1) The term restricted retained earnings refers to both statutory and contractual
restrictions.
2) If the internal rate of return (IRR) of an investment is below the hurdle rate, the
project should be accepted.
3) The Petty Cash account is a separate checking account used for small amounts.
4) A high value for the times interest earned ratio means that a company is a higher risk
borrower.
5) Increases in liability accounts are recorded as debits.
6) The International Accounting Standards board (IASB) has the authority to impose its
standards on companies around the world.
7) Intangible assets are long-term resources that benefit business operations that usually
lack physical form and have uncertain benefits.
8) The amounts in a flexible budget are based on one expected level of sales or
production.
9) When evaluating the days’ sales uncollected ratio, generally the less time that money
is tied up in receivables the better.
10) Since goodwill is an intangible, it is amortized each year using the straight-line
method, the same as other intangibles are amortized.
11) Most managers stress the importance of understanding and predicting cash flows for
business decisions.
12) Corporations are subject to substantially fewer regulations and laws than are
proprietorships and partnerships.
13) When a company provides services for which cash will not be received until some
future date, the company should record the amount charged as unearned revenue.
14) Days’ sales in inventory is calculated as:
A.Ending inventory divided by cost of goods sold
B.Cost of goods sold divided by ending inventory
C.Ending inventory divided by cost of goods sold times 365
D.Cost of goods sold divided by ending inventory times 365
E.Ending inventory times cost of goods sold
15) Kent Company anticipates total sales for April, May, and June of $800,000,
$900,000, and $950,000 respectively. Cash sales are normally 25% of total sales. Of the
credit sales, 30% are collected in the same month as the sale, 65% are collected during
the first month after the sale, and the remaining 5% are not collected. Compute the
amount of cash received from credit sales for May.
A.$561,500
B.$652,500
C.$817,500
D.$592,500
E.$890,000
16) Scottie is the manager of an investment center within Hamilton Company. Using the
information below, calculate (a) return on total assets and (b) investment center residual
income.
17) Shown below are terms or phrases preceded by letters a through j followed by a list
of definitions. Match the terms or phrases 1 through 10 with the correct definitions by
placing the letter of the term or phrase in the answer space provided at the beginning of
each definition.
1>Estimated line of cost behavior A. The amount that the sale of one unit contributes
toward recovering fixed costs and earning profit.
2>Step-wise cost B. A cost that changes in proportion to changes in volume of activity.
3>Variable cost C. A cost that includes both fixed and variable costs.
4>Contribution margin per unit D. A cost that changes with volume, but not at a
constant rate.
5>Fixed cost E. A line drawn on a graph to fit the past relation between cost and sales.
6>Curvilinear cost F. A statistical method for deriving an estimated line of cost behavior
that is more precise than the high-low method and a scatter diagram.
7>Relevant range of operations G. A company’s normal operating range; excludes
extremely high and low volumes that are not likely to be encountered.
8>Cost-volume-profit analysis H. A cost that remains constant over limited ranges of
volumes of activity but changes by a lump sum when volume changes occur outside
these limited ranges.
9>Mixed cost I. Useful in business planning; includes predicting the volume of activity,
the costs incurred, sales earned, and profits received.
10>Least-squares regression J. A cost that remains unchanged in total amount even
when the volume of activity varies.
18) During the month of February, Hoffer Company had cash receipts of $7,500 and
cash disbursements of $8,600. The February 28 cash balance was $1,800. What was the
January 31 beginning cash balance?
A.$700
B.$1,100
C.$2,900
D.$0
E.$4,300
19) A ledger is:
A.A record containing increases and decreases in a specific asset, liability, equity,
revenue, or expense item
B.A journal in which transactions are first recorded
C.A collection of documents that describe transactions and events entering the
accounting process
D.A list of all accounts with their debit balances at a point in time
E.A record containing all accounts and their balances used by a company
20) A company declared a $0.55 per share cash dividend. The company has 200,000
shares authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The
journal entry to record the dividend declaration is:
A.Debit Retained Earnings $104,500; credit Common Dividends Payable $104,500
B.Debit Common Dividends Payable $104,500; credit Cash $104,500
C.Debit Retained Earnings $100,100; credit Common Dividends Payable $100,100
D.Debit Common Dividends Payable $100,100; credit Cash $100,100
E.Debit Retained Earnings $110,000; credit Common Dividends Payable $110,000
21) Expenses that are easily traced and assigned to a specific department because they
are incurred for the sole benefit of that department are called:
A.Direct expenses
B.Indirect expenses
C.Controllable expenses
D.Uncontrollable expenses
E.Fixed expenses
22) A company’s net sales were $676,600, its cost of good sold was $236,810 and its net
income was $33,750. Its gross margin ratio equals:
A.5%.
B.9.6%.
C.35%.
D.65%.
E.285.7%.
23) If assets are $99,000 and liabilities are $32,000, then equity equals:
A.$32,000
B.$67,000
C.$99,000
D.$131,000
E.$198,000
24) The following information is taken from Hogan Company’s December 31 balance
sheet:
If net credit sales and cost of goods sold for the current year were $612,000 and
$367,200, respectively, the firm’s days’ sales uncollected for the year is:
A.60 days
B.85 days
C.42 days
D.154 days
E.70 days
25) Subsidiary ledgers do all of the following except:
A.Remove excessive detail from the general ledger
B.Provide up-to-date information on customer or other specific account balances
C.Aid in error identification for individual accounts
D.Help with division of labor (recordkeeping tasks)
E.Eliminate the need for individual postings to the customer or supplier accounts
26) The accounting assumption that requires every business to be accounted for
separately from other business entities, including its owner or owners is known as the:
A.Time-period assumption
B.Business entity assumption
C.Going-concern assumption
D.Revenue recognition principle
E.Cost principle
27) Use the balance sheets of Sando shown below to calculate the following ratios for
2012 (round to the hundredths):
(a) Current ratio.
(b) Acid-test ratio.
(c) Debt ratio.
(d) Equity ratio.
28) Use the following information as of December 31 to determine equity.
A.$57,000
B.$141,000
C.$297,000
D.$438,000
E.$579,000
29) Phoenix Company reported sales of $400,000 for Year 1, $450,000 for Year 2, and
$500,000 for Year 3. Using Year 1 as the base year, what were the percentage increases
for Year 2 and Year 3 compared to the base year?
A.80% for Year 2 and 90% for Year 3
B.88% for Year 2 and 80% for Year 3
C.88% for Year 2 and 90% for Year 3
D.112.5% for Year 2 and 125% for Year 3
E.125% for Year 2 and 112.5% for Year 3
30) A company must repay the bank a single payment of $10,000 cash in 3 years for a
loan it entered into. The loan is at 8% interest compounded annually. The present value
factor for 3 years at 8% is 0.7938. The present value of the loan is:
A.$10,000
B.$12,400
C.$7,938
D.$9,200
E.$7,600
31) Another name for temporary accounts is:
A.Real accounts
B.Contra accounts
C.Accrued accounts
D.Balance column accounts
E.Nominal accounts
32) A column in journals and ledger accounts used to cross reference journal and ledger
entries is the:
A.Account balance column
B.Debit column
C.Posting reference column
D.Credit column
E.Description column
33) The carrying value of a long-term note payable:
A.Is computed as the future value of all remaining future payments, using the market
rate of interest
B.Is the face value of the long-term note less the total of all future interest payments
C.Is computed as the present value of all remaining future payments, discounted using
the market rate of interest at the time of issuance
D.Is computed as the present value of all remaining interest payments, discounted using
the note’s rate of interest
E.Decreases each time period the discount on the note is amortized
34) MixRecording Studios purchased $7,800 in electronic components from TechCom.
MixRecording Studios signed a 60-day, 10% promissory note for $7,800. If the note is
dishonored, what is the amount due on the note?
A.$130
B.$7,800
C.$7,930
D.$8,050
E.$8,130
35) Current assets divided by current liabilities is the:
A.Current ratio
B.Quick ratio
C.Debt ratio
D.Liquidity ratio
E.Solvency ratio
36) Responsibility accounting performance reports:
A.Become more detailed at higher levels of management
B.Become less detailed at higher levels of management
C.Are equally detailed at all levels of management
D.Are useful in any format
E.Are irrelevant
37) An attitude of constantly seeking ways to improve company operations, including
customer service, product quality, product features, the production process, and
employee interactions, is called:
A.Continuous improvement
B.Customer orientation
C.Just-in-time
D.Theory of constraints
E.Total quality measurement
38) Use the following information for Razor Company to compute inventory turnover
for 2011.
A.8.33
B.5.00
C.4.95
D.4.54
E.7.33
39) Use the following cost information to calculate the direct labor rate and efficiency
variances and indicate whether they are favorable or unfavorable.
40) What areas related to accounts receivable management did Brother Bernard McCoy
employ in his new venture LaserMonks?
41) The comparative balance sheet for Golden Co. is shown below. Express the balance
sheet in common-size percents.
42) Slim Corp. requires a minimum $8,000 cash balance. If necessary, loans are taken
to meet this requirement at a cost of 1% interest per month (paid monthly). Loans are
repaid at month’s end from any excess cash. The cash balance on July 1 is $8,400. Cash
receipts other than for loans received for July, August, and September are forecasted as
$24,000, $32,000, and $40,000, respectively. Payments other than for loan or interest
payments for the same period are planned at $28,000, $30,000, and $32,000,
respectively at July 1, there are no outstanding loans.
Required: Prepare a cash budget for July, August, and September.
43) A company’s stock is selling for $67.20 per share and its earnings per share is $3.50
for the current year. Calculate the price-earnings ratio.
44) An investing company that owns more than ________ of another (investee)
company’s voting stock is presumed to have controlling influence over the investee.
45) Identify and explain the four building blocks of financial statement analysis.
46) Accrual accounting and the adjusting process rely on two principles: the
___________________ principle and the ________________________ principle.
47) FastForward has the following beginning cash balance and cash transactions for the
month of January. Using this information prepare a statement of cash flows.
