1) The point in operations at which revenues and expenses are exactly equal is called
the break-even point.
2) One of the conditions for paying a cash dividend is formal action by the board of
directors.
3) On the income statement, the merchandise inventory at the beginning of the period is
added to sales to yield the cost of merchandise sold during the period.
4) Merchandise is sold for $2,500, terms FOB destination, 2/10, n/30, with
transportation costs of $150. If $500 of the merchandise is returned prior to payment
and the invoice is paid within the discount period, the amount of the sales discount is $
5) A remittance advice is the notification accompanying the check issued to a creditor
that states the specific invoice being paid.
6) If the standard to produce a given amount of product is 12,000 hours at a factory
overhead rate of $5 ($3 fixed, $2 variable), actual variable factory overhead was
$26,400, actual fixed factory overhead was $45,000, and 100% of productive capacity
is 15,000 hours, the volume variance was $9,000 favorable.
7) The fixed asset section of a balance sheet may also be labeled as property, plant, and
equipment.
8) The major advantage of using the rate of return on investment over income from
operations as a divisional performance measure is that, divisional investment is directly
considered and thus comparability of divisions is facilitated.
9) Federal unemployment compensation tax is a tax that is paid only by employers.
10) The direct write-off method records uncollectible accounts expense in the year the
specific account receivable is determined to be uncollectible.
11) A company may use a job order cost system for some of its products and a process
cost system for other products.
12) Revenue from sources other than the primary operating activity of a business is
called other income.
13) In preparing a bank reconciliation, the amount indicated by a debit memorandum
for bank service charges is deducted from the cash balance per bank.
14) During inflationary periods, the value of inventory that appears on the balance sheet
using FIFO method will be same as its current replacement cost.
15) A criticism of the single-step income statement is that gross profit and income from
operations are not readily available for analysis.
16) Since the controllable variance measures the efficiency of using variable overhead
resources, if budgeted variable overhead exceeds actual results, the variance is
favorable.
17) The standard costs and actual costs for direct materials, direct labor, and factory
overhead for the manufacture of 2,500 units of product are as follows:
Variable cost @ $2 per hour
Total variable cost, $18,000
Fixed cost @ $0.80 per hour
Total fixed cost, $8,000
The amount of the fixed factory overhead volume variance is:
A.$2,000 favorable
B.$2,500 favorable
C.$2,500 unfavorable
D.$2,000 unfavorable
18) The amount of income that would result from an alternative use of cash is called:
A.differential income
B.sunk cost
C.differential revenue
D.opportunity cost
19) Income tax based on taxable income may differ from the income tax based on
Income before Taxes on the income statement. Which of the following could be a
reason for this difference?
A.A business may use MACRS depreciation for tax reporting and straight-line for
financial reporting purposes
B.Tax payments may not equal the tax due
C.Taxable income is based on Generally Accepted Accounting Principles
D.All of these could be reasons for the difference
20) If a capital expenditure is treated as a revenue expenditure, then:
A.expenses are overstated and owners’ equity is understated
B.expenses are understated and assets are overstated
C.expenses are understated and owners’ equity is overstated
D.net income is overstated and owners’ equity is understated
21) Frogue Corporation uses a standard cost system. The following information was
provided for the period that just ended:
Refer to the information provided for Frogue Company. The variable factory overhead
controllable variance is:
A.$6,000 favorable
B.$2,100 favorable
C.$2,100 unfavorable
D.$6,000 unfavorable
22) Glover Inc. manufactures Product B, incurring variable costs of $15.00 per unit and
fixed costs of $70,000. Glover desires a profit equal to a 12% rate of return on assets.
Assets of $785,000 are devoted to producing Product B, and 100,000 units are expected
to be produced and sold.
23) Soap Company manufactures Soap X and Soap Y and can sell all it can make of
either. Hours available to produce the products is the constrained resources. Based on
the following data, if Soap could reduce the processing time for X by 10%, which of the
following statements is true?
A.It would take 162 minutes to process one unit of X
B.There would be no difference in the contribution margin per hour as compared to it
before the processing time reduction
C.The contribution margin per hour for X would be $2
D.Soap Y would still be the most profitable
24) One of the weaknesses of the direct write-off method is that it:
A.understates accounts receivable on the balance sheet
B.violates the matching principle
C.adjusts allowance account the end of the year
D.is based on estimates
25) Use the following data to calculate the cost of ending inventory under the FIFO
method.
A.$825
B.$750
C.$675
D.$840
26) What is the primary objective of most businesses?
A.To maximize profits
B.To pay dividends to stockholders
C.To provide a benefit to society
D.To manufacture a quality product
27) The balance sheets at the end of each of the first two years of operations indicate
the following:
Based on the above information, if net income is $130,000 and interest expense is
$40,000 for 2013, what is the rate earned on common stockholders’ equity for 2013
(round to one decimal place)?
A.12.3%
B.14.0%
C.13.0%
D.17.4%
28) The following data relate to direct materials costs of Texas Inc. for November:
Refer to the information provided for Texas Inc. What is the direct materials price
variance?
A.$2,250 unfavorable
B.$2,250 favorable
C.$2,300 unfavorable
D.$1,700 unfavorable
29) What adjustment is required in the depositor’s accounts to record outstanding
checks?
A.None
B.Increase Cash; decrease Accounts Receivable
C.Increase Cash; increase Accounts Payable
D.Increase Accounts Receivable; decrease Cash
30) Recording depreciation:
A.decreases net income and cash flows
B.decreases net income but has no effect on cash flows
C.decreases net income, fixed assets, and cash flows
D.decreases net income but has no effect on fixed assets and cash flows
31) Standard and actual costs for direct labor for the manufacture of 1,000 units of
product were as follows:
Determine the (a) time variance, (b) rate variance, and (c) total direct labor cost
variance.
32) The systematic examination of the relationships among selling prices, volume of
sales and production, costs, expenses, and profits is termed as:
A.contribution margin analysis
B.cost-volume-profit analysis
C.budgetary analysis
D.gross profit analysis
33) Incurring actual indirect factory wages in excess of budgeted amounts for actual
production results in a:
A.unfavorable quantity variance
B.unfavorable controllable variance
C.favorable volume variance
D.favorable labor rate variance
34) Division T reported income from operations of $900,000 and total service
department charges of $575,000. Therefore,:
A.net income was $325,000
B.the gross profit margin was $325,000
C.income from operations before service department charges was $1,475,000
D.consolidated net income was $325,000
35) For Peterson Company, total overhead applied was $35,000,000 at the end of the
year. Actual overhead was $35,800,000. Closing over/under applied overhead into cost
of goods sold would cause net income to:
A.increase by $800,000
B.decrease by $800,000
C.stay the same
D.decrease by $200,000
36) Washington Corporation has the following financial data for 2013 and 2012 .
What is Washingtons working capital for 2013?
A.$6,000
B.$19,000
C.$0
D.$120,000
37) A firm operated at 90% of capacity for the past year during which fixed costs were
$320,000, variable costs were 60% of sales, and sales were $1,200,000. Operating
profit was:
A.$480,000
B.$112,000
C.$144,000
D.$160,000
38) A&M Co. purchased land for $50,000 with $10,000 paid in cash and $40,000 in a
note payable due three years from now. What effect does this transaction have on the
accounts under the accrual basis of accounting?
A.Net increase in assets of $40,000 and a net increase in liabilities of $40,000
B.Net increase in assets and liabilities of $50,000
C.Net increase in assets of $50,000 and a net decrease in liabilities of $40,000
D.Net increase in assets of $60,000 and a net decrease in liabilities of $40,000
39) A sales invoice included the following information: merchandise price, $6,000;
terms 2/10, n/eom. Assuming that a credit for merchandise returned of $600 is granted
prior to payment, and that the invoice is paid within the discount period, what is the
amount of cash received by the seller?
A.$5,880
B.$5,292
C.$5,586
D.$5,592
40) A minimum cash balance required by a bank is called:
A.cash in bank
B.cash equivalent
C.compensating balance
D.EFT
41) 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 Division 6’s income from operations increase?
A.$75,000
B.$150,000
C.$100,000
D.$50,000
42) Cash investments made by the stockholders of the business are reported on the
statement of cash flows in the:
A.financing activities section
B.investing activities section
C.operating activities section
D.supplemental statement
43) You are examining the financial statements of a company. You observe patent
amortization expense of $1.5 million and a loss on impairment of goodwill for $25
million.
44) Which of the following accounts would likely be included in a deferral adjusting
entry?
A.Interest Revenue
B.Unearned Revenue
C.Salaries Payable
D.Accounts Receivable