Q1. Allowance for Doubtful Accounts is a contra-equity account.
a. true
b. false
Q2. After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receivable has a balance of $430,000 and Allowance for Doubtful Accounts has a balance of $30,000. What is the net realizable value of the accounts receivable?
a. $30,000
b. $460,000
c. $430,000
d. $400,000
Q3. One of the weaknesses of the direct write-off method is that it
a. understates accounts receivable on the balance sheet.
b. violates the matching principle.
c. is too difficult to use for many companies.
d. is based on estimates.
Q4. During deflationary periods, the use of the LIFO method of costing inventory will result in a greater amount of net income than would result from the use of the FIFO method.
a. true
b. false
Q5. Calculate the cost of ending inventory using FIFO inventory cost method.
| 1/1 |
Beginning inventory |
10 units @ $10 per unit |
| 2/28 |
Purchases |
40 units @ $12 per unit |
| 5/10 |
Purchases |
50 units @ $14 per unit |
| 9/20 |
Purchases |
30 units @ $16 per unit |
| 12/31 |
Ending inventory |
50 units |
a. $800
b. $760
c. $580
d. $500
Q6. The inventory data for an item for November are:
| Nov. 1 |
Inventory |
25 units at $20 |
| Nov. 10 |
Purchased |
30 units at $21 |
| Nov. 30 |
Purchased |
10 units at $22 |
| Nov. 30 |
Sold |
35 units |
Using the first-in, first-out method, what is the cost of the merchandise inventory of 30 units on November 30?
a. $640
b. $605
c. $623
d. $660
Q7. Under which method of inventory cost flows is the cost flow assumed to be in the reverse order in which the expenditures were made?
a. Average cost
b. Last-in, first-out
c. First-in, first-out
d. Last-in, last-out
Q8. The maturity value of a 12%, 60-day note for $5,000 is $5,100.
a. true
b. false
Q9. The person who is to be paid when a note matures is called the payee.
a. true
b. false
Q10. If merchandise inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is
a. average cost.
b. LIFO.
c. FIFO.
d. All methods will generate the same net income.
Q11. The Accumulated Depreciation account is deducted from the cost of fixed assets on the balance sheet.
a. true
b. false
Q12. If a fixed asset with an original cost of $18,000 and accumulated depreciation of $2,000 is sold for $15,000, the company must
a. recognize a loss on the income statement under other expenses.
b. recognize a loss on the income statement under operating expenses.
c. recognize a gain on the income statement under other revenues.
d. Gains and losses are not to be recognized upon the sell of fixed assets.
Q13. A fixed asset with a cost of $30,000 and accumulated depreciation of $25,000 is sold for $3,500. What is the amount of the gain or loss on disposal of the fixed asset?
a. $2,500 loss
b. $1,500 loss
c. $2,500 gain
d. $1,500 gain
Q14. The cost of a patent should be amortized
a. over 20 years.
b. over its economic life.
c. over 20 years or its economic life, whichever is shorter.
d. only if an impairment occurs.
Q15. Goodwill is
a. amortized similar to other intangibles.
b. only written down if an impairment in value occurs.
c. charged to expense immediately.
d. amortized over 40 years or its economic life, whichever is shorter.
Q16. Depreciable cost equals
a. cost less accumulated depreciation.
b. book value less residual value.
c. cost less residual value.
d. market value less residual value.
Q17. The process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is called
a. depletion.
b. deferral.
c. amortization.
d. depreciation.
Q18. The double-declining-balance method of depreciation is referred to as an accelerated method.
a. true
b. false
Q19. A capital expenditure would appear on the
a. income statement under operating expenses.
b. balance sheet under fixed assets.
c. balance sheet under current assets.
d. income statement under other expenses.
Q20. The acquisition costs of property, plant, and equipment should include all normal, reasonable, and necessary costs to get the asset in place and ready for use.
a. true
b. false
Q21. The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 75,000 shares were originally issued and 5,000 were subsequently reacquired. What is the number of shares outstanding?
a. 10,000
b. 70,000
c. 50,000
d. 60,000
Q22. When the contract rate of interest on bonds is higher than the market rate of interest, the bonds sell at
a. a premium.
b. their face value.
c. their maturity value.
d. a discount.
Q23. One of the prerequisites required to pay a cash dividend is formal action by the board of directors.
a. true
b. false
Q24. The total earnings of an employee for a payroll period are referred to as
a. take-home pay.
b. pay net of taxes.
c. net pay.
d. gross pay.
Q25. The liability for a dividend is recorded on which of the following dates?
a. The date of record
b. The date of payment
c. The date of announcement
d. The date of declaration
Q26. Most employers are levied a tax on payrolls for
a. sales tax.
b. medical insurance premiums.
c. federal unemployment compensation tax.
d. union dues.
Q27. A corporation has 50,000 shares of $100 par value stock outstanding that has a current market value of $180. If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately
a. $30.
b. $36.
c. $45.
d. $50.
Q28. The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 60,000 shares were originally issued and 5,000 were subsequently reacquired. What is the number of shares outstanding?
a. 5,000
b. 100,000
c. 60,000
d. 55,000
Q29. The total earnings of an employee for a payroll period is referred to as gross pay.
a. true
b. false
Q30. If 50,000 shares are authorized, 37,000 shares are issued, and 2,000 shares are reacquired, the number of outstanding shares is 35,000.
a. true
b. false
Q31. Interpreting financial analysis should be considered in light of conditions peculiar to the industry and the general economic conditions.
a. true
b. false
Q32. Based on the following data for the current year, what is the inventory turnover?
| Net sales on account during year |
$ 500,000 |
| Cost of merchandise sold during year |
300,000 |
| Accounts receivable, beginning of year |
45,000 |
| Accounts receivable, end of year |
35,000 |
| Inventory, beginning of year |
90,000 |
| Inventory, end of year |
110,000 |
a. 3.0
b. 2.7
c. 4.0
d. 3.3
Q33. The ratio of the sum of cash, receivables, and marketable securities to current liabilities is called the
a. price-earnings ratio.
b. earnings ratio.
c. quick ratio.
d. current ratio.
Q34. The percentage analysis of increases and decreases in corresponding items in comparative financial statements is referred to as horizontal analysis.
a. true
b. false
Q35. A company with working capital of $500,000 and a current ratio of 2.25 pays a $100,000 short-term liability. The amount of working capital immediately after payment is
a. $600,000.
b. $400,000.
c. $500,000.
d. $100,000.
Q36. The percentage analysis of increases and decreases in corresponding items in comparative financial statements is referred to as vertical analysis.
a. true
b. false
Q37. The percent of fixed assets to total assets is an example of
a. vertical analysis.
b. solvency analysis.
c. profitability analysis.
d. horizontal analysis.
Q38. Based on the following data for the current year, what is the accounts receivable turnover?
| Net sales on account during year |
$ 500,000 |
| Cost of merchandise sold during year |
300,000 |
| Accounts receivable, beginning of year |
45,000 |
| Accounts receivable, end of year |
35,000 |
| Inventory, beginning of year |
90,000 |
| Inventory, end of year |
110,000 |
a. 12.5
b. 14.3
c. 11.1
d. 7.5
Q39. The purpose of an audit is to
a. determine whether or not a company is a good investment.
b. render an opinion on the fairness of the statements.
c. determine whether or not a company complies with income tax regulations.
d. determine whether or not a company is a good credit risk.
Q40. Based on the following data, what is the amount of quick assets?
| Accounts payable |
$ 32,000 |
| Accounts receivable |
56,000 |
| Accrued liabilities |
7,000 |
| Cash |
20,000 |
| Intangible assets |
40,000 |
| Inventory |
72,000 |
| Long-term investments |
100,000 |
| Long-term liabilities |
75,000 |
| Marketable securities |
40,000 |
| Notes payable (short-term) |
20,000 |
| Property, plant, and equipment |
625,000 |
| Supplies |
2,000 |
a. $228,000
b. $188,000
c. $116,000
d. $114,000
Q41. At the end of the year, overhead applied was $35,000,000. Actual overhead was $35,800,000. Closing over/under applied overhead into cost of goods sold would cause net income to
a. increase by $800,000.
b. decrease by $800,000.
c. stay the same.
d. decrease by $200,000.
Q42. Perpetual inventory controlling accounts and subsidiary ledgers are maintained for materials, work in process, and finished goods in cost accounting systems.
a. true
b. false
Q43. For which of the following businesses would the process cost system be appropriate?
a. Custom cabinet manufacturer
b. Dress designer
c. Lumber mill
d. Printing firm
Q44. Recording direct labor costs in a job order cost accounting system
a. increases Factory Overhead, decreases Work in Process.
b. increases Finished Goods, increases Wages Payable.
c. increases Work in Process, increases Wages Payable.
d. increases Factory Overhead, increases Wages Payable.
Q45. Materials are transferred from the storeroom to the factory in response to materials requisitions.
a. true
b. false
Q46. A manufacturing business converts materials into finished products through the use of machinery and labor.
a. true
b. false
Q47. Each account in the work in process subsidiary ledger is called a
a. finished goods sheet.
b. stock record.
c. materials requisition.
d. job cost sheet.
Q48. Just-in-time processing is a business philosophy that focuses on reducing time and cost and eliminating poor quality. One of the ways in which this is accomplished in manufacturing and nonmanufacturing processes is by:
a. moving a product from process to process as each function is completed.
b. combining processing functions into work centers and cross-training workers to perform more than one function.
c. having production supervisors attempt to enter enough materials into manufacturing to keep all manufacturing departments operating.
d. having workers typically perform one function on a continuous basis.
Q49. The following information is available for the first month of operations for Crawford, Inc.:
| Sales |
$570,000 |
| Gross profit |
210,000 |
| Indirect labor |
20,000 |
| Indirect materials |
9,000 |
| Other factory overhead |
7,500 |
| Materials purchased |
250,000 |
| Total manufacturing costs |
420,000 |
| Materials inventory, end of period |
10,000 |
Calculate cost of goods sold for Crawford, Inc.
a. $420,000
b. $370,000
c. $360,000
d. $276,500
Q50. The cost of wages paid to employees directly involved in the manufacturing process in converting materials into finished product is classified as
a. factory overhead cost.
b. direct labor cost.
c. wages expense.
d. direct materials cost.