For the financial statements of publicly traded companies, MACRS:
A. Is recommended.
B. Is required.
C. Is optional.
D. Is not considered to be in conformity with GAAP.
Which account listed below is classified as a contra-revenue account?
A. Cost of Goods Sold.
B. Gross profit.
C. Sales Discounts.
D. Purchases.
An American corporation making purchases from foreign companies will experience
gains and losses from exchange rate fluctuations if (a) the purchase prices are stated in
terms of the foreign currency and (b) the purchases are made on account.
Amounts debited to the Work in Process Inventory account may best be described as:
A. Direct materials purchased, direct labor costs paid, and payments for items classified
as manufacturing overhead.
B. The cost of finished goods manufactured during the period.
C. Total manufacturing costs charged to production.
D. The cost of goods sold.
Owners’ equity in a business decreases as a result of which of the following?
A. Investments of cash by the owners.
B. Profits from operating the business.
C. Losses from unprofitable operation of the business.
D. Repaying a loan to a commercial bank.
The current balance sheet of Apex reports total assets of $20 million, total liabilities of
$2 million, and owners’ equity of $18 million. Apex 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 Apex’s debt ratio if Apex’s
owner invests an additional $2 million to finance its expansion?
A. The debt ratio will decrease from .1 (2/20) to .0909 (2/22) after the additional
investment.
B. The debt ratio will decrease from 2/9 before to 2/11 after the additional investment.
C. The debt ratio will increase from 20 before to 22 after the additional investment.
D. Additional investment by owner will have no effect on the debt ratio.
If a corporation has only common stock outstanding, which of the following constitutes
legal capital at a particular date?
A. The amount in the Common Stock account.
B. The sum of the Common Stock account and any additional paid-in capital.
C. The total amount of stockholders’ equity.
D. The sum of the Common Stock account and retained earnings.
Refer to the information above. What amount of net income will be reported on an
income statement for the month of October?
A. $18,500.
B. $22,500.
C. $78,000.
D. $100,500.
Refer to the information above. A statement of cash flows for February, would report an
increase in cash of:
A. ($4,000).
B. $47,000.
C. $53,600.
D. $96,600.
Flexible budgeting may be viewed as combining the concepts of budgeting and:
A. Incremental analysis.
B. Product costing.
C. Cost-volume-profit analysis.
D. Financial statement analysis.
Which of the following types of businesses would you expect to have the highest
inventory turnover?
A. An antique shop.
B. An electronics store.
C. A dairy store.
D. A boat manufacturer.
Adequate disclosure
(a) Briefly explain what is meant by the principle of adequate disclosure.
(b) How does professional judgment enter into the application of the principle of
adequate disclosure?
(c) List 5 types of information that a publicly-held corporation generally would be
required to provide according to the concept of adequate disclosure.
Eagle Company uses a standard cost system which has provided the following data:
Refer to the information above. The direct labor rate variance for the period was:
A. $425 favorable.
B. $360 favorable.
C. $360 unfavorable.
D. $425 unfavorable.
The cost of delivering merchandise to the customer is:
A. Part of cost of goods sold.
B. Used in the calculation of net sales.
C. An operating expense.
D. A reduction of gross profit.
Which of the following is a financing activity?
A. Payment of interest.
B. Payment of dividends.
C. Making sales on account.
D. Paying off accounts payable.
The employee time card for John Winter indicates that he spent last week performing
routine maintenance on factory machinery. Payments made to Winter for last week’s
work should be:
A. Debited to Work in Process Inventory.
B. Credited to the Direct Labor account.
C. Debited to the Direct Labor account.
D. Debited to the Manufacturing Overhead account.
The quick ratio:
A. Is computed by dividing current assets by current liabilities.
B. Is always higher than the current ratio.
C. Cannot be higher than the current ratio.
D. May be higher or lower than the current ratio.
The Cash account in the ledger of Clear Windows shows a balance of $12,596 at
September 30. The bank statement, however, shows a balance of $16,253 at the same
date. The only reconciling items consist of a bank service charge of $16, a large number
of outstanding checks totaling $6,740, and a deposit in transit.
Refer to the information above. What is the adjusted cash balance in the September 30
bank reconciliation?
A. $16,237.
B. $12,580.
C. $9,513.
D. $5,856.
The Cash account in the ledger of Hensley, Inc. showed a balance of $3,100 at June 30.
The bank statement, however, showed a balance of $3,900 at the same date. The only
reconciling items consisted of a $700 deposit in transit, a bank service charge of $7, and
a large number of outstanding checks.
Refer to the information above. What is the “adjusted cash balance” at June 30?
A. $3,900.
B. $3,093.
C. $7,600.
D. $2,400.
Which of the following inventory valuation methods is only an estimate of actual costs?
A. Only the retail method.
B. Only the gross profit method.
C. Both retail and gross profit methods are only estimations.
D. Neither the retail nor the gross profit methods are estimations.
Belle invests $200 at the end of each year in a savings account which pays 5% annually.
How much will Belle have at the end of 5 years?
A. $1,000.
B. $1,105.13.
C. $1,077.50.
D. $1,082.37.
Capital budgeting
Zhang Corporation is considering investing $190,000 in equipment to produce a new
product. Useful service life of the equipment is estimated to be 5 years, with zero
salvage value. Straight-line depreciation is used. The company estimates that
production and sale of the new product will increase net income by $65,000 a year.
(Round your years and percentage answers to one decimal place.)
(a) The payback period will be __________ years.
(b) The expected rate of return on average investment will be __________.
The purpose of the fair value adjustment for securities classified as “available-for-sale”
is:
A. To adjust the valuation of a company’s investment to current market value.
B. To recognize the proper amount of gain or loss on fluctuations in the market value of
these securities in the current period income statement.
C. To adjust a corporation’s capital stock account to reflect the current market value of
the outstanding capital stock.
D. To compute the amount of taxes payable on unrealized gains and losses.
Colfax Corporation’s financial statements for the current year include the following:
On the basis of this information, net income for the current year is:
A. $1,251,200.
B. $696,400.
C. $570,600.
D. $1,439,600.
Randall, Inc. uses the allowance method supported by an aging of its accounts
receivable to recognize uncollectible accounts expense in its financial statements. What
method of recognizing this expense does Randall use in its income tax return?
A. It must use the same method.
B. The direct write-off method.
C. Either the balance sheet or income statement approach is acceptable.
D. None, since uncollectible accounts expense is not deductible for income tax
purposes.
Land is purchased for $456,000. Additional costs include a $30,300 fee to a broker, a
survey fee of $3,400, $2,750 to construct a fence, and a legal fee of $12,500. What is
the cost of the land?
A. $456,000.
B. $486,300.
C. $502,200.
D. $504,950.
Eton Corporation purchased land in 1998 for $190,000. In 2014, it purchased a nearly
identical parcel of land for $430,000. In its 2014 balance sheet, Eton valued these two
parcels of land at a combined value of $860,000. Reporting the land in this manner
violated the:
A. Cost principle.
B. Principle of the business entity.
C. Objectivity principle.
D. Going-concern assumption.
On September 1, 2015, Maryland Corporation’s common stock was selling at a market
price of $200 per share. On that date, Maryland announced a 3 for 2 stock split. At what
price would you expect the stock to trade immediately after the split goes into effect?
A. $100 per share.
B. $200 per share.
C. $133.33 per share.
D. $225 per share.
The margin of safety is calculated by:
A. Dividing fixed costs plus target income by the contribution margin.
B. Subtracting break-even income from current income.
C. Subtracting break-even sales from current sales.
D. Subtracting fixed costs from current contribution margin.
Process costing would be suitable for:
A. Automobile repair.
B. Production of television sets.
C. Boat building.
D. Kitchen remodeling.
With a line of credit, a liability arises:
A. As soon as the line is created.
B. As soon as any money is borrowed.
C. Upon repayment of the debt.
D. At the maturity date.
A company with an operating income of $72,000 and a contribution margin ratio of
56% has a margin of safety of: (rounded)
A. $40,320.
B. $128,571.
C. $163,636.
D. It is not possible to determine the margin of safety from the information provided.
Exact Instruments sold equipment to a British research group at a price of 70,000
British pounds on December 1, 2014 with payment due in 90 days. Using the following
exchange rates, what gain or loss from currency fluctuations should be recognized in
2014 and 2015, respectively?
A. A $2,800 loss in 2014 and a $3,500 gain in 2015.
B. No gain or loss in 2014 and a $700 loss in 2015.
C. A $2,800 gain in 2014 and a $3,500 loss in 2015.
D. No gain or loss in 2014 and a $700 gain in 2015.
Capital stock represents:
A. The amount invested in the business by stockholders when shares of stock were
initially issued by a corporation.
B. The owners’ equity for a business organized as a corporation.
C. The owners’ equity accumulated through profitable operations that have not been
paid out as dividends.
D. The price paid by the current owners to acquire shares of stock in the corporation,
regardless of whether they bought the shares directly from the corporation or from
another stockholder.
Net income differs from net cash flows from operations because of all the following
except:
A. Non-cash expenses such as depreciation.
B. Timing differences between recognizing revenue and expenses and their cash flows.
C. Gains and losses included in net income but classified as investing or financings
activities.
D. Non-cash expenses such as depreciation, timing differences between recognizing
revenue and expenses and their cash flows, and gains and losses included in net income
but classified as investing or financings activities will all cause a difference between net
income and cash flows.