Direct labor costs in a paint factory would include wages of employees who:
A. Supervise heavy equipment operators.
B. Operate paint-mixing machines.
C. Develop highly secret formulas for new products.
D. Paint the interior of the factory every two years.
All of the following may be considered intangible assets except:
A. Accounts receivable.
B. Copyrights.
C. Franchises.
D. Goodwill.
On April 30, 2014, Tilton Products purchased machinery for $88,000. The useful life of
this machinery is estimated at 8 years, with an $8,000 residual value.
Refer to the information above. Assume that in its financial statements, Tilton Products
uses the 200%-declining-balance method and the half-year convention. Depreciation
expense in 2014 and 2015 will be:
A. $11,000 in 2014 and $19,250 in 2015.
B. $22,000 in 2014 and $12,571 in 2015.
C. $22,000 in 2014 and $7,857 in 2015.
D. $11,000 in 2014 and $22,000 in 2015.
Which of the following elements in a product’s cycle time should be maximized?
A. Storage and waiting time.
B. Processing time.
C. Movement time.
D. Inspection time.
The most common value used for transfer pricing is:
A. Total fixed costs.
B. Total fixed and variable costs.
C. Market value less fixed costs.
D. Market value.
Refer to the information above. What will be Mitchell’s monthly operating income if
1,800 units are sold each month?
A. $153,000.
B. $136,500.
C. $30,600.
D. $14,100.
The numerator in calculating earnings per share is reduced for:
A. Noncumulative preferred dividends declared.
B. Common dividends.
C. Common stock dividends.
D. Any form of dividend.
The United Shipping Co. borrowed $25,000 at 12% interest on March 1, 2015. The note
is to be repaid, with interest, in six months. If United Shipping makes monthly adjusting
entries, which of the following is included as part of the March 31 adjusting entry?
A. Debit Interest Receivable $250.
B. Credit Interest Payable $2,500.
C. Debit Interest Expense $250.
D. Debit Interest Payable $250.
Only two adjustments appear in the adjustments column of a worksheet for Wycliff
Publications: one to record $800 depreciation of office equipment and the other to
record the use of $560 of office supplies. If the Trial Balance column totals are $15,380,
what are the totals of the Adjusted Trial Balance columns?
A. $16,740
B. $15,140.
C. $16,180.
D. $15,860.
An analysis of Kenny Corporation’s Investment in Marketable Securities account during
2015 disclosed the following:
Kenny’s 2015 income statement included a $90,000 loss on sale of marketable securities
and $65,000 dividend income from marketable securities. All payments and proceeds
relating to marketable securities transactions were in cash.
Refer to the information above. The amount of cash paid by Kenny Corporation in 2015
for the purchase of marketable securities was:
A. $445,000.
B. $535,000.
C. $355,000.
D. $420,000.
Commitments, such as contracts for future transactions:
A. Are classified as liabilities.
B. Are classified as assets.
C. Are footnoted in financial statements, if material.
D. Are only disclosed if negative due to the principle of conservatism.
The gain on the disposal of equipment is recognized when:
A. The book value of the equipment is greater than the value received.
B. The book value of the equipment is less than the value received.
C. A salvage value exists.
D. A gain should not be recognized on the disposal of an asset.
Grand Gimmicks Company produces a single product with a current selling price of
$170. Variable costs are $130 per unit, and fixed costs per month average $6,240.
Management is considering increasing the selling price to $190 per unit. Assume that
the variable cost per unit of the product and monthly fixed expenses will not change as
a result of the proposed increase in selling price.
Refer to the information above. At the proposed increased selling price of $190 per unit,
the contribution margin ratio is closest to:
A. 60%.
B. 31.6%.
C. 68.4%.
D. 50%.
One advantage of issuing bonds instead of stock is that:
A. Interest is tax deductible, whereas dividends are not.
B. Bonds have a longer maturity date.
C. Interest rates are lower than dividend rates.
D. The issuance of bonds does not affect earnings per share.
If a retail store has a current ratio of 2.5 and current assets of $195,000, the amount of
working capital is:
A. $78,000.
B. $380,000.
C. $330,000.
D. $117,000.
The following data are available for product no. CK74, manufactured and sold by Ruby
Corporation:
Refer to the information above. The dollar sales volume necessary to produce operating
income of $245,000 is closest to (round your intermediate percentages to the nearest
whole number):
A. $2,052,228.
B. $4,124,000.
C. $2,465,842.
D. $3,078,343.
Shown below is a trial balance for Cornell Products Inc., on December 31, after
adjusting entries:
Refer to the information above. Net income for the period equals:
A. $11,600.
B. $22,000.
C. $22,500.
D. $36,750.
During the year 2015, the inventory of Debra’s Gift Shop decreased by $50,000. If the
income statement for the year 2015 reported cost of goods sold of $350,000, purchases
during the year must have amounted to:
A. $400,000.
B. $310,000.
C. $300,000.
D. $350,000.
In order to form a corporation, the corporation must obtain a charter from:
A. The federal government.
B. A state government.
C. The Securities and Exchange Commission.
D. The stockholders of the corporation.
Wilbur Company purchased $10,000 of equipment on January 20, 2014. Wilbur uses
the straight-line method to depreciate the equipment. The equipment has a 5-year useful
life with no salvage value. Which of the following statements is correct?
A. Wilbur will record a cash inflow from operating activities of $2,000 in its 2015
financial statements.
B. Wilbur will record a cash outflow from operating activities of $2,000 in its 2015
financial statements.
C. Wilbur will record a cash outflow from investing activities of $2,000 in its 2015
financial statements.
D. Wilbur will record no cash flows related to this asset on its 2015 statement of cash
flows.
Omega Company adjusts its accounts at the end of each month. The following
information has been assembled in order to prepare the required adjusting entries at
December 31:
(1) A one-year bank loan of $720,000 at an annual interest rate of 12% had been
obtained on December 1.
(2) The company pays all employees up-to-date each Friday. Since December 31 fell on
Tuesday, there was a liability to employees at December 31 for two day’s pay
amounting to $6,800.
(3) On December 1, rent on the office building had been paid for four months. The
monthly rent is $6,000.
(4) Depreciation of office equipment is based on an estimated useful life of six years.
The balance in the Office Equipment account is $9,360; no change has occurred in the
account during the year.
(5) Fees of $9,800 were earned during the month for clients who had paid in advance.
Refer to the information above. What amount of interest expense has accrued on the
bank loan?
A. $6,400.
B. $7,000.
C. $7,200.
D. $7,800.
Financial assets
(a.) Briefly explain what is meant by the term “financial assets.”
(b.) List the three major categories of assets comprising a company’s financial assets.
For each category, indicate the basis for valuation in the balance sheet.
On July 1, the inventory of at Barnett Shoes was $60,000. Because of anticipated
back-to-school sales, the owner wants to have an inventory of $105,000 on hand at the
beginning of August. Net sales during July are expected to total $70,000, with a gross
profit rate of 45%. During July, the company should purchase merchandise costing:
A. $38,500.
B. $143,500.
C. $83,500.
D. $105,000.
Bank reconciliation
(A.) You are required to complete the June 30 bank reconciliation for Silver Company
using the following information and as per the given format:
(B.) Give in general journal form the entry or entries necessary to correct Silver’s
accounting records as of June 30. (Explanations may be omitted; one compound journal
entry is acceptable.)
Skelton Corporation had planned to produce 50,000 units of product during the first
quarter of the current year. The company prepared the following budget on May 1:
During the first quarter, Skelton produced 60,000 units and incurred total manufacturing
costs of $184,000.
Refer to the information above. A performance report for Skelton’s first quarter of
operations using a flexible budget approach would show:
A. Actual costs over budget by $1,300.
B. Actual costs over budget by $11,700.
C. Actual costs over budget by $15,150.
D. Total costs per the flexible budget of $194,400.
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 average issue price per share of Grant’s preferred
stock was:
A. $112.
B. $100.
C. $110.
D. $66.
Seidman Company manufactures and sells 30,000 units of product X per month. Each
unit of product X sells for $16 and has a contribution margin of $7. If product X is
discontinued, $85,000 in fixed monthly overhead costs would be eliminated and there
would be no effect on the sales volume of Seidman Company’s other products. If
product X is discontinued, Seidman Company’s monthly income before taxes should:
A. Increase by $210,000.
B. Increase by $125,000.
C. Decrease by $210,000.
D. Decrease by $125,000.
Newport Corporation is considering investing $65,000 in equipment to produce a new
product. The useful service life of the equipment is estimated to be ten years, with no
salvage value. Straight-line depreciation is used. The company estimates that
production and sale of the new product will increase net income by $6,500 per year.
Refer to the information above. The payback period of this investment is:
A. Four years.
B. Five years.
C. Six years.
D. Over six years.
Goodwill-financial reporting considerations
Cabot Corporation’s balance sheet at December 31, 2015, includes an asset entitled
goodwill in the amount of $900,000.
(a) Briefly explain what is meant by the term goodwill.
(b) Under what circumstances is goodwill recorded in the accounting records? Include
in your Answer a specific situation in which Cabot would have recorded the goodwill
mentioned above.
Deegan Industries has an accounts receivable turnover rate of 8. Which of the following
statements is not true?
A. Deegan’s accounts receivable are more liquid than those of a business whose
accounts receivable turnover rate is 5.
B. Deegan waits approximately 46 days to make collections of its credit sales. (Use 365
days in a year.)
C. Deegan writes off accounts receivable as uncollectible if they are over 45 days old.
D. Deegan’s net credit sales are about eight times the amount of its average accounts
receivable.
The pension expense of the current period is equal to:
A. Amounts paid to retired workers during the current period.
B. The estimated future pension benefits earned by today’s workers during the current
period.
C. The present value of the estimated future pension benefits earned by today’s workers
during the current period.
D. Cash payments made during the period to the trustee of the pension plan.
Refer to the information above. If Victor uses straight-line depreciation with the
half-year convention, the book value of the equipment at December 31, 2015 will be:
A. $90,000.
B. $107,500.
C. $106,667.
D. $105,000.
On December 30, 2015, Varsity Corporation sold available for sale marketable
securities costing $800,000 for $860,000 cash. The securities were purchased on
January 2, 2013 and the market value of the securities on December 31, 2013 and
December 31, 2014 was $820,000 and $780,000, respectively. How much gain or loss
will Varsity report in its income statement for the year ending December 31, 2015?
A. A $20,000 loss.
B. A $40,000 gain.
C. A $60,000 gain.
D. An $80,000 gain.
If the actual amount of direct materials used in production was less than the standard
amount allowed for units produced, there was:
A. A favorable materials price variance.
B. A favorable total materials variance.
C. A favorable materials quantity variance.
D. An unfavorable materials quantity variance.