A labor efficiency variance relates to the number of hours actually worked, compared to
the standard hours.
Land improvements are not subject to depreciation.
Natural resources such as oil or minerals are categorized as intangible assets.
Although cultural differences are significant in business dealings, they pose no
difficulties to the design and implementation of an accounting system.
The additional paid-in capital account represents profit to the corporation and, as such,
it is credited to Retained Earnings.
The concept of applying the accounting treatment that results in the lowest, most
conservative, estimate of net income for the period is called the matching principle.
A cash budget determines the maximum amount of money that can be spent during the
period.
The content of management accounting reports needs to be presented in conformity
with generally accepted accounting principles.
Book value per share of preferred stock is computed as total stockholders’ equity less
the amount assigned to common stock plus any dividends in arrears divided by the
number of shares of preferred stock outstanding.
When the net present value is greater than zero, the investment’s rate of return is less
than the discount rate.
External users of accounting information have a financial interest in an entity but are
not involved with the day-to-day operations of the enterprise.
A process costing system is highly desirable when a company mass produces identical
goods.
Accountants refer to the period of time from October 1 – December 31 as “busy
season.”
The indirect method of computing cash flows from operations begins with net income.
The net present value of an investment proposal is the difference between the total
present value of future net cash flows and the cost of the investment.
If an accelerated depreciation method is used for an asset with a useful life of five
years, more depreciation expense would be recorded in the third year than in the fifth
year.
The development of activity-based cost information is a necessary prerequisite to
activity-based management.
A CEO or CFO associated with fraudulent financial reporting could be fined but not
imprisoned under the Sarbanes Oxley Act.
The contra-revenue accounts, Sales Returns and Allowances and Sales Discounts,
should be closed by crediting these accounts and debiting Income Summary for each
account.
An equivalent unit measures the percentage of a completed unit’s cost that is present in
a partially finished unit.
The production cost report is an estimate of the equivalent units completed during the
period.
The operating cycle of a merchandising company consists of (1) purchases of
merchandise; (2) sales of the merchandise; and (3) collection of accounts receivable.
Gains (or losses) on sales of marketable securities, as well as any unrealized holding
gains (or losses) on investments in available for sale securities, are reported in the
income statement.
Companies need not disclose information that may have a damaging effect on the
business, such as product liability lawsuits.
The reliability of estimates is a critical factor in capital budget proposals.
Rather than aiming to produce inventory, just-in-time inventory systems attempt to pull
production according to customer demand.
The main objective of the balanced scorecard system of performance measurement is
achieving the organization’s strategic goals.
Prime costs include direct materials and direct labor used in the production of goods
and services.
Earning revenue increases owners’ equity and expenses reduce owners’ equity,
therefore, revenues are recorded with debit entries and expenses are recorded with
credit entries.
The contribution margin is the difference between total revenue and fixed costs.
The accuracy of capital budget decisions is critically dependent on:
A. The project life span estimates.
B. Currency exchange rates.
C. Employee morale.
D. Supplier availability.
If an investment costs $140,000 with no residual value, an expected increase in net
income of $35,000 and a 5 year useful life, the payback period would be:
A. 2.2 years.
B. 4 years.
C. 5 years.
D. 2 years.
Refer to the information above. How many units must be sold each month to earn a
monthly operating income of $8,000? (Round your final answer to the next whole
number.)
A. 971 units.
B. 1,442 units.
C. 122,500 units.
D. 353 units.
Speedy Co. manufactures four products. Direct materials and direct labor are available
in sufficient quantities, but machine capacity is limited to 3,000 hours. Cost and
revenue data for the four products are given below:
Of the four products, which is the most profitable for Speedy Co.?
A. Product A.
B. Product B.
C. Product C.
D. Product D.
Aves Treats, Inc. produces bird seeds. All direct materials used in the production
process are added at the beginning of the manufacturing process. Labor and overhead
are added evenly thereafter, as each unit is mixed and packaged. Aves Treats uses
process costing and had the following unit production information available for the
months of June and July:
The units remaining in work in process at the end of June were 30% complete. During
the month of July, all of the beginning work in process units was completed and the
units remaining in work in process at the end of the month were 60% complete.
Refer to the information above. For the month of June, the number of equivalent units
of labor and overhead produced was:
A. 750.
B. 600.
C. 645.
D. 595.
The calculation of the labor rate variance is:
A. Standard 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).
The placing of direct materials into the production process is recorded by an entry
debiting:
A. Materials Expense.
B. Raw Materials Inventory.
C. Work in Process Inventory.
D. Finished Goods Inventory.
Incremental costs can be defined as:
A. Costs that are expected to increase regardless of the course of action chosen.
B. The differences between costs incurred under alternative courses of action.
C. Costs incurred in the past.
D. Costs that are irrelevant in decision making.
In a standard cost system, finished goods are reported in:
A. The balance sheet at standard cost.
B. The balance sheet at actual cost.
C. The income statement at standard cost.
D. The income statement at actual cost.
An S corporation must have a maximum of ____ stockholders.
A. 25
B. 65
C. 70
D. 75
Which of the following is not true regarding the direct and indirect methods of
computing net cash flow from operating activities?
A. Both methods result in the same dollar amount of cash flow from operating
activities.
B. Both methods involve adjusting entries to the company’s books so that the
accounting records reflect the figures shown in the statement of cash flows.
C. Both methods are acceptable to the FASB for reporting purposes.
D. Both methods convert accrual-based income statement amounts to cash flow results.
Cost-volume-profit relationships
The following data are available for a product manufactured and sold by Logan
Company:
Compute the following:
(a) Contribution margin per unit: $_______________
(b) Number of units that must be sold to break-even: _______________ units
(c) Dollar sales volume to produce income of $864,000 before taxes (round units to the
next highest full unit): $_______________
The accountant for Perfect Painting forgot the following two adjustments at the end of
2015:
(a) The entry to record depreciation: $3,000.
(b) The entry to record the portion of fees received in advance which have now been
earned: $3,000.
As a result of these two omissions:
A. Net income for Perfect Painting for 2015 is overstated.
B. Net income for Perfect Painting for 2015 is understated.
C. Assets of Perfect Painting are overstated at December 31, 2015.
D. Liabilities of Perfect Painting are understated at December 31, 2015.
An analysis of Kenny Corporation’s Investment in Marketable Securities account during
2015 disclosed the following:
Kenny’s 2015 income statement included a $90,000 loss on sale of marketable securities
and $65,000 dividend income from marketable securities. All payments and proceeds
relating to marketable securities transactions were in cash.
Refer to the information above. How should the transactions involving marketable
securities be classified in Kenny’s statement of cash flows for 2015?
A. The purchase of marketable securities, sales of marketable securities, and receipt of
dividends are all classified as investing activities.
B. The purchase and the sale of marketable securities are classified as investing
activities; the receipt of dividends is classified as an operating activity.
C. The purchase of marketable securities is classified as an investing activity; the sale
of marketable securities is classified as a financing activity; the receipt of dividends is
classified as an operating activity.
D. The purchase and the sale of marketable securities are classified as investing
activities; the receipt of dividends is classified as a financing activity.
When a worksheet is prepared, which account would not be entered into the income
statement columns?
A. Depreciation Expense.
B. Unearned Revenue.
C. Service Revenue.
D. Insurance Expense.
Which of the following statements about MACRS is not correct?
A. MACRS is the only accelerated depreciation method that may be used on newly
acquired assets for federal income tax purposes.
B. The method permits “depreciating” the asset to a tax basis of $0 over a specified
recovery period.
C. If a company uses MACRS in its income tax returns, it also must use MACRS in its
financial statements.
D. Most businesses would benefit from using MACRS rather than straight-line
depreciation in their income tax returns.
On April 1, Year 1, Greenway Corporation issues $20 million of 10%, 20-year bonds
payable at par. Interest on the bonds is payable semiannually each April 1 and October
1.
Refer to the information above. In Year 2, Greenway’s income statement will report
interest expense arising from this bond issue of:
A. $1,000,000.
B. $2,000,000.
C. $500,000.
D. $1,500,000.
Mayfair Corporation has outstanding 70,000 shares of $1 par value common stock as
well as 20,000 shares of 7%, $100 par value cumulative preferred stock. At the
beginning of the year, the balance in retained earnings was $800,000, and one year’s
dividends were in arrears. Net income for the current year is $580,000. Compute the
balance in retained earnings at the end of the year if Mayfair Corporation pays a
dividend of $3 per share on its common stock this year.
A. $1,080,000.
B. $1,670,000.
C. $890,000.
D. $310,000.
The CPA firm auditing Capri Corporation found that net income had been overstated.
Which of the following could be the cause?
A. Failure to take advantage of purchase discounts by paying within the discount
period.
B. Overstatement of inventory at year-end.
C. Use of the last-in, first-out (LIFO) method of valuing inventory in a period of rising
prices.
D. Failure to record payment of an account payable to a supplier on the last day of the
year.
The write-down of inventory:
A. Only affects the balance sheet and not the income statement.
B. Only affects the income statement and not the balance sheet.
C. Affects both the income statement and the balance sheet.
D. Affects neither the income statement nor the balance sheet.
Estimating costs and profit
First-Class Company sells a single product. The unit selling price is $250, and variable
costs are 60% of this selling price. Fixed costs are currently $68,000 per month.
(a) Calculate the monthly break-even point in units. ____________ Units.
(b) First-Class is considering the acquisition of new robotic equipment. Depreciation on
the new robots will increase monthly fixed costs by $8,000, but reduce variable costs to
50% of the current selling price. If First-Class acquires the robots what will be the new
monthly break-even point in units? ________________________ Units.
The financial statements of Garver, Inc., provide the following information for the
current year:
Refer to the information above. Compute the cash payments for operating expenses.
A. $146,000.
B. $118,000.
C. $162,000.
D. $130,000.
Bruno’s Pizza Restaurant makes full payment of $8,300 on an account payable to
Stella’s Cheese Co. Stella’s would record this transaction with a:
A. Debit to Accounts Payable for $8,300.
B. Credit to Cash for $8,300.
C. Credit to Accounts Receivable for $8,300.
D. Credit to Accounts Payable for $8,300.
Effects of a series of transactions on balance sheet items
Fieldstone, Inc. had the following transactions during the month of March, the first
month of operations for the business:
* The corporation issued 12,000 shares of capital stock to Sandy Fieldstone in exchange
for $120,000 cash.
* Purchased $73,000 of equipment; made an $18,000 down payment and signed a note
payable for the balance.
* Made payment of $9,000 on the amount owed for equipment.
(A.) Compute the balance in the Cash account at the end of March.
(B.) What are the total assets of Fieldstone, Inc. at the end of March?
(C.) Compute the balance in the Notes Payable account at the end of March.
(D.) What is the total amount of owners’ equity at the end of March?
The dollar amount used by one division which supplies a good or a service to another
division within a company is called a:
A. Market price.
B. Transfer price.
C. Fair price.
D. Agreed-upon price.
Costs that rise and fall proportionately with the volume of output are often referred to
as:
A. Variable costs.
B. Flexible costs.
C. Idle capacity costs.
D. Uncontrollable costs.
Which of the following is considered a quick asset?
A. Accounts receivable.
B. Inventory.
C. Automobiles.
D. Prepaid expenses.
During the current year, Carlin Equipment Stores had net sales of $500 million, a cost
of goods sold of $400 million, average accounts receivable of $60 million, and average
inventory of $50 million.
Refer to the information above. Carlin Equipment’s inventory turnover rate is:
A. 6.7 times.
B. 8 times.
C. 10 times.
D. 1.25 times.
Wilbur Company purchased $10,000 of equipment on December 20, 2015 on terms
2/15, net 30. Wilbur paid for the equipment on the 15th day following purchase and took
advantage of the discount. Which of the following statements is correct?
A. Wilbur will record a cash outflow from operating activities of $10,000 in its 2015
financial statements.
B. Wilbur will record a cash outflow from operating activities of $9,800 in its 2015
financial statements.
C. Wilbur will record a cash outflow from operating activities of $10,000 in its 2016
financial statements.
D. Wilbur will record a cash outflow from operating activities of $9,800 in its 2016
financial statements.
Which of the following is true about foreign trade zones?
A. They are illegal in the United States.
B. Goods imported into these designated U.S. areas are duty free until they leave the
zone.
C. They have a special excise tax.
D. They are areas outside the United States that offer special tax treatments.
An important advantage of a standard cost system is that standard costs:
A. Cause financial statements to be more comparable because different companies cost
their inventories in the same manner.
B. Can be determined with great precision so that inventories are valued with complete
accuracy.
C. Cause a lower net income, resulting in lower income taxes.
D. Focus attention on trouble spots and facilitate prompt corrective action.
Zigma Corporation is authorized to issue 2,000,000 shares of $4 par value capital stock.
The corporation issued half the stock for cash at $8 per share, earned $336,000 during
the first three months of operation, and declared a cash dividend of $60,000. The total
paid-in capital of Zigma Corporation after three months of operation is:
A. $7,940,000.
B. $8,000,000.
C. $8,276,000.
D. $8,336,000.