If $4,000,000 of 12% bonds are issued at 103 1/4, the amount of cash received from the
sale is:
a. $4,040,000.
b. $4,000,000.
c. $4,130,000.
d. $3,520,000.
The purchase of factory equipment would be an example of which type of business
activity?
a. Financing
b. Investing
c. Operating
d. All of these
The minimum amount of desired divisional operating income is set by top management
by establishing a maximum rate of return that is expected from the invested assets.
a. True
b. False
In preparing a bank reconciliation, the amount of deposits in transit is deducted from
the cash balance per bank.
a. True
b. False
Part A
Indicate the effect of each transaction during the month of October 2016 and the
balances for the accounting equation after all transactions have been recorded. No
beginning balances exist in the accounts. An accounting equation has been provided.
a.Opened a business bank account for Jones, Inc., with an initial deposit of $45,000 in
exchange for common stock.
b.Paid rent on the office building for the month, $2,000.
c.Received cash for fees earned of $5,000.
d.Purchased equipment, $7,000.
e.Borrowed $20,000 by issuing a note payable.
f.Paid salaries for the month, $1,000.
g.Received cash for fees earned of $8,000.
h.Paid dividends, $3,000.
i.Paid interest on the note, $100.
Assets = Liabilities + Stockholders’ Equity
CashEquipmentNotes PayableCommon StockRetained Earnings
a.
b.
c.
d.
e.
f.
g.
h.
i.
Bal.
Part B
Using the information from Part A, prepare (1) an income statement, (2) a statement of
stockholders’ equity, (3) a balance sheet, and (4) a statement of cash flows for the month
of October.
Jones, Inc.
Income Statement
For the Month Ended October 31, 2016
Jones, Inc.
Statement of Stockholders’ Equity
For the Month Ended October 31, 2016
Jones, Inc.
Balance Sheet
October 31, 2016
Jones, Inc.
Statement of Cash Flows
For the Month Ended October 31, 2016
The _____ is held responsible for an unfavorable quantity variance caused by
lowquality direct materials.
a. sales department
b. investment department
c. purchasing department
d. operating department
Purchase requisitions for Purchasing and the number of payroll checks for Payroll
Accounting are examples of activity bases.
a. True
b. False
After the accounts are adjusted and closed at the end of the fiscal year, Accounts
Receivable has a balance of $500,000 and Allowance for Doubtful Accounts has a
balance of $25,000. What is the net realizable value of the accounts receivable?
a. $25,000
b. $525,000
c. $500,000
d. $475,000
The process by which management allocates available investment funds among
competing capital investment proposals is termed present value analysis.
a. True
b. False
Which of the following is true about quick ratio?
a. It is computed as quick assets multiplied by current liabilities.
b. It includes cash, inventory, and shortterm investments.
c. If it is less than 1.0, it raises liquidity concerns for creditors.
d. It is a suitable measure to derive the profitability of the company.
If merchandise costing $2,500, terms FOB destination, 2/10, n/30, with transportation
costs of $100, is paid within 10 days, the amount of the purchases discount is $52.
a. True
b. False
The accounting equation can be expressed as: Assets − Liabilities = Revenues.
a. True
b. False
The price at which stock is sold depends on a variety of factors such as:
a. the financial condition and dividend record of the corporation.
b. the corporation’s ability to measure potential liability.
c. the likelihood of an uncertain event happening.
d. the corporation’s efficiency in using current assets to pay interest on debt.
Surist, Inc.
Surist, Inc. purchased merchandise for $300,000, received credit for purchase returns of
$20,000, availed purchase discounts of $5,000, and paid transportation in of $12,000.
Refer to Surist, Inc. What is the total cost of merchandise purchased?
a. $312,000
b. $287,000
c. $263,000
d. $288,000
If the current credit terms are 2/10, n/30 for Jones Inc., an accounts receivable turnover
of 3 for the current year would be considered normal.
a. True
b. False
If the standard to produce certain quantity of product is 16,000 hours at a factory
overhead rate of $5 ($3 fixed, $2 variable), actual variable factory overhead is $26,400,
actual fixed factory overhead is $45,000, and 100% of productive capacity is 15,000
hours, the volume variance is $3,000 favorable.
a. True
b. False
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 Boone’s total operating income increase?
a. $180,000
b. $240,000
c. $120,000
d. $300,000
Under the accrual basis of accounting, net cash flows from operating activities on the
statement of cash flows will normally be the same as net income.
a. True
b. False
All organizations face risks, and the assessment of these risks is necessary so that the
objectives of internal control can be achieved.
a. True
b. False
If sales total $1,000,000, fixed costs total $200,000, and variable costs are 55% of the
sales, the contribution margin ratio is 55%.
a. True
b. False
The FIFO method of costing inventory is based on the assumption that costs should be
charged against revenues in the order in which they were incurred.
a. True
b. False
Creditors have preference to assets behind stockholders if a business fails.
a. True
b. False
Current assets are assets that are expected to be converted to cash, sold or used up
within 6 months.
a. True
b. False
After the goods are completed, their costs are transferred from Work in Process to
Finished Goods.
a. True
b. False
WFC Co.’s petty cash receipts indicate the following expenditures for the end of
October:
Office supplies$500
Miscellaneous selling expense$350
Miscellaneous administrative expense$160
As a result of these transactions, WFC Co.’s stockholders’ equity:
a. remains unchanged.
b. increases by $500.
c. decreases by $1,010.
d. decreases by $510.
A business is considering a cash outlay of $200,000 for the purchase of land, which it
could lease for $35,000 per year. If alternative investments are available that yield an
18% return, the opportunity cost of the purchase of the land is:
a. $35,000.
b. $36,000.
c. $1,000.
d. $37,000.
Since the controllable variance measures the efficiency of using variable overhead
resources, if budgeted variable overhead exceeds actual results, the variance is
favorable.
a. True
b. False
Jarvis Company uses the total cost concept of applying the costplus approach to product
pricing. The costs and expenses of producing and selling 35,000 units of Product E are
as follows:
Variable costs:
Direct materials$ 3.00
Direct labor1.25
Factory overhead0.75
Selling and administrative expenses 3.00
Total$ 8.00
Fixed costs:
Factory overhead$50,000
Selling and administrative expenses20,000
Jarvis desires a profit equal to a 14% rate of return on invested assets of $450,000.
(a)Determine the amount of desired profit from the production and sale of Product E.
(b)Determine the total costs and the cost amount per unit for the production and sale of
35,000 units of Product E.
(c)Determine the markup percentage for Product E.
(d)Determine the selling price of Product E.
If a $15,000 purchase of equipment for cash is incorrectly recorded as an increase to
equipment and as an increase to cash, at the end of the period assets will:
a. exceed liabilities and stockholders’ equity by $15,000.
b. equal liabilities and stockholders’ equity.
c. exceed liabilities and stockholders’ equity by $30,000.
d. exceed liabilities and stockholders’ equity by $40,000.
The ratio of cash to monthly cash expenses can be used to _____.
a. assess how long a company with positive cash flows from investing activities can
continue to operate
b. assess how long a company with negative cash flows from operations can continue to
operate
c. assess how long a company with negative cash flows from investing activities can
continue to operate
d. assess how long a company with positive cash flows from financing activities can
continue to operate
Internal controls are important because they:
a. deter fraud and prevent misleading financial statements.
b. eliminate fraud.
c. ensure that the company maintains a compensating balance.
d. guarantee accurate financial statements.
Repayments of bonds would be shown as a cash outflow in the investing section of the
statement of cash flows.
a. True
b. False
The difference between the standard cost of a product and its actual cost is called a
variance.
a. True
b. False