1) Managers should be praised or punished based on variances.
2) Articles of incorporation, prepared by a business that wishes to incorporate, normally
include the corporation’s name and purpose, its location, and provisions for capital
stock.
3) Costs that can be influenced by a manager’s decisions are called controllable costs.
4) Recognizing depreciation expense on equipment or a building is an asset use
transaction.
5) To attain a target profit, the total contribution margin generated from sales must be
sufficient to cover total fixed costs plus the target profit.
6) The net realizable value of accounts receivable is the amount of its receivables a
company expects to collect.
7) Dividends that a company pays to its stockholders are treated as an expense of the
business.
8) A company may choose to estimate its uncollectible accounts expense based on a
percentage of sales or a percentage of accounts receivable.
9) A segment should not be discontinued if its relevant revenue is greater than the
avoidable costs associated with it.
10) Deciding which costs to trace to individual cost objects should be based on a
cost/benefit analysis.
11) The operating costs of the old and new machines are both relevant in an equipment
replacement decision.
12) In preparing a bank reconciliation, typical adjustments to the bank balance are
deposits in transit and bank service charges.
13) Product costs are immediately recorded in expense accounts when the products are
manufactured.
14) Management by exception means that only unfavorable cost variances are
investigated.
15) A causal relationship exists between fixed overhead costs and the volume of
production.
16) Increasing the sales price will cause the break-even point to increase.
17) Kritzberg Company sells a product at $60 per unit that has unit variable costs of
$40. The company’s break-even sales volume is $120,000. How much profit will the
company make if it sells 4,000 units?
A.$240,000
B.$120,000
C.$40,000
D.$80,000
18) Frank is trying to decide which one of two job offers he will accept. Several items
are presented below:
Which of the above items would be considered sunk costs?
A.(1), (3), (5)
B.(2), (4)
C.(5)
D.None of these
19) The cost of capital is called all of the following except
A.equity rate
B.discount rate
C.hurdle rate
D.cutoff rate
20) Which one of the following statements describes an ordinary annuity?
A.Series of cash inflows of varying amounts collected at the beginning of each period
B.Series of cash flows of equal amounts collected at the beginning of each period
C.Series of cash flows of varying amounts collected at the end of each period
D.Series of cash flows of equal amounts collected at the end of each period
21) The bank statement for Link Company contained the following items: a bank
service charge of $10; a credit memo for interest earned, $15; and a $50 NSF check
from one of Link’s customers. Outstanding checks amounted to $100; a deposit in
transit was $300.
Assuming that the unadjusted bank balance was $600, determine the unadjusted book
balance.
A.$800
B.$555
C.$845
D.$900
22) The following budget information is available for the Arvada Company for January
2012:
All operating expenses are paid in cash in the month incurred. The total budgeted
selling and administrative expenses (excluding interest), would be what amount for
January 2012?
A.$142,900
B.$141,500
C.$120,000
D.$131,250
23) Thad Rives is planning to invest in one of the following companies based on their
average performance over the past five years, which is presented below.
If Thad is looking for a growth company (with earnings that are growing rapidly and
probably will continue to grow rapidly), which one should he choose?
A.Big Bat, Inc
B.Bug-lite, Inc
C.”Mood-blue, Inc”
D.Jones, Inc
24) The credit terms, 2/10, n/30 indicate that a:
A.ten percent discount can be deducted if the invoice is paid within two days following
the date of sale
B.two percent discount can be deducted for a period up to thirty days following the date
of sale
C.two percent discount can be deducted if the invoice is paid by the tenth day following
the date of the sale
D.two percent discount can be deducted if the invoice is paid after the tenth day
following the sale, but before the thirtieth day
25) ABC Company acquired $23,000 by issuing common stock to investors. Which of
the following choices accurately reflects how this event would affect the company’s
financial statement?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
26) Conley Company reported net income of $70,000. It has 20,000 shares of common
stock issued and outstanding. Preferred dividends total $12,000. On the most recent
trading day, the preferred shares sold at $50, and the common shares sold at $64. What
is this company’s current price-earnings ratio?
A.16
B.18
C.20
D.22
27) What documentation issued by a bank increases a company’s checking account
balance at the bank?
A.an account invoice
B.a debit memo
C.a credit memo
D.a certified check
28) Etowah Company reported the following information for 2012:
The company’s ROI for 2012 was
A.8%
B.16%
C.50%
D.4%
29) Guerrero Company engaged in the following events during 2012:
1> Began operations by issuing common stock to investors for $40,000 cash
2> Provided services to customers on account, $95,000
3> Collected $72,000 cash from accounts receivable
4> Paid salaries of $55,000 for the year
5> Adjusted accounts to reflect estimate that 2 percent of service revenues on account
would be uncollectible
Required:
Determine Guerrero’s
a. net income for 2012
b. net cash flow from operating activities
c. balance in accounts receivable at the end of 2012
d. net realizable value of accounts receivable at the end of 2012
e. total assets as of December 31, 2012
30) Six years ago, Torry Hardware paid a contractor $45,000 to expand the store. At
that time, the company calculated a net present value of about $6,000 for the expansion.
Now, the company believes that the investment increased annual cash inflows by
$8,000 per year for each of the six years. Torry has a desired rate of return of 10%.
What was the net present value actually achieved for this capital investment? (round to
the nearest dollar)
A.($10,158)
B.($3,000)
C.$34,842
D.$(9,207)
31) Baxter Company’s merchandise inventory at the start of 2012 was $85,000. The
company purchased inventory during 2012 in the amount of $323,000, and its inventory
at the end of the year was $102,000.
What was Baxter’s Cost of Goods Available for Sale for the year 2012?
A.$391,000
B.$306,000
C.$408,000
D.$289,000
32) Select the incorrect statement regarding postaudits of capital investment decisions.
A.A postaudit should be conducted at the end of the project
B.The postaudit helps management determine whether a project that was accepted
should have been rejected
C.A postaudit is not necessary for a capital investment selected using a technique that
considers the time value of money
D.The goal of a postaudit is to provide feedback that can be used to improve the
accuracy of future capital investment decisions
33) Corvallis Company is considering purchasing new equipment or overhauling its
existing equipment. The manager has gathered the following information:
Required:
1) Identify the sunk costs associated with this decision.
2) Compute the increase or decrease in total income over the five-year period if the
company chooses to buy the new equipment.
3) Compute the increase or decrease in total income over the five-year period if the
company chooses to overhaul its existing machinery.
4) What is your recommendation for this decision?
34) Which of the following items is not needed to prepare a sales budget by product
line?
A.Expected unit sales of each product
B.Expected purchase price of each product
C.Expected selling price of each product
D.All of these items are needed
35) Osborn Company provided services to a customer on account. Which of the
following represents the effect of this transaction on the financial statements?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
36) Which of the following accounts is a temporary account?
A.Prepaid Insurance
B.Unearned Subscriptions Revenue
C.Retained Earnings
D.Subscription Revenue
37)
Refer to the figure above. Based on common size income statements, which of the
companies spent, relative to sales, the most on operating expenses?
A.Company A
B.Company B
C.Company C
D.Company D
38) A chair manufacturer makes custom chairs using hand tools, wood, glue, and
varnish. Which of the following statements is true?
A.The cost of wood is a direct and variable cost
B.The cost of wood is a fixed and indirect cost
C.The cost of wood is indirect and variable
D.The cost of wood is a fixed and direct cost
39) On December 31, 2012, the Landon Corporation estimated that 3% of its credit
sales of $215,000 would be uncollectible. Landon used the allowance method of
accounting for uncollectible accounts. On February 15, 2013, Landon wrote off the
account of one of its customers, in the amount of $2,500. On April 7, 2013, the
customer paid the account in full.
Which of the following answers correctly states the effect of recording the collection of
the reinstated receivable on April 7, 2013?
A.Option A
B.Option B
C.Option C
D.Option D
40) Osgood Company estimated that its warranty expense would be $2,125 for the
current year. During the year, Osgood paid $950 to repair merchandise that was
returned by customers.
a) What type of transaction is the recording of warranty expense?
b) If this is the first year of operations, what is the amount of warranty liability that will
be shown on the balance sheet at the end of the year?
41) The term “double taxation” refers to which of the following:
A.Sole proprietorships must pay income taxes on their net incomes and the owners are
also required to pay income taxes on their withdrawals
B.In a partnership, both partners are required to claim their share of net income on their
tax returns
C.Corporations must pay income taxes on their net income and their stockholders pay
income tax on the dividends they receive
D.Limited Liability Companies are forced to pay income taxes to both the state and the
federal governments
42) Fredericksburg Corporation had issued and outstanding 150,000 shares of $8 par
value common stock at January 1, 2012 with a retained earnings balance of $750,000.
Fredericksburg issued a 12% stock dividend to its common shareholders. At the time of
the dividend, the market value of the stock was $17 per share.
Required:
a) What is the total dollar amount of the stock dividend?
b) Describe how the stock dividend will affect Fredericksburg’s stockholders’ equity
accounts.
c) How many shares of common stock are outstanding after the stock dividend?
43) Indicate whether each of the following statements regarding internal controls is true
or false.
1>Administrative controls are composed of policies and procedures that are designed to
safeguard assets and assure that accounting records contain reliable information
2>Internal controls can be divided into accounting controls and administrative controls
3>Accounting controls are concerned with the evaluation of performance and the
assessment of the degree of compliance with company policies and public laws
4>Internal controls provide complete assurance that the objectives of an enterprise will
be accomplished
5>The design of the internal control system varies from company to company
44) What costs are treated as product costs for a manufacturing company?
45) Indicate how each event affects the elements of financial statements. Use the
following letters to record your answer in the box shown below each element. You do
not need to enter amounts. Assume use of a perpetual inventory system.
Houston Co. paid a supplier the amount owed on account for a purchase of
merchandise. The terms on the purchase had been n/30 . Show how the transaction
would affect Houston’s financial statements.
46) Indicate whether each of the following statements is true or false:
1>A cash payment for principal of a note payable is an asset use transaction
2>When a company issues a promissory note, it should recognize a cash flow from
financing activities
3>The cash payment for interest on a note payable is reported on the statement of cash
flows as a cash outflow from operating activities
4>A cash payment for principal of a note payable is reported on the statement of cash
flows as a cash outflow from investing activities
5>The year-end adjusting entry to accrue interest on a note payable is an asset use
transaction
47) Indicate whether each of the following statements is true or false.
1>Goodwill is classified as part of Property, Plant, and Equipment
2>Long-term assets having no physical substance are called intangible assets
3>Land is classified separately from other tangible assets because the cost is normally
much higher
4>Natural resources are examples of tangible long-term assets
5>Equipment is an example of an intangible asset
48) What do marketing managers mean by the phrase, “making the numbers?”