1) Fees earned and received in cash will increase cash flows from operating activity as
well as retained earnings.
2) A job order cost system accumulates costs for each of the departments or processes
within the factory.
3) Allowance for Doubtful Accounts is a contra equity account.
4) The revenue that is forgone from an alternative use of an asset, such as cash, is called
an opportunity cost.
5) Retained earnings will be increased by the amount in the dividend account.
6) Any given transaction must affect at least two different parts of the accounting
equation.
7) The standard cost is a detailed estimate of how much a product should cost.
8) A check for $456 was erroneously charged by the bank as $654. In order for the bank
reconciliation to balance, you must subtract $198 from the bank statement balance.
9) The direct labor time variance measures the efficiency of the direct labor force.
10) Job order cost systems can be used to compare unit costs of similar jobs to
determine if costs are staying within expected ranges.
11) Normally standard costs should be revised when labor rates change to incorporate
new union contracts.
12) The relationship of each asset item as a percent of total assets is an example of
horizontal analysis.
13) Fixed costs are costs that vary in total dollar amount as the level of activity changes.
14) The excess of divisional income from operations over a minimum acceptable
divisional income from operations is termed:
A.profit margin
B.residual income
C.rate of return on investment
D.gross profit
15) Generally, the revenue account for a merchandising business is entitled:
A.Sales
B.Net Sales
C.Gross Sales
D.Gross Profit
16) Exhibit 2-1
Refer to Exhibit 2-1 . What is net income, assuming no stock was issued and no
dividends were paid?
A.$215,000
B.$175,000
C.$135,000
D.$40,000
17) Which of the following will be classified as a current liability?
A.Two-year notes payable
B.Bonds payable
C.Mortgage loan
D.Unearned rent
18) Dig, Inc. had the following merchandise transactions in October:
What is the total cost of merchandise purchased for Dig, Inc.?
A.$50,000
B.$47,000
C.$52,000
D.$48,000
19) The depreciation calculated using Modified Accelerated Cost Recovery System is
primarily used for:
A.financial statement reporting by large companies
B.income tax purposes
C.financial statement reporting by small companies
D.comparing the performance of two companies in the same industry
20) The management of Hence Corporation is considering the purchase of a new
machine costing $200,000. 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 net present value for this investment is:
A.positive $24,960
B.negative $27,600
C.positive $27,600
D.negative $24,960
21) A corporation, which had 20,000 shares of common stock outstanding, declared
a3-for-1 stock split.
22) Raphael Corporation uses the product cost concept of product pricing. Below is cost
information for the production and sale of 50,000 units of its sole product. Raphael
desires a profit equal to a 12% rate of return on invested assets of $1,000,000.
Refer to the information provided for Raphael Corporation. The markup percentage for
the companys product is:
A.25%
B.12.2%
C.29%
D.20%
23) Use the following data to calculate the cost of ending inventory under average cost
method.
A.$825
B.$600
C.$675
D.$750
24) The percentage analysis of increases and decreases in related items in comparative
financial statements is called:
A.vertical analysis
B.solvency analysis
C.profitability analysis
D.horizontal analysis
25) Answer Corporation uses standard cost system. The standard costs and actual costs
for direct materials, direct labor, and factory overhead for the manufacture of 2,500
units of product are as follows:
Variable cost @ $2 per hour
Total variable cost, $18,000
Fixed cost @ $0.80 per hour
Total fixed cost, $8,000
Refer to the information provided for Answer Corporation. The amount of the direct
labor time variance is:
A.$1,200 favorable
B.$1,140 unfavorable
C.$1,200 unfavorable
D.$1,140 favorable
26) The amount of the total cash paid to the seller for merchandise purchased would
normally include:
A.only the list price
B.only the sales tax
C.the list price plus the sales tax
D.the list price less the sales tax
27) For EFG Co., the transaction “billed a customer for fees earned” would:
A.increase total assets
B.decrease total assets
C.have no effect on total assets
D.increase total liabilities
28) Expressing financial data as if a business will continue operating for an indefinite
period time refers to which concept?
A.Business entity concept
B.Going concern concept
C.Objectivity concept
D.Adequate disclosure concept
29) Which of the following costs are included in the cost of manufacturing a product?
A.Direct materials cost, factory overhead cost, and administrative cost
B.Direct labor cost and factory overhead cost
C.Direct labor cost, direct materials cost, and factory overhead cost
D.Direct materials cost and direct labor cost
30) KCT Printing Company uses a job order cost system.
(a) Indicate the source of the data for increasing Work in Process for each of the
following:
(1) Direct materials requisitioned
(2) Direct labor used
(b) Indicate the source of the data for decreasing Work in Process for jobs completed.
(c) Present a list of the three controlling accounts used in the general ledger to record
the inventories and, in each case, indicate the related subsidiary ledger.
31) The balanced scorecard measures:
A.only financial information
B.only nonfinancial information
C.both financial and nonfinancial information
D.both external and internal information
32) As time passes, fixed assets, other than land, lose their capacity to provide useful
services. To account for this decrease in usefulness, the cost of fixed assets is
systematically allocated to expense through a process called:
A.equipment allocation
B.depreciation
C.accumulation
D.matching
33) A machine with a useful life of 6 years and a residual value of $3,000 was
purchased at the beginning of year 1 for $30,000. The machine was sold for $15,000 on
April 1 in year 4 .
(a) What was the book value of the machine at the end of year 3 assuming the
straight-line method of depreciation is used?
(b) Illustrate the effects on the accounts and financial statements of the depreciation
from January 1 to April 1 of year 4 .
(c) Illustrate the effects on the accounts and financial statements of the sale of the
machine on April 1 .
34) Deana, Inc.
Deana, Inc. purchased merchandise for $500,000, received credit for purchase returns
of $25,000, took purchase discounts of $10,000, and paid transportation in of $20,000.
Refer to Deana, Inc. What is the total cost of merchandise purchased?
A.$520,000
B.$485,000
C.$445,000
D.$480,000
35) Clinton Co. has an operating leverage of 4 . Sales are expected to increase by 8%
next year. Operating income is:
A.unaffected
B.expected to increase by 2%
C.expected to increase by 32%
D.expected to increase by 4 times
36) When a business borrows money, it incurs a(n):
A.tax
B.liability
C.receivable
D.additional equity
37) NBC Company purchased a patent from ABC for $144,000. At the time of purchase
the patent had a remaining useful life of 10 years. Determine the patent amortization
expense for the first year.
A.$7,200
B.$18,000
C.$12,000
D.$14,400
38) Cash equivalents include:
A.checks
B.coins and currency
C.money market funds and commercial paper
D.stocks and short-term bonds
39) If title to merchandise purchases passes to the buyer when the goods are shipped
from the seller, the terms are:
A.n/30
B.FOB shipping point
C.FOB destination
D.consigned
40) A cost that will not be affected by later decisions is termed:
A.historical cost
B.differential cost
C.sunk cost
D.replacement cost
41) Operating expenses directly traceable to or incurred for the sole benefit of a specific
department and usually subject to the control of the department manager are termed:
A.miscellaneous administrative expenses
B.indirect expenses
C.direct expenses
D.variable expenses
42) Which of the following accounts is a stockholders’ equity account?
A.Cash
B.Capital Stock
C.Prepaid Insurance
D.Accounts Payable
43) The following cost graphs illustrate various types of cost behaviors.
For each of the following costs, identify the cost graph that best describes its cost
behavior as the number of units produced and sold increases.
(a) Per-unit cost of direct labor
(b) Rent on warehouse of $10,000 per month
(c) Insurance costs of $2,500 per month
(d) Sales commissions of $5,000 plus $0.05 for each item sold
(e) Total salaries of quality control supervisors. One supervisor must be added for each
additional work shift
(f) Total employer pension costs of $0.30 per direct labor hour
(g) Per-unit straight-line depreciation costs
(h) Per-unit cost of direct materials
(i) Total direct materials cost
(j) Electricity costs of $5,000 per month plus $0.0004 per kilowatt-hour
(k) Per-unit cost of plant superintendent’s salary
(l) Straight-line depreciation on factory equipment
(m) Repairs and maintenance costs of $3,000 for each 2,000 hours of factory machine
usage
(n) Total direct labor cost
44) The best measure of managerial efficiency in the use of investments in assets is:
A.rate of return on stockholders’ equity
B.rate of return on investment
C.income from operations
D.inventory turnover
45) Which of the following is an example of a cost that remains the same in total as the
number of units produced changes?
A.Direct labor
B.Salary of a factory supervisor
C.Depreciation on factory equipment under units of production method
D.Direct materials
46) Indicate whether the following actions would (+) increase, (-) decrease, or (0) not
affect a company’s total assets, liabilities, and stockholders’ equity.
47) The following are included in Ace Auto Parts, Inc.’s December 31, 2012 balance
sheet:
Below are the balances for December 31, 2013:
Analyze the changes in these balances and determine net income for 2013, assuming
that the only change to stockholders’ equity is from net income.
48) The net present value has been computed for Proposals A and B. Relevant data are
as follows:
Determine the present value index for each proposal.
49)
Review Coke-Colas financial statements and answer the following questions:
50) How can a company earn a large net income and have a small balance in retained
earnings?
51) Harris Co. is considering a 12-year project that is estimated to cost $900,000 and
has no residual value. Harris seeks to earn an average rate of return of 15% on all
capital projects. Determine the necessary average annual income (using straight-line
depreciation) that must be achieved on this project for it to be acceptable to Harris Co.
52) Describe deferrals and accruals.
53) Identify the type of adjustment necessary (the type of item involved) and record the
transaction for the event. Make sure to include the ending balances after adjustment.
Assume Tasty Sausage Corp. pays salaries on the 28th of each month. Sausage stuffers
earn $200/day with a 7-day work week. June 30th is the end of the accounting period.
Sausage stuffers have worked on the 29th and 30th but have not yet been paid for those
days. The June 30 adjustment is:
54) Condensed data taken from the ledger of Crawford Company at December 31, 2013
and 2012, are as follows:
Prepare a comparative balance sheet, with horizontal analysis, for December 31, 2013
and 2012. (Round percents to one decimal place.)
55) The accounting equation “Assets = Liabilities + Stockholders’ Equity” is affected by
transactions. Is it possible to have a transaction that only impacts one financial element
of the equation? Can a transaction impact two elements of the equation? Give
examples.