1) If the master budget prepared at a volume level of 20,000 units includes direct
materials of $80,000, a flexible budget based on a volume of 18,000 units would
include direct materials of $72,000.
2) The accounting equation may be written, “Assets = Claims” or “Assets = Liabilities +
Equity.”
3) The Financial Accounting Standards Board is the primary authority for establishing
accounting standards for businesses in the United States.
4) The number of shares of treasury stock held by a corporation would be considered to
be neither issued nor outstanding.
5) When a company receives payment from a customer whose account was previously
written off, the customer’s account should be reinstated.
6) Segment reports are financial statements and other information prepared for parts of
a business, such as departments, stores, and sales territories.
7) Small percentage changes in an amount from a company’s financial statements may
still represent large dollar amounts; therefore, analysts should examine changes in both
absolute dollar amounts and percentages.
8) When debt is used to finance purchase of assets, the term or time span of the debt
should be similar to the lifespan of the assets.
9) One of the disadvantages of the specific identification inventory cost flow method is
that it can allow managers of a business to manipulate the amount of income the
business reports.
10) Managers should be held responsible only for those costs over which they exercise
complete control.
11) Ease of transferability of ownership is one of the important advantages of the
corporate form of business organization.
12) The allocation of indirect costs is likely to affect the behavior and decisions of
managers.
13) The unadjusted rate of return shows how long will be required to recover the cost of
an investment in a capital asset.
14) In a participative budgeting system, budget information flows in one direction only,
from bottom to top.
15) A postaudit should be performed at the end of a capital investment project to
determine whether the expected results were actually achieved.
16) A capital investment decision is essentially a decision to exchange current cash
outflows for future cash inflows.
17) A just in time system can lower inventory holding costs and increase customer
satisfaction.
18) Assuming Mark Company has contribution margin of $20,000 and net income of
$5,000, the magnitude of its operating leverage measure is 4 .
19) The Greenwood Company purchased equipment costing $900. Greenwood paid
$400 in cash and agreed to pay the remaining amount in thirty days. As a result of this
transaction:
A.total assets increased by $400
B.liabilities increased by $500
C.total assets increased by $900
D.both B and C
20) Select the incorrect statement concerning the internal rate of return (IRR) method of
evaluating capital projects.
A.The higher the IRR the better
B.A project whose IRR is less than the cost of capital should be rejected
C.If a project has a positive net present value then its IRR will exceed the hurdle rate
D.The internal rate of return is that rate that makes the present value of the initial outlay
equal to zero
21) Which of the following industries would most likely have the highest ratio of sales
revenue to property, plant and equipment?
A.Airline
B.Consumer product manufacturing company
C.Electric utility
D.Stock brokerage
22) The costs and revenues associated with two alternatives are listed below:
Which alternative should be selected based on this information?
A.Alternative 1 because it has a higher profit
B.Alternative 2 because it has higher revenue
C.Alternative 1 because it has fewer unit-level costs
D.Alternative 2 because it has a higher profit
23) In a period of rising prices, which inventory cost flow method will produce the
lowest amount of cost of goods sold?
A.FIFO
B.Weighted average
C.LIFO
D.All methods will produce the same amount of cost of goods sold
24) Sandusky Company borrowed $10,000 from the Lakeside Bank by issuing a 10%
three-year installment note. Sandusky agreed to repay the principal and interest by
making annual payments in the amount of $4,021.15. Based on this information, the
amount of the interest expense associated with the second payment would be: (round
your answer to the nearest dollar)
A.$365
B.$698
C.$1,000
D.$821
On January 1, 2012, Fleming Company borrowed $160,000 cash from the First Trust
Bank by issuing a five-year 8 % term note. The principal and interest are repaid by
making annual payments beginning on December 31, 2012. The annual payment on the
loan was $40,074.
25) Indicate how each event affects the elements of financial statements. Use the
following letters to record your answer in the box shown below each element. You do
not need to enter amounts.
Dave Saba, who had held 12% of Rusch Company’s outstanding common stock, agreed
to purchase another 8% of Rusch Company’s outstanding common stock from Julie
Ganz, another major stockholder of Rusch’s. Indicate the effect of this event on Rusch’s
financial statements.
26) Select the incorrect statement regarding the return on equity (ROE) measure.
A.ROE is used to measure the profitability of the firm in relation to the amount invested
by stockholders
B.A company’s ROE is lower than its return on investment because ROE does not
consider that part of the business that is financed by debt
C.ROE is affected by a company’s use of leverage
D.ROE equals net income divided by average total stockholders’ equity
27) Operating leverage exists when
A.small percentage changes in revenue produce large percentage changes in profit
B.management buys enough of the company’s shares of stock to take control of the
corporation
C.the organization makes purchases on credit instead of paying cash
D.the organization avoids all fixed costs in its operations
28) Assume that Benton uses the units-of-production method when depreciating its
equipment. Benton estimates that the purchased equipment will produce 1,200,000 units
over its 5 years useful life and has salvage value of $7,500. Benton produced 265,000
units with the equipment by the end of the first year of purchase. The equipment costs
214,841.89. What amount will Benton record for depreciation expense on the
equipment in the first year?
A.$8,408
B.$41,469
C.$45,788
D.$82,938
29) Check no. 147 for $200 was outstanding as of September 30 . In performing the
September bank reconciliation, this outstanding check should be
A.subtracted from the unadjusted book balance
B.subtracted from the unadjusted bank balance
C.added to the unadjusted bank balance
D.added to the unadjusted book balance
30) Which of the following budgets would be prepared by a manufacturing company
but not a merchandising company?
A.Selling and administrative expense budget
B.Cost of goods sold budget
C.Raw materials budget
D.Sales budget
31) Wakefield Company wants an ending inventory each month equal to 30% of that
month’s cost of goods sold. Cost of goods sold for February is projected at $90,000.
Ending inventory at the end of January was $24,000. Based on this information,
purchases for February will be:
A.$63,000
B.$66,000
C.$87,000
D.$93,000
32) In preparing bank reconciliations, typical adjustments to the book balance include
A.outstanding checks
B.correction of an error made by the bank
C.interest earned on the checking account
D.deposits in transit
33) Kendall Company uses the perpetual inventory method. On January 1, 2012,
Kendall purchased 300 units of inventory that cost $1.00 each. On January 10, 2012,
the company purchased an additional 400 units of inventory that cost $1.50 each. If
Kendall uses the weighted average cost flow method and sells 400 units of inventory,
the amount of cost of goods sold appearing on the income statement will be:
A.$450
B.$529
C.$514
D.$600
34) The research and development department of a large manufacturing company
would likely be organized as
A.a cost center
B.a profit center
C.a revenue center
D.an investment center
35) In accounting for a contingent liability, if the likelihood of the obligation is
probable but the amount cannot be estimated, a company must
A.recognize the liability and report it on the balance sheet
B.provide disclosure in the footnotes to the financial statements
C.not recognize or disclose the liability until it is certain and the exact amount is known
D.do nothing
36) An asset decrease resulting from consumption of resources to earn revenue is
A.a net loss
B.a liability
C.an expense
D.an asset source transaction
37) On October 1, 2012, Balkan, Inc. accepted from another corporation a 1-year note
receivable in the amount of $15,000, with an interest rate of 6%. How did this
transaction affect Balkan’s financial statements?
A.Option A
B.Option B
C.Option C
D.Option D
38) Chartreuse Company has two investment opportunities. Both investments cost
$8,000 and will provide the following net cash flows:
The total present value of Investment A’s cash inflows assuming a 10% minimum rate
of return is (round to the nearest whole dollar):
A.$10,628
B.$9,510
C.$3,452
D.$3,000
39) Dorn Corporation provided the following information from its financial records:
What is the amount of the company’s earnings per share?
A.$0.72
B.$0.76
C.$0.80
D.$25.00
40) Gross margin is equal to
A.Sales Revenue divided by the balance in Merchandise Inventory at the end of the
period
B.The balance in Merchandise Inventory at the beginning of the period plus the amount
of inventory purchased during the year
C.Sales Revenue minus Cost of Goods Sold
D.Sales Revenue minus Cost of Goods Available for Sale
41) Which of the following is not an example of a cost object and its related cost
driver?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
42) At the end of the accounting period, Isaac Company had a balance of $4,000 in its
common stock account, additional paid in capital of $4,000, retained earnings of
$3,000, and $1,000 of treasury stock. The total amount of stockholders’ equity is:
A.$10,000
B.$13,000
C.$12,000
D.$8,000
43) During its first year of operations, Martin Company paid $4,000 for direct materials
and $8,500 for production workers’ wages. Lease payments and utilities on the
production facilities amounted to $7,500 while general, selling, and administrative
expenses totaled $3,000. The company produced 5,000 units and sold 4,000 units at a
price of $7.50 a unit.
What is the amount of finished goods inventory for the first year?
A.$4,000
B.$5,000
C.$2,500
D.$16,000
44) Butler Company developed a static budget at the beginning of the company’s
accounting period based on an expected volume of 4,000 units:
If actual production totals 5,000 units, the flexible budget would show fixed costs of:
A.$10,000
B.$2 per unit
C.$8,000
D.None of these
45) On August 1, 2012, Miles Company accepted from another company a one-year
note receivable with a face amount of $4,000 and an interest rate of 8%.
What would be the amount of cash flow from operating activities (related to the note
receivable) on the 2012 statement of cash flows?
A.$(4,000)
B.$187
C.$133
D.zero
46) Which of the following could describe the effects of a claims exchange transaction
on a company’s financial statements?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
47) A company that uses a just-in-time inventory system
A.compares its operations to those of world-class companies
B.may find that having less inventory actually leads to increased customer satisfaction
C.assesses its value chain to create new value-added activities
D.adopts a systematic, problem-solving attitude
48) Susan Mason is the manager of one department in a large store. In this capacity,
which of the following kinds of information would she be interested in?
A.Information that is local, relevant, and timely
B.Information that is global and pertains to the business as a whole
C.Information that meets cost/benefit criteria
D.Both A and C
49) The Decker Company reported the following income for 2012:
What is the company’s number of times interest is earned?
A.4 times
B.6 times
C.7 times
D.10 times
50) On May 1, 2012, Perez Company paid $12,000 rent for a one year lease on
equipment it uses in its operations. The adjusting entry at the end of the year
A.decreases assets and stockholders’ equity
B.decreases assets and liabilities
C.increases an expense and decreases a liability
D.is not required
51) Flynn Company experienced an accounting event that affected its financial
statements as indicated below:
Which of the following accounting events could have caused these effects on Flynn’s
statements?
A.Recognized depletion expense on a copper mine
B.Recognized depreciation expense under the double declining balance method
C.Amortized patent cost under the straight-line method
D.All of these
52) Which of the following is an objective of ratio analysis?
A.Assessing past performance
B.Assessing the prospects for future performance
C.Determining whether a company is likely to be able to pay its debts on time
D.All of these may be objectives of ratio analysis
53) During the year, MNO Company issued common stock to stockholders for $5,000;
purchased land for $1,000 cash; provided services to customers for $4,000; paid cash
operating expenses of $3,100; and paid cash dividends of $500 to the company’s
owners. Enter each of these events into the horizontal financial statements model,
below. Indicate dollar amounts of increases and decreases. For cash flows, show
whether they are operating activities (OA), investing activities (IA), or financing
activities (FA).
54) If a corporation decides to reissue, for cash, preferred treasury stock this is which
type of transaction type?
A. asset source
B. asset use
C. asset exchange
D. claims exchange
55) Which of the following statements is true with regard to depreciation expense?
A.A company should use the depreciation method that best matches expense
recognition with the use of the asset
B.A company using straight line will show a smaller book value for assets than if the
same company uses double declining balance
C.Choosing double declining balance over straight line will produce a greater total
depreciation expense over the asset’s life
D.Different companies in the same industry will always depreciate similar assets by the
same methods
56) At the end of the month, Grant Entertainment Company showed a $9,300 book
balance in its cash account. The following information was gathered by studying the
bank statement and the company’s cash records:
(1) deposits in transit amounted to $3,150
(2) outstanding checks were $6,200
(3) a $550 check had been incorrectly drawn on Grant’s account by the bank
(4) NSF checks returned by the bank were $750
(5) bank service charge was $29
(6) credit memo for $75 for the collection of one of the company’s account receivable
Based on the above information the true cash balance would be:
A.$6,250
B.$8,596
C.$6,096
D.$9,146
57) Hamby Company expects to incur overhead costs of $10,000 per month and direct
production costs of $125 per unit. The estimated production activity for the upcoming
year is 1,200 units. If the company desires to earn a gross profit of $50 per unit, the
sales price per unit would be which of the following amounts?
A.$183
B.$175
C.$130
D.$275
58) Which of the following lists represents the correct sequence of stages in an
accounting cycle?
A.record transactions, prepare statements, adjust accounts, close temporary accounts
B.prepare statements, close temporary accounts, record transactions, adjust accounts
C.close temporary accounts, record transactions, prepare statements, adjust accounts
D.record transactions, adjust accounts, prepare statements, close temporary accounts
59) One of the requirements of the code of ethics of the
60) Halley Company has just received a special order for 1,000 deck chairs. Halley has
sufficient idle capacity to accept the order. Indicate whether the given cost is a sunk
cost, opportunity cost, relevant or not relevant to the decision to accept the special
order, variable or fixed, by placing X’s below the headings as appropriate. A variable
cost is one that varies with the number of chairs that Halley makes.
61) Villarente Company issued 5-year $200,000 face value bonds at 95 on January 1,
2012 . The stated interest rate on these bonds is 9%, and the effective interest rate is
10.33%. Use the effective interest rate method to complete the amortization schedule
below.
62) Indicate whether each of the following statements is true or false.
1>If the planned sales volume was 25,000 units and the actual sales volume was 24,500
units, the sales volume variance was favorable
2>The sales volume variance measures managers’ effectiveness in achieving the
planned sales price for the company’s products
3>For marketing managers, “making the numbers” refers to reaching the budgeted sales
volume
4>The amount of a sales volume variance is the difference between the static budget
and a flexible budget based on actual volume
5>Production managers are usually held responsible for the sales volume variance
63) As of December 31, 2012, Walton Corporation had a current ratio of 1.84, quick
ratio of 1.45, and working capital of $18,000. The company uses a perpetual inventory
system and sells merchandise for more than it cost. Indicate how the given transaction,
if it occurred in January 2013, would affect Walton’s current ratio, quick ratio, and
working capital. Use a + for an increase, a – for a decrease, and 0 for no effect.
Walton declared and distributed a stock dividend of 800 shares of common stock
64) What is operating leverage, and how does a company achieve operating leverage?
65) Halley Company has just received a special order for 1,000 deck chairs. Halley has
sufficient idle capacity to accept the order. Indicate whether the given cost is a sunk
cost, opportunity cost, relevant or not relevant to the decision to accept the special
order, variable or fixed, by placing X’s below the headings as appropriate. A variable
cost is one that varies with the number of chairs that Halley makes.
66) What are NSF checks?
67) Excell Company currently produces a component that it uses in making some of its
products. The company has calculated the following costs for making the part:
Excell is considering outsourcing the component. A supplier has offered to sell the
component to Excell for $54 each. Excell needs 10,000 units each year. If Excell does
outsource the component, it can use the facilities to make another product that would
yield contribution margin of $60,000 per year.
Required:
Should Excell outsource the component? Support your answer with appropriate
computations.
68) What criterion is used for classifying assets as current? Provide three examples of
current assets.