1) In preparing a bank reconciliation, the amount of a canceled check omitted from the
depositor’s records is deducted from the cash balance per books.
2) The current year’s advertising costs are normally considered as product costs.
3) During inflationary periods, the use of the FIFO method of costing inventory will
result in a greater amount of net income than would result from the use of the LIFO
method of costing inventory.
4) Methods that ignore present value in capital investment analysis include the cash
payback method.
5) A decrease in the ratio of liabilities to stockholders’ equity indicates an improvement
in the margin of safety for creditors.
6) For a strong internal control system over cash, it is important to have the duties
related to cash receipts and cash payments divided among different employees.
7) The contribution margin ratio is the same as the variable cost ratio.
8) Direct materials and direct labor costs are examples of variable costs of production.
9) A series of unequal cash flows at fixed intervals is termed an annuity.
10) A corporation has 10,000 shares of $100 par value stock outstanding. If the
corporation issues a 4-for-1 stock split, the number of shares outstanding after the split
will be 40,000.
11) All organizations face risks, and the assessment of these risks is necessary so that
the objectives of internal control can be achieved.
12) The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years
and no residual value, is expected to yield total net income of $300,000 for5 years. The
expected average rate of return is 30%.
13) A buyer who acquires merchandise under credit terms of 1/10, n/30 has 30days after
the invoice date to take advantage of the cash discount.
14) Federal unemployment compensation taxes that are collected by the federal
government are not paid directly to the unemployed but are allocated among the states
for use in state programs.
15) An unfavorable volume variance may be due to a failure of supervisors to maintain
an even flow of work.
16) Net sales is equal to sales plus cost of merchandise sold.
17) Which type of organization would be most effective for a small
owner/manager-operated business?
A.Decentralized
B.Centralized
C.Matrix
D.Segmented
18) Which of the following budgets is prepared using the production budget?
A.Selling and administrative expenses
B.Direct materials purchases
C.Sales
D.Capital expenditures
19) For a manufacturing business, inventory that is still in the process of being
manufactured is referred to as:
A.supplies inventory
B.work-in-process inventory
C.finished goods inventory
D.direct materials inventory
20) State the section(s) of the statement of cash flows prepared by the indirect method
(operating activities, investing activities, financing activities, or not reported) and the
amount that would be reported for each of the following transactions:
(a) Received $145,000 from the sale of land costing $70,000.
(b) Purchased investments for $50,000.
(c) Declared $35,000 cash dividends on stock. $5,000 dividends were payable at the
beginning of the year, and $6,000 were payable at the end of the year.
(d) Acquired equipment for $32,000 cash.
(e) Declared and issued 100 shares of $20 par common stock as a stock dividend, when
the market price of the stock was $32 a share.
(f) Recognized by an adjusting entry depreciation for the year, $48,000.
(g) Issued 85,000 shares of $10 par common stock for $25 a share, receiving cash.
(h) Issued $500,000 of 20-year, 10% bonds payable at 99 .
(i) Borrowed $43,000 from Busey National Bank, issuing a 5-year, 8% note for that
amount.
21) In using the total cost concept of applying the cost-plus approach to product pricing,
what is included in the cost amount to which the markup is added?
A.Total selling and administrative expenses plus desired profit
B.Total fixed manufacturing costs, total fixed selling and administrative expenses, and
desired profit
C.Total costs of manufacturing a product plus selling and administrative expenses
D.Total variable manufacturing costs, total variable selling and administrative expenses,
and desired profit
22) Based on the following data for the current year, compute the inventory turnover?
A.3.0
B.2.7
C.4.0
D.3.3
23) The arrangements between buyer and seller as to when payments for merchandise
are to be made are called:
A.credit terms
B.net cash
C.cash on demand
D.gross cash
24) Company M had fixed costs of $262,500, variable costs of $625,000, and actual
sales amounted to $1,000,000. If the company has a break-even point at $700,000 in
sales revenue, determine (a) the margin of safety expressed in dollars, (b) the margin of
safety expressed as a percentage of sales, (c) the contribution margin ratio, and (d) the
operating income.
25) What pricing method is used if all costs are considered and a fair markup is added
to determine the selling price?
A.Total cost method
B.Demand-based method
C.Variable cost method
D.Markup method
26) Standard and actual costs for direct materials for the manufacture of 1,000 units of
product were as follows:
Determine the (a) quantity variance, (b) price variance, and (c) total direct materials
cost variance.
27) Where is interest expense listed on the income statement?
A.Other expense section
B.Cost of merchandise sold
C.Operating expenses
D.Interest expense is listed on the balance sheet, not the income statement
28) Letty’s Laundry and Dry Cleaning incorporated and started business on January 1,
2013 .
Indicate the effect of each transaction on the accounting equation by listing the numbers
identifying the transactions, (1) through (10) in a vertical column, and inserting at the
right of each number the appropriate letter from the following list:
a. Increase in an asset, decrease in another asset.
b. Increase in an asset, increase in a liability.
c. Increase in an asset, increase in stockholders equity.
d. Decrease in an asset, decrease in a liability.
e. Decrease in an asset, decrease in stockholders equity
29) The process by which management allocates available investment funds among
competing investment proposals is called:
A.investment capital managament
B.capital budgeting
C.cost-volume-profit analysis
D.capital rationing
30) Which of the following is not necessary for a corporation to pay cash dividends?
A.Sufficient cash
B.Formal action of the board of directors
C.Prior declaration of stock dividends
D.Sufficient retained earnings
31) A company with $60,000 in current assets and $40,000 in current liabilities pays a
$1,000 current liability. As a result of this transaction, the current ratio and working
capital will:
A.both decrease
B.both increase
C.increase and remain the same, respectively
D.remain the same and decrease, respectively
32) Which of the following are subtracted from sales to arrive at net sales?
A.Sales returns
B.Merchandise inventory
C.Accounts receivable
D.Cost of merchandise sold
33) Gross earnings for a payroll period less payroll deductions are referred to as:
A.overtime pay
B.bonus pay
C.gross pay
D.net pay
34) Frank Co. is currently operating at 80% of capacity and is currently purchasing a
part used in its manufacturing operations for $25 unit. The unit cost for Frank Co. to
make the part is $30, which includes $3 of fixed costs. If 20,000 units of the part are
normally purchased each year but could be manufactured using unused capacity, what
would be the amount of differential cost increase or decrease for making the part rather
than purchasing it?
A.$60,000 decrease
B.$40,000 decrease
C.$40,000 increase
D.$60,000 increase
35) If merchandise inventory is being valued at cost and the price level is consistently
rising, which method of costing will yield the highest inventory?
A.Average cost
B.LIFO
C.FIFO
D.All methods will generate the same gross profit
36) Which of the following conditions normally would not indicate that standard costs
should be revised?
A.The engineering department has revised product specifications in responding to
customer suggestions
B.The company has signed a new union contract that increases the factory wages on
average by $2.00 an hour
C.Actual costs differed from standard costs for the preceding week
D.The world price of raw materials increased
37) The management of Hence Corporation is considering the purchase of a new
machine costing $200,000. The company’s desired rate of return is 10%. The present
value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826,
0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the
following data in determining the acceptability in this situation:
The average rate of return for this investment is:
A.18%
B.16%
C.58%
D.20%
38) 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:
Use the above given data to solve the following questions:
Refer to the information provided for Kennedy Co. What was Kennedy’s overall
products unit contribution margin?
A.$67.20
B.$70.00
C.$72.00
D.$100.00
39) The point where the sales line and the total costs line intersect on the
cost-volume-profit chart represents:
A.the maximum possible operating loss
B.the maximum possible operating income
C.the total fixed costs
D.the break-even point
40) UNI Co. received $1,000 advance from Newbie as rent for the use of a building
owned by UNI. How does this transaction affect UNI’s accounts if UNI recognizes a
liability?
A.Cash is increased and revenue is increased
B.Cash is increased and revenue is decreased
C.Cash is increased and unearned revenue is increased
D.It is not recorded
41) Which of the following graphs illustrates the behavior of a total variable cost?
A.Graph 2
B.Graph 3
C.Graph 4
D.Graph 1
42) In an investment center, the manager has the responsibility for and the authority to
make decisions that affect:
A.the assets invested in the center but not costs and revenues
B.costs and assets invested in the center but not revenues
C.both costs and revenues for the department or division
D.not only costs and revenues but also assets invested in the center
43) If sales amounted to $300,000, variable costs are 60% of sales, and operating
income is $40,000, what is the operating leverage?
A.3.000
B.7.500
C.1.875
D.4.500
44) The purchase of factory equipment would be an example of which type of business
activity?
A.Financing
B.Investing
C.Operating
D.All of these
45) In which section of the balance sheet would treasury stock be reported?
A.Fixed assets
B.Long-term liabilities
C.Stockholders’ equity
D.Intangible assets
46) For each of the following companies, identify whether it is a service,
merchandising, or manufacturing business.
A. Dillards
B. Time Warner Cable
C. Kohls
D. Ford Motor Co.
E. Applebees
F. Sylvania
G. Best Buy
H. GAP
I. H & R Block
47) Division Q for Mott Company has a rate of return on investment of 28% and an
investment turnover of 1.4 . What is the profit margin?
A.28%
B.20%
C.14%
D.39.2%
48) Production estimates for August are as follows:
For each unit produced, the direct materials requirements are as follows:
The total direct materials purchases of materials A and B required for August
production is:
A.$1,260,000 for A; $630,000 for B
B.$1,080,000 for A; $540,000 for B
C.$1,125,000 for A; $562,500 for B
D.$1,170,000 for A; $585,000 for B