The net income reported on the income statement for the current year was $310,000.
Depreciation recorded on fixed assets and amortization of patents for the year were
$40,000 and $9,000, respectively. Balances of current asset and current liability
accounts at the end and at the beginning of the year are as follows:
EndBeginning
Cash$ 50,000$ 60,000
Accounts receivable112,000108,000
Inventories105,00093,000
Prepaid expenses4,5006,500
Accounts payable (merchandise creditors)75,00089,000
What is the amount of cash flows from operating activities reported on the statement of
cash flows prepared by the indirect method?
a. $233,000
b. $289,000
c. $387,000
d. $331,000
Use the following information to determine Total Stockholders’ Equity:
Total Assets$ 85,000
Total Liabilities21,000
Total Stockholders’ Equityx
Total Retained Earnings9,000
a. $58,000
b. $64,000
c. $55,000
d. $40,000
On a statement of cash flows, each cash transaction is recorded and classified as an
operating, investing, or financing activity.
a. True
b. False
The major advantage of residual income as a performance measure is that it gives
consideration to not only a minimum rate of return on investment but also to the total
magnitude of operating income earned by each division.
a. True
b. False
Which of the following budgets summarizes plans for acquiring fixed assets?
a. A selling and administrative expenses budget
b. A factory overhead budget
c. A cash budget
d. A capital expenditures budget
A company acquired some land for $75,000 to construct a new office complex. Legal
fees paid were $2,750, delinquent taxes assumed were $3,250, and $6,350 was paid to
remove an old building. Materials salvaged from the demolition of the building were
sold for $2,300. Determine the cost of the land to be reported on the balance sheet.
a. $85,050
b. $89,650
c. $84,100
d. $87,350
Which of the following is true about the cost principle?
a. It limits the economic data recorded in an accounting system to data related to the
activities of that company.
b. It initially records assets in the accounting records at their purchase price.
c. It assumes that a company will continue in business indefinitely.
d. It reports the revenues earned by a company for a period with the expenses incurred
in generating the revenues.
Kirk Co. manufactures mobile cellular equipment and develops a price for the product
by using a variable cost concept. Kirk incurs variable costs of $1,900,000 in the
production of 100,000 units. Fixed costs total $50,000. The company employs
$4,725,000 of assets and wishes to earn a profit equal to a 10% rate of return on assets.
(a)Compute a markup percentage based on the variable costs concept.
(b)Determine a selling price.
7920.6830.636
a. $14,240
b. $16,800
c. $15,020
d. $15,840
A voucher is a written authorization to make a cash payment.
a. True
b. False
The following data is available for an item of LCC Inc. for the month of March:
March 1Inventory15 units at $10 each
15Purchase30 units at $18 each
31Purchase20 units at $15 each
Sale30 units
Using the lastin, firstout method, what is ABC Inc.’s cost of ending inventory for
March?
a. $450
b. $630
c. $540
d. $510
While calculating the carrying value of a building, its accumulated depreciation is:
a. not taken into consideration.
b. subtracted from the building’s cost.
c. added to the building’s cost.
d. subtracted from the fair market value of the building.
The point in operations at which revenues and expenses are exactly equal is called the
breakeven point.
a. True
b. False
Minimum cash balance maintained in the bank account is called line of credit.
a. True
b. False
A buyer who acquires merchandise under credit terms of 1/10, n/30 has 30 days after
the invoice date to take advantage of the cash discount.
a. True
b. False
Variable costs as a percentage of sales for Protoveo Inc. are 65%, sales are $500,000,
and fixed costs are $125,000. How much would operating income change if sales
decrease by $10,000?
a. $3,500 increase
b. $3,500 decrease
c. $3,250 decrease
d. $3,500 increase
If the unit selling price is $40, the volume of sales is $3,000,000, sales at the breakeven
point amount to $2,500,000, and the maximum possible sales are $3,300,000, the
margin of safety will be 12,500 units.
a. True
b. False
Which of the following statements is true about a retail business?
a. The operating cycle for a service business differs from the operating cycle for a retail
business in that a service business must purchase merchandise for sale to customers.
b. The revenue activities of a retail business involve the buying and selling of
merchandise.
c. The operating cycles of retail businesses and service businesses are exactly the same.
d. The revenue activities of a retail business involve rendering services to customers.
In response to materials requisition, materials are transferred from the storeroom to the
factory.
a. True
b. False
When the contract rate of interest on bonds is higher than the market rate of interest, the
bonds sell at:
a. a premium.
b. their face value.
c. their maturity value.
d. a discount.
Which of the following is true of the balanced scorecard?
a. It ignores the financial performance of the company.
b. It has the ability to reveal the underlying nonfinancial drivers of financial
performance.
c. It aims to improve the nonfinancial performance of the business.
d. It focuses primarily on the short term performance of the business.
Based on the following information, calculate the direct materials price variance.
Actual costs3,590 pounds at $8.00
Standard costs4,100 pounds at $6.00
a. $7,700 favorable
b. $8,200 favorable
c. $7,180 unfavorable
d. $8,100 unfavorable
The primary purpose of a stock split is to:
a. increase paidin capital.
b. reduce the market price of the stock per share.
c. increase the market price of the stock per share.
d. increase retained earnings.
The debt ratio measures the percent of the company’s assets financed by debt.
a. True
b. False
The amount of the total cash paid to the seller for merchandise purchased would
normally include:
a. only the list price.
b. only the sales tax.
c. the list price plus the sales tax.
d. the list price less the sales tax.
Which of the following statements is true about liabilities?
a. Liabilities include insurance premium paid in advance.
b. Liabilities arise when a company sells goods on account.
c. Liabilities equal assets plus stockholders’ equity.
d. Liabilities are the debt owed by a company.
Hudson, Inc. has estimated total factory overhead costs of $400,000 and 20,000 direct
labor hours for the current fiscal year. If direct labor hours for the year totals 18,000 and
actual factory overhead totals $350,000, what is the amount of overapplied or
underapplied overhead for the year?
a. $10,000 overapplied
b. $10,000 underapplied
c. $50,000 underapplied
d. $50,000 overapplied
Operating income for Division A is $520,000, total service department charges are
$480,000, and operating expenses are $3,200,000. What are the revenues for Division
A?
a. $2,810,000
b. $1,000,000
c. $5,530,000
d. $4,200,000
According to which of the following concepts should the expenses incurred when
generating revenue be reported in the same period as the related revenue?
a. The cost concept
b. The periodicity concept
c. The matching concept
d. The adequate disclosure concept
On July 1, George Co. issued $3,000,000 of 10year, 8% bonds at par. Interest on the
bonds is payable semiannually on December 31 and June 30. As a result of this
transaction, net assets of the company:
a. decrease by $240,000.
b. increase by $3,000,000.
c. is not effected.
d. decrease by $120,000.
FICA tax is a payroll tax that is paid only by employers.
a. True
b. False
When evaluating a proposal by use of the net present value method, if there is a
deficiency of the present value of future cash inflows over the amount to be invested,
the proposal should be accepted.
a. True
b. False
Compute breakeven sales (in units) when fixed costs are $420,000, unit selling price is
$66, and unit variable cost is $42.
a. 17,500 units
b. 10,500 units
c. 11,500 units
d. 20,300 units
X&Y Co. received $4,000 in payments from clients for services billed in a previous
month. What effect does this transaction have on the accounts under the accrual basis of
accounting?
a. Total assets increase by $4,000.
b. Assets will increase by $4,000 and revenues will increase $4,000.
c. Total assets will be decrease by $4,000.
d. The net effect on assets is zero.
The payment of a liability:
a. decreases assets and stockholders’ equity.
b. increases assets and decreases liabilities.
c. decreases assets and increases liabilities.
d. decreases assets and decreases liabilities.
