The higher a company’s accounts receivable turnover rate, the more liquid the
company’s receivables.
A corporation is a legal entity that may enter into contracts, may sue or be sued, and is
responsible for its own debts.
Every transaction affects equal numbers of ledger accounts and is recorded by equal
dollar amounts of debits and credits.
Cycle time is the length of time required for a product to pass completely through a
manufacturing process.
Even though costs, revenues, and other factors do not vary among possible courses of
action, they may be relevant to a decision.
A standard cost is predetermined, that is, determined before actual costs of the current
period have been computed.
A stock split will decrease the par value per share of the stock.
The balance shown on a bank statement is always less than the month-end balance of a
company’s cash account in the general ledger.
Prior period adjustments are shown in the financial statements by adjusting the
beginning balance of retained earnings in the statement of retained earnings.
In responsibility income statements, revenue is first assigned to the centers responsible
for creating that revenue.
Profit centers generate revenues and costs.
All costs become traceable at some level of the organization.
Stock splits are always in a 2 for 1 ratio.
The amortization of discount on bonds payable reduces the amount of interest expense
recognized during the period.
An unrealized holding loss on available-for-sale securities will reduce net income.
Charging an expenditure directly to an expense account is based on the assumption that
the benefits of that expenditure have been used up in the current period.
Unpaid expenses may be included as an expense on the income statement.
When sales of one product contribute to the sales of another product they are called
contribution products.
Assets need not always have physical characteristics as do buildings, machinery, or
inventory.
To capitalize an expenditure means charging it to an asset account.
The payback period analysis fails to consider the cash flows over the entire life of the
investment.
The discount rate used in discounting cash flows from proposed investments is usually
the rate of return required by the investor.
To determine the average investment over the life of an asset, divide the total
depreciation of the investment by two.
The James Company has incurred the following costs of production:
Direct Materials $350,000
Direct Labor $475,000
Manufacturing Overhead $722,000
Selling and Administrative Costs $256,000
The James Company prime costs are $606,000.
A single-step and a multiple-step income statement are different in form and in the
amount of net income reported.
Product costs are offset against revenue in the period in which the related products are
manufactured, rather than the period in which the products are sold.
A debit balance in the Direct Labor account represents a liability for wages payable.
As foreign exchange rates fall, importers based in the United States will lose and
exporters will gain.
Any “non-cash” investing and financing transactions should be disclosed in a
supplementary schedule accompanying a statement of cash flows.
Sales returns and allowances is an expense account, and on the income statement it is
added to cost of goods sold.
Responsibility margin is useful in evaluating the consequences of short-run marketing
strategies, while contribution margin is more useful in evaluating long-term
profitability.
A process costing system is suitable for a company with a large volume of standard
products produced on a relatively continuous basis, for example, golf balls or
petroleum.
Depreciation expense reduces net income but does not reduce the net cash flow from
operating activities.
A favorable variance occurs when actual costs are less than standard costs.
As volume increases, per unit variable costs will decrease on a per-unit basis and stay
the same in total.
Which of the following items would cause cash per the bank statement to be larger than
the balance of cash shown in the accounting records?
A. Bank service charges.
B. Deposits in transit.
C. Outstanding checks.
D. NSF check from one of the depositor’s customers.
Which of the following decision makers is least likely to be among the users of
management accounting reports developed by Sears Roebuck and Co.?
A. The chief executive officer of Sears.
B. The manager of the Automotive Department in a Sears’ store.
C. The manager of a mutual fund considering investing in Sears’ common stock.
D. Internal auditors within the Sears organization.
Amalgamated Corporation’s net income was $2,400,000 in 2014 and $800,000 in 2015.
What percentage increase in net income must Amalgamated achieve in 2016 to offset
the decline in profits in 2015?
A. 75%.
B. 300%.
C. 33.33%.
D. 800%.
Refer to the information above. Assuming Dynamic, Inc. uses the income statement
approach (an allowance method) to account for uncollectible accounts, uncollectible
accounts expense for March is:
A. $11,500.
B. $17,500.
C. $19,500.
D. $13,500.
On April 1, 2015, Jetter Corporation reacquired 2,000 shares of its own $10 par stock
for $120,000 cash. On October 15, 2015, 600 of the treasury shares were reissued at a
price of $65 per share.
Refer to the information above. Assuming there are no further transactions involving
treasury stock in 2015, the financial statements of Jetter Corporation for 2015 will
show:
A. Treasury Stock of $81,000 among the assets in the balance sheet.
B. Gain on Sale of Treasury Stock of $3,000 in the income statement for 2015.
C. Treasury Stock of $120,000 as a deduction in the stockholders’ equity section of the
December 31, 2015, balance sheet.
D. Additional Paid-In Capital: Treasury Stock Transactions of $3,000 in the December
31, 2015 balance sheet.
To determine the present value of a single amount to be received or paid at a future time
you need to know all of the following except:
A. The interest rate or discount rate.
B. The number of periods.
C. The future value.
D. The time between periods.
Which of the following errors would be disclosed by preparation of a trial balance?
A. The collection of an account receivable was recorded by a debit to the Land account
rather than to the Cash account.
B. The collection of an account receivable for $219 was recorded by a $291 debit to
Cash and a $291 credit to Accounts Receivable.
C. The collection of a $365 account receivable was not recorded at all.
D. The collection of a $325 account receivable was recorded by a $325 debit to Cash
and a $325 debit to Accounts Receivable.
If a company has a current ratio of 2 to 1, and purchases inventory on credit, what will
this do to its current ratio?
A. Increase the current ratio.
B. Decrease the current ratio.
C. Does not change the current ratio.
D. Cannot be determined.
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. Assume that all remaining treasury stock is reissued at a
price of $14 per share in January of 2016. What amount should be credited to the
account Additional Paid-In Capital: Treasury Stock Transactions in the journal entry to
record this transaction?
A. $14,000.
B. $30,000.
C. $40,000.
D. $70,000.
Parker’s newly hired director of accounting services feels that the property taxes on the
Cairo factory should be allocated to the fabricating, assembly, and finishing
departments based upon the square footage they occupy. Of the following, which is not
a valid reason to reject this recommendation?
A. The property taxes would not change even if one or more of the departments were
eliminated.
B. Such an allocation violates GAAP.
C. The property taxes are not under the control of department managers.
D. The allocation may imply changes in efficiency that are unrelated to center
performance.
Refer to the information above. What is the contribution margin ratio of Mitchell’s
product?
A. 65%.
B. 80%.
C. 72%.
D. 20%.
When the account Allowance for Doubtful Accounts is used, writing off of an
uncollectible accounts receivable will:
A. Reduce income.
B. Reduce an expense.
C. Not change income or total assets.
D. Increase total assets.
Which method will yield the higher cash flows from financing activities?
A. The indirect method.
B. The direct method.
C. Both direct and indirect methods will yield the same amount.
D. Depends upon the situation.
On September 1, 2015, Able Company purchased a building from Regal Corporation by
paying $200,000 cash and issuing a one-year note payable for the balance of the
purchase price. Interest on the note is stated at an annual rate of 9% and is paid at
maturity. In its December 31, 2015, balance sheet, Able correctly presented the note and
interest payable as follows:
Refer to the information above. How much must Able pay Regal Corporation on
September 1, 2016, when the note matures?
A. $600,000.
B. $618,000.
C. $654,000.
D. Some other amount.
Which of the following assets is not subject to depreciation and whose usefulness does
not decline over time?
A. Patents.
B. Copyrights.
C. Land.
D. Coal mine.
Dalton Co. follows a policy of allocating all common costs equally among its profit
centers. A partial responsibility income statement for a typical month is shown below:
After evaluating these data, Dalton Co. decides to close Profit Center 3. This action
eliminates all revenue, variable costs, and fixed costs traceable to Center 3, but
eliminates only $35,000 in common fixed costs. Closing Profit Center 3 has no effect
upon the responsibility margins of Centers 1 and 2.
Refer to the information above. Closing Profit Center 3 should cause Dalton’s monthly
operating income to:
A. Increase by $5,000.
B. Decrease by $15,000.
C. Decrease by $7,000.
D. Decrease by $20,000.
Division Y of the Mortisen Company produces and sells 2 products. Each product’s
operating income and average capital resources are shown below:
Product A: Operating Income $500,000; Average capital $5,000,000.
Product B: Operating Income $350,000; Average capital $4,100,000.
Refer to the information above. Assuming division Y’s manager has an opportunity to
undertake an investment that would require a $500,000 investment and yield $40,000 in
net operating income for its product B, what would be the ROI for the entire division
(round your answer to the nearest full percentage point)?
A. 11%.
B. 10%.
C. 9%.
D. 8%.
Which of the following is the primary objective of an income statement?
A. Providing managers with detailed information about where the enterprise stands at a
specific date.
B. Providing users outside the business organization with information about the
company’s financial position and operating results.
C. Reporting to the Internal Revenue Service the company’s taxable income.
D. Indicating to investors in a particular company the current market values of their
investments.
Which of the following does not contribute toward achieving internal control over
cash?
A. The practice of making small cash disbursements directly from the current day’s cash
receipts.
B. The preparation of cash budgets.
C. The use of a petty cash fund.
D. The practice of approving every expenditure before the cash disbursement is made.
In 2015, Anderson Company purchased equipment for $363,000 and also sold some
special purpose machinery with a book value of $155,000 for $182,000. In its statement
of cash flows for 2015, Anderson should report the following with respect to the above
transactions:
A. $363,000 net cash used by investing activities.
B. $181,000 net cash used by investing activities; $27,000 net cash provided by
operating activities.
C. $181,000 net cash used by investing activities.
D. $363,000 cash used by investing activities; $182,000 cash provided by financing
activities.
A product sells for $125, variable costs are $80, and fixed costs are $45,000. If the
selling price can be increased by 20% with a similar increase in variable costs, how
many fewer units would have to be sold to earn $300,000? (Rounded)
A. 5,595 units.
B. 7,667 units.
C. 1,278 units.
D. 6,389 units.
Which of the following is not a product cost?
A. Depreciation on a warehouse where raw materials are stored.
B. An employee working directly on assembling a car.
C. The leather seats of a motorcycle.
D. The real estate tax of the showroom.
Which of the following is correct if a company purchases equipment for $70,000 cash?
A. Total assets will increase by $70,000.
B. Total assets will decrease by $70,000.
C. Total assets will remain the same.
D. The company’s total owners’ equity will decrease.
Which of the following ratios and rates that measure debt-paying ability focuses on the
long-term position of a company?
A. Quick ratio.
B. Inventory turnover.
C. Current ratio.
D. Debt ratio.
If the ending inventory is overstated in the current year:
A. Net income will be understated in the current year.
B. Next year’s beginning inventory will also be overstated.
C. Next year’s net income will be overstated.
D. Next year’s beginning inventory will be understated.
Which of the following is true regarding a worksheet prepared at year-end?
A. The number of account titles applicable to the Adjusted Trial Balance columns is
usually greater than the number of account titles applicable to the Trial Balance
columns.
B. The worksheet can be issued instead of financial statements.
C. The worksheet eliminates the need to make adjusting and closing entries.
D. An equal number of account titles are applicable to the Income Statement columns
and the Balance Sheet columns.
Standard cost system materials variances
Levron Corporation manufactures a line of cosmetics. The standard price of the
ingredients in its beauty cream is $7 per ounce; the standard amount of material allowed
per jar is 1.25 ounces. During December, 5,300 jars were produced, requiring 6,784
ounces of ingredients at a total direct materials cost of $37,312.
(a) Calculate the materials price variance for December. Indicate whether it is favorable
(F) or unfavorable (U). $__________
(b) Who is responsible for this variance? _________
(c) Calculate the materials quantity variance for December. Indicate whether it is
favorable (F) or unfavorable (U). $__________
(d) What is Levron Corporation’s total materials variance for December? Indicate
whether it is favorable (F) or unfavorable (U). $__________
Interim financial statements:
A. Cover a period less than one year.
B. Cover only periods of a quarter of a year.
C. Cover periods greater than a year.
D. Cannot cover a period of one month or less.
Which of the following are not considered “external” users of financial statements?
A. Owners.
B. Creditors.
C. Labor unions.
D. Managers.
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. On April 1, Year 1, the journal entry to record issuance
of the bonds will include:
A. A credit to Interest Payable of $1,000,000.
B. A debit to Cash of $20,000,000.
C. A credit to Bonds Payable of $2,100,000.
D. A debit to Cash of $21,000,000.
Which of the following apply to closely held corporations?
A. There is no organized market for buying and selling the company’s shares.
B. The company must prepare and issue its financial statements in conformity with
generally accepted accounting principles.
C. The company must have its financial statements audited by an independent firm of
CPAs.
D. The company’s financial information must be submitted to the Securities and
Exchange Commission.
Division Y of the Mortisen Company produces and sells 2 products. Each product’s
operating income and average capital resources are shown below:
Product A: Operating Income $500,000; Average capital $5,000,000.
Product B: Operating Income $350,000; Average capital $4,100,000.
Refer to the information above. What is division’s Y ROI for product A?
A. 12.0%.
B. 10.0%.
C. 11.0%.
D. 12.5%.
Equivalent units
In the first month of operations, the manufacturing costs for Blue Sun Company were as
follows:
During the month 10,000 units were completed, and 5,000 units were in process at the
end of the month. The 5,000 units in process were 100% completed as to materials and
80% completed as to direct labor and overhead. Compute the following:
(a) Direct materials cost per equivalent unit: $_______________
(b) Equivalent units of production for direct labor and manufacturing overhead:
________________
(c) Direct labor cost per equivalent unit: $________________
(d) Manufacturing overhead cost per equivalent unit: $________________
(e) Total cost of 10,000 units completed: $________________
(f) Total cost of 5,000 units in process at the end of the month: $________________
John Boyd Corporation manufactures and sells 1,000 tractors each month. The primary
component in each tractor is the motor. John Boyd has the monthly capacity to produce
1,300 motors. The variable costs associated with manufacturing each motor are shown
below:
Fixed manufacturing overhead per month (for up to 1,300 units of production) averages
$27,000. Joan Reid, Inc. has offered to purchase 200 motors from John Boyd per month
to be used in its own outboard motors.
Refer to the information above. What is the incremental cost of producing each
additional motor?
A. $29 per unit.
B. $69 per unit.
C. $95 per unit.
D. Some other amount.
Refer to the information above. The entry to close the Service Fees Earned account
will:
A. Produce a zero balance in that account when posted.
B. Include a debit to Income Summary.
C. Include a credit to Service Fees Earned.
D. Include a debit to Capital Stock.