Refer to the information above. Summit has learned that a competitor plans to introduce
a similar widget at a price of $80. In response, Summit may reduce its selling price to
$80. If Summit requires a 25% return on sales, what is the target cost for the new
widget?
A. $80.00.
B. $60.00.
C. $23.75.
D. $20.00.
Castle TV, Inc. purchased 1,000 monitors on January 5 at a per-unit cost of $185, and
another 1,000 units on January 31 at a per-unit cost of $230. In the period from
February 1 through year-end, the company sold 1,800 units of this product. At year-end,
200 units remained in inventory.
Refer to the information above. Assume that the replacement cost of this monitor at
year-end is $220 per unit. Using the FIFO flow assumption and the
lower-of-cost-or-market rule, Castle TV should write down the carrying value of this
inventory by:
A. $0.
B. $1,000.
C. $2,000.
D. $3,000.
Soriano Company had net sales of $300,000 for the month (after returns and allowances
of $1,500 and sales discounts of $3,250). Beginning inventory for the month was
$60,000; purchases for the month were $175,000; and gross profit was 43%.
Refer to the information above. What were the goods available for sale for the month?
A. $129,000.
B. $171,000.
C. $235,000.
D. $304,750.
The following data are available for product no. CK74, manufactured and sold by Ruby
Corporation:
Refer to the information above. The number of units of CK74 that Ruby must sell to
break-even is:
A. 30,000.
B. 20,500.
C. 8,200.
D. 12,300.
At the end of 2015, Schenck Corporation sold its only piece of equipment for $9,000
cash, a price which resulted in a loss of $3,000. During 2015, depreciation expense
recognized by Schenck was $1,000. Schenck uses the indirect method to compute net
cash flow from operating activities. In reconciling net income to net cash flow from
operating activities under the indirect method, the required adjustments based upon the
given data:
A. Increase net income by $4,000.
B. Increase net income by $1,000.
C. Decrease net income by $4,000.
D. Increase net income by $3,000.
Carter & Co. is trying to decide which of two investments they should consider. The
following information is available:
Each investment is expected to have a useful life of 5 years. (Rounded)
(a) What is the rate of return on average investment of each investment?
(b) What is the payback period of each investment?
Assume that net sales are increasing faster than the rate of inflation, and that the
company’s gross profit rate is rising. Of the following, the most logical conclusion is
that:
A. The company’s cost of purchasing merchandise is rising rapidly.
B. Operating expenses are falling.
C. Demand for the company’s products is very strong.
D. The company has achieved an increase in sales volume by reducing its sales prices.
There is an unfavorable labor efficiency variance when:
A. Actual hours are greater than standard hours.
B. Actual hours are less than standard hours.
C. The standard rate per hour is greater than the actual rate per hour.
D. The standard rate per hour is less than the actual rate per hour.
Which of the following is not considered an operating budget?
A. Manufacturing cost budget.
B. Production schedule.
C. Capital expenditures budget.
D. Sales forecast.
Refer to the information above. Assume that in its financial statements, Victor uses
straight-line depreciation and rounds depreciation for fractional years to the nearest
whole month. Depreciation recognized on this equipment in 2014 and 2015 will be:
A. $23,333 in 2014 and $35,000 in 2015.
B. $40,000 in 2014 and $30,000 in 2015.
C. $20,000 in 2014 and $35,000 in 2015.
D. $26,250 in 2014 and $35,000 in 2015.
On October 1 of the current year, Molloy Corporation prepared a cash budget for
October, November, and December. All of Molloy’s sales are made on account. The
following information was used in preparing estimated cash collections:
Approximately 60% of all sales are collected in the month of the sale, 30% is collected
in the following month, and 10% is collected in the month thereafter.
Refer to the information above. Budgeted collections from customers in October total:
A. $39,000.
B. $27,000.
C. $31,000.
D. $110,000.
Reporting cash in the balance sheet
(a.) The first asset shown in the balance sheet of many companies is labeled “cash and
cash equivalents.” Explain the term “cash equivalent” and give two examples. Why are
cash and cash equivalents listed first in the balance sheet?
(b.) The December bank statement for Kowal Publishing Co. reports a balance of
$13,847.59 at December 31, 2015. Kowal’s accounting records, however, show a
balance of $15,245.47 in the same bank account prior to preparation of the bank
reconciliation.
Which amount should be included in the amount of cash reported in Kowal’s balance
sheet at December 31, 2015? Explain your answer.
When a company sells bonds between interest dates they will pay which of the
following at the first interest payment date?
A. An amount less than the stated interest rate times the principal.
B. An amount more than the stated interest rate times the principal.
C. An amount equal to the stated interest rate times the principal.
D. The company may skip the first interest payment date since the appropriate time has
not passed.
Financial instruments do not include:
A. Contracts that call for receipts or payment of cash.
B. Equity investment in another business.
C. Cash.
D. Tangible assets.
When shares of stock are sold from one investor to another, they will trade at:
A. Par value.
B. Book value.
C. Market value.
D. Stated value.
At the beginning of 2015, Midway Hardware has an inventory of $400,000. Because
sales growth was strong during 2015, the owner wants to increase inventory on hand to
$450,000 at December 31, 2015. If net sales for 2015 are expected to be $1,600,000,
and the gross profit rate is expected to be 35%, compute the cost of the merchandise the
owner should expect to purchase during 2015.
A. $1,490,000.
B. $1,040,000.
C. $1,090,000.
D. $1,600,000.
Shown below is information relating to the stockholders’ equity of Grant Corporation at
December 31, 2015:
Dividends have been declared and paid for 2015.
Refer to the information above. The balance in Retained Earnings at the beginning of
the year was $950,000, and there were no dividends in arrears. Net income for 2015
was $980,000. What was the amount of dividend declared on each share of common
stock during 2015?
A. $2.50.
B. $2.08.
C. $2.00.
D. $2.68.
Financial accounting information is characterized by all of the following except:
A. It is historical in nature.
B. It results from inexact and approximate measures.
C. It is factual, so it does not require judgment to prepare.
D. It is enhanced by management’s explanation.
In a process costing system, costs flow from one Work in Process Inventory account to
the next in the same sequence as:
A. Units flow through production.
B. In a LIFO periodic inventory system.
C. Shipped to customers.
D. In a job order cost system.
Austin Corporation issues $6,000,000 of 10%, 10-year bonds, dated December 31, Year
1. The bonds are issued on April 30, Year 2, at 100 plus accrued interest. Interest on the
bonds is payable semiannually each June 30 and December 31.
Refer to the information above. The amount of Austin’s interest expense on this bond
issue during Year 2 amounts to:
A. $400,000.
B. $450,000.
C. $360,000.
D. $600,000.
Refer to the information above. What is the current ratio?
A. 5.0 to 1.
B. 1.5 to 1.
C. .7 to 1.
D. .8 to 1.
During August, Department Z started and completed 90,000 units and also finished
18,000 units that were 75% completed on July 31. On August 31, Department Z’s
ending inventory consisted of 26,000 units that were 45% completed. All manufacturing
costs are incurred at a uniform rate throughout Department Z’s production process. The
number of equivalent units of production for Department Z during August is:
A. 106,200.
B. 90,000.
C. 94,500.
D. 117,800.
An operating lease:
A. Creates an asset and a liability on the balance sheet.
B. Is a form of off-balance sheet financing.
C. Is always preferable to a capital lease.
D. Transfers title to the asset being leased.
In calculating earnings per share, the denominator of the equation includes:
A. Only common stock outstanding.
B. Common stock plus preferred stock.
C. Common stock less preferred stock.
D. The total shares of authorized common stock.
In reconciling a bank statement, which of the following items could cause the cash per
the bank statement to be greater than the balance of cash shown in the depositor’s
accounting records?
A. An outstanding check.
B. A check returned to the depositor marked NSF.
C. Check 457 written for $643 was recorded by the depositor as $463.
D. A bank service charge.
A company with monthly revenue of $120,000, variable costs of $50,000, and fixed
costs of $40,000 has a contribution margin of:
A. $90,000.
B. $80,000.
C. $70,000.
D. $30,000.
The cost of a new windshield wiper on a delivery vehicle would be classified as:
A. A capital expenditure.
B. A revenue expenditure.
C. Part of the cost of goods sold.
D. An unusual and infrequent expense.
Which of the following is not true regarding the general ledger account for Cash?
A. The balance of the account indicates the amount of cash owned by the business on a
particular date.
B. Each debit entry in the Cash account represents a cash receipt.
C. Debit entries are made before credit entries.
D. Credit entries in the Cash account represent cash payments.
Which of the following accounts normally has a debit balance?
A. Accounts payable.
B. Retained earnings.
C. Accounts receivable.
D. Service revenue.
Effective internal control includes all the following steps except:
A. The Customer Order department prepares a sales order upon receipt of an order.
B. The Billing department compares what was shipped with what was ordered and
prepares and mails a sales invoice.
C. The Accounting department receives the checks and the mailroom listing of checks
received and prepares the daily bank deposit.
D. The Accounting department reconciles the bank statement with accounting records.
The cost of the employee who computes total manufacturing costs would be considered
as:
A. Direct labor.
B. Indirect labor.
C. Manufacturing overhead.
D. Administrative costs.
Sovereign Foods suffered a $1,500,000 loss (net of tax) when the FDA prohibited the
sale of food products containing red dye no. 3. On its other products, Sovereign Foods
had net sales of $6,580,000 and costs and other expenses of $6,505,000. Which of the
following statements is not true? (Ignore taxes)
A. Sovereign Foods reports a net loss of $1,425,000 for the current year.
B. Sovereign Foods reports income before extraordinary items of $75,000.
C. Sovereign Foods combines the $1,500,000 loss with its other costs and expenses of
$6,505,000, since this item does not qualify for any special disclosure.
D. Sovereign Foods shows the $1,500,000 loss in a separate section of the income
statement as an extraordinary item.
Steps in the accounting cycle include (1) prepare financial statements, (2) post each
journal entry to the appropriate ledger account, and (3) journalize transactions. Which
of the following reflects the correct order of these steps?
A. (1), (2), (3).
B. (3), (2), (1).
C. (2), (1), (3).
D. (3), (1), (2).