1) Goal conflict can be avoided if budget goals are carefully designed for consistency
across all areas of the organization.
2) The basic type of stock issued to owners is called common stock.
3) The percentage analysis of increases and decreases in corresponding items in
comparative financial statements is referred to as horizontal analysis.
4) Hill Co. can further process Product O to produce Product P. Product O is currently
selling for $65 per pound and costs $42 per pound to produce. Product P would sell for
$82 per pound and would require an additional cost of $13 per pound to produce. The
differential revenue of producing Product P is $82 per pound.
5) Outstanding checks are checks that have been issued but have not cleared by the
bank.
6) The rate earned on total common stockholders’ equity for most thriving businesses
will be less than the rate earned on total assets.
7) The estimated amount that an asset can be sold for at the end of its useful life is
called its book value.
8) Break-even analysis is a type of cost-volume-profit analysis.
9) Period costs are costs that are incurred for the production requirements of a certain
period.
10) Using vertical analysis of the income statement, a company’s net income as a
percentage of net sales is 10%; therefore, the income tax expenses as a percentage of
net sales must be 90%.
11) Federal unemployment compensation tax becomes an employer’s liability at the
time the employees are paid.
12) If sales total $1,000,000, fixed costs total $200,000, and variable costs are 55% of
the sales, the contribution margin ratio is 55%.
13) Sales commission is an example of factory overhead cost.
14) Adding a review of operations by an internal audit staff strengthens internal control.
15) If prior to the last weekly payroll period of the calendar year, the cumulative
earnings for an employee are $75,200, earnings subject to social security tax are
$106,800, and the tax rate is 7.5%, the employer’s social security tax on the $800 gross
earnings paid on the last day of the year is $60.
16) A business stakeholder has an interest in the economic performance of a business.
17) Stockholders of a corporation are its internal stakeholders.
18) The process that begins with the analysis of transactions and ends with preparing
the accounting records for the next accounting period is called the accounting cycle.
19) Under the cost price approach, the transfer price is the price at which the product or
service transferred could be sold to outside buyers.
20) Match the following items with the appropriate financial statement:
a. Income statement
b. Balance sheet
c. Retained earnings statement
d. Statement of cash flows
21) If the seller is to pay the delivery expense of delivering merchandise, the delivery
terms are stated as:
A.FOB shipping point
B.FOB destination
C.FOB n/30
D.FOB seller
22) The direct labor and overhead costs of providing services to clients are accumulated
in:
A.finished services expense
B.work in process
C.administrative salaries expense
D.overhead
23) The cost of available but unused productive capacity is indicated by the:
A.fixed factory overhead volume variance
B.direct labor cost time variance
C.direct labor cost rate variance
D.variable factory overhead controllable variance
24) Which of the following statements is true of managerial accounting?
A.Reporting under managerial accounting is constrained by rules such as generally
accepted accounting principles
B.Managerial accounting is required to be reported annually, also may be reported
monthly or quarterly
C.Managerial accounting provides information to the external stakeholders of the
company
D.Managerial accounting is primarily concerned with generating information for use by
managers
25) Which of the following types of business is popular for its ease and low cost of
organizing?
A.Not-for-profit
B.Corporation
C.Partnership
D.Proprietorship
26) Beginning inventory, purchases, and sales for Product XCX are as follows:
Assuming a periodic inventory system and the first-in, first-out method, determine (a)
the cost of the merchandise sold and (b) the inventory on October 31 .
27) Efficient Corporation uses a standard cost system. The following information was
provided for the period that just ended:
Refer to the information provided for Efficient Corporation. The direct labor rate
variance is:
A.$135,000 unfavorable
B.$89,100 favorable
C.$89,100 unfavorable
D.$121,500 unfavorable
28) Using a perpetual inventory system, the purchase of $30,000 of merchandise on
account would include a(n):
A.increase in Sales
B.increase in Merchandise Inventory
C.decrease in Merchandise Inventory
D.decrease in Sales
29) Responsibility accounting reports for profit centers will include:
A.only costs
B.only revenues
C.both expenses and fixed assets
D.revenues, expenses, and net income or loss from operations
30) Flyer Co. billed a client for flying lessons given in January. The payment was
received in February. Under the accrual basis of accounting, when should Flyer Co.
record the revenue?
A.January
B.February
C.Some in January and some in February
D.Flyer Co. should not record any revenue
31) When cash is received in payment of an account receivable, which section of the
Statement of Cash Flows is affected?
A.Cash Flow from Operating Activities
B.Cash Flow from Investing Activities
C.Cash Flow from Financing Activities
D.There is no effect on the Statement of Cash Flows.
32) A company made some expensive repairs to equipment and buildings during the
past year. (a) What criteria is used in determining whether the repairs are capital
expenditures or revenue expenditures, and (b) what is the effect on the companys
financial statements if they are incorrectly recorded as capital expenditures?
33) In a profit center, the department manager has responsibility for and the authority to
make decisions that affect:
A.not only costs and revenues, but also assets invested in the center
B.the assets invested in the center, but not costs and revenues
C.both costs and revenues for the department or division
D.costs and assets invested in the center, but not revenues
34) Sanchez Company is considering replacing equipment that originally cost $300,000
and has $280,000 accumulated depreciation to date. A new machine will cost $450,000.
What is the sunk cost in this situation?
A.$150,000
B.$280,000
C.$20,000
D.$300,000
35) Governments have an interest in the economic performance of business because of:
A.tax collections
B.community involvement from the business
C.business incentives
D.all of these
36) An analysis in which all the components of an income statement are expressed as a
percentage of net sales is called:
A.vertical analysis
B.horizontal analysis
C.liquidity analysis
D.solvency analysis
37) For the coming year, Belton Company estimates fixed costs of $60,000, the unit
variable cost of $25, and the unit selling price of $50. Determine (a) the break-even
point in units of sales, (b) the unit sales required to realize operating income of
$100,000, and (c) the probable operating income if sales total $400,000.
38) The inventory costing method that considers the ending inventory to be composed
of units of the merchandise acquired earliest is called:
A.first-in, first-out
B.highest-in, first-out
C.lowest-in, first-out
D.last-in, first-out
39) The expected average rate of return for a proposed investment of $3,000,000 in a
fixed asset giving effect to depreciation (straight-line method) with a useful life of 20
years, no residual value, and an expected total income of $6,000,000 is:
A.25%
B.18%
C.40%
D.20%
40) Deferred expenses (prepaid expenses) are items initially recorded as assets but are
expected to become _____ over time.
A.liabilities
B.assets
C.stockholders equity
D.expenses
41) Which of the following statements is not true about liabilities?
A.Liabilities are debts owed to outsiders
B.Account titles of liabilities often include the term payable
C.Cash received before services are performed is considered to be a liability
D.Liabilities include insurance premium paid in advance
42) Which of the following should be shown on a statement of cash flows under the
financing activity section?
A.The purchase of a long-term investment in the common stock of another company
B.The payment of cash to retire a long-term note
C.The proceeds from the sale of a building
D.The issuance of a long-term note to acquire land
43) PDT Co. has two divisions, East and West. Invested assets and condensed income
statement data for each division for the past year ended December 31 are as follows:
44) Cape Corporation sells a single product. Budgeted sales for the year are anticipated
to be 640,000 units, estimated beginning inventory is 98,000 units, and desired ending
inventory is 80,000 units. The quantities of direct materials expected to be used for each
unit of finished product are given below.
Refer to the information provided for Cape Corporation. The amount of direct material
C purchased during the year is:
A.$789,600
B.$768,000
C.$746,400
D.$650,400
45) Revenue and expense data for Reuters Company are as follows:
46) Johnson, Inc. issued $15,000 in capital stock in exchange for cash. What is the
effect of this transaction?
A.Total assets remain unchanged
B.Cash flow from Financing Activities will increase
C.Net Income will increase
D.Total Retained Earnings will increase
47) Which of the following activity bases would be the most appropriate for food costs
of a hospital?
A.Number of cooks scheduled to work
B.Number of x-rays taken
C.Number of patients who are admitted in the hospital
D.Number of scheduled surgeries
48) The graph of a variable cost per unit when plotted against its related activity base
appears as a:
A.circle
B.rectangle
C.straight line
D.curved line
49) Below is budgeted production and sales information for Cooper Cans, Inc. for the
month of March:
The unit selling price for aluminum cans is $0.10 and for tin cans is $0.15.
Refer to the information provided for Cooper Cans Inc. Budgeted production for tin
cans during the month is:
A. 99,000 units
B.101,000 units
C.100,000 units
D.107,000 units
50) The recording of the factory labor costs incurred for general factory use would
include a debit to:
A.Factory Overhead
B.Wages Payable
C.Wages Expense
D.Cost of Goods Sold
51) What cost concept used in applying the cost-plus approach to product pricing
includes only total manufacturing costs in the cost amount to which the markup is
added?
A.Variable cost concept
B.Total cost concept
C.Product cost concept
D.Opportunity cost concept
52) Philip Corporation purchased equipment on account. What is the effect of this
transaction?
A.Cash will decrease and equipment will increase
B.Total assets will remain unchanged
C.Cash flow from Investing Activities will decrease
D.Total assets and total liabilities will both increase
53) Management’s philosophy and operating style would affect which of the following
elements of internal control?
A.Risk assessment
B.Monitoring
C.Control environment
D.Information and communication
54) On the statement of cash flows prepared by the indirect method, a $50,000 gain on
the sale of investments would be:
A.deducted from net income in converting the net income reported on the income
statement to cash flows from operating activities
B.added to net income in converting the net income reported on the income statement to
cash flows from operating activities
C.added to cash received from the sale to determine cash flows from investing activities
D.deducted from cash received from the sale to determine cash flows from investing
activities
55) _____ is the increase in assets from selling products and services.
A.Revenue
B.Liabilities
C.Products
D.Stockholders Equity
56) The management of London Corporation is considering the purchase of a new
machine costing $750,000. The company’s desired rate of return is 6%. The present
value factors for $1 at compound interest of 6% for 1 through 5 years are 0.943, 0.890,
0.840, 0.792, and 0.747, respectively. In addition to this information, use the following
data in determining the acceptability in this situation:
The present value index for this investment is:
A.1.00
B.0.95
C.1.25
D.1.05