Which of the following is not a right of stockholders?
A. To vote for directors and on key issues.
B. To participate in dividends declared.
C. To share in the distribution of assets if the corporation is liquidated.
D. To select the Chief Executive Officer.
Refer to the information above. The materials quantity variance for James’s June
operations is:
A. $3,150 favorable.
B. $3,210 unfavorable.
C. $1,480 unfavorable.
D. $3,210 favorable.
Starbright manufactures children car seats, strollers, and baby swings. Starbright’s
manufacturing costs are budgeted as follows:
Factory utilities $105,000
Factory foremen salaries $75,000
Machinery setup costs $30,000
Total manufacturing overhead $210,000
The company uses activity-based costing to allocate its manufacturing overhead costs to
products based on the following schedule:
During the current month, the following levels of activities were incurred:
What are the factory foremen salaries allocated to Car Seats during the current month?
A. $11,607.
B. $26,786.
C. $36,607.
D. $75,000.
The purchase of treasury stock for cash will:
A. Increase stockholders’ equity.
B. Not increase nor decrease stockholders’ equity.
C. Decrease stockholders’ equity.
D. Not change total assets.
How would a company’s working capital be affected if a substantial amount of accounts
payable were paid in cash?
A. It would be unaffected.
B. It would fall.
C. It would increase.
D. The change would depend on the relationship between the payables liquidated and
current liabilities.
Four categories of costs associated with product quality are:
A. External failure, internal failure, prevention, and carrying.
B. External failure, internal failure, prevention, and appraisal.
C. External failure, internal failure, training, and appraisal.
D. Warranty, product liability, prevention, and training.
The choice of inventory valuation method can help achieve each of the following
independent goals, except:
A. Reduce cost of merchandise acquired from suppliers.
B. Increase reported net income.
C. Increase the inventory turnover rate.
D. Reduce the amount of income taxes owed.
Equivalent units are usually computed for:
A. Only direct materials.
B. Only direct labor.
C. Only factory overhead.
D. Direct materials, direct labor, and factory overhead costs.
(a) How long will it take Barbara to accumulate $30,000 to buy a car if she invests
$15,000 at 5%? (b) How long will it take if she invests the same amount at 4%
semi-annually?
As a result of a 5% stock dividend:
A. Total stockholders’ equity decreases by 5%.
B. The par value per share decreases by 5%.
C. The number of shares owned by each stockholder increases by 5%, but total
stockholders’ equity does not change.
D. Both the number of shares outstanding and the total stockholders’ equity increase by
5%.
Accounting terminology
Listed below are seven technical accounting terms introduced or emphasized in this
chapter:
Each of the following statements may (or may not) describe one of these technical
terms. In the space provided beside each statement, indicate the accounting term
described, or answer “None” if the statement does not correctly describe any of the
terms.
____ (a) Costs that jointly benefit several responsibility centers of the business and that
do not vary significantly with changes in sales volume.
____ (b) The amount charged by a responsibility center for the goods it sells to another
responsibility center.
____ (c) Used to evaluate the performance of a manager based solely on revenue and
costs under the manager’s control.
____ (d) A responsibility center of a business that may be evaluated by the return
earned on assets.
____ (e) The subtotal in a responsibility income statement that is most useful in
evaluating the short-term effects of various marketing strategies on profitability.
By choosing to go into business for himself, Jim Lazar foregoes the possibility of
getting a highly paid job with a large company. This is called a(n):
A. Sunk cost.
B. Out-of-pocket cost.
C. Opportunity cost.
D. Joint cost.
Financial assets include all of the following except:
A. Cash.
B. Marketable securities.
C. Inventories.
D. Accounts receivable.
High-low method
The following information is available regarding the total repair costs of Alexander
Design Company for six months of 2015:
(a) Using the high-low method, compute the following:
(1) The variable element of repair cost per unit of production:
$_________________ per unit
(2) The fixed element of the monthly repair cost: $__________________
(b) Use the cost relationship determined in part a to estimate the total repair cost for
July 2015, given that production is scheduled for 2,300 units. $___________________
Which of the following should not be classified as a manufacturing cost?
A. Indirect factory labor costs, such as salaries of plant security guards.
B. Direct materials used in the production process.
C. Utility bills related to factory operations.
D. Commissions paid to salespeople.
Sue Costa, owner of A-1 Cleaning Services, invested an additional $75,000 in the
company. Which of the following would be a part of the correct journal entry to record
this transaction?
A. A debit to the Cash account.
B. A debit to the Equity account.
C. A debit to the Capital Stock account.
D. A debit to the Cash Received account.
Accounting terminology
Listed below are eight technical accounting terms introduced in this chapter:
Each of the following statements may (or may not) describe one of these technical
terms. In the space provided beside each statement, indicate the accounting term
described, or answer “None” if the statement does not correctly describe any of the
terms.
____ (a) Cash sales and collections of accounts receivable.
____ (b) The classification of cash flows which includes issuing capital stock and
paying dividends.
____ (c) The financial statement which best describes the profitability of a business.
____ (d) The section of a statement of cash flows summarizing the cash effects of most
transactions entering into the determination of net income.
____ (e) An expense that reduces net cash flow but does not reduce net income.
____ (f) The classification of cash flows that includes purchases and sales of plant
assets.
____ (g) Transactions shown in a supplementary schedule accompanying a statement of
cash flows.
If fewer units are produced than had been estimated when standard unit costs were
determined, there would normally be:
A. A favorable labor efficiency (usage) variance.
B. An unfavorable overhead volume variance.
C. A favorable materials quantity variance.
D. An unfavorable overhead spending variance.
Under the allowance method, when a receivable that had been previously written off is
collected:
A. Net income is increased.
B. Net assets are increased.
C. Net income and net assets are not affected.
D. Net assets and net income are both increased.
Which of the following would likely be the most appropriate cost driver to allocate
machinery set-up costs to products?
A. Machine hours.
B. Direct labor hours.
C. Number of production runs.
D. Repair work orders.
Cash flow from operations activities-indirect method
An analysis of the 2015 financial statements of Portside Provisions reveals the
following:
(a) Accounts payable to suppliers of merchandise decreased by $65,000 during 2015.
(b) Dividends of $135,000 were declared in November 2015, to be paid in January
2016.
(c) Dividends of $120,000, declared in November 2014, were paid in January 2015.
(d) Inventory levels increased by $91,000 during 2015.
(e) Depreciation expense for 2015 amounted to $53,000.
(f) Land, which had a cost of $350,000, was sold in 2015 for $400,000 cash, resulting in
a gain of $50,000.
(g) Net income for 2015 was $745,000.
Using only the above information, follow the indirect method to compute Portside
Provisions’ net cash flows from operating activities for 2015.
To receive the next cash dividend, an investor must purchase the stock before the:
A. Dividend declaration date.
B. Ex-dividend date.
C. Date of record.
D. Payment date announced by the board of directors.
In a recent financial journal, the exchange rate between the dollar and the Japanese yen
() was quoted two ways:
Refer to the above data. The number of dollars equivalent to 5,250,000 on this date is:
A. $40,110.00.
B. $687,172.50.
C. $87,225.50.
D. Depends upon whether the item is a receivable or a payable.
Stock that had been issued by a corporation, and later reacquired, is classified as:
A. Treasury stock.
B. Non-participating preferred stock.
C. Restricted stock.
D. Issued shares.
Return on equity is calculated by:
A. Dividing net income by total revenue.
B. Dividing net income by average stockholders’ equity.
C. Dividing net income by working capital.
D. Dividing dividends by stockholders’ equity.
Quick assets include which of the following?
A. Cash, marketable securities, and receivables.
B. Cash, marketable securities, and inventories.
C. Cash, prepaid rent, and receivables.
D. Market securities, receivables, and inventories.
A company’s most profitable products are often those which:
A. Have the highest contribution margin ratios and the highest sales volumes.
B. Have the highest contribution margin ratios and the lowest sales volumes.
C. Have the lowest contribution margin ratios and the highest sales volumes.
D. Have the lowest contribution margin ratios and the lowest sales volumes.
Which of the following indicates a cash receipt?
A. A decrease in accrued expenses, such as wages payable.
B. A decrease in accounts receivable.
C. An increase in inventory.
D. A decrease in accounts payable.
The current ratio:
A. Is computed by dividing current assets by current liabilities.
B. Is computed by subtracting current liabilities from current assets.
C. Remains unchanged throughout the operating cycle.
D. Is a measure of short-term profitability.
The amount of the present value of a future cash receipt will depend upon:
A. Only the length of time until the money is received.
B. Only the amount of money to be received.
C. Only the required rate of return.
D. The amount of money to be received, the length of time until the money is received,
and the required rate of return.
Davis, Inc., a music group, entertained at a black-tie dinner dance on April 26, and
collected the fee in full at the end of the evening. This transaction:
A. Causes an increase in assets and revenue, as well as an increase in owners’ equity.
B. Is recorded by debiting Cash and crediting the Retained Earnings account.
C. Causes an increase in assets and a decrease in owners’ equity.
D. Violates the matching principle unless any expenses associated with this cash receipt
are paid prior to recording the revenue.
The term revenue can best be described as:
A. The selling price of goods and services rendered to customers during a given
accounting period.
B. The cash received from selling goods and serving customers during a given
accounting period.
C. The net increase in owners’ equity during a given period.
D. The “bottom line” in the income statement.