1) The amount of capital paid-in by the stockholders of the corporation is called legal
capital.
2) If the proceeds from a sale of equipment is greater than the book value of the
equipment as on the date of sale, a loss is recorded.
3) The difference between the budgeted fixed overhead at 100% of normal capacity and
the standard fixed cost for the actual units produced is termed volume variance.
4) To arrive at cash flows from operations, it is necessary to convert the income
statement from an accrual basis to the cash basis of accounting.
5) It is beneficial for related companies to negotiate a transfer price when the supplying
company has unused capacity in its plant.
6) If 20,000 shares are authorized, 14,000 shares are issued, and 500 shares are held as
treasury stock, a cash dividend of $1 per share would amount to $13,500.
7) The rate earned on total assets is one of the measures of profitability.
8) Expenditures made to extend an assets life are called revenue expenditures.
9) The reduction in the par or stated value of common stock, accompanied by the
issuance of a proportionate number of additional shares, is called a stock split.
10) Inventories of finished products are reported as current assets on a manufacturer’s
balance sheet.
11) Department managers plan lower goals than possible in order to build in a cushion
for unexpected events. This result in:
A.budgetary slack
B.zero-based budgeting
C.goal conflict
D.flexible budgeting
12) NBC Company had $32,000 in net sales, $15,000 in cost of merchandise sold,
$18,000 in operating expenses, and $2,000 in other income. What is NBC Companys
gross profit?
A.$17,000
B.$3,000
C.$1,000
D.$(1,000)
13) Which of the following would be deducted from the cash balance per books on a
bank reconciliation?
A.Service charges
B.Outstanding checks
C.Deposits in transit
D.Notes collected by the bank
14) Frogue Corporation uses a standard cost system. The following information was
provided for the period that just ended:
Refer to the information provided for Frogue Company. The direct materials cost
variance is:
A.$6,500 unfavorable
B.$9,000 unfavorable
C.$9,000 favorable
D.$6,500 favorable
15) A company purchased a photocopy machine for $16,000. It has a useful life of 4
years and a residual value of $1,000. Compute depreciation for the second year under
each of the following methods: (a) straight-line and (b) double-declining-balance.
16) The condensed income statement for a business for the past year is as follows:
Management is considering the discontinuance of the manufacture and sale of Blam at
the beginning of the current year. The discontinuance would have no effect on the total
fixed costs and expenses or on the sales of Wham. What is the amount of change in net
income for the current year that will result from the discontinuance of Blam?
A.$10,000 decrease
B.$40,000 decrease
C.$10,000 increase
D.$70,000 decrease
17) Which of the following items would not be classified as a part of factory overhead?
A.Machine operators wages
B.Amortization of manufacturing patents
C.Production supervisors’ salaries
D.Factory supplies used
18) Christiansen and Sons’ static budget for 10,000 units of production includes
$50,000 for direct materials, $44,000 for direct labor, utilities of $5,000, and supervisor
salaries of $15,000. A flexible budget for 12,000 units of production would show:
A.the same cost structure in total
B.direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor
salaries of $15,000
C.total variable costs of $136,800
D.direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and
supervisor salaries of $18,000
19) A low-cost emphasis strives to provide:
A.no-frills, standardized products and services
B.products and services that provide unique market needs
C.products and services that provide prestige and image for customers
D.products and services that compete on features other than price
20) Accompanying the bank statement was a credit memorandum for a short-term note
collected by the bank for the depositor. This item would be included on the bank
reconciliation as a(n):
A.deduction from the cash balance per books
B.addition to the cash balance per bank
C.deduction from the cash balance per bank
D.addition to the cash balance per books
21) If the price paid per unit differs from the standard price per unit for direct materials,
the variance is termed:
A.variable variance
B.controllable variance
C.price variance
D.volume variance
22) Efficient Corporation uses a standard cost system. The following information was
provided for the period that just ended:
Refer to the information provided for Efficient Corporation. The direct materials cost
variance is:
A.$1,125 favorable
B.$4,750 unfavorable
C.$6,000 unfavorable
D.$7,125 unfavorable
23) When the market rate of interest on bonds is equal to the contract rate, the bonds
will sell at:
A.a premium
B.their face value
C.a discount
D.a discount or a premium
24) A company acquired some land for $80,000 to construct a new office complex.
Legal fees paid were $2,300, delinquent taxes assumed were $3,400, and $5,850 was
paid to remove an old building. Materials salvaged from the demolition of the building
were sold for $1,950. Determine the cost of the land to be reported on the balance sheet.
A.$93,500
B.$91,550
C.$85,700
D.$89,600
25) Allowance for Doubtful Accounts is listed on the balance sheet under the caption:
A.stockholders’ equity
B.investments
C.fixed assets
D.current assets
26) Unearned revenue is what type of an account?
A.Asset
B.Revenue
C.Stockholders’ equity
D.Liability
27) A drilling company purchased a mining site for $500,000 on July 1, 2012 . The
company expects to mine ore for the next 10 years and anticipates that a total of
100,000 tons will be recovered. During 2012 the company extracted 6,500 tons of ore.
The depletion expense for the year 2012 is:
A.$37,700
B.$42,000
C.$32,500
D.$27,300
28) Depreciation on factory equipment would be reported in the statement of cash flows
prepared by the indirect method in:
A.the cash flows from financing activities section
B.the cash flows from investing activities section
C.a separate schedule
D.the cash flows from operating activities section
29) A capital expenditure would appear on the:
A.income statement under operating expenses
B.balance sheet under fixed assets
C.balance sheet under investments
D.income statement under other expenses
30) Separating the custody of assets from accounting for assets is a part of which
element of internal control?
A.Information and communication
B.Monitoring
C.Control environment
D.Control procedures
31) Which of the following is an appropriate representation of the accounting equation?
A.Assets + Liabilities = Stockholders equity
B.Assets = Liabilities + Stockholders equity
C.Assets = Liabilities
D.Assets = Liabilities + Retained earnings
32) The ratio computed by dividing current assets by current liabilities is called:
A.current ratio
B.earnings ratio
C.acid-test ratio
D.quick ratio
33) Assume in analyzing alternative proposals that Proposal F has a useful life of six
years and Proposal J has a useful life of nine years. What is one widely used method
that makes the proposals comparable?
A.Adjust the life of Proposal F to a time period that is equal to that of Proposal J and
add its estimated residual value to the cash inflow at the end of year nine
B.Adjust the life of Proposal J to a time period that is equal to that of Proposal F and
add its estimated residual value to the cash inflow at the end of year six
C.Adjust the life of Proposal F and Proposal J to a time period equal to the average of
six and nine years (7.5 years) and add its estimated residual value to the cash inflow at
the end of operating life
D.Adjust the life of Proposal J to a time period that is equal to that of Proposal F and
deduct last three years cash inflow of Proposal J from its total cash inflow
34) The finished goods account is a controlling account for the subsidiary:
A.sales ledger
B.materials ledger
C.work-in-process ledger
D.stock ledger
35) Indicate whether each of the following activities would be reported on the statement
of cash flows as an operating activity, an investing activity, a financing activity, or does
not appear on the statement of cash flows.
(a) Cash paid for building
(b) Cash paid to suppliers
(c) Cash paid for dividends
(d) Cash received from customers
(e) Cash received from the sale of capital stock.
(f) Cash received from the sale of a building
(g) Borrowed cash from a bank
36) What type of analysis is indicated by the following?
A.Vertical analysis
B.Horizontal analysis
C.Liquidity analysis
D.Common-size analysis