31) Which of the following is not a profitability ratio?
a.Payout ratio
b.Profit margin
c.Times interest earned
d.Return on common stockholders’ equity
32) Long-range planning
a.generally presents more detailed information than an annual budget
b.generally encompasses a longer period of time than an annual budget
c.is usually more accurate than an annual budget
d.is prepared on a quarterly basis if the budget is prepared on a quarterly basis
33) The financial statements of Gervais Manufacturing Company report net sales of
$500,000 and accounts receivable of $80,000 and $40,000 at the beginning and end of
the year, respectively. What is the average collection period for accounts receivable in
days?
a.29.2 days
b.36.5 days
c.43.8 days
d.57.9 days
34) The balance in the Unrealized Gain or LossEquity account will
a.appear on the balance sheet as a contra asset
b.appear on the income statement under Other Expenses and Losses
c.appear as a deduction in the stockholders’ equity section
d.not be shown on the financial statements until the securities are sold
35) In Ramon Company, Treasury Stock increased $20,000 from a cash purchase, and
Retained Earnings increased $80,000 as a result of net income of $120,000 and cash
dividends paid of $40,000. Net cash used by financing activities is:
a.$20,000
b.$40,000
c.$120,000
d.$60,000
36) The average collection period is computed by dividing
a.net credit sales by average gross accounts receivable
b.net credit sales by ending gross accounts receivable
c.the accounts receivable turnover by 365 days
d.365 days by the accounts receivable turnover
37) A process cost system would be used by all of the following except a(n)
a.chemical company
b.advertising company
c.oil company
d.computer chip company
38) Bonds that mature at a single specified future date are called
a.coupon bonds
b.term bonds
c.serial bonds
d.debentures
39) Back Cove Yacht Company billed its customers a total of $1,575,000 for the month
of November. The total includes a 5% state sales tax.
Instructions
(a)Determine the proper amount of revenue to report for the month.
(b)Prepare the general journal entry to record the revenue and related liabilities for the
month.
40) The financial statements of Danielle Manufacturing Company report net sales of
$750,000 and accounts receivable of $60,000 and $90,000 at the beginning and end of
the year, respectively. What is the accounts receivable turnover for Danielle?
a.5 times
b.8.3 times
c.10 times
d.12.5 times
41) If the standard hours allowed are less than the standard hours at normal capacity,
the volume variance
a.cannot be calculated
b.will be favorable
c.will be unfavorable
d.will be greater than the controllable variance
42) Suppose you have a winning lottery ticket and you are given the option of accepting
$800,000 two years from now or taking the present value of the $800,000 now. The
sponsor of the prize uses a 5% discount rate. If you elect to receive the present value of
the prize now, the amount you will receive is
a.$800,000
b.$712,000
c.$739,648
d.$725,624
43) At October 1, Arcade Fire Enterprises reported owners equity of $70,000. During
October, the owner made additional investments of $10,000 and the company posted a
net loss of $4,000. If owners equity at October 31 totals $70,000, what amount of owner
drawings were made during the month?
a.$0
b.$4,000
c.$6,000
d.$10,000
44) Which of the following is not an advantage of a subsidiary ledger?
a.Shows transactions affecting one customer or one creditor in a single account
b.Helps locate errors in individual accounts
c.Puts greater detail in the general ledger
d.Makes possible a division of labor
45) A static budget is usually appropriate in evaluating a manager’s effectiveness in
controlling
a.fixed manufacturing costs and fixed selling and administrative expenses
b.variable manufacturing costs and variable selling and administrative expenses
c.fixed manufacturing costs and variable selling and administrative expenses
d.variable manufacturing costs and fixed selling and administrative expenses
46) On February 1, 2014, Fugit Company sells merchandise on account to Armen
Company for $6,500. The entry to record this transaction by Fugit Company is
a.Sales Revenue6,500
Accounts Payable6,500
b.Cash6,500
Sales Revenue6,500
c.Accounts Receivable6,500
Sales Revenue6,500
d.Notes Receivable6,500
Accounts Receivable6,500
47) Which of the following is false with regard to a general journal?
a.It helps to prevent errors since the debit and credit amounts in an individual entry can
be readily compared
b.It discloses in one place the complete effects of a transaction
c.It provides a chronological record of transactions
d.It tracks the increases and decreases in an individual account
48) Riley Company received a notice with its bank statement that the bank had
collected a note receivable for $5,000 plus $150 of interest. The bank had credited these
amounts to Riley ‘s account less a collection fee of $10. Riley Company had already
accrued the interest for this note on its books.
(a)How will these items affect Riley Company’s bank reconciliation?
(b)Prepare the journal entry that Riley Company will make to record this information
on its books.
49) Raab Mfg. provided the following information from its accounting records for
2014:
Expected production32,000 labor hours
Actual production30,000 labor hours
Budgeted overhead$976,000
Actual overhead$928,000
How much is the overhead application rate if Raab bases the rate on direct labor hours?
a.$30.50 per hour
b.$32.53 per hour
c.$30.93 per hour
d.$29.00 per hour
50) The one characteristic that all entries recorded in a multi-column purchases journal
have in common is a
a.credit to the Cash account
b.debit to the Cash account
c.debit to the Accounts Payable account
d.credit to the Accounts Payable account
51) Assume that Swann Company uses a periodic inventory system and has these
account balances: Purchases $630,000; Purchase Returns and Allowances $25,000;
Purchase Discounts $11,000; and Freight-In $19,000; beginning inventory of $45,000;
ending inventory of $55,000; and net sales of $750,000. Determine the cost of goods
sold.
52) Responsibility centers may be classified into three types:
(1)____________________, (2)___________________ and,
(3)____________________.
53) R&R Inc. produces several models of clocks. An outside supplier has offered to
produce the commercial clocks for R&R for $270 each. R&R needs 1,500 clocks
annually. R&R has provided the following unit costs for its commercial clocks:
Direct materials$100
Direct labor110
Variable overhead30
Fixed overhead (70% avoidable)150
Instructions
Prepare an incremental analysis which shows the effect of the make-or-buy decision.
54) Management is often faced with the alternative of continuing to make a product or
component internally, or going to an external source and purchasing the product or
component. In gathering relevant information for these two alternatives, briefly identify
the quantitative factors that should be considered. Are there any qualitative factors that
should also be considered?
55) For each of the following transactions of Neon Garden, identify the account to be
debited and the account to be credited.
1>Purchased 18-month insurance policy for cash.
2>Paid weekly payroll.
3>Purchased supplies on account.
4>Received utility bill to be paid at later date.
56) Financial statements for Claire Corporation are presented below.
CLAIRE CORPORATION
Comparative Balance Sheet
December 31
2014 2013
Assets
Cash$ 4,000$ 6,000
Accounts receivable (net)16,00012,000
Inventory20,00018,000
Land28,0008,000
Machinery62,00060,000
Accumulated depreciation (20,000) (14,000)
Total assets$110,000$90,000
Liabilities and Stockholders’ Equity
Accounts payable$ 10,000$16,000
Long-term notes payable34,00019,000
Common stock ($10 par value)50,00050,000
Retained earnings 16,000 5,000
Total liabilities and stockholders’ equity$110,000$90,000
CLAIRE CORPORATION
Income Statement
For the year ended December 31, 2014
Sales $370,000
Less: Sales returns and allowances 10,000
Net sales 360,000
Cost of goods sold 275,000
Gross profit 85,000
Selling expenses 26,000
Administrative expenses 14,000
Income before income taxes 45,000
Income tax expense 18,000
Net income $ 27,000
Additional Information: All sales were on account. The market price of Claires common
stock was $42 on December 31, 2014 .
Instructions: Compute the indicated ratios at December 31, 2014, or for the year ended
December 31, 2014, as appropriate. Report answers to one decimal place.
1>Profit margin is .
2>Acid-test ratio is .
3>Return on assets is .
4>Payout ratio is .
5>Accounts Receivable turnover is.
6>Asset turnover is .
7>Debt to total assets ratio is.
8>Price-earnings ratio is .
9>Current ratio is .
57) Crapty Company is considering investing in a new facility to extract and produce
salt. The facility will increase revenues by $240,000, but will also increase annual
expenses by $180,000. The facility will cost $980,000 to build, but will have a $20,000
salvage value at the end of its 20-year useful life.
Instructions
Calculate the annual rate of return on this facility.
58) Ordinary repairs which maintain operating efficiency and expected productive life
are called _______________.