1) The following information was gathered for Company W, a manufacturing company
with three departments, A, B, and C:
Manufacturing supplies cost is expected to be $500,000. Possible cost drivers are direct
labor hours, direct materials cost, and number of units completed and sold. The three
departments have varying amounts for these items.
Based on this information, indicate whether each of the following statements is true or
false.
1>If number of units completed and sold is selected as the cost driver, the allocation
rate for manufacturing supplies cost would be $5 per unit
2>If the amount of bonuses to department managers is based on income after all
expenses, the manager for Department B would prefer that direct materials cost be
selected as the cost driver
3>If the amount of bonuses to department managers is based on income after all
expenses, the manager for Department A would prefer that direct labor hours be
selected as the cost driver
4>If direct materials cost is selected as the cost driver, the amount of manufacturing
supplies cost allocated to Department B would be $40,000
5>If direct labor hours is selected as the cost driver, the manufacturing supplies cost
allocated to Department B would be $75,000
2) On January 1, 2012, Darek Corporation issued a five-year note payable. The note
requires an annual cash payment on December 31 of each year, which includes a
principal reduction and interest. Indicate whether each of the following statements is
true or false.
1>The entry to record the note issuance will increase assets and liabilities
2>The second payment will include more interest expense than the first payment
3>The note is an installment note payable
4>Each payment will result in a decrease in cash flow from operating activities and an
increase in cash flow from investing activities
5>The first payment will reduce liabilities and net income of Darek Corporation
3) Davis Corporation had 25,000 shares of $10 par value common stock outstanding
and declared a two-for-one stock split. How many shares of stock would then be
outstanding and what would be the par value of the new stock?
4) Indicate whether each of the following statements is true or false.
1>When a partnership is formed, the responsibilities of the partners should be specified
in a legal document, the partnership agreement
2>A closely held corporation is one in which buying and selling shares of stock is
limited to transactions between specific individuals
3>The SEC has legal authority for the establishment of accounting policies to be
followed by companies registered on stock exchanges
4>The process of forming a sole proprietorship is very complex
5>To form a corporation, the organizers must complete a charter of incorporation and,
if approved, the state issues the articles of incorporation
5) What type of transaction is the collection of cash from accounts receivable? (asset
source, asset use, asset exchange, claims exchange)
6) Indicate whether each of the following statements about financial statement analysis
is true or false.
1>Comparing percentages derived from financial statement analysis has the drawback
of varying materiality levels
2>Companies must account for immaterial items in compliance with generally accepted
accounting principles
3>To judge the materiality of an absolute financial statement amount, one must
consider the size of the company reporting it
4>Meaningful comparisons between two companies generally should be made using
percentage analysis or ratio analysis, not absolute amounts
5>The materiality of accounting information refers to whether it is viewed as favorable
(good news) or unfavorable (bad news)
7) How do budget expectations influence a company’s employees?