1) If the unit selling price is $50, the volume of sales is $450,000, sales at the
break-even point amount to $375,000, and the maximum possible sales are $550,000,
the margin of safety will be 2,000 units.
2) A corporation has 10,000 shares of $100 par value stock outstanding. If the
corporation issues a 5-for-1 stock split, the number of shares outstanding after the split
will be 2,000.
3) Currently attainable standards allow for unreasonable production difficulties.
4) Companies usually compute depletion by using the double-declining-balance
method.
5) Sales discounts are granted by the seller to customers for payment at the end of the
month.
6) In most businesses, cost standards are established principally by accountants.
7) The issuance of common stock affects both paid-in capital and retained earnings.
8) Repayments of bonds would be shown as a cash outflow in the investing section of
the statement of cash flows.
9) For an automotive repair shop, the wages of mechanics would be classified as direct
labor cost.
10) Even if a business sells six products, it is possible to estimate the break-even point.
11) The cost of a manufactured product generally consists of direct materials cost,
direct labor cost, and factory overhead cost.
12) Accounting is thought to be the “language of business” because business
information is communicated to stakeholders.
13) Working capital is another term for the current ratio.
14) A variable cost system is an accounting system where standards are set for each
manufacturing cost element.
15) Cost of Merchandise Sold is used in accounting for transactions by sellers of
merchandise.
16) The due date of a 90-day note dated June 10 is September 8. (Assume 360 days in a
year)
17) Purchases discounts are discounts given to the seller.
18) A written promise to pay a sum of money on demand or at a definite time is called
a(n):
A.letter of credit
B.deferred note
C.credit memorandum
D.promissory note
19) Using accrual accounting, expenses are recorded and reported only:
A.when they are incurred, whether or not cash is paid
B.when they are incurred and paid at the same time
C.if they are paid before they are incurred
D.if they are paid after they are incurred
20) Which equation better describes target costing?
A.Selling Price – Desired Profit = Target Costs
B.Selling Price – Target Variable Costs = Profit
C.Target Variable Costs + Net operating income = Selling Price
D.Target Variable Costs + Target Fixed Costs + Contribution margin = Selling Price
21) In credit terms of 1/10, n/30, the “1” represents the:
A.number of days in the discount period
B.full amount of the invoice
C.number of days when the entire amount is due
D.percent of the cash discount
22) 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
23) When an entry is made to adjust the supplies account and recognize supplies
expense for the period, which section of the statement of cash flows is affected?
A.Cash Flow from Operating Activities
B.Cash Flow from Investing Activities
C.Cash Flow from Financing Activities
D.There is no effect on the statement of cash flows
24) Based on the following production and sales data of Jackson Co. for March of the
current year, prepare (a) a sales budget and (b) a production budget.
25) Recording direct labor costs in a job order cost accounting system:
A.increases Factory Overhead and decreases Work-in-Process
B.increases Finished Goods and increases Wages Payable
C.increases Work-in-Process and increases Wages Payable
D.increases Factory Overhead and increases Wages Payable
26) When an adjusting entry is made to record insurance expense and reduce the
prepaid insurance account, which section of the statement of cash flows is affected?
A.Cash Flow from Operating Activities
B.Cash Flow from Investing Activities
C.Cash Flow from Financing Activities
D.There is no effect on the statement of cash flows
27) Based on the information below, illustrate the effects on the accounts and financial
statements of the Seller and the Buyer. Both use a perpetual inventory system.
(a) Seller sells Buyer on account merchandise costing $300 for $500, terms 2/10, net
30, FOB destination. The transportation charge is $50.
(b) Buyer returns as defective $100 worth of the $500 merchandise received. The
seller’s cost is $60.
(c) Buyer pays within the discount period.
(a) Seller
(a) Buyer
(b) Seller
(b) Buyer
(c) Seller
(c) Buyer
28) In recording the cost of merchandise sold for cash using a perpetual inventory
system, the effect on the accounts is:
A.increase Cost of Merchandise Sold; increase Cash
B.increase Cost of Merchandise Sold; decrease Merchandise Inventory
C.increase Merchandise Inventory; decrease Cost of Merchandise Sold
D.increase Accounts Receivable; decrease Merchandise Inventory
29) The process by which management plans, evaluates, and controls long-term
investment decisions involving fixed assets is called:
A.absorption cost analysis
B.variable cost analysis
C.capital investment analysis
D.cost-volume-profit analysis
30) Most employers are levied a tax on payrolls for:
A.sales tax
B.medical insurance premiums
C.federal unemployment compensation tax
D.union dues
31) Gilbert, Inc. had the following account balances at September 30, 2010. What is
Gilberts net income for the month of September?
A.$32,450
B.$27,450
C.$6,550
D.$18,150
32) Variable costs as a percentage of sales for Leamon Inc. are 75%, current sales are
$600,000, and fixed costs are $110,000. How much would operating income change if
sales increase by $50,000?
A.$37,500 increase
B.$12,500 decrease
C.$37,500 decrease
D.$12,500 increase
33) Bythel Corporation uses the product cost concept of product pricing. Below is cost
information for the production and sale of 45,000 units of its sole product. Bythel
desires a profit equal to a 10.8% rate of return on invested assets of $900,000.
Refer to the information provided for Bythel Corporation. The markup percentage for
the company’s product is:
A.21.0%
B.25.4%
C.15.7%
D.24.0%
34) Which of the following reflects a weak internal control system?
A.All employees are well supervised
B.A single employee is responsible for comparing a receiving report to an invoice
C.All employees must take their vacations
D.A single employee is responsible for the collecting and recording of cash
35) Costs incurred in operating a business are also known as:
A.revenues
B.expenses
C.liabilities
D.dividends
36) A business received an offer from an exporter for 10,000 units of product at $13.50
per unit. The acceptance of the offer will not affect normal production or domestic sales
prices. The following data are available:
What is the amount of the gain or loss from acceptance of the offer?
A.$75,000 loss
B.$40,000 gain
C.$15,000 gain
D.$85,000 gain
37) A company sold 200 shares of common stock with a par value of $5 at a price of
$13 per share. What is the effect on the accounts of this transaction?
A.Increase cash $2,600; increase retained earnings $2,600
B.Increase cash $1,000; increase common stock $1,000
C.Increase cash $2,600; increase common stock $1,000 and increase paid-in capital
$1,600
D.Increase cash $2,600; increase common stock $1,600 and increase paid-in capital
$1,000
38) For EFG Co., the transaction “receipt of a utility bill” would:
A.increase total assets
B.decrease total assets
C.have no effect on total assets
D.decrease total liabilities
39) Which of the following statements is true of lead time?
A.Total lead time can be divided into acceptable and non-acceptable lead time
B.Lead time is a measure of time that elapses between the sale of a product and delivery
to the customer
C.Reducing nonvalue-added lead time reduces costs and improves the speed of
production
D.Reducing nonacceptable lead time improves the speed of production, but will not
affect product cost
40) Which of the following is an example of a deferred expense?
A.Prepaid advertising
B.Unearned revenue
C.Accounts payable
D.Accounts receivable
41) Which method of evaluating capital investment proposals uses present value
concepts to compute the rate of return from the net cash flows expected from capital
investment proposals?
A.Internal rate of return
B.Cash payback
C.Net present value
D.Average rate of return
42) The Anderson Company forecasts that total overhead for the current year will be
$15,000,000 and total machine hours will be 200,000 hours. However, the actual
overhead is $8,000,000 and the actual machine hours are 100,000 hours. If the company
uses a predetermined overhead rate based on machine hours for applying overhead,
what is predetermined overhead rate?
A.$80 per machine hour
B.$150 per machine hour
C.$75 per machine hour
D.$40 per machine hour
43) All of the following are factors that may complicate capital investment analysis
except:
A.the leasing alternative
B.changes in price levels
C.sunk cost
D.the federal income tax
44) 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
45) Using accrual accounting, revenue is recorded and reported only:
A.when cash is received without regard to when the services are rendered
B.when the services are rendered without regard to when cash is received
C.when cash is received before services are rendered
D.if cash is received after the services are rendered
46) Which of the following would not be classified as direct materials for an auto
manufacturer?
A.Steel
B.Upholstery fabric
C.Cost of the engine of the car
D.Material used for door panels
47) Tops Company sells Products D and E and has made the following estimates for the
coming year:
Fixed costs are estimated at $202,400. Determine (a) the estimated sales in units of the
overall product necessary to reach the break-even point for the coming year, (b) the
estimated number of units of each product necessary to be sold to reach the break-even
point for the coming year, and (c) the estimated sales in units of the overall product
necessary to realize an operating income of $119,600 for the coming year.
48) A current liability is a debt that is reasonably expected to be paid:
A.between 6 months and 18 months
B.out of currently recognized revenues
C.within one year
D.out of cash currently on hand
49) Calculate the cost of ending inventory using FIFO method.
A.$800
B.$760
C.$580
D.$500
50) The management of London Corporation is considering the purchase of a new
machine costing $750,000. The company’s desired rate of return is 6%. The present
value factors for $1 at compound interest of 6% for 1 through 5 years are 0.943, 0.890,
0.840, 0.792, and 0.747, respectively. In addition to this information, use the following
data in determining the acceptability in this situation:
The net present value for this investment is:
A.positive $39,750
B.positive $118,145
C.negative $118,145
D.negative $39,750
51) Which of the following is used to measure a managers performance working in a
profit center?
A.Balance sheet
B.Rate of return and residual income
C.Budget performance report
D.Divisional income statements
52) Tucker Co. manufactures office furniture. During the most productive month of the
year, 3,600 desks were manufactured at a total cost of $192,000. In its slowest month,
the company made 1,200 desks at a cost of $72,000. Using the high-low method of cost
estimation, total fixed costs per month are:
A.$120,000
B.$12,000
C.$72,000
D.$11,600
53)
Determine ending inventory cost by (a) FIFO method, (b) LIFO method, and (c)
average cost method.
54) In reference to a promissory note, the person who makes the promise to pay is
called the:
A.maker
B.payee
C.seller
D.receiver
55) For which of the following reasons, management accountants usually provide for a
minimum cash balance in their cash budgets?
A.Stockholders demand a minimum cash balance
B.It is an important way of effectively managing cash
C.It provides a safety buffer for variations in estimates
D.It makes funds available for major capital expenditures