All of the following statements regarding management accounting’s role in assigning
decision-making authority are true except:
A. Since management accounting information is used for decision making purposes,
historical information is unnecessary.
B. Information from the management accounting system supports decision making.
C. The syllabus for a college course is a type of report that outlines students’
decision-making responsibilities.
D. All members of an organization have some decision-making ability.
When a corporation has a right to redeem bonds in advance of the maturity date, the
bond is considered a:
A. Convertible bond.
B. Callable bond.
C. Junk bond.
D. Debenture bond.
In computing the return on average investment of a particular asset, the asset’s annual
depreciation expense may be viewed as:
A. An increase in the average amount invested over the life of the asset.
B. An increase in the asset’s carrying value each year.
C. A recovery of the amount originally invested in the asset.
D. A decrease in the asset’s net cash flows.
Income taxes to a partnership:
A. Are an obligation of the partnership.
B. Are an obligation to each partner only when cash is received.
C. Are an obligation to each partner based on their share of profits.
D. Are not an obligation to each partner since a partnership does not pay tax.
Shore and Gardiner each own 10,000 shares of S&G Corporation $12 par value stock
which they purchased for $38 per share directly from the corporation. If Shore sells his
stock to Gardiner for $475,000:
A. Stockholders’ equity of S&G Corporation increases.
B. Assets of S&G Corporation increase.
C. Stockholders’ equity of S&G Corporation decreases.
D. No account of S&G Corporation is affected.
Owners’ equity in a business increases as a result of which of the following?
A. Payments of cash to the owners.
B. Losses from unprofitable operation of the business.
C. Earnings from profitable operation of the business.
D. Borrowing from a commercial bank.
The fair value accounting adjustment:
A. Affects both the balance sheet and the current period income statement.
B. Is not made when the current market value of investments in marketable securities is
higher than original cost.
C. May result in either a gain or a loss to be reported in the current period income
statement.
D. Represents a departure from the cost principle.
Venus Wholesale Co. started carrying a new product in December. Purchases and sales
of this product during the month were:
Refer to the information above. Assuming the LIFO flow assumption is in use, the
perpetual inventory records will indicate an ending inventory of this product of:
A. $9,800.
B. $10,600.
C. $10,800.
D. $8,000.
Baskin Promotions, Inc. sells T-shirts decorated for a variety of concert performers. The
company has developed the following budget for the coming year based on a sales
forecast of 80,000 T-shirts:
Cost of goods sold and variable operating expenses vary directly with sales, and the
income tax rate is 30% at all levels of operating income.
If the concert season is slow due to poor weather, Baskin estimates that sales could fall
to as low as 60,000 T-shirts.
Refer to the information above. Assume Baskin actually achieves the 60,000 unit sales
level, and that net income actually earned at this level was $70,000. A performance
report would indicate that net income was:
A. $2,660 over budget.
B. $43,120 under budget.
C. $90,000 under budget.
D. At the budgeted level.
Given below are comparative balance sheets and an income statement for Claret
Corporation.
All sales were made on account. Cash dividends declared during the year totaled
$11,492.
Refer to the information above. Claret Corporation’s return on common stockholders’
equity for 2015, rounded to the nearest tenth of a percent, is:
A. 5.9%.
B. 6.05%.
C. 14.4%.
D. 9.4%.
The cash account of Grande Home Improvement Store shows the following: a debit on
June 1 for $25,000; a credit on June 5 for $10,000, a debit on June 16 for $14,000, and
a credit on June 27 for $8,000. What is the balance in the cash account at the end of
June?
A. $39,000 debit.
B. $21,000 debit.
C. $18,000 credit.
D. $21,000 credit.
On September 1, 2015, Miami Corporation’s common stock was selling at a market
price of $300 per share. On that date, Miami announced a 2 for 1 stock split. At what
price would you expect the stock to trade immediately after the split goes into effect?
A. $100.
B. $150.
C. $200.
D. $600.
The current portion of long-term debt should be reported:
A. Separately in the long-term liabilities section of the balance sheet.
B. In the long-term liabilities section of the balance sheet, along with the other
long-term debt.
C. In the current liabilities section of the balance sheet.
D. In a separate section of the balance sheet, between long-term liabilities and
shareholders’ equity.
Clinton prepares monthly financial statements. Which of the following violates the
matching principle?
A. A portion of the salary payments made this month are not recognized as expense
because some of the work was done by employees last month.
B. The premium on a six-month insurance policy is charged immediately to expense.
C. Expenses for the period exceed revenues.
D. The cost of advertising done during the month is charged to expense even though no
payment is due for 60 days.
While preparing the bank reconciliation, an accountant discovered that a $426 check
returned with the bank statement had been recorded erroneously in the depositor’s
accounting records as $462. In preparing the bank reconciliation the appropriate action
to correct this error would be to:
A. Add $36 to the balance per the depositor’s records.
B. Add $36 to the balance per the bank statement.
C. Deduct $36 from the balance per the bank statement.
D. Deduct $36 from the balance per the depositor’s records.
The valuation of assets in the balance sheet is based primarily upon:
A. What it would cost to replace the assets.
B. Cost, because cost is usually factual and verifiable.
C. Current fair market value as established by independent appraisers.
D. Cost, because in the event of liquidation, the assets would be sold at an amount equal
to their original cost.
Greenleaf’s flexible budget for June, based on actual output, called for the use of 10,000
square feet of materials at a standard cost of $9.90 per square foot. Company records
show that the actual price paid for the materials used in June was $9.70 per square foot,
and that the direct materials price variance for the month was $2,090 favorable. The
materials quantity variance for Greenleaf’s June operations was:
A. $1,000 favorable.
B. $4,455 unfavorable.
C. $4,365 favorable.
D. Impossible to determine from the data given.
In a periodic inventory system, the cost of goods sold is determined as follows:
A. Year-end inventory, plus purchases during the year, less the inventory at the
beginning of the year.
B. Net sales, less the balance in the Gross Profit account.
C. Cost of goods available for sale during the year, less the ending inventory.
D. A physical count is made of all items sold throughout the year, and a cost flow
assumption is applied at year-end.
The present value of an investment is:
A. The amount an investor would pay today to receive a certain amount in the future.
B. The amount an investor would pay today plus the interest the investor would expect
to receive a certain amount in the future.
C. The amount an investor would pay today less the interest the investor requires.
D. 90% of the future value of an investment.
A job order cost system would be suitable for which of the following:
A. A manufacturer of laundry detergent.
B. A manufacturer of candy bars.
C. A sugar refinery.
D. A sailboat builder.
The journal entry to record a particular business transaction includes a credit to the
Cash account. This transaction is most likely also to include:
A. Issuance of new capital stock.
B. The purchase of an asset on account.
C. Payment of an outstanding note payable.
D. A credit to Accounts Receivable.
Land is purchased for $256,000. Additional costs include a $15,300 fee to a broker, a
survey fee of $2,400, $1,750 to construct a fence, and a legal fee of $8,500. What is the
cost of the land?
A. $256,000.
B. $271,300.
C. $283,950.
D. $282,200.
Recording transactions in T accounts; trial balance
On May 15, George Manny began a new business, called Sounds, Inc., a recording
studio to be rented out to artists on an hourly or daily basis. The following six
transactions were completed by the business during May:
(A.) Issued to Manny 5,000 shares of capital stock in exchange for his investment of
$200,000 cash.
(B.) Purchased land and a building for $410,000, paying $100,000 cash and signing a
note payable for the balance. The land was considered to be worth $310,000 and the
building $100,000.
(C.) Installed special insulation and soundproofing throughout most of the building at a
cost of $120,000. Paid $32,000 cash and agreed to pay the balance in 60 days. Manny
considers these items to be additional costs of the building.
(D.) Purchased office furnishings costing $18,000 and recording equipment costing
$88,400 from Music Supplies. Sounds paid $28,000 cash with the balance due in 30
days.
(E.) Borrowed $180,000 from a bank by signing a note payable.
(F.) Paid the full amount of the liability to Music Supplies arising from the purchases in
D above.
Instructions
(A.) Record the above transactions directly in the T accounts below. Identify each entry
in a T account with the letter shown for the transaction. This exercise does not call for
the use of a journal.
(B.) Prepare a trial balance at May 31 by completing the form provided.
In a periodic inventory system, the cost of goods sold is:
A. Recorded as sales transactions occur.
B. Determined by a computation which is performed at year-end, after the taking of a
complete physical inventory.
C. Equal to the beginning inventory, plus purchases made during the period, less sales
revenue for the period.
D. Determined by subtracting the balance in the Gross Profit account from the amount
of net sales.
When closing the accounts at the end of the period, which of the following is closed
directly into the Retained Earnings account?
A. Depreciation Expense.
B. Accumulated Depreciation.
C. Revenue and liability accounts.
D. The Income Summary account.
Sales discounts and allowances:
A. When properly recorded will reduce net profit.
B. When properly recorded will increase net profit.
C. Will not affect net profit.
D. Are always immaterial and need not be recorded.
Links, Inc. produces golf gloves. The gloves sell for $16 each. Variable costs are $8.50
and fixed costs are $1.50 each. An Australian company has offered to pay $12 each for
2,000 gloves. The manufacturing capacity will not be affected by this special order and
it will not affect regular sales. Fixed assets will not change but variable selling costs
will increase by $1.75 a glove due to delivery costs.
(a) What is the relevant cost per unit on this special order?
(b) How will company profits be affected?
(c) Should the company accept this special order?
At the current exchange rate of $1.40 per British pound, a one-day pass to Worldwide
Theme Park of Florida sells for 45 pounds at travel agencies throughout Great Britain.
If the exchange rate increases to $1.70 per pound, what will happen to the price of a
one-day pass sold in Great Britain?
A. The price will be unchanged.
B. The price will fall to 37 pounds.
C. The price will increase to 54 pounds.
D. The price will fall by 12 pounds.
Which of the following will cause net income to be overstated for the following year?
A. Current year’s ending inventory is understated.
B. Current year’s ending inventory is overstated.
C. Next year’s beginning inventory is overstated.
D. Next year’s ending inventory is understated.
During the last month of its fiscal year, Echo Lake Resort provided catering services for
local business. Echo Lake Resort has not yet received payment from the local business.
The entry to record this event is an example of an adjusting entry:
A. To apportion unearned revenue.
B. To accrue an uncollected revenue.
C. To record unrecorded expenses.
D. To record unearned revenue.
The term accumulated depreciation, as used in accounting, is best defined as:
A. The portion of a plant asset recognized as expense since the asset was acquired.
B. Funds (or cash) set aside to replace the asset being depreciated.
C. Earnings retained in the business that will be used to purchase another asset when
the present asset is depreciated.
D. An expense of doing business.
The balance sheet item that represents the portion of owners’ equity resulting from
profitable operations of the business is:
A. Accounts receivable.
B. Cash.
C. Capital stock.
D. Retained earnings.
Under the perpetual inventory system which journal entry would indicate a purchase of
merchandise?
A. Debit, Inventory and credit, Cash.
B. Debit, Purchases and credit, Cash.
C. Debit, Costs of Goods Sold and credit, Inventory.
D. Debit, Inventory and credit, Cost of Goods Sold.