Stockholders’ equity will be reduced by:
a. payment of dividends.
b. increase in revenues.
c. owners’ investments.
d. issuance of bonds.
On the statement of cash flows prepared by the indirect method, a $50,000 gain on the
sale of investments would be:
a. deducted from net income in converting the net income reported on the income
statement to cash flows from operating activities.
b. added to net income in converting the net income reported on the income statement
to cash flows from operating activities.
c. added to cash received from the sale to determine cash flows from investing
activities.
d. deducted from cash received from the sale to determine cash flows from investing
activities.
Currently attainable standards allow for unreasonable production difficulties.
a. True
b. False
A debit memorandum from the bank indicates that the bank has deducted an amount
from the depositor’s account.
a. True
b. False
To arrive at cash flows from operations, it is necessary to convert the income statement
from an accrual basis to the cash basis of accounting.
a. True
b. False
What type of account is Allowance for Doubtful Accounts?
a. Contra asset account
b. Asset account
c. Liability account
d. Expense account
For a manufacturing business, workinprocess inventories consist of inventories which
have _____.
a. not yet entered the manufacturing process
b. entered the manufacturing process but not been completed
c. entered and completed manufacturing process but have not been sold
d. entered and completed manufacturing process and have been sold
Assume that Vivid Co. is considering disposing of equipment that cost $350,000 and
has $280,000 of accumulated depreciation to date. Vivid Co. can sell the equipment
through a broker for $135,000 less 5% commission. Alternatively, Comet Co. has
offered to lease the equipment for five years for a total of $235,000. Vivid will incur
repair, insurance, and property tax expenses estimated at $60,000. At leaseend, the
equipment is expected to have no residual value. The net differential income from the
lease alternative is:
a. $135,000.
b. $235,000.
c. $100,000.
d. $46,750.
If 50,000 shares are authorized, 35,000 shares are issued, and 2,000 shares are
reacquired, the number of outstanding shares is 33,000.
a. True
b. False
Accounts receivable arising from trade transactions amounted to $62,000 and $78,000
at the beginning and end of the year, respectively. Net income reported on the income
statement for the year was $125,000. Exclusive of the effect of other adjustments, the
cash flows from operating activities to be reported on the statement of cash flows
prepared by the indirect method are:
a. $109,000.
b. $141,000.
c. $125,000.
d. $140,000.
Depreciation on factory equipment would be reported in the statement of cash flows
prepared by the indirect method in:
a. the cash flows from financing activities section.
b. the cash flows from investing activities section.
c. a separate schedule.
d. the cash flows from operating activities section.
What is the primary objective of most businesses?
a. To maximize profits
b. To pay dividends to stockholders
c. To provide a benefit to society
d. To manufacture a quality product
Differential analysis focuses on:
a. setting the selling price according to the demand for the product.
b. reducing the influence of constraints on production processes.
c. setting the selling price according to the price offered by competitors.
d. the effect of alternative courses of action on revenues and costs.
Lack of enough sales orders to keep a factory operating at normal capacity results in an
unfavorable:
a. direct materials quantity variance.
b. fixed factory overhead volume variance.
c. budgeted variable factory overhead variance.
d. fixed factory overhead controllable variance.
For the coming year, Belton Company estimates fixed costs of $60,000, the unit
variable cost of $25, and the unit selling price of $50. Determine (a) the breakeven
point in units of sales, (b) the unit sales required to realize operating income of
$100,000, and (c) the probable operating income if sales total $400,000.
The following data is given for DGR Company:
Net cash flows from operating activities $6,000,000
Cash and cash equivalents at end of year$2,700,000
DGR Company’s ratio of cash to monthly cash expenses is:
a. 4.5 months.
b. 5.4 months.
c. 8.1 months.
d. 3.2 months.
Merchandise with an invoice price of $10,000 is purchased subject to terms of 2/10,
n/30, FOB destination. Transportation costs paid by the seller totaled $300. What is the
net cost of the merchandise?
a. $10,300
b. $10,100
c. $9,800
d. $9,506
You have been hired by a highgrowth startup company to assist in the determination of
what depreciation method to employ for financial reporting. The company’s fixed assets
are equally divided among buildings and hightech equipment (heavily used in the initial
years).
(a)Can the company select different methods of depreciation for financial reporting?
Explain.
(b)Explain to company management which method of depreciation would be suitable
for each type of fixed assets the company employs. Also, state why.
(c)Which method of depreciation would the company choose for taxes? Explain why.
The three common types of responsibility centers are referred to as asset centers,
liabilities centers, and equity centers.
a. True
b. False
If total assets increased by $500,000 during a period and total liabilities increased by
$420,000 during the same period, determine the net income (or loss) for the year ,
assuming no common stock was issued and dividends of $40,000 were paid.
a. $40,000
b. $210,000
c. $120,000
d. $290,000
If the market rate of interest is 10%, a $10,000, 12%, 10year bond that pays interest
semiannually would sell at an amount:
a. less than face value.
b. equal to the face value.
c. greater than face value.
d. that cannot be determined.
Blue Inc. has the following transactions for the month of April:
Fees earned in cash $640,000
Expenses paid $300,000
Dividends paid $50,000
HTMLENTITY#8203HTMLENTITYAs a result of these transactions, Blue Inc.’s
profitability metric:HTMLENTITY#8203HTMLENTITY
a. increases by $340,000.HTMLENTITY#8203HTMLENTITY
b. HTMLENTITY#8203HTMLENTITYdecreases by $300,000.
c. HTMLENTITY#8203HTMLENTITYincreases by $290,000.
d. HTMLENTITY#8203HTMLENTITYdecreases by $640,000.
Which of the following situations increase stockholders’ equity?
a. Supplies are purchased on account.
b. Services are provided on account.
c. Cash is received from customers.
d. Utility bill will be paid next month.
Which of the following is not considered when figuring net purchases?
a. Cost of goods sold
b. Purchase returns
c. Purchases discounts
d. Purchases
Bank customers are considered owners of the bank, so the bank shows their accounts as
an asset on the bank’s records.
a. True
b. False
The process of developing budget estimates by requiring all levels of management to
estimate sales, production, and other operating data as though operations were being
initiated for the first time is referred to as:
a. flexible budgeting.
b. continuous budgeting.
c. zerobased budgeting.
d. master budgeting.
When eliminating a product or segment of a business, the fixed costs pertaining to the
product or segment will always be eliminated.
a. True
b. False
Using the following information, prepare a bank reconciliation for Murack Co. for May
31, 2016:
(a)The bank statement balance is $4,063.
(b)The cash account balance is $3,735.
(c)Outstanding checks amounted to $640.
(d)Deposits in transit are $245.
(e)The bank service charge is $40.
(f)A check for $74 for supplies was recorded on the depositor’s books as $47.
Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units
of Arks and 18,000 units of Bins. Related data are:
Unit SellingUnit VariableUnit Contribution
ProductPriceCostMargin
Arks$ 80 $20 $60
Bins 120 40 80
What was Kennedy’s overall product’s unit selling price?
a. $97.60
b. $104.00
c. $102.40
d. $94.40
For an automotive repair shop, the wages of mechanics would be classified as direct
labor cost.
a. True
b. False
A budget performance report compares actual results with the budgeted amounts and
reports differences for possible investigation.
a. True
b. False
ABC Inc. provided the following data for the year end:
Cost of goods sold $4,680,000
Inventory at the beginning of the year 678,000
Inventory at the end of the year 570,000
What is ABC Inc.’s days’ sale in inventory? (Assume 360 days in a year)
a. 95 days
b. 13 days
c. 60 days
d. 48 days
Which of the following formulas is used to compute utilization rate?
a. Units entering process / Units passing inspection
b. Service units used / Available service units
c. Standard quantity / Actual quantity
d. (Actual price – standard price) × Actual quantity
The following information is available for the first month of operations for Bluemoon,
Inc.:
Sales$850,000
Gross profit330,000
Indirect labor35,000
Indirect materials14,000
Other factory overhead9,000
Materials purchased360,000
Total manufacturing costs670,000
Materials inventory, end of period20,000
Based on the information provided for Bluemoon, Inc., calculate direct materials cost
used in production.
a. $326,000
b. $340,000
c. $360,000
d. $346,000