1) The inventory cost flow method a company chooses affects both the income
statement and the balance sheet.
2) If Paterno Company’s turnover measure is 2.5 and its margin is 7.5%, its ROI is 10%.
3) The choice of depreciation methods for long-term assets affects the results of
financial analysis for a company.
4) The accounting department normally coordinates the effort to establish the sales
forecast.
5) The three major categories of the master budget are the operating budgets, the capital
budgets, and the financial statement budgets.
6) A manager believes that the number of units sold drives the company’s selling costs.
The number of units sold would be referred to as the cost object.
7) For performance evaluation, management compares actual results to a flexible
budget based on the actual volume of activity.
8) The instantaneous computation power of spreadsheet software makes it ideal for
answering “what-if” questions regarding present values.
9) The term ‘shrinkage” reflects decreases in inventory for reasons other than theft.
10) Issuance of common stock is an asset use transaction.
11) Immediately after closing, every temporary account has a balance of $0.
12) Cable Corporation is evaluating two decision alternatives. Alternative One has costs
of $1,000 and revenues of $1,500 while Alternative Two has costs of $1,600 and
revenues of $2,000. The amount of differential revenue between these alternatives is
$500.
13) The higher the magnitude of a company’s operating leverage, the less benefit the
company will receive from a given percentage increase in revenue.
14) A company’s obligation for product warranties is a contingent liability that generally
must be recognized in the financial statements.
15) Net income is an increase in assets as a result of operating a business.
16) The master budget generally starts with preparation of a budgeted income
statement.
17) The time spent moving a product from one processing department to the next
processing department is an example of a value-added activity.
18) Dave manages a division that is part of a large, decentralized business. He has a
substantial degree of control over the division’s costs, revenues, and investment in
assets. Based on this information, the division managed by Dave would be classified as
a profit center.
19) The purchase price of a new machine is relevant to the decision of whether or not to
replace an old machine.
20) A cost object is anything for which management desires a separate tracking of costs,
while a cost driver is the factor that causes the cost object to increase or decrease.
21) During the month of March, Wang Company purchased merchandise inventory for
cash in the amount of $6,200. Which of the following represents the effects of this
transaction on Wang’s financial statements?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
22) The following accounts and balances were drawn from the records of Rayburn
Company on December 31, 2012:
Which of the following financial statement elements is closed at the end of an
accounting cycle?
A.Liabilities
B.Equity
C.Revenues
D.Assets
23) In accounting for a contingent liability, if the likelihood of the obligation is
possible, a company must
A.recognize the liability and report it on the balance sheet
B.provide disclosure in the footnotes to the financial statements
C.not recognize or disclose the liability until it is certain and the exact amount is known
D.do nothing
24) Which of the following most exemplifies the value-added principle?
A.An ongoing process where continuous improvement is the goal
B.A competitive management program that emphasizes quality
C.Information gathering and reporting activities that are restricted to those activities
that add value in excess of their cost
D.Managerial accounting information is measured in economic, physical, and financial
terms
25) Royal Company uses the periodic inventory method. The following balances were
drawn from the accounts of Royal Company prior to the closing process:
The amount of gross margin appearing on the income statement should be:
A.$900
B.$1,050
C.$1,950
D.$2,850
26) O’Donnell Company makes computer chips. Sam is manager of the company’s
maintenance department. Because his maintenance technicians are so well trained in
maintaining expensive and sensitive circuit board stamping equipment, Sam has been
authorized to contract to perform maintenance for outside customers. In this company,
the maintenance department is likely organized as
A.a cost center
B.a revenue center
C.a profit center
D.an investment center
27) Owl Company is in the process of preparing a purchases budget for the first quarter
of 2012 . The company has budgeted sales as follows:
Cost of goods sold is expected to be 75% of sales. The company would like to have
ending inventory each month equal to 25% of the following month’s predicted cost of
sales. The total cost of purchases in January 2012 is
A.$118,500
B.$93,000
C.$88,876
D.$71,438
28) Select the incorrect statement about budget committees.
A.Budgeting committees usually have responsibility for the coordination of budgeting
activities
B.Membership on the budgeting committee is restricted most often to accountants
because the budget involves numbers
C.The budgeting committee is responsible for settling disputes between various
departments over budget matters
D.One of the responsibilities of the budget committee is to monitor the organization’s
progress toward achieving its budget standards
29) Byrnes Company currently produces and sells 4,000 units of a product that has a
contribution margin of $6 per unit. The company sells the product for a sales price of
$20 per unit. Fixed costs are $18,000. The company has recently invested in new
technology and expects the variable cost per unit to fall to $8 per unit. The investment
is expected to increase fixed costs by $15,000. Before the new investment was made,
how many units had to be sold to breakeven?
A.2,500 units
B.5,500 units
C.4,000 units
D.3,000 units
30) The purposes of the postaudit for capital investments include all of the following
except
A.continuous improvement
B.punishment for poor capital investment decisions
C.determining whether the project generated the results expected
D.ensuring that managers closely scrutinize capital investment decisions
31) When does warranty cost appear on the statement of cash flows?
A.When there is a settlement of a warranty claim made by a customer
B.When the warranty obligation is recognized
C.When merchandise is sold
D.None of these
32) Which method of depreciation is used by most U. S. companies for financial
reporting purposes?
A.straight line
B.units of production
C.double declining balance
D.LIFO
33) How will the effective interest rate method of amortization affect the interest
expense incurred on a bond issued at a discount?
A.Interest expense will decrease as the carrying value of the bond increases
B.Interest expense will increase as the carrying value of the bond decreases
C.Interest expense will decrease as the carrying value of the bond decreases
D.Interest expense will increase as the carrying value of the bond increases
34) The following information for the year 2012 is taken from the accounts of
Thornwood Company. The company uses the periodic inventory method.
Based on this information, the inventory at December 31, 2012 is
A.$4,600
B.$5,000
C.$4,900
D.$12,100
35) On January 1, 2012 the Accounts Receivable and the Allowance for Doubtful
Accounts carried balances of $30,000 and $500, respectively. During the year the
company reported $75,000 of credit sales. There were $550 of receivables written-off as
uncollectible in 2012 . Cash collections of receivables amounted to $74,550. The
company estimates that it will be unable to collect one percent (1%) of credit sales.
The net realizable value of receivables appearing on the December 31, 2012 balance
sheet will amount to:
A.$29,200
B.$30,450
C.$29,750
D.$24,300
36) Which of the following transactions involves a deferral?
A.recording the prepayment of three months’ rent
B.recording the interest earned (but not received) on a certificate of deposit
C.recording interest accrued on a note payable
D.recording salaries of employees earned but not yet paid
37) Crowe Company expects the following total sales:
The company expects 70% of its sales to be credit sales and 30% for cash. Credit sales
are collected as follows: 25% in the month of sale, 72% in the month following the sale
with the remainder being uncollectible and written off in the month following the sale.
The budgeted accounts receivable balance on May 31 is
A.$14,350
B.$15,750
C.$20,550
D.$22,500
38) Schumacher Company uses the perpetual inventory system, and it engaged in the
following transactions during 2012:
1) Started the business by issuing common stock for $7,500 cash
2) Paid cash to purchase $5,000 of inventory
3) Sold inventory that cost $3,000 for $7,250 cash
4) Incurred and paid operating expenses, $250
Schumacher Company engaged in the following transactions during 2013:
1) Paid cash to purchase $5,800 of inventory
2) Sold inventory that cost $7,000 for $15,150 cash
3) Incurred and paid operating expenses, $500
The amount of Retained Earnings at December 31, 2012 is:
A.$4,250
B.$11,150
C.$11,650
D.$4,000
39) Olin Company had accounts receivable of $449,000. Before it recorded the
adjusting entry for uncollectible accounts, the balance in the Allowance for Doubtful
Accounts was $870. Olin estimates that it will not collect 3 percent of its accounts
receivable. What amount of uncollectible accounts expense should be recorded?
A.$12,600
B.$10,860
C.$11,730
D.$13,470
40) How is the balance sheet of a merchandising firm different from the balance sheet
of a service business?
A.It includes the asset, Accounts Receivable
B.It reports the cost of goods sold
C.It includes the asset, Merchandise Inventory
D.It reports various period costs
41) Select from the following the incorrect statement regarding contribution margin.
A.Sales – variable manufacturing costs = contribution margin
B.Net income + total fixed costs = contribution margin
C.At the breakeven point (where the company has neither profit nor loss), total fixed
costs = total contribution margin
D.An increase in the amount of variable cost per unit will decrease contribution margin
and profit, assuming that nothing else changes
42) Hansen Company reported the following information for 2012:
The company’s operating income for 2012 was
A.$37,080
B.$33,750
C.$45,000
D.$363,750
43) Which of the following is not a reason why a business needs strong internal controls
over cash?
A.A small volume of high-denomination currency represents a significant amount of
value
B.Ownership of cash is difficult to prove
C.Cash has universal appeal
D.Money is the common unit of measurement in business
44) Resources that a business uses to operate the business are called
A.assets
B.equity
C.revenues
D.liabilities
45) The following balance sheet information was provided by Paino Company:
Assuming net credit sales totaled $145,000, what is the company’s accounts receivable
turnover for 2012?
A.12 times
B.21 times
C.24 times
D.29 times
46) The most effective way to reduce opportunities for ethical or criminal misconduct
is:
A.to obtain fidelity bonds for all employees
B.to perform random physical counts frequently
C.to implement an effective system of internal controls
D.to perform extensive background checks before hiring employees
47) Which of the following computer applications would be most useful for capital
investment analysis?
A.Word processing
B.Spreadsheet
C.Web browser
D.Presentation software
48) At the beginning of the year, Kelly Sales had $2,400 of merchandise inventory.
During the year, Kelly purchased $22,000 of inventory. At the end of the year, a count
of the inventory revealed that Kelly had $1,600 of inventory on hand. Kelly uses a
periodic inventory system.
Required:
a) What is the amount of goods available for sale?
b) What is cost of goods sold for the year?
49) You are considering making a loan to a corporation and wish to assess the firm’s
short-term debt-paying ability. All of the following ratios will help you assess the
company’s short-term debt-paying ability except:
A.Debt to equity ratio
B.Inventory turnover
C.Quick ratio
D.Accounts receivable turnover
50) Costs that might be incurred by service, merchandising, and manufacturing
companies are described below:
___ A. Sales commissions paid to sales associates in a department store
___ B. Insurance on a factory producing MP3 players
___ C. Chicken breasts used to make chicken sandwiches in a restaurant
___ D. Rent on a storeroom used by Larry’s Landscapers to store lawn equipment
___ E. Salary of a supervisor in a Wal-Mart distribution center
___ F. Wages paid to production workers in an automobile assembly plant
___ G. Pepperoni sausage used by a restaurant to make pizza
___ H. Shipping costs incurred by IBM to ship its computers to customers
___ I. Depreciation of office equipment by Microsoft Corporation
___ J. Electricity used to operate equipment in a factory
___ K. Salary of the CEO of General Motors Corporation
___ L. Lubricants used to maintain machinery in a textile factory
___ M. Cost of metal cans used in a dog food factory
___ N. Advertising costs incurred by AT&T
___ O. Fuel costs for an airline
Required:
Classify each cost as variable (V) or fixed (F) with respect to volume or level of
activity.
51) A retail company sells goods primarily to
A.other businesses
B.manufacturing firms
C.the final consumer
D.both A and C
52) LeMars Company signed a three year contract to perform consulting services for a
local manufacturer on September 1, 2012 . LeMars received $48,000 cash as an
advance payment for these services and agreed the work would begin immediately.
The amounts of revenue that would appear on the 2012 and 2013 income statements
would be:
A.$16,000/$16,000
B.$48,000/$-0-
C.$5,333/$16,000
D.$5,833/$29,187
53) Barnes Company is considering two capital investments; it can only accept one of
the projects. Both have positive net present values. How should Barnes decide which
project to accept?
54) Define the “accounting cycle” and list the stages of the cycle.
55) Describe the differences between the liquidity ratios, solvency ratios, and ratios that
measure managerial effectiveness. Identify examples of each type of ratio as well.
56) Indicate whether each of the following statements is true or false.
1>The price-earnings ratio is computed by dividing the market price per share by the
earnings per share
2>Many successful corporations do not pay dividends to their stockholders
3>Careful study of the financial statements will give investors the ability to predict
future movements in the market price of a corporation’s stock
4>The number of shares to purchase in order to attain significant influence over the
operations of a corporation can readily be determined from the financial statements
5>As a general rule, the higher the P/E Ratio, the greater is the optimism for future
growth of the corporation
57) What is a special order decision? What costs are relevant to this decision?