If a company uses a percentage of net sales in computing the amount of uncollectible
accounts expense:
A. No valuation allowance will be required.
B. The relationship between revenue and expenses is being stressed more than the
valuation of receivables at the balance sheet date.
C. The existing balance in the Allowance for Doubtful Accounts will be increased
sufficiently to equal the probable loss indicated by the percentage of net sales
computation.
D. Any past-due accounts will be listed as a separate item in the balance sheet.
If a bond is selling at 103, it is selling at:
A. Maturity value and yields a 2% interest rate.
B. A discount.
C. A premium.
D. $103 per bond.
Trego Company issued, on December 31, 2015, $1,000,000 face value, 4%, 5-year
bonds. Interest will be paid semiannually each June 30 and December 31. The bonds
sold at a price of 102; Trego uses the straight-line method of amortizing bond discount
or premium.
Refer to the information above. The amount of bond interest expense recognized by
Trego Company in 2016 with respect to these bonds is:
A. $44,000.
B. $42,000.
C. $38,000.
D. $36,000.
Which of the following situations does not require Empire Company to record an
adjusting entry at the end of January?
A. On January 1, Empire Company purchased delivery equipment with an estimated
useful life of five years.
B. On January 1, Empire Company began delivery service for a large client who will
pay at the end of a three-month period.
C. At the end of January, Empire Company pays the custodian for January office
cleaning services.
D. On January 1, Empire Company paid rent for six months on its office building.
Process costing systems:
A. Are used when companies produce homogeneous units.
B. Do not have work in process accounts for each department.
C. Do not use equivalent units of production.
D. Track costs to individual products.
Investors may be described as:
A. Individuals and enterprises that have provided credit to a reporting entity.
B. Individuals and enterprises that own a reporting entity business.
C. Anyone that has an interest in the results of the operations of the reporting entity.
D. Those whose primary economic activity consists of buying and selling stocks and
bonds.
A revenue transaction will result in all of the following except:
A. An increase in assets.
B. An increase in owners’ equity.
C. A positive cash flow in either the past, present, or future.
D. An increase in liabilities.
The present value of a cash amount:
A. Is always less than the future value.
B. Is always more than the future value.
C. Is the same as the future value.
D. Is the same as the actual cash value.
Santa Fe Boat Yard has total stockholders’ equity of $4,100,000, comprised of the
following:
– $2,000,000 in $5 preferred stock consisting of 20,000 shares of $100 par value.
– $420,000 in common stock of $6 par value per share.
– $700,000 of additional paid-in capital.
– $980,000 in retained earnings.
Assuming there are no dividends in arrears, the book value per share of common stock
is:
A. $30.00.
B. $58.57.
C. $45.71.
D. $6.00.
A job cost sheet should:
A. Contain information that summarizes all jobs finished.
B. Contain information on each individual job in process.
C. Contain only the direct costs of a particular job.
D. Only be used for jobs that have been completed.
Stockholders’ equity
The stockholders’ equity section of the balance sheet of Creative Corporation at
December 31, 2015, appears as follows:
Answer the following questions based on the stockholders’ equity section given above.
The company had no treasury stock transactions before 2015.
(a) What is the average price per share of preferred stock?
(b) How many shares of common stock are outstanding?
(c) A small stock dividend of 5,000 shares was declared and distributed during 2015.
What was the market price per share on the date of declaration?
(d) If Creative Corporation had reacquired 7,000 shares of treasury stock early in 2015,
compute the price per share for which the reissued treasury stock was sold.
(e) Assume all remaining treasury stock is reissued at a price of $12 per share in
January of 2015.
Give the journal entry to record this transaction.
Accumulated depreciation is:
A. The depreciation expense recorded on an asset to date.
B. The remaining book value of an asset.
C. The depreciation expense taken on an asset during the current period.
D. An expense on the income statement.
Under the allowance method, when a receivable that had been previously written off is
collected:
A. Income is recognized.
B. An expense is reduced.
C. Net income is not affected.
D. Net assets are increased.
John Boyd Corporation manufactures and sells 1,000 tractors each month. The primary
component in each tractor is the motor. John Boyd has the monthly capacity to produce
1,300 motors. The variable costs associated with manufacturing each motor are shown
below:
Fixed manufacturing overhead per month (for up to 1,300 units of production) averages
$27,000. Joan Reid, Inc. has offered to purchase 200 motors from John Boyd per month
to be used in its own outboard motors.
Refer to the information above. Assuming John Boyd wants to earn a pretax profit of
$10,000 on this special order, what price must it charge Joan Reid?
A. $69 per unit.
B. $83 per unit.
C. $95 per unit.
D. Some other amount.
Relevant costs in business decisions
(a) Explain what is meant by each of the following terms: opportunity cost, sunk cost,
and out-of-pocket cost.
(b) Identify which, if any, of the above three types of cost would be considered relevant
in making a business decision.
The _______________ department compares what was shipped with what was ordered
and prepares and mails an invoice.
A. Customer Order
B. Billing
C. Accounting
D. Credit
Trente Switch and Signal sold equipment to a Canadian transportation company at a
price of 300,000 Canadian dollars with payment due in 60 days. On the date of sale, the
exchange rate was 1.50 Canadian dollars per U.S. dollar. Trente decided to hedge the
risk of currency fluctuations by purchasing 300,000 Canadian dollars with payment due
in 60 days. If the exchange rate in 60 days is 1.25 Canadian dollars per U.S. dollar,
Trente Switch and Signal will:
A. Recognize a net gain of $40,000 on the two transactions.
B. Recognize a $40,000 gain when it collects the receivable and incur a $40,000 loss
when it pays the liability.
C. Incur a $40,000 loss when it collects the receivable and recognize a $40,000 gain
when it pays the liability.
D. Incur a net loss of $40,000 on the two transactions.
Limited resources
Portable Enterprises produces two lines of mobile homes: double-wide and single-wide.
Unit cost and revenue data pertaining to each product are shown below:
Each double-wide home requires 350 different labor hours and 125 machine hours.
Each single-wide home requires 175 direct labor hours and 150 machine hours.
Demand for each line of homes far exceeds the company’s total production capacity.
(a) If Portable’s production capacity is constrained by limited direct labor hours, which
line of homes should it produce? ___________________
(b) If Portable’s total production capacity is constrained by machine hours, which line
of homes should it produce? ____________________
Computations
World of Sound is a small retail business that specializes in the sale of top-of-the-line
sound systems. This year, the store has begun to carry the Surround Sound
manufactured by Carp Co. Thus far, World of Sound has recorded the following
transactions involving the Surround Sound
May 5 Purchased 18 units at a unit cost of $2,400
May 18 Purchased 15 additional units at $2,550 each
June 12 Sold 19 units to the Davies Theater
Refer to the information above. If World of Sound uses a perpetual inventory system,
the journal entry to record the sale on February 12th would include which of the
following (World of Sound uses FIFO meaning that the first goods purchased are the
first to be sold)?
A. A debit to the Cost of Goods Sold for $45,750.
B. A credit to the Cost of Goods Sold for $45,750.
C. A credit to Purchases for $45,750.
D. A debit to Inventory for $45,750.
Successful operation of a responsibility accounting system requires all of the following
except:
A. Budgets prepared for each responsibility center.
B. The use of a bonus pool based on ROA (return on assets).
C. An accounting system which measures the performance of each responsibility center.
D. The preparation of timely performance reports.
Steel Fabricating, Inc. manufactures furniture at its plants in Akron, Greensboro, and
Schenectady. The company prepares monthly income statements segmented by plant.
These income statements are organized to disclose contribution margin, performance
margin, and responsibility margin for each plant, in addition to operating income for the
company as a whole.
Refer to the information above. The company’s CEO must decide which of the three
factories to expand in order to increase productive capacity. She should be most
interested in the:
A. Variable costs of each factory.
B. Contribution margin at each factory.
C. Fixed costs traceable to each factory.
D. Responsibility margins of each factory.
An advocate of just-in-time inventory system would say:
A. Maintain a large inventory selection for customers.
B. Leave extra time in order to make inventory deadlines.
C. Maintain a small inventory supply.
D. LIFO is preferred over FIFO.
Austin Corporation issues $6,000,000 of 10%, 10-year bonds, dated December 31, Year
1. The bonds are issued on April 30, Year 2, at 100 plus accrued interest. Interest on the
bonds is payable semiannually each June 30 and December 31.
Refer to the information above. The total amount of cash received by Austin
Corporation upon issuance of the bonds on April 30, Year 2, is:
A. $6,000,000.
B. $6,200,000.
C. $6,150,000.
D. $6,300,000.
Which statement is true about an adjusted trial balance?
A. It is prepared before adjusting entries.
B. Revenue accounts and expense accounts should not appear on the adjusted trial
balance.
C. Balance sheet items are presented before income statement items.
D. Accumulated depreciation should equal depreciation expense.
Armstrong Company recently acquired a new computer system. Which of the following
costs associated with the computer should not be debited to the Equipment account?
A. Insurance coverage purchased by Armstrong to cover the computer during shipment
from the manufacturer.
B. Wages paid to system programmers hired to prepare the new computer for use.
C. Replacement of several circuit boards damaged during installation.
D. Installation of new electrical power supplies required for the computer.
Deerpark Corporation recently borrowed $70,000 cash from its bank. Which of the
following was unaffected by this transaction?
A. Assets.
B. Liabilities.
C. Owners’ equity.
D. Cash.
Which of the following statements is not a characteristic of the LIFO method of pricing
inventory?
A. During a period of rising prices, LIFO tends to minimize the amounts of income
taxes owed.
B. The cost of goods sold is measured in relatively current costs.
C. Inventory is valued at relatively current costs.
D. During a period of falling prices, LIFO tends to maximize the amounts of income
taxes owed.
Refer to the information above. Which of the following represents the second largest
payroll related expense incurred by Girard?
A. Group health insurance premiums.
B. Income taxes expense.
C. The employer’s share of social security taxes and Medicare taxes.
D. Wages and salaries expense.
General Corporation was organized on January 1 and issued 500,000 shares of common
stock on that date. On July 1, an additional 200,000 shares were issued for cash. Net
income for the year was $5,184,000. Net earnings per share amounted to:
A. $7.41.
B. $7.98.
C. $8.41.
D. $8.64.
An asset which costs $97,600 and has accumulated depreciation of $82,000 is sold for
$18,000. What amount of gain or loss will be recognized when the asset is sold?
A. A gain of $15,600.
B. A loss of $15,600.
C. A loss of $2,400.
D. A gain of $2,400.