The return on investment of a company is a measure of profitability and efficiency.
Absorption costing is required by the Generally Accepted Accounting Principles
(GAAP) for financial statements issued to investors, creditors, and other external users.
The direct method of reporting cash flows from operating activities provides clearer
information about the sources and uses of cash than does the indirect method.
The Accounts Receivable balance in the general ledger may or may not equal the sum
of the accounts in the accounts receivable subsidiary ledger.
The combined production costs from all departments for completed products are
transferred to the Cost of Goods Sold account immediately after the completion of all
production processes.
Product costs, such as direct materials, are expensed in the period they are paid.
The manufacturing overhead budget calculates the budgeted overhead cost for the year
and also the predetermined overhead allocation rate for the year.
Operating leverage predicts the effects fixed costs have on changes in operating income
when sales volume changes.
Burglar alarms, fire alarms, and security cameras improve internal control.
When a bond is matured, the carrying value always equals the face value.
A trial balance is the list of only a company’s debit accounts along with their account
numbers at a point in time.
The static budget is used to compute flexible budget variances as well as cost and
efficiency variances for direct materials and direct labor.
Merchandise inventory and prepaid expenses are excluded from the acid-test ratio.
When using the effective-interest amortization method, the amount of the interest
expense is calculated using the face value of the bonds and the market interest rate.
Working capital measures a business’s ability to meet its long-term obligations with its
current assets.
The acquisition or construction of a capital asset is known as a capital investment.
Term bonds all mature at the same specified time.
If treasury stock is resold for more than cost, the difference is debited to the account
Paid-In Capital from Treasury Stock Transactions.
For the year ended December 31, 2016, the Statement of Cash Flows for Johnson
Family Auto Supply shows the following information: Net Cash Used by Operating
Activities, $70,000; Net Cash Provided by Investing Activities, $45,000; and Net Cash
Provided by Financing Activities, $40,000. Cash has increased by $155,000.
A company should decide to process its product further if the additional revenue
exceeds the additional cost.
A single-step income statement shows subtotals for gross profit and operating income.
Financial analysts perform reviews of companies to ensure compliance to rules and
regulations.
The task of summarizing the flow of physical units is one of the four steps involved in
the preparation of the production cost report.
When the variable cost per unit increases, the contribution margin on each unit
decreases.
Financial accounting prepares reports for internal purposes, whereas managerial
accounting provides information to external stakeholders.
Target profit is the operating income that results when sales revenue minus variable and
fixed costs equals management’s profit goal.
Investors who want to know the amount of cash a company has available for new
opportunities, such as expanding into a new sales region, should analyze the company’s
free cash flow.
The operating and financing activities of the statement of cash flows are presented
differently between the indirect and direct methods.
The common factor in all quality management systems is the desire to improve the
business’s performance by providing quality products or services.
Tuesday Electric Company uses the direct method to prepare its statement of cash
flows. Tuesday has reported operating expenses of $63,000 on its income statement for
the year 2017. If the balance in accrued liabilities has increased by $6,000 during the
year, then $6,000 needs to be added to $63,000 to calculate payments to suppliers for
operating expenses.
Tritan Company is preparing its statement of cash flows using the indirect method.
Refer to the following portion of the comparative balance sheet:
Tritan Company
Comparative Balance Sheet
December 31, 2017 and 2016
Additional information provided by the company includes the following:
1. During 2016, the company repaid $35,000 of long-term notes payable.
2. During 2016, the company borrowed $24,000 on a new note payable.
Based on the above information only, what amount of net cash flow would be shown in the
financing section of the statement of cash flows?
A) $(11,000)
B) $11,000
C) $59,000
D) $(59,000)
Which of the following is an attribute of traditional costing systems?
A) raw materials are ordered in large quantities
B) production is completed in self-contained work cells
C) suppliers make frequent deliveries of small quantities of raw materials
D) management works with suppliers to ensure defect-free raw materials
Which of the following entries would be recorded by a company that uses the cash basis
method of accounting?
A)
B)
C)
D)
Which of the following concepts represents time value of money?
A) the concept that money becomes obsolete over time
B) the concept that money earns interest over time
C) the concept that money loses its purchasing power over time
D) the concept that money can be converted into other currencies over time
Which of the following financial statements reports cash receipts and cash payments
during a period of time?
A) Statement of cash flows
B) Balance sheet
C) Cash receipts budget
D) Statement of retained earnings
Which of the following is paid by the employer only?
A) OASDI tax
B) medicare tax
C) employee income tax
D) federal unemployment tax
Lora Corporation will receive $10,000 a year at the end of each of the next five years.
Using a discount rate of 14%, the present value of the receipts can be stated as
________.
A) PV = $10,000 (Ordinary Annuity FV factor, i = 14%, n = 5)
B) PV = $10,000 (PV factor, i = 14%, n = 5)
C) PV = $10,000 (Ordinary Annuity PV factor, i = 14%, n = 5)
D) PV = $10,000 (FV factor, i = 14%, n = 5)
Qvoware, Inc. sells cosmetic products in the United States. Which one of the following
is most likely to be a cost center for Qvoware?
A) a Qvoware retail store in Dallas
B) the Qvoware human resource department
C) a Qvoware kiosk at a mall for selling its products
D) the Qvoware product lines
Conversion costs include ________.
A) direct labor and manufacturing overhead costs
B) direct material and direct labor costs
C) product and period costs
D) direct material, direct labor, and manufacturing overhead costs
Which of the following statements is true of a bond that is issued at a discount?
A) The bond will be issued at par.
B) The stated interest rate is higher than the prevailing market interest rate.
C) At maturity, the bond will repay an amount that is less than the face value.
D) The bond will be issued for an amount less than the face value.
The amount of net income is transferred from ________ to ________.
A) the income statement; the statement of retained earnings
B) the balance sheet; the statement of cash flows
C) the balance sheet; the income statement
D) the income statement; the statement of expenditures
Which of the following statements is not correct?
A) In a perpetual inventory system, the “cash register” at the store is a computer
terminal that records sales and updates inventory records.
B) Even in a perpetual inventory system, a business must count inventory at least one a
year.
C) Restaurants and small retail stores often use the periodic inventory system.
D) In a periodic inventory system, merchandise inventory and purchasing systems are
integrated with the records for Accounts Receivable and Sales Revenue.
Lightning Semiconductors produces 300,000 hi-tech computer chips per month. Each
chip uses a component that Lightning makes in-house. The variable costs to make the
component are $1.30 per unit, and the fixed costs are $1,200,000 per month. The
company has been approached by a foreign producer who can supply the component,
within acceptable quality standards, for $1.00 each. The fixed costs are unavoidable,
and Lightning would have no other use for the facilities currently employed in making
the component. What would be the effect on operating income if the company decides
to outsource?
A) There would be no effect on operating income.
B) Lightning Semiconductors could save $1,200,000 per month in costs.
C) Lightning Semiconductors could save $90,000 per month in costs.
D) Lightning Semiconductor’s costs would increase by $300,000 per month.
The predetermined overhead allocation rate for a given production year is calculated
________.
A) at the end of the production year
B) before the accounting period begins
C) after completion of each job
D) after the preparation of financial statements for the year
Davis Metals Company uses the direct method to prepare its statement of cash flows.
Use the following information reported for the year 2017 to compute the cash paid to
suppliers for operating expenses.
Operating expenses, $29,000
Accrued Liabilities, beginning balance, $3,400
Accrued Liabilities, ending balance, $5,400
A) $32,400
B) $31,000
C) $27,000
D) $34,400
Ending inventory for the current accounting period is overstated by $2,700. What effect
will this error have on Cost of Goods Sold and Net Income for the current accounting
period?
A)
B)
C)
D)
Which of the following is a source document that provides the evidence and data for
accounting transactions?
A) Journal
B) Sales invoice
C) Ledger
D) Trial balance
On the first day of January, Harris, Inc. borrowed $2,000 on a one-year note payable
bearing interest at 7% per year. The note specifies that principal and interest must be
paid in full at the end of the one-year period. On June 30, the adjusted trial balance will
show Interest Payable of ________.
A) $70 credit
B) $70 debit
C) $140 credit
D) $140 debit
The face value of a bond is $71,000, its stated rate is 7%, and the term of the bond is
five years. The bond pays interest semiannually. At the time of issue, the market rate is
8%. Determine the present value of the bonds at issuance.
Present value of $1:
Present value of annuity of $1:
A) $50,844
B) $20,156
C) $68,152
D) $71,000
Which of the following securities pay dividends?
A) corporate bonds
B) common stocks
C) debt securities
D) Treasury bills
Which of the following is a nonmanufacturing cost?
A) direct labor
B) direct materials
C) administrative expenses
D) indirect labor
An accounting information system is said to have good compatibility, if it ________.
A) works smoothly with the business’s employees and organizational structure
B) safeguards a business’s assets and reduces the likelihood of fraud and errors
C) provides information that will improve decision making and reduce uncertainty
D) accommodates changes in the business over time
On January 1, 2017, Agee Company issued $85,000 of five-year, 8% bonds when the
market interest rate was 12%. The issue price of the bonds was $62,401. Agee uses the
effective-interest method of amortization for bond discount. Semiannual interest
payments are made on June 30 and December 31 of each year. Which of the following
is the correct journal entry to record the first interest payment? (Round all amounts to
the nearest whole dollar.)
A)
B)
C)
D)
In regards to corporate income tax, which of the following statements is incorrect?
A) Federal income taxes are calculated on a corporate tax return.
B) Income Tax Expense is recorded when the federal income tax is paid.
C) When the corporation files its federal corporate tax return and makes payment, the
account Income Tax Payable is credited.
D) The amount income taxes that the corporation owes but has not yet paid is classified
as a current liability.
The Lakeland Company issues $518,000 of its 10%, 10-year bonds at 106 on March 31,
2017. The bond pays interest on March 31 and September 30. On September 30, 2017,
how much cash did the company pay to the bondholders?
A) $2,590
B) $51,800
C) $25,900
D) $12,950
The following details are provided by Volvox Foundry Company:
PV of $1:
What is the NPV of the project?
A) $(636,228)
B) $590,000
C) $618,409
D) $(594,486)
Which of the following is an external user of a business’s financial information?
A) customers
B) cost accountant
C) company manager
D) the board of directors
SeaKist Marine Stores Company manufactures decorative fittings for luxury yachts,
which require highly skilled labor, and special metallic materials. SeaKist uses standard
costs to prepare its flexible budget. For the first quarter of 2016, direct materials and
direct labor standards for one of their popular products were as follows:
Direct materials: 1.5 pounds per unit; $4 per pound
Labor: 2 hours per unit; $18 per hour
During the first quarter, SeaKist produced 5,000 units of this product. At the end of the
quarter, an examination of the direct materials records revealed that the company used
7,000 pounds of direct materials. The direct materials efficiency variance was $2,000 F.
Which of the following is a logical explanation for this variance?
A) The company used fewer labor hours than allowed by the standards.
B) The company paid a lower cost per hour for labor than allowed by the standards.
C) The company used a lower quantity of direct materials than was allowed by the
standards.
D) The company paid a lower cost for the direct materials than allowed by the
standards.
Accounts Receivable has a balance of $32,000, and the Allowance for Bad Debts has a
credit balance of $3,500. The allowance method is used. What is the net realizable value
of Accounts Receivable before and after a $2,100 account receivable is written off?
A) $28,500; $28,500
B) $26,400; $26,400
C) $28,500; $26,400
D) $26,400; $30,600
Which of the following is true of a sales journal prepared under the perpetual inventory
system?
A) It includes a Cost of Goods Sold DR, Merchandise Inventory CR column.
B) It records both cash and credit sales transactions.
C) All transactions recorded in a sales journal also are entered in the general journal.
D) It cannot be used with a perpetual inventory system.
In regards to benchmarking, which of the following statements is incorrect?
A) Benchmarking is the practice of comparing a company with other leading
companies.
B) The industry average is not a useful benchmark for evaluating a company.
C) Providing common-size percentages in a graphical manner highlights differences.
D) The two main types of benchmarks in financial statement analysis include
benchmarking against the industry average and benchmarking against a key competitor.
Happy Clicks, Inc. uses a predetermined overhead allocation rate of $5.50 per machine
hour. Actual overhead costs incurred during the year are as follows:
What is the amount of manufacturing overhead cost allocated to Work-in-Process
Inventory during the year?
A) $38,747
B) $8,900
C) $29,847
D) $41,800
A company sells two products with information as follows:
The products are machine made. Four units of product A can be made with one machine
hour, and two units of product B can be made with one machine hour. The company has a
maximum of 6,000 machine hours available per month. Assume there are no constraints on
sales of either product, and the company can choose any product mix they wish. What is
the maximum amount of contribution margin that the company could earn in a month?
A) $336,000
B) $144,000
C) $192,000
D) $12,000
Elite Services, Inc. pays $1,350,000 to acquire 38% of voting stock of Grey
Investments, Inc. on March 5, 2017. Which of the following is the correct journal entry
for the transaction?
A)
B)
C)
D)
A business renders services for $26,000 and collects cash from the customer. Which of
the following accounts will be debited?
A) Cash
B) Accounts Receivable
C) Service Revenue
D) Accounts Payable