Spirit Company makes special equipment used in cell towers. Each unit sells for $400.
Spirit produces and sells 12,500 units per year. They have provided the following
income statement data:
A foreign company has offered to buy 85 units for a reduced sales price of $350 per unit.
The marketing manager says the sale will not affect the company’s regular sales. The sales
manager says that this sale will require additional selling and administrative costs, as it is a
one-time deal. The production manager reports that there is plenty of excess capacity to
accommodate the deal without requiring any additional fixed costs. If Spirit accepts the
deal, how will this impact operating income? (Round any intermediate calculations to the
nearest cent, and your final answer to the nearest dollar.)
A) Operating income will increase by $21,590.
B) Operating income will decrease by $21,590.
C) Operating income will increase by $29,750.
D) Operating income will decrease by $29,750.
ABC has 61,000 shares of $16.00 par common stock outstanding. ABC announces a
stock split of 4-for-1. What is the effect of the split?
A) par stays at $16.00; total shares increase to 15,250
B) par drops to $8.00; total shares stay at 61,000
C) par drops to $4.00; total shares increase to 244,000
D) par goes to $64.00; total shares increase to 244,000
Which of the following is an expanded form of calculating return on investment?
A) Profit margin ratio × Asset turnover ratio
B) Net profit ratio × Inventory turnover ratio
C) Gross profit ratio × EVA
D) Asset turnover ratio × Inventory turnover ratio
Emara Company sells two generators—Model A and Model B—for $456 and $394,
respectively. The variable cost of Model A is $406 and of Model B is $304. The
company will generate lower revenues but a higher net income if it sells more of Model
B than Model A.
In a production cost report, the number of total units to account for consists of
________. The weighted-average method is used.
A) units in process at the beginning of the period and units started or added during the
period
B) units in process at the end of the period and units started or added during the period
C) units in process at the beginning of the period and units remaining at the end of the
period
D) units of completed and transferred out products and total units produced
A company purchased inventory for $3,000 from a vendor on account, FOB shipping
point, with terms of 3/10, n/30. The company paid the shipper $300 cash for freight in.
The company then returned damaged goods worth $300. The invoice was then paid
eight days after the purchase. Assuming that there was no beginning inventory balance,
the cost of inventory would be ________. (Assume a perpetual inventory system.)
A) $2,619
B) $2,919
C) $2,700
D) $2,910
If a company is using accrual basis accounting, when should it record revenue?
A) when cash is received, even though services may be performed at a later date
B) when services are performed, even though cash may be received at a later date
C) when services are performed and cash is received
D) when cash is received, 30 days after the completion of the services
Which of the following journal entries would be recorded if a business purchased $800
of office supplies on account?
A)
B)
C)
D)
At the maturity of a note payable, a borrower will pay ________.
A) the principal plus interest
B) the principal amount only
C) the interest amount only
D) the principal minus interest
Accounts Receivable has a balance of $4,000, and the Allowance for Bad Debts has a
credit balance of $400. The allowance method is used. What is the net realizable value
of Accounts Receivable after a $160 account receivable is written off?
A) $3,440
B) $3,760
C) $3,600
D) $4,000
On July 1, 2017, Miniature Company has bonds with balances as shown below.
Bonds Payable
Discount on Bonds Payable
If the company retires the bonds for $71,150, what will be the effect on the income
statement?
A) loss on retirement of $4,750
B) gain on retirement of $4,750
C) sales revenue of $66,400
D) no effect on net income
Trading investments include ________.
A) debt and equity securities that the investor expects to hold longer than one year or
debt or equity securities that are not readily marketable
B) investments in debt and equity securities that are highly illiquid and that the investor
intends to hold until they mature
C) investments in debt securities that the investor intends to hold until they mature
D) equity securities in which the investor holds less than 20 percent of the voting stock
and that the investor plans to sell in the very near future
Which of the following is included in the internal control procedure—documents?
A) Mandatory vacations will improve internal control.
B) Separate the custody of assets from accounting.
C) The invoices and orders must be pre-numbered.
D) A company should purchase a fireproof vault to protect legal documents.
Robbinsdale, Inc. is a merchandiser of stone ornaments. The company sold 8,000 units
during the year. The company has provided the following information:
What is the cost of goods available for sale for the year?
A) $363,000
B) $320,000
C) $349,000
D) $335,000
Which of the following is a product cost?
A) sales commissions
B) CEO’s salary
C) delivery van depreciation
D) depreciation on production equipment
The following information is from the December 31, 2017 balance sheet of Lawson
Corporation.
What was the average issue price of the common stock shares? (Round your answer to the
nearest cent.)
A) $1.88
B) $1.00
C) $2.68
D) $3.68
Modiste, Inc. manufactures two kinds of bags—totes and satchels. The company
allocates manufacturing overhead using a single plantwide rate with direct labor cost as
the allocation base. Estimated overhead costs for the year are $24,000. Additional
estimated information is given below.
Calculate the predetermined overhead allocation rate. (Round your answer to two decimal
places.)
A) 90.57%
B) 48.31%
C) 96.58%
D) 1.36%
Clapton Corporation is considering an investment in new equipment costing $918,000.
The equipment will be depreciated on a straight-line basis over a ten-year life and is
expected to have a residual value of $98,000. The equipment is expected to generate net
cash flows of $152,000 for each of the first five years and $116,000 for each of the last
five years. What is the accounting rate of return associated with the equipment
investment? (Round your answer to two decimal places.)
A) 10.95%
B) 11.34%
C) 9.05%
D) 10.24%
The management of Zeta Fire Alarms has calculated the following variances:
What is the total direct materials variance of the company?
A) $1,500 F
B) $27,000 F
C) $11,500 F
D) $6,000 F
Vaughn Services hires a new accountant to maintain its petty cash fund. Although the
employee possesses an accounting degree, he/she had been previously convicted of
embezzlement.
Which internal control procedure needs to be addressed in the above situation?
A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents
Warren Manufacturing began business on January 1. During its first year of operation,
Warren worked on five industrial jobs and reported the following information at
year-end:
What was the balance in Finished Goods Inventory at year-end?
A) $35,000
B) $21,000
C) $44,500
D) $23,500
Which of the following is not an appropriate internal control for cash receipts over the
counter?
A) A receipt is issued for each transaction to ensure that each sale is recorded.
B) The store clerk deposits the cash in the bank.
C) At the end of the day, the manager proves the cash by comparing the cash in the
drawer against the machine’s record of cash sales.
D) The cash draw opens after the store clerk enters a transaction.
Clay Corporation manufactures two styles of lamps—a Bedford Lamp and a Lowell
Lamp. The following per unit data are available:
Total fixed costs are $30,000, and Clay can sell a maximum of 10,000 units of each style
of lamp annually. Machine hour capacity is 25,000 hours per year. What is the contribution
margin per machine hour for the Bedford Lamp? (Round your answer to the nearest cent.)
A) $5.00 per machine hour
B) $3.25 per machine hour
C) $13.50 per machine hour
D) $17.50 per machine hour
Expenses that fall outside the regular operations of a business are ________.
A) not shown in the income statement of a merchandiser
B) treated as current assets and are shown as merchandise inventory
C) included under the other revenues and expenses section of the income statement
D) not considered for the calculation of net income
Lighthouse Sail Makers manufactures sails for sailboats. The company has the capacity
to produce 35,000 sails per year and is currently producing and selling 30,000 sails per
year. The following information relates to current production:
The fixed manufacturing costs increase by $100,000 for every 500 units produced beyond
the maximum capacity of the plant. If a special pricing order is accepted for 5,500 sails at a
sales price of $160 per unit, and if the order requires no variable or fixed selling and
administrative costs, what is the effect on operating income?
A) Operating income increases by $450,000.
B) Operating income decreases by $450,000.
C) Operating income increases by $550,000.
D) Operating income decreases by $550,000.
Which of the following actions determines when a corporation comes into existence?
A) The charter is obtained from the state.
B) The incorporators pay fees, sign the charter, and file required documents with the
state.
C) The first share of stock is issued.
D) The corporate bylaws are written.
The times-interest-earned ratios of Benin, Inc. are 20.56 and 7.35 for 2016 and 2017,
respectively. Which of the following can be the possible reason for such a change?
A) Benin, Inc. incurred less debt specifically in its revolving line of credit.
B) Benin, Inc. incurred more debt specifically in its revolving line of credit.
C) Benin, Inc. paid less interest in its revolving line of credit.
D) Benin, Inc.’s debt-paying ability increased.
When using the allowance method, after a company has previously written off an
account, ________.
A) the company continues to send monthly statements to the customers whose accounts
have been written off
B) the company cannot collect from these customers because their accounts have been
written off
C) when a customer pays on an account that has been written off, the company needs to
reverse the write-off to the Allowance for Bad Debts account and then record the receipt
of cash
D) the company does not need to re-establish the receivable account
Gatherer, Inc. uses a process costing system. It prepares a production cost report for
each processing department. How will the managers of Gatherer use these production
cost reports to prepare the balance sheet at the end of an accounting period?
A) to determine the amount of current liabilities of the period
B) to determine the balance of inventory accounts
C) to determine the cost of goods sold during the period
D) to determine the amount of revenues generated during the period
Which of the following is the correct order of preparation of financial statements?
A) Income statement → statement of retained earnings → balance sheet → statement of
cash flows
B) Statement of retained earnings → balance sheet → income statement → statement of
cash flows
C) Balance sheet → statement of retained earnings → income statement → statement of
cash flows
D) Balance sheet → income statement → statement of retained earnings → statement of
cash flows
Edge, Inc. has two products—Le Chaud and Le Frais. Financial data for both the
products follows:
Edge has two sales representatives—Mary Baker and Jocelyn Rice. Each representative
sold a total of 1,400 units during the month of March. Mary had a sales mix of 60% Le
Chaud and 40% Le Frais. Jocelyn had a sales mix of 70% Le Chaud and 30% Le Frais.
Based on the above information, calculate Mary’s total contribution to company profits.
A) $543,200
B) $283,920
C) $477,120
D) $193,200
A company that uses the perpetual inventory system purchased 500 pallets of industrial
soap for $7,000 and paid $800 for the freight-in. The company sold the whole lot to a
supermarket chain for $14,000 on account. Which of the following entries correctly
records the sale?
A)
B)
C)
D)
