1) A company’s outside, independent auditors are responsible for preparing its financial
statements.
2) Wiley Corporation issued 5,000 shares of no-par common stock for $32 per share.
For this transaction, Common Stock should be credited (increased) for $160,000.
3) Contribution margin represents the amount available to cover fixed expenses and
then provide company profits.
4) Collection of a credit card receivable is an asset source transaction.
5) When several long-term assets are purchased in a single transaction, the purchase
price is allocated among the assets based on their relative fair values.
6) If a company is operating beyond its break-even point, sale of one more unit of
product increases the company’s profit by the amount of the selling price.
7) At the break-even point, total contribution margin equals total fixed costs.
8) The differences between the standard and actual amounts are called variances.
9) The difference between asset increases and asset decreases from operating a business
is called income or earnings.
10) The nature of planning changes with the length of the time period being considered.
Generally, the shorter the time period, the more specific the plans.
11) A business can obtain resources through its earnings activities.
12) Warnock Company had $400,000 in credit sales for 2012, and it estimated that 2%
of the credit sales would not be collected. The balance in Accounts Receivable at the
end of the year was $79,000. Warnock had never used the allowance method to account
for its receivables till 2012 . The net realizable value of its accounts receivable at the
end of the year was $71,000.
13) Generally, the unadjusted rate of return should be calculated based on the average
investment rather than the amount of the original investment in a depreciable asset such
as equipment.
14) The following static budget is provided:
What will be the budgeted net income if 18,000 units are produced and sold?
A.$31,000
B.$180,000
C.$400,000
D.$42,000
15) Thomas Corporation began business by issuing $2,000 of common stock on January
1, 2012 . The business performed $8,000 of service on account in 2012 and collected
$6,000 of this amount by year end. It paid operating expenses of $4,500 and paid a
$500 dividend to stockholders.
Required:
a) What is the amount of total assets at the end of 2012?
b) What is the amount of cash on hand at the end of 2012?
c) What is the net income for 2012?
d) Prepare a balance sheet for 2012 .
16) 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.
Sanders Co. issued 10,000 shares of common stock for $35 per share. The stock has a
par value of $10.
17) The following information applies to Barnhart Company:
Additional information: Net Credit Sales = $220,000; Beginning Accounts Receivable =
$10,000.
Required:
Compute Barnhart’s
a) Quick ratio
b) Current ratio
c) Working capital
d) Accounts receivable turnover
e) Average days to collect receivables
18) The following accounts and balances were drawn from the records of Rayburn
Company on December 31, 2012:
Which of the following accounts would not appear on a balance sheet?
A.Equipment
B.Interest Payable
C.Interest Revenue
D.Retained Earnings
19) Scott Company is a merchandising business that was started in 2012 . Scott uses the
perpetual inventory system. It experienced the following events during 2012 .
1> Acquired $25,000 cash by issuing common stock
2> Purchased inventory on account that cost $14,000, terms 2/10, n/30
3> Sold inventory that had cost $8,400 for $15,000 cash
4> Paid for the merchandise referred to in event 2, within the discount period
Required:
a) Record the events in the financial statements model below; include column totals.
b) Prepare an income statement for 2012 .
c) What is the amount of total assets at the end of 2012?
20) Choose the answer that is not a distinguishing characteristic of financial accounting
information.
A.It is global information that reflects the performance of the whole company
B.Its time horizon is the present and future
C.It is more concerned with financial data than physical or economic data
D.It is more highly regulated than managerial accounting information
21) The Rockmart Construction Company delivers dirt and stone from local quarries to
its construction sites. A new truck that was purchased for a cost of $117,000 at the
beginning of the year was expected to deliver 200,000 tons over its useful life. The
following is a breakdown of the tons delivered during the year to each construction site:
How much truck depreciation should be allocated to Site D?
A.$15,955
B.$878
C.$1,170
D.None of these
22) Which of the following is a disadvantage of a sole proprietorship?
A.Entrenched management
B.Unlimited liability of the owner
C.Double taxation
D.Excessive regulation
23) Which of the following is an asset exchange transaction?
A.Borrowed cash from a local bank
B.Incurred expenses on account
C.Recognized accrued salaries expense
D.Paid cash to purchase land
24) A company’s numerous specific budgets (sales and inventory purchases, for
example) together are referred to as the
A.grand plan
B.strategic plan
C.master budget
D.current budget
25) Which of the following statements concerning payback analysis is true?
A.An investment with a longer payback is preferable to an investment with a shorter
payback
B.The payback method ignores the time value of money concept
C.The payback method and the unadjusted rate of return are different approaches that
will consistently lead to the same conclusion
D.All of these are true
26) On November 1, 2012, Fain Corporation paid principal and interest on a 6-month,
8% note payable with a face amount of $5,000. How did this transaction affect Fain’s
financial statements?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
27) At the end of the accounting period, Sefcik Company made an adjusting entry for
supplies consumed. Which of the following choices reflects how this event would affect
the company’s financial statements?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
28) Grant Corporation declared a 2-for-1 stock split when it had 12,000 shares of $5 par
value common stock outstanding. If the market price of the stock had been $20 a share
before the split, the par value, number of shares and approximate market value after the
split would be:
A.Choice A
B.Choice B
C.Choice C
D.Choice D
29) Dalton Company is trying to decide between the following two alternatives:
Which of the following conclusions can be drawn from this example?
A.Variable costs are always relevant for decision making
B.Fixed costs are sunk and thus are never relevant for decision making
C.Relevant costs may include variable costs and fixed costs
D.The amount of revenue is not relevant to this decision
30) A transaction that decreases cash and decreases notes payable is a/an
A.claims exchange transaction
B.asset source transaction
C.asset use transaction
D.asset exchange transaction
31) Allen Corporation was organized on July 15, 2012 . It was authorized to issue
150,000 shares of $25 par value common stock and 50,000 shares of 6% cumulative
preferred stock. The preferred stock had a stated value of $50 per share. The following
stock transactions relate to Allen Corporation.
Issued 55,000 shares of common stock for $33 per share.
Issued 2,750 shares of the class A preferred stock for $62 per share.
Issued 27,500 shares of common stock for $35 per share.
Required:
a) Indicate the effect of each of these transactions on Allen’s financial statements.
Include dollar amounts in the model, below. After recording the three transactions,
calculate column totals.
b) After these transactions have been recorded, what is the total amount of stockholders’
equity?
c) After these transactions have been recorded, how many shares of common stock are
outstanding?
32) Lucinda purchased a raffle ticket for $5. Just before the grand prize drawing two
people tried to buy her ticket. The first person offered $25, and another later offered
$60. What is Lucinda’s opportunity cost of keeping the raffle ticket?
A.$20
B.$55
C.$60
D.$85
33) For the last two years, Barton Company had net income as follows:
What was the percentage change in income from 2009 to 2010?
A.20% increase
B.20% decrease
C.25% decrease
D.25% increase
34) Which of the following is not classified as manufacturing overhead?
A.Indirect material
B.Supervisory labor
C.Factory insurance
D.Product delivery costs
35) Lil Company incurs unnecessary costs each period because of the excess quantities
of inventory maintained to meet unexpected customer demand. The costs of inventory
financing, storage, supervision, and obsolescence could most likely be reduced by
which of the following practices?
A.Activity-based costing
B.Value chain analysis
C.Just in time
D.All of these
36) The net effect of the entries to recognize the collection of a previously written-off
account under the allowance method will
A.increase total assets and total equity
B.increase total equity only
C.decrease total assets
D.have no effect on total assets or total equity
37) DeHoag Corporation provided the following information from its financial records:
What is the amount of the company’s earnings per share?
A.$0.72
B.$0.76
C.$0.80
D.$3.20
38) Stahl Company paid $7,800 on May 1, 2012 for insurance coverage for a one year
period beginning that date. The adjusting entry required to recognize insurance expense
on December 31, 2012 would have what effect on the financial statements?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
39) The following accounts and balances were drawn from the records of Rayburn
Company on December 31, 2012:
The amount of net income shown on the December 31, 2012 income statement would
amount to:
A.$550
B.$800
C.$50
D.$250
40) On December 31, 2012, Omaha Company’s total current assets were $350,000 and
its total current liabilities were $200,000. On January 1, 2013, Omaha issued a
long-term note to a bank for $10,000 cash.
Required:
a) Compute Omaha’s working capital before and after issuing the note payable.
b) Compute Omaha’s current ratio before and after issuing the note payable.
41) Which of the following could describe the effects of an asset exchange transaction
on a company’s financial statements?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
42) On March 1, 2012 Garrison, Incorporated declared the annual cash dividend on its
1,500 outstanding shares of $5 par value, 5% noncumulative preferred stock. The
dividend will be paid on May 1, 2012, to the stockholders of record as of April 1, 2012 .
What effect will payment of the dividend on May 1 have on Garrison’s financial
statements?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
43) A contingent liability is
A.an unearned revenue
B.a potential obligation, the existence or amount of which depends on a future event
C.an amount owed to a state or local government
D.an amount related to an impairment loss on an intangible asset
44) Which choice reflects the financial statement effects of Fleming Company’s cash
payment on December 31, 2012?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
45) Locke Company issued bonds payable. Which of the following choices accurately
reflects how the issue would affect Locke’s financial statements?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
46) For the month of July 2012, Wheeler Company’s bank statement contained the
following information:
1) The bank had collected a $3,000 account receivable for the company.
2) The bank charged Wheeler $45 for various service fees during the month.
3) The checking account earned $28 in interest during the month.
Required:
Indicate how each of the three items listed would affect Wheeler’s financial statements.
Show dollar amounts of increases and decreases; enter “NA” if a given element of the
financial statements is not affected by the item. Indicate whether each cash flow is an
operating (OA), investing (IA), or financing (FA) activity.
47) On January 1, 2012, the Falbo Company purchased a copyright for $12,000. Falbo
estimates the remaining useful life of the copyright to be 6 years.
Which of the following correctly shows the effect of the first year’s amortization of
Falbo’s copyright?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
48) Which of the following statements about the Treasury Stock account is correct?
A.Treasury Stock is a liability
B.The balance in the Treasury Stock account reduces total Stockholders’ Equity
C.Treasury Stock is an asset
D.The balance in Treasury Stock reduces Retained Earnings
49) Indicate which of the budgets and pro forma financial statements the given item
appears on by placing X’s in the appropriate column or columns.
Cash balance at the end of the period
50) Indicate how the event affects the elements of the financial statements. Use the
following letters to record your answer in the box shown below each element:
You do not need to enter amounts.
Wave Company borrowed $10,000 cash from a bank.
51) Indicate whether each of the following statements is true or false.
1>Indirect costs are allocated to cost objects
2>Cost drivers are used to trace direct costs to cost objects
3>An allocation rate is calculated by dividing the allocation base by the total cost to be
allocated
4>Depreciation on a building might be allocated to the departments sharing the building
based on the number of square feet occupied by each department
5>A cost driver must be identified for each cost pool that is to be allocated
52) What does the statement of cash flows tell you about a company?
53) Which method of depreciation generally allocates the largest amount of
depreciation to the first year of the asset’s life?