Management accounting refers to the preparation and use of accounting information
designed to meet the needs of decision makers outside the business organization.
The FASB has not compiled a comprehensive list of what is considered to be an
extraordinary item, thus the determination is a matter of judgment.
One of the major steps in achieving internal control over accounts receivable is that the
Billing department reviews the sales order, the customer’s credit file, and decides
whether and how much credit should be extended.
Restricted cash may be available to meet the normal operating needs of a company.
The sale of additional shares of capital stock will cause treasury stock to increase.
Estimating the useful life and residual value of an asset is the responsibility of the firm
of independent accountants that audit the company.
A company whose sales are growing at less than the rate of inflation may actually be
selling less merchandise every year.
In order to be consistent with IASB Standards, U.S. GAAP now requires that borrowing
costs on assets that require a substantial period to bring them to a marketable condition
be expensed immediately.
Discontinued operations should be shown on the statement of retained earnings net of
taxes.
Dividends are an expense to a corporation and appear on the income statement.
Payments made by American companies to motivate foreign officials to undertake
actions more rapidly than they might otherwise are prohibited by the Foreign Corrupt
Practices Act.
Activity-based costing tracks cost to the activities that consume resources.
Activities related to internal failure such as rework, scrap, and engineering change
orders are value-added activities since they cannot be eliminated without increasing
costs elsewhere in the value chain.
The quick ratio is a more stringent measure of solvency than the current ratio.
An investment center is a profit center where management can make related capital
investment choices.
U. S. GAAP requires a company to capitalize goodwill and adjust its value if subject to
impairment.
In a master budget, the sales forecast would be dependent upon the budgeted production
figures.
The current ratio equals current assets plus current liabilities.
Once a company determines its desired production level, it uses that estimated
production level to forecast sales for the period.
Publicly owned companies must file their audited financial statements and detailed
supporting schedules with the Financial Accounting Standards Board.
Ledger accounts are updated through a process called posting.
Bonds secured by a pledge of specific assets are called debenture bonds.
A flexible budget allows management to spend more or less for labor and materials
without regard to the amount of production.
With variable costs, the cost per unit varies with changes in volume.
The rule of consistency is violated when a company uses one method of depreciation
for financial statements and another method of depreciation for tax purposes.
If accounts receivable increased during the year, deducting the increase from net sales
determines the amount of cash received.
Standard costs actually are ideal costs per unit.
A quality cost report would be comprised of prevention costs only.
Every business transaction is recorded by a debit to a balance sheet account and a credit
to an income statement account.
The value chain includes customer service, marketing, and suppliers.
If ending inventory and cost of goods sold are added together, they should equal gross
profit.
The accounting equation may be stated as “assets minus liabilities equals owners’
equity.”
The ledger is a chronological, day-by-day, record of business transactions.
Which of the following would not be considered an adjusting entry?
A. A Above.
B. B Above.
C. C Above.
D. D Above.
The financial statements of New World, Inc., provide the following information for the
current year:
Refer to the information above. Compute the amount of New World’s cash payments for
operating expenses.
A. $277,200.
B. $283,500.
C. $378,000.
D. $349,650.
The financial statements of New World, Inc., provide the following information for the
current year:
Refer to the information above. New World’s net cash flow from operating activities for
the current year is:
A. $1,191,750.
B. $1,192,800.
C. $1,113,000.
D. $1,160,250.
All of the following are components of the value chain except:
A. Research and design activities.
B. Obtaining raw materials.
C. Supporting the product after it is sold.
D. Maintaining large inventories so that orders can be filled promptly.
The concept of adequate disclosure:
A. Demands a “good faith effort” by management.
B. Grants users of the financial statements access to a company’s accounting records.
C. Does not apply to events occurring after the balance sheet date.
D. Specifies which accounting methods must be used in a company’s financial
statements.
Refer to the information above. What is the gross profit?
A. $9,800
B. $33,600
C. $32,200
D. $43,400
Armstrong, Inc. uses a flexible budget. Armstrong produced 16,000 units in May
incurring direct materials cost of $20,480. Its master budget for the year projected direct
materials cost of $362,500, at a production volume of 290,000 units. A flexible budget
for May should reflect direct materials cost of:
A. $20,480.
B. $20,000.
C. $21,000.
D. $19,750.
At the beginning of the current year, Wilson Corporation had 200,000 shares of $1 par
common stock outstanding and had retained earnings of $4,800,000. During the year,
the company earned $1,675,000 and paid a year-end cash dividend of $3 per share.
What was Wilson Corporation’s retained earnings at the end of the year?
A. $6,275,000.
B. $5,875,000.
C. $6,475,000.
D. $4,800,000.
Refer to the above data. The number of dollars equivalent to 50,000 on this date is:
A. $31,250.
B. $80,000.
C. $32,500.
D. Depends upon whether the item is a receivable or a payable.
Gold Company received a two-month, 12% note for $8,000 on June 16. Which of the
following statements is true?
A. Gold will receive $8,000 plus interest of $960 at maturity.
B. Gold should record a total receivable due of $8,080 on June 16.
C. The principal of the note plus interest is due on August 15.
D. The maturity value of this note is $8,000.
Intangible assets are assets used in business operations but which:
A. Lack physical substance.
B. Cannot be sold.
C. Have been depreciated below their estimated salvage values.
D. Cannot be specifically identified.
Pension expense is:
A. The present value of the estimated future pension benefits earned by employees as a
result of their services during the period.
B. The amount funded to the pension in a given year.
C. The future value of rights granted to employees as a result of their services during
the period.
D. The amount withdrawn from the pension fund to pay retirees during the period.
Objectives of financial reporting to external investors and creditors include preparing
information about all of the following except:
A. Information used to determine which products to produce.
B. Information about economic resources, claims to those resources, and changes in
both resources and claims.
C. Information that is useful in assessing the amount, timing, and uncertainty of future
cash flows.
D. Information that is useful in making investment and credit decisions.
The cost of the transportation of inventory purchased:
A. Are expensed in the current period.
B. Increases income.
C. Becomes part of the cost of inventory.
D. Reduces the sales price.
Inventory flow assumptions
Briefly discuss the factors management should consider in deciding:
(a) Whether to use specific identification or a cost flow assumption in measuring the
cost of goods sold.
(b) Whether to use FIFO or LIFO. (Assume a long-run trend of slowly rising prices.)
Newport Corporation is considering investing $65,000 in equipment to produce a new
product. The useful service life of the equipment is estimated to be ten years, with no
salvage value. Straight-line depreciation is used. The company estimates that
production and sale of the new product will increase net income by $6,500 per year.
Refer to the information above. The expected rate of return on average investment in
this equipment is:
A. 15%.
B. 20%.
C. 7.5%.
D. Some other percentage.
In evaluating the quality of a company’s earnings, which of the following factors is
least important?
A. The accounting methods used by management.
B. The trend of the company’s earnings over a period of years.
C. The dollar amount of earnings per share.
D. The stability and sources of the company’s earnings.
Incremental analysis – make-or-buy decision
Paramount Bikes, Inc., uses 10,000 derailleurs in its bicycles each year. Derailleurs
currently cost the company $20.90 per unit to manufacture, determined as follows:
Paramount Bikes, Inc., has been approached by an outside supplier that will provide
derailleurs at a price of $16 per unit. If Paramount Bikes, Inc., stops producing
derailleurs, the direct materials, direct labor, and variable manufacturing overhead will
be eliminated, as will $30,000 of the fixed manufacturing overhead. Use incremental
analysis to determine whether Paramount Bikes, Inc., should make or buy derailleurs.
Complete the following schedule, and indicate in the space provided your decision to
continue making, or to buy the part:
Decision: ___________________________________________
A transaction caused an increase in both assets and owners’ equity. This transaction
could have been resulted from the:
A. Sale of services to a customer.
B. Sale of land for a price less than its cost.
C. Borrowing money from a bank.
D. Sale of land for cash at a price equal to its cost.
Which of the following would not be used in computing diluted earnings per share?
A. Preferred stock.
B. Convertible bonds.
C. Stock options.
D. Weighted-average number of shares of common stock outstanding during the year.
The stockholders’ equity section of the balance sheet of Caesar Corporation at
December 31, 2015, appears as follows: (The company engaged in no treasury stock
transactions prior to 2015)
Refer to the information above. A small stock dividend of 1,000 shares was declared
and distributed during 2015. What was the market price per share on the date of
declaration?
A. $8.00 per share.
B. $2 per share.
C. $16 per share.
D. $28.00 per share.
At the end of last year, Games-2-Use had merchandise costing $140,000 in inventory.
During January of the current year, the company purchased merchandise costing
$102,000, and sold merchandise that it had purchased at a total cost of $84,000.
Games-2-Use uses a perpetual inventory system.
Refer to the information above. The balance in the Inventory account at January 31
was:
A. $84,000.
B. $140,000.
C. $158,000.
D. $242,000.
Haven Corporation issued $700,000 of 10-year bonds payable at par in 2011. During
2015 Haven paid $50,000 interest and an additional $233,333 to retire one-third of the
bonds at par. These activities would be reported in Haven’s statement of cash flows for
2015 as:
A. $283,333 net cash provided by financing activities.
B. $283,333 net cash used in financing activities.
C. $233,333 net cash used in financing activities, and $50,000 cash disbursed for
operating activities.
D. $466,667 net cash provided by financing activities, and $50,000 cash disbursed for
operating activities.
Which financial statement is prepared as of a specific date?
A. The balance sheet
B. The income statement
C. The statement of cash flows
D. The balance sheet, income statement, and statement of cash flows are all for a period
of time rather than at a specific date.
The calculation of the labor efficiency variance is:
A. Standard hourly rate multiplied by (standard hours minus actual hours).
B. Standard hours multiplied by (standard rate minus actual rate).
C. Actual labor hours multiplied by (standard rate minus actual rate).
D. Actual rate multiplied by (standard hours minus actual hours).
Shown below is information relating to the stockholders’ equity of Reeve Corporation
as of December 31, 2015:
Refer to the information above. What is total paid-in capital?
A. $2,292,000.
B. $1,800,000.
C. $2,400,000.
D. $2,340,000.
Refer to the information above. A statement of cash flows for August, would report net
cash flows from investing activities of:
A. ($26,000).
B. $32,400.
C. ($40,000).
D. $46,400.
The account Finished Goods:
A. Consists of completed goods that have not yet been sold.
B. Consists of goods being manufactured that are incomplete.
C. Consists of materials to be used in the production process.
D. Consists of the cost of new materials used, labor but not overhead.
Refer to the information above. A statement of cash flows for February, would report
net cash flows from financing activities of:
A. $4,000.
B. $47,000.
C. $83,000.
D. $96,600.
When the LIFO costing method is in use, the seller:
A. Must sell the most recently acquired units first.
B. Must sell the oldest unit in inventory first.
C. Assumes that the most recently acquired units are sold first.
D. Assumes that the oldest units in inventory are sold first.
Eagle Company uses a standard cost system which has provided the following data:
Refer to the information above. The journal entry to record the cost of direct labor used
in this period includes:
A. A debit to Work in Process Inventory of $2,880.
B. A debit to Work in Process Inventory of $2,560.
C. A credit to Direct Labor Rate Variance of $320.
D. A credit to Direct Labor Rate Variance of $360.
The Cash account in the ledger of Hensley, Inc. showed a balance of $3,100 at June 30.
The bank statement, however, showed a balance of $3,900 at the same date. The only
reconciling items consisted of a $700 deposit in transit, a bank service charge of $7, and
a large number of outstanding checks.
Refer to the information above. What is the total amount of the outstanding checks at
June 30?
A. $1,513.
B. $1,486.
C. $1,507.
D. $1,500.
The monthly high and low levels of direct labor hours and of total manufacturing
overhead for Onyx Company are as shown:
Refer to the information above. In a month in which 6,500 direct labor hours are
worked, Onyx’s manufacturing overhead should be approximately:
A. $18,000.
B. $28,000.
C. $31,000.
D. $35,000.