1) The excess of current liabilities over quick assets is referred to as working capital.
2) If a firm has an quick ratio of 1, the subsequent payment of an account payable will
cause the ratio to increase.
3) One of the conditions for paying a cash dividend is sufficient retained earnings.
4) The first budget to be prepared is usually the sales budget.
5) If the actual overhead incurred is less than the applied factory overhead, it is called
overapplied factory overhead.
6) Care must be taken while making capital investment decisions since it involves a
long-term commitment of funds and affects operations for several years.
7) Hill Co. can further process Product O to produce Product P. Product O is currently
selling for $65 per pound and costs $42 per pound to produce. Product P would sell for
$82 per pound and would require an additional cost of $13 per pound to produce. The
differential revenue of producing Product P is $17 per pound.
8) A decentralized business organization is one in which all major planning and
operating decisions are made by top management.
9) The amount of the “adjusted balance” appearing on a bank reconciliation as of a
given date is the amount that is shown on the balance sheet for that date after all
adjusting entries have been entered.
10) The primary disadvantage of decentralized operations is that decisions made by one
manager may affect other managers in such a way that the profitability of the entire
company may suffer.
11) Qualitative considerations are best evaluated using present value methods such as
internal rate of return.
12) The maturity value of a 12%, 60-day note for $1,000 is $1,020. (Assume 360 days
in a year)
13) Hill Co. can further process Product O to produce Product P. Product O is currently
selling for $60 per pound and costs $42 per pound to produce. Product P would sell for
$82 per pound and would require an additional cost of $13 per pound to produce. The
differential cost of producing Product P is $13 per pound.
14) Long-lived assets that are intangible in nature, used in the operations of the
business, and not held for sale in the ordinary course of business are called fixed assets.
15) 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.
16) Increase in the Work-in-Process account occur when:
A.materials are received into the storeroom
B.factory overhead costs are incurred
C.direct labor is recorded from the time sheets
D.materials are ordered
17) Materials used by Beta-Products Inc. in producing Division 3’s product are
currently purchased from outside suppliers at a cost of $15 per unit. However, the same
materials are available from Division 6 . Division 6 has unused capacity and can
produce the materials needed by Division 3 at a variable cost of $12 per unit. A transfer
price of $13 per unit is established, and 50,000 units of material are transferred with no
reduction in Division 6’s current sales.
How much would Beta-Products total income from operations increase?
A.$50,000
B.$150,000
C.$100,000
D.$0
18) Winston Co. manufactures office furniture. During the most productive month of
the year, 3,500 desks were manufactured at a total cost of $84,400. In its slowest month,
the company made 1,100 desks at a cost of $46,000. Using the high-low method of cost
estimation, total fixed costs are:
A.$56,000
B.$28,400
C.$17,600
D.$29,900
19) Which of the following is an example of a cost that varies in total as the number of
units produced changes?
A.Electricity cost per KWH to operate factory equipment
B.Monthly rent on a factory building
C.Straight-line depreciation on factory equipment
D.Salary of a production supervisor
20) Using the following partial table of present value of $1 at compound interest,
determine the present value of $20,000 to be received four years hence, with earnings at
the rate of 10% a year.
A.$13,660
B.$12,720
C.$15,840
D.$10,400
21) Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000
units of Arks and 18,000 units of Bins. Related data are:
Use the above given data to solve the following questions:
Refer to the information provided for Kennedy Co. What was Kennedy’s overall
products unit variable cost?
A.$32.00
B.$30.00
C.$28.80
D.$27.20
22) Venus Co. can further process Product X to produce Product Y. Product X is
currently selling for $18 per pound and costs $12.50 per pound to produce. Product Y
would sell for $32 per pound and would require an additional cost of $8.75 per pound to
produce.
Based on the information provided for Venus Co., what is the differential revenue of
producing Product Y?
A.$14 per pound
B.$8.75 per pound
C.$7 per pound
D.$5.25 per pound
23) Bell Manufacturers Inc. has estimated total factory overhead costs of $60,000, and
10,000 direct labor hours for the current fiscal year. If job number 117 incurred 2,000
direct labor hours, the work-in-process account will be increased and factory overhead
will be decreased by:
A.$10,000
B.$0
C.$12,000
D.$2,000
24) A 60-day, 12% note for $15,000 dated May 1 is received from a customer on
account. The maturity value of the note is (Assume 360 days in a year):
A.$15,300
B.$15,000
C.$14,700
D.$16,800
25) Snower Corporation sells product G for $150 per unit, the variable cost per unit is
$105, and the fixed costs are $720,000. What is the sales (in dollars) required to realize
income from operations of $40,000?
A.$2,533,333
B.$1,773,333
C.$2,400,000
D.$1,680,000
26) The condensed income statement for a business for the past year is presented as
follows:
Management is considering the discontinuance of the manufacture and sale of Product
G at the beginning of the current year. The discontinuance would have no effect on the
total fixed costs and expenses or on the sales of Products F and H. What is the amount
of change in net income for the current year that will result from the discontinuance of
Product G?
A.$30,000 decrease
B.$30,000 increase
C.$20,000 decrease
D.$20,000 increase
27) A corporation has 50,000 shares of $100 par value stock outstanding that has a
current market value of $180. If the corporation issues a 4-for-1 stock split, the market
value of the stock will fall to approximately:
A.$30
B.$36
C.$45
D.$50
28) Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000
units of Arks and 18,000 units of Bins. Related data are:
Use the above given data to solve the following questions:
Refer to the information provided for Kennedy Co. Assuming that last year’s fixed costs
totaled $910,000, what was Kennedy’s break-even point in units?
A.9,100 units
B.13,000 units
C.13,227 units
D.13,542 units
29) Whiteville Co. can further process Product B to produce Product C. Product B is
currently selling for $45 per pound and costs $30 per pound to produce. Product C
would sell for $80 per pound and would require an additional cost of $18 per pound to
produce. What is the differential cost of producing Product C?
A.$30 per pound
B.$18 per pound
C.$17 per pound
D.$12 per pound
30) The standard costs and actual costs for direct labor for the manufacture of 2,500
actual units of product are as follows:
The amount of the direct labor rate variance is:
A.$4,440 unfavorable
B.$4,500 favorable
C.$4,440 favorable
D.$4,500 unfavorable
31) Speedy Company’s weekly payroll of $250 is paid on Fridays (five-day work
week). Assume that the last day of the month falls on Thursday. Which of the following
is the required month-end adjusting entry?
A.Increase Salaries Expense $200 and increase Salaries Payable $200
B.Increase Salaries Expense $50 and increase Salaries Payable $50
C.Increase Salaries Payable $200 and increase Cash $200
D.Increase Salaries Expense $250 and increase Cash $250
32) If prepaid insurance expires over time, this asset account becomes a(n):
A.liability
B.another asset
C.revenue
D.expense
33) Which of the following would be a period costs for a textbooks printing company?
A.Wages of a press operator
B.Utility costs of the factory
C.Advertising expenses
D.Paper costs
34) Part A
Indicate the effect of each transaction during the month of October 2013 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 capital 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
Cash Equipment Notes Payable Capital Stock Retained 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
retained earnings, (3) a balance sheet, and (4) a statement of cash flows for the month
of October.
35) A computer equipment was acquired at the beginning of the year at a cost of
$56,000 with an estimated residual value of $5,000, and an estimated useful life of 5
years. Determine the second years depreciation expense using the straight-line method.
A.$10,200
B.$22,400
C.$11,200
D.$12,200
36) The primary purpose of a stock split is to:
A.increase paid-in capital
B.reduce the market price of the stock per share
C.increase the market price of the stock per share
D.increase retained earnings
37) The statement of cash flows is integrated with the balance sheet because:
A.the cash at the beginning of the period plus or minus the cash flows from operating,
investing, and financing activities equals the end of period cash reported on the balance
sheet
B.the cash at the beginning of the period plus or minus the net income equals the end of
period cash reported on the balance sheet
C.the cash at the beginning of the period plus or minus assets and liabilities equals the
end of period cash reported on the balance sheet
D.the cash at the beginning of the period plus or minus the cash flows from operating
activities equals the end of period cash reported on the balance sheet
38) On May 31, 2012, Deanas Services Company had account balances as follows:
Present, in good form, (a) an income statement for May, (b) a statement of retained
earnings for May, and (c) a balance sheet as of May 31 .
39) Cost behavior refers to the manner in which:
A.a cost changes as the related activity changes
B.a cost is allocated to products
C.a cost is used in setting selling prices
D.a cost is estimated
40) Venus Co. can further process Product X to produce Product Y. Product X is
currently selling for $18 per pound and costs $12.50 per pound to produce. Product Y
would sell for $32 per pound and would require an additional cost of $8.75 per pound to
produce.
Based on the information provided for Venus Co., what is the differential cost of
producing Product Y?
A.$32 per pound
B.$12.50 per pound
C.$14 per pound
D.$8.75 per pound
41) When several alternative investment proposals of the same amount are being
considered, the one with the largest net present value is the most desirable. If the
alternative proposals involve different amounts of investment, it is useful to prepare a
relative ranking of the proposals by using a(n):
A.average rate of return
B.cash payback period
C.present value index
D.price-level index
42) A $350,000 capital investment proposal has an estimated life of four years and no
residual value. The estimated net cash flows are as follows:
The minimum desired rate of return for net present value analysis is 12%. The present
value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is 0.893, 0.797, 0.712,
and 0.636, respectively. Determine the net present value.
43) Describe business stakeholders. State the classification of business stakeholders.
44) A corporation has the following stockholders’ equity accounts at the end of the
current fiscal year, after the closing entries have been posted: Common Stock, $5 par,
$2,000,000; Paid-In Capital in Excess of Par–Common Stock, $375,000; Retained
Earnings, $1,285,000. The earnings for the current year, during which there were no
unusual items, were $300,000.
Compute the earnings per share of common stock.
45) Describe the differences between the cash and accrual bases of accounting.
46) Other than accounts receivable and notes receivable, name other receivables that
might be included on the balance sheet.
47) Why would a bank require a company to maintain a compensating balance?
48) Pull Company is considering the disposal of equipment that is no longer needed for
operations. The equipment originally cost $600,000, and accumulated depreciation to
date totals $460,000. An offer has been received to lease the machine for its remaining
useful life for a total of $300,000, after which the equipment will have no salvage
value. The repair, insurance, and property tax expenses during the period of the lease
are estimated at $75,800. Alternatively, the equipment can be sold through a broker for
$230,000 less a 10% commission.
Prepare a differential analysis report, dated June 15 of the current year, on whether the
equipment should be leased or sold.
