1) Sometimes, volume-based cost drivers are used to allocate fixed indirect costs.
2) Revenue is the economic benefit derived from operating a business.
3) A corporation must record a liability for cash dividends on the date of record.
4) The stock market crash in 1929 led to the beginning of extensive regulation of
corporations.
5) Liquidity ratios are used to analyze the long-term debt-paying ability and the
composition of the financing structure of the firm.
6) It is possible that the same cost might be direct with respect to one cost object but
indirect with respect to another cost object.
7) Accounts that are closed include expenses, dividends, and unearned revenues.
8) In preparing a bank reconciliation, typical adjustments to the book balance include
bank service charges, customer NSF checks, and interest earned on the account.
9) Under continuous budgeting a new month is added to the end of the budget period
each time the present month expires so that a twelve-month budget is available at all
times.
10) A bank statement debit memo describes a transaction that increases a customer’s
account balance.
11) Depletion is the process of expensing intangible assets.
12) Reno Company purchased equipment on January 1, 2010 for $82,000. The
equipment is estimated to have a 5-year life and a salvage value of $5,000. The
company used the straight-line depreciation method.
At the beginning of 2013, Reno revised the expected life to eight years. The annual
amount of depreciation expense for each of the remaining years would be:
A.$6,220
B.$7,160
C.$6,160
D.$7,700
13) Nevada Company paid to the state $1,800 in sales tax that it had previously
collected from customers. What type of transaction was this?
A.Asset source
B.Asset use
C.Asset exchange
D.Claims exchange
14) Select the correct statement regarding relevant costs and revenues.
A.To be relevant, a cost or revenue must be future-oriented and must differ between the
alternatives
B.Sunk costs are relevant for decision-making purposes
C.Differential revenues are expected future revenues that do not vary between the
alternatives under consideration
D.Avoidable costs are also known as sunk costs
15) Parker & Co. expects overhead costs of $400,000 per year and direct production
costs of $12 per unit. The estimated production activity for the 2012 accounting period
is as follows:
The predetermined overhead rate based on units produced is (rounded to the nearest
penny).
A.$0.75 per unit
B.$9.00 per unit
C.$34.80 per unit
D.$10.00 per unit
16) Which of the following statements is true?
A.Any cost connected to a cost object is a direct cost, regardless of what the cost is
B.Costs that do not have a strong cause-and-effect relationship with a cost driver are
called direct costs
C.A cost driver is used to allocate a direct cost when there is a cause-and-effect
relationship between the cost and the cost object
D.Fixed costs that do not have a definitive cost driver are allocated using an allocation
base that distributes a rational share of the cost to each product
17) Budgeting that involves decisions such as whether to buy or lease equipment or
build a new factory is referred to as
A.operations budgeting
B.capital budgeting
C.facilities planning
D.strategic planning
18) On January 1, 2012, Hays Corporation arranged a $3,000 line of credit with the
Barnett Bank. It agreed to accept the bank’s offer of 1% above the prime rate with
interest payments on December 31 of each year. All borrowings and payments on
principal are to take place on January 1 of each year.
On January 1, 2011, Hays borrowed an additional $1,000 from Barnett Bank, bringing
the total amount borrowed to $2,000. On January 1, 2012, Hays paid $500 on the
principal of the loan. On December 31, 2012, Hays records the 2012 interest payment.
The prime rate for 2012 was 5 percent. Which of the following answers shows the
effect of the 2012 interest payment on the financial statements?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
19) On January 1, 2012, Hays Corporation arranged a $3,000 line of credit with the
Barnett Bank. It agreed to accept the bank’s offer of 1% above the prime rate with
interest payments on December 31 of each year. All borrowings and payments on
principal are to take place on January 1 of each year.
Hays paid the first year’s interest payment on December 31, 2012 . Barnett Bank’s
prime rate was 4 percent for 2012 . Which of the following answers shows the effect of
this event on the financial statements?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
20) Pakeham Company has cash of $10,000, accounts receivable of $34,000, inventory
of $26,000, and, equipment of $50,000. Assuming current liabilities of $24,000, this
company’s working capital is
A.$6,000
B.$22,000
C.$46,000
D.$72,000
21) An element that is often present when fraud occurs is
A.The availability of an opportunity
B.The existence of some form of pressure
C.The ability to rationalize
D.All of these
22) Delonay Corporation provided the following balance sheet:
What is the company’s plant assets to long-term debt ratio?
A.1.4
B.2.8
C.3.6
D.3.4
23) Using the effective interest rate method to amortize bond discount will
A.cause the carrying value of the bond to decrease as it approaches the maturity date
B.cause the carrying value of the bond to increase as it approaches the maturity date
C.cause the carrying value to be the same as the issue price
D.not change the carrying value
24) The following balance sheet information was provided by Paino Company:
Assuming cost of goods sold is $110,000, what is the company’s inventory turnover in
2012?
A.18.3 times
B.5.4 times
C.5.1 times
D.none of these
25) Howard Company accepts a credit card as payment for $950 of services provided to
a customer. The credit card company charges a 4% fee for its services. Select the
answer that shows how the entry to record the service revenue would affect Barlett’s
financial statements.
A.Option A
B.Option B
C.Option C
D.Option D
26) Indicate how each event affects the elements of financial statements. Use the
following letters to record your answer in the box shown below each element. You do
not need to enter amounts.
On September 30, 2012, Falls Company collected the principal on a one-year note
receivable dated October 1, 2011 . Show the effect of the collection of the principal on
Falls’ financial statements.
27) The issuance of a stock dividend will
A.not affect total equity
B.increase retained earnings
C.decrease total paid-in capital
D.decrease net income
28) Indicate how each event affects the elements of financial statements. Use the
following letters to record your answer in the box shown below each element. You do
not need to enter amounts.
The Borger Company purchased an asset for $20,000 on January 1, 2007 . The asset
had a zero salvage value and an 8-year estimated useful life. On January 1, 2012 the
company spent $2,000 cash on routine repair and maintenance. What effect will
recording the 2012 expenditure have on the company’s financial statements for the
year?
29) Cash outflows related to a capital investment may include all of the following
except
A.opportunity costs associated with selecting a specific capital project
B.outflows associated with the initial investment
C.working capital commitments
D.increases in operating expenses
30) Talladega Company manufactures an electric clock radio. The company expects
production of 5,000 units this year. Currently, Talladega produces the clock used in the
product. Talladega has received an offer from Daytona, Inc., to supply the clock. If
Talledega discontinues production of the clock, the company will be able to eliminate
its product-level costs. However, due to its concern for quality, the company will have
to inspect each clock. Various costs and items are described below:
Required:
For each item in the table, place a check mark or X in the column that best describes the
item in the context of the described outsourcing decision. A cost varies if the amount of
the cost or the incurrence of the cost differs between the two alternatives: continuing to
make the clocks or purchasing the clocks from Daytona.
31) For Grace Company, revenue on account amounted to $5,000. Cash collections of
accounts receivable amounted to $2,300. Expenses incurred on account were $2,100.
Cash paid on accounts payable was $1,950.
Grace’s net income was:
A.$200
B.$350
C.$3,050
D.$2,900
32) STU Corporation is authorized to issue 500,000 shares of $12.00 par value common
stock. As of December 2012, STU’s stockholders’ equity accounts report the following
balances:
At the end of 2012, ABD decided to issue a 15% stock dividend, when the market price
of the stock was $14 per share.
Determine the dollar amount to be transferred from Retained Earnings to paid-in capital
accounts as a result of the stock dividend.
A.$95,400
B.$111,300
C.$900,000
D.$1,050,000
33) Independent auditors are
A.responsible for discovering fraud
B.responsible for providing reasonable assurance that financial statements are free of
misstatements
C.responsible for providing absolute assurance that financial statements are free of
errors
D.none of the above
34) Indicate how each event affects the elements of financial statements. Use the
following letters to record your answer in the box shown below each element. You do
not need to enter amounts.
Slovensky Co. paid a $200,000 cash dividend to its shareholders on July 5, 2012; the
dividend had been declared by the board of directors on May 20, 2012. Show the
financial statement effects of payment of the dividend.
35) Chance Company estimates sales of 13,000 units for the upcoming period. At this
sales volume its budgeted income is as follows:
During the period the company actually produced and sold 14,000 units.
Required:
1) The manager now wants to evaluate the company’s performance by comparing actual
costs and revenues to those shown above but you have advised against it. Explain your
reasoning.
2) Prepare a flexible budget based on 14,000 units.
3) If management compares actual revenues and costs to the appropriate flexible
budget, will they be able to fully understand what went right and what went wrong with
the operation during the period? Why or why not?
36) Quick Change and Fast Change are competing oil change businesses. Both
companies have 5,000 customers. The price of an oil change at both companies is $20.
Quick Change pays its employees on a salary basis, and its salary expense is $40,000.
Fast Change pays it employees $8 per customer served. Suppose Quick Change is able
to lure 1,000 customers from Fast Change by lowering its price to $18 per vehicle.
Thus, Quick Change will have 6,000 customers and Fast Change will have only 4,000
customers. Select the correct statement from the following.
A.Quick Change’s profit will remain the same, while Fast Change’s profit will fall
B.Fast Change’s profit will fall, but it will earn a higher profit than Quick Change
C.Profits will decline for both Quick Change and Fast Change
D.Quick Change’s profit will increase, and Fast Change’s profit will decrease
37) Saam Company borrowed $40,000 from the bank on December 1, 2012 . The note
had an 8 percent annual interest rate and matured on May 31, 2013, when Saam paid
the principal and interest on the note.
Required:
a) What amount of cash did Saam pay for interest in 2012?
b) What amount of interest expense did Saam report on the 2012 income statement?
c) What was the amount of liabilities that Saam reported on its balance sheet at the end
of 2012?
d) What was the amount of cash that Saam paid to the bank on May 31, 2013? How was
the cash payment reported on the statement of cash flows?
e) What amount of interest expense was reported on the 2013 income statement?
38) Remsen, Inc. purchased equipment that cost $48,000. The equipment had a useful
life of 5 years and a $5,000 salvage value. Remsen used the double-declining-balance
method to depreciate its assets. Which of the following choices accurately reflects how
the recognition of the first year’s depreciation would affect the company’s financial
statements?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
39) LeMars Company signed a three year contract to perform consulting services for a
local manufacturer on September 1, 2012 . LeMars received $48,000 cash as an
advance payment for these services and agreed the work would begin immediately.
The amounts of cash flow that would be on the 2012 and 2013 statements of cash flows
would be:
A.$16,000/$16,000
B.$-0-/$48,000
C.$11,667/$11,667
D.$48,000/$-0-
40) Java Joe’s operates a chain of coffee shops. The company pays rent of $12,000 per
year for each shop. Supplies (napkins, bags and condiments) are purchased as needed.
The manager of each shop is paid a salary of $2,000 per month, and all other employees
are paid on an hourly basis. Relative to the number of customers for a shop, the cost of
rent is which kind of cost?
A.Fixed cost
B.Variable cost
C.Mixed cost
D.Relevant cost
41) Purchase of treasury stock for cash is what kind of transaction?
A.asset source
B.asset use
C.asset exchange
D.claims exchange
42) Costs associated with holding inventory often include
A.theft, damage, and obsolescence
B.lower motivation of employees
C.increased production time
D.all of these
43) Which of the following would be primarily a merchandising business?
A.Williams Consulting
B.Rodriguez Department Store
C.Hester, Attorney at Law
D.Frerotte Accounting Service
44) Which of the following is an asset source transaction?
A.Purchased machine by issuing a note payable
B.Paid a cash dividend to stockholders
C.Purchased equipment for cash
D.Collected cash from an account receivable
45) If the company’s volume doubles, the company’s total cost will
A.stay the same
B.double as well
C.increase but will not double
D.decrease
46) The Candy Junction operates two candy stores. Sales at the two stores in 2012 were
$320,000 and $201,000; these amounts do not include sales tax. Both stores are in a
state with a 5% sales tax rate.
Required:
a) What is the total amount of sales tax that the stores collected in 2012?
b) What kind of transaction is the collection of the sales tax? (asset source, asset use,
asset exchange, claims exchange).
c) At the end of the year, the company remitted the sales tax to the state. What kind of
transaction is the remission (payment) of the sales tax?
47) A current asset is
A.an asset that will be used in the operating activities of a business
B.an asset generated by the operations of a business within the past year
C.an asset that is expected to be used or converted to cash within one year or the
operating cycle, whichever is longer
D.a miscellaneous asset that is small in dollar amount
48) On January 1, 2012, Gray Company purchased a new company car for $36,000. The
car has an expected salvage value of $6,000. The company estimates that the car will be
driven 100,000 miles over its life and uses units of production to determine depreciation
expense. The car was driven 20,000 miles in 2012 . At the beginning of 2013 the
company revised the estimated total life to 120,000 miles. If 26,000 miles were driven
in 2013, the amount of depreciation expense for the year would be
A.$7,800
B.$6,500
C.$6,240
D.$6,040
49) Sheridan Manufacturing Company currently manufactures a component used in one
of its products. The annual production costs for 5,000 components are as follows:
An outside company has offered to supply 5,000 units of the component for $13 each. If
the company outsources the component, it will be able to rent out the idled factory
space for $1,000 per month but will not terminate the product manager.
Required:
1) Which items are not relevant to this outsourcing decision?
2) Identify any opportunity costs associated with this decision.
3) Prepare a quantitative analysis that indicates whether the component should be
outsourced.
4) What qualitative factors should be considered in this decision?
50) Financial accounting information is reported periodically, primarily at the end of
each fiscal year. When is managerial accounting information reported to managers of an
organization?
51) In the vertical statements model, why is it important to list the financial statements
in the proper order?
52) Horizontal analysis refers to the study of an individual item or account over a
period of time such as the current period only or over many periods. Three approaches
are commonly used to review an account: study of absolute amounts, percentages, and
trends. Explain why it is necessary to use all three approaches in performing a thorough
analysis.
53) Indicate how each event affects the elements of financial statements. Use the
following letters to record your answer in the box shown below each element. You do
not need to enter amounts.
Quimby Co. sells goods to customers with a three-year warranty. On December 31,
2012, Quimby made the appropriate year-end adjustment to record the warranty
expense related to the goods sold during the year. During 2013, Quimby paid $14,500
cash to satisfy warranty claims. Show the effects of the 2012 warranty settlements.
54) How might return on investment be used in making resource allocation decisions
within an organization?
55) Give an example of a type of industry that requires a company to have a large
amount of operational assets.