1) Stephanie must decide between two alternatives for the weekend: babysitting or yard
work. If she baby sits, she will receive $40 and will incur $15 in food and snack costs.
If she does yard work, she will receive $40 and will incur $3 in lawn mower gas and oil
costs and $5 in snack costs. The amount of money she would receive for the jobs is the
only relevant factor in deciding which alternative to select.
2) Volume measures serve as good cost drivers for allocating variable overhead costs
because of the causal relationship that exists between those drivers and variable costs.
3) One of the advantages of participative budgeting is setting more realistic goals.
4) Product costs are initially recorded in asset accounts and are later expensed in the
period when the related units are sold.
5) Materials to be used in manufacturing a product represent a period cost.
6) When a customer’s account, previously written off as uncollectible, is reinstated, the
net realizable value of Accounts Receivable increases.
7) Working capital is current assets divided by current liabilities.
8) The practice of reporting the net realizable value of receivables in the financial
statements is commonly called:
A.the cash flow method of accounting for uncollectible accounts
B.the direct write-off method of accounting for uncollectible accounts
C.the allowance method of accounting for uncollectible accounts
D.Both A and B are correct
9) Northside Manufacturing Company has identified the following cost objects:
Cost Object 1: Determine the cost of operating the finishing department
Cost Object 2: Determine the cost of operating the factory
Cost Object 3: Determine the cost of a particular product made in June
With respect to these cost objects, how would rent paid by the finishing department for
storage space be classified?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
10) A customary assumption in capital budgeting analysis is that
A.the desired rate of return includes the effects of compounding
B.the cash inflows generated by the investment are reinvested at the desired rate of
return
C.annual cash flows occur at the end of each period
D.All of these
11) Which of the following is not a benefit of budgeting?
A.Sets realistic standards that serve as benchmarks for evaluating performance
B.Coordinates the activities of the company by integrating the plans of all departments
C.Requires managers to plan ahead and to formalize their objectives
D.Provides assurance that accounting records are in accordance with generally accepted
accounting principles
12) Griffin, Inc. purchased 200 shares of its own $20 par value stock for $30 cash per
share. Which of the following answers reflects how this purchase of treasury stock
would affect Griffin’s financial statements?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
13) Current liabilities include
A.some notes payable
B.Taxes Payable
C.the current portion of some long-term liabilities
D.all of these
14) The Haas Company paid total cash dividends of $44,000 on 25,000 outstanding
common shares. On the most recent trading day, the common shares sold at $80. What
is this company’s dividend yield?
A.2.2%
B.3.2%
C.5%
D.14.1%
15) Matsuzaka Company uses the allowance method to account for uncollectible
accounts. An account that had been previously written-off as uncollectible was
recovered. How would the recovery affect the company’s accounting equation?
A.Increase assets and increase equity
B.Increase assets and decrease liabilities
C.Reduce liabilities and increase equity
D.Have no effect on assets, liabilities, or equity
16) An investment that cost $48,000 provided annual cash inflows of $9,000 per year
for six years. The desired rate of return is 10%. The actual return from the investment
was
A.less than the desired rate of return
B.equal to the desired rate of return
C.greater than the desired rate of return
D.the answer cannot be determined from the information provided
17) Explain any differences in recording the initial issue of stock for a) par-value, b)
stated-value, and c) no-par common stock.
18) The magnitude of operating leverage for Perkins Corporation is 3.4 when sales are
$100,000. If sales increase to $110,000, profits would be expected to increase by what
percent?
A.34%
B.2.9%
C.3.4%
D.37%
19) The following data come from the financial statements for Elison Corporation for
2012:
What was Elison’s times interest earned for 2012?
20) Barney Company uses the perpetual inventory system. The company purchased
$4,000 of merchandise from Bittiker Company under the terms n/30 . Barney also paid
$150 freight to obtain the goods under terms FOB shipping point. All of the
merchandise purchased was sold for $9,000 cash. The amount of gross margin for this
merchandise is:
A.$3,850
B.$4,000
C.$4,070
D.$4,850
21) Barry Company purchased two identical inventory items. The item purchased first
cost $7.00 and the item purchased second cost $9.00. Barney sold one of the items for
$12.00. Which of the following statements is true?
A.Ending inventory will be lower if Barney uses weighted average than it would be if
FIFO were used
B.Cost of goods sold will be higher if Barney uses FIFO than it would be if weighted
average were used
C.Ending inventory will be the same no matter which cost flow method is used
D.Gross margin will be higher if Barney uses LIFO than if FIFO were used
22) Which of the following statements is true regarding the salary of the manager of a
fast food hamburger restaurant?
A.The salary is a fixed cost that is directly traceable to the cost of making hamburgers
B.The salary is a fixed cost that is directly traceable to the cost of operating a specific
restaurant
C.The salary is a variable cost that cannot be traced to the cost of operating a specific
restaurant
D.None of these
23) Home Safety Products currently outsources an electrical switch that is a component
in its sprinkler systems. The switches are purchased for $12 each. The company is
considering making the switches internally and has conducted a study to determine
what the cost would be. Below are projected annual costs:
Based on this information, Home Safety will be
A.$5,000 better off to continue buying the switch
B.$15,000 better off to begin making the switch
C.$40,000 better off to begin making the switch
D.$25,000 better off to begin making the switch
24) Detroit Company is a merchandising business that started its operations in 2012 .
During the year, Detroit reported sales of $450,000; inventory purchases of $310,000;
and an inventory balance of $50,000 at the end of the year.
Required:
a. What was Detroit’s cost of goods available for sale for 2012?
b. What was the cost of goods sold?
c. Calculate the amount of Detroit’s gross margin for 2012 and the gross margin
percentage.
25) Which of the following statements concerning internal controls is true?
A.Internal administrative controls are designed to limit the amount of funds spent on
investments
B.The control procedure, separation of duties, prohibits the employment of a husband
and wife or other closely related parties within the same company
C.Internal accounting controls are limited to the policies and procedures used to protect
the company from embezzlement
D.A strong internal control system provides reasonable assurance that the objectives of
a company will be accomplished
26) Mohr Manufacturing, Inc. had the following sales during 2012:
Mohr also had the following beginning and ending balances in the receivables accounts:
Mohr, which uses the allowance method of accounting for uncollectible accounts,
estimated that 3% of the credit sales will go uncollected. The credit card company
charges Mohr a 4% service charge.
a) What was the amount of uncollectible accounts expense related to credit sales?
b) What was the amount of the company’s expense for credit card fees during the year?
c) What was Mohr’s cash flow from customers for the year?
27) City University’s College of Business is divided into three departments, accounting,
marketing, and management. Relevant information for each department is provided
below:
The Dean of the College of Business is trying to assign funds from the operating budget
to the three departments. Assuming that the chair of each department is trying to attain
the highest funding possible for his/her department, which of the following most
accurately describes the allocation base that each chair will favor?
A.The chair of management will want to use the number of classes per semester while
the chair of marketing will prefer the number of students
B.The chair of accounting and the chair of management will want to use the number of
faculty
C.The chair of the marketing department will want to use number of faculty, while the
chair of the accounting department will want to use number of students
D.The chair of the accounting department will want to use number of students while the
chair of the management department will want to use number of faculty
28) Cost objects may be
A.products
B.processes
C.departments
D.all of these
29) The accounting principle that requires a company to use the same accounting
methods (such as inventory cost flow methods) over a period of time is
A.the consistency principle
B.the conservatism principle
C.the full disclosure principle
D.the historical cost principle
30) Which of the following statements is incorrect with regard to product costs?
A.Product costs flow from the balance sheet to the income statement
B.Unlike direct material and direct labor costs, overhead costs must be allocated to
C.products
D.Product costs are expensed in the period incurred
E.Depreciation on manufacturing equipment is an indirect product cost
31) Which of the following is an example of a claims exchange transaction?
A.An asset decreases and an equity account decreases
B.An asset increases and another asset decreases
C.A liability increases and an equity account decreases
D.A liability increases and an equity account also increases
32) ABC 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 ABC’s
financial statements?
A.earned revenue on account
B.purchased equipment on account
C.provided services to customers for cash
D.recognized accrued salaries owed to employees
33) An aging of Sernett Company’s accounts receivable at the end of 2012 yielded the
following information about the lengths of time that the receivables had been
outstanding:
The balance in the Allowance for Doubtful Accounts before adjustments was $310.
Based on the preceding information,
a) What should be the balance in the Allowance for Doubtful Accounts after the
adjusting entry?
b) What is the amount of uncollectible accounts expense that should be reported on the
income statement?
34) The following information is for Carmen Company for 2012:
Beginning inventory, 100 units @$25
Units purchased, 200 units @ $28
During the year, Carmen sold 250 units for $45 each.
Required:
a) Calculate gross margin assuming Carmen uses: 1) FIFO; 2) LIFO
b) Disregarding the effect of income taxes, what would be the dollar amount of
difference in net income between FIFO and LIFO?
c) Calculate the cash flow from operating activities assuming that Carmen uses 1)
LIFO; 2) FIFO. Assume that all transactions during the year were for cash.
35) Zoro, Inc. produces a product that has a variable cost of $6.00 per unit. The
company’s fixed costs are $30,000. The product sells for $10.00 a unit and the company
desires to earn a $20,000 profit. What is the volume of sales in units required to achieve
the target profit?
A.5,000
B.7,500
C.8,333
D.12,500
36) Bridge Corporation decides to issue a 15% stock dividend on 20,000 outstanding
shares of $10 stated value common stock. The distribution is made at the time the
market value of the stock is $50 a share. How will this transaction affect the company’s
equity accounts?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
37) Warden Company has the following account balances at the end of 2012:
Required:
Compute the net realizable value of the above accounts receivable.
38) Indicate whether each of the following statements about cash payments is true or
false.
1>Use of prenumbered checks is no longer recommended as part of an internal control
system over cash
2>Reviewing supporting documents before signing a check can prevent employee theft
and also reveal errors that employees may have made
3>To have effective controls over cash, a company must have good controls over both
cash receipts and cash payments
4>A spoiled check should be marked void and then discarded or shredded
5>The person who signs a business’s checks should make the journal entry to record the
payment of cash
39) Company C has variable costs of $80 per unit, total fixed costs of $200,000, and a
break-even volume of 5,000 units. Based on this information, indicate whether each of
the following statements is true or false. Treat each part as independent of the others.
1>If the selling price increased by $10 per unit, the break-even volume would be 4,000
units
2>Based on this information, the sales revenue per unit is $120
3>If the variable cost per unit decreased by $10, the break-even volume in units would
decrease by 1,000 units
4>Assume that Company C wishes to earn a profit of $100,000. To reach this target, C
must sell 7,500 units
5>If fixed costs were to increase by $20,000, the break-even volume would increase by
250 units
40) The master budget includes several individual budgets, which are interdependent.
Provide at least two examples of connections (relationships) between budgets.
41) Indicate how each event affects the elements of financial statements. Use the
following letters to record your answer in the box shown below each element. You do
not need to enter amounts. Assume use of a perpetual inventory system.
After a physical count of its inventory, Rand Co. discovered that $5,000 of inventory
was missing. Show how the required write-down of inventory would affect Rand’s
financial statements.
42) Tokyo Corporation is considering two projects, A and B, and it has gathered the
following estimates for the projects:
What is the net present value for project B? Is it an acceptable investment?
43) Indicate how each event affects the elements of financial statements. Use the
following letters to record your answer in the box shown below each element. You do
not need to enter amounts.
Blankers Co. purchased $6,000 of office supplies on account.
44) Indicate which of the budgets and pro forma financial statements the given item
appears on by placing X’s in the appropriate column or columns.
Total inventory needed
45) Management accountants have a responsibility to demonstrate integrity. What does
this ethical standard require of management accountants?