If in evaluating a proposal by use of the net present value method there is a deficiency
of the present value of future cash inflows over the amount to be invested, the proposal
should be rejected.
Answer:
When no-par stock is issued, the Common Stock account is credited for the selling price
of the stock issued.
Answer:
Free cash flow is cash flow from operations, less cash used to purchase fixed assets to
maintain productive capacity and cash used for dividends.
Answer:
Normal balances are the side that increase the account balance.
Answer:
The adjustment for accrued fees was debited to Accounts Payable instead of Accounts
Receivable. This error will be detected when the Adjusted Trial Balance is prepared.
Answer:
When an accounts payable account is paid in cash, the owner’s equity in the business
decreases.
Answer:
The declaration of a cash dividend decreases a corporation’s stockholders equity and
decreases its assets.
Answer:
Direct labor costs are included in the conversion costs of a product.
Answer:
The statement of cash flows is an optional financial statement.
Answer:
Paid-in capital may originate from real estate donated to thecorporation.
Answer:
The first budget to be prepared is usually the cash budget.
Answer:
Cash, as the term is used for the statement of cash flows, could indicate either cash or
cash equivalents.
Answer:
Money market accounts, commercial paper, and United States Treasury Notes are
examples of cash equivalents.
Answer:
Interpreting financial analysis should be considered in light of conditions peculiar to the
industry and the general economic conditions.
Answer:
Minerals removed from the earth are classified as intangible assets.
Answer:
Hill Co. can further process Product O to produce Product P. Product O is currently
selling for $60 per pound and costs $42 per pound to produce. Product P would sell for
$82 per pound and would require an additional cost of $13 per pound to produce.
The differential cost of producing Product P is $55 per pound.
Answer:
If fixed costs are $850,000 and the unit contribution margin is $50, profit is zero when
15,000 units are sold.
Answer:
The erroneous arrangement of digits, such as writing $45 as $54, is called a slide.
Answer:
The statement of cash flows reports a firm’s major sources of cash receipts and major
uses of cash payments for a period.
Answer:
Controlling deals with choosing goals and deciding how to achieve them.
Answer:
In the vertical analysis of a balance sheet, the base for current liabilities is total
liabilities.
Answer:
Dollar amounts of working capital are difficult to assess when comparing companies of
different sizes or in comparing such amounts with industry figures.
Answer:
The Financial Accounting Standards Board (FASB) is the authoritative body that has
primary responsibility for developing accounting principles.
Answer:
Unusual items affecting the current period’s income statement consist of changes in
accounting principles and discontinued operations.
Answer:
The balance sheet represents the accounting equation.
Answer:
Assuming no other changes, operating income will be the same under both the variable
and absorption costing methods when the number of units manufactured equals the
number of units sold.
Answer:
The budgeted direct materials purchases is based on the sum of (1) the materials needed
for production and (2) the desired ending materials inventory, less (3) the estimated
beginning materials inventory.
Answer:
A consignor who has goods out on consignment with an agent should include the goods
in ending inventory even though they are not in the possession of the consignor.
Answer:
If fixed costs are $500,000 and variable costs are 60% of break-even sales, profit is zero
when sales revenue is $930,000.
Answer:
The adoption of variable costing for managerial decision making is based on the
premise that fixed factory overhead costs are related to productive capacity of the
manufacturing plant and are normally not affected by the number of units produced.
Answer:
Jackson and Campbell have capital balances of $100,000 and $300,000 respectively.
Jackson devotes full time and Campbell one-half time to the business. Determine the
division of $150,000 of net income in ratio of time devoted to business.
A.$75,000 and $75,000
B.$37,500 and $112,500
C.$100,000 and $50,000
D.$112,500 and $37,500
Answer:
Round-tripping is when
A.a selling company sells to a customer company with huge discounts.
B.a selling company pretends to sell to a fictitious company with the intent of inflating
revenues
C.a selling company lends money to a customer company to increase assets.
D.a selling company lends money to a customer company to be used to purchase goods
from the selling company.
Answer:
Allowance for Doubtful Accounts has a credit balance of $800 at the end of the year
(before adjustment), and an analysis of accounts in the customer ledger indicates the
estimated amount of uncollectible accounts should be $16,000. Based on the estimate
above, which of the following adjusting entries should be made?
A.debit Bad Debt Expense, $800; credit Allowance for Doubtful Accounts, $800
B.debit Bad Debt Expense, $15,200; credit Allowance for Doubtful Accounts, $15,200
C.debit Allowance for Doubtful Accounts, $800; credit Bad Debt Expense, $800
D.debit Bad Debt Expense, $16,800; credit Allowance for Doubtful Accounts, $16,800
Answer:
Which of the following is most associated with financial accounting?
A.Can have both objective and subjective information
B.Can be prepared periodically, or as needed
C.Prepared in accordance with GAAP
D.Can be prepared for the entity or segment
Answer:
Penny, Inc. employs a process costing system. Direct materials are added at the
beginning of the process. Here is information about July’s activities:
Using the FIFO method, the number of units started and completed in July was
A.14,250
B.15,000
C.13,400
D.15,740
Answer:
An adjustment resulting from a creditor charging too much for merchandise would be
recorded in the:
A.general journal
B.purchases journal
C.cash payments journal
D.cash receipts journal
Answer:
The fiscal year selected by companies
A.is the same as the calendar year
B.begins with the first day of the month and ends on the last day of the twelfth month
C.must always begin on January 1
D.will change each year
Answer:
Next year’s sales forecast 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 per unit, 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.
Total budgeted sales of both products for the year would be:
A.$42,000
B.$200,000
C.$264,000
D.$464,000
Answer:
The following lots of a particular commodity were available for sale during the year:
The firm uses the periodic system and there are 20 units of the commodity on hand at
the end of the year. What is the amount of inventory at the end of the year according to
the LIFO method?
A.$655
B.$620
C.$690
D.$659
Answer:
The Everest Company has income from operations of $80,000, invested assets of
$500,000, and sales of $1,050,000.
What is the investment turnover?
A.1.8
B.2.1
C..48
D.13.13
Answer:
In management’s internal control report that is now required of all public companies,
which of the following does not have a direct effect on a company’s internal control
system?
A.internal auditors
B.independent accountants
C.Board of Director’s audit committee
D.Board of Trustees
Answer:
Free cash flow is
A.all cash in the bank
B.cash from operations
C.cash from financing, less cash used to purchase fixed assets to maintain productive
capacity and cash used for dividends
D.cash flow from operations, less cash used to purchase fixed assets to maintain
productive capacity and cash used for dividends
Answer:
Which of the following is not one of the four basic financial statements?
A.balance sheet
B.statement of cash flows
C.statement of changes in financial position
D.income statement
Answer:
Cost-volume-profit analysis cannot be used if which of the following occurs?
A.Costs cannot be properly classified into fixed and variable costs
B.The total fixed costs change
C.The per unit variable costs change
D.Per unit sales prices change
Answer:
Truliant co. sells a product called Withall and has predicted the following sales for the
first four months of the current year:
Ending inventory for each month should be 20% of next month’s sales, and the
December 31 inventory is consistent with that policy. How many units should be
purchased in February?
A.1,940
B.1,800
C.1,900
D.1,850
Answer:
If fixed costs are $500,000 and the unit contribution margin is $20, what is the
break-even point in units if fixed costs are reduced by $80,000?
A.25,000
B.29,000
C.4,000
D.21,000
Answer:
Heather Company is considering the acquisition of a machine that costs $432,000. The
machine is expected to have a useful life of 6 years, a negligible residual value, an
annual cash flow of $120,000, and annual operating income of $83,721. What is the
estimated cash payback period for the machine?
A.3.6 years
B.4.3 years
C.5.2 years
D.6 years
Answer:
A corporation purchased 1,000 shares of its $5 par common stock at $10 and
subsequently sold 500 of the shares at $20. What is the amount of revenue realized from
the sale?
A.$0
B.$5,000
C.$2,500
D.$10,000
Answer:
The management of Nebraska Corporation is considering the purchase of a new
machine costing $490,000. The company’s desired rate of return is 10%. The present
value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826,
0.751, 0.683, and 0.621, respectively. 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.18%
B.16%
C.58%
D.10%
Answer:
The following data are taken from the financial statements:
Answer:
If fixed costs are $700,000 and the unit contribution margin is $17, what amount of
units must be sold in order to realize an operating income of $100,000?
A. 5,000
B.41,176
C.47,059
D.58,882
Answer:
For the current year ending April 30, Hal Company expects fixed costs of $60,000, a
unit variable cost of $70, and anticipated break-even of 1,715 sales units.
Round your answer to the nearest whole number.
Answer:
To calculate income from operations, total service department charges are:
A.added to income from operations before service department charges
B.subtracted from operating expenses
C.subtracted from income from operations before service department charges
D.subtracted from gross profit margin
Answer:
A company is contemplating investing in a new piece of manufacturing machinery. The
amount to be invested is $170,000. The present value of the future cash flows is
$185,000. The company’s desired rate of return used in the present value calculations
was 10%. Which of the following statements is true?
A.The project should not be accepted because the net present value is negative.
B.The internal rate of return on the project is less than 10%.
C.The internal rate of return on the project is more than 10%.
D.The internal rate of return on the project is equal to 10%.
Answer:
A debit balance in the Allowance for Doubtful Accounts
A.is the normal balance for that account.
B.indicates that actual bad debt write-offs have been less than what was estimated.
C.cannot occur if the percentage of receivables method of estimating bad debts is used.
D.indicates that actual bad debt write-offs have exceeded previous provisions for bad
debts.
Answer:
A corporation issues for cash $1,000,000 of 10%, 20-year bonds, interest payable
annually, at a time when the market rate of interest is 12%. The straight-line method is
adopted for the amortization of bond discount or premium. Which of the following
statements is true?
A.The amount of the annual interest expense is computed at 10% of the bond carrying
amount at the beginning of the year.
B.The amount of the annual interest expense gradually decreases over the life of the
bonds.
C.The amount of unamortized discount decreases from its balance at issuance date to a
zero balance at maturity.
D.The bonds will be issued at a premium.
Answer:
The accounts in the ledger of Monroe Entertainment Co. are listed in alphabetical order.
All accounts have normal balances.
The total of all the assets is:
A.$10,000
B.$8,000
C.$9,700
D.$9,800
Answer:
Purchased $400,000 of ABC Co. 5% bonds at 100 plus accrued interest of $4,500. Sold
$250,000 of bonds at 97 plus accrued interest. The journal entry for the sale would
include:
A.a debit to Cash for $242,500
B.a credit to Loss on Sale for $7,500
C.a credit to Gain on Sale for $7,500
D.a debit to Cash for $244,300
Answer:
A corporation has 50,000 shares of $25 par value stock outstanding. If the corporation
issues a 3-for-1 stock split, the number of shares outstanding after the split will be
A.150,000 shares
B.50,000 shares
C.100,000 shares
D.16,666 shares
Answer:
Which of the following is included in the cost of land?
A.cost of paving a parking lot
B.brokerage commission
C.outdoor parking lot lighting attached to the land
D.fences on the land
Answer:
Balance sheet accounts
A.represent amounts accumulated during a specific period of time
B.are called real accounts
C.have zero balances after the closing entries have been posted
D.are not affected by adjustments
Answer:
Costs which are reported on the income statement as part of cost of goods sold are
referred to as:
A.administrative expenses
B.period costs
C.cost of goods manufactured
D.operating expenses
Answer:
The entry to close the appropriate insurance account at the end of the accounting period
is
A.debit Income Summary; credit Prepaid Insurance
B.debit Prepaid Insurance; credit Income Summary
C.debit Insurance Expense; credit Income Summary
D.debit Income Summary; credit Insurance Expense
Answer:
The current assets and current liabilities for Kolbie Company and Newton Company are
shown as follows at the end of 2012.
*These represent prepaid expenses and other non-quick current assets.
(1) Determine the quick ratio for both companies. Round to two decimal places.
(2) Interpret the quick ratio difference between the two companies.
Answer:
A one-year insurance policy was purchased on October 1, 2011 for $4,200. The
adjusting entry on December 31, 2010 would be:
Answer:
Carillion Company is considering the disposal of equipment that is no longer needed for
operations. The equipment originally cost $600,000 and accumulated depreciation to
date totals $460,000. An offer has been received to lease the machine for its remaining
useful life for a total of $310,000, after which the equipment will have no salvage
value. The repair, insurance, and property tax expenses that would be incurred by
Carillion Company on the machine during the period of the lease are estimated at
$75,800. Alternatively, the equipment can be sold through a broker for $230,000 less a
10% commission.
Prepare a differential analysis report, dated June 15 of the current year, on whether the
equipment should be leased or sold.
Answer:
During the current year, merchandise is sold for $137,500 cash and $425,600 on
account. The cost of the merchandise sold is $322,325. What is the amount of the gross
profit?
Answer:
Crystal Company manufactures two models of microcassette recorders, VCH and MTV.
Based on the following production data for April of the current year, prepare a
production budget for April.
Answer:
Record in good journal entry format the following transactions:
Answer:
Using the following accounts and balances, prepare the Stockholders’ Equity section of
the balance sheet. Fifty thousand shares of common stock are authorized, and 5,000
shares have been reacquired.
Answer:
The four steps necessary to determine the cost of goods completed and the ending
inventory valuation in a process cost system are:
Answer:
On the basis of the following data, determine the value of the inventory at the lower of
cost or market. Apply lower of cost or market to each inventory item. Show your work.
Answer:
Kramer Company started its production operations on August 1. During August, the
printing department completed 17,600 units. There were 4,400 units in ending inventory
which were 80% complete with respect to materials and 10% complete with respect to
conversion costs. During August, the department accumulated materials costs of
$45,408 and conversion costs of $76,670.
a. Calculate the cost of the goods transferred out.
b. What is the value of the ending inventory?
Round intermediate computation to nearest cent.
Answer:
A business using the retail method of inventory costing determines that merchandise
inventory at retail is $2,300,000. If the ratio of cost to retail price is 55%, what is the
amount of inventory to be reported on the financial statements?
Answer:
Match each of the following terms with the best definition given.
Answer:
Why would you compare or not compare Coca-Cola and Pepsi-Cola (PepsiCo) as
companies to each other?
Answer:
Prepare an amortization schedule for the 1st 2 years (effective method) using the
following data:
1) On January 1, 2010, ABC Co. issued $2,000,000, 5%, 10 year bonds, interest
payable on June 30th and December 31st to yield 6%. Use the following format and
round to nearest dollar (may have small rounding error). The bonds were issued for
$1,851,234.
Date Cash paid Interest expense Amortization Bond carry Value
2) Show how this bond would be reported on the balance sheet at 12/31/11.
Answer:
The following information is from Madison Corporation’s accounting records for May
20XX. Check # 3269 was returned as a double payment and voided. Checks that have
not cleared the bank include 3252, 3260, and series 3275-3278.
In addition to the above list of the checks, Madison had check #2264 for $32.98 and
check #2655 for $45.99 outstanding previously that have not cleared.
1) Create an outstanding checks list for Madison at the end of May 20XX.
2) What is the total amount of checks that cleared the bank (written in May)?
Answer:
Safeguarding inventory from damage or theft is a primary objective for the control of
inventory. If you were running a clothing store, name three specific controls you would
implement to guard inventory from theft.
Answer: