1) A company in its first year of operations incurred $1,000 in cost of goods
manufactured. Its income statement showed cost of goods sold of $800 and selling costs
of $100. Its ending finished goods inventory was $200.
2) Flexible budget amounts for costs and revenues come from multiplying standard per
unit amounts by the actual volume of production.
3) Double taxation is a significant disadvantage of the partnership form of business
organization.
4) The adjusting entry to recognize uncollectible accounts expense does not affect the
net realizable value of receivables.
5) Gains and losses are shown separately on the income statement to communicate the
expectation that they are nonrecurring.
6) Investors in a business expect to receive a share of the income earned by the
business.
7) Li Company has total fixed costs of $5,000, sells a product whose contribution
margin is $50 and selling price per unit is $125, and has current sales of $15,000. The
company’s margin of safety is $2,500.
8) No contribution margin is provided by selling one unit of a product at a price of $25
if variable production costs are $20, variable general and administrative costs are $2,
and fixed costs are $3 per unit.
9) The first step in cost accumulation is to identify cost objects.
10) A cost pool should be made up of costs with a common cost driver.
11) Sunk costs are not relevant for decision-making purposes.
12) An asset source transaction increases a business’s assets and the claims to assets.
13) An asset exchange transaction does not affect the total amount of assets of an entity.
14) A distribution by a sole proprietorship to the owner is called a dividend.
15) In capital investment decisions, the cost of capital is sometimes referred to as the
hurdle or discount rate.
16) Summer Company’s static budget is based on a planned activity level of 25,000
units. Later, the company’s management accountant prepared a budget based on 30,000
units. The company actually produced and sold 29,000 units. In evaluating its
performance, management should compare the company’s actual revenues and costs to
which of the following budgets?
A.A budget based on 29,000 units
B.A budget based on 30,000 units
C.A budget based on 25,000 units
D.Either A or C
17) During its first year of operations, Beta Company paid $16,000 for direct material
and $17,000 in wages for production workers. Lease payments and utilities on the
production facilities amounted to $7,000. General, selling, and administrative expenses
were $6,000. The company produced 5,000 units and sold 4,000 units at a price of
$15.00 a unit. The average cost to produce one unit is which of the following amounts?
A.$8.00
B.$10.00
C.$9.20
D.$11.50
18) Which of the following is NOT an asset use transaction?
A.paying cash dividends
B.paying cash to purchase land
C.paying off the principal on a loan
D.paying salaries to employees
19) During the month of March, Wang Company collected $8,000 of accounts
receivable. Which of the following represents the effects of the collection of the
receivables on Wang’s financial statements?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
20) Judson Company has an investment in assets of $900,000, income that is 10% of
sales, and an ROI of 18%. From this information the amount of income would be
A.$162,000
B.$140,000
C.$72,000
D.$90,000
21) Trail Power has been using the same machines to make its name brand clothing for
the last five years. A cost efficiency consultant has suggested that production costs may
be reduced by purchasing more technologically advanced machinery. The old machines
cost the company $200,000. The old machines presently have a book value of $120,000
and a market value of $12,000. They are expected to have a five-year remaining life and
zero salvage value. The new machines would cost the company $100,000 and have
operating expenses of $18,000 a year. The new machines are expected to have a
five-year useful life and no salvage value. The operating expenses associated with the
old machines are $30,000 a year. The new machines are expected to increase quality,
justifying a price increase, and thereby increasing sales revenue by $10,000 a year.
Select the true statement.
A.The company will be $28,000 better off over the 5-year period if it keeps the old
equipment
B.The company will be $40,000 better off over the 5-year period if it keeps the old
equipment
C.The company will be $22,000 better off over the 5-year period if it replaces the old
equipment
D.The company will be $12,000 better off over the 5-year period if it replaces the old
equipment
22) David has $500,000 to invest in a 5 year annuity. Assuming the time value of
money is 10%, what amount will David receive in cash each year? (rounded to the
nearest dollar)
A.$100,000
B.$110,000
C.$131,899
D.none of these
23) On January 1, 2012, Howe Company’s Accounts Receivable balance was $10,000
and the balance in the Allowance for Doubtful Accounts was $500. On January 5, 2012,
a $200 uncollectible account was written-off as uncollectible. Assuming that no other
transactions related to accounts receivable had occurred, the net realizable value of
accounts receivable immediately after the write-off was
A.$9,500
B.$9,700
C.$9,300
D.$9,200
24) Which of the following assets is not considered to have an indefinite useful life?
A.copyright
B.goodwill
C.renewable franchise
D.trademark
25) Select the incorrect statement.
A.Four purposes often claimed for budgeting involve planning, coordination,
performance measurement, and corrective action
B.In a participative budgeting system, budget information flows in one direction only,
from bottom to top
C.The three major categories of the master budget are operating budgets, capital
budgets, and pro forma financial statements
D.The accounting department normally does not coordinate the effort to establish the
sales forecast
26) Booker Company operates a factory with two departments, X and Y. The rent paid
on the manufacturing facility would most likely be allocated to departments X and Y on
the basis of:
A.direct labor hours
B.machine hours
C.square footage occupied
D.units sold
27) On January 1, 2012 the Accounts Receivable and the Allowance for Doubtful
Accounts carried balances of $30,000 and $500, respectively. During the year the
company reported $75,000 of credit sales. There were $550 of receivables written-off as
uncollectible in 2012 . Cash collections of receivables amounted to $74,550. The
company estimates that it will be unable to collect one percent (1%) of credit sales.
The entry required to recognize the uncollectible accounts expense for 2012 will
A.increase total assets and retained earnings
B.decrease total assets and retained earnings
C.decrease total assets and increase net income
D.increase total assets and decrease net income
28) A corporations board of directors declares a dividend to common shareholders. This
dividend consists of a specified amount of additional shares of common. This is what
type of transaction?
A.asset source transaction
B.claims exchange transaction
C.asset use transaction
D.asset exchange transaction
29) Rodriguez Company was founded in 2010 . It acquired $40,000 cash by issuing
stock to investors and an additional $20,000 cash by borrowing from creditors. During
2010, it received $9,000 cash revenues and paid $22,000 in cash expenses. The
company then went out of business.
Required:
a) Explain the term, “business liquidation.”
b) What amount of cash did Rodriguez Company have on hand immediately before
going out of business?
c) What amount of cash will Rodriguez’s creditors receive?
d) What amount of cash will Rodriguez’s stockholders receive?
30) Knowles Company issued $100,000 of bonds at face value on January 1 . The
bonds carry an 8% annual stated rate of interest. Interest is payable in cash on
December 31 of each year. Which of the following reflects the financial statement
effects of the first interest payment?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
31) Ditzel Manufacturing Company uses a cost plus pricing strategy. At the beginning
of 2012, Ditzel estimated that total annual fixed overhead costs would amount to
$30,000. Further, Ditzel estimated that the annual volume of production would be 1,000
units of product. Based on these estimates, Ditzel computed a predetermined overhead
rate that was used to allocate overhead cost to the products made throughout the year.
As predicted, the actual volume of production amounted to 1,000 units of product.
However, actual fixed overhead costs amounted to $28,000. Based on this information
alone,
A.too high a selling price was assigned to products in 2012
B.too low a selling price was assigned to products in 2012
C.the correct selling price was assigned to products in 2012
D.the answer cannot be determined from the information provided
32) Which of the following terms designates the maximum number of shares that a
corporation may issue?
A.outstanding shares
B.authorized shares
C.treasury stock
D.issued shares
33) Most assets must be reported on the balance sheet at
A.their current replacement cost
B.fair market value
C.an amount estimated by the company’s management
D.historical cost
34) Hardin Company began operations in 2010 . During the year, the following cash
transactions occurred:
1> issued stock for $40,000
2> borrowed $24,000 from bank
3> provided services to customers for $53,000 cash
4> paid back $8,000 of the loan from the bank
5> paid rent expense, $9,000
6> purchased equipment costing $19,000
7> paid operating expenses, $29,000
8> paid $4,000 dividend to stockholders
Assuming that Hardin engaged in no transactions during the year other than those listed
above, what was the amount of net income or loss for the year?
A.$19,000 net income
B.$15,000 net income
C.$12,000 net income
D.$11,000 net loss
35) The following accounts and balances were drawn from the records of Rayburn
Company on December 31, 2012:
Recognition of revenue may result in which of the following?
A.a decrease in assets
B.an increase in assets
C.an increase in liabilities
D.a decrease in expenses
36) An analysis procedure that uses percentages to compare each of the parts of an
individual statement to a key dollar amount from the financial statement is
A.vertical analysis
B.ratio analysis
C.horizontal analysis
D.contribution analysis
37) Expenses are shown on the
A.income statement
B.statement of changes in stockholders’ equity
C.balance sheet
D.all of these
38) Bridge Corporation issued a 15% stock dividend on 20,000 outstanding shares of
$10 stated value common stock. The distribution was made at the time the market value
of the stock was $50 a share. How did this transaction affect the company’s total
stockholders’ equity?
A.The total balances in equity accounts increased by $150,000
B.The sum of the balances in equity accounts increased by $30,000
C.The sum of the balances in equity accounts decreased by $150,000
D.Total stockholders’ equity was not affected by this transaction
39) On May 4, 2012, Regan Company purchased a tract of land as a factory site for
$3,000,000. An existing building on the property was demolished, and construction was
begun on a new factory building in July 2012 and completed December 15, 2012 . Cost
data are shown below.
Required:
Compute the amounts that should be recorded as the cost of a) the land and b) the new
factory building.
40) The following transactions apply to Fort Bend Corporation:
1) Issued common stock for $21,000 cash
2) Provided services to customers for $28,000 on account
3) Purchased land for $18,000 cash
4) Incurred $9,000 of operating expenses on credit
5) Collected $15,000 cash from customers
6) Paid $7,000 on accounts payable
7) Paid $2,500 dividends to stockholders
Required:
a) Identify the effect on the Statement of Cash Flows, if any, for each of the above
transactions. Indicate whether each transaction involves operating, investing, or
financing activities and the amount of increase or decrease.
b) Classify the above accounting events into one of four types of transactions (asset
source, asset use, asset exchange, claims exchange).
41) The Redding Company recorded salaries earned by employees but not yet paid.
Which of the following represents the effect of this transaction on the financial
statements?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
42) Select the incorrect statement about the planning process.
A.The longer the time period, the less specific the plans
B.Planning decisions can often be sub-divided into three distinct planning phases,
short-term, intermediate-term, and long-term
C.The nature of planning changes with the length of the time period being considered
D.The shorter the time period, the more general the plans
43) Which of the following is not classified as Property, Plant and Equipment?
A.Computers
B.Goodwill
C.Machinery
D.Office furniture
44) Which of the following items is qualitative?
A.Cost of a new machine
B.Depreciation of existing machine
C.Book value of the existing machine
D.Ease of integration of the new machine with existing machinery
45) Bay Company began using the allowance method in 2012 . On January 1, 2012,
Bay had a $3,000 balance in the Accounts Receivable account and a zero balance in the
Allowance for Doubtful Accounts account. During 2012, Bay provided $25,000 of
service on account. The company collected $21,000 cash from account receivable.
Uncollectible accounts are estimated to be 2% of sales on account.
The amount of cash flow from operating activities that would appear on the 2012
statement of cash flows is:
A.$24,000
B.$25,000
C.$17,000
D.$21,000
46) Hardin Company began operations in 2010 . During the year, the following cash
transactions occurred:
1> issued stock for $40,000
2> borrowed $24,000 from bank
3> provided services to customers for $53,000 cash
4> paid back $8,000 of the loan from the bank
5> paid rent expense, $9,000
6> purchased equipment costing $19,000
7> paid operating expenses, $29,000
8> paid $4,000 dividend to stockholders
What was the cash flow from investing activities?
A.an outflow of $15,000
B.an outflow of $19,000
C.an inflow of $65,000
D.an outflow of $23,000
47) First Manufacturing Company uses a predetermined overhead rate to allocate fixed
manufacturing overhead to production on a monthly basis. At the end of the accounting
period it was determined that actual overhead cost was more than the estimated
overhead cost and that the actual volume of production was higher than estimated.
Based on this information alone,
A.the correct amount of cost was assigned to products during the accounting period
B.too much cost was assigned to products during the accounting period
C.too little cost was assigned to products during the accounting period
D.the answer cannot be determined from the information provided
48) During November 2012, Hall Company purchased two identical inventory items.
The item purchased first cost $12.00, and the item purchased second cost $15.00. Hall
sold one of the inventory items for $20.00. Based on this information
A.the amount of gross margin would be $5.00 if Hall uses the weighted average cost
flow method
B.the amount of cost of goods sold would be $12.00 if Hall uses the weighted average
cost flow method
C.the amount of gross margin will be $5.00 if Hall uses the FIFO cost flow method
D.the amount of ending inventory will be $12.00 if Hall uses the LIFO cost flow
method
49) Which of the following is not a generally recognized internal control procedure?
A.Establishment of clear lines of authority
B.The minimization of labor cost
C.Requiring regular vacations for employees
D.Having employees covered by a fidelity bond
50) Victorino Company accepted a credit card payment in exchange for $10,000 of
services provided to a customer. The credit card company charges a 5% service charge.
The collection of cash from the credit card company when it settles the account
receivable balance will
A. increase assets by $9,500
B.decrease assets and equity by $500
C.increase assets by $10,000
D.none of the above
51) The following transactions apply to Copeland’s Fitness Center for 2012 .
1) Started the business by issuing $18,000 of common stock for cash
2) Provided services to clients and received $28,000 cash
3) Borrowed $6,500 from the bank for the business
4) Paid $4,500 for rent of equipment
5) Paid $6,000 of salary expense
6) Cash dividends of $11,500 were paid to the stockholders
Required:
a) What are the total assets of the business at the end of 2012?
b) Prepare a Statement of Cash Flows for 2012 .
52) Which of the following budgets needs to be prepared prior to preparing an
inventory purchases budget?
A.Selling and administrative expense budget
B.Cash budget
C.Sales budget
D.All of these
53) When does a product cost become an expense?
54) Bane Accounting Services planned to charge its customers $120 per hour in 2012.
The chief operating officer expected that the company would provide 40,000 hours of
service to clients. However, the vice president for marketing argued that the actual
number of hours might range from 36,000 to 44,000 hours. Bane’s standard variable
cost is $65 per hour, and its standard fixed cost is $1,500,000.
Required:
Prepare flexible budgets for 36,000, 40,000, and 44,000 hours.
55) Kotsay Co. sold goods with the terms 1/10, n/30 . What do the terms mean?
56) The following information is for Companies M and N for the most recent year:
Based on this information, indicate whether each of the following statements is true or
false:
1>N would suffer more than M from an equal drop in sales revenue
2>N’s contribution margin for the year was lower than M’s
3>N’s magnitude of operating leverage was lower than M’s
4>If N’s sales increased by 20%, its net income would increase by 40%
5>N’s distribution of fixed and variable costs carries greater risk and greater potential
for profit
57) 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.
While reconciling Swanson Company’s bank statement an error was discovered. A $394
cash receipt for the collection of an account receivable was recorded in the company’s
books as $349. The deposit was recorded correctly by the bank.
58) Why do companies prepare pro forma financial statements as part of the budgeting
process?