1) Addison Company is using a hole-punching machine that originally cost $80,000 and
has a current market value of $45,000. The $80,000 is a measure of the opportunity cost
for continuing to use the machine.
2) A business’s equity is the future obligations of the entity.
3) Differential revenues are expected future revenues that vary between the alternatives
under consideration.
4) Statement of Financial Accounting Standards (SFAS) 95 requires interest expense to
be reported in the operating activities section of the statement of cash flows.
5) Costs that have been pooled for one purpose may require disaggregation for a
different purpose.
6) Accruing interest on a note receivable at the end of the fiscal year is an asset source
transaction.
7) Providing services to customers on account is an asset source transaction.
8) Vertical analysis of a balance sheet involves converting each component to a
percentage of stockholders’ equity.
9) An aging of accounts receivable may be used to estimate the amount of accounts
receivable that a company is likely not to collect.
10) When a comparison of static and flexible budgets shows an unfavorable sales
revenue volume variance, the variable cost volume variance will be favorable.
11) The unadjusted rate of return is found by dividing the average incremental increase
in annual net cash flow by the cost of the investment.
12) Gain on Sale of Land is reported in the operating activities section of the statement
of cash flows.
13) Revenues and liabilities are temporary accounts that are closed at the end of the
accounting period.
14) A cost that contains both fixed and variable elements is referred to as a
A.hybrid cost
B.mixed cost
C.half cost
D.semi cost
15) The budget director of Flory’s Kitchen Shop has prepared the following sales
budget. The company had $100,000 of accounts receivable at January 1 . The company
normally collects 100 percent of its accounts receivable in the month following the sale.
Required:
a) Complete the schedule of cash receipts by filling in the missing amounts. What are
the total budgeted cash receipts for the first quarter?
b) Determine the amount of accounts receivable that Flory’s should report on the first
quarter pro forma balance sheet.
16) As a Certified Management Accountant, Zandra is bound by the standards of ethical
conduct issued by the Institute of Management Accountants. During the course of
business, Zandra learned that her company has decided to discontinue a major product
line. If she mentions this fact to her brother, who is a stockbroker, Zandra could be in
violation of the
A.competence standard
B.confidentiality standard
C.integrity standard
D.objectivity standard
17) What is the going concern assumption?
A.Assumes a company will go out of business if it can’t pay its bills
B.Assumes that a company will continue to operate indefinitely
C.Assumes that a company will follow proper accounting rules
D.Assumes that a company should continue to use the same accounting principles
18) Athens Corporation desires a 12% ROI on all operations. The following information
was available for the company in 2012:
What is the corporation’s margin?
A.10%
B.12%
C.15%
D.20%
19) On January 1, 2010, Desmet Company purchased office equipment that cost
$15,000 cash. The equipment was delivered under terms FOB shipping point, and
transportation cost was $1,000. The equipment had a five year useful life and a $1,200
expected salvage value.
If Desmet Company had used the double-declining balance depreciation method, the
depreciation expense appearing on the 2012 income statement would be:
A.$2,131
B.$2,304
C.$5,920
D.$6,420
20) The result of the matching process is reported on which financial statement?
A.Balance Sheet
B.Income Statement
C.Statement of Changes in Stockholders’ Equity
D.Statement of Cash Flows
21) Falon Company accepted a credit card account receivable in exchange for $50,000
of services provided to a customer. The credit card company charges a 3% service
charge. Recording the service revenue and the service charge would
A.decrease expenses by $1,500
B.increase assets by $50,000
C.increase assets by $48,500
D.A and C
22) Qualitative information is relevant when
A.it makes a difference in the decision
B.it differs between the alternatives
C.both of the above
D.none of these
23) The broad categories of information reported on a business’s financial statements
are referred to as
A.accounts
B.elements of the financial statements
C.components
D.assets
24) Why do accountants normally calculate cost per unit as an average?
A.Determining the exact cost of a product is virtually impossible
B.Some manufacturing-related costs cannot be accurately traced to specific units of
product
C.Even when producing multiple units of the same product, normal variations occur in
the amount of materials and labor used
D.All of these are justifications for computing average unit costs
25) Ransom & Co. expects overhead costs of $30,000 per month and direct production
costs of $12 per unit. The estimated production activity for the 2012 accounting period
is as follows:
The predetermined overhead rate based on units produced is (rounded to the nearest
penny) is
A.$0.75 per unit
B.$9.00 per unit
C.$1.33 per unit
D.$21.00 per unit
26) Home Town Grocery has invested in yogurt stands for its stores. The investment
cost the company $100,000. Variable materials, preparation, and marketing costs are
expected to be $.60 a unit and fixed costs are estimated at $6,000 a year. If actual sales
were 20,000 servings, what would the ROI be at a sales price of $1.70?
A.16.0%
B.22.0%
C.28.0%
D.8.4%
27) Which of the following groups has primary responsibility for establishing generally
accepted accounting principles for businesses in the United States?
A.the US Congress
B.the Securities and Exchange Commission
C.the Financial Accounting Standards Board
D.the Internal Revenue Service
28) Under a periodic inventory system, the buyer does not use which of the following
accounts in recording the acquisition of merchandise inventory and related
transactions?
A.Purchases
B.Purchase Returns and Allowances
C.Purchase Discounts
D.Merchandise Inventory
29) Indicate how each of the following transactions affects the financial statements
model, below:
a) Issued 40,000 shares of common stock with a $20 par value for cash of $25 per
share.
b) Purchased 400 shares of treasury stock (common stock) at $30 per share.
c) Resold 100 shares of the treasury stock at $35 per share.
30) On December 31, 2012, the Landon Corporation estimated that 3% of its credit
sales of $215,000 would be uncollectible. Landon used the allowance method of
accounting for uncollectible accounts. On February 15, 2013, Landon wrote off the
account of one of its customers, in the amount of $2,500. On April 7, 2013, the
customer paid the account in full.
Which of the following answers correctly states the effect of the reinstatement of the
receivable on April 7, 2013?
A.Option A
B.Option B
C.Option C
D.Option D
31) The rate of return that equates the present value of cash inflows and outflows from a
capital investment is the
A.minimum rate of return
B.internal rate of return
C.desired rate of return
D.none of these
32) Clampett Corporation paid cash to acquire land to be used for oil production. The
costs incurred by Clampett were the following:
Estimates were made that 12,500,000 gallons of crude oil can be extracted from the site
over the life of the asset.
Required:
Given that Clampett was able to extract
a) 230,000 gallons in the first year,
b) 975,000 gallons in the second year, and
c) 854,000 gallons in the third year,
calculate the depletion charge for each year
33) All of the following are upstream costs except:
A.Research and development
B.Selling costs
C.Design costs
D.Costs to build a prototype product
34) Cost of Goods Sold is reported
A.as an asset on the balance sheet
B.as a direct reduction of equity on the statement of changes in stockholders’ equity
C.as an addition to Sales Revenue on the income statement
D.as an expense on the income statement
35) On September 11, 2012, the Hafar Corporation has unrestricted Retained Earnings
of $6,000,000, Appropriated Retained Earnings of $4,000,000, Cash of $7,500,000, and
Accounts Payable of $500,000. What is the maximum amount that the corporation
could use for cash dividends on that date?
A.$7,500,000
B.$7,000,000
C.$6,000,000
D.$5,500,000
36) Caroline Farr is manager of a production department of Helling Company. Her
department makes one product; the following information for her department was
accumulated for 2012:
Required:
a) Prepare a flexible budget for the department’s actual level of activity, 97,000 units.
b) Use the flexible budget to evaluate Ms. Farr’s performance.
c) Why does the budget not include sales revenue and net income?
37) Which of the following is not an advantage of accepting credit cards from retail
customers?
A.The acceptance of credit cards tends to increase sales
B.There are fees charged for the privilege of accepting credit cards
C.The credit card company performs credit worthiness assessments
D.The credit card company assumes the cost of slow collections and write-offs
38) Edd Company has an opportunity to purchase an asset that will cost the company
$25,000. The asset is expected to add $7,500 per year to the company’s net income.
Assuming the asset has a five-year useful life and zero salvage value, the unadjusted
rate of return based on the average investment will be
A.60%
B.30%
C.15%
D.None of these
39) Picard Company reported the following information for 2012:
The company’s residual income for 2012 was
A.$3,200
B.$24,000
C.$26,000
D.$64,000
40) A company purchased inventory on account. If the perpetual inventory method is
used, which of the following choices accurately reflects how the purchase affects the
company’s financial statements?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
41) Using the effective interest rate method to amortize bond premium will
A.cause the carrying value of the bond to increase as it approaches the maturity date
B.cause the carrying value of the bond to decrease as it approaches the maturity date
C.cause the carrying value to be the same as the issue price
D.not change the carrying value
42) Berkut Company would break even at $600,000 in total sales. Assuming the
company sells its product for $50 per unit, what is its margin of safety in units if sales
total $800,000?
A.16,000 units
B.12,000 units
C.4,000 units
D.1,000 units
43) The Storyteller Publishing Company is trying to decide whether or not to accept a
special order for 10,000 copies of its latest blockbuster. In making this decision, which
level of costs will mostly likely be relevant to the decision?
A.unit-level costs
B.facility-level costs
C.product-level costs
D.all of these are relevant
44) During 2012, the Hartnett Corporation and the Chapel Corporation reported net
incomes of $100,000 and $250,000 respectively. Both companies had 200,000 shares of
common stock issued and outstanding. At December 31, 2012, the market price per
share of Hartnett’s stock was $31 and Chapel’s’ stock was $35.
Required:
a) Calculate the price-earnings ratio for each company.
b) Based on the price-earnings ratios computed in part (a), which company do investors
believe has more potential for future income growth? State your reason.
45) Which of the following items would be least likely to appear in the current
liabilities section of a classified balance sheet?
A.Accounts Payable
B.Wages Payable
C.Bonds Payable
D.Interest Payable
46) Long-term debt would likely be used for which of the following?
A.acquisition of inventory
B.paying premiums for insurance
C.purchasing a building
D.paying salaries
47) Tompkins Company has two investment opportunities. Both investments cost
$5,000 and will provide the same total future cash inflows. The cash receipt schedule
for each investment is given below:
Select the correct statement from the following:
A.Tompkins should be indifferent between the two investments because they provide
the same total cash inflows
B.Tompkins should choose Investment I because of the time value of money
C.Tompkins should choose Investment II because it generates more immediate cash
inflows
D.Time value of money techniques are not useful for comparing these investments
48) 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.
In accounting for contingent liabilities, Terrace Company determined that for one of the
liabilities, the likelihood of a future obligation was remote.
49) Indicate whether each of the following statements is true or false.
1>Return on investment combines many aspects of managerial performance into a
single ratio
2>Turnover is a measure of the profits generated from sales
3>Return on investment can be improved by increasing sales, decreasing expenses, or
increasing the asset base
4>Margin is calculated by dividing operating income by net income
5>An increase in sales may cause a company’s return on investment to increase because
of the effects of fixed costs
50) Indicate whether each of the following statements is true or false.
1>The concept of relevant range applies to both fixed costs and variable costs
2>Fixed cost per unit increases as the number of units increases
3>The terms “fixed” and “variable” refer to the behavior of total cost
4>Total variable cost is represented by a straight line sloping upward from the origin
when total variable cost is graphed versus number of units
5>Variable cost per unit increases as the number of units increases
51) Explain the reason that interest expense may decrease each year during the life of a
long-term note payable. How is the amount of interest expense normally computed?
52) When is revenue recognized under accrual accounting?
53) What does the margin of safety measure?