1) A credit memorandum received with a bank statement means the company’s bank
account has been increased.
2) Current position analysis indicates a company’s ability to liquidate current liabilities.
3) The person who is to be paid when a note matures is called the payee.
4) Interpreting financial analysis should be considered in light of conditions peculiar to
the industry and the general economic conditions.
5) The summary of the time tickets at the end of each month is the basis for recording
the direct and indirect labor costs incurred in production.
6) The sales discount account is a contra account to Sales.
7) If a proposed expenditure of $80,000 for a fixed asset with a 4-year life has an
annual expected net cash flow and net income of $32,000 and $12,000, respectively, the
cash payback period is 2.5 years.
8) Separation of businesses into more manageable operating units is termed
centralization.
9) In computing the rate earned on total assets, interest expense is added to net income
before dividing by average total assets.
10) If 50,000 shares are authorized, 37,000 shares are issued, and 2,000 shares are
reacquired, the number of outstanding shares is 35,000.
11) The variable cost per unit remains constant with changes in the level of activity.
12) Operating expenses directly traceable to or incurred for the sole benefit of a specific
department and usually subject to the control of the department manager are termed
indirect expenses.
13) Cash dividends are not paid on shares of treasury stock.
14) Receiving cash in advance of performing a service creates a liability for the
company.
15) The balance of the allowance for doubtful accounts is deducted from accounts
receivable on the balance sheet.
16) If direct materials cost per unit decreases, the amount of sales necessary to earn a
desired amount of profit will decrease.
17) If the cost of employee wages is not a significant portion of the total product cost,
the wages are classified as factory overhead cost.
18) Declaring and paying cash dividends affects which balance sheet accounts?
A.Cash only
B.Stockholders’ equity only
C.Cash and stockholders’ equity
D.Cash and capital stock
19) If $1,000,000 of 8% bonds are issued at 102, the amount of cash received from the
sale is:
A.$1,060,000
B.$1,020,000
C.$1,000,000
D.$1,030,000
20) Accompanying the bank statement was a debit memorandum for an NSF check
received from a customer. This item would be included on the bank reconciliation as
a(n):
A.deduction from the cash balance per books
B.addition to the cash balance per bank
C.deduction from the cash balance per bank
D.addition to the cash balance per books
21) An analysis of a proposal by the net present value method indicated that the present
value exceeded the amount to be invested. Which of the following statements best
describes the results of this analysis?
A.The proposal is desirable and the rate of return expected from the proposal exceeds
the minimum rate used for the analysis
B.The proposal is desirable and the rate of return expected from the proposal is less
than the minimum rate used for the analysis
C.The proposal is undesirable and the rate of return expected from the proposal is less
than the minimum rate used for the analysis
D.The proposal is undesirable and the rate of return expected from the proposal exceeds
the minimum rate used for the analysis
22) What options does a business have while financing its operations?
A.Debt financing
B.Equity financing
C.Asset financing
D.Both debt financing and equity financing
23) Identify the formula for the rate of return on investment.
A.Invested Assets/Income From Operations
B.Sales/Invested Assets
C.Income From Operations/Sales
D.Income From Operations/Invested Assets
24) A check drawn by a depositor for $295 in payment of a liability was recorded in the
depositors book as $925. The $630 difference would be included on the bank
reconciliation as a(n):
A.addition to the cash balance per books
B.addition to the cash balance per bank
C.deduction from the cash balance per bank
D.deduction from the cash balance per books
25) Which of the following is most likely to be a product cost?
A.Salary of the vice president of sales
B.Advertising for a particular product
C.Drill bits for a drill press used in the plant assembly area
D.Salary of the company receptionist
26) The following financial information was summarized from the accounting records
of Block Corporation for the current year ended December 31:
The income from operations for the Hardware Division is:
A.$103,000
B.$76,200
C.$166,400
D.$66,200
27) Identify the following as a Fixed Asset (FA), Intangible Asset (IA), Natural
Resource (NR), or None of these (N).
(a) Computer
(b) Patent
(c) Oil reserve
(d) Goodwill
(e) U.S. Treasury note
(f) Land used for employee parking
(g) Gold mine
28) The net income reported on the income statement for the current year was
$310,000. Depreciation recorded on fixed assets and amortization of patents for the
year were $40,000 and $9,000, respectively. Balances of current asset and current
liability accounts at the end and at the beginning of the year are as follows:
What is the amount of cash flows from operating activities reported on the statement of
cash flows prepared by the indirect method?
A.$233,000
B.$289,000
C.$387,000
D.$331,000
29) Cook Co. incurred the following costs related to the office building used in
operating its sports supply company:
(a) Replaced a broken window.
(b) Replaced the roof that had been on the building for 23 years.
(c) Serviced all the air conditioners before summer started.
(d) Replaced the air conditioners with refrigerated air conditioners in the customer
service areas.
(e) Added a warehouse to the back of the building.
(f) Repainted the interior walls.
(g) Installed window shutters on all windows.
Classify each of the costs as a capital expenditure or a revenue expenditure.
30) Which of the items below is not a business organization form?
A.Venture entrepreneurship
B.Proprietorship
C.Partnership
D.Corporation
31) Deana, Inc.
Deana, Inc. purchased merchandise for $500,000, received credit for purchase returns
of $25,000, took purchase discounts of $10,000, and paid transportation in of $20,000.
Refer to Deana, Inc. If Deana, Inc. had $20,000 in beginning inventory, and sold goods
costing $300,000, what is the ending inventory balance?
A.$165,000
B.$240,000
C.$200,000
D.$185,000
32) Calculate the following:
33) Benjamin Corporation began its operations on September 1 of the current year.
Budgeted sales for the first three months of business are $250,000, $300,000, and
$420,000, respectively, for September, October, and November. The company expects
to sell 20% of its merchandise for cash. Of sales on account, 70% are expected to be
collected in the month of the sale, 25% in the month following the sale, and the
remainder in the following month.
Refer to the information provided for Benjamin Corporation. The cash collections from
accounts receivable in November are:
A.$305,200
B.$294,000
C.$235,200
D.$381,500
34) Receivables are usually a significant portion of:
A.total current liabilities
B.total sales
C.total current assets
D.total stockholders equity
35) For the past year, LaPrade Company had fixed costs of $70,000, a unit variable
costs of $32, and a unit selling price of $40. For the coming year, no changes are
expected in revenues and costs except that property taxes are expected to increase by
$10,000. Determine the break-even sales (in units) for (a) the past year and (b) the
coming year.
36) The tendency of the rate earned on stockholders’ equity to vary disproportionately
from the rate earned on total assets is sometimes referred as:
A.leverage
B.solvency
C.yield
D.quick assets
37) Determine the due date and amount of interest due at maturity on the following
notes (Assume 360 days in a year):
38) Estimated cash payments are planned reductions in cash from all of the following
except:
A.manufacturing and selling and administrative expenses
B.capital expenditures
C.notes receivables and accounts receivable collections
D.payments for interest or dividends
39) Hudson, Inc. has estimated total factory overhead costs of $400,000, and 20,000
direct labor hours for the current fiscal year. If the direct labor hours for Job N41 is
1,500, calculate the total factory overhead applied to this job.
A.$40,000
B.$20,000
C.$3,000
D.$30,000
40) Which of the following graphs illustrates the nature of a mixed cost?
A.Graph 2
B.Graph 3
C.Graph 4
D.Graph 1
41) Multiple-step income statements show:
A.gross profit but not income from operations
B.neither gross profit nor income from operations
C.both gross profit and income from operations
D.income from operations but not gross profit
42) An acceleration in the collection of receivables will tend to cause the accounts
receivable turnover to:
A.decrease
B.remain the same
C.neither increase nor decrease
D.increase
43) The following data is given for the Walker Company:
Overhead is applied on standard labor hours.
The variable factory overhead controllable variance is:
A.$65 unfavorable
B.$65 favorable
C.$250 unfavorable
D.$250 favorable
44) ABC Company deposited $20,000 in a bank account in return for issuing shares in
the corporation. This transaction would affect which two financial statement elements?
A.Assets and stockholders’ equity
B.Assets and liabilities
C.Liabilities and stockholders’ equity
D.None of these
45) A common balanced scorecard measures performance in all of the following areas
except:
A.education
B.internal process
C.financial
D.innovation and learning
46) Land improvements include:
A.freight
B.surveying fees
C.sales tax
D.outdoor lighting
47) Currently, Zane Companys unit selling price is $30, the variable cost is $14, and the
total fixed costs are $96,000. A proposal is being evaluated to increase the selling price
to $34.
48) Cash receipts from cash sales affects which financial statement elements?
A.Assets only
B.Stockholders’ equity only
C.Assets and stockholders’ equity
D.Assets and liabilities
49) The accounting term depreciation measures:
A.the decline in an assets market value
B.the amount of cash a company sets aside for asset replacement
C.the amount of asset cost allocated to expense over periods benefited
D.the anticipated loss if asset is sold in the used-asset market
50) Which of the following statements is true of financial accounting?
A.Under financial accounting, reports are prepared using generally accepted accounting
principles
B.Financial accounting focuses on providing information primarily for internal use
C.Financial accounting includes more subjective data like possibility of competitors
reactions to a companys new sales prices
D.Information reported by financial accounting is not shared with those outside the
company
51) Variances from standard costs are usually reported to:
A.suppliers
B.stockholders
C.management
D.creditors
52) If variable costs per unit increased because of an increase in hourly wage rates, the
break-even point would:
A.decrease
B.increase
C.remain the same
D.increase or decrease, depending upon the percentage increase in wage rates
53) Capital market stakeholders have an interest in the company because:
A.they provide incentives for the company to market their products
B.they are part of the Marketing Department that is responsible for promoting the
products or services to increase the business profits
C.they help market their products to customers or find vendors to supply needed inputs
D.they provide major financing for the business
54) Which of the following is a characteristic of the just-in-time philosophy?
A.Increases inventory to protect against process problems
B.Tolerates defects
C.Emphasizes push manufacturing
D.Emphasizes product-oriented layout
55) A business is considering a cash outlay of $500,000 for the purchase of land, which
it could lease for $40,000 per year. If alternative investments are available that yield a
21% return, the opportunity cost of the purchase of the land is:
A.$105,000
B.$40,000
C.$65,000
D.$8,400
56) Exhibit 2-1
Refer to Exhibit 2-1 . What is net income, assuming no stock was issued and dividends
of $25,000 were paid?
A.$110,000
B.$150,000
C.$160,000
D.$200,000
57) During 2009, Lexie, Inc. acquired Lena, Inc. for $10,000,000. The fair market value
of the net assets of Lena, Inc. was $8,500,000 on the date of purchase. During 2012,
Lexie, Inc. determined the goodwill resulting from the Lena acquisition was impaired
and had a value of $1,000,000.
58) Describe the end-of-the-period adjustment process. Why is it necessary?
59) Prepare a multiple-step income statement for Surry Co. from the following data for
the year ended December 31, 2013 .
Sales, $915,000; cost of merchandise sold, $670,000; administrative expenses, $30,000;
interest expense, $12,000; rent revenue, $19,000; sales returns and allowances,
$55,000; selling expenses, $120,000.
60) River Corporations accumulated depreciation increased by $12,000, while patents
decreased by $3,500 between consecutive balance sheet dates. There were no purchases
or sales of depreciable or intangible assets during the year. In addition, the income
statement showed a loss on sale of land of $2,500. Accounts receivable increased
$5,000, inventory decreased $3,200, prepaid expenses decreased $800, and account
payable increased $2,000. Reconcile a net income of $55,000 to net cash flow from
operating activities.
61) A portion of the divisional income statement for the year just ended is presented
below in a condensed form.
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 income from operations of the business if Department F had
been discontinued.
62) 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.
On June 1, Tasty Sausage Corp. borrowed $25,000 from the bank by signing a
promissory note from the bank, with 8% interest. The note is due in three months.
Interest for June has been incurred but not yet recorded. The interest to accrue for June
is $175. The June 30 adjustment is:
63) Name and describe the three forms of businesses and their advantages and
disadvantages (if any).
