1) The control environment in an internal control structure is the attitude and awareness
of internal control by all employees.
2) Consulting the persons affected by a budget when it is prepared can provide an
effective means of motivation and cooperation.
3) To determine cash payments for operating expenses for the cash flow statement using
the direct method, a decrease in prepaid expenses is added to operating expenses other
than depreciation.
4) If the total unit cost of manufacturing Product Y is currently $36 and the total unit
cost after modifying the style is estimated to be $48, the differential cost for this
situation is $48.
5) If sales total $2,000,000, fixed costs total $800,000, and variable costs are 60% of
sales, the contribution margin ratio is 60%.
6) Proprietorships are owned by two or more individuals and provide only services to
their customers.
7) The service fee that credit card companies charge retailers varies and is the primary
reason why some businesses do not accept all credit cards.
8) In a just-in-time (JIT) environment, the journal entry to record conversion costs
would include a debit to the raw and in process inventory account.
9) A check outstanding for two consecutive months will appear only on the first month’s
bank reconciliation.
10) An exchange is said to have commercial substance if future cash flows remain the
same as a result of the exchange.
11) Income that cannot be associated definitely with operations, such as a gain from the
sale of a fixed asset, is listed as Other Income on the multiple-step income statement.
12) The average cost inventory method is the rarely used with a perpetual inventory
system.
13) The erroneous arrangement of digits, such as writing $45 as $54, is called a slide.
14) Trail Bikes, Inc. sells three Deluxe bikes for every seven Standard bikes. The
Deluxe bike sells for $1,800 and has variable costs of $1,200. The Standard bike sells
for $600 and has variable costs of $200.
Required:
A. If Trail Bikes has fixed costs that total $1,702,000, how many bikes must be sold in
order for the company to break even?
B. How many of these bikes will be Deluxe bikes and how many will be the Standard
bikes?
15) Which of the following is not a reason to invest excess cash in temporary
investments?
A.earn interest revenue
B.influence the operations of another company
C.receive dividends
D.realize gains from the increase in market value of the securities
16) All of the following below are needed for the calculation of straight-line
depreciation except
A.cost
B.residual value
C.estimated life
D.units produced
17) As production increases, what should happen to the variable costs per unit?
A.Stay the same
B.Increase
C.Decrease
D.Either increase or decrease, depending on the fixed costs
18) In an investment center, the manager has responsibility and authority for making
decisions that affect:
A.costs
B.revenues
C.assets
D.costs, revenues, and assets
19) Mobile Co. issued a $45,000, 60-day, discounted note to Guarantee Bank. The
discount rate is 6%. At maturity, assuming a 360-day year, the borrower will pay:
A.$45,450
B.$42,300
C.$45,000
D.$44,550
20) The Cardinal Company had a finished goods inventory of 55,000 units on January
1. Its projected sales for the next four months were: January – 200,000 units; February –
180,000 units; March – 210,000 units; and April – 230,000 units. The Cardinal Company
wishes to maintain a desired ending finished goods inventory of 20% of the following
months sales.
What should the budgeted production be for January?
A.236,000
B.181,000
C.200,000
D.219,000
21) Mandy 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.
Material A .50 lb. per unit @ $ .60 per pound
Material B 1.00 lb. per unit @ $1.70 per pound
Material C 1.20 lb. per unit @ $1.00 per pound
The dollar amount of direct material B used in production during the year is:
A.$1,057,400
B.$1,193,400
C.$1,026,800
D.$1,224,000
22) If sales are $425,000, variable costs are 62% of sales, and operating income is
$50,000, what is the contribution margin ratio?
A.38%
B.26.8%
C.11.8%
D.62%
23) In a job order cost accounting system used by a service business, which of the
following items would normally not be included as part of overhead?
A.Materials
B.Direct labor
C.Rent
D.Supplies
24) The recording of the factory labor incurred for general factory use would include a
debit to:
A.Factory Overhead
B.Wages Payable
C.Wages Expense
D.Cost of Goods Sold
25) A formal written statement of management’s plans for the future, expressed in
financial terms, is a:
A.gross profit report
B.responsibility report
C.budget
D.performance report
26) Selected accounts from the ledger of Garrison Company appear below. For each
account, indicate the following:
27) The comparative balance sheet of Barry Company, for 2011 and the preceding year
ended December 31, 2010, appears below in condensed form:
Additional data for the current year are as follows:
(a) Net income, $75,800.
(b) Depreciation reported on income statement, $38,000.
(c) Fully depreciated equipment costing $60,000 was scrapped, no salvage, and
equipment was purchased for $150,000.
(d) Bonds payable for $75,000 were retired by payment at their face amount.
(e) 2,500 shares of common stock were issued at $30 for cash.
(f) Cash dividends declared and paid, $40,000.
(g) Investments of $100,000 were sold for $125,000.
Prepare a statement of cash flows using the indirect method.
28) During 2010, Tempo Inc has monthly cash expenses of $115,000. On December 31,
2010, their cash balance is $1,437,500. The ratio of cash to monthly cash expenses is
A.8.0
B.12.5
C.87.5
D.11.5
29) The Ukulele Company’s radio division currently is purchasing transistors from the
Xiang Co. for $3.50 each. The total number of transistors needed is 8,000 per month.
Ukulele Company’s electronics division can produce the transistors for a cost of $4.00
each and they have plenty of capacity to manufacture the units. The $4 is made up of
$3.25 in variable costs, and $0.75 in allocated fixed costs.
What should be the range of a possible transfer price?
A.No transfer should take place.
B.$3.51 to $3.99
C.$3.26 to $3.99
D.$3.26 to $3.49
30) The difference between the current sales revenue and the sales at the break-even
point is called the:
A.contribution margin
B.margin of safety
C.price factor
D.operating leverage
31) Which of the following is not considered as a complicating factor in capital
investment decisions?
A.Income tax
B.Lease versus capital investment
C.Equal proposed lives
D.Qualitative considerations
32) The Western Division of Bestboot Company has a rate of return on investment of
15% and an investment turnover of 1.2. What is the profit margin?
A.10%
B.12.5%
C.9%
D.6%
33) If fixed costs are $600,000 and the unit contribution margin is $40, what is the
break-even point if fixed costs are increased by $90,000?
A.17,250
B.15,000
C.8,333
D.9,667
34) A college would like to increase enrollment by streamlining the enrollment process.
Which of the following would not fall in line with the college goal?
A.Reduce the requirements necessary to enroll
B.Relocate counselors, academic advisors, and financial aid specialists for a major to a
central location
C.Cross-train counselors, academic advisors, and financial aid specialists
D.All of the above would fall in line with the college goal
35) Control of inventory should begin as soon as the inventory is received. Which of the
following internal control steps is not done to meet this goal?
A.check the invoice to the receiving report
B.check the invoice to the purchase order
C.check the invoice with the person who specifically purchased the item
D.check the invoice extensions and totals
36) The present value factor for an annuity of $1 is determined using which of the
following formulas?
A.Amount to be invested/Annual average net income
B.Annual net cash flow/Amount to be invested
C.Annual average net income/Amount to be invested
D.Amount to be invested/Equal annual net cash flows
37) Lone Star Company received a 90-day, 6% note for $80,000, dated March 12 from
a customer on account. (Assume a 360-day year when calculating interest.)
a. Determine the due date of the note.
b. Determine the maturity value of the note.
c. Journalize the entry to record the receipt of the payment of the note at maturity.
38) Selected transactions completed by a corporation are described below. Indicate the
effects of each transaction on assets, liabilities, and stockholders equity by inserting “+”
for increase and “-” for decrease in the appropriate columns at the right. If appropriate,
you may insert more than one symbol in a column.
A L SE
(a) Received cash from issuing capital stock _____ _____ _____
(b) Purchased supplies on account _____ _____ _____
(c) Paid rent for the current month _____ _____ _____
(d) Received cash for services sold to customers _____ _____ _____
(e) Returned some defective supplies purchased in (b) _____ _____ _____
(f) Paid insurance premiums in advance _____ _____ _____
(g) Paid cash to creditor for purchases in (b) _____ _____ _____
(h) Charged customers for services sold on account _____ _____ _____
(i) Paid cash to a customer as a refund for an overcharge _____ _____ _____
(j) Received cash on account from customers _____ _____ _____
(k) Paid cash dividends _____ _____ _____
(l) Recorded the cost of supplies used during the year _____ _____ _____
(m) Received invoice for electricity used _____ _____ _____
(n) Paid wages _____ _____ _____
(o) Purchased a truck for cash _____ _____ _____
39) All of the following statements regarding vertical analysis are true except
A.Vertical analysis may be prepared for several periods to analyze changes in
relationships over time
B.In a vertical analysis of a balance sheet, each asset item is stated as a percent of total
assets
C.In a vertical analysis of an income statement, each item is stated as a percent of total
expenses
D.Major differences between a companys vertical analysis and industry averages should
be investigated
40) Hampton Co. took a physical count of its inventory on December 31. In addition, it
had to decide whether or not the following items should be added to this count.
(a) Merchandise on hand had been sold earlier in the year but had been returned by
customers for various warranty repairs.
(b) Hampton Co. sent merchandise on a consignment basis on December 31 just prior to
the physical count.
(c) On December 22, Hampton Co. ordered merchandise on FOB destination terms. The
merchandise was shipped by the supplier on December 30 but had not been received by
December 31.
(d) On December 27, Hampton Co. ordered merchandise on FOB shipping point terms.
The merchandise was shipped on December 29 but had not been received by December
31.
(e) Merchandise sold FOB shipping point on December 31 was picked up by the freight
company just before closing on December 31.
(f) Merchandise shipped to a customer FOB destination was picked up by the freight
company on December 28 but had not arrived at its destination as of December 31.
Indicate which items should be added to (answer: yes) and which items should not be
added to (answer: no) the December 31 inventory count.
41) The materials requisition is used to
A.release materials from the storeroom to the factory
B.release finished goods to the shipping department
C.record the acquisition of materials from a vendor
D.record and electronically transmit materials data in place of a receiving report
42) Equipment purchased at the beginning of the fiscal year for $360,000 is expected to
have a useful life of 5 years, or 14,000 operating hours, and a residual value of $10,000.
Compute the depreciation for the first and second years of use by each of the following
methods:
(a) straight-line
(b) units-of-production (1,200 hours first year; 2,250 hours second year)
(c) declining-balance at twice the straight-line rate
(Round the answer to the nearest dollar.)
43) For the current year ending April 30, Hal Company expects fixed costs of $60,000,
a unit variable cost of $70, and anticipated break-even of 1,715 sales units.
Round your answer to the nearest whole number.
44) Expenses follow the same debit and credit rules as
A.revenues
B.dividends
C.capital stock
D.liabilities
45) At the end of the year, overhead applied was $35,000,000. Actual overhead was
$34,300,000. Closing over/under applied overhead into cost of goods sold would cause
net income to:
A.Increase by $700,000
B.Decrease by $700,000
C.Remain constant
D.Decrease by $300,000
46) What is comprehensive income? How is it calculated? What are some examples of
items included in other comprehensive income? Where is comprehensive income
reported?
47) Journalize the following transactions of Upton Drugs:
48) The following data is from the Miser Company for years ended 2008-2011.
Calculate the following:
49) The last custodian of the petty cash fund was hospitalized and you have been asked
to take stock of the fund and replenish it. When you receive the fund, it has $299 in
cash and receipts as follows:
The petty cash fund was established to have $800 in it.
Based on what you have found, what journal entry should be recorded to replenish the
fund?
50) Using the following table, what is the present value of $5,000 to be received 5
years, if the market rate is 10% compounded annually?
51) On January 1st, Power House Co. prepays the years rent, $10,140 to its landlord.
Prepare the journal entry by recording the prepayment to an asset account.
52) Magnolia, Inc. manufactures bedding sets. The budgeted production is for 55,000
comforters in 2012. Each comforter requires 7 yards of material. The estimated January
1, 2012, beginning inventory is 31,000 yards. The desired ending balance is 30,000
yards of material. If the material costs $4.00 per yard, determine the materials budget
for 2012.
53) Selected data from the ledger of Morrison Co. after adjustment at September 30,
2011 the end of the fiscal year, are listed as follows:
Prepare an income statement, using the single-step form, and a statement of owner’s
equity.