Sales less sales discounts less sales returns and allowances equals:
A.Net purchases.
B.Cost of goods sold.
C.Net sales.
D.Gross profit.
E.Net income.
An analytical technique used by management to focus on the most significant variances
and give less attention to the areas where performance is satisfactory is known as:
A.Controllable management.
B.Management by variance.
C.Performance management.
D.Management by objectives.
E.Management by exception.
A record that contains all accounts (with amounts) of a company is the:
A.General ledger.
B.General journal.
C.Special ledger.
D.Special journal.
E.Column balance ledger.
Daniels Corporation is considering the purchase of new equipment costing $30,000.
The projected annual after-tax net income from the equipment is $1,200, after deducting
$10,000 for depreciation. The revenue is to be received at the end of each year. The
machine has a useful life of 3 years and no salvage value. Daniels requires a 12% return
on its investments. The present value of an annuity of 1 for different periods follows:
What is the net present value of the machine?
A.$24,018.
B.$(3,100).
C.$30,000.
D.$26,900.
E.$(29,520).
Three of the most common tools of financial analysis are:
A.Financial reporting, ratio analysis, vertical analysis.
B.Ratio analysis, horizontal analysis, financial reporting.
C.Horizontal analysis, vertical analysis, ratio analysis.
D.Trend analysis, financial reporting, ratio analysis.
E.Vertical analysis, political analysis, horizontal analysis.
Match the definitions 1 through 9 with the term or phrase.
1)Sales budget
2)Budgeted income statement
3)Master budget
4)Safety stock
5)General and administrative expense budget
6)Merchandise purchases budget
7)Cash budget
8)Budgeted balance sheet
9)Budget
A) A comprehensive business plan that includes specific plans for expected sales, the
units of product to be produced, the merchandise or materials to be purchased, the
expenses to be incurred, the long-term assets to be purchased, and the amounts of cash
to be borrowed or loans to be repaid, as well as a budgeted income statement and
balance sheet.
B)A plan that shows predicted operating expenses not included in the selling expenses
budget.
C)A formal statement of a company’s future plans, usually expressed in monetary terms.
D)A quantity of inventory or materials over the minimum to reduce the risk of running
short.
E) An accounting report that presents predicted amounts of the company’s revenues and
expenses for the budgeting period.
F) An accounting report that presents predicted amounts of the company’s assets,
liabilities, and equity balances at the end of the budget period.
G)A plan showing the units of goods to be sold and the sales to be derived; the usual
starting point in the budgeting process.
H)A plan that shows the expected cash inflows and cash outflows during the budget
period, including receipts from any loans needed to maintain a minimum cash balance
and repayments of such loans.
I) A plan that shows the units or costs of merchandise to be purchased by a
merchandising company during the budget period.
A company’s flexible budget for 48,000 units of production showed variable overhead
costs of $72,000 and fixed overhead costs of $64,000. The company incurred overhead
costs of $122,800 while operating at a volume of 40,000 units. The total controllable
cost variance is:
A.$ 1,200 favorable.
B.$ 1,200 unfavorable.
C.$13,200 favorable.
D.$13,200 unfavorable.
E.$15,200 favorable.
When preparing a statement of cash flows on the indirect method, which of the
following is correct?
A.Proceeds from the sale of equipment should be added to net income in the operating
activities section.
B.A loss on the sale of land should be added to net income in the operating activities
section.
C.The declaration of a cash dividend should be a use of cash in the financing activities
section.
D.The issuance of a stock dividend should be a use of cash in the financing activities
section.
E.The purchase of land and a building by issuing a long-term note payable should be a
source of cash in the financing activities section.
Which of the following would not be used in preparing a cash budget for October?
A.Beginning cash balance on October 1.
B.Budgeted sales and collections for October.
C.Estimated depreciation expense for October.
D.Budgeted salaries expense for October.
E.Budgeted capital equipment purchases for October.
Assets, liabilities, and equity accounts are not closed; these accounts are called:
A.Nominal accounts.
B.Temporary accounts.
C.Permanent accounts.
D.Contra accounts.
E.Accrued accounts.
A company borrows $125,000 from the Eastside Bank and receives the loan proceeds in
cash. This represents a(n):
A.Revenue activity.
B.Operating activity.
C.Expense activity.
D.Investing activity.
E.Financing activity.
The ability to generate future revenues and meet long-term obligations is referred to as:
A.Liquidity and efficiency.
B.Solvency.
C.Profitability.
D.Market prospects.
E.Creditworthiness.
In a firm that manufactures clothing, the department that is responsible for actually
assembling the garments could best be described as a:
A.Service department.
B.Operating or production department.
C.Cost center.
D.Department in which all of the costs incurred are direct expenses.
E.Department in which all of the costs incurred are indirect expenses.
Treasury stock is classified as:
A.An asset account.
B.A contra asset account.
C.A revenue account.
D.A contra equity account.
E.A liability account.
When a partnership is liquidated:
A.Noncash assets are converted to cash.
B.Any gain or loss on liquidation is allocated to the partners’ capital accounts using the
income and loss sharing ratio.
C.Liabilities are paid or settled.
D.Any remaining cash is distributed to the partners based on their capital balances.
E.All of these.
Micron owns 35% of Martok. Martok pays a total of $47,000 in cash dividends for the
period. Micron’s entry to record the dividend transaction would include a:
A.Credit to Long”Term Investments for $16,450.
B.Debit to Long”Term Investments for $16,450.
C.Debit to Cash for $47,000.
D.Credit to Cash for $16,450.
E.Credit to Investment Revenue for $47,000.
The 12-month period that ends when a company’s activities are at their lowest point is
called the:
A.Fiscal year.
B.Calendar year.
C.Natural business year.
D.Accounting period.
E.Interim period.
On July 24 of the current year, The Georgia Peach Company experienced a natural
disaster that destroyed the company’s entire inventory. At the beginning of July, the
company reported beginning inventory of $226,750. Inventory purchased during July
(until the date of the disaster) was $197,800. Sales for the month of July through July
24 were $642,500. Assuming the company’s typical gross profit ratio is 50%, estimate
the amount of inventory destroyed in the natural disaster.
A.$212,275
B.$103,300
C.$217,950
D.$321,250
E.$157,788
A company has an overhead application rate of 125% of direct labor costs. How much
overhead would be allocated to a job if it required total labor costing $20,000?
A.$ 5,000.
B.$ 16,000.
C.$ 25,000.
D.$125,000.
E.$250,000.
In applying the lower of cost or market method to inventory valuation, market is
defined as:
A.Historical cost.
B.Current replacement cost.
C.Current sales price.
D.FIFO.
E.LIFO.
Which of the following is included in the cash flows from financing activities section of
the statement of cash flows?
A.Interest revenue.
B.Sale of equipment.
C.Interest expense.
D.Purchase of treasury stock.
E.Purchase of stock in another company.
Last year, Smith Company sold 10,000 units of its only product. If sales increase by
15% in the current year, how will unit variable cost and unit fixed cost be affected?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
Direct labor and indirect labor are recorded, respectively, to:
A.Factory Overhead and Goods in Process.
B.Goods in Process and Finished Goods.
C.Finished Goods and Goods in Process.
D.Goods in Process and Factory Overhead.
E.Cost of Goods Sold and Finished Goods.
Evaluation of company performance can include comparison and/or assessment of:
A.Past performance.
B.Current performance.
C.Current financial position.
D.Future performance and risk.
E.All of these.
Capital budgeting decisions usually involve analysis of:
A.Cash outflows only.
B.Short-term investments only.
C.Long-term investments only.
D.Investments with certain outcomes only.
E.Operating revenues.
A company had inventory of 10 units at a cost of $20 each on November 1. On
November 2, it purchased 10 units at $22 each. On November 6 it purchased 6 units at
$25 each. On November 8, it sold 22 units for $54 each. Using the FIFO perpetual
inventory method, what was the cost of the 22 units sold?
A.$470.
B.$490.
C.$450.
D.$570.
E.$520.
Preparing a bank reconciliation on a monthly basis is an example of:
A.Establishing responsibility.
B.Separation of duties.
C.Protecting assets by proving accuracy of cash records.
D.A technological control.
E.Poor internal control.
A company has earnings per share of $9.60. Its dividend per share is $0.50, and its
market price per share is $120. Its price-earnings ratio equals:
A.9.60
B.12.4
C.12.5
D.19.2
E.240
Beyer Corporation is considering buying a machine for $25,000. Its estimated useful
life is 5 years, with no salvage value. Beyer anticipates annual net income after taxes of
$1,500 from the new machine. What is the accounting rate of return assuming that
Beyer uses straight-line depreciation and that income is earned uniformly throughout
each year?
A.6.0%.
B.8.0%.
C.8.5%.
D.10.0%.
E.12.0%.
Cash flows from selling trading securities are usually reported in the statement of cash
flows as part of:
A.Operating activities.
B.Financing activities.
C.Investing activities.
D.Noncash activities.
E.None of these. This is not reported in the statement of cash flows.
________________________________ reports changes in the owner’s claim on the
business’s assets over a period of time.
Basketball Products LP is organized as a limited partnership that sells sporting
equipment. Information related to the two partner’s capital balances is given below.
Compute the partner return on equity for each limited partner. How would each partner
evaluate the success of the partnership? What would you recommend the partners do
with respect to additional investments or withdrawals?
The least amount that the buyers of stock must contribute to the corporation or be
subject to paying at a future date is called ____________________________.
What is a production budget?
Legacy Company is considering the production and sale of a new product with the
following sales and cost data: unit sales price $18; unit variable costs $8.10; and total
fixed costs of $8,250. Legacy is subject to a 25% tax rate. Determine the dollar sales
needed to generate an after-tax income of $33,000.
Return on equity _______________ when the expected rate of return from the acquired
assets is greater than the rate of interest on the bonds used to finance the asset
acquisition.
Match the following terms the appropriate definition.
1) Depreciation expense
2) Time period principle
3) Profit margin
4) Matching principle
5) Accrued revenues
6) Accrual basis accounting
7) Cash basis accounting
8) Prepaid expenses
9) Straight-line depreciation
A) The accounting system that recognizes revenues when earned and expenses when
incurred.
B) The accounting system where revenues are recognized when cash is received and
expenses are recorded when cash is paid.
C)Items paid for in advance of receiving their benefits.
D) Net income divided by net sales.
E) The expense created by allocating the cost of plant and equipment to the periods in
which they are used.
F)Allocates equal amounts of an asset’s cost (less any salvage value) to depreciation
expense during its useful life.
G) A principle that assumes that an organization’s activities can be divided into specific
time periods such as months, quarters, or years.
H) The principle that requires expenses to be reported in the same period as the
revenues that were earned as a result of the expenses.
I) Revenues earned in a period that are both unrecorded and not yet received in cash or
other assets.
A company has a goal of earning $100,000 in after-tax income. The company must pay
$28,000 in income tax if it achieves the goal. The contribution margin ratio is 30%.
What dollar amount of sales must be achieved to reach the goal if fixed costs are
$64,000?
A favorable variance for a cost means that when compared to the budget, the actual cost
is ____________________ than the budgeted cost.
Explain how to record the sale of trading securities.
What is a cash budget? How can management use a cash budget?
The _____________ of recording purchases records purchases under the assumption
that the cash discount for prompt payment will be taken.
Browning Company sells a mix of three related products. Total fixed costs are
$144,000. The following additional information is available for Browning Company.
Use the weighted average method to determine the company’s break-even point for
composite units.
Describe the relation between revenues, expenses, and net income.
Explain the impact, if any, on depreciation when estimates that determine depreciation
change.