The building blocks of financial statement analysis include (1) liquidity, (2) salability,
(3) solvency, and (4) profitability.
A cash-based measure to help business decision makers estimate the amount and timing
of cash flows is the cash flow on total assets ratio.
Stocks that pay large dividends on a regular basis are growth stocks.
Bond interest paid by a corporation is an expense, whereas dividends paid are not an
expense of the corporation.
Computer networks are links among computers giving different users and different
computers access to common databases and programs.
The balance sheet is also called the statement of financial position because it describes
the financial position of the business at a point in time.
Natural resources are assets that include standing timber, mineral deposits, and oil and
gas fields.
A company’s ability to issue both secured and unsecured debt depends at least partly on
its credit rating.
Significant sunk costs are relevant to decisions about the future.
Factory overhead is often collected and summarized in a factory overhead ledger.
Common stock always carries a preference for receiving dividends over preferred stock.
A job cost sheet is useful for developing financial accounting numbers but does not
contain information that is useful for managing the production process.
If partners devote their time and services to their partnership, their salaries are expenses
on the income statement.
Adjusting entries are designed primarily to correct accounting errors.
Within the same budget performance report, it is impossible to have both favorable and
unfavorable variances.
Equipment costing $100,000 with accumulated depreciation of $40,000 is sold at a loss
of $10,000. This implies that $40,000 cash was received from the sale.
Cumulative preferred stock carries the right to be paid both current and all prior periods’
unpaid dividends before any dividends are paid to common shareholders.
When a process cost accounting system records the purchase of raw materials, the Raw
Materials Inventory account is credited.
The legal contract between the issuing corporation and the bondholders is called the
bond indenture.
The FASB recommends that the operating section of the statement of cash flows be
reported using the direct method.
If a company is highly leveraged, this means that it has relatively low risk of not being
able to repay its debt.
The proportion of sales volumes to various products is known as the composite mix.
In accrual accounting, accrued revenues are recorded as liabilities.
The primary objective of financial accounting is to provide general purpose financial
statements to help external users analyze and interpret an organization’s activities.
Owners of a corporation are called shareholders or stockholders.
Account balances in the general ledger and the subsidiary ledgers should be proved for
accuracy after posting is complete.
It is not necessary for businesses to reconcile their checking accounts since banks keep
accurate records and provide internal control support for cash.
The statement of changes in partners’ equity shows the beginning balance in retained
earnings, plus investments, less withdrawals, the income or loss and the ending balance
in retained earnings.
The payment of cash dividends to shareholders is classified as a financing activity.
Debits increase asset and expense accounts.
A payroll register usually shows the pay period dates, hours worked, gross pay,
deductions, and net pay of each employee for every pay period.
When partners invest in a partnership, their capital accounts are credited for the amount
invested.
An understatement of the beginning inventory balance will understate cost of goods
sold and overstate net income.
Break-even analysis is a special case of cost-volume-profit analysis.
A business segment is a part of a company that is separately identified by its products or
services, or by the geographic market it serves.
The financial budgets of a business include the cash budget, the budgeted income
statement, and the budgeted balance sheet.
Net income is the excess of expenses over revenues, whereas net loss is the excess of
revenues over expenses.
A job order cost accounting system would be appropriate for a manufacturer of
automobile tires.
A company performs 20 days work on a 30-day contract before the end of the year. The
total contract is valued at $6,000 and payment is not due until the contract is fully
completed. The adjusting entry includes a $4,000 credit to unearned revenue.
Costs that are incurred as part of the manufacturing process but are not clearly
associated with specific units of product or batches of production, including all
manufacturing costs other than direct material and direct labor costs, are called:
A.Administrative expenses.
B.Nonmanufacturing costs.
C.Sunk costs.
D.Factory overhead.
E.Preproduction costs.
A company purchased a delivery van for $23,000 with a salvage value of $3,000 on
September 1, 2008. It has an estimated useful life of 5 years. Using the straight-line
method, how much depreciation expense should the company recognize on December
31, 2008?
A.$1,000.
B.$1,333.
C.$1,533.
D.$4,000.
E.$4,600.
Guidelines (rules-of-thumb) are developed from:
A.Industry statistics from the government.
B.Past experience.
C.Analysis of competitors.
D.Relations between financial items.
E.Dun and Bradstreet.
A company had net income of $2,660,000, net sales of $25,000,000, and total assets of
$8,000,000. Its return on total assets equals:
A.3.01%.
B.10.64%.
C.32.00%.
D.33.25%.
E.300.75%.
The salaries of employees who spend all their time working in one department are:
A.Variable expenses.
B.Indirect expenses.
C.Direct expenses.
D.Responsibility expenses.
E.Unavoidable expenses.
Dell Builders manufactures each house to customer specifications. It most likely would
use:
A.Capital process costing.
B.A periodic inventory system.
C.Unique costing.
D.Job order costing.
E.Activity-based costing.
The five fundamental principles of accounting information systems are:
A.Control, accountability, relevance, compatibility, and flexibility.
B.Historical cost, relevance, compatibility, flexibility, and cost-benefit.
C.Control, relevance, compatibility, flexibility, and safety.
D.Control, relevance, compatibility, timeliness, and cost-benefit.
E.Control, relevance, compatibility, flexibility, and cost-benefit.
During its most recent fiscal year, Simon Enterprises sold 200,000 electric screwdrivers
at a price of $15 each. Fixed costs amounted to $400,000 and pretax income was
$600,000. What amount should have been reported as variable costs in the company’s
contribution margin income statement for the year in question?
A.$2,400,000.
B.$1,600,000.
C.$3,000,000.
D.$2,000,000.
E.$1,000,000.
The description of the relation between a company’s assets, liabilities, and equity, which
is expressed as Assets = Liabilities + Equity, is known as the:
A.Income statement equation.
B.Accounting equation.
C.Business equation.
D.Return on equity ratio.
E.Net income.
A sawmill bought a shipment of logs for $40,000. When cut, the logs produced a
million board feet of lumber in the following grades:
Type 1 – 400,000 bd. ft. priced to sell at $0.12 per bd. ft.
Type 2 – 400,000 bd. ft. priced to sell at $0.06 per bd. ft.
Type 3 – 200,000 bd. ft. priced to sell at $0.04 per bd. ft.
How much cost should be allocated to Type 1 and Type 2, respectively?
A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E
On January 1, Southwest College received $1,200,000 in Unearned Tuition Revenue
from its students for the spring semester, which spans four months beginning on
January 2. What amount of tuition revenue should the college recognize on January 31?
A.$300,000.
B.$600,000.
C.$800,000.
D.$900,000.
E.$1,200,000.
Farber, Inc., has four departments. The Administrative Department costs are allocated to
the other three departments based on the number of employees in each and the
Maintenance Department costs are allocated to the Assembly and Packaging
Departments based on their occupied space. Data for these departments follows:
The total amount of the Administrative Department’s cost that would eventually be
allocated to the Packaging Department is:
A.$ 4,800.
B.$12,000.
C.$10,000.
D.$18,000.
E.$13,000.
On January 1, 2009, Merrill Company borrowed $100,000 on a 10-year, 7% installment
note payable. The terms of the note require Merrill to pay 10 equal payments of
$14,238 each December 31 for 10 years. The required general journal entry to record
the first payment on the note on December 31, 2009 is:
A.
B.
C.
D.
E.
Planning activities:
A.Are the means organizations use to pay for resources.
B.Involve the acquiring and disposing of resources that an organization uses to acquire
and sell its products or services.
C.Involve defining the ideas, goals, and actions of an organization.
D.Are the carrying out of an organization’s plans.
E.Involve using resources to research, develop, purchase, produce, and market products
and services.
Costs that are first assigned to inventory are called:
A.Period costs.
B.Product costs.
C.General costs.
D.Administrative costs.
E.Fixed costs.
When preparing the cash budget, all the following should be considered except:
A.Cash receipts from customers.
B.Cash payments for merchandise.
C.Depreciation expense.
D.Cash payments for income taxes.
E.Cash payments for capital expenditures.
Canoe Company uses a job order cost accounting system and allocates its overhead on
the basis of direct labor costs. Canoe Company’s production costs for the year were:
direct labor, $30,000; direct materials, $50,000; and factory overhead applied, $6,000.
The overhead application rate was:
A.5.0%.
B.12.0%.
C.20.0%.
D.500.0%.
E.16.7%.
O.K. Company uses a job order cost accounting system and allocates its overhead on
the basis of direct labor costs. O.K. expects to incur $800,000 of overhead during the
next period, and expects to use 50,000 labor hours at a cost of $10.00 per hour. What is
O.K. Company’s overhead application rate?
A.6.25%.
B.62.5%.
C.160%.
D.1600%.
E.67%.
A company had $43 missing from petty cash that was not accounted for by petty cash
receipts. The correct procedure is to:
A.Debit Cash Over and Short for $43.
B.Credit Cash Over and Short for $43.
C.Debit Petty Cash for $43.
D.Credit Petty Cash for $43.
E.Credit Cash for $43.
Thompson Company had the following results of operations for the past year:
A foreign company (whose sales will not affect Thompson’s market) offers to buy 4,000
units at $7.50 per unit. In addition to variable manufacturing costs, selling these units
would increase fixed overhead by $600 and selling and administrative costs by $300. If
Thompson accepts the offer, its profits will:
A.Increase by $30,000.
B.Increase by $ 6,000.
C.Decrease by $ 6,000.
D.Increase by $ 5,200.
E.Increase by $ 4,300.
A company can buy a machine that is expected to have a three-year life and a $30,000
salvage value. The machine will cost $1,800,000 and is expected to produce a $200,000
after-tax net income to be received at the end of each year. If a table of present values of
1 at 12% shows values of 0.8929 for one year, 0.7972 for two years, and 0.7118 for
three years, what is the net present value of the cash flows from the investment,
discounted at 12%?
A.$ 118,855
B.$ 583,676
C.$ 629,788
D.$ 705,391
E.$1,918,855
Products that have been completed and are ready to be sold by the manufacturer are
called:
A.Finished goods inventory.
B.Goods in process inventory.
C.Raw materials inventory.
D.Cost of goods sold.
E.Factory supplies.
Lara Company’s budget includes the following credit sales for the current year:
September, $25,000; October, $36,000; November, $30,000; December, $32,000.
Experience has shown that payment for the credit sales is received as follows: 15% in
the month of sale, 60% in the first month after sale, 20% in the second month after sale,
and 5% is uncollectible. How much cash can Lara Company expect to collect in
November as a result of current and past credit sales?
A.$19,700.
B.$28,500.
C.$30,000.
D.$31,100.
E.$33,900.
Mutual agency implies that each partner in a partnership is a fully authorized agent of
the partnership. Which of the following statements is correct regarding the authority of
a partner to bind the partnership in dealings with third parties?
A.The partner’s authority must be derived from the partnership agreement.
B.The partner’s authority may be effectively limited by a formal resolution of the other
partners, even if third parties are not aware of that limitation.
C.Only a partner with a majority interest in a partnership has the authority to represent
the partnership to third parties.
D.A partner has authority to deal with third parties on the behalf of the other partners
only if he has written permission to do so.
E.A partner may be able to legally bind the partnership to actions even if the other
partners are unaware of his actions.
Photometer Company paid off $30,000 of its accounts payable in cash. What would be
the effects of this transaction on the accounting equation?
A.Assets, $30,000 increase; liabilities, no effect; equity, $30,000 increase.
B.Assets, $30,000 decrease; liabilities, $30,000 decrease; equity, no effect.
C.Assets, $30,000 decrease; liabilities, $30,000 increase; equity, no effect.
D.Assets, no effect; liabilities, $30,000 decrease; equity, $30,000 increase.
E.Assets, $30,000 decrease; liabilities, no effect; equity $30,000 decrease.
The assets section of a classified balance sheet usually includes:
A.Current assets, long-term investments, plant assets, and intangible assets.
B.Current assets, long-term assets, revenues, and intangible assets.
C.Current assets, long-term investments, plant assets, and equity.
D.Current liabilities, long-term investments, plant assets, and intangible assets.
E.Current assets, liabilities, plant assets, and intangible assets.
Rent expense that is paid with cash appears on which of the following statements?
A.Balance sheet.
B.Income statement.
C.Statement of owner’s equity.
D.Statement of cash flows.
E.Both B and D.
Bonds owned by investors whose names and addresses are recorded by the issuing
company, and for which interest payments are made with checks to the bondholders, are
called:
A.Callable bonds.
B.Serial bonds.
C.Registered bonds.
D.Coupon bonds.
E.Bearer bonds.
Return on total assets is computed by dividing ___________ by __________.
An overstated beginning inventory will ______________ cost of goods sold and
_____________ net income.
A company has total fixed costs of $200,000. Its product sells for $25 per unit and
variable costs amount to $15 per unit. The company wishes to earn an after-tax income
of $35,000. Assume that the company has a 30% tax rate. How many units must be sold
to achieve this after-tax income level?
Timmons Company had a January 1, balance in its Allowance for Doubtful Accounts of
$7,000 for the current year. The following transactions and events affected the
Allowance for Doubtful Accounts during the current year:
What amount should appear in the allowance for doubtful accounts in the December 31,
balance sheet for the current year?
A company’s stock is selling for $35 per share at year-end. This current year it paid
shareholders a $2.45 per share cash dividend, reported earnings per share of $12.00, and
had 750,000 common shares outstanding at year-end. Calculate the company’s dividend
yield.
Define liabilities and explain the difference between current and long-term liabilities.
______________________ basis accounting means that revenues are recognized when
cash is received and that expenses are recorded when cash is paid.
______________________ basis accounting means that the financial effects of
revenues and expenses are recorded when earned or incurred.
A company is considering two alternative investment opportunities, each of which
requires an initial cash outlay of $110,000. The expected net cash flows from the two
projects follow:
Required:
(1) Based on a comparison of their net present values, and assuming the same discount
rate (greater than zero) is required for both projects, which project is the better
investment? (Check one answer.)
________________ Project A
________________ Project Z
________________ The projects are equally desirable
(2) Use the table values below to find the net present value of the cash flows associated
with Project A, discounted at 12%:
Holders of ______________________________ have a right to be paid both current
and all prior periods’ unpaid dividends before any dividend is paid to common
shareholders.