A responsibility accounting system measures the performance of each of the following
centers except:
A. Profit center.
B. Investment center.
C. Control center.
D. Cost center.
A large favorable variance from standard costs at the end of the year should be:
A. Carried forward to the next fiscal year.
B. Shown as other income in the income statement.
C. Added to cost of goods sold in the income statement.
D. Allocated between ending inventories and cost of goods sold.
Which of the following accounting principles is concerned with offsetting revenue with
the expenses incurred in producing that revenue?
A. Realization principle
B. Materiality
C. Matching
D. Depreciation
A large stock dividend and a stock split are similar in that they both cause a:
A. Reduction in total stockholders’ equity.
B. Reduction in retained earnings.
C. Reduction in the par value per share.
D. Reduction in the market price per share.
The Magic Microbrewery has a limited amount of vat capacity available in which it can
ferment beer. In deciding which beers to brew, Magic management should consider:
A. The contribution margins of the individual beers.
B. The unit contribution margins of the individual beers.
C. The contribution margin ratios of the individual beers.
D. The contribution margin per unit of vat capacity of the individual beers.
Which of the following is not a commonly used cost accounting system?
A. Manufacturing yield costing.
B. Job order costing.
C. Process costing.
D. Activity-based costing.
An investment cost $80,000 with no salvage value, a 5 year useful life, and had an
expected annual increase in net income of $7,000. Straight line depreciation is used.
What is the expected return on average investment?
A. 8.8%.
B. 20%.
C. 17.5%.
D. 10.4%.
Refer to the information above. The journal entry to record the transfer of soup out of
the Canning Department during March would include:
A. A credit to Work in Process Inventory, Canning Department of $9,000.
B. A credit to Work in Process Inventory, Canning Department of $63,000.
C. A debit to Finished Goods Inventory of $72,000.
D. A credit to Finished Goods Inventory, Mixing and Cooking Department of $72,000.
The two basic characteristics of estimated liabilities are:
A. Probable and reasonably estimated.
B. Known to exist and amount unable to be determined until a later date.
C. Probable and non-interest bearing.
D. Known to exist and interest bearing.
Harvard Company purchased equipment having an invoice price of $11,500. The terms
of sale were 2/10, n/30, and Harvard paid within the discount period. In addition,
Harvard paid a $160 delivery charge, $185 installation charge, and $931 sales tax. The
amount recorded as the cost of this equipment is:
A. $11,845.
B. $12,776.
C. $11,615.
D. $12,546.
On December 1, Year 1, Bradley Corporation incurs a 15-year $200,000 mortgage
liability in conjunction with the acquisition of an office building. This mortgage is
payable in monthly installments of $2,400, which include interest computed at the rate
of 12% per year. The first monthly payment is made on December 31, Year 1.
Refer to the information above. How much of the first payment made on December 31,
Year 1, represents interest expense?
A. $2,400.
B. $400.
C. $2,304.
D. $2,000.
Development of generally accepted accounting principles
(A.) What is meant by the phrase “generally accepted accounting principles”?
(B.) Give the names of three organizations that currently play an active role in the
development of accounting principles in the United States.
Shown below is information relating to the stockholders’ equity of Reeve Corporation
as of December 31, 2015:
Refer to the information above. What was the original issue price per share of common
stock?
A. $10.00 per share.
B. $2.40 per share.
C. $15.00 per share.
D. $8.00 per share.
In comparison with a financial statement prepared in conformity with generally
accepted accounting principles, a management accounting report is more likely to:
A. Be used by decision makers outside of the business organization.
B. Focus upon the operation results of the most recently completed accounting period.
C. View the entire organization as the reporting entity.
D. Be tailored to the specific needs of an individual decision maker.
Blue Waters is an American company that does business with several Japanese
corporations. In recent months, Blue Waters has been reporting losses from increases in
the exchange rate of the Japanese yen. The majority of Blue Waters transactions with
the Japanese companies probably consist of:
A. Credit sales at prices stated in U.S. dollars.
B. Credit sales at prices stated in Japanese yen.
C. Credit purchases at prices stated in U.S. dollars.
D. Credit purchases at prices stated in Japanese yen.
The following information is available regarding the total manufacturing overhead of
Olsen Company for a recent four-month period.
Refer to the information above. Olsen’s projected August operations will require
approximately 120,000 machine hours. Using the high-low method, compute total
manufacturing overhead estimated for August.
A. $165,000.
B. $187,500.
C. $197,500.
D. $213,000.
Factory overhead variances are usually recorded when:
A. Overhead is applied to Work in Process.
B. Goods are finished and transferred to finished goods inventory.
C. Goods are sold.
D. Actual factory overhead costs are incurred.
If the unit sales price is $14, variable costs are $7 per unit and fixed costs are $42,000,
how many units must be sold to earn an income of $250,000? (Round your final answer
to the next whole number.)
A. 52,142 units.
B. 41,715 units.
C. 34,762 units.
D. 29,796 units.
Costs that have not yet been incurred and that may vary among different courses of
action are called:
A. Opportunity costs.
B. Out-of-pocket costs.
C. Joint costs.
D. Sunk costs.
Each year, the accountant for Southern Real Estate Company adjusts the recorded value
of each asset to its market value. Using these market value figures on the balance sheet
violates:
A. The accounting equation.
B. The stable-dollar assumption.
C. The business entity concept.
D. The cost principle.
The sequence of accounting procedures used to record, classify, and summarize
accounting information is called the:
A. Accounting cycle.
B. Accounting period.
C. Accrual accounting.
D. Double-entry bookkeeping.
Which American industry would tend to have the greatest debt ratio?
A. Auto.
B. Retail clothing.
C. Manufacturing.
D. Banking.
All of the following are advantages of an increasing cash flow from operations except:
A. A company is likely to pay its current bills with cash from operations not earnings.
B. A company with cash is in a better position to fund growth.
C. Large cash flows eliminate the need for borrowing.
D. Earnings are viewed better if cash flows from operations closely match net income.
The current balance sheet of Gamma reports total assets of $30 million, total liabilities
of $3 million, and owners’ equity of $27 million. Gamma is considering several
financing possibilities in order to expand operations. Each question based on this data is
independent of any others.
Refer to the information above. What will be the effect on Gamma’s debt ratio if
Gamma’s owner invests an additional $5 million to finance its expansion?
A. The debt ratio will decrease from .1 (3/30) to .0857 (3/35) after the additional
investment.
B. The debt ratio will decrease from 3/27 before to 3/32 after the additional investment.
C. The debt ratio will increase from 30 before to 35 after the additional investment.
D. Additional investment by owner will have no effect on the debt ratio.
Which of the following is an advantage of developing a predetermined overhead
application rate?
A. Long-run fluctuations in volume of output are eliminated.
B. In a job order system, unit costs can be determined only at the end of the period.
C. The overhead application rate facilitates assigning overhead costs to the ending
inventory of work in process.
D. Actual overhead will always be less than applied overhead.
A prior period adjustment is a correction made to:
A. Retained earnings of the beginning of the period.
B. Retained earnings at the end of the period.
C. Net income of the current year.
D. Only to last years’ financial statements.
Perfect Plumbing Corporation currently manufactures a valve for use in water pumps
that it produces for sale. The company is considering purchasing the valves from an
outside supplier rather than manufacturing them. Which of the following costs is not
relevant to the decision?
A. The cost of direct material required to make the valve.
B. The price charged by the outside supplier for an identical valve.
C. The cost of the machinery owned by Perfect Plumbing used exclusively to
manufacture this valve.
D. The salvage value of the machinery owned by Perfect Plumbing used exclusively to
manufacture this valve.
Which of the following transactions would cause a change in the amount of a
company’s working capital?
A. Collection of an account receivable.
B. Payment of an account payable.
C. Borrowing cash over a 60-day period.
D. Selling merchandise at a price above its cost.
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. What was the original cost of the treasury stock to
Caesar Corporation?
A. $5 per share.
B. $7 per share.
C. $8 per share.
D. Cannot be determined.
The following are all characteristics of target costing except:
A. Understanding the pricing process in order to increase selling prices.
B. Driving costs down while satisfying customer needs.
C. Emphasizing the product’s functional characteristics and their importance to the
customer.
D. Reducing development time.
Monarch Company uses the indirect method to prepare its statement of cash flows. The
following information has been gathered for the current period:
On the basis of the above information only, Monarch Company’s statement of cash
flows shows net cash flow from operating activities to be:
A. $187,000.
B. $333,000.
C. $225,000.
D. $361,000.
The Fine Point Company currently produces all of the components for its one product;
an electric pencil sharpener. The unit cost of manufacturing the motor for this pencil
sharpener is:
The company is considering the possibility of buying this motor from a subcontractor
and has been quoted a price of $3.60 per unit. The relevant cost of manufacturing the
motor to be considered in reaching the decision is:
A. $4.75.
B. $4.15.
C. $3.55.
D. $4.05.
Which of the following statements concerning materiality is true?
A. Generally accepted accounting principles are violated if estimates are used in
end-of-period adjustments.
B. Each year the Financial Accounting Standards Board (FASB) publishes the dollar
amount considered “material” for each industry.
C. Immaterial items should be handled in the most expedient manner, even if resulting
financial statements are not completely precise.
D. Accountants should not waste time and money in recording transactions involving
small dollar amounts.
Which of the following businesses is likely to have the shortest operating cycle?
A. A food store.
B. A department store.
C. An art store.
D. A car store.