1) Senior executives focus on financial data when comparing the performance of their
companies to that of competitors.
2) The selection of the most appropriate cost driver often requires considerable
judgment in the absence of a strong cause-and-effect relationship.
3) The matching concept leads accountants to select the recognition alternative that
produces the lowest amount of net income.
4) If the net present value for a capital investment is equal to zero, the internal rate of
return for the investment is less than the required rate of return.
5) A business learns about customers’ NSF checks through debit memos that are
included with the bank statement.
6) Relevant costs are frequently called avoidable costs.
7) The Gross Margin line appears on a single-step income statement but not on a
multistep income statement.
8) Generally accepted accounting principles require that, when the estimated useful life
of a long-term asset is changed, previously-issued financial statements are not revised.
9) The time value of money concept recognizes the fact that the present value of a
dollar to be received in the future is worth less than a dollar.
10) The usual form for a bank reconciliation begins with the ending cash balance shown
on the bank statement and reconciles it to the ending cash balance on the company’s
books.
11) The activity base selected determines whether a cost behaves as a variable cost or
fixed cost.
12) General uncertainties, such as the effect of competition on a business’s operations,
are not accounted for as contingent liabilities.
13) Although only 20 units are on hand at the beginning of the year, Woods Company
plans to sell 100 units during 2012 . Assuming the company desires an ending inventory
of 10 units, it should plan to purchase 90 units.
14) Inventory shrinkage cannot be determined without a physical count.
15) A margin of safety of 20% means that every dollar in revenue generates twenty
cents in profit.
16) Potential changes in production volume are not relevant in outsourcing decisions
because of the uncertainty associated with them.
17) The amount of costs allocated to a department may affect the manager’s
performance evaluation and compensation.
18) Cannon Company is considering a capital project that will return $100,000 each
year for five years. At the company’s hurdle rate of 10%, the present value of the
annuity is $379,100. If the return on investment in the first year is $37,910, what is the
return of investment that year?
A.$137,910
B.$100,000
C.$62,090
D.None of these
19) Felix Company produces a product that has a selling price of $12.00 and a variable
cost of $9.00 per unit. The company’s fixed costs are $60,000. What is the breakeven
point measured in sales dollars?
A.$240,000
B.$120,000
C.$80,000
D.$100,000
20) Shadow Lake Bottling Company produces a soft drink that is sold for a dollar. The
company pays $500,000 in production costs, half of which are fixed costs. General,
selling, and administrative costs amount to $200,000 of which $50,000 are fixed costs.
Assuming production and sales of 800,000 units, what is the amount of contribution
margin per unit?
A.$0.125
B.$0.500
C.$0.375
D.None of these
21) Which of the following represents the normal sequence of items presented in the
Stockholders’ Equity section of a corporation’s balance sheet?
A.Stock accounts, Paid-in Capital in Excess accounts, Retained Earnings, Treasury
Stock
B.Stock accounts, Paid-in Capital in Excess accounts, Treasury Stock, Retained
Earnings
C.Stock accounts, Treasury Stock, Paid-in Capital in Excess accounts, Retained
Earnings
D.Retained Earnings, Stock accounts, Paid-in Capital in Excess accounts, Treasury
Stock
22) An unqualified audit opinion:
A.Should be ignored by investors because the person issuing the opinion does not have
the qualifications required to analyze financial statements
B.Is the most favorable opinion auditors can express
C.Is issued to alert investors to potential financial problems
D.Is not issued by auditors who hold CPA certification
23) The Jordan Company, estimating its sales to be 20,000 units for the upcoming
period, prepared the following static budget:
The owner of the business is not so sure about the 20,000 unit sales volume and has
requested additional budgets.
Required:
In the table provided, prepare two additional budgets, one at 90% of the static budget
volume level and one at 110% of the static budget volume level.
24) Bond Company experienced an accounting event that affected its financial
statements as indicated below:
Which of the following accounting events could have caused these effects on Bond’s
financial statements?
A.paid a cash dividend
B.earned cash revenue
C.borrowed money from a bank
D.none of these
25) Whether a cost behaves as a fixed cost or as a variable cost depends upon the
A.activity base used
B.company
C.industry
D.presence of mixed costs
26) On October 1, 2012, Warren Company Consulting accepted $20,000 in advance for
a consulting job that should take 12 months. At December 31, the company had
completed one fourth of the job.
Required:
a) Record the effects of the above two transactions on the accounting equation.
Assets = Liabilities + Equity
Event No.
1) ______________________________________________________________
2) ______________________________________________________________
b) Answer the following questions pertaining to the above events.
1) What amount of revenue will appear on the 2012 income statement related to these
events?
2) What amounts, if any, will appear on the balance sheet at December 31, 2012?
3) What amount, if any, will appear on the 2012 statement of cash flows? In which
section would the amount appear?
27) Financial statement analysis involves forms of comparison including
A.comparing changes in the same item over a number of periods
B.comparing key relationships within the same year
C.comparing key items to industry averages
D.all of these
28) On December 31, 2010, Malcolm Corporation accrued interest on a $10,000 note
payable that it had issued on March 1, 2010 . The note was a 1-year note with interest at
6%. How did the year-end accrual of interest affect Malcolm’s financial statements?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
29) A capital investment project may provide cash inflows from
A.an increase in operating expenses
B.an increase in working capital requirements
C.the salvage value of the investment
D.All of these
30) Generally accepted accounting principles (GAAP) are measurement rules for
A.managerial accounting
B.financial accounting
C.tax accounting
D.determining the market rate of return on a company’s stock
31) The conservatism principle
A.is primarily concerned with correctly valuing a business’s assets
B.matches assets and liabilities
C.requires accountants to choose the accounting treatment that minimizes net income
D.is concerned with matching expenses with revenues
32) Which of the following activities adds value to a product or service?
A.Inspection time
B.Move time
C.Process time
D.Wait time
33) Which of the following is not considered an advantage of the corporate form of
business organization?
A.Ability to raise large amounts of capital
B.Government regulation
C.Ease of transferability of ownership
D.Continuity of existence
34) The amount of principal repayment included in the December 31, 2012 payment is:
A.$27,274
B.$27,615
C.$37,329
D.$40,575
35) The following are strong control measures over cash receipts except for:
A.A record of all cash collections should be prepared immediately upon receipt
B.Employees who receive cash should give customers a written receipt
C.There should be a significant amount of cash on hand in order to avoid writing
checks
D.Cash receipts should be deposited in a bank as soon as possible
36) The balance in the Office Supplies account on May 1 was $1,500, supplies
purchased during May totaled $6,000, and the amount of supplies on hand at May 31
was $3,600.
a) What amount of Supplies Expense will be shown on the income statement for May?
b) What amount of supplies will be shown on the balance sheet at the end of May?
37) On January 2, 2012, the Hoover Corporation issued 25,000 shares of $10
stated-value common stock for $24 per share. Which of the following statements is
true?
A.The Paid-in Capital in Excess of Stated Value account will increase by $350,000
B.The Cash account will increase by $500,000
C.The Stock Payable account will increase by $600,000
D.The Common Stock account will increase by $600,000
38) Which of the following situations provides the most likely indication that fraud
exists?
A.Exelon Corporation’s earnings per share this quarter is 10% higher than last quarter
B.Quantum Corporation’s sales this year is 20% higher than last year’s sales
C.Papillon Product Inc.’s profits have increased each for the last 5 years, but its cash
reserves have decreased steadily in the same time period
D.Bobadilla Bookstores opened 10 new stores during the most recent quarter
39) The corporate charter of Llano Corporation authorizes the issuance of 25,000 shares
of 5% cumulative preferred stock, $50 par, and 200,000 shares of $10 par common
stock. At the end of the current year, the titles and balances of stockholders’ equity
accounts are as follows:
Llano declared dividends of $400,000 for the current year.
Required:
a) What is the amount of the annual dividend per share for preferred stock?
b) If there are two years of preferred dividends in arrears at the beginning of the current
year, what total amount of dividends will be paid to the preferred shareholder?
c) What total amount will be paid to the common shareholder if there are two years of
preferred dividends in arrears at the beginning of the year?
40) Paul’s Department Store has three departments: Men’s, Women’s and Children’s.
The store incurred $30,000 of store rental costs in 2012 . The departments identified the
following cost drivers for 2012:
Using the most appropriate cost driver, how much rental cost (rounded to the nearest
dollar) should be allocated to the Children’s Department?
A.$4,660
B.$3,529
C.$2,500
D.$2,093
41) Hyperion Company has established internal control policies and procedures in order
to achieve the following objectives:
(1) Safeguard the company’s assets
(2) Assure that the accounting records contain reliable information
(3) Evaluate management performance effectively
(4) Assure that employees comply with company policies
Which of these objectives are primarily achieved by accounting controls?
A. Objectives 1 and 2
B.Objectives 2 and 3
C.Objectives 3 and 4
D.Objectives 1 and 4
42) Indicate how each event affects the elements of financial statements. Use the
following letters to record your answer in the box shown below each element. You do
not need to enter amounts.
Rogers Co. purchased 1,000 shares of its own stock as treasury stock for $40 per share.
The no-par stock had originally been issued at $25 per share. Show the effects of the
purchase of the treasury stock.
43) Dale Company purchased land costing $2,400 by paying cash. The company earned
$2,000 revenue on account and incurred $1,100 of operating expenses on account. As a
result of these transactions:
A.total assets increased by $2,400
B.liabilities increased by $1,100
C.total assets increased by $5,400
D.both A and B
44) What is a value chain? And what relationship is there between the value chain and
activity-based management?
45) Under what circumstances is a sales variance favorable?
46) Indicate how each event affects the elements of financial statements. Use the
following letters to record your answer in the box shown below each element. You do
not need to enter amounts.
At the end of the accounting period, Snyder Co. recognized accrued salaries payable.
47) Chickamauga Company is considering investing in the following two mutually
exclusive projects:
Required:
1) What is the maximum amount Chickamauga should be willing to pay for each
project assuming a required rate of return of 10%?
2) Suppose each project costs $8,000. Which project(s) should be accepted?
48) Harker Company manufactures DVD players and other similar electronic products.
Indicate whether the cost is a product cost or period (selling, general, and
administrative) cost AND whether its cost behavior is fixed, variable, or mixed by
placing X’s in the appropriate boxes. As an example, commissions paid to sales staff
would be classified as a period cost and variable.
Depreciation on furniture and equipment in company headquarters
49) How is the book value of an asset computed?
50) What is the going concern assumption, and how does it affect accounting for
liabilities?
51) Present value factors
The present value of an annuity of $1 at 8% has a factor for 3 periods of 2.577097; for 5
periods at 8% the factor is 3.992710 . For 10% at 5 periods the factor is 3.790787. For
12% at 5 periods the factor is 3.604776 .
Denver Company is considering purchase of equipment that costs $60,000. If the useful
life is expected to be 5 years and Denver’s required rate of return is 10%, what is the
minimum annual cash inflow that the equipment must offer for the investment to be
acceptable? Round to the nearest dollar.
52) For each of the following items, indicate whether it is an adjustment to the bank
side, the book side, or not applicable when preparing a bank reconciliation. For each
adjustment item, indicate whether the amount would be added or subtracted.
53) How does the level of aggregation differ between financial accounting information
and managerial accounting information?