WinLaw is a legal services provider. It is planning to extend its operations by providing
tax consultancy services. Which of the following statements will beTRUE if the
company extends its operation as planned?
A.The cost of providing legal services is high as tax consultancy service will be in its
initial stages.
B.The company cannot extend its operations since it requires additional staff.
C.The company should know the unit service cost of tax services before determining
the fees.
D.The company should drop this service line if it makes lesser profit than legal
services.
Which of the following statements isTRUE?
A.A company’s value chain is not part of its supply chain.
B.A manufacturer’s supply chain typically includes research and development and
customer service.
C.A company’s supply chain includes the value chains of its suppliers.
D.Your supplier’s suppliers are part of your value chain.
Both diversified companies and conglomerates operate in a single, well-defined
industry.
A contingent liability is a liability that may materialize in the future because of
something that happened in the past.
When a newly admitted partner pays a bonus to the existing partners, the new partner’s
capital account is credited.
The JIT operating philosophy must be adopted by everyone in a company before its
total benefits can be realized.
Determining net cash flows from operating activities using the direct method reveals
cash collected from customers.
The equation for economic value added excludes operating income and current
liabilities.
A revenue account is closed with a debit to the revenue account and a credit to Income
Summary.
If the amount of a liability cannot be exactly determined, it should not be recorded.
A retail operation would not have to take a physical inventory if it uses a perpetual
inventory system.
The general ledger is the basic storage unit for accounting data and is used to
accumulate
amounts from similar transactions.
The engineering method of separating costs is sometimes called a regression analysis.
Decision makers rely on the future values, rather than on the present values of future
cash flows.
To determine the payables turnover, one first calculates the days’ payable.
In a just-in-time environment, costs associated with product movement and storage
typically decrease, whereas costs of inspection and queue time typically increase.
Retained earnings are a component of contributed capital.
The adjusted trial balance may contain accounts that did not appear in the trial balance.
Use this information to answer the following question.
Here is the balance sheet for Costello Container Company:
If the balance in the Cash account were used to pay part of Accounts Payable, then total
liabilities and owner’s equity would
A.decrease by $8,000.
B.increase by $8,000.
C.increase by $16,000.
D.decrease by $16,000.
Use this inventory information for the month of March to answer the following
question.
Assume that a periodic inventory system is used.
What is ending inventory under the LIFO method?
A.$1,680
B.$1,980
C.More information is needed.
D.$2,720
Assume the direct method is used to compute net cash flows from operating activities.
For this item extracted from the financial statements’”Gain on Sale of
Investment’”indicate the effect on cash flows from operating activities by choosing one
of the following:
A.Gain on sale is added to other cash flows to arrive at net cash from operating
activities.
B.Gain on sale is subtracted from other cash flows to arrive at net cash from operating
activities.
C.Gain on sale is not used to arrive at net cash from operating activities.
A corporation should account for the declaration of a 10 percent stock dividend by
A.transferring from retained earnings to contributed capital an amount equal to the legal
capital represented by the dividend shares.
B.transferring from retained earnings to contributed capital an amount equal to the
market value of the dividend shares.
C.transferring from retained earnings to contributed capital whatever amount the board
of directors deems appropriate.
D.making only a memorandum entry in the general journal.
James Corporation’s controller has developed the cost and usage data listed below in
preparation of standard unit cost information for the coming year.
Using the above information provided for James Corporation, the standard overhead
cost for each unit is
A.$45.
B.$33.
C.$30.
D.$63.
On the work sheet, account balances are ‘extended’ from the
A.Adjusted Trial Balance columns to the Income Statement or Balance Sheet columns.
B.Income Statement and Balance Sheet columns to the financial statements.
C.Trial Balance and Adjustments columns to the Adjusted Trial Balance columns.
D.Trial Balance columns to the Adjusted Trial Balance columns.
All of the following are advantages of issuing bonds rather than stock except
A.financial leverage.
B.payment of bond interest is not required
C.bond interest is tax-deductible.
D.bondholders do not have voting rights.
Great Lake Corporation wishes to prepare a cash budget for November 2014. Sales,
purchases, and expenses for October (actual) and November and December (estimated)
are as follows:
Sales: All sales are on credit, and the company’s experience shows that, on an average,
80 percent of sales are collected in the month of sale and the balance in the following
month. A 2 percent discount is allowed on all collections in the month of sale.
Purchases: The company pays 60 percent of purchases in the month of purchase and the
balance in the following month. The company is allowed an average discount of 1
percent on payments made in the month of purchase.
Expenses: The monthly expenses for November include charges for depreciation
amounting to $1,000 and $100 of prepaid expenses, which will expire. All other
expenses are paid as incurred.
Other: On September 1, 2014, a new machine was purchased for $5,000. A down
payment of $500 was made, and it was agreed that the balance would be paid in equal
installments in the following three months.
The cash receipts in November for November sales of Great Lake are expected to be
A.$31,360.
B.$32,000.
C.$41,600.
D.$39,200.
If a management accountant confides to a relative that his or her company has a
confidential plan to merge with another company in the near future, the accountant has
A.not violated ethical standards.
B.violated ethical standards only if the relative owns stock in the company.
C.violated ethical standards because the relative could stand to gain personally from
that information.
D.not violated ethical standards because the information was relayed to a family
member only.
Which of the following is the first step while carrying out a short-run decision analysis?
A.Prepare a thorough analysis of each possible solution
B.Identify all reasonable courses of action that can solve the problem or meet the need
C.Discover a problem or need
D.Select the best course of action
The controller for Tires and More, Inc. has recorded the following transactions during
the month: the owner established the business with a $20,000 investment on the 1st of
the month; the company recorded $36,000 of revenue for tires and services provided
during the month; and expenses of $22,000 were recorded for the month. What is the
balance ofOwner’s Equity at the end of the month, and is the balance a debit or a credit?
A.$34,000 debit.
B.$34,000 credit.
C.$20,000 credit.
D.$6,000 debit.
A bond indenture is
A.a bond that is secured by specific assets of the issuing corporation.
B.the agreement between the issuing corporation and the bondholders.
C.a bond that is unsecured.
D.a bond that has past due interest payments.
Willow Corporation has retained earnings of $320,000. It has 5,000 shares of 6 percent,
$100 par value preferred stock outstanding that is callable at 102. The preferred stock is
cumulative, and one year of dividends is in arrears. It also has 10,000 shares of $50 par
value common stock outstanding. Assume all stock is issued at par. The book value of
each share of common stock is
A.$78.00.
B.$110.40.
C.$81.60.
D.$80.00.
Which of the following is an inventory valuation method?
A.First-in, first-out
B.Average-cost
C.Lower-of-cost-or-market
D.Perpetual
The cost principle relates most closely to the
A.recognition point.
B.recognition issue.
C.valuation issue.
D.classification issue.
The number of days’ spayable uncollected is determined by dividing
A.the number of days in a year by the payables turnover.
B.the number of days in a year by average accounts payable.
C.cost of goods sold by average accounts payable.
D.inventory by average accounts payable.
Great Lake Corporation wishes to prepare a cash budget for November 2014. Sales,
purchases, and expenses for October (actual) and November and December (estimated)
are as follows:
Sales: All sales are on credit, and the company’s experience shows that, on an average,
80 percent of sales are collected in the month of sale and the balance in the following
month. A 2 percent discount is allowed on all collections in the month of sale.
Purchases: The company pays 60 percent of purchases in the month of purchase and the
balance in the following month. The company is allowed an average discount of 1
percent on payments made in the month of purchase.
Expenses: The monthly expenses for November include charges for depreciation
amounting to $1,000 and $100 of prepaid expenses, which will expire. All other
expenses are paid as incurred.
Other: On September 1, 2014, a new machine was purchased for $5,000. A down
payment of $500 was made, and it was agreed that the balance would be paid in equal
installments in the following three months.
The cash payments in November for purchases of Great Lake are expected to be
A.$32,000.
B.$18,000.
C.$17,820.
D.$31,820.
The board of directors of Lark Corporation declared a cash dividend of $3.50 per share
on 57,000 shares of common stock on June 14, 20×5. The dividend is to be paid on July
15, 20×5, to shareholders of record on July 1, 20×5. The effects of the entry to record
the declaration of the dividend on June 14, 20×5, are to
A.decrease stockholders’ equity and increase liabilities.
B.increase stockholders’ equity and increase liabilities.
C.decrease stockholders’ equity and decrease assets.
D.increase stockholders’ equity and decrease assets.
Book value per share refers to the
A.net assets represented by one share of a company’s stock.
B.highest price that investors will pay for a share of stock.
C.issue price of the stock, less any market decline since issuance.
D.par or stated value of a share of stock.
Match the following financial statement ratios with their definition.
1> Working capital _____
2> Current ratio _______
3> Profit margin ______
4> Return on assets______
5> Debt to equity ratio________
6>Return on equity_______
7> Asset turnover_________
a. A measure of profitability that shows the proportion of a company’s assets that is
financed by creditors and the proportion financed by owners
b. A measure of liquidity that shows the net current assets on hand to continue business
operations
c. A measure of profitability that relates the amount earned by a business to the owner’s
investment in the business
d. A measure of profitability that shows the percentage of each sales dollar that results
in net income
e. A measure of liquidity; current assets divided by current liabilities
f. A measure of profitability that shows how efficiently a company uses its assets to
produce income
g. A measure of how efficiently assets are used to produce sales
When are sunk costs are omitted from decision analysis?
A.Always
B.Never
C.Only if necessary
D.Only if they are immaterial
If the direct method is used to prepare a statement of cash flows, credit sales may not
automatically create a cash inflow because
A.some receivables may be uncollectible.
B.sales from a prior period may be collected in the current period.
C.sales from the current period may be collected in a future period.
D.All of these choices.
A framework for classifying activities according to the level at which their costs are
incurred is called a
A.bill of activities.
B.full product cost.
C.value chain.
D.cost hierarchy.
Which of the following is a nominal account?
A.Interest Payable
B.Property Taxes Expense
C.Owner’s Capital
D.Cash
A $200 petty cash fund has cash of $20 and valid receipts of $164. The entry to
replenish the fund would be:
Given the following ledger account and postings, complete the Balance column.
Assume no previous postings in the account
Wolf Equipment uses a perpetual inventory method. Discuss how Wolf Equipment
accounts for purchase returns and allowances.
Mike’s Manufacturing purchased equipment for $300,000. The equipment has an
estimated useful life of six years and will be worthless at the end of that time. In the
partial balance sheet below, show exactly how the equipment would be disclosed after it
has been used for three years. Also calculate total assets.
How is book value per share interpreted for an investor who owns one share of a
company’s stock? Is book value equal to the amount this stockholder would receive if
the company were sold or liquidated? Why or why not?
On January 1, 20×5, Dove Valley Corporation had 100,000 shares of $10 par value
common stock issued and outstanding. All 100,000 shares had been issued in a prior
period at $30 per share. On February 1, 20×5, Dove Valley purchased 4,000 shares of
treasury stock for $36 per share and later sold the treasury shares for $40 per share on
March 2, 20×5. The entry to record the purchase of the treasury shares on February 1,
20×5, is:
Complete the following chart by placing an ‘X’ under the applicable column headings.
Classify each cost as a fixed cost or a variable cost and as either a direct or indirect
product cost or a period cost.
Of a company’s employees, 50 percent typically qualify to receive two weeks’ paid
vacation a year (50 weeks). The entry to record the estimated liability for vacation pay
for a week in which the total payroll is $8,800 would be