1) Leasing assets may be a favorable alternative to purchasing assets if the asset has a
high risk of becoming obsolete.
2) Before a stock dividend can be declared or paid, there must be sufficient cash.
3) Under the direct write-off method, an attempt is made to match Bad Debt Expense to
sales revenues in the same accounting period.
4) Service department charges are similar to the expenses that would be incurred if the
profit center purchased the services from outside the company.
5) Variable costs are costs that vary in total in direct proportion to changes in the
activity level.
6) Controllable expenses are those that can be influenced by the decisions of the profit
center management.
7) On the income statement, sales discounts are normally deducted from sales to yield
the cost of merchandise sold.
8) A corporation has 10,000 shares of $100 par value stock outstanding that has a
current market value of $160. If the corporation issues a 4-for-1 stock split, the market
value of the stock will fall to approximately $32.
9) For a construction contractor, the wages of carpenters would be classified as direct
labor cost.
10) Bonds payable due in 2020 are reported on the balance sheet as long-term
liabilities.
11) Equality of the accounting equation means that no errors have occurred.
12) Creditors have preference to assets behind stockholders if a business fails.
13) Since transfer prices will affect a divisions financial performance, it is used by
decentralized segments of a business.
14) Cost behavior refers to the methods used to estimate costs for use in managerial
decision making.
15) A primary disadvantage of corporations is that the financial resources available to
them are limited.
16) Net income or loss may appear on the income statement of both a service business
and a merchandising business.
17) A cost that will not be affected by later decisions is termed an opportunity cost.
18) The basis for recording direct and indirect labor costs incurred is a summary of the
period’s:
A.job order cost sheets
B.time tickets
C.employees’ earnings records
D.clock cards
19) Espinosa Corporation had $220,000 invested in assets, sales of $242,000, income
from operations amounting to $48,400, and a desired minimum rate of return of 3%.
The rate of return on investment for Espinosa is:
A.20%
B.22%
C.3%
D.6.4%
20) Hudson, Inc. has estimated total factory overhead costs of $400,000 and 20,000
direct labor hours for the current fiscal year. If direct labor hours for the year totals
18,000 and actual factory overhead totals $350,000, what is the amount of overapplied
or underapplied overhead for the year?
A.$10,000 overapplied
B.$10,000 underapplied
C.$50,000 underapplied
D.$50,000 overapplied
21) For each of the following items indicate whether the transactions listed below
increased (+), decreased (–) or had no effect (o) by inserting the appropriate symbol.
NetIncome Assets Liab. Owners’Equity CashFlows
(a) Sold equipment for cash at a gain
(b) Recorded amortization expense on patents
(c) Paid cash for minor repairs to an asset
(d) Recorded a revenue expenditure incurred on account
(e) Paid cash to remove old building from land being prepared for use
22) A business received an offer from an exporter for 5,000 units of product at $10 per
unit. The acceptance of the offer will not affect normal production or domestic sales
prices. The following data are available:
Based on the above data, what is the differential cost from the acceptance of the offer?
A.$10,000
B.$40,000
C.$5,000
D.$45,000
23) Allowance for Doubtful Accounts has an unadjusted balance of $400 at the end of
the year, and uncollectible accounts expense is estimated at 1% of net sales. If net sales
are $300,000, compute the amount of the adjustment to record the provision for
doubtful accounts.
A.$400
B.$3,400
C.$3,000
D.$2,600
24) The charter of a corporation provides for the issuance of 100,000 shares of common
stock. Assume that 40,000 shares were originally issued and 5,000 were subsequently
reacquired. What is the number of shares outstanding?
A.5,000
B.35,000
C.45,000
D.55,000
25) Due to various fraudulent business practices and accounting coverups in the early
2000s, Congress enacted the Sarbanes-Oxley Act of 2002 . The act was responsible for
establishing a new oversight board for public accountants called the:
A.Generally Accepted Accounting Practices for Public Accountants Board
B.Public Company Accounting Oversight Board
C.Congressional Accounting Oversight Board
D.Financial Accounting Standards Board
26) The standard costs and actual costs for direct materials for the manufacture of 2,500
actual units of product are as follows:
The amount of direct materials price variance is:
A.$1,875 unfavorable
B.$1,950 favorable
C.$1,875 favorable
D.$1,950 unfavorable
27) The first budget customarily prepared as part of an entity’s master budget is the:
A.production budget
B.cash budget
C.sales budget
D.direct materials purchases
28) The percentage change in long-term liabilities between two balance sheet dates is
an example of:
A.vertical analysis
B.solvency analysis
C.profitability analysis
D.horizontal analysis
29) Donald Duck Co.
Donald Duck Co. has a five-day workweek (Monday through Friday). Employees earn
$500 per day.
Refer to Donald Duck Co. If the month ends on Tuesday, and wages will not be paid
until Friday, how much wage expense should be accrued on Tuesday?
A.$500
B.$1,500
C.$2,500
D.$1,000
30) ABN Company sold goods, receiving $20,000 in cash and $25,000 on credit. How
much revenue should it record under the accrual basis of accounting?
A.$5,000
B.$25,000
C.$20,000
D.$45,000
31) Dinkins Inc. is considering disposing of a machine with a book value of $50,000
and an estimated remaining life of five years. The old machine can be sold for $15,000.
A new machine with a purchase price of $150,000 is being considered as a replacement.
It will have a useful life of five years and no residual value. It is estimated that variable
manufacturing costs will be reduced from $70,000 to $45,000 if the new machine is
purchased. The net differential increase or decrease in cost for the entire five years for
the new equipment is:
A.$10,000 increase
B.$25,000 decrease
C.$10,000 decrease
D.$25,000 increase
32) A note payable requires payment of the amount borrowed plus:
A.interest
B.tax
C.overhead
D.dividend
33) The financial statements are affected by which type(s) of adjustments?
A.Deferrals
B.Accruals
C.Both deferrals and accruals
D.Neither deferrals nor accruals
34) A company sold 200 shares of common stock with a par vale of $5 at a price of $12
per share. Which section of the statement of cash flows will contain this transaction?
A.Operating activities
B.Investing activities
C.Financing activities
D.Sale of stock will not appear on the statement of cash flows
35) Book value is computed as:
A.current market value less residual value
B.cost less residual value
C.current market value less accumulated depreciation
D.cost less accumulated depreciation
36) In evaluating the profit center manager, the income from operations should be
compared:
A.across profit centers
B.to historical performance or budget
C.to the competitor’s net income
D.to the total companys earnings per share
37) Which of the following doesnt result in an unfavorable fixed overhead volume
variance?
A.Sales orders at a low level
B.Machine breakdowns
C.Employee inexperience
D.Increase in utility costs
38) A _____ is an economic event that under generally accepted accounting principles
affects an element of the financial statements and must be recorded.
A.framework
B.control
C.set of rules
D.transaction
39) If the expected sales volume for the current period is 7,000 units, the desired ending
inventory is 400 units, and the beginning inventory is 300 units, the number of units set
forth in the production budget, representing total production for the current period, is:
A.6,900
B.7,000
C.7,200
D.7,100
40) Sommers Company is evaluating a project requiring a capital expenditure of
$300,000. The project has an estimated life of 5 years and no salvage value. The
estimated net income and net cash flow from the project are as follows:
The company’s minimum desired rate of return for net present value analysis is 12%.
The present value of $1 at compound interest of 12% is shown in the table below:
Determine (a) the average rate of return on investment, giving effect to depreciation on
the investment, and (b) the net present value.
41) The amount of the estimated average income for a proposed investment of $60,000
in a fixed asset, giving effect to depreciation (straight-line method), with a useful life of
four years, no residual value, and an expected total income yield of $22,300, is:
A.$10,800
B.$5,575
C.$5,400
D.$15,000
42) A check drawn by a depositor for $810 in payment of a liability was recorded by the
depositor as $180. The $630 difference would be included on the bank reconciliation as
a(n):
A.addition to the cash balance per books
B.addition to the cash balance per bank
C.deduction from the cash balance per bank
D.deduction from the cash balance per books
43) Based on the following production and sales estimates for May, determine the
number of units expected to be manufactured in May.
A.85,000 units
B.90,000 units
C.95,000 units
D.105,000 units
44) Which of the following is not a product cost?
A.CEO salary
B.Depreciation on factory equipment
C.Wages of an assembly worker
D.Silicon wafers for microcomputer chips
45) FDE Manufacturing Company has a normal plant capacity of 75,000 units per
month. Because of an extra large quantity of inventory on hand, it expects to produce
only 60,000 units in May. Monthly fixed costs and expenses are $150,000 ($2 per unit
at normal plant capacity), and variable costs and expenses are $13 per unit. The present
selling price is $25 per unit. The company has an opportunity to sell 5,000 additional
units at $14.30 per unit to an exporter who plans to market the product under its own
brand name in a foreign market. The additional business is therefore not expected to
affect the regular selling price or quantity of sales of FDE Manufacturing Company.
Prepare a differential analysis report, dated April 21 of the current year, on the proposal
to sell at the special price.
46) Define accounting and its role in business.
47) How do businesses make money? What strategies can they use to gain a
competitive advantage?
48) What is the purpose of the Sarbanes-Oxley Act of 2002, and why was it enacted?
49)
Review Coke-Colas financial statements and answer the following questions:
50) Brickmans Pharmacy sells a variety of products. The business is divided into four
segments or departments for reporting purposes. The departments and their operating
results are shown below:
The fixed costs consist of insurance, property taxes, interest, and other costs that will
not be eliminated if a department is discontinued.
Brickmans management is considering eliminating the grocery department. Assuming
sales in the other departments will not be affected by dropping the grocery department,
what will be the effect on the companys total operating income?
51) On the basis of the following data related to current assets for Mission Co. at
December 2013, prepare a partial balance sheet in good form.
52) The following data for the current year ended December 31, 2013, were extracted
from the accounting records of Gilbert Co.:
Prepare a multiple-step income statement for the year ended December 31, 2013 .
53) The treasurer of Unisyms Company has accumulated the following budget
information for the first two months of the coming year:
The company expects to sell about 35% of its merchandise for cash. Of sales on
account, 80% are expected to be collected in full in the month of the sale and the
remainder in the month following the sale. One-fourth of the manufacturing costs are
expected to be paid in the month in which they are incurred and the other three-fourths
in the following month. Depreciation, insurance, and property taxes represent $6,400 of
the probable monthly selling and administrative expenses. Insurance is paid in
February, and a $40,000 installment on income taxes is expected to be paid in April. Of
the remainder of the selling and administrative expenses, one-half are expected to be
paid in the month in which they are incurred, with the balance paid in the following
month. Capital additions of $250,000 are expected to be paid in March.
Current assets as of March 1 are composed of cash of $45,000 and accounts receivable
of $51,000. Current liabilities as of March 1 are composed of accounts payable of
$121,500 ($102,000 for materials purchases and $19,500 for operating expenses).
Management desires to maintain a minimum cash balance of $20,000.
Prepare a monthly cash budget for March and April.
