Working capital is the excess of current assets over current liabilities.
Gross profit margin is the dollar amount of gross profit expressed as a percentage of
gross sales.
The market price of a bond is equal to its present value.
The higher the required rate of return of an investment, the less an investor will be
willing to pay for the investment.
The terms “sales discount” “purchase discount” and “cash discount” all refer to the same
discount.
Inventory shrinkage refers to unrecorded decreases in inventory resulting from
breakage, theft, and shoplifting.
According to the Sarbanes-Oxley Act, lying to an external auditor can create a criminal
penalty as well as a civil penalty.
An advantage to the LIFO method of accounting for inventory is that it values the cost
of goods sold at current replacement costs.
Depreciation on a manufacturing facility is considered a period cost whereas
depreciation on a warehouse used to store finished goods is considered a product cost.
In a planned economy, the government uses central planning to allocate resources and
determines output among various segments of the economy.
Capital turnover can be improved by reducing invested capital while keeping sales
constant.
Current liabilities are obligations that must be repaid within the shorter of one year or
the operating cycle.
Estimated liabilities, contingencies, and commitments are usually reported in the
long-term liability section of the financial statements.
Sinking funds make a bond issue less attractive to the investor.
Dividends paid by a corporation to its stockholders are tax deductible by the
corporation but interest paid on bonds is not tax deductible.
In the year following an overstatement of ending inventory, the year-end owners’ equity
will be correctly stated.
A debit balance in the Manufacturing Overhead account at the end of the period
indicates that overhead has been under-applied to jobs.
Total assets plus total liabilities must equal total owners’ equity.
When money is borrowed by issuing a note payable, the borrower records a liability
equal to the maturity value of the note.
The “worksheet approach” to preparing a statement of cash flows involves analyzing
changes in non-cash balance sheet accounts.
Gross pay less withholding tax and less worker’s compensation is considered net pay.
When a company uses peak pricing, it is charging the highest or “peak” prices the
public will be willing to pay during periods of low demand.
When credit sales exceed collections of cash from accounts receivable, the increase in
accounts receivable is added to net sales to determine the amount of cash collected from
customers during the period.
When recording a journal entry, asset accounts are shown first, followed by liabilities,
and finally owners’ equity accounts.
A difference between a standard cost and an actual cost would be recorded in the Work
in Process account.
If the allowance method is used, the recovery of an account receivable previously
written-off results in a gain being recorded on the income statement.
The principal purpose of a statement of cash flows is to measure the profitability of a
business that maintains its accounting records on the cash basis.
Factoring allows a business to obtain immediate cash instead of waiting to collect the
account receivable.
Collections of interest revenue are classified as operating activities.
The board of directors is at the top of a corporate organization chart, followed by the
stockholders, then the CEO or president of the corporation.
Treasury stock is stock of a corporation that has been issued and then reacquired and
then cancelled.
When an Allowance for Doubtful Accounts is used, accounts receivable are valued in
the balance sheet at their estimated net realizable value.
A trial balance includes only the balance sheet accounts, income statement accounts are
not included on a trial balance.
Most capital budgeting techniques involve analysis of net operating profits.
In the early years of an asset’s life, straight-line depreciation will cause a company to
report higher profits than would be reported with an accelerated depreciation method.
An unfavorable cost variance will be debited to a cost variance account.
Real accounts can only be closed at the end of the year with a single compound entry.
Management accounting reports may provide sufficient means of monitoring,
evaluating and rewarding performance.
An interest rate of 12% a year is the same as 6% for 2 months.
When a sole proprietorship incorporates, the assets of the new business are recorded at
cost.
Which of the following costs would not be considered part of the manufacturing
overhead of a furniture manufacturer?
A. The cost of compliance with federal factory safety regulations.
B. Depreciation expense on factory equipment.
C. The cost of grease used to lubricate factory equipment.
D. The cost of wood used in furniture construction.
The designation of CPA is given by:
A. Universities.
B. States.
C. The AICPA.
D. The SEC.
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. With respect to this bond issue, Greenway’s balance
sheet at December 31, Year 1, will include:
A. Bonds payable of $20,500,000.
B. Bonds payable of $19,500,000.
C. Bonds payable of $20 million, as well as interest payable of $1,500,000.
D. Bonds payable of $20 million, as well as interest payable of $500,000.
Responsibility margin is equal to:
A. Revenue, less contribution margin and traceable fixed costs.
B. Revenue, less variable costs.
C. Revenue, less variable costs and traceable fixed costs.
D. Revenue, less variable fixed costs, traceable fixed costs, and common costs.
Which of the following practices best illustrates efficient management of cash?
A. The accountant records all cash receipts and payments when reconciling the bank
account at the end of each month.
B. Management arranges for a loan to cover projected cash shortages during the
production phase of the business cycle each year.
C. Cash budgets (forecasts) are prepared only one month in advance in order to avoid
the need for constant revision.
D. All cash resources are held in the checking account to maximize liquidity.
Given below are comparative balance sheets and an income statement for Claret
Corporation.
All sales were made on account. Cash dividends declared during the year totaled
$11,492.
Refer to the information above. Claret Corporation’s inventory turnover for 2015 is:
A. 6.6 times.
B. 3.9 times.
C. 4.2 times.
D. 94 days.
The stockholders’ equity section of the balance sheet of Crammond Corporation at
December 31, appears as follows:
Refer to the information above. How many shares of common stock are outstanding?
A. 100,000.
B. 80,000.
C. 75,000.
D. 110,000.
At the end of January, the unadjusted trial balance of Windsor, Inc. included the
following accounts:
Refer to the information above. Windsor uses the balance sheet approach in estimating
uncollectible accounts expense, and aging the accounts receivable indicates the
estimated uncollectible portion to be $7,400. What is the amount of uncollectible
accounts expense recognized in Windsor’s income statement for January?
A. $7,400.
B. $6,600.
C. $8,200.
D. $800.
Which of the following would not tend to make a manufacturer choose a perpetual
inventory system?
A. Management wants information about quantities of specific products.
B. A low volume of sales transactions and a computerized accounting system.
C. A high volume of sales transactions and a manual accounting system.
D. Items in inventory with high per unit costs.
The Work in Process account in a job order cost accounting system will be debited for:
A. Only direct labor and direct materials.
B. Direct labor, direct materials, and applied overhead.
C. Direct labor, direct materials, and actual overhead.
D. Only direct materials and applied overhead.
Uncollectible accounts–two methods
At the end of the year the unadjusted trial balance of Angel Provisions included the
following accounts:
(a.) If Angel uses the balance sheet approach to estimate uncollectible accounts
expense, and aging the accounts receivable indicates the estimated uncollectible portion
to be $6,075, what will the uncollectible accounts expense for the year be?
(b.) If the income statement approach to estimating uncollectible accounts expense is
followed, and uncollectible accounts expense is estimated to be 1% of net credit sales,
what is the amount of uncollectible accounts expense for the year?
When management considers an investment, they look for the payback period to be:
A. Short.
B. Long.
C. Profitable.
D. Useful.
The Davidson Company’s breakeven point in units is 40,000. Assuming that variable
costs are 60% and fixed costs are $300,000, what is the company’s projected operating
income if sales are $1,000,000?
A. $750,000.
B. $100,000.
C. $250,000.
D. $400,000.
Which of the following would not appear on an income statement?
A. Repair service revenue.
B. Insurance expense.
C. Dividends.
D. Net income.
Given below are comparative balance sheets and an income statement for Namekagon
Corporation.
Refer to the information above. Namekagon Corporation’s return on common
stockholders’ equity for 2015 is:
A. 9.9%.
B. 8.7%.
C. 5.9%.
D. 16.9%.
On common size income statements, each component in the income statement is
represented as a percentage of:
A. Net income.
B. Net sales.
C. Total assets.
D. Profit.
The agreement of the debit and credit totals of the trial balance gives assurance that:
A. All transactions were posted correctly.
B. No transactions were omitted.
C. The number of accounts with debit balances equals the number of accounts with
credit balances.
D. The total debits equal the total credits.
Chic Jewelers views each branch location as an investment center. The local branch
reported the following results for the current year:
Refer to the above information. The contribution margin ratio of the local branch is
closest to:
A. 59%.
B. 41%.
C. 49%.
D. 52%.
Harding Systems, Inc. uses a periodic inventory system. The purchases of a particular
product during the year are shown below:
At December 31 the ending inventory consisted of 1,500 units.
Refer to the information above. Compute the cost of the ending inventory based on the
FIFO method of inventory valuation.
A. $12,500.
B. $29,175.
C. $10,975.
D. $27,650.
On January 1, 2015, Carleton Corporation had 55,000 shares of $6 par value common
stock outstanding. On March 31, 2015, Carleton issued an additional 10,000 shares in
exchange for a building. What number of shares will be used in the computation of
earnings per share for the year 2015?
A. 55,000.
B. 65,000.
C. 62,500.
D. 62,000.
At the end of January, the unadjusted trial balance of Windsor, Inc. included the
following accounts:
Refer to the information above. Windsor uses the income statement approach in
estimating uncollectible accounts expense, and uncollectible accounts expense is
estimated to be 2% of credit sales. What is the amount of uncollectible accounts
expense recognized in Windsor’s income statement for January?
A. $8,000.
B. $10,000.
C. $9,200.
D. $7,200.
Financial statements may be prepared for which time period?
A. One year.
B. Less than one year.
C. More than one year.
D. Any time period.
The accounting records of Golden Company showed cash of $15,250 at June 30. The
balance per the bank statement at June 30 was $15,125. The only reconciling items
were deposits in transit of $3,200, outstanding checks totaling $4,100, an NSF check for
$1,000 returned by the bank which Golden had not yet charged back to the customer,
and a bank service charge of $25. The preparation of the bank reconciliation should
indicate that Golden’s adjusted cash balance at June 30 is:
A. $14,475.
B. $15,375.
C. $14,225.
D. $15,525.
Which organization best serves the professional needs of a CPA?
A. FASB.
B. AICPA.
C. SEC.
D. AAA.
During 2015, Gillespie Corporation made a loan of $155,000 to a major customer. By
the end of 2015 the customer had paid back $60,000 of the loan plus interest of
$12,000. In the statement of cash flows for 2015, Gillespie Corporation would report:
A. A net decrease in cash and cash equivalents of $72,000 for 2015.
B. $72,000 net cash used for investing activities.
C. $95,000 net cash used for investing activities, and $12,000 cash provided from
operating activities.
D. $155,000 net cash used for investing activities, $60,000 net cash provided by
financing activities, and $12,000 cash provided by operating activities.
The account Work in Process Inventory:
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.
Which of the following would be treated as a prior period adjustment by Gold
Corporation in 2015?
A. In 2015, it was discovered that Gold Corporation recorded the purchase of a
warehouse in 2012 as a debit to Repairs Expense.
B. In 2015, Gold Corporation switched from the straight-line method of depreciation to
another method of computing depreciation.
C. In 2015, Gold Corporation’s management decided that the estimated useful life of its
computer equipment should be changed from five years to nine years.
D. In 2015, Gold Corporation sold a segment of the business that it has operated since
2006.
Which account appears on the After-Closing Trial Balance?
A. Service Revenue.
B. Unearned Revenue.
C. Dividends.
D. Retained Earnings, Beginning of Year.
In considering customer’s needs, the balanced scorecard method will look at:
A. Market share growth and customer retention.
B. Return on sales and sales turnover.
C. Residual income and return on investment.
D. Organizational procedures and information systems.