A stock dividend provides a stockholder with more shares of stock, but his or her
percentage of ownership in the company is no larger than before.
In preparing a master budget, budgeted levels for production, manufacturing costs, and
operating expenses normally are determined after preparing the sales forecast.
Interest rates impact the market value of common stock more than they impact the
market value of preferred stock.
If the manufacturing overhead account at month end has a credit balance before
adjustment, this indicates that overhead is under-applied.
Working capital equals current assets divided by current liabilities.
Margin of safety is the dollar amount by which actual sales volume exceeds the
break-even sales volume.
The income statement, statement of retained earnings, and the statement of cash flows
can all be prepared directly from the adjusted trial balance.
A company’s operating cycle is the time between purchases of direct materials and
conversion of these materials back into cash.
Regardless of whether partners in a partnership work in the company, each partner is
allocated an equal share of profits.
Sales of products with high contribution margins often are described as quantity sales.
A responsibility income statement shows the revenue and expenses of each cost center
within a particular part of a business.
The cost flow assumption selected by a company must correspond to the actual physical
movement of the company’s merchandise.
The basic approach of just-in-time inventory systems is to try to eliminate inefficiency
and to improve product quality.
Both FASB and IASB require the cash flow statement to be organized in three
categories, operating activities, investing activities, and financing activities.
Return on investment (ROI) tells us how much earnings can be expected for the average
invested dollar.
The gross profit rate is gross profit expressed as a percentage of net sales.
Operating earnings rather than net income is used to compute return on sales.
The underwriter guarantees the issuing corporation a specific price for the entire bond
issue and sells the bonds to the investing public at a higher price.
Internal control is strengthened by a policy of making payments by check, from cash
receipts, or from a petty cash fund.
The net income percentage can be measured by dividing net income by total assets.
A capital expenditure is charged to owners’ capital.
The credit side of an account is the right side, while the debit side is the left side.
Job order costing cannot be used for a service company.
Recording depreciation expense is an example of an adjusting entry to accrue unpaid
expenses resulting from expenses being incurred before cash is paid.
The Allowance for Doubtful Accounts is a contra-asset account and appears on the
balance sheet.
Incidental costs incurred in the purchase of land that are charged to Land Improvements
will affect net income at some future time.
In a retail department store with an efficient perpetual inventory system, the quantities
of goods actually on hand are probably somewhat more than the quantities indicated in
the accounting records.
If a company purchases equipment with cash, its total assets will increase.
The James Company has incurred the following costs of production:
Direct Materials $350,000
Direct Labor $475,000
Manufacturing Overhead $722,000
Selling and Administrative Costs $256,000
The James Company conversion costs are $1,197,000.
Capital investments are difficult, if not impossible, to reverse once funds have been
invested.
If a company has 240 credit customers, there are 480 individual customer accounts in
the accounts receivable subsidiary ledger (one for sales for each customer, one for
receipts from each customer).
After all the closing entries have been posted, the Income Summary account has a zero
balance.
When par value capital stock is issued, capital stock is credited with the par value of the
shares issued, regardless of whether the issuance price is equal to par, more than par, or
less than par.
Limited liability means that owners of a business are only liable for the debts of the
business up to the amounts they can afford.
On June 18, Baltic Arena paid $6,600 to Marvin Maintenance, Inc. for cleaning the
arena following a monster truck show. Which of the following most likely occurred as a
result of this transaction?
A. The accounts receivable account was debited.
B. Total assets increased.
C. The cash account was credited.
D. Total liabilities increased.
Disneyland is one of several theme parks owned by The Walt Disney Company.
Disneyland should be evaluated as:
A. An investment center.
B. A cost center.
C. An entertainment center.
D. A profit center (other than an investment center).
On April 1, year 1, Cricket Corporation issues $60 million of 12%, 10-year bonds
payable at par. Interest on the bonds is payable semiannually each April 1 and October
1.
Refer to the information above. With respect to this bond issue, Cricket Corporation’s
balance sheet at December 31, Year 1, will include:
A. Bonds payable of $61,800,000.
B. Bonds payable of $63,600,000.
C. Bonds payable of $60 million, as well as interest payable of $1,800,000.
D. Bonds payable of $60 million, as well as interest payable of $3,600,000.
The master budget may be comprised of:
A. The production budget.
B. The current period income statement.
C. The current period balance sheet.
D. The current period statement of cash flows.
Refer to the information above. Tutor uses the income statement approach in estimating
uncollectible accounts expense, and uncollectible accounts expense is estimated to be
3% of credit sales. The net realizable value of Tutor’s accounts receivable in the March
31 balance sheet is:
A. $251,800.
B. $253,500.
C. $224,700.
D. $255,300.
Refer to the information above. James’s materials price variance for June is:
A. $3,150 unfavorable.
B. $3,150 favorable.
C. $3,210 unfavorable.
D. $3,210 favorable.
At the end of the accounting period, applied overhead was larger than actual overhead
by a material amount. The over-applied overhead should be:
A. Treated as an extraordinary gain.
B. Treated as an extraordinary loss.
C. Apportioned among Work in Process Inventory, Finished Goods Inventory, and Cost
of Goods Sold.
D. Ignored; actual overhead is determined only for internal control purposes.
An analysis of changes in selected balance sheet accounts of Hierarchy Corporation
shows the following for the current year:
Hierarchy’s income statement for the current year includes a $9,600 gain on disposal of
plant assets. All payments and proceeds relating to purchase or sale of plant assets were
in cash.
Refer to the information above. How should purchases, sales, and depreciation of plant
assets be classified in Hierarchy’s statement of cash flows for the current year? (Assume
the direct method is used by Hierarchy.)
A. Purchases of plant assets are classified as operating activities; sales of plant assets
are classified as financing activities; depreciation is classified as an operating activity.
B. Purchases of plant assets and depreciation are classified as investing activities; sales
of plant assets are classified as operating activities.
C. Purchases and sales of plant assets are classified as investing activities; depreciation
does not appear as an operating, financing, or investing activity.
D. Since plant assets are used to generate income from operations, purchases, sales, and
depreciation of plant assets are all classified as operating activities.
For the month of December, its first month of operations, the Radcliffe Corporation
completed and transferred 800 units of product costing $80,000 to produce to Finished
Goods Inventory. If Radcliffe sold 650 units during the same month, how much was
cost of goods sold for the same period?
A. $80,000.
B. $8,000.
C. $6,500.
D. $65,000.
Shown below are selected data from the financial statements of Noble Computers.
(Dollar amounts are in millions, except for the per share data.)
Noble reported earnings per share for the year of $6 and paid cash dividends of $2.00
per share. At year-end, the Wall Street Journal listed Noble’s capital stock as trading at
$81 per share.
Refer to the information above. Noble’s gross profit rate was:
A. 18%.
B. 46%.
C. 50%.
D. 54%.
The basic purpose of an audit is to:
A. Assure financial statements are in conformity with GAAP.
B. Provide as much useful information to decision makers as possible, regardless of
cost.
C. Record changes in the financial position of an organization by applying the concepts
of double entry accounting.
D. Meet an organization’s need for accounting information as efficiently as possible.
Harding Systems, Inc. uses a periodic inventory system. The purchases of a particular
product during the year are shown below:
At December 31 the ending inventory consisted of 1,500 units.
Refer to the information above. Compute the cost of goods sold for the current year
based on the average-cost method of inventory valuation.
A. $10,590.
B. $11,694.
C. $29,560.
D. $28,456.
Unearned revenue may also be called:
A. Net income.
B. Deferred revenue.
C. Unexpired revenue.
D. Services rendered.
Suppose a number of your friends have organized a company to develop and sell a new
software product. They have asked you to loan them $8,000 to help get the company
started, and have promised to repay your $8,000 plus 10% interest in one year. Of the
following, which amount may be described as the return on your investment?
A. $8,000
B. $800
C. $8,800
D. $7,200
The need for familiarity with accounting concepts is:
A. Limited to those planning a career in accounting.
B. Limited to those planning to pursue the CPA credential.
C. Universal for each and every career path.
D. Necessary for anyone entering the world of business.
The human resources department of a large company would be considered:
A. A cost center.
B. A profit center.
C. An investment center.
D. A revenue center.
Shown below is information relating to the stockholders’ equity of Grant Corporation at
December 31, 2015:
Dividends have been declared and paid for 2015.
Refer to the information above. The total amount of Grant’s paid-in capital at December
31, 2015, is:
A. $1,960,000.
B. $1,090,000.
C. $3,460,000.
D. $3,050,000.
Comparison of cash flows and accrual basis
Underhill Corporation’s statement of cash flows for 2015 shows the following
information regarding investing activities:
Underhill Corporation’s income statement for 2015 includes the following items:
(a) All payments and proceeds relating to these transactions were in cash. Using this
information, compute the following:
(b) Underhill Corporation’s balance sheet at the end of 2014 showed Land of
$3,057,000 and Investment in Marketable Securities of $2,218,000. On the basis of the
data presented above, compute the amount to be reported for Land and for Investment
in Marketable Securities on Underhill Corporation’s balance sheet at December 31,
2015.
Double Taxation means:
A. A corporation must pay double the amount of tax that an unincorporated business
pays.
B. A corporation pays taxes to the federal government and to the state government.
C. The corporation pays tax on its income and the stockholders pay tax on their
dividends.
D. The corporation pays tax on its income and the officers of the corporation pay tax on
their salaries.
Eagle News has a $6,000 account receivable from one of its advertisers, Allwood
Floors. When Eagle receives $3,600 from Allwood as partial payment:
A. Eagle should debit Accounts Receivable for $3,600.
B. Eagle should credit Cash for $3,600.
C. Eagle should credit Accounts Receivable for $3,600.
D. Eagle makes no journal entry until the total of $6,000 is received from Allwood.
Given below are comparative balance sheets and an income statement for Eleva
Corporation.
All sales were made on account. Cash dividends declared during the year totaled
$22,984.
Refer to the information above. Eleva Corporation’s days to collect accounts receivable
for 2015 is:
A. 54.7 days.
B. 67.3 days.
C. 88.0 days.
D. 94.0 days.
In preparing an amortization table, it is necessary to include:
A. The original amount of the liability, the amount of periodic payments, and the
interest rate.
B. The original amount of the liability, the amount of periodic payments, and the
amount of past payments.
C. The monthly payment, the total amount of past payments, and the original amount of
the liability.
D. The total amount of past payments, the interest rate, and the amount of periodic
payments.
Shown below is information relating to the stockholders’ equity of Reeve Corporation
as of December 31, 2015:
Refer to the information above. Book value per share of common stock (rounded to the
nearest penny) is:
A. $15.10.
B. $14.10.
C. $15.90.
D. $19.10.
A 2-for-1 stock split:
A. Is accounted for in the same way as a stock dividend.
B. Increases the number of outstanding shares of common stock, but par value per share
remains the same as before the split.
C. Is recorded by transferring the par value of additional shares from retained earnings
to the common stock account.
D. Should logically cause the market price per share to drop by approximately 50%.
The principle that states revenue should be recognized at the time goods are sold or
services rendered is called:
A. Adequate disclosure.
B. Conservatism.
C. Matching.
D. Revenue realization.
Refer to the information above. How many units were started in June?
A. 92,000 units.
B. 60,000 units.
C. 160,000 units.
D. 110,000 units.
Which of the following is not an example of an adjusting entry?
A. The entry to record unpaid expenses.
B. The entry to record uncollected revenues.
C. The entry to convert liabilities to revenue.
D. The entry to pay outstanding bills.
Hayden, Inc. purchased knobs from a Greek company for 185,000 Euros. On the
purchase date the exchange rate was $0.80 per Euro, but when Hayden paid the liability,
the exchange rate was $0.70 per Euro. When this foreign account payable was paid,
Hayden, Inc., recorded a:
A. Debit to Inventory of $18,500.
B. Loss of $18,500.
C. Credit to Accounts Payable of $148,000.
D. Gain of $18,500.
During the month of August, $582,000 of costs were transferred from the Mixing
Department to the Baking Department. The journal entry to summarize the transfer of
these costs includes:
A. A debit to the Mixing department for $582,000.
B. A debit to the Baking department for $582,000.
C. A credit to the Baking department for $582,000.
D. A debit to Finished Goods Inventory.
Schedule of cost of finished goods manufactured
The accounting records of Hogan Handle Co. include the following information about
the company’s manufacturing costs and inventories for the month of March 2015:
Complete the following Schedule of Cost of Finished Goods Manufactured for the year
ended March 31, 2015:
Value-added and non-value-added activities
Explain the distinction between value-added and non-value added activities. Provide an
example of each.
Explain the major provisions of the Foreign Corrupt Practices Act as amended in 1986.
Briefly explain the difference between a revenue expenditure and a capital expenditure.
Financial statements
A set of financial statements includes three related accounting reports, or statements. In
the space provided, list the names of three primary statements, and give a brief
description of the accounting information contained in each.
Notes payable
On September 1, 2015, George Hanby borrowed $100,000 from The Actors Credit
Union and signed a 6%, one-year note payable, all due at maturity. The interest on this
loan is stated separately.
Application of overhead – missing information
Holden Corporation manufactures a single product. Overhead is applied to production
during the year using a predetermined rate based on direct labor cost. During the month
of April, 50,000 units of output were produced at a total direct labor cost of $425,000.
The amount of overhead applied to these units was $2,125,000. Assuming total direct
labor cost for the year had been estimated to be $4,125,000, calculate the amount of
manufacturing overhead Holden Corporation had estimated it would incur during the
year.
What is estimated total manufacturing overhead cost for the year?
Given the following information for the Maple Tree Co. for the year ended December
31, 2014, prepare a Statement of Retained Earnings.
Stock dividends
What is the effect of a stock dividend?
Responsibility income statements
Identify and discuss briefly the two concepts generally used in assigning costs to
responsibility centers of a business.
Joan is 75 years old and wishes to retire. She needs to have $48,000 a year plus her
social security to live in the style she is accustomed to. She would like to have enough
money in her retirement account which earns 5% compounded annually to support her
for the next 15 years. How much must be in the fund if she takes the first payment at
year-end?
Mitchum, Inc. produced different amounts of product X each month as follows:
Using the high-low method, determine:
(1) The variable expense per unit
(2) The fixed expense
(3) If Mitchum produced 410 units what would total expenses be?
Stock dividend-effect on book value
Olympic Corporation has 75,000 shares of $1 par value stock outstanding. The largest
single stockholder is Lou Cheng, who owns 6,000 shares. On December 31, the total
assets of the company amount to $4,360,000 and total liabilities to $2,230,000. On that
date, the board of directors declared a stock dividend of one new share for each five
shares outstanding. Compute the following:
Capital budgeting
Mason Co. is evaluating two alternative investment proposals. Below are data for each
proposal:
The following information was taken from present value tables:
All revenue and expenses other than depreciation will be received and paid in cash. The
company uses a discount rate of 12% in evaluating all capital investments.
Compute the following for each proposal (round payback period to the nearest tenth of
a year and round return on average investment to the nearest tenth of a percent):
(f) Based on your analysis, which proposal appears to be the best investment?
Listed below are several terms and statements with missing expressions. Fill in the
blanks with the appropriate term.
(1) To convert a foreign currency to an equivalent dollar amount _________ the foreign
currency by the foreign exchange rate.
(2) To convert a dollar amount into an equivalent amount of foreign currency
___________ the dollar amount by the exchange rate.
(3) The __________ prohibits companies engaged in global activities from bribing
officials of foreign countries.
(4) Goods imported into __________ are duty free.
(5) ___________ minimizes or eliminates the risk of loss associated with foreign
currency fluctuations.
(6) In a __________ ownership of land and the means of production are privately held.
(7) In a __________ the government allocates resources and determines output among
various segments of the economy.
(8) The process of restating an amount of foreign currency in terms of the equivalent
number of dollars is called ________ the foreign currency.
(9) A currency is described as ___________ when its exchange rate is rising relative to
other currencies.
(10) A currency is described as __________ when its exchange rate is falling in relation
to other currencies.
