1) Costs that support multiple cost objects are referred to as direct costs.
2) A corporation should recognize losses but not gains related to treasury stock
transactions.
3) The balance sheet reports a business’s assets and the claims to those assets.
4) When a customer’s NSF check is returned to a business, the business should record
an uncollectible account loss.
5) When Company X purchases Company Y, X should record Y’s assets at their fair
market value at the time of the acquisition.
6) The most frequently quoted measure of earnings performance is the stockholders’
equity ratio.
7) One of the potential dangers from outsourcing is the possible occurrence of low-ball
pricing.
8) An entry to record the amount of inventory shrinkage decreases both assets and
equity.
9) For a long-term note payable, repaying a portion of principal along with interest
payments is called loan amortization.
10) Accumulated Depreciation is a temporary account that is closed each year.
11) The sequence of activities through which an organization provides products to its
customers is called a value chain.
12) The most useful cost driver for allocating a particular cost is the one with the
strongest cause-and-effect relationship.
13) If a company receives cash for providing services to customers, that transaction is
A.an asset source transaction
B.an asset use transaction
C.an asset exchange transaction
D.either A or C
14) Simplesys Company is considering the purchase of a piece of equipment that costs
$105,000. The equipment would be depreciated on a straight-line basis to its expected
salvage value of $5,000 over its 10-year useful life. Assuming a tax rate of 40%, what is
the annual amount of the depreciation tax shield provided by this investment?
A.$10,000
B.$6,000
C.$4,000
D.$7,600
15) Payment of previously-accrued interest on a note payable is a/an
A.asset source transaction
B.asset use transaction
C.asset exchange transaction
D.claims exchange transaction
16) Nez Company provided services for $7,500 cash during the 2012 accounting
period. Nez incurred $6,000 expenses on account during 2012, and by the end of the
year, $3,000 of that amount had been paid with cash. Nez paid dividends of $900 to
stockholders during the year. Assume that these are the only accounting events that
affected Nez during the 2012 accounting period.
What was Nez’s cash flow from operating activities for 2012?
A.$3,600
B.$1,500
C.$4,500
D.$600
17) On January 1, 2012, Hanson Manufacturing Company purchased equipment for
$95,000. Hanson paid $2,000 to have the machine installed. The equipment is expected
to have a 5 year useful life and a salvage value of $7,000.
Required:
a) Compute depreciation expense for 2012 and 2013 using straight line depreciation.
b) What is the book value at the beginning of 2014?
c) Assume the equipment was sold on January 1, 2014, for $65,000. Compute the
amount of gain or loss from the sale.
18) The term “FOB shipping point” means
A.the seller’s responsibility ends at the destination
B.the seller of the merchandise pays the shipping cost
C.the buyer of the merchandise is responsible for transportation costs
D.the buyer does not assume ownership until the goods are received
19) Griggs Company reissued 100 shares of its treasury stock. Griggs had purchased the
stock for $25 per share and reissued it for $35 per share. Select the answer that
accurately reflects how the reissue of the treasury stock would affect Griggs’ financial
statements.
A.Choice A
B.Choice B
C.Choice C
D.Choice D
20) The Sarbanes-Oxley Act
A.was prompted by corporate bankruptcies and audit failures
B.limits an auditor’s ability to provide non-audit services to a client
C.clarifies the responsibility of a company’s management for its financial statements
D.all of these
21) A stockholder in a corporation would use ___ to learn about the company.
A.financial accounting information
B.managerial accounting information
C.not-for-profit accounting information
D.both A and C
22) On January 1, 2012, Santa Fe Company purchased a truck that cost $34,000. The
truck had an expected useful life of 5 years and a $4,000 salvage value. Based on this
information alone:
A.The amount of depreciation expense recognized in 2015 would be greater if Santa Fe
depreciates the asset under the straight-line method than if the double declining balance
method is used
B.The total amount of depreciation expense recognized over the five year useful life
will be greater under the double declining balance method than the straight-line method
C.At the end of 2013, the amount in accumulated depreciation account will be less if
the double declining balance method is used than it would be if the straight-line method
is used
D.Both A and C
23) Dwight Corporation provides two kinds of services. During the most recent
accounting period, the two service lines produced the following operating results:
If the company stops providing Service B,
A.the company’s income will increase by $2,000 per year
B.the company’s income will decrease by $2,000 per year
C.the company’s income will increase by $3,000 per year
D.the company’s income will decrease by $3,000 per year
24) The Fitzgerald Company engaged in the following transactions during 2012:
a) Acquired $25,000 of cash by issuing common stock to owners
b) Paid $5,000 to acquire manufacturing equipment
c) Paid $2,500 cash for materials to be used in production
d) Paid $1,000 for wages of production workers
e) Paid $4,000 in general, selling, and administrative costs
f) Recognized $500 of depreciation on the manufacturing equipment
g) Sold inventory for $9,000 cash
h) The cost of the inventory sold was $3,000
Required:
Show the balance sheet, income statement, and cash flow statement effects of the
transactions by completing the financial statement schedule provided. In the last
column of the schedule, table cash flows as operating (O), investing (I) or financing (F).
After entering all transactions, calculate column totals.
25) On January 1, 2012, Hays Corporation arranged a $3,000 line of credit with the
Barnett Bank. It agreed to accept the bank’s offer of 1% above the prime rate with
interest payments on December 31 of each year. All borrowings and payments on
principal are to take place on January 1 of each year.
Hays began its loan transactions with Barnett Bank by borrowing $1,000 on January 1,
2012 . Which of the following answers shows the effect of this event on the financial
statements?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
26) For 2012, one division of Ashton Company reported operating assets of $5,000,000
and operating income of $620,000. Ashton has established a target return on investment
(ROI) of 14% for the division.
Required:
a) Calculate the division’s ROI for 2012 . Did it achieve the target set by the company?
b) Assuming that operating assets for 2013 increase by 5%, by how much would
operating income have to increase to reach the target of 14%?
27) Milton Company has three departments occupying the following amount of floor
space:
How much store rent should be allocated to Department 2 if total rent is equal to
$100,000?
A.$25,000
B.$50,000
C.$20,000
D.None of these
28) Assume Beta Company uses the perpetual inventory method and engaged in the
following transactions:
1) Purchased $5,000 of merchandise on account under terms 2/10, n/30 .
2) Returned $600 (list price) of merchandise to the supplier before payment was made.
3) Paid the account payable within the discount period.
4) Sold the merchandise for $6,500 cash.
The amount of gross margin from the four transactions is
A.$1,012
B.$1,500
C.$2,188
D.$2,100
29) The Blumer Company entered into the following transactions during 2012:
1> The company was started with $22,000 of common stock issued to investors for
cash.
2> On July 1, the company purchased land that cost $15,500 cash.
3> There were $700 of supplies purchased on account.
4> Sales on account amounted to $9,500.
5> Cash collections of receivables were $5,500.
6> On October 1, 2012, the company paid $3,600 in advance for a 12-month insurance
policy that became effective on October 1 .
7> Supplies on hand as of December 31, 2010 amounted to $225.
The amount of insurance expense reported on the income statement for 2012 would be:
A.$900
B.$2,400
C.$300
D.$600
30) Applegate Company experienced an accounting event that affected its financial
statements as indicated below:
Which of the following accounting events could have caused these effects on Knight’s
statements?
A.paid interest and principal on loan
B.borrowed funds through a line of credit
C.paid interest on bonds
D.repaid principal on bonds at maturity
31) Pam Chilcoat is opening Chilcoat Realty on January 2 . For several weeks she has
been busy putting together an operating budget for the first quarter of operation for her
new business. Pam has estimated her selling and administrative (S&A) costs as follows:
All selling and administrative costs are paid when incurred except utilities, marketing
expenses, and sales commissions. These items are paid in the month following the
month incurred.
Required:
1) Prepare a schedule of cash payments for selling and administrative expenses for
January through March.
2) What liabilities, in what amounts, would be reported on the pro forma balance sheet
as of March 31?
32) In performing bank reconciliations, outstanding checks are
A.Added to the unadjusted bank balance
B.Subtracted from the unadjusted bank balance
C.Added to the unadjusted book balance
D.Subtracted from the unadjusted book balance
33) Maple Company started the year with no inventory. During the year, it purchased
two identical inventory items at different times. The first unit cost $800 and the second,
$700. One of the items was sold during the year. Based on this information, how much
product cost would be allocated to cost of goods sold and ending inventory, assuming
use of
a. LIFO
b. FIFO
c. Weighted average
34) One company’s practice is to provide bonuses to salespeople who exceed their sales
targets. Which of the following advantages of budgeting enabled the company to
establish its recognition program?
A.Performance measurement
B.Coordination
C.Planning
D.Corrective action
35) Schumacher Company uses the perpetual inventory system, and it engaged in the
following transactions during 2012:
1) Started the business by issuing common stock for $7,500 cash
2) Paid cash to purchase $5,000 of inventory
3) Sold inventory that cost $3,000 for $7,250 cash
4) Incurred and paid operating expenses, $250
Schumacher Company engaged in the following transactions during 2013:
1) Paid cash to purchase $5,800 of inventory
2) Sold inventory that cost $7,000 for $15,150 cash
3) Incurred and paid operating expenses, $500
The balance in the Merchandise Inventory account at December 31, 2013 is:
A.$300
B.$1,500
C.$800
D.$11,150
36) Select the incorrect statement regarding net margin.
A.Net margin refers to the average amount of each sales dollar remaining after all
expenses are subtracted
B.Net margin may be calculated in several ways
C.The smaller the net margin the better
D.The amount of net margin is affected by a company’s choices of accounting
principles
37) Wall Company incurred $30,000 of fixed cost and $40,000 of variable cost when
1,000 units of product were made and sold.
If the company’s volume doubles, the cost per unit will
A.stay the same
B.double as well
C.increase but will not double
D.decrease
38) A chair manufacturer makes custom chairs using hand tools, wood, glue, and
varnish. Which of the following statements is true?
A.The costs of wood and glue would be treated as direct costs
B.Wood, glue, and varnish would all be direct materials
C.Wood would be accounted for as a direct cost, and glue and varnish as indirect costs
D.The concepts of direct and indirect costs are not applicable here
39) Nez Company provided services for $7,500 cash during the 2012 accounting
period. Nez incurred $6,000 expenses on account during 2012, and by the end of the
year, $3,000 of that amount had been paid with cash. Nez paid dividends of $900 to
stockholders during the year. Assume that these are the only accounting events that
affected Nez during the 2012 accounting period.
What was the amount of Nez’s net income for 2012?
A.$1,500
B.$600
C.$4,500
D.$3,600
40) One of the tasks that managers at Greensboro Company have to complete during
the budgeting process is to develop a contingency plan for their organization in case a
downturn occurs in their business. This budgeting requirement is an example of
A.budget coordination
B.performance measurement
C.planning
D.taking corrective action
41) Indicate whether each of the following statements about the statement of cash flows
is true or false.
1>The net increase in cash on the statement of cash flows equals the amount of net
income reported on a business’s income statement
2>A cash receipt from issuing common stock would be reported as a cash flow from
investing activities
3>A cash payment to purchase equipment is an investing activity
4>Cash receipts from customers are reported on the statement of cash flows as
operating activities
5>A cash receipt from borrowing funds is reported as a cash flow from financing
activities
42) Decker, Inc. produces automobile bumpers. Overhead is applied on the basis of
machine hours required for cutting and fabricating. A predetermined overhead rate of
$25 per machine hour was established for 2012 .
Required:
1) If 15,000 machine hours were expected to be used during 2012, how much overhead
was expected to be incurred for the year?
2) Actual overhead incurred during 2012 totaled $360,000, and 13,500 machine hours
were used during the year. Why did this difference occur, and how will the difference
between actual overhead and estimated overhead be handled on the financial
statements?
43) What type of account is Unearned Revenue?
44) How does the Sarbanes-Oxley Act affect the responsibilities of the managers of a
large US corporation?
45) Indicate whether each of the following statements is true or false.
1>Short-term planning focuses on the operations of a business for the next two to three
years
2>The master budget normally covers a period of one quarter
3>The master budget focuses on short-term objectives and goals
4>A decision to lease equipment would be part of a company’s capital budgeting
process
5>Short-term plans are more specific and detailed than long-term plans
46) What are product-level costs? Give two examples.
47) What is meant by “decentralization?”
48) Indicate whether each of the following statements is true or false.
1>One disadvantage with residual income as a measure of performance is that it causes
larger divisions to appear to do better than smaller divisions
2>Residual income is stated as an absolute amount, not a ratio or percentage
3>A balanced score card includes various nonfinancial performance measures but no
financial performance measures
4>The balanced scorecard is a holistic approach to evaluating management and division
performance
5>Use of residual income to evaluate managers of an investment center may avoid
some of the suboptimization that can occur with use of return on investment as a
performance measure