BT&T Corporation manufactures telephones. Recently, the company produced a batch
of 600 defective telephones at a cost of $9,000. BT&T can sell these telephones as
scrap for $9 each. It can also rework the entire batch at a cost of $6,500, after which the
telephones could be sold for $20 per unit.
Refer to the information above. If BT&T reworks the defective telephones, by how
much will its operating income change?
A. Increase by $500.
B. Decrease by $1,600.
C. Increase by $5,500.
D. Decrease by $6,500.
The advantage of using a predetermined overhead application rate is that:
A. Units produced are charged with a “normal” amount of manufacturing overhead
regardless of whether they are produced in a high-volume month or a low-volume
month.
B. Overhead costs will be limited to the predetermined amount.
C. Entries need not be made to record actual overhead costs incurred.
D. The unit cost of production will be lower than it would be if actual overhead costs
were assigned to units produced.
John Thomas is the manager of materials movement for the Syracuse plant of Carrier
Corporation. Thomas should be evaluated as manager of:
A. A cost center.
B. An investment center.
C. A profit center (other than an investment center).
D. Human resources under his supervision.
The Starbright Corporation has compiled the following data. The company intends to
use this information to develop standard costs per unit for its single product:
Direct materials = $50 per ton
Direct labor = $12.75 per hour
Variable manufacturing overhead = $5 per direct labor hour
Fixed manufacturing overhead = $18,700
Expected production = 1,700 units
Each unit of the company’s single product requires 2.5 tons of direct materials and 22.5
hours to manufacture.
Refer to the information above. What is the standard cost for direct materials per unit
for Starbright’s single product?
A. $50 per unit.
B. $100 per unit.
C. $150 per unit.
D. $125 per unit.
A flexible budget is one that:
A. Is revised monthly in the light of changing business conditions.
B. Is a compromise plan reflecting diverse views of various supervisors.
C. Contains estimated cost data for several different levels of activity.
D. Separates factory overhead between the variable and fixed portions.
Montauk Oil Co. reports these account balances at December 31, 2014
On January 2, 2015, Montauk Oil collected $50,000 of its accounts receivable and paid
$20,000 of its accounts payable. On January 3, 2015, total liabilities are:
A. $370,000.
B. $350,000.
C. $300,000.
D. $70,000.
During 2015, the cash flows related to Global Data, Inc.’s lending and borrowing
activities are summarized as follows:
Refer to the information above. On the basis of the above information alone, what is
Global Data’s net cash flow from financing activities?
A. $147,000 net cash used for financing activities.
B. $145,500 net cash used for financing activities.
C. $206,100 net cash used for financing activities.
D. $500,100 net cash used for financing activities.
Rooney, Inc. is considering the purchase of a new machine costing $640,000. The
machine’s useful life is expected to be 8 years with no salvage value. The straight-line
depreciation method will be used. The net increase in annual after tax cash flow is
expected to be $147,000. Rooney estimates its cost of capital to be 14%. (The present
value of a $1 annuity for 8 years at 14% is 4.639, and the present value of $1 to be
received in 8 years is 0.351.)
Refer to the information above. The net present value of the investment in the machine
under consideration is:
A. $40,520.
B. $41,933.
C. $60,480.
D. $75,160.
If monthly financial statements are desired by management:
A. Journalizing and posting adjusting entries must be done each month.
B. Journalizing and posting closing entries must be done each month.
C. Monthly financial statements can be prepared from worksheets; adjustments and
closing entries need not be entered in the accounting records.
D. Adjusting and closing entries must be entered in the accounting records before
preparation of interim financial statements.
Stockholders’ equity
The stockholders’ equity section of the balance sheet of Nautilus Corporation at
December 31, 2015, appears as follows:
Answer the following questions based on the stockholders’ equity section given above.
Each question is a separate situation, unless otherwise indicated.
(a) What is the total dollar amount paid annually as dividends to preferred
stockholders?
(b) What was the average issue price per share of preferred stock?
(c) What was the average issue price per share of common stock?
(d) How many shares of common stock are outstanding?
(e) What is the book value per share of the common stock?
(f) If all the treasury stock is reissued at a price of $45 per share, what amount will be
credited to the account Additional Paid-In Capital: Treasury Stock Transactions?
Which of the following activities performed by a manufacturer of roller blades is a
value-added activity?
A. Designs that meet engineering specifications, but not customer needs.
B. Poor quality supplier deliveries.
C. Delayed distribution to a customer.
D. Clear and truthful marketing.
Which ratio tells managers about how the invested capital is generating sales dollars?
A. Return on investment.
B. Receivable turnover.
C. Capital turnover.
D. Return on sales.
In an aircraft factory, the inventory of direct materials would not include:
A. Electronic instruments to be installed in aircraft.
B. Completed aircraft, available for sale.
C. Sheet aluminum to be used for the exterior “skin” of the aircraft.
D. Ejection seats to be installed only in military aircraft.
The American Institute of Certified Public Accountants has a code of professional
conduct that expresses the accounting profession’s recognition of its responsibilities to
all of the following except:
A. The public.
B. The client.
C. Colleagues.
D. The IRS.
The Nelson Corporation reported net income in excess of its net cash flow from
operating activities for the current year. An explanation for this may be:
A. A loss on the sale of equipment in the current year.
B. An increase in accounts payable during the year.
C. Depreciation expense recognized for the year.
D. A gain on the sale of investments during the year.
The Board of Directors of a corporation:
A. Are not responsible for hiring other professional managers.
B. Do not decide whether profits will be distributed to stockholders.
C. Make major policy decisions.
D. Are members of a government agency.
The bookstore of a university would be considered:
A. A cost center.
B. A profit center.
C. An investment center.
D. A revenue center.
Which of the following individuals has the most power to influence corporate policy on
a long-term basis?
A. A shareholder owning 60% of the outstanding common stock.
B. A shareholder owning 80% of the outstanding preferred stock.
C. The treasurer of the corporation.
D. The controller of the corporation.
The inventory turnover rate provides an indication of how quickly the average quantity
of inventory on hand:
A. Spoils.
B. Sells.
C. Increases.
D. Converts into cash.
At the beginning of 2015, Baldwin Corporation bought an automobile for $36,000 by
issuing a note payable. The automobile has a six-year life and is depreciated using the
straight-line method. To determine net cash flow from operating activities for 2015
using the indirect method, net income should be:
A. Increased by $6,000.
B. Decreased by $6,000.
C. Increased by $42,000.
D. Neither increased nor decreased. No adjustments are necessary since no cash was
received or paid.
Kennedy Company uses the balance sheet approach in estimating uncollectible
accounts expense. The company prepares an adjusting entry to recognize this expense at
the end of each month. During the month of July, the company wrote-off a $3,500
receivable and made no recoveries of previous write-offs. Following the adjusting entry
for July, the credit balance in the Allowance for Doubtful Accounts was $3,000 larger
than it was on July 1. What amount of uncollectible account expense was recorded for
July?
A. $2,500.
B. $1,000.
C. $1,500.
D. $6,500.
Which of the following statements is correct?
A. Germany requires companies to provide extensive segment disclosure.
B. Brazil has the highest number of auditors per capita.
C. The United States is the only country that permits companies to use LIFO to account
for inventory.
D. Some countries amortize goodwill, while other countries use an impairment test.
Exchange rates and hedging
On October 1 2015, Glenn Company accepted a shipment of beer from Germany. The
purchase contract specifies payment of 3,000,000 euros is to be made on December 1,
2015. The exchange rate on October 1, 2015 was: $1 = 1.4 euros.
Instructions:
(a) If the exchange rate on December 1 2015 is: $1 = 1.18 Euros, what amount of gain
or loss due to the exchange rate fluctuation will be recognized on the purchase?
(b) On October 1, Glenn’s analysts were forecasting the exchange rate to be: $1 = 1.20
Euros on December 1, 2015. Glenn can enter into a hedging contract on October 1,
2015 whereby the bank would accept $2,480,000 in exchange for 3,000,000 Euros on
December 1. The bank will charge a $2,000 fee to enter into the agreement. Should
Glenn enter into the hedge agreement?
(c) If Glenn enters into the hedging contract, what will be the exchange gain/loss
recorded on December 1, 2015? (Do not round your intermediate computations and
round final answers to nearest whole dollar.)
Videobusters, Inc. offered books of video rental coupons to its patrons at $40 per book.
Each book contained a certain number of coupons for video rentals. During the current
period 500 books were sold for $20,000, and this amount was credited to Unearned
Rental Revenue. At the end of the period, it was determined that $15,000 worth of
coupons had been used by customers to rent videos. The appropriate adjusting entry at
the end of the period would be:
A. Debit Rental Revenue $5,000 and credit Unearned Rental Revenue $5,000.
B. Debit Rental Revenue $15,000 and credit Unearned Rental Revenue $15,000.
C. Debit Unearned Rental Revenue $5,000 and credit Rental Revenue $5,000.
D. Debit Unearned Rental Revenue $15,000 and credit Rental Revenue $15,000.
Refer to the information above. What is the balance in the Cash account at the end of
March?
A. $283,000.
B. $343,000.
C. $318,000.
D. $378,000.
Moran Company uses a job order cost system and has established a predetermined
overhead application rate for the current year of 150% of direct labor cost, based on
budgeted overhead of $900,000 and budgeted direct labor cost of $600,000. Job no. 1
was charged with direct materials of $36,000 and with overhead of $27,000. What is the
total cost of job no. 1?
A. $64,000.
B. $81,000.
C. $91,000.
D. Cannot be determined without additional information.
Capri Boat Corporation uses a job order cost system and applies overhead based on a
percentage of direct labor cost. Cost flows through the Work in Process Inventory
account during March are given below:
Only Job #007 was still in process at the end of March and this job had been charged
with $40,000 in direct materials cost.
Refer to the information above. The amount of overhead costs applied to Job #007
during March was:
A. $90,000.
B. $26,250.
C. $65,000.
D. $60,000.
When a company uses straight-line depreciation and the half-year convention, assets
with a five-year life:
A. Will have the same depreciation expense in the first and last years.
B. Will be depreciated over six accounting years.
C. Will have a book value that exceeds its salvage value at the end of its economic life.
D. All of these statements are correct.
In a periodic inventory system, recording a sale on account involves crediting which of
the following accounts?
A. Only Sales.
B. Sales and Inventory.
C. Sales and Cost of Goods Sold.
D. Sales, Inventory, and Cost of Goods Sold.
The 2015 statement of cash flows of Dickens Corporation shows $500,000 cash paid
for dividends. If dividends in Dickens’ statement of retained earnings are reported at
$550,000 then:
A. Dickens’ dividends payable account must amount to $50,000 at the end of 2015.
B. Dickens’ Cash account must have increased by $50,000 in 2015.
C. Dickens’ dividends payable account must have increased by $50,000 in 2015.
D. Dickens’ dividends payable account must have decreased by $50,000 in 2015.
If you invested $10,000 at 6% on your 20th birthday how much would you have on your
40th birthday?
A. $32,071.40.
B. $31,180.00.
C. $36,785.59.
D. $12,158.12.
Which of the following best describes the book value of a share of stock?
A. Net assets divided by the number of shares outstanding.
B. The amount at which the stock would sell on the market if sold by a willing and
informed seller to a willing and informed buyer.
C. Total assets of the company, as reported in the accounting records, divided by the
number of shares of stock outstanding.
D. Total stockholders’ equity divided by the number of shares authorized.
If cash flows from operating activities is a positive amount, then:
A. The amount will be shown on the statement of cash flows in parentheses.
B. The company must have had a net profit for the year.
C. The company must have paid off more debts than it earned during the year.
D. The company may still have a decrease in the total amount of cash for the period.