National Corporation was organized on January 1 and issued 600,000 shares of
common stock on that date. On July 1, an additional 200,000 shares were issued for
cash. Net income for the year was $3,675,000. Net earnings per share amounted to:
A. $5.25.
B. $6.13.
C. $4.59.
D. $9.19.
Stone Corporation has 25 employees and incurs total wages and salaries expense of
$900,000 per year. The following table shows various payroll amounts as a percentage
of this annual wage and salaries expense:
In addition, Stone provides group health insurance for its entire workforce. The cost of
this insurance is $350 per month for each employee.
Refer to the information above. Assume that the federal government implements a 10%
payroll tax upon employers to finance health insurance for all citizens and residents.
Stone will pay this tax instead of purchasing group health insurance. This will cause
Stone’s total annual payroll-related expenses to:
A. Decrease by $15,000.
B. Increase by $15,000.
C. Decrease by $32,500.
D. No change, because payroll taxes are withheld from employees’ pay.
In a period of rising prices, a company is most likely to use the specific identification
method of pricing inventory if:
A. Each item in the inventory is unique.
B. Management wants the same unit cost assigned to items sold and items remaining in
inventory.
C. Management’s primary objective is to minimize income taxes.
D. Management wants the company’s income statement to indicate the highest possible
amounts of gross profit and net income.
The gross profit method of valuing inventory:
A. Is the most accurate of the commonly used methods.
B. Is a satisfactory substitute for taking a physical inventory for annual financial
statements.
C. Assumes that the gross profit rate will remain the same for the current year as it has
in the past year or so.
D. Is not an acceptable method under GAAP.
In a statement of cash flows, the term cash includes:
A. Only money on deposit in bank accounts.
B. Only bank accounts and cash on hand.
C. Bank accounts, cash on hand, and cash equivalents.
D. Bank accounts, cash on hand, cash equivalents, and marketable securities classified
as current assets.
Multiple product companies
Pet Park International sells cat food and dog food. Its monthly fixed costs average
$620,000. Cat food sales represent 80% of the company’s total revenue. Dog food sales
constitute the remaining 20%. The company has provided the following information
expressed on a per-case basis:
(a) The total monthly sales revenue required to break-even is $__________. (Rounded)
(b) The total monthly sales revenue required to earn an operating income of $135,000 is
$__________.
(c) The company’s margin of safety at a monthly sales level of $2,500,000 is
$__________.
(d) If monthly fixed costs increase by $10,000, the break-even point, expressed in sales
dollars, will increase to $__________.
Trego Company issued, on December 31, 2015, $1,000,000 face value, 4%, 5-year
bonds. Interest will be paid semiannually each June 30 and December 31. The bonds
sold at a price of 102; Trego uses the straight-line method of amortizing bond discount
or premium.
Refer to the information above. The entry made by Trego Company to record issuance
of the bonds payable at December 31, 2015, includes:
A. A debit to Cash of $1,000,000.
B. A credit to Premium on Bonds Payable of $20,000.
C. A credit to Bonds Payable of $1,020,000.
D. A credit to Bond Interest Payable of $20,000.
When using the indirect method, depreciation expense:
A. Increases net cash flow from operations.
B. Decreases net cash flow from operations.
C. Does not affect net income.
D. Does not affect net cash flow from operations.
Walblue imports a desk from a French manufacturer for sale in its chain of U.S. stores.
The cost of a desk to Walblue is 3,700 euros (€). What is the dollar cost of one of these
desks if the exchange rate is currently 1.117 euros per U.S. dollar? (round to nearest
cent)
A. $1,117.00.
B. $4,132.90.
C. $3,312.44.
D. $3,700.00.
Which of the following payroll taxes do not stop once an employee reaches a certain
level of income:
A. Medicare taxes.
B. Social security taxes.
C. Unemployment taxes.
D. Medicare, Social security, and unemployment taxes.
A prior period adjustment appears in:
A. The income statement following the subtotal “Income before Prior Period
Adjustments.”
B. The statement of retained earnings, as an adjustment to the ending balance of
retained earnings.
C. Footnotes to the financial statements.
D. The statement of retained earnings, as an adjustment to the beginning balance of
retained earnings.
All the following are steps included in the preparation of the bank reconciliation except:
A. Comparing deposits listed on the bank statement with the deposits shown in the
accounting records.
B. Comparing checks listed on the bank statement with corresponding entries in the
accounting records.
C. Deducting any debit memoranda from the balance on the bank statement.
D. Preparing journal entries for any adjustments to the depositor’s records.
All other things held constant, how will an increase in selling price affect the
break-even point measured in units?
A. The break-even point will decrease.
B. The break-even point will increase.
C. The break-even point will remain constant.
D. The effect on the break-even point can’t be predicted with certainty.
Adjusting entries are prepared:
A. Before financial statements and after a trial balance has been prepared.
B. After a trial balance has been prepared and after financial statements are prepared.
C. After posting but before a trial balance is prepared.
D. Anytime an accountant sees fit to prepare the entries.
It would be reasonable to assume that:
A. Basic earnings per share should exceed diluted earnings per share.
B. Diluted earnings per share should exceed basic earnings per share.
C. Basic earnings per share should be equal to diluted earnings per share.
D. Basic earnings per share would not be presented with diluted earnings per share.
Effects of a series of transactions on balance sheet items
Clark Plumbing had the following transactions during the month of June, the first
month of operations for the business:
* The corporation issued 12,000 shares of capital stock to Bill Clark in exchange for his
investment of $72,000 cash.
* Purchased $36,000 of equipment; made an $8,000 down payment and signed a note
payable for the balance.
* Made payment of $4,000 on the amount owed for equipment.
(A.) Compute the balance in the Cash account at the end of June.
(B.) What are the total assets of Clark Plumbing at the end of June?
(C.) Compute the balance in the Notes Payable account at the end of June.
(D.) What is the total amount of owners’ equity at the end of June?
Sales revenue is recognized in the period in which:
A. Merchandise is delivered to the customer.
B. The customer orders the merchandise.
C. Cash payment is received by the seller.
D. Purchases are made to replace the merchandise sold.
The following information is available regarding the total manufacturing overhead of
Olsen Company for a recent four-month period.
Refer to the information above. Using the high-low method, compute the variable
element of manufacturing overhead cost per machine hour.
A. $0.87 per machine hour.
B. $1.50 per machine hour.
C. $1.40 per machine hour.
D. $2.10 per machine hour.
A segment of a master budget relating to that portion of a business under the control of
a particular manager is termed a:
A. Performance report.
B. Production report.
C. Responsibility budget.
D. Cash budget.
Target costing is directed toward:
A. Increasing the activity costs associated with existing products.
B. Identifying the amount by which the costs of existing products must be reduced to
achieve a target profit margin.
C. The creation and design of products that will provide adequate profits.
D. The improvement of existing production processes by eliminating non-value adding
activities.
Which of the following is not a prevention cost?
A. Training costs.
B. Warranty costs.
C. Maintenance costs.
D. Quality planning costs.
Refer to the information above. What is the amount of depreciation deduction the
company could expense annually assuming the straight line depreciation method is
used?
A. $75,000.
B. $41,250.
C. $71,500.
D. $30,250.
Which of the four inventory approaches is best suited to inventories of high-priced,
low-volume items?
A. LIFO.
B. FIFO.
C. Average cost.
D. Specific identification.
Refer to the information above. The cash proceeds received by Korman Corporation in
2015 for the sale of marketable securities was:
A. $160,000.
B. $230,000.
C. $240,000.
D. $280,000.
The basic purpose of generally accepted accounting principles is to:
A. Minimize the possibility of a business becoming insolvent.
B. Provide a framework for financial reporting that is understood by both the preparers
and the users of financial statements.
C. Ensure that financial statements include the type of information that is best suited to
every type of business decision.
D. Eliminate the need for professional judgment in preparing financial statements.
Which of the following transactions will appear in the bank statement but generally not
have been recorded by the depositor?
A. Outstanding checks.
B. Service charges.
C. Deposits in transit.
D. Both outstanding checks and deposits in transit.
Application of overhead
Pyramid Corporation manufactures a single product. As a basis for determining an
overhead application rate, the production manager made the following estimates for the
coming year:
In the following month, 19,500 units were produced, involving direct labor costs of
$78,000 and requiring 1,073 machine-hours.
Determine the amount of manufacturing overhead to be applied to production during
this month, assuming that the overhead application rate is based upon:
(a) Estimated total direct labor cost for the year. $___________
(b) Estimated total machine-hours for the year. $___________
Neville Company is considering an investment of $380,000 in heavy equipment which
will enable the company to be more competitive in the construction industry. The useful
service life of the equipment is estimated to be 10 years, with $30,000 salvage value.
Straight-line depreciation is used. The company estimates that net income will increase
by $41,000 per year as a result of the company’s ability to handle a wider range of
projects with the new equipment.
Refer to the information above. The expected rate of return on average investment will
be approximately:
A. 20%.
B. 43%.
C. 23%.
D. 37 1/2%.
With available for-sale securities, unrealized holding gains and losses are:
A. Not reported until recognized.
B. Reported on the income statement.
C. Reported as an unearned revenue on the balance sheet.
D. Reported in the stockholders’ equity section of the balance sheet.
A flexible budget:
A. Consists of estimates of costs and expenses for various possible levels of activity.
B. Is designed to be adjusted at frequent intervals for changes in the general price level.
C. Is better suited for use with a job cost system than a standard cost system.
D. Cannot be prepared when a standard cost system is in use.
Parkside Pool reports net sales of $625,000, gross profit of $275,000, and net income of
$15,000. The company’s cost of goods sold is:
A. $335,000.
B. $350,000.
C. $340,000.
D. $325,000.