Sellers generally prefer to receive notes receivable rather than accounts receivable when
the credit period is long and the receivable is for a large amount.
The effective interest method yields increasing amounts of bond interest expense and
decreasing amounts of premium amortization over the bond’s life.
Accounts receivable occur from credit sales to customers.
The management concept of customer orientation causes a company to spend large
amounts on advertising to convince customers to buy the company’s standard products.
Common shareholders always share equally with all other shareholders in all dividends.
A patent is an exclusive right granted to its owner to manufacture and sell a patented
device or to use a process for 20 years.
A cash budget is a plan that includes the expected cash receipts and cash expenditures
during each of the periods that it covers.
The chart of accounts is a list of all the accounts used by a company and includes an
identification number assigned to each account.
A company must have a days’ sales uncollected ratio of less than 30 days to conclude
that is has sufficient liquidity.
Retained earnings are part of the stockholders’ claims on the company’s net assets.
A company’s current ratio is 1.2 and its quick ratio is 0.25. This company is probably an
excellent credit risk because the ratios reveal no indication of liquidity problems.
A company has inventory with a market value of $217,000 and a cost of $241,000.
According to the lower of cost or market, the inventory should be written down to
$217,000.
Organizational expenses of a corporation often include legal fees and promoter fees.
Earnings per share are calculated only on income from continuing operations.
In applying the lower of cost or market method to inventory valuation, market is
defined as the current replacement cost.
To determine unit cost under a process cost accounting system, equivalent units
produced must be calculated if the company has goods in process inventories.
The Packing Department transferred out completed units with a cost of $74,000. This
transfer should be recorded with the following entry:
Chuck Taylor invested $175,000 cash in FastForward. This amount would be reported
in the statement of cash flows under financing activities.
The cash flow on total assets ratio can be used as an indicator of earnings quality.
A purchase of land in exchange for shares of stock is disclosed on the statement of cash
flows or in a note to the statement.
A company has $424,000 in total stockholders’ equity. The company has no preferred
stock and has 40,000 common shares outstanding. Its book value per share is $10.60.
If a department that applies process costing starts the reporting period with 50,000
physical units that were 25% complete with respect to direct materials and 40%
complete with respect to direct labor, it must add 12,500 equivalent units of direct
materials and 20,000 equivalent units of direct labor to complete them.
After posting the entries to close all revenue and expense accounts, Hatfield Company’s
Income Summary account has a credit balance of $6,000, and its Hatfield, Withdrawals
account has a debit balance of $2,500. These balances indicate that net income for the
current accounting period amounted to $3,500.
Auditors rely on accounting system databases when they audit financial statements and
a company’s controls.
Manufacturers usually have three inventories: raw materials, goods in process, and
finished goods.
Before an adjusting entry is made to recognize the cost of expired insurance for the
period, Prepaid Insurance and Insurance Expense are both overstated.
The dollar amount of sales needed to achieve a target after-tax income is computed by
dividing the sum of fixed costs plus the desired after-tax income plus income taxes by
the contribution margin ratio.
Managers are able to make important decisions correctly using erroneous inventory
balances because inventory errors are self-correcting and so are less serious.
An expense account is normally closed by debiting Income Summary and crediting the
expense account.
The carrying (book) value of a bond payable is the par value of the bonds plus the
discount.
A high merit rating means that an employer has high employee turnover or seasonal
hiring.
A company can use present and future value computations to estimate the interest
component of holding assets over time.
The accounting equation implies that: Assets + Liabilities = Equity.
A company had net income of $40,000, net sales of $300,000, and total assets of
$200,000. Its profit margin and total asset turnover were respectively:
A.13.3%; 0.2.
B.13.3%; 1.5.
C.2.0%; 1.5.
D.1.5%; 0.2.
E.1.5%; 13.3.
After posting all actual factory overhead and applying factory overhead to production
departments in a process costing system,
A.There will never be underapplied overhead.
B.There will never be overapplied overhead.
C.There will always be underapplied overhead.
D.There will always be overapplied overhead.
E.There may be over or underapplied overhead.
If a parcel of land that was originally acquired for $85,000 is offered for sale at
$150,000, is assessed for tax purposes at $95,000, is recognized by its purchasers as
easily being worth $140,000, and is sold for $137,000, the land should be recorded in
the purchaser’s books at:
A.$95,000.
B.$137,000.
C.$138,500.
D.$140,000.
E.$150,000.
Identify each of the following business activities 1 through 6 into the appropriate
category a, b, and c.
a. Operating
b. Investing
c. Financing
1)Paid employee wages.
2)Purchase of land.
3)Sale of used equipment.
4)Borrowed money from a bank on a long-term note.
5)Paid utilities expenses.
6)Withdrawal of funds by owners.
To compute trend percents the analyst should:
A.Select a base period, assign each item in the base period statement a weight of 100%,
and then express financial numbers from other periods as a percent of their base period
number.
B.Subtract the analysis period number from the base period number.
C.Subtract the base period amount from the analysis period amount, divide the result by
the analysis period amount, then multiply that amount by 100.
D.Compare amounts across industries using Dun and Bradstreet.
E.All of these.
According to generally accepted accounting principles, a company’s balance sheet
should show the company’s assets at:
A.The cash equivalent value of what was given up or received.
B.The current market value of the asset received in all cases.
C.The cash paid only, even if something other than cash was given in the exchange.
D.The best estimate of a certified internal auditor.
E.The objective value to external users.
The interest accrued on $6,500 at 6% for 60 days is:
A.$ 36.
B.$ 42.
C.$ 65.
D.$180.
E.$420.
A company had revenues of $75,000 and expenses of $62,000 for the accounting
period. Which of the following entries could not be a closing entry?
A.
B.
C.
D.
E. All of these are possible closing entries.
A $130 credit to Office Equipment was credited to Fees Earned by mistake. By what
amounts are the accounts under- or overstated as a result of this error?
A.Office Equipment, understated $130; Fees Earned, overstated $130.
B.Office Equipment, understated $260; Fees Earned, overstated $130.
C.Office Equipment, overstated $130; Fees Earned, overstated $130.
D.Office Equipment, overstated $130; Fees Earned, understated $130.
E.Office Equipment, overstated $260; Fees Earned, understated $130.
The inventory valuation method that tends to smooth out erratic changes in costs is:
A.FIFO.
B.Weighted average.
C.LIFO.
D.Specific identification.
E.WIFO
A responsibility accounting system:
A.Is designed to measure the performance of managers in terms of controllable costs.
B.Assigns responsibility for costs to the appropriate managerial level that controls those
costs.
C.Should not hold a manager responsible for costs over which the manager has no
influence.
D.Can be applied at any level of an organization.
E.All of these.
A company’s income before interest expense and taxes is $250,000 and its interest
expense is $100,000. Its times interest earned ratio is:
A.0.40
B.2.50
C.1:2.5
D.2.5:1
E.0.50
A unit of a business that not only incurs costs, but also generates revenues, is called a:
A.Performance center.
B.Profit center.
C.Cost center.
D.Responsibility center.
E.Expense center.
On October 1, Courtland Company sold merchandise in the amount of $5,800 to Carter
Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000.
Courtland uses the periodic inventory system. Carter pays the invoice on October 8, and
takes the appropriate discount. The journal entry that Courtland makes on October 8 is:
A.
B.
C.
D.
E.
A financial report that summarizes the amounts and types of costs that were incurred in
the manufacturing process during the period is a:
A.Materiality statement.
B.Managerial statement.
C.Manufacturing statement.
D.Merchandise statement.
E.Monetary statement.
A plan that reports the units or costs of merchandise to be purchased by a
merchandising company during the budget period is called a:
A.Selling expenses budget.
B.Merchandise purchases budget.
C.Sales budget.
D.Cash budget.
E.Capital expenditures budget.
A company sells computers at a selling price of $1,800 each. Each computer has a 2
year warranty that covers replacement of defective parts. It is estimated that 2% of all
computers sold will be returned under the warranty at an average cost of $150 each.
During November, the company sold 30,000 computers, and 400 computers were
serviced under the warranty at a total cost of $55,000. The balance in the Estimated
Warranty Liability account at November 1 was $29,000. What is the company’s
warranty expense for the month of November?
A.$26,000
B.$45,000
C.$55,000
D.$60,000
E.$90,000
A column in journals and ledger accounts used to cross reference journal and ledger
entries is the:
A.Account balance column.
B.Debit column.
C.Posting reference column.
D.Credit column.
E.Description column.
Net income is:
A.Assets minus liabilities.
B.The excess of revenues over expenses.
C.An asset.
D.The same as revenue.
E.The excess of expenses over equity.
Duxbury Co. reports the following data for the current year:
Required:
(a) Calculate Duxbury’s pretax income.
(b) Calculate Duxbury’s degree of operating leverage.
On December 15, 2007, Myers Legal Services signed a $50,000 contract with a client to
provide legal services to the client in 2008. Which accounting principle would require
Myers Legal Services to record the legal fees revenue in 2008 and not 2007?
A.Monetary unit principle
B.Going-concern principle
C.Cost principle
D.Business entity principle
E.Revenue recognition principle
Classified balance sheets commonly include the following categories.
a. Current assets
b. Long-term investments
c. Plant assets
d. Intangible assets
e. Current liabilities
f. Long-term liabilities
g. Equity.
Indicate the typical classification of each item listed below by placing the letter of the
correct balance sheet category a through g in the blank space next to the item.
1)Buildings used in business operations
2)Office Supplies
3)Cash
4)Accounts payable.
5)Land held for future plant expansion
6) Patents.
7)Prepaid insurance
8)Long-term note payable
9)Current portion of long-term debt
10)Wages payable.
11)Margarita Acosta, Capital
12)Accounts Receivable
A controlling influence over the investee is based on the investor owning voting stock
exceeding:
A.10%.
B.20%.
C.30%.
D.40%.
E.50%.
Present Value of 1
Future Value of 1
Present Value of an Annuity of 1
Future Value of an Annuity of 1
Jon Shear expects an investment of $25,000 to return $6,595 annually. His investment is
earning 10% per year. How many annual payments will he receive?
A.Five payments.
B.Six payments.
C.Four payments.
D.Three payments.
E.More than six payments.
Short-term investments:
A.Are securities that management intends to convert to cash within the longer of one
year or the current operating cycle, and are readily convertible to cash.
B.Include funds earmarked for a special purpose such as bond sinking funds.
C.Include stocks not intended to be converted into cash.
D.Include bonds not intended to be converted into cash.
E.Include sinking funds not intended to be converted into cash.
A company has fixed costs of $90,000. Its contribution margin ratio is 30% and the
product sells for $75 per unit. What is the company’s break-even point in dollar sales?
A.$ 60,000.
B.$128,571.
C.$180,000.
D.$210,000.
E.$300,000.
A major limitation of the internal rate of return method is:
A.Failure to measure time value of money.
B.Failure to measure results as a percent.
C.Failure to consider the payback period.
D.Failure to reflect varying risk levels over project life.
E.Failure to compare dissimilar projects.
A company has two departments, A and B, that incur delivery expenses. An analysis of
the total delivery expense of $9,000 indicates that Dept. A had a direct expense of
$1,000 for deliveries. None of the $9,000 is a direct expense to Dept. B. The analysis
also indicates that 60% of regular delivery requests originate in Dept. A and 40% in
Dept. B.
The delivery expenses that should be charged to Dept. A and Dept. B, respectively, are:
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
General Chemical produced 10,000 gallons of Breon and 20,000 gallons of Baron. Joint
costs incurred in producing the two products totaled $7,500. At the split-off point,
Breon has a market value of $6.00 per gallon and Baron $2.00 per gallon. What portion
of the joint costs should be allocated to Breon if the basis is market value at point of
separation?
A.$2,500.
B.$3,000.
C.$4,500.
D.$5,625.
E.$1,500.
FICA taxes include:
A.Social Security taxes.
B.Charitable giving.
C.Employee income taxes.
D.Unemployment taxes.
E.All of these.
Preferred stock on which the right to receive dividends is forfeited for any year that the
dividends are not declared is called:
A.Noncumulative preferred stock.
B.Participating preferred stock.
C.Callable preferred stock.
D.Cumulative preferred stock.
E.Convertible preferred stock.
A balance sheet that places the liabilities and equity to the right of the assets is a(n):
A.Account form balance sheet.
B.Report form balance sheet.
C.Interim balance sheet.
D.Classified balance sheet.
E.Unclassified balance sheet.
A product sells for $200 per unit, and its variable costs per unit are $130. The fixed
costs are $420,000. What is the break-even point in dollar sales?
A.$2,100.
B.$6,000.
C.$420,000.
D.$646,154.
E.$1,200,000.
Stride Rite has total assets of $425 million. Its total liabilities are $110 million. Its
equity is $315 million. Calculate the debt ratio.
A.38.6%.
B.13.4%.
C.34.9%.
D.25.9%.
E.14.9%.
A measure of the productivity of a process with respect to its use of direct materials,
direct labor, or overhead, and an expression of the activity of a process as the number of
units that would have been processed during a period if all effort had been applied to
units that were started and finished during the period, is called:
A.Manufacturing overhead.
B.Units in process.
C.A job cost sheet.
D.Equivalent units of production.
E.Process cost summary.
Lorton’s Web Services has assets of $265,000 and liabilities of $130,000. Calculate the
amount of equity.
When the bond contract rate of interest is above the market rate of interest for that
bond, the bond sells at a _____________.
The net present value decision rule requires that when an asset’s expected cash flows
are discounted at the required rate and yield a positive net present value, the project
should be ____________________.
What is capital budgeting? Why are capital budgeting decisions often difficult and
risky?
Home Depot’s income before interest expense and income taxes was $5,909 million,
and interest expense was $37 million. Calculate Home Depot’s times interest earned.
The posting process is the link between the _______________ and the _____________.
______________ is the process of systematically allocating the cost of an intangible
asset to expense over its estimated useful life.
Dividend payment involves three important dates. They are ______________________,
_________________________, and ____________________________.
Quick Computer Service had net income for the year of $30,000. Its assets at the
beginning of the year were $400,000. At the end of the year assets were worth
$450,000. Calculate its return on assets.
A company reported the following data:
1) Calculate the days’ sales in inventory for each year.
2) Comment on the trend in inventory management.
