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1) If the unit selling price is $40, the volume of sales is $3,000,000, sales at the
break-even point amount to $2,500,000, and the maximum possible sales are
$3,300,000, the margin of safety is 11,500 units.
2) The product cost concept includes all manufacturing costs in the cost amount to
which the markup is added to determine product price.
3) A job order cost system would be appropriate for a crude oil refining business.
4) When preparing an income statement vertical analysis, each revenue and expense is
expressed as a percent of net income.
5) Revenues are equal to the difference between cash receipts and cash payments.
6) Even though GAAP requires the accrual basis of accounting, some businesses prefer
using the cash basis of accounting.
7) A practical approach which is frequently used by managers when setting normal
long-run prices is the cost-plus approach.
8) One of the primary uses of a cost of production report is to assist management in
controlling production costs.
9) FICA tax becomes a liability to the federal government at the time an employee's
payroll is prepared.
10) The most important output of the accounting cycle is the financial statements.
11) The following journal entries would be used in one of the two methods of
accounting for uncollectible receivables. Identify each.
(a)
(b)
12) Which of the following measures the length of time it takes to acquire, sell and
replace inventory?
A.inventory turnover
B.number of days sales in inventory
C.retail method of inventory costing
D.gross profit method of inventory costing
13) For purposes of analysis, mixed costs are generally:
A.classified as fixed costs
B.classified as variable costs
C.classified as period costs
D.separated into their variable and fixed cost components
14) Cash dividends of $45,000 were declared during the year. Cash dividends payable
were $10,000 at the beginning of the year and $15,000 at the end of the year. The
amount of cash for the payment of dividends during the year is
A.$50,000
B.$40,000
C.$55,000
D.$35,000
15) The verification that the total dollar amount of the debits equals the total dollar
amount of the credits in the ledger is called a
A.ledger
B.trial balance
C.account
D.balance sheet
16) At the end of the fiscal year, variances from standard costs are usually transferred to
the:
A.direct labor account
B.factory overhead account
C.cost of goods sold account
D.direct materials account
17) In capital rationing, an initial screening of alternative proposals is usually
performed by establishing minimum standards. Which of the following evaluation
method(s) are often used?
A.Cash payback method and average rate of return method
B.Average rate of return method and net present value method
C.Net present value method and cash payback method
D.Internal rate of return and net present value methods
18) Which of the following items would not be classified as part of factory overhead?
A.Direct labor used
B.Amortization of manufacturing patents
C.Production supervisors' salaries
D.Factory supplies used
19) The budget that needs to be completed first when preparing the master budget is
the:
A.Production Budget
B.Sales Budget
C.Cash Budget
D.Capital Expenditures Budget
20) Which of the following is considered non-value-added lead time?
A.packing
B.moving from process to process
C.converting raw materials to finished product
D.all of the above
21) On August 3rd, Sonar Sales decides to establish a $275.00 Petty Cash Account to
relieve the burden on Accounting.
(a) Journalize this event.
(b) On August 11th, the petty cash fund has receipts for mail and postage of $124.75,
contributions and donations of $53.25, meals and entertainment of $63.85 and $32.75 in
cash. Journalize the replenishment of the fund.
(c) On August 12th, Sonar Sales decides to increase petty cash to $400.00. Journalize
this event.
22) Which of the following represents the factory overhead applied to a product?
A.Predetermined factory overhead rate times estimated activity base
B.Actual factory overhead rate times estimated activity base
C.Predetermined factory overhead rate times actual activity base
D.Actual factory overhead rate times actual activity base
23) The following items are reported on a companys balance sheet:
Determine the (a) current ratio, and (b) quick ratio. Round your answer to one decimal
place.
24) On June 1, $40,000 of treasury bonds were purchased between interest dates. The
broker commission was $600. The bonds pay interest at 12%, which is paid
semiannually on January 1 and July 1. How much interest revenue will be recorded on
July 1?
A.$400
B.$406
C.$2,000
D.$2,400
25) Calculate the total amount of interest expense over the life of the bonds for the
following independent situations.
a) $100,000 face value, 10%, 10-year bonds issued at 101
b) $240,000 face value, 5%, 5-year bonds issued at 100
c) $300,000 face value, 9%, 6-year bonds issued at 98
26) Grayson Bank agrees to lend the Trust Company $120,000 on January 1. Trust
Company signs a $120,000, 8%, 9-month note. The entry made by Trust Company on
January 1 to record the proceeds and issuance of the note is:
A.Interest Expense 9,600
Cash 110,400
Notes Payable 120,000
B.Cash 120,000
Notes Payable 120,000
C.Cash 129,600
Interest Expense 9,600
Notes Payable 120,000
D.Notes Payable 120,000
Interest Payable 7,200Cash 120,000Interest Expense 7,200
27) Cash investments made by stockholders in exchange for capital stock in a business
are reported on the statement of cash flows in the
A.financing activities section
B.investing activities section
C.operating activities section
D.supplemental statement
28) Which of the following is not included in conversion costs?
A.Direct labor
B.Factory overhead
C.Indirect labor
D.Direct materials
29) Bugaboo Co. manufactures three types of cookies: Fluffs, Crinkles, and Snaps. The
production process is relatively simple, and factory overhead costs are allocated to
products using a single plantwide factory rate based on direct labor hours. Information
for the month of May, Bugaboo's first month of operations, follows:
Bugaboo has budgeted direct labor costs for May at $8.50 per hour. Budgeted direct
materials costs for May are: Fluffs, $0.75/unit; Crinkles $0.40/unit; and Snaps
$0.30/unit.
Bugaboo's budgeted overhead costs for May are:
Assume that Bugaboo sells all the boxes it produces in May.
(a) Compute Bugaboo's plantwide factory overhead rate for May.
(b) Compute May's product cost for each type of cookie.
(c) Does Bugaboo's use of a plantwide factory overhead rate in any way distort May's
product costs?
30) A bank reconciliation should be prepared periodically because
A.the company's records and the bank's records are in agreement
B.the bank has not recorded all of its transactions
C.any differences between the company's records and the bank's records should be
determined, and any errors made by either party should be discovered and corrected
D.the bank must make sure that its records are correct
31) A corporation has 50,000 shares of $28 par value stock outstanding that has a
current market value of $150. If the corporation issues a 4-for-1 stock split, the market
value of the stock will fall to approximately
A.$7.00
B.$112.00
C.$37.50
D.$600.00
32) If the cost of an item of inventory is $60 and the current replacement cost is $75,
the amount included in inventory according to the lower of cost or market is
A.$15
B.$60
C.$75
D.$135
33) Tulip Company produces two products, T and U. The indirect labor costs include
the following two items:
The following activity-base usage and unit production information is available for the
two products:
(a) Determine the single plantwide factory overhead rate, using direct labor hours as the
activity base.
(b) Determine the factory overhead cost per unit for Products T and U, using the single
plantwide factory overhead rate.
(c) Determine the activity rate for plant supervision and setup labor, assuming that the
activity base for supervision is direct labor hours and the activity base for setup is
number of setups.
(d) Determine the factory overhead cost per unit for Products T and U, using
activity-based costing.
(e) Why is the factory overhead cost per unit different for the two products under the
two methods?
34) In management's internal control report that is now required of all public
companies, which of the following does not have a direct effect on a company's internal
control system?
A.internal auditors
B.independent accountants
C.Board of Director's audit committee
D.Board of Trustees
35) Management should focus its sales and production efforts on the product or
products that will provide
A.the highest sales revenue
B.the lowest product costs
C.the maximum contribution margin
D.the lowest direct labor hours
36) Which one of the following is NOT a measure that management can use in
evaluating and controlling investment center performance?
A.Rate of return on investment
B.Negotiated price
C.Residual income
D.Income from operations
37) As of January 1 of the current year, the Grackle Company had accounts receivables
of $50,000. The sales for January, February, and March were as follows: $120,000,
$140,000 and $150,000. 20% of each months sales are for cash. Of the remaining 80%
(the credit sales), 60% are collected in the month of sale, with remaining 40% collected
in the following month. What is the total cash collected (both from accounts receivable
and for cash sales) in the month of March?
A.$74,800
B.$146,800
C.$102,000
D.$116,800
38) Several months ago, Jones Company experienced a spill of hazardous materials into
the White River from one of its plants. As a result, the Environmental Protection
Agency (EPA) fined the company $405,000. The company contested the fine. In
addition, an employee is seeking $180,000 damages related to the spill. Finally, a
homeowner has sued the company for $260,000. Although the homeowner lives 30
miles downstream from the plant, he believes that the spill has reduced his homes resale
value by $260,000.
Jones legal counsel believes the following will happen in relationship to these incidents:
(a) It is probable that the EPA fine will stand.
(b) An out-of-court-settlement for $165,000 has recently been reached with the
employee, with the final papers to be signed next week.
(c) Counsel believes that the homeowners case is much weaker and will be decided in
favor of Jones Company.
(d) Other litigation related to the spill is possible, but the damage amounts are
uncertain.
Required:
39) In which of the following types of firms would it be appropriate to prepare
contribution margin reporting and analysis?
A.boat manufacturing
B.a chain of beauty salons
C.home building
D.all of the above
40) When the bonds are sold for more than their face value, the carrying value of the
bonds is equal to
A.face value
B.face value plus the unamortized discount
C.face value minus the unamortized premium
D.face value plus the unamortized premium
41) At the beginning of 2011, the Gilbert Companys work in process inventory account
had a balance of $30,000. During 2011, $68,000 of direct materials were used in
production, and $66,000 of direct labor costs were incurred. Factory overhead in 2011
amounted to $90,000. Cost of goods manufactured is $230,000 in 2011. The balance in
work in process inventory on December 31, 2011, is:
A.$24,000
B.$44,000
C.$66,000
D.$36,000
43) The expected average rate of return for a proposed investment of $8,000,000 in a
fixed asset, using straight line depreciation, with a useful life of 20 years, no residual
value, and an expected total net income of $12,000,000 is:
A.15%
B.12%
C.40%
D.7.5%
44) The principle of exceptions allows managers to
A.focus on correcting variances between standard costs and actual costs
B.focus on correcting variances between variable costs and actual costs
C.focus on correcting variances between competitors costs and actual costs
D.focus on correcting variances between competitors costs and standard costs
45) The calculation for annual depreciation using the units-of-production method is
A.(initial cost/estimated output) * the actual yearly output
B.(depreciable cost / yearly output) * estimated output
C.depreciable cost / yearly output
D.(depreciable cost / estimated output) * the actual yearly output
46) You are trying to explain debit and credit memos that appear on bank statements
and whether these will increase or decrease your companys bank account balance.
Complete the following table to help your new staff understand.
47) Complete the following data taken from the condensed income statements for
merchandising Companies A, B, & C.
48) On the basis of the following data for Grant Co. for 2011 and the preceding year
ended December 31, 2010, prepare a statement of cash flows. Use the indirect method
of reporting cash flows from operating activities. Assume that equipment costing
$125,000 was purchased for cash and equipment costing $85,000 with accumulated
depreciation of $65,000 was sold for $15,000; that the stock was issued for cash; and
that the only entries in the retained earnings account were net income of $56,000 and
cash dividends declared of $18,000.
49) Sorenson Co., is considering the following alternative plans for financing their
company:
Income tax is estimated at 40% of income.
Determine the earnings per share of common stock under the two alternative financing
plans, assuming income before bond interest and income tax is $1,000,000.
50) On the basis of the following information taken from the Adjusted Trial Balance
columns of the work sheet for the month ended September 30, prepare the closing
entries for Perez Roofing Company.
51) The bookkeeper for Brockton Industries prepared the following journal entries and
posted the entries to the general ledger as indicated in the T accounts presented. Assume
that the dollar amounts and the descriptions of the entries are correct.
REQUIRED:
If you assume that all journal entries have been recorded correctly, use the above
information to:
(1) Identify the postings to the general ledger that were made incorrectly.
(2) Describe how each incorrect posting should have been made.
52) Bradenton Company reports the following for 2012:
* Net of any tax effect
Required:
53) Describe the major differences in preparing the financial statements for a service
business and a merchandising business.
54) Hadley Industries warrants its products for one year. The estimated product
warranty is 4% of sales. Assume that sales were $210,000 for June. In July, a customer
received warranty repairs requiring $205 of parts and $75 of labor.
Required:
