1) All of the following statements regarding changes in accounting principles are true
except:
a.Most changes in accounting principles are only reported in current periods when the
principle change takes place
b.Changes in accounting principles are allowed when new principles are preferable to
old ones
c.Most changes in accounting principles are retroactively reported
d.Consistency is one of the biggest concerns when a change in accounting principle is
undertaken
2) A negative net present value means that the
a.project’s rate of return exceeds the required rate of return
b.project’s rate of return is less than the required rate of return
c.project’s rate of return equals the required rate of return
d.project is acceptable
3) Costs incurred indirectly and allocated to a responsibility level are considered to be
a.nonmaterial
b.mixed
c.controllable
d.noncontrollable
4) The direct materials budget shows:
Units to be produced6,000
Total pounds needed for production30,000
Total materials required26,400
What are the direct materials per unit?
a..44 pounds
b.4.4 pounds
c.5.0 pounds
d.Cannot be determined from the data provided
5) Kate Company uses a perpetual inventory system purchased inventory from Phoebe
Company. The shipping costs were $500 and the terms of the shipment were FOB
shipping point. Kate would have the following entry regarding the shipping charges:
a.There is no entry on Kate’s books for this transaction
b.Freight Expense500
Cash500
c.Freight-Out500
Cash500
d.Inventory500
Cash500
6) The following information pertains to Ortiz Company. Assume that all balance sheet
amounts represent both average and ending balance figures. Assume that all sales were
on credit.
Assets
Cash and short-term investments$ 45,000
Accounts receivable (net)25,000
Inventory12,000
Property, plant and equipment 210,000
Total Assets$292,000
Liabilities and Stockholders Equity
Current liabilities$ 50,000
Long-term liabilities90,000
Stockholders equitycommon 152,000
Total Liabilities and Stockholders Equity$292,000
Income Statement
Sales$ 120,000
Cost of goods sold 66,000
Gross profit54,000
Operating expenses 30,000
Net income$ 24,000
Number of shares of common stock6,000
Market price of common stock$20
Dividends per share.50
What is the inventory turnover for Ortiz?
a.3,2 times
b.5.5 times
c.11 times
d.0.18 times
7) The equivalent of finished goods inventory for a merchandising firm is referred to as
a.purchases
b.cost of goods purchased
c.inventory
d.raw materials inventory
8) Justine Company is considering purchasing machinery. The machinery will produce
the following cash flows:
Year 1$100,000
Year 2$140,000
Justine requires a minimum rate of return of 12%. What is the maximum price Justine
should pay for this machinery?
a.$200,893
b.$191,326
c.$240,000
d.$203,717
9) In large companies, the independent internal verification procedure is often assigned
to
a.computer operators
b.management
c.internal auditors
d.outside CPAs
10) Stockholders generally have the right to share in corporate _______________ and
in ______________ upon liquidation.
11) Quinay Company reports the following results for the month of November:
Sales revenue (10,000 units)$600,000
Variable costs 420,000
Contribution margin180,000
Fixed costs 110,000
Net income$ 70,000
Management is considering the following independent courses of action to increase net
income.
1>Increase selling price by 5% with no change in total variable costs.
2>Reduce variable costs to 66 2/3% of sales.
3>Reduce fixed costs by $12,000.
Instructions
If maximizing net income is the objective, which is the best course of action?
12) Below is a partial listing of the adjusted account balances of Pacific Department
Store at year end on December 31, 2014 .
Accounts Receivable$ 10,500
Cost of Goods Sold107,500
Selling Expenses (includes depreciation)13,500
Interest Expense400
Accumulated DepreciationBuilding16,500
Sales Discounts6,500
Unearned Service Revenue14,000
Inventory18,500
Administrative Expenses (includes depreciation)9,000
Sales Revenue165,000
Accounts Payable4,500
Interest Revenue300
Instructions: Using the data provided as appropriate, prepare a multiple-step income
statement for Pacific Department Store for the year ended December 31, 2014 .
13) Assume that Swann Company uses a periodic inventory system and has these
account balances: Purchases $525,000; Purchase Returns and Allowances $14,000;
Purchase Discounts $9,000; and Freight-In $15,000. Determine net purchases and cost
of goods purchased.
14) Knott Company has prepared the following cost-volume-profit graph:
Instructions
For the items listed below, enter to the left of the item, the letter in the graph which best
corresponds to the item.
____1>Activity base
____2>Break-even point
____3>Dollars
____4>Fixed costs
____5>Loss
____6>Profit
____7>Revenues
____8>Total costs
____9>Variable costs
15) A cost is __________________ at a given level of managerial responsibility if a
manager has the authority to incur the cost in a given time period.
16) Land appraised at $60,000 is purchased by issuing 1,000 shares of $25 par value
common stock. The market price of the shares at the time of the exchange, based on
active trading in the securities market, is $75 per share. Should the land be recorded at
$25,000, $60,000, or $75,000? Explain.
17) Elam, Kamins, and Rubio have capital balances of $150,000, $100,000, and
$75,000, respectively, and their income ratios are 4:2:4.
Instructions
Record the withdrawal of Rubio from the partnership under each of the following
assumptions:
1>Rubio is paid $75,000 from partnership assets.
2>Rubio is paid $93,000 from partnership assets.
3>Rubio is paid $60,000 from partnership assets.
18) Roca Company originally issued 30,000 shares of $5 par common stock for
$240,000 on January 3, 2014 . Roca purchased 1,500 shares of treasury stock for
$15,000 on November 2, 2014 . On December 6, 2014, 600 shares of the treasury stock
are sold for $7,200.
Instructions
Prepare journal entries to record these stock transactions.