A summary of the materials requisitions completed during a period serves as the basis
for transferring the cost of the materials from the Materials account to:
a. WorkinProcess and Cost of Goods Sold.
b. WorkinProcess and Factory Overhead.
c. Finished Goods and Cost of Goods Sold.
d. WorkinProcess and Finished Goods.
An equipment was purchased for $15,000. It has a useful life of 5 years and a residual
value of $4,000. Determine the depreciation expense for the first year using the
doubledecliningbalance method?
a. $5,400
b. $6,000
c. $2,200
d. $2,600
Compute the breakeven point (in dollars) if fixed costs are $540,000 and variable cost
are 70% of sales.
a. $3,850,000
b. $1,800,000
c. $1,650,000
d. $900,000
A business is considering a cash outlay of $500,000 for the purchase of land, which it
could lease for $40,000 per year. If alternative investments are available that yield a
21% return, the opportunity cost of the purchase of the land is:
a. $105,000.
b. $40,000.
c. $65,000.
d. $8,400.
Nonmanufacturing activities are usually controlled using a static budget rather than a
standard costing system.
a. True
b. False
Cash dividends are not paid on shares of treasury stock.
a. True
b. False
Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units
of Arks and 18,000 units of Bins. Related data are:
Unit SellingUnit VariableUnit Contribution
ProductPriceCostMargin
Arks$ 80 $20 $60
Bins 120 40 80
What was Kennedy’s sales mix last year?
a. 40% Arks, 60% Bins
b. 43% Arks, 57% Bins
c. 54% Arks, 46% Bins
d. 64% Arks, 36% Bins
Which of the following is a characteristic of accumulated depreciation account?
a. Accumulated depreciation represents cash reserved for asset replacement.
b. Accumulated depreciation account is a contraliability account.
c. Accumulated depreciation may be disclosed in the notes to the income statement.
d. Accumulated depreciation is reported on the balance sheet as a deduction from the
cost of the asset.
The return on assets is calculated by _____.
a. dividing interest expense by average total asset and average current assets
b. dividing net income before taxes and interest expense by average total asset
c. dividing average total asset and interest expense by net income taxes
d. dividing net income before taxes and interest expense by average current assets
The relationship of 120 to 100 can be expressed as 1.2, 1.2:1, or 120%.
a. True
b. False
Refer to Coke’s balance sheet and answer the following questions:
(a)Did Coke issue any stock in 2008? If so, how many shares were issued and where
might this information be found?
(b)Did Coke repurchase any common stock in 2008? If so, how many shares were
repurchased and where might this information be found?
Accumulated depreciation is a(n):
a. contra asset.
b. contingent asset.
c. revenue expenditure.
d. accrued expense.
Which of the following is an example of direct labor cost for an airplane manufacturer?
a. Cost of wages of janitors
b. Cost of wages of assembly worker
c. Salary of plant supervisor
d. Salary of the chairman
You are examining the financial statements of a company. You observe patent
amortization expense of $1.5 million and a loss on impairment of goodwill for $25
million.
(a)Describe how the accountants arrived at these amounts.
(b)Interpret any information provided by these disclosures.
Whiteville Co. can further process Product B to produce Product C. Product B is
currently selling for $45 per pound and costs $30 per pound to produce. Product C
would sell for $80 per pound and would require an additional cost of $18 per pound to
produce. What is the differential cost of producing Product C?
a. $30 per pound
b. $18 per pound
c. $17 per pound
d. $12 per pound
Prior to the last weekly payroll period of the calendar year, the cumulative earnings of
employees A and B are $106,150 and $91,000, respectively. Their earnings for the last
completed payroll period of the year are $850 each. Social security tax rate is 6% on
maximum of $106,800. All earnings are subject to Medicare tax of 1.5%. Assuming that
the payroll will be paid on December 29, what will be the employer’s total FICA tax for
this payroll period on the two salary amounts of $850 each?
a. $127.50
b. $115.50
c. $76.50
d. $63.75
Which of the following is an intangible asset?
a. Patent
b. Cash
c. Land
d. Equipment
Merchandise subject to the credit terms 2/10, n/30, FOB shipping point, is sold to a
customer on account for $20,125. The seller issued a credit memorandum for $4,600
prior to payment. What is the amount of the cash discount allowable if the payment is
made within 10 days of the invoice date?
a. $201.25
b. $248.75
c. $310.50
d. $402.50
For accounting purposes, stated value is treated the same way as par value.
a. True
b. False
Which of the following transactions decreases the profitability of a company?
a. Issuing a note payable
b. Purchasing treasury stock
c. Declaring cash dividend
d. Recording payroll tax expense
Clinton Co. has an operating leverage of 4. Sales are expected to increase by 8% next
year. Operating income is:
a. unaffected.
b. expected to increase by 2%.
c. expected to increase by 32%.
d. expected to increase by 4 times.
A profit center calculates the service department charges to be paid by it:
a. as the difference between its controllable expenses and controllable revenues.
b. as the difference between its direct operating expenses and controllable expenses.
c. as a product of service usage and total service department expense.
d. as a product of service usage and service department charge rate.
A budget procedure that provides for the maintenance at all times of a twelvemonth
projection into the future is called continuous budgeting.
a. True
b. False
Most employers are required to withhold federal unemployment taxes from employee
earnings.
a. True
b. False
The percentage analysis of the relationship of each component in a financial statement
to a total within the statement is referred as vertical analysis.
a. True
b. False
Details of invoices for purchases of merchandise are as follows:
MerchandiseTransportationTermsReturns and Allowances
a. $1,000$25FOB shipping point, 1/10, n/30$200
b. 5,000FOB destination, n/30 400
c. 4,00050FOB shipping point, 2/10, n/30 150
d. 5,000FOB destination, 1/10, n/30
Determine the amount to be paid in full settlement of each of the invoices, assuming
that credit for returns and allowances was received prior to payment and that all
invoices were paid within the discount period. Also assume that the seller has prepaid
the transportation expenses.
In deciding whether to accept business at a special price when the company is operating
below full capacity, the special price should be set high enough to cover both the fixed
and variable costs.
a. True
b. False
Big Inc.had $275,000 invested in assets, sales of $302,500, operating income of
$60,500, and a minimum acceptable rate of return of 5% on its invested assets. The rate
of return on investment for Big Inc. is:
a. 22%.
b. 20%.
c. 32%.
d. 6.4%.
Which of the following is incurred by a business when it borrows money?
a. An accumulated depletion
b. A liability
c. A loss
d. An accrued expenditure
If operating income for a division is $6,000, invested assets are $25,000, and sales are
$30,000, the profit margin calculated would be 20%.
a. True
b. False
Proposals L and K each cost $500,000, have 6year lives, and have expected total cash
flows of $750,000. Proposal L is expected to provide equal annual net cash flows of
$125,000, while the net cash flows for Proposal K are as follows:
Year 1$250,000
Year 2200,000
Year 3100,000
Year 490,000
Year 560,000
Year 6 50,000
$750,000
Determine the cash payback period for each proposal.
A 5year project is estimated to cost $700,000 and have no residual value. If the
straightline depreciation method is used and estimated total income is $231,000,
determine the average rate of return giving effect to depreciation on the investment.
How do businesses make money? What strategies can they use to gain a competitive
advantage?
Using the following partial table of present value of $1 at compound interest, determine
the present value of $35,000 to be received three years hence, with earnings at the rate
of 10% a year.
The rate of return is 10% and the cash to be received in one year is $25,000.
Three different companiesA, B, and Chave the same balance sheet at the beginning and
the end of a year. These are summarized below:
Total AssetsTotal Liabilities
Beginning of the year$ 500,000$250,000
End of the year$1,200,000$350,000
Given the data above and the additional information for each company below,
determine the net income (loss) for each company.
Company ANo additional investment was made by stockholders, and no dividends were
paid.
Company BStockholders invested an additional $200,000, and no dividends were paid.
Company CStockholders invested $450,000, and dividends of $50,000 were paid.
Using the following partial table of present value of $1 at compound interest, determine
the present value of $20,000 to be received three years hence, with earnings at the rate
of 10% a year.
Mars Corp.
Harris Co. is considering a 12year project that is estimated to cost $900,000 and has no
residual value. Harris seeks to earn an average rate of return of 15% on all capital
projects. Determine the necessary average annual income (using straightline
depreciation) that must be achieved on this project for it to be acceptable to Harris Co.
Why would a bank require a company to maintain a compensating balance?
Illustrate the effects on the accounts and the financial statements of each of the
following transactions:
Apr. 30Issued a $70,000, 60day, 6% note dated April 30 to Goldman Co. on account.
June 29Paid Goldman Co. the amount owed on note dated April 30.
Under the balance sheet classification of property, plant, and equipment, some accounts
need adjustment and others do not. Which do and why? Which do not and why?
Jade Inc. recorded the following information pertaining to its inventory for the month of
January:
1Inventory80 units at $20 each
18Purchase150 units at $25 each
Sales106 units
The business uses the firstin, firstout inventory costing method. Determine the cost of
the inventory on hand at the end of January.
Using the following partial table of present value of $1 at compound interest, compute
the present value of $20,000 (rounded to nearest dollar) to be received one year from
today, assuming an earnings rate of 15%.
Indicate whether the following actions would (+) increase, (−) decrease, or (0) not
affect a company’s total assets, liabilities, and stockholders’ equity.
AssetsLiabilities Stockholders’ Equity
(1) Declaring a cash dividend
(2) Paying the cash dividend declared in (1)
(3) Declaring a stock dividend
(4) Issuing stock certificates for the stock
dividend declared in (3)
Brickman’s Pharmacy sells a variety of products. The business is divided into four
segments or departments for reporting purposes. The departments and their operating
results are shown below:
PharmaceuticalsCosmeticsGroceryHousehold
Sales Revenue$ 600,000$ 300,000 $ 200,000$ 400,000
Variable Costs 425,000 200,000 170,000 250,000
Contribution Margin$ 175,000$ 100,000 $ 30,000$ 150,000
Fixed Costs 80,000 60,000 40,000 80,000
Net Income (Loss)$ 95,000$ 40,000 $ (10,000)$ 70,000
The fixed costs consist of insurance, property taxes, interest, and other costs that will
not be eliminated if a department is discontinued.
Brickman’s management is considering eliminating the grocery department. Assuming
sales in the other departments will not be affected by dropping the grocery department,
what will be the effect on the company’s total operating income?
Heedy Inc. is considering a capital investment proposal that costs $460,000 and has an
estimated life of four years, and no residual value. The estimated net cash flows are as
follows:
YearNet Cash Flow
1)$195,000
2)160,000
3)120,000
4)80,000
The minimum desired rate of return for net present value analysis is 10%. The present
value of $1 at compound interest rates of 10% for 1, 2, 3, and 4 years is 0.909, 0.826,
0.751, and 0.683, respectively. Determine the net present value.
Review COCACOLA’S financial statements and answer the following questions:
(1)How are Coke’s numbers reported (in what denomination)?
(2)What is Coke’s net operating revenue for 2008?
(3)What is Coke’s cost of goods sold for 2008?
(4)What is Coke’s net income 2008?
(5)What is Coke’s percent of interest expense to net operating revenue on its 2008
income statement?
(6)What is Coke’s percent of increase in net operating revenue from 2007 to 2008?
Electroyo Corporation’s accumulated depreciation increased by $8,500, while patents
decreased by $2,800 between consecutive balance sheet dates. There were no purchases
or sales of depreciable or intangible assets during the year. In addition, the income
statement showed a gain of $5,350 from sale of land. Reconcile a net income of
$68,000 to net cash flow from operating activities.
