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Which of the following is not classified among the operating activities in a statement of
cash flows?
A. Payment of interest on a bank loan.
B. Payment of the principal amount owed on a bank loan.
C. Payment of an account payable to a merchandise supplier.
D. Payment of income taxes.
General Chemical Company (GCC) manufactures two products as part of a joint
process: A1 and B1. Joint costs up to the split-off point total $22,000. The joint costs
are allocated to A1 and B1 in proportion to their relative sales values. At the split-off
point, product A1 can be sold for $42,000, whereas product B1 can be sold for $63,000.
Product A1 can be processed further to make product A2, at an incremental cost of
$38,000. A2 can be sold for $85,000. Product B1 can be processed further to make
product B2, at an incremental cost of $48,000. B2 can be sold for $95,000.
Refer to the information above. The net change in operating income resulting from a
decision to manufacture product A2 is:
A. $15,000 (increase).
B. $15,000 (decrease).
C. $5,000 (increase).
D. $45,000 (increase).
The excess of current assets over current liabilities is called:
A. Current ratio.
B. Working capital.
C. Debt ratio.
D. Quick ratio.
A budget that can be easily adjusted to show budgeted revenues, costs, and cash flows
at different levels of activity is known as:
A. A flexible budget.
B. A master budget.
C. A production budget.
D. A multi-level budget.
Creative Star Corporation produces three lines of desks from wood: Classic, Royal, and
Standard. Cost and revenue data pertaining to each product are shown below:
Classic desks require five square yards of wood, Royal requires ten square yards, and
Standard requires three square yards. High demand for each product line far exceeds the
company's production capacity.
Refer to the information above. If Creative Star Corporation has an unlimited supply of
wood available, which products should it produce?
A. Royal only.
B. Classic and Royal.
C. Royal and Standard.
D. Classic only.
In a ledger, debit entries cause:
A. Increases in owners' equity, decreases in liabilities, and increases in assets.
B. Decreases in liabilities, increases in assets, and decreases in owners' equity.
C. Decreases in assets, decreases in liabilities, and increases in owners' equity.
D. Decreases in assets, increases in liabilities, and increases in owners' equity.
The adjusting entry to recognize income taxes due on a profit of $100,000 and a tax rate
of 40% is:
A. A Above.
B. B Above.
C. C Above.
D. D Above.
Which of the following is not classified among the financing activities in a statement of
cash flows?
A. Long-term borrowing.
B. Payment of dividends to stockholders.
C. Payment of interest to creditors.
D. Short-term borrowing.
Management accounting systems are designed to assist organizations in the
performance of all of the following functions except:
A. The assignment of decision-making authority over company assets.
B. Planning and decision-making.
C. Monitoring, evaluating, and rewarding performance.
D. The preparation of income tax returns.
The aging of the accounts receivable approach to estimating uncollectible accounts does
not:
A. Take into consideration the existing balance in the Allowance for Doubtful Accounts.
B. Utilize a percentage of probable uncollectible accounts for each age group of
accounts receivable.
C. Stress the relationship between uncollectible accounts expense and net sales.
D. Tend to give a reliable estimate of uncollectible accounts because of the
consideration given to the collectability of specific accounts receivable.
Bert had accounts receivable of $280,000 and an allowance for doubtful accounts of
$10,800 just before writing off as worthless an account receivable from Ernie Company
of $1,600. After writing off this receivable what would be the balance in Bert's
Allowance for Doubtful Accounts?
A. $10,800 credit balance.
B. $12,400 credit balance.
C. $9,200 credit balance.
D. $9,200 debit balance.
The following information has been taken from the perpetual inventory system of Elite
Mfg. Co. for the month ended August 31:
Refer to the above data. The cost of goods sold in August is:
A. $75,000.
B. $17,000.
C. $135,000.
D. Some other amount.
An analysis of changes in selected balance sheet accounts of Hierarchy Corporation
shows the following for the current year:
Hierarchy's income statement for the current year includes a $9,600 gain on disposal of
plant assets. All payments and proceeds relating to purchase or sale of plant assets were
in cash.
Refer to the information above. Total cash proceeds received by Hierarchy from sales of
plant assets during the current year amounted to:
A. $696,000.
B. $705,600.
C. $633,600.
D. $768,000.
Gross profit rates a practical application
Note to instructor: The following exercise requires students to use gross profit rates in a
manner not specifically illustrated in the chapter. We view this as an exercise in critical
thinking and, as such, it is more challenging than the typical exercise. Part d requires an
expository answer. Some instructors may choose to omit part d.
Your store sells computers and software. The average computer sells for $1,350, but the
customer buying a computer also buys an average of $750 in software. You earn only
10% gross profit rate on sales of computers, but you make a 40% gross profit rate on
software. You currently are selling 150 computers per month.
(a) What is the total amount of your monthly gross profit? $________________.
(b) To increase sales, you are thinking about selling computers at cost ($1,215.) This
would be the "cheapest price in town," and should attract more customers. You expect
each customer who buys a computer to also buy $750 worth of software. Under these
assumptions, how many computers must you sell each month in order to earn the same
amount of gross profit as you are earning now?
(c) Assume that as a result of reducing the sales price of computers to cost ($1,215),
you are able to sell 250 computers each month, and that each customer now buys $850
worth of software. What will be the total amount of your monthly gross profit?
(d) Assume that you achieve the results specified in part c (250 sales transactions per
month, including an average of $850 in software). Would you consider the policy of
selling computers at cost successful or unsuccessful? Explain specifically why this
strategy is working out favorably or unfavorably.
Total owners' equity = $360,000 (capital stock issued)
-The following transactions occurred during May, the first month of operations for
Hunter Products, Inc.:
* Issued 50,000 shares of capital stock to the owners of the corporation in exchange for
$600,000 cash.
* Purchased a piece of land for $400,000, making a $150,000 cash down payment and
signing a note payable for the balance.
* Made a $60,000 cash payment on the note payable from the purchase of land.
* Purchased equipment on credit from BBW, Inc. for $63,000.
Refer to the information above. What are total assets of Hunter Products at the end of
May?
A. $913,000.
B. $790,000.
C. $853,000.
D. $916,000.
Financial statements are prepared:
A. Only for publicly owned business organizations.
B. For corporations, but not for sole proprietorships or partnerships.
C. Primarily for the benefit of persons outside of the business organization.
D. In either monetary or nonmonetary terms, depending upon the need of the decision
maker.
The principle factor/s affecting the quality of working capital is/are:
A. The nature of the current assets.
B. The length of time to convert current assets into cash.
C. Both the nature of the current assets and the length of time to convert current assets
into cash.
D. Neither the nature of the current assets nor the length of time to convert current
assets into cash.
In most process costing systems, per-unit costs are determined by:
A. Dividing the number of units completed during the period by the total manufacturing
costs incurred during the period.
B. Dividing the total manufacturing costs incurred during the period by the number of
units worked on during the period.
C. Dividing the total manufacturing costs incurred during the period by the equivalent
number of units completed during the period.
D. Unit costs cannot be determined in a process costing system.
Prepaid expenses appear:
A. As an expense on the income statement.
B. As an asset on the balance sheet.
C. As a liability on the balance sheet.
D. As a reduction to retained earnings.
Which of the following does not create a difference between net income and the net
cash flow from operations?
A. Non-operating gains and losses.
B. Depreciation expense.
C. Timing differences between credit sales and collections from customers.
D. Payment of a cash dividend.
On April 8, 2015, Jupitor Corp. acquired equipment at a cost of $480,000. The
equipment is to be depreciated by the straight-line method over six years with no
provision for salvage value. Depreciation for fractional years is computed by rounding
the ownership period to the nearest month. Depreciation expense recognized in 2015
will be:
A. $53,333.
B. $66,667.
C. $60,000.
D. $80,000.
When determining the uncollectible accounts expense in computing taxable income,
income tax regulations:
A. Require the allowance method.
B. Require the direct write-off method.
C. Require the income statement approach.
D. Allow any method.
Baskin Promotions, Inc. sells T-shirts decorated for a variety of concert performers. The
company has developed the following budget for the coming year based on a sales
forecast of 80,000 T-shirts:
Cost of goods sold and variable operating expenses vary directly with sales, and the
income tax rate is 30% at all levels of operating income.
If the concert season is slow due to poor weather, Baskin estimates that sales could fall
to as low as 60,000 T-shirts.
Refer to the information above. In a flexible budget for sales of 60,000 T-shirts, how
much would Baskin budget for operating expenses?
A. $238,800.
B. $338,800.
C. $218,400.
D. $418,400.
Which of the following is an investing activity?
A. Purchase of equipment.
B. Payment of interest.
C. Issuing common stock.
D. Issuing long-term debt.
Refer to the information above. The journal entry to record the cost of direct materials
used in June includes each of the following except:
A. A debit to Work in Process Inventory of $77,700.
B. A credit to Materials Price Variance of $3,210.
C. A credit to Direct Materials Inventory of $77,700.
D. A debit to Materials Quantity Variance of $1,480.
Measures of solvency and credit risk
Shown below are selected items appearing in a recent balance sheet of Grant Products.
(Dollar amounts are in thousands.)
(a) Compute the following:
(1) Total quick assets $____________
(2) Total current assets $____________
(3) Total current liabilities $____________
(4) Quick ratio ______ to 1
(5) Current ratio ______ to 1
(b) Research indicates an industry average quick ratio is 1.3 to 1, and a current ratio of
2.3 to 1. Based upon this information, does Grant Products appear more or less solvent
than the average company in its industry? Explain briefly.
Given below are comparative balance sheets and an income statement for Eleva
Corporation.
All sales were made on account. Cash dividends declared during the year totaled
$22,984.
Refer to the information above. Eleva Corporation's inventory turnover for 2015 is
closest to:
A. 6.67 times.
B. 3.99 times.
C. 4.15 times.
D. 94 days.
Colonial uses the retail method to estimate its monthly cost of goods sold and
month-end inventory. At August 31, the accounting records indicate the cost of goods
available for sale during the month (beginning inventory plus purchases) totaled
$270,000. These goods had been priced for resale at $675,000. Sales in August totaled
$450,000. The estimated inventory at August 31 is:
A. $48,000.
B. $90,000.
C. $120,000.
D. $270,000.
Component percentages indicate the relative size of each item included in a total.
Which of the following statements is true?
A. Income statement items are expressed as a percentage of net income, while balance
sheet items are expressed as a percentage of total assets.
B. Income statement items are expressed as a percentage of net sales, while balance
sheet items are expressed as a percentage of total assets.
C. Income statement items are expressed as a percentage of net income, while balance
sheet items are expressed as a percentage of net assets.
D. Both income statement and balance sheet items are expressed as a percentage of net
assets.
Which of the following would not be amortized?
A. Goodwill.
B. Copyright.
C. Franchise fee.
D. Patent.
The cost of insurance is considered an expense:
A. Only when the entire policy period has passed.
B. Only when the policy is purchased.
C. Only when the premium is paid.
D. Evenly over the term of the policy.
The financial statements of Seldin, Inc., provide the following information for the
current year:
Refer to the information above. Compute the amount of Seldin's cash payments for
operating expenses.
A. $73,000.
B. $59,000.
C. $81,000.
D. $65,000.
The dividends account should be:
A. Closed to income summary.
B. Closed to retained earnings.
C. Closed only if there is a profit.
D. Not closed at all.
