Sum-of-the-years’ digits is a popular depreciation method for small businesses due to its
simplicity.
All internal control systems need to be monitored.
Incremental analysis rarely requires the decision maker to exercise judgment.
Assuming that the MR Corporation has an inventory of 200 defective motors costing
$450,000 to produce and $150,000 to repair, the repaired units can be sold for
$275,000. The company receives an offer to purchase these motors for $100,000 before
repairing them. The company’s decision should be to sell the motors at the offered price.
Traceable fixed costs usually cannot be eliminated even if the center is closed.
Flexible budgeting may be viewed as combining the concepts of budgeting with
cost-volume-profit analysis.
If the return on total assets ratio is substantially below the cost of borrowing, common
stockholders will benefit from a high debt ratio.
In a business organized as a corporation, it is not necessary to list the equity of each
stockholder on the balance sheet.
In determining earnings per share when a preferred stock has dividends in arrears, only
the current year’s dividend is deducted to arrive at earnings per share.
The half-year convention permits a company to take six months depreciation during the
first year of an asset’s life even if the asset was purchased on January 25th.
Products resulting from a shared manufacturing process are referred to as
complimentary products.
The assets of a partnership belong jointly to all the partners while the assets of a sole
proprietorship belong to the proprietorship.
Evaluating the performance of cost centers involves subjective judgments as to the
value of the services rendered by these centers.
The volume of output which causes fixed costs to be equal in amount to total revenue is
called the break-even point.
If accounts receivable decrease during the period, cash received from customers
probably exceeds net sales.
Capital investment refers to large expenditures to purchase plant assets, develop new
products, or sell more company stock.
A prior period adjustment to retained earnings is made when a discovery of a material
error was made to prior years’ income.
The balanced scorecard approach attempts to measure whether an organization is
meeting its strategic goals.
Deposits in transit would not appear on a company’s bank reconciliation but would
appear on the company’s bank statement.
When no-par stock is issued, the entire proceeds are credited to Capital Stock and this
amount is viewed as legal capital not subject to withdrawal.
Activity-based costing systems always result in more accurate measurements of unit
costs.
The amount of FICA tax and Medicare tax withheld from an employee is used to pay
the employer’s percentage of the tax and is mailed to the government quarterly.
The specific identification method is acceptable only when the actual cost of individual
units of merchandise can be determined from the accounting records.
The obligation for deferred income taxes is the only long-term liability that is not
reported at its present value.
An after-closing trial balance consists only of asset, liability, and owners’ equity
accounts.
Capital budget audits are often undertaken to ensure the accuracy of cash flow
estimates.
Accounting systems do not offer any benefit to management in generating and focusing
employee motivation.
In a sole proprietorship the balance in the Income Summary account is closed to:
A. Retained earnings.
B. Capital.
C. Drawing.
D. Net Income.
Canfield Construction applies overhead to its projects at a rate of $65 per direct labor
hour. Laborers are paid an average rate of $30 per hour. The Jefferson Apartments
project was charged a total of $1,200,000 in direct materials and $450,000 in direct
labor costs.
Refer to the information above. The journal entry made by Canfield to record the sale of
the Jefferson Apartments project to King Development Company for $5,250,000 would
include:
A. A debit to Sales of $5,250,000.
B. A debit to Cost of Goods Sold of $2,625,000.
C. A credit to Finished Goods Inventory of $975,000.
D. A debit to Finished Goods Inventory of $975,000.
During periods of inflation, when comparing LIFO with FIFO:
A. LIFO inventory and cost of sales would be higher.
B. LIFO inventory and cost of sales would be lower.
C. LIFO inventory would be lower and cost of sales would be higher.
D. LIFO inventory would be higher and cost of sales would be lower.
On September 1, 2015, Miami Corporation’s common stock was selling at a market
price of $25 per share. On that date, Miami announced a 1 for 4 stock split. At what
price would you expect the stock to trade immediately after the split goes into effect?
A. $100.
B. $25.
C. $6.25.
D. $50.
The number of equivalent units of production:
A. Is equal to the number of units completed by a department.
B. May not be greater than the number of units completed by a department.
C. Is used to complete the overhead application rate.
D. May be less than, equal to, or greater than the number of physical units completed
during the period.
Grayson Enterprises manufactures springs and shock absorbers. Springs account for
40% of the company’s total sales revenue, whereas shocks account for about 60%. The
contribution margin ratios for springs and shocks are 45% and 35%, respectively.
Grayson’s fixed costs average $450,000 per month.
Refer to the information above. In order to earn an operating income of $252,000,
Grayson’s monthly sales must be:
A. $1,700,000.
B. $1,750,000.
C. $1,800,000.
D. $1,850,000.
A liquidating dividend:
A. Occurs only when a company is going out of business.
B. Occurs when a corporation pays a dividend that exceeds the balance in the retained
earnings account.
C. Is an expense to the corporation.
D. Occurs only when the corporation has a loss for the year.
Steel Fabricating, Inc. manufactures furniture at its plants in Akron, Greensboro, and
Schenectady. The company prepares monthly income statements segmented by plant.
These income statements are organized to disclose contribution margin, performance
margin, and responsibility margin for each plant, in addition to operating income for the
company as a whole.
Refer to the information above. All of the following costs are traceable to a specific
factory except:
A. Depreciation on the company’s fleet of tractor trailer trucks.
B. Direct materials.
C. Salaries of production supervisors.
D. Wages of production set-up laborers.
Ultimate Company is a defendant in a lawsuit alleging damages of $3 billion. The
litigation is expected to continue for several years, and no reasonable estimate can be
made at this time of Ultimate Company’s ultimate financial responsibility. This situation
is an example of:
A. Off-balance-sheet financing.
B. A loss contingency which should be disclosed in notes to Ultimate Company’s
financial statements.
C. An estimated liability which must appear in Ultimate Company’s balance sheet.
D. A loss in purchasing power caused by inflation.
The contribution margin ratio is expressed as:
A. A percentage of revenue.
B. A total dollar amount for the period.
C. A contribution margin per unit.
D. Total contribution margin amount.
Enclosed with the bank statement received by Sydney Company at October 31 was an
NSF check for $300. No entry has yet been made by the company to reflect the bank’s
action in charging back the NSF check. During preparation of the bank reconciliation,
the NSF check should be:
A. Deducted from the balance per the depositor’s records.
B. Deducted from the balance per the bank statement.
C. Added to the balance per the bank statement.
D. Added to the balance per the depositor’s records.
Which of the following is not a characteristic of the corporate form of organization?
A. The owners of a corporation cannot lose more than the amount of their investment.
B. Shares of stock in a corporation are more readily transferable than is an interest in a
partnership.
C. Stockholders have authority to decide by majority vote the amount of dividends to be
paid.
D. The corporation is a very efficient vehicle for obtaining large amounts of capital
required for large-scale production.
Omega Company adjusts its accounts at the end of each month. The following
information has been assembled in order to prepare the required adjusting entries at
December 31:
(1) A one-year bank loan of $720,000 at an annual interest rate of 12% had been
obtained on December 1.
(2) The company pays all employees up-to-date each Friday. Since December 31 fell on
Tuesday, there was a liability to employees at December 31 for two day’s pay
amounting to $6,800.
(3) On December 1, rent on the office building had been paid for four months. The
monthly rent is $6,000.
(4) Depreciation of office equipment is based on an estimated useful life of six years.
The balance in the Office Equipment account is $9,360; no change has occurred in the
account during the year.
(5) Fees of $9,800 were earned during the month for clients who had paid in advance.
Refer to the information above. By what amount will the book value of the office
equipment decline after the appropriate December adjustment is recorded?
A. $1,560.
B. $130.
C. $0.
D. $1,430.
When a worksheet is used:
A. Adjusting entries are not prepared, since adjustments are shown on the worksheet.
B. Revenue and expense accounts do not have to be closed to the Income Summary
account, because the income statement is prepared from the worksheet and net income
is already computed.
C. Financial statements may be prepared before recording adjusting and closing entries
in the accounting records.
D. The Income Statement column and Balance Sheet column of the worksheet eliminate
the need to prepare formal financial statements for a business.
Choose the statement that correctly summarizes the tax advantage of raising money by
issuing bonds instead of common stock:
A. The amount paid by the corporation to redeem bonds at maturity date is deductible in
computing income subject to corporate income tax.
B. Interest payments are deductible in determining income subject to corporate income
tax; dividends are not deductible.
C. A corporation must pay tax on the sales price of stock issued, but is not taxed on the
amount received when bonds are issued.
D. Both interest and dividends paid are deductible in computing taxable income, but
since interest must be paid annually, the corporation usually gets a larger tax deduction
over the life of the bonds payable.
In a period of rising prices, a company is most likely to use the FIFO method of pricing
inventory if:
A. Each item in the inventory is unique.
B. Management wants the same unit cost assigned to items sold and items remaining in
inventory.
C. Management’s primary objective is to minimize income taxes.
D. Management wants the company’s income statement to indicate the highest possible
amounts of gross profit and net income.
The financial statements of York, Inc., provide the following information for the current
year:
Refer to the information above. Compute the amount of cash received from customers
during the current year.
A. $1,548,750.
B. $1,564,500.
C. $1,533,000.
D. $1,806,000.
The owner of Westhampton Fish Eatery purchased a new car for his daughter who is
away at college at a cost of $43,000 and reported this amount as Delivery Vehicle in the
restaurant’s balance sheet. The reporting of this item in this manner violated the:
A. Cost principle.
B. Business entity concept.
C. Objectivity principle.
D. Going-concern assumption.
If the standard quantity of materials is 84,500 units @ $0.15 per unit and the actual
quantity is 95,000 units @ $0.12 per unit, then the total materials cost variance is:
A. $2,850 Favorable.
B. $1,575 Unfavorable.
C. $1,275 Favorable.
D. $2,850 Unfavorable.
Refer to the information above. A statement of cash flows for August, would report net
cash flows from operating activities of:
A. $26,000.
B. $32,400.
C. $40,000.
D. $46,400.
The essential point of a double-entry system of accounting is that every transaction:
A. Affects accounts on both sides of the balance sheet.
B. Is recorded in both the journal and the ledger.
C. Increases one ledger account and decreases another.
D. Affects two or more ledger accounts and is recorded by an equal dollar amount of
debits and credits.
In a recent financial journal, the exchange rate between the dollar and the Japanese yen
() was quoted two ways:
Refer to the above data. The number of Japanese yen equivalent to $40,000 on this date
is: (rounded to whole )
A. 3,056,000.
B. 5,235,602.
C. 5,245,745.
D. Depends upon whether the item is a receivable or a payable.
If a material accounting error was made in a prior year, that error:
A. Should be reflected on the current year’s income statement.
B. Should be reflected, net of taxes, on the retained earnings statement.
C. Should be reflected as a change in accounting principle.
D. Should be considered as an extraordinary item, and shown, net of taxes, on the
income statement.
Indicate which of the following accounts will be closed to Income Summary at
year-end.
(a) Cash
(b) Office Supplies Expense
(c) Unexpired Insurance
(d) Unearned Revenue
(e) Dividends
(f) Depreciation Expense
(g) Income Taxes Payable
(h) Accumulated Depreciation
Division X supplies partially completed units of product to division Y. The divisions’
negotiated price is $30 per unit. Assuming Division X completed and transferred 3,000
units to division Y, the total transfer price on this transaction is:
A. $30,000.
B. $60,000.
C. $90,000.
D. $3,000.
Which of the following account titles would not be debited in the process of preparing
closing entries for Andrew’s Auto Shop?
A. Income Summary.
B. Fees Earned.
C. Dividends.
D. Retained Earnings.
Shown below are selected data from the financial statements of Noble Computers.
(Dollar amounts are in millions, except for the per share data.)
Noble reported earnings per share for the year of $6 and paid cash dividends of $2.00
per share. At year-end, the Wall Street Journal listed Noble’s capital stock as trading at
$81 per share.
Refer to the information above. Noble’s return on assets was:
A. 2.6%.
B. 21%.
C. 26%.
D. 37%.
All of the following accounts normally have debit balances except:
A. Transportation-in.
B. Cost of Goods Sold.
C. Sales Returns & Allowances.
D. Purchase Returns & Allowances.
The reason that both expenses and dividends are recorded by debit entries is that:
A. All dividend and expense transactions involve offsetting credit entries to the Cash
account.
B. Both expenses and dividends are offset against revenues in the income statement.
C. Both expenses and dividends reduce owners’ equity.
D. The statement is untrue-expenses are recorded by debits, but dividends are recorded
by credits to the owners’ equity account.
During cycle time, value is added only during:
A. Processing time.
B. Storage and waiting time.
C. Movement time.
D. Inspection time.
Cash flows from investing activities include all of the following except:
A. Cash proceeds from selling investments.
B. Cash proceeds from collections on loans.
C. Cash advanced to borrowers.
D. Cash proceeds from borrowing.