1) Sales discounts is used in accounting for transactions with customers.
2) Total fixed costs remain constant as the level of activity changes within the relevant
range.
3) In a transaction where purchased merchandise has been returned, the buyer will
increase the Sales Returns and Allowances account and the seller will increase the
Purchases Returns and Allowances account.
4) Manufacturers must conform to the Robinson-Patman Act, which prohibits price
discrimination within the United States unless differences in prices can be justified by
different costs.
5) In deciding whether to accept business at a special price when the company is
operating below full capacity, the special price should be set high enough to cover both
the fixed and variable costs.
6) The ratio of sales to invested assets is termed investment turnover.
7) Bonds are sold at face value when the contract rate is equal to the market rate of
interest.
8) When evaluating a proposal by use of the net present value method, if there is an
excess of the present value of future cash inflows over the amount to be invested, the
rate of return on the proposal is less than the rate used in the analysis.
9) Direct materials cost is an example of a fixed cost of production.
10) The master budget of a small manufacturer would normally include all component
budgets that impact the financial statements.
11) Standards are more widely used for nonmanufacturing expenses than for
manufacturing costs.
12) For purpose of analysis, mixed costs can generally be separated into their variable
and fixed components.
13) Supervisor salaries, maintenance, and indirect factory wages would normally
appear in the selling and administrative expenses budget.
14) It is usual for the credit period to begin with the date the merchandise is received by
the buyer.
15) For proper matching of revenues and expenses, the estimated cost of fringe benefits
must be recognized as an expense of the period during which the employee earns the
benefits.
16) Changes in technology, machinery, or production methods may make past cost data
irrelevant for future operations.
17) When evaluating two competing proposals with unequal lives, management should
give greater consideration to the investment with the longer life because the asset will
be useful to the company for a longer period of time.
18) Variable costs are costs that vary on a per-unit basis as the level of manufacturing
activity changes.
19) The computations required for the net present value method are more than the
computation required for the average rate of return method.
20) Based on the following data for the current year, what is the number of days’ sales
in inventory (rounded to the next whole day)?
A.58
B.48
C.53
D.30
21) East, Inc. had beginning inventory of $10,000, purchases of $25,000, and ending
inventory of $5,000. What is East’s cost of merchandise sold?
A.$10,000
B.$25,000
C.$5,000
D.$30,000
22) Division I of Norris Company has a rate of return on investment of 28% and a profit
margin of 20%. What is the investment turnover?
A.3.6
B.1.4
C.5.0
D..7
23) Which of the following accounts will not be found in the Cost of Merchandise Sold
section on the income statement?
A.Purchases
B.Transportation In
C.Sales Returns and Allowances
D.Merchandise Inventory
24) The gross increases in stockholders’ equity attributable to business activities are
called:
A.assets
B.liabilities
C.revenues
D.net income
25) The due date of a 90-day note dated July 5 is:
A.September 30
B.October 2
C.October 3
D.October 1
26) Gibbs Company has $16,000 in Retained Earnings, $27,000 in Assets, and $5,000
in Liabilities. How much is in Common Stock?
A.$22,000
B.$16,000
C.$11,000
D.$6,000
27) Currently, fixed costs are $561,000 and the unit contribution margin is $10. What
would be the break-even point in units if variable cost is decreased by $0.50 per unit?
A.59,053 units
B.56,100 units
C.53,429 units
D.60,000 units
28) Defense contractors would be more likely to use which of the following cost
concepts in pricing their product?
A.Variable cost
B.Product cost
C.Total cost
D.Fixed cost
29) The ability of a business to pay its debts as they come due and to earn a reasonable
amount of income is referred to as:
A.solvency and leverage
B.solvency and profitability
C.solvency and liquidity
D.solvency and equity
30) For February, sales revenue is $250,000; sales commissions are 6% of sales; the
sales manager’s salary is $50,000; advertising expenses are $15,000; shipping expenses
total 1% of sales; and miscellaneous selling expenses are $1,000 plus 1/2 of 1% of
sales. Total selling expenses for the month of February are:
A.$65,000
B.$69,750
C.$82,250
D.$84,750
31) Heedy Company had the following account balances in 2011 and 2012,
respectively. Assuming dividends of $20,000 were paid in 2012, how much was net
income?
A.$62,000
B.$82,000
C.$272,000
D.$252,000
32) Accrued revenues would appear on the balance sheet as:
A.assets
B.liabilities
C.stockholders equity
D.prepaid expenses
33) Periods experiencing increase in price levels are known as periods of:
A.inflation
B.recession
C.depression
D.deflation
34) Which of the following costs is not included in the finished goods inventory?
A.Hourly wages of an assembly worker
B.Depreciation on factory plant and equipment
C.Company president’s salary
D.Electronic components of a computer
35) Assume that Division X has generated sales revenue of $3,025,000 and achieved
income from operations of $242,000 using $1,800,000 of invested assets. If
management desires a minimum rate of return of 12%, the residual income would be:
A.$26,000
B.$29,040
C.$147,000
D.$186,960
36) Reporting the financial condition of a business at a point in time and the changes in
the financial condition of a business over a period of time are the two major objectives
of:
A.tax accounting
B.union contracts
C.managerial accounting
D.financial accounting
37) Bythel Corporation uses the product cost concept of product pricing. Below is cost
information for the production and sale of 45,000 units of its sole product. Bythel
desires a profit equal to a 10.8% rate of return on invested assets of $900,000.
Refer to the information provided for Bythel Corporation. The unit selling price for the
company’s product is:
A.$17.00
B.$13.94
C.$20.06
D.$20.96
38) To calculate income from operations, total service department charges are:
A.subtracted from income from operations before service department charges
B.subtracted from operating expenses
C.added to income from operations before service department charges
D.subtracted from gross profit margin
39) Indicate the section of the balance sheet (current assets, fixed assets, investments,
current liabilities, long-term liabilities, stockholders’ equity) in which each of the
following is reported:
(a) Note receivable due in 3 years
(b) Note receivable due in 90 days
(c) Allowance for doubtful accounts
40) The variable factory overhead controllable variance measures:
A.operating results at less than normal capacity
B.the efficiency of using variable overhead resources
C.operating results at more than normal capacity
D.control over fixed overhead costs
41) Which of the following is an intangible asset?
A.Patent
B.Cash
C.Land
D.Equipment
42) A business is considering a cash outlay of $500,000 for the purchase of land, which
it intends to lease for $90,000 per year. If alternative investments are available that
yield a 12% return, the opportunity cost of the purchase of the land is:
A.$60,000
B.$49,200
C.$90,000
D.$30,000
43) For a merchandising firm, the inventory sold is shown on the income statement as:
A.cost of merchandise sold
B.purchases
C.purchases returns and allowances
D.net purchases
44) The ratio of the sum of cash and other current assets that can be easily converted to
cash to current liabilities is called as:
A.price-earnings ratio
B.earnings ratio
C.quick ratio
D.current ratio
45) Including all relevant data a reader needs to understand the financial condition and
performance of a business refers to which concept?
A.Adequate disclosure concept
B.Going concern concept
C.Objectivity concept
D.Business entity concept
46) Using the following partial table of present value of $1 at compound interest,
compute the present value of $20,000 (rounded to nearest dollar) to be received one
year from today, assuming an earnings rate of 15%.
A.$17,400
B.$17,000
C.$20,000
D.$15,451
47) If fixed costs are $600,000 and the unit contribution margin is $12, what amount of
units must be sold in order to realize an operating income of $100,000?
A.33,334 units
B.58,334 units
C.41,667 units
D.50,000 units
48) The following data relate to direct labor costs for the current period of Executive
Inc.:
Refer to the information provided for Executive Inc. What is the direct labor time
variance?
A.$17,400 favorable
B.$17,400 unfavorable
C.$18,000 favorable
D.$18,000 unfavorable
49) If a business had sales of $4,000,000 and a margin of safety of 25%, what was the
break-even point?
A.$5,000,000
B.$3,000,000
C.$12,000,000
D.$1,000,000
50) Exhibit 2-1
Refer to Exhibit 2-1 . What is net income, assuming $50,000 of stock was issued and
$25,000 of dividends were paid?
A.$110,000
B.$150,000
C.$190,000
D.$15,000
51) A firm’s internal control environment is influenced by:
A.management’s operating style
B.organizational structure
C.personnel policies
D.all of these
52) Why is a physical count of supplies necessary at the end of the accounting period?
53) Quick Company has been purchasing a component, Part Q, for $20 a unit. Quick is
currently operating at 70% of capacity and no significant increase in production is
anticipated in the near future. The cost of manufacturing a unit of Part Q, determined by
absorption costing method, is estimated as follows:
Prepare a differential analysis report, dated March 12 of the current year, on the
decision to make or buy Part Q.
54) Three different companies–A, B, and C–have the same balance sheet at the
beginning and the end of a year. These are summarized below:
Given the data above and the additional information for each company below,
determine the net income (loss) for each company.
55) Following are the financial statement data for Yevin Temporary Services at
December 31, 2011. Prepare Yevins income statement.
56) Based on the following data, determine the cost of merchandise sold for October.
57) Smith Co. is considering the following alternative plans for financing the company:
Income tax is estimated at 40% of income.
Determine the earnings per share of common stock under the two alternative financing
plans, assuming income before bond interest and income tax is $1,000,000.
58) Describe the features of a voucher system and list typical supporting documents for
a voucher.
59) 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 that on June 1, 2013, Tasty Sausage Corp. had paid $1,500 in advance for a
6-month insurance policy. The June 30 adjustment is:
60) Merle Company manufactures two models of Television, TV20 and TV27 . Based
on the following production data for April of the current year, prepare a production
budget for April.
61) Both proposal M, and N cost $800,000, have a 6-year life, and have expected total
cash flows of $1,200,000. Proposal M is expected to provide equal annual net cash
flows of $200,000, while the net cash flows for Proposal N are as follows:
Determine the cash payback period for each proposal.