1) On the income statement, sales returns and allowances and sales discounts are added
to gross sales to yield net sales.
2) Purchases of merchandise increase the merchandise inventory account under the
perpetual inventory system.
3) If the standard to produce a given amount of product is 1,000 units of direct materials
at $11 and the actual was 800 units at $12, the direct materials quantity variance was
$2,200 favorable.
4) The declaration and issuance of a stock dividend does not affect the total amount of a
corporation’s assets, liabilities, or stockholders’ equity.
5) The terms acid-test ratio and quick ratio refer to the same ratio which measures the
instant debt-paying ability of a company.
6) Supervisor salaries and indirect factory wages would normally appear in the direct
labor cost budget.
7) Eliminating a product or segment will usually eliminates all of the products or
segments variable costs.
8) Companies using a low-cost emphasis provide products and services that compete on
features other than price.
9) If Division Q’s income from operations was $60,000 and invested assets amounted to
$400,000, the rate of return on investment calculated would be 15%.
10) A voucher is a form where pertinent data about a liability and the particulars of its
payment are recorded.
11) If income from operations for a division is $120,000, sales are $975,000, and
invested assets are $750,000, the investment turnover would be 6.3 .
12) The total earnings of an employee for a payroll period is referred to as the net pay.
13) The profit margin, a component of the rate of return on investment, focuses on the
profitability by indicating the rate of profit earned on each sales dollar.
14) Expenses on the income statement are assets used up or services consumed in the
process of generating revenues.
15) The budgeted direct materials purchases are normally computed as the sum of (1)
the materials for production and (2) the desired beginning inventory.
16) Budgets are normally used by both profit-making businesses and nonprofit
organizations.
17) A bank reconciliation is an important part of the system of internal controls.
18) The formula to compute direct labor time variance is:
A.actual costs standard costs
B.actual costs + standard costs
C.(actual hours standard rate) standard costs
D.actual costs (actual hours standard rate)
19) Which of the following conditions would cause the break-even point to decrease?
A.Increase in total fixed costs
B.Decrease in unit selling price
C.Decrease in unit variable cost
D.Increase in unit variable cost
20) Which of the following best describes an accrual adjustment?
A.It records a transaction in a way that delays or defers the recognition of an expense or
revenue
B.It is initially recorded as an asset but become expense over time or through normal
operations of the business
C.It is initially recorded as liabilities but become revenues over time or through normal
operations of the business
D.It is created when a revenue or expense has been earned or incurred but has not been
recorded
21) Allowance for Doubtful Accounts has an unadjusted balance of $800 at the end of
the year, and an analysis of accounts in the customers ledger indicates doubtful
accounts of $15,000. Which of the following records the proper provision for doubtful
accounts?
A.Increase Uncollectible Accounts Expense, $800; increase Allowance for Doubtful
Accounts, $800
B.Increase Uncollectible Accounts Expense $15,000; increase Allowance for Doubtful
Accounts, $15,000
C.Increase Uncollectible Accounts Expense, $14,200; increase Allowance for Doubtful
Accounts, $14,200
D.Increase Uncollectible Accounts Expense, $15,800; increase Allowance for Doubtful
Accounts, $15,800
22) Investing activities include:
A.collecting cash on loans made
B.obtaining cash from creditors
C.obtaining capital from owners
D.repaying money previously borrowed
23) Match each statement with the appropriate accounting concept. (Some items may
not be used. Others may be used more than once.)
a. Accounting period concept
b. Adequate disclosure concept
c. Business entity concept
d. Cost concept
e. Going concern concept
f. Matching concept
g. Objectivity concept
h. Unit of measure concept
24) Which of the following would not affect the operating activities section of the
statement of cash flows, using the indirect method?
A.Decrease in merchandise inventory
B.Payment on a note payable
C.Decrease in unearned rent
D.Depreciation expense
25) On the bank’s accounting records, customers’ accounts are normally shown as a(n):
A.revenue
B.liability
C.asset
D.expenses
26) The following information is available for Morgan Corporation:
Which of the following statements is correct?
A.The price-earnings ratio is 20 and a share of common stock was selling for 20 times
the amount of earnings per share at the end of 2012
B.The price-earnings ratio is 5.0% and a share of common stock was selling for 5.0%
more than the amount of earnings per share at the end of 2012
C.The price-earnings ratio is 10 and a share of common stock was selling for 125 times
the amount of earnings per share at the end of 2012
D.The market price per share and the earnings per share are not statistically related to
each other
27) The cost of a product warranty should be included as an expense in the:
A.period the cash is collected for a product sold on account
B.future period when the cost of repairing the product is paid
C.period of the sale of the product
D.future period when the product is repaired or replaced
28) Expenses that are incurred directly or entirely in connection with the sale of
merchandise are classified as:
A.selling expenses
B.general expenses
C.other expenses
D.administrative expenses
29) Wiles Inc.’s unit selling price is $40, the unit variable costs is $30, fixed costs are
$135,000, and current sales are 10,000 units. How much would operating income
change if sales increase by 5,000 units?
A.$50,000 increase
B.$65,000 decrease
C.$100,000 increase
D.$50,000 decrease
30) Given the following costs and activity observations for Pike Companys utilities, use
the high-low method to calculate Pikes variable utilities costs per machine hour.
A.$0.55
B.$0.60
C.$0.52
D.$0.40
31) If the cost of an item of inventory is $70, the current replacement cost is $65, and
the sales price is $85, the amount included in inventory according to the
lower-of-cost-or-market method is:
A.$65
B.$70
C.$85
D.$160
32) The two most widely used methods for determining the cost of inventory are:
A.FIFO and LIFO
B.FIFO and average cost
C.LIFO and average cost
D.specific identification and average cost
33) Which of the following should be added to net income in calculating net cash flow
from operating activities using the indirect method?
A.An increase in inventory
B.A decrease in accounts payable
C.Preferred dividends declared and paid
D.A decrease in accounts receivable
34) Using the following information, prepare a bank reconciliation for Wilkes Co. for
May 31, 2013:
(a) The bank statement balance is $3,512.
(b) The cash account balance is $3,165.
(c) Outstanding checks amounted to $590.
(d) Deposits in transit are $204.
(e) The bank service charge is $30.
(f) A check for $76 for supplies was recorded on the depositors books as $67.
35) A machine was purchased for $30,000, having a useful life of 10 years, and a
residual value of $4,000. Compute the annual depreciation expense using the
straight-line method.
A.$3,000
B.$3,400
C.$2,600
D.$5,200
36) Which of the following is not an intangible asset?
A.Goodwill
B.Trademark
C.Copyright
D.Long-term receivable
37) If fixed costs are $850,000 and the unit contribution margin is $90, what amount of
units must be sold in order to have a zero profit?
A.9,444 units
B.8,500 units
C.7,650 units
D.85,000 units
38) Which of the following conditions would cause the break-even point to increase?
A.Decrease in total fixed costs
B.Increase in unit selling price
C.Decrease in unit variable cost
D.Increase in unit variable cost
39) Which of the following is true of the balanced scorecard?
A.It ignores the financial performance of the company
B.It has the ability to reveal the underlying nonfinancial drivers of financial
performance
C.It aims to improve the nonfinancial performance of the business
D.It focuses primarily on the short term performance of the business
40) A summary of revenue and expenses for a specific period of time is a(n):
A.income statement
B.balance sheet
C.statement of cash flows
D.retained earnings statement
41) Which of the following is a fixed asset?
A.Cash
B.Equipment
C.Land held for investment
D.Notes receivable
42) Currently, fixed costs are $450,000, the unit selling price is $75, and the unit
variable cost is $50. What would be the break-even sales (in units), if the unit selling
price is increased by $5?
A.8,182 units
B.9,000 units
C.15,000 units
D.18,000 units
43) Kirk Co. manufactures mobile cellular equipment and develops a price for the
product by using a variable cost concept. Kirk incurs variable costs of $1,900,000 in the
production of 100,000 units. Fixed costs total $50,000. The company employs
$4,725,000 of assets and wishes to earn a profit equal to a 10% rate of return on assets.
44) A variant of fiscal-year budgeting whereby a twelve-month projection into the
future is maintained at all times is termed:
A.flexible budgeting
B.master budgeting
C.zero-based budgeting
D.continuous budgeting
45) For EFG Co., the transaction “payment of dividends” would:
A.increase total assets
B.decrease total assets
C.have no effect on total assets
D.increase stockholders equity
46) Upon completing a job, direct materials totaled $3,000; direct labor, $3,500; and
factory overhead, $1,500. Units produced totaled 1,000. What is the per unit cost?
A.$8,000
B.$6,500
C.$6.50
D.$8
47) Inventory shortage is recorded when:
A.merchandise is returned by a buyer
B.merchandise purchased from a seller is incomplete or short
C.merchandise is returned to a seller
D.there is a difference between a physical count of inventory and inventory records
48) If a fixed asset is sold and the book value of the asset is less than its selling price,
the company must:
A.recognize a loss on the income statement under other expenses
B.recognize a loss on the income statement under operating expenses
C.recognize a gain on the income statement under other revenues
D.recognize a gain on the income statement under revenues
49) In a profit center, the manager has responsibility and authority for making decisions
that affect:
A.only costs
B.only assets
C.both costs and assets
D.both costs and revenues
50) The profit margin for Division E is 28% and the investment turnover is 3.0 . What is
the rate of return on investment for Division E?
A.84%
B.28%
C.14%
D.9%
51) The process of developing budget estimates by requiring all levels of management
to estimate sales, production, and other operating data as though operations were being
initiated for the first time is referred to as:
A.flexible budgeting
B.continuous budgeting
C.zero-based budgeting
D.master budgeting
52) Materials used by Boone Company in producing Division C’s product are currently
purchased from outside suppliers at a cost of $20 per unit. However, the same materials
are available from Division A. Division A has unused capacity and can produce the
materials needed by Division C at a variable cost of $17 per unit. A transfer price of $19
per unit is negotiated and 60,000 units of material are transferred, with no reduction in
Division A’s current sales.
How much would Division A’s income from operations increase?
A.$0
B.$180,000
C.$60,000
D.$120,000
53) 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 total direct labor
variance is:
A.$216,000 favorable
B.$32,400 favorable
C.$89,100 unfavorable
D.$121,500 unfavorable
54) Assuming that the standard fixed overhead rate is based on full capacity, the cost of
available but unused productive capacity is indicated by the:
A.factory overhead cost volume variance
B.direct labor cost time variance
C.direct labor cost rate variance
D.factory overhead cost controllable variance
55) Which of the following are present value methods of analyzing capital investment
proposals?
A.Internal rate of return and average rate of return
B.Average rate of return and net present value
C.Net present value and internal rate of return
D.Net present value and cash payback
56) Which of the following manufacturing costs is an indirect cost of producing a
product?
A.Oil lubricants used for factory machinery
B.Commissions for sales personnel
C.Hourly wages of an assembly worker
D.Memory chips for a microcomputer manufacturer
57) List and define each of the five elements of internal control set forth by the
Integrated Framework.
58) Under the balance sheet classification of property, plant, and equipment, some
accounts need adjustment and others do not. Which do and why? Which do not and
why?
59) Gaston Corporations accumulated depreciation increased by $10,000, while patents
decreased by $3,200 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 gain of $3,500 from sale of land. Reconcile a net income of
$45,000 to net cash flow from operating activities.
