If $500,000 of 8% bonds are issued at 102, the amount of cash received from the sale is:
a. $540,000
b. $510,000
c. $500,000
d. $530,000
Which financial statement reconciles net income with net cash flows from operating
activities?
a. Balance sheet
b. Statement of stockholders’ equity
c. Statement of cash flows
d. Income statement
Yellco Inc., a toy manufacturer, provided the following information:
Domestic unit sales price$50
Unit manufacturing costs:
Variable10
Fixed8
The company has received an offer from an exporter for 9,000 units of toys at $60 per
unit. The additional business is not expected to affect the normal production or
domestic sales prices of Yellco Inc. What is the amount of gain or loss from acceptance
of the offer?
a. $450,000 gain
b. $162,000 loss
c. $315,000 loss
d. $162,000 gain
When evaluating a proposal by use of the net present value method, if the present value
is less than the amount to be invested, the rate of return on the proposal is more than the
rate used in the analysis.
a. True
b. False
If the actual direct labor hours spent producing a commodity differ from the standard
hours, the variance is termed:
a. time variance.
b. price variance.
c. quantity variance.
d. rate variance.
In general, present value methods of analyzing capital investments are more desirable
than methods ignoring present values because:
a. the calculations in methods that ignore present value are more complex than those in
methods using present value.
b. the present value methods consider that a dollar today is worth more than a dollar in
the future due to the potential earning power of that dollar.
c. the calculations in methods that consider present value are less complex than those
methods ignoring present value.
d. the present value methods consider that a dollar in the future is worth more than a
dollar today due to the potential earning power of that dollar.
The excess of current liabilities over quick assets is referred to as working capital.
a. True
b. False
The following data (in millions) is given for Magenta Inc. for the current year.
Total assets$720,000
Total liabilities$411,000
Total stockholders’ equity$309,000
Compute the debt ratio. (Round to the nearest whole number.)
a. 10%
b. 44%
c. 57%
d. 75%
The formula to compute direct materials price variance is:
a. actual costs – (actual quantity × standard price).
b. actual cost + standard costs.
c. actual cost – standard costs.
d. (actual quantity × standard price) – standard costs.
The first budget to be prepared is usually the production budget.
a. True
b. False
The _____ budget shows the expected results of a responsibility center for several
activity levels.
a. flexible
b. standard
c. breakeven
d. static
The stockholders’ equity of a company should equal the sum of its total assets and total
liabilities.
a. True
b. False
Stockholders of a corporation are its internal stakeholders.
a. True
b. False
A sales invoice included the following information: merchandise price, $4,500;
transportation, $300; terms 1/10, n/eom, FOB shipping point. Assuming that a credit for
merchandise returned of $600 is granted prior to payment, that the transportation is
prepaid by the seller, and that the invoice is paid within the discount period, what is the
amount of cash received by the seller?
a. $3,861
b. $4,158
c. $4,161
d. $4,200
Intangible assets do not exist physically.
a. True
b. False
In a period of rising prices, the effect of selecting the FIFO rather than the LIFO
method of inventory valuation results in:
a. a higher days’ sales in inventory.
b. a lower return on sales.
c. a lower days’ sales in inventory.
d. a higher days’ sales in receivables.
An increase in Stockholders’ Equity from revenues earned will also result in an increase
in:
a. liabilities.
b. assets.
c. expenses.
d. cash flow from financing activities.
Which of the following is a factor that complicates capital investment analysis?
a. Equal proposal lives
b. Certainty of estimates of revenues, expenses, and cash flows
c. Sunk cost
d. Leasing alternative
The excess of divisional operating income over a minimum amount of desired operating
income is termed residual income.
a. True
b. False
The balance sheet and income statement for the year ended 2016 indicate the following:
Bonds payable, 10% (issued 1998, due 2022)$1,200,000
Preferred 5% stock, $100 par (no change during year)350,000
Common stock, $50 par (no change during year)2,100,000
Income before income tax for year3100,000
Income tax for year72,000
Common dividends paid58,000
Preferred dividends paid16,300
Based on the data presented above, what is the times interest earned?
a. 2.6
b. 0.7
c. 3.6
d. 2.9
A corporation has 10,000 shares of $100 par value stock outstanding. If the corporation
issues a 4for1 stock split, the number of shares outstanding after the split will be
40,000.
a. True
b. False
Zed Corporation is evaluating the purchase of a machine that costs $275,000. The
annual cash revenues from the machine would be $50,000, and the annual cash
expenses of the machine would be $10,000. What is the estimated cash payback period
for the machine?
a. 8.5 years
b. 3.8 years
c. 6.9 years
d. 5.2 years
For the purpose of analysis, mixed costs are generally:
a. classified as fixed costs.
b. classified as variable costs.
c. classified as period costs.
d. separated into their variable and fixed cost components.
Knowing how costs behave to change in the level of activity is useful to management
for all the following reasons except for:
a. predicting customer demand.
b. predicting profits as sales and production volumes change.
c. estimating costs.
d. changing an existing product production.
Which of the following businesses is most likely to use a job order costing system?
a. A paper mill
b. A swimming pool installer
c. A company that manufactures chlorine for swimming pools
d. An oil refinery
The balance in Accumulated Depreciation account is deducted from the cost of fixed
assets on the balance sheet.
a. True
b. False
If Division Q’s operating income was $60,000 and invested assets amounted to
$400,000, the rate of return on investment calculated would be 15%.
a. True
b. False
Which of the following would be deducted from the cash balance per books on a bank
reconciliation?
a. Service charges
b. Outstanding checks
c. Deposits in transit
d. Notes collected by the bank
If a company has issued only one class of stock, the earnings per share is determined by
dividing net income by the number of shares outstanding.
a. True
b. False
Cash collected from sales during the normal course of business would be an example of
which type of business activity?
a. Operating
b. Investing
c. Financing
d. None of these
Recording depreciation:
a. decreases liability and cash flow.
b. decreases net income but has no effect on cash flows.
c. decreases capital and operating expense.
d. decreases retained earning but has no effect on fixed assets.
On April 1, Smart, Inc. paid $7,200 for an insurance premium on a threeyear insurance
policy. How does this transaction affect Smart’s accounts?
a. Increase insurance expense and decrease cash by $7,200 each
b. Increase prepaid insurance and decrease cash by $7,200 each
c. Increase unearned insurance and decrease cash by $7,200 each
d. Increase prepaid insurance and decrease retained earnings by $7,200 each
Purchase discounts reduce sales.
a. True
b. False
Identify the type of adjustment necessary (the type of item involved) and record the
transaction for the event. Make sure to include the ending balances after adjustment.
Assume that on June 1, 2016, Tasty Sausage Corp. received $9,000 in advance to
provide sausages over the next three months. The June 30 adjustment is:
Assets =Liabilities + Stockholder’s Equity
CashOffice
EquipmentAccumulated
DepreciationUnearned
RevenueCommon
StockRetained
Earnings
Beg. Bal.9,000 9,000
Adjustment
End. Bal.
Pull Company is considering the disposal of equipment that is no longer needed for
operations. The equipment originally cost $600,000, and accumulated depreciation to
date totals $460,000. An offer has been received to lease the machine for its remaining
useful life for a total of $300,000, after which the equipment will have no salvage
value. The repair, insurance, and property tax expenses during the period of the lease
are estimated at $75,800. Alternatively, the equipment can be sold through a broker for
$230,000 less a 10% commission.
Prepare a differential analysis report, dated June 15 of the current year, on whether the
equipment should be leased or sold.
The accounting equation “Assets = Liabilities + Stockholders’ Equity” is affected by
transactions. Is it possible to have a transaction that only impacts one financial element
of the equation? Can a transaction impact two elements of the equation? Give
examples.
Neon Blue Co. provided the following summarized balance sheet as of the end of the
current year.
Common Stock, $10$6,500,000
PaidIn Capital in Excess of Par—Common Stock950,000
Retained Earnings850,000
The earnings for the current year were $325,000. Compute the earnings per share of
common stock.
Smith Co. is considering the following alternative plans for financing the company:
Plan IPlan II
Issue 10% Bonds (at face)$1,000,000
Issue $10 Common Stock$3,000,000$2,000,000
Income tax is estimated at 40% of income.
Determine the earnings per share of common stock under the two alternative financing
plans, assuming income before bond interest and income tax is $1,000,000.
Product J is one of the many products manufactured and sold by Gooble Company. An
income statement by product line for the past year indicated a net loss for Product J of
$7,250. This net loss resulted from sales of $265,000, cost of goods sold of $186,500,
and operating expenses of $85,750. It is estimated that 30% of the cost of goods sold
represents fixed factory overhead costs and that 40% of the operating expense is fixed.
If Product J is retained, the revenue, costs, and expenses are not expected to change
significantly from those of the current year. However, because of the net loss,
management is considering the elimination of the unprofitable endeavor. Because of the
large number of products manufactured, the total fixed costs and expenses are not
expected to decline significantly if Product J is discontinued.
Prepare a differential analysis report, dated February 8 of the current year, on the
proposal to discontinue Product J.
A portion of the divisional income statement for the year just ended is presented below
in a condensed form.
Department F
Net sales$93,800
Cost of goods sold 72,400
Gross profit$21,400
Operating expenses 28,900
Loss from operations$(7,500)
The operating expenses of Department F include $16,000 for direct expenses.
It is estimated that the discontinuance of Department F would not have affected the
sales of the other departments nor have reduced the indirect expenses of the business.
Assuming the accuracy of these estimates, determine the effect (increase or decrease
and the amount) on the operating income of the business if Department F had been
discontinued.
Prepare a multiplestep income statement for Surry Co. from the following data for the
year ended December 31, 2016.
Sales, $915,000; cost of merchandise sold, $670,000; administrative expenses, $30,000;
interest expense, $12,000; rent revenue, $19,000; customer refunds and allowances,
$55,000; selling expenses, $120,000.
Using the lowerofcostormarket method of inventory valuation, what should the total
inventory value be for the following items:
ItemInventory QuantityUnit cost priceUnit market priceTotal cost priceTotal market
price
A200$5$4.50$1,000$900
B1004 5.00 400500
C 507 6.50 350325
Explain how the four financial statements are linked.
The following are included in Ace Auto Parts, Inc.’s December 31, 2016 balance sheet:
Accounts Receivable$ 50,000
Building100,000
Cash60,000
Land130,000
Accounts Payable40,000
Notes Payable70,000
Stockholders’ Equity?
Below are the balances for December 31, 2016:
Accounts Receivable$ 90,000
Building100,000
Cash150,000
Land130,000
Accounts Payable60,000
Notes Payable50,000
Stockholders’ Equity?
Analyze the changes in these balances and determine net income for 2017, assuming
that the only change to stockholders’ equity is from net income.
The treasurer of Unisyms Company has accumulated the following budget information
for the first two months of the coming year:
March April
Sales$450,000$520,000
Manufacturing costs290,000350,000
Selling and administrative expenses41,40046,400
Capital additions250,000—
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. Onefourth of the manufacturing costs are
expected to be paid in the month in which they are incurred and the other threefourths
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, onehalf 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.
Condensed data taken from the ledger of Crawford Company at December 31, 2017 and
2016, are as follows:
20172016
Current assets$200,000$180,000
Property, plant, and equipment450,000400,000
Intangible assets20,70030,000
Current liabilities70,00080,000
Longterm liabilities200,000250,000
Common stock275,000200,000
Retained earnings125,70080,000
Prepare a comparative balance sheet, with horizontal analysis, for December 31, 2017
and 2016. (Round percents to one decimal place.)
List the objectives of internal control and give an example of how each is implemented.
Describe deferrals and accruals.