During 2015, the cash flows related to Global Data, Inc.’s lending and borrowing
activities are summarized as follows:
Refer to the information above. If interest receivable was $6,300 at December 31, 2014,
and is $10,500 at the end of 2015, interest revenue reported in Global Data’s income
statement for 2015 must have been:
A. $16,800.
B. $21,000.
C. $35,700.
D. $4,200.
Elm Corporation plans to invest $300 million to earn about 15% before income taxes.
The company is considering whether it should raise the $300 million by issuing 10%
bonds payable or capital stock. If the company issues the bonds, it will probably report:
A. Lower net income and lower income taxes expense than if it issues capital stock.
B. Higher net income and higher income taxes expense than if it issues capital stock.
C. Lower net income and higher income taxes expense than if it issues capital stock.
D. Higher net income and lower income taxes expense than if it issues capital stock.
At the end of January, the unadjusted trial balance of Windsor, Inc. included the
following accounts:
Refer to the information above. Windsor uses the income statement approach in
estimating uncollectible accounts expense, and uncollectible accounts expense is
estimated to be 2% of credit sales. The net realizable value of Windsor’s accounts
receivable in the January 31 balance sheet is:
A. $332,800.
B. $332,000.
C. $331,200.
D. $340,000.
A discount on bonds payable is best described as:
A. An element of future interest expense.
B. A bonus paid by the bondholders to the issuing corporation because of the unusually
high interest rate stated in the bonds.
C. The present value of the future interest payments of bond interest and principal.
D. An amount below par which the bondholders may be called upon to make good.
In accounting, the terms debit and credit indicate, respectively:
A. Increase and decrease.
B. Left and right.
C. Decrease and increase.
D. Right and left.
The adequacy of a company’s disclosure is based on:
A. Laws established by Congress.
B. IRS rules and FASB requirements.
C. A combination of official rules, tradition, and professional judgment.
D. The needs of stockholders and creditors.
External failure costs include:
A. Inspections of materials.
B. Training.
C. Rework.
D. Repairs.
Using cost-volume-profit formulas
Gary Corporation manufactures a single product. The selling price is $104 per unit, and
variable costs amount to $78 per unit. The fixed costs are $36,000 per month (round
any units to the next highest full unit).
(a) What is the contribution margin per unit? $_______________ per unit
(b) What is the contribution margin ratio? _______________%
(c) What is the monthly sales volume (in dollars) at the break-even point?
$________________
(d) How many units must be sold each month to earn a monthly operating income of
$32,000? _______________ units
(e) What is the monthly margin of safety (in dollars) if 3,000 units are sold each month?
$_______________
(f) What will be the monthly operating income if 3,000 units are sold each month?
$_______________
Doyle Co. uses a job order cost accounting system. At year-end the Work-in-Process
Inventory controlling account showed a debit balance of $43,125. For the two jobs in
process at year-end, one showed $6,000 in direct materials and $4,500 in direct labor.
The job cost sheet for the second job showed $9,000 in direct materials and $6,750 in
direct labor. If the company is using a predetermined overhead application rate based on
direct labor cost, the rate is:
A. 50%.
B. 100%.
C. 150%.
D. 200%.
Information is cost effective when:
A. The information aids management in controlling costs.
B. The information is based upon historical costs, rather than upon estimated market
values.
C. The value of the information exceeds the cost of producing it.
D. The information is generated by a computer based accounting system.
Flow of manufacturing costs
The “flow” of manufacturing costs through the ledger of MF Enterprise. Co. during the
month of August is summarized in the following T accounts. Certain amounts have
been omitted and are represented by question marks.
From the data supplied above, determine each of the following amounts. Some of the
required amounts already appear in the T accounts; others require a short computation.
(a) The amount of direct materials purchased during the month: $________
(b) The amount of direct labor cost assigned to production: $___________
(c) The amount of accrued wages payable to direct labor workers at August 31:
$___________
(d) The cost of finished goods manufactured during the month: $___________
(e) The cost of goods sold during the month: $___________
The principle of adequate disclosure means that a company should disclose:
A. Only the important monetary information.
B. All confidential information regarding the company.
C. Any financial facts that a reasonably informed person would consider necessary for
the proper interpretation of the financial statements.
D. Only subsequent events.
Given below are comparative balance sheets and an income statement for Claret
Corporation.
All sales were made on account. Cash dividends declared during the year totaled
$11,492.
Refer to the information above. Claret Corporation’s return on assets for 2015 rounded
to the nearest tenth of a percent is:
A. 10.0%.
B. 4.1%.
C. 5.9%.
D. 16.9%.
Carrier Corporation’s Syracuse plant is organized into Air Conditioning and Heating
Products divisions. The management of the Syracuse plant should evaluate the Heating
Products division as:
A. A cost center.
B. An investment center.
C. A profit center (other than an investment center).
D. A revenue center.
At the end of the current year, the owners’ equity in Barclay Bakery is $246,000. During
the year, the assets of the business had increased by $120,000 and the liabilities had
increased by $72,000. Owners’ equity at the beginning of the year must have been:
A. $198,000.
B. $174,000.
C. $284,000.
D. $438,000.
Accounting equation
(A.) During the current year, the assets of Duffy Stationery increased by $650,000 and
the liabilities decreased by $340,000. What was the change in owners’ equity during the
year?
(B.) The owners’ equity of Graham Interiors appears on the balance sheet as $720,000
and is equal to one-fourth of total assets. Compute the amount of total liabilities.
(C.) At the end of the year, the owners’ equity in Scott Mfg. amounted to $845,000.
During 2014, the assets of the business increased by $515,000 and the liabilities
increased by $205,000. The owners’ equity at the beginning of 2014 was how much?
Double-entry accounting is characterized by which of the following?
A. Every transaction affects both an asset account and either a liability account or an
owners’ equity account.
B. The number of general ledger accounts with debit balances is equal to the number
with credit balances.
C. The total dollar amount of debit entries posted to the general ledger is equal to the
dollar amount of the credit entries.
D. The number of debit entries posted to the general ledger equals the number of credit
entries.
Early in the current year, Amazon Co. purchased the Rio Silver Mine at a cost of
$30,000,000. The mine was estimated to contain 400,000 tons of ore and to have a
residual value of $7,500,000 after mining operations are completed. During the year,
115,000 tons of ore were removed from the mine. At year-end, the book value of the
mine is:
A. $22,500,000.
B. $6,468,750.
C. $23,531,250.
D. $30,000,000.
A 45% contribution margin ratio means that:
A. The company should contribute 45% of its operating income to qualified charities
for maximum tax benefits.
B. 55% of the company’s revenue is consumed by fixed and variable costs.
C. The company’s revenue has increased by 45% during the current accounting period.
D. 45% of the company’s revenue is available to cover fixed costs and to contribute
toward operating income.
Many companies state in their annual reports that inventory is shown at the lower of its
cost or market value. This means that the inventory:
A. Is obsolete.
B. Has been written down to a carrying value below cost.
C. Is shown at the lesser of cost or sales value.
D. Is valued at current replacement cost or historical cost, whichever is less.
Venus Wholesale Co. started carrying a new product in December. Purchases and sales
of this product during the month were:
Refer to the information above. At year-end, Venus restates the carrying value of its
inventory using periodic LIFO costing procedures. Under periodic costing procedures,
the LIFO cost of the inventory is:
A. $9,800.
B. $10,600.
C. $10,800.
D. $8,000.
On June 1, 2015, Jensen Company acquired an 8%, ten-month note receivable from a
customer in settlement of an existing account receivable of $130,000. Interest and
principal are due at maturity.
Refer to the information above. Jensen’s entry to record the collection of this note at
maturity includes a:
A. Credit to Interest Receivable of $6,067.
B. Credit to Interest Revenue of $6,067.
C. Credit to Interest Receivable of $2,600.
D. Credit to Notes Receivable of $140,400.
If sales discounts are shown as a separate item in financial statements, they should be
shown as a(n):
A. Deduction from accounts receivable.
B. Deduction from gross sales revenue.
C. Operating expense.
D. Current liability.
Refer to the information above. The payback period of the machine is approximately:
A. Four years.
B. Eight years.
C. Five years.
D. Ten years.
Consider the following statement: “A strong dollar rose sharply against the British
pound, but fell slightly against the Japanese yen.” This statement indicates that:
A. The British pound is a stronger currency than the Japanese yen.
B. The exchange rate for the yen, stated in dollars, is rising.
C. The exchange rate for the pound, stated in dollars, is rising.
D. The exchange rate for the yen, stated in pounds, is falling.
Refer to the above data. If Riverview applies overhead using a predetermined rate based
on labor-hours, what amount of overhead will be assigned to a unit of output which
requires 0.5 machine hours and 0.25 labor hours to complete?
A. $16.00.
B. $30.00.
C. $20.00.
D. Some other amount.
Marketable securities
(a.) Explain how investments in available for sale marketable securities are valued in
the investor’s balance sheet.
(b.) Is valuation of investments in marketable securities consistent with (1) the cost
principle, and (2) the objectivity principle?
(c.) What does Unrealized Holding Gain (or Loss) on Investments represent? How is
this item reported in the financial statements?
Omega Company adjusts its accounts at the end of each month. The following
information has been assembled in order to prepare the required adjusting entries at
December 31:
(1) A one-year bank loan of $720,000 at an annual interest rate of 12% had been
obtained on December 1.
(2) The company pays all employees up-to-date each Friday. Since December 31 fell on
Tuesday, there was a liability to employees at December 31 for two day’s pay
amounting to $6,800.
(3) On December 1, rent on the office building had been paid for four months. The
monthly rent is $6,000.
(4) Depreciation of office equipment is based on an estimated useful life of six years.
The balance in the Office Equipment account is $9,360; no change has occurred in the
account during the year.
(5) Fees of $9,800 were earned during the month for clients who had paid in advance.
Refer to the information above. The entry to record rent expense will include:
A. A debit to Prepaid Rent for $6,000.
B. A credit to Prepaid Rent for $6,000.
C. A credit to Prepaid Rent for $18,000.
D. A debit to Prepaid Rent for $18,000.
The payment of raw materials previously purchased on account is recorded by an entry
debiting:
A. Raw Materials Inventory.
B. Accounts Payable.
C. Work in Process Inventory.
D. Cash.
If the standard quantity of materials is 84,500 units @ $0.15 per unit and the actual
quantity is 95,000 units @ $0.12 per unit, then the materials quantity variance is:
A. $2,850 Favorable.
B. $1,575 Unfavorable.
C. $1,275 Favorable.
D. $2,850 Unfavorable.