1) The main source of paid-in capital is from issuing stock.
2) The interest at 6%, on a 60-day note for $5,000 is $50. (Assume 360 days in a year)
3) The average rate of return method of capital investment analysis gives consideration
to the present value of future cash flows.
4) If 50,000 shares are authorized, 35,000 shares are issued, and 1,000 shares are
reacquired, the number of outstanding shares is 36,000.
5) A low operating leverage is normal for highly automated industries.
6) If divisional income from operations is $75,000, invested assets are $637,500, and
the minimum rate of return on the invested assets is 6%, the residual income calculated
would be $36,750.
7) A responsibility center in which the authority and responsibility for costs and
revenues is vested on the department manager is termed an investment center.
8) The budget procedure that requires all levels of management to start from zero in
estimating sales, production, and other operating data is called zero-based budgeting.
9) Every company must use the cash basis of accounting.
10) A centralized business organization is one in which all major planning and
operating decisions are made by top management.
11) For years one through five, a proposed expenditure of $400,000 for a fixed asset
with a 5-year life has expected net income of $50,000, $40,000, $20,000, $20,000, and
$20,000, respectively, and net cash flows of $130,000, $120,000, $100,000, $100,000,
and $100,000, respectively. The cash payback period is 3.5years.
12) The difference between the standard cost of a product and its actual cost is called a
variance.
13) Factory overhead is applied to production using a predetermined overhead rate.
14) If direct materials cost per unit increases, the break-even point will increase.
15) The branch of accounting related to the managements financial decisions is known
as financial accounting.
16) The effects of differences in accounting methods are of little importance when
analyzing comparable data from competing businesses.
17) The anticipated purchase of a fixed asset for $400,000 with a useful life of 5 years
and no residual value is expected to yield total income of $150,000 (recognition is
given to the effect of straight-line depreciation on the investment). The expected
average rate of return is 15%.
18) The profit center income statement should include only those revenues and
expenses that can be controlled by the manager.
19) Shares of ownership are evidenced by issuing:
A.shares payable
B.commercial paper
C.shares of stock
D.notes payable
20) The bank reconciliation:
A.should be prepared by an employee who records cash transactions
B.is part of the internal control system
C.is for information purposes only
D.is sent to the bank for verification
21) The standard factory overhead rate is $12 per machine hour ($10 for variable
factory overhead and $2 for fixed factory overhead) based on 100% capacity of 42,000
machine hours. The standard cost and the actual cost of factory overhead for the
production of 2,000 units were as follows:
Determine the (a) volume variance, (b) controllable variance, and (c) total factory
overhead cost variance.
22) Blancher Corporation had $495,000 in invested assets, sales of $660,000, income
from operations amounting to $99,000, and a desired minimum rate of return of 15%.
The investment turnover for Blancher is:
A.1.20
B.1.00
C.1.10
D.1.33
23) Which of the following is not true about why a service firm will use the job order
costing system?
A.To help control cost
B.To determine client billing
C.To determine department costs within the firm
D.To determine profit
24) Rights to payments from customers are:
A.liabilities
B.prepaid expenses
C.accounts receivable
D.accounts payable
25) The units of Product YY2 available for sale during the year were as follows:
There are 17 units of the product in the physical ending inventory at March 31 . The
periodic inventory system is used. Determine the ending inventory cost by (a) FIFO, (b)
LIFO, and (c) average cost methods.
26) Which of the following can be used to place capital investment proposals involving
different amounts of investment on a comparable basis for purposes of net present value
analysis?
A.Price-level index
B.Present value factor
C.Annuity
D.Present value index
27) During 2012, Smith Corporation had an increase in total assets of $70,000 and an
increase in total liabilities of $90,000. Assuming that capital stock increased by $5,000
and no dividends were paid, calculate Smiths net income or net loss for 2012
A.Net loss of $15,000
B.Net loss of $20,000
C.Net loss of $25,000
D.Net income of $15,000
28) For each of the following procedures, indicate whether it is an internal control
strength or a weakness. Also, for each weakness, explain why it is a weakness and how
it can be corrected.
(a) Only the best accounting graduates are hired to eliminate the need for training.
(b) The person responsible for ordering and receiving supplies is not permitted to record
or pay for the supplies.
(c) Company policy mandates that all employees take vacation time.
(d) Internal auditors constantly monitor the internal control system.
(e) The accountant deposits cash at least once each day to prevent holding large
amounts of cash on hand.
29) The debt created by a business when it makes a purchase on account is referred to
as an:
A.account payable
B.account receivable
C.asset
D.expense payable
30) Efficient Corporation uses a standard cost system. The following information was
provided for the period that just ended:
Refer to the information provided for Efficient Corporation. The direct labor time
variance is:
A.$31,725 favorable
B.$32,400 favorable
C.$89,100 unfavorable
D.$121,500 unfavorable
31) What is the effect of a stock dividend on the balance sheet?
A.Decrease total assets and decrease total stockholders’ equity
B.Decrease total assets and increase total stockholders’ equity
C.Increase total liabilities and decrease total stockholders’ equity
D.No effect on total assets, total liabilities, or total stockholders’ equity
32) Which component of the balanced scorecard evaluates the economic performance
of the responsibility centers?
A.Internal process
B.Financial
C.Innovation and learning
D.Customer
33) When merchandise that was sold on account is returned, which accounts are
affected?
A.Cash, accounts receivable, cost of goods sold, and sales returns
B.Sales returns, accounts receivable, merchandise inventory, and cost of goods sold
C.Sales returns, accounts receivable, purchases, and cost of goods sold
D.Sales returns, accounts receivable, purchases, and merchandise inventory
34) What is a bottleneck?
A.A narrow area in the plant layout often causing the production process to slow due to
the inability of production workers to move the product from station to station
B.A manufacturing strategy used to control the production process by minimizing or
eliminating excess inventory
C.The point in the manufacturing process where demand for the product exceeds the
ability to produce the product
D.All of these describe a bottleneck in the production process
35) Profitability refers to the ability of the business to:
A.earn a reasonable amount of income
B.provide owners with dividends
C.pay its current and noncurrent liabilities
D.manage its accounts receivable and inventory
36) The investment turnover is the ratio of:
A.income from operations to sales
B.income from operations to invested assets
C.assets to liabilities
D.sales to invested assets
37) A credit memorandum from the bank :
A.decreases a bank customer’s account
B.is used to show a bank service charge
C.shows that a company has deposited a customer’s NSF check
D.shows the bank has collected a note receivable for the customer
38) The balance sheets at the end of each of the first two years of operations indicate
the following:
Based on the above information, if net income is $130,000 and interest expense is
$40,000 for 2013, what are the earnings per share on common stock for 2013 (round to
two decimal places)?
A.$2.17
B.$2.68
C.$2.02
D.$2.32
39) How is treasury stock shown on the balance sheet?
A.As an asset
B.As a reduction of stockholders’ equity
C.As an addition to stockholders’ equity
D.Treasury stock is not shown on the balance sheet
40) Accumulated depreciation is _____ to get the carrying value.
A.added to equipment
B.subtracted from equipment
C.added to accounts payable
D.subtracted from accounts payable
41) A company has a net income of $39,000 and depreciation expenses of $9,000.
During the year, its accounts payable balance decreased by $5,000. What is the net cash
flow from operating activities using the indirect method for preparing the statement of
cash flows?
A.$48,000
B.$53,000
C.$35,000
D.$43,000
42) When cash is paid to suppliers on account, which section of the Statement of Cash
Flows is affected?
A.Cash Flow from Operating Activities
B.Cash Flow from Investing Activities
C.Cash Flow from Financing Activities
D.There is no effect on the Statement of Cash Flows
43) Which of the following statements is true?
A.Only cash sales are included in the Sales account
B.Sales is the total amount charged customers, including cash sales and sales on
account
C.Both sales discounts and sales returns and allowances are added to Sales to arrive at
Net Sales
D.Sales is the revenue account typically used in service businesses
44) Blancher Corporation had $495,000 in invested assets, sales of $660,000, income
from operations amounting to $99,000, and a desired minimum rate of return of 15%.
The residual income for Blancher is:
A.$24,750
B.$17,820
C.$14,850
D.$16,500
45) Which of the following information is not provided by job cost sheets?
A.Cost impact of materials changes
B.Cost impact of continuous improvement in the manufacturing process
C.Change in materials price or direct labor rate over time
D.Utilities, managerial salaries, and depreciation of computers in the corporate office