Denominator in the ratio of cash to monthly cash expense is calculated as _____.
a. total revenues divided by 12
b. net cash flows from investing activities divided by 12
c. earnings before taxes divided by 12
d. net cash flows from operations divided by 12
When comparing operating performance across companies within the same industry,
companies prefer commonsized income statements prepared through net income rather
than those prepared through operating income. This is because other income and
expenses are influenced by a variety of factors that are independent of operations and
that can vary significantly across companies.
a. True
b. False
In net present value analysis for a proposed capital investment, the expected future net
cash flows are reduced to their present values.
a. True
b. False
Supervisor salaries and indirect factory wages would normally appear in the direct labor
cost budget.
a. True
b. False
Identify the following as a Fixed Asset (FA), Intangible Asset (IA), Natural Resource
(NR), or None of these (N).
(a)Computer
(b)Patent
(c)Oil reserve
(d)Goodwill
(e)U.S. Treasury note
(f)Land used for employee parking
(g)Gold mine
Accrual accounting does not require that the accounting records be updated prior to
preparing financial statements.
a. True
b. False
Even if a business sells six products, it is possible to estimate the breakeven point.
a. True
b. False
A change in fixed costs as a result of increase in the property tax rates will increase the
breakeven point.
a. True
b. False
The framework that has become widely accepted as the standard by which companies
design, analyze, and evaluate internal controls is the:
a. Internal Control Integrated Framework by the Committee of Sponsoring
Organizations.
b. Internal Control Integrated Framework by the Congress of Special Offerings.
c. Internal Control Localized Structure by the Committee of Sponsoring Organizations.
d. Internal Control Localized Structure by the Congress of Special Offerings.
The portion of a corporation’s net income retained in the business is called:
a. interest earnings.
b. dividends.
c. tax expense.
d. retained earnings.
HTMLENTITY#8203HTMLENTITYJNC Co. buys equipment for $1,500,000 cash.
This transaction:
a. HTMLENTITY#8203HTMLENTITYdecreases JNC Co.’s liquidity and has no effect
on its profitability metric.
b. HTMLENTITY#8203HTMLENTITYhas no effect on JNC Co.’s liquidity and
profitability.
c. HTMLENTITY#8203HTMLENTITYincreases JNC Co.’s liquidity and profitability.
d. HTMLENTITY#8203HTMLENTITYhas no effect on JNC Co.’s liquidity and
decreases its profitability.
Allowance for Doubtful Accounts has an unadjusted balance of $500 at the end of the
year, and an analysis of accounts in the customers’ ledger indicates doubtful accounts of
$15,000. Compute the adjusted balance in the allowance for doubtful accounts?
a. $15,000
b. $14,500
c. $14,000
d. $15,500
The underapplied factory overhead amount may be transferred to cost of goods sold at
the end of the fiscal year.
a. True
b. False
Bonds are sold at face value when the contract rate is equal to the market rate of
interest.
a. True
b. False
The ratio of the market price per share of common stock on a specific date to the annual
earnings per share is referred to as the priceearnings ratio.
a. True
b. False
The recording of the jobs completed would increase:
a. Factory Overhead.
b. Finished Goods.
c. WorkinProcess.
d. Cost of Goods Sold.
Days’ sales in receivables estimates the average number of days it takes to:
a. collect cash sales.
b. convert inventory to sales.
c. collect accounts receivables.
d. convert raw material to inventory.
If bonds are issued at a premium, the stated interest rate is:
a. higher than the market rate of interest.
b. lower than the market rate of interest.
c. too low to attract investors.
d. adjusted to a higher rate of interest.
A financial statement that summarizes the cash receipts and cash payments of a
company for a specific period of time is:
a. the cash analysis statement.
b. the bank reconciliation statement.
c. the statement of cash flows.
d. the statement of retained and nonretained cash earnings.
The following data is given for the Walker Company:
Budgeted production1,000 units
Actual production980 units
Materials:
Standard price per lb$2.00
Standard pounds per completed unit12
Actual pounds purchased and used in production11,800
Actual price paid for materials$23,000
Labor:
Standard hourly labor rate$14 per hour
Standard hours allowed per completed unit4.5
Actual labor hours worked4,560
Actual total labor costs$62,928
Overhead:
Actual and budgeted fixed overhead$27,000
Standard variable overhead rate$3.50 per standard direct labor hour
Actual variable overhead costs$15,500
Overhead is applied on standard labor hours.
The variable factory overhead controllable variance is:
a. $65 unfavorable.
b. $65 favorable.
c. $250 unfavorable.
d. $250 favorable.
Which of the following is a characteristic of fixed assets?
a. Fixed assets are offered for sale as part of normal operations.
b. Fixed assets do not exist physically.
c. Fixed assets are longterm or relatively permanent assets.
d. Fixed assets that are no longer used in operations are still classified as fixed assets.
Which of the following transactions will affect the liquidity metric of a company?
HTMLENTITY#8203HTMLENTITY
a. HTMLENTITY#8203HTMLENTITYSupplies used for manufacturing a product
b. HTMLENTITY#8203HTMLENTITYSalary owed but not paid
c. HTMLENTITY#8203HTMLENTITYServices provided but not billed to the
customer
d. HTMLENTITY#8203HTMLENTITYDepreciation charged on fixed asset
The asset turnover is calculated as _____.
a. net income divided by average longterm operating assets
b. net sales divided by cost of the assets
c. average longterm operating assets divided by net sales
d. net sales divided by average longterm operating assets
A credit memorandum received with a bank statement means the company’s bank
account has been increased.
a. True
b. False
Accounts receivable is less liquid than Furniture, so it is listed after Furniture on a
balance sheet.
a. True
b. False
In large businesses, decentralization is often advantageous because:
a. it allows top management to make all decisions, thus ensuring that overall operational
goals are met.
b. it prevents decisions from one unit to negatively affect the profitability of the entire
company.
c. it allows departmental managers to focus on acquiring expertise in their areas of
responsibility.
d. it prevents duplication of assets and expense.
Treasury stock is a contraequity account.
a. True
b. False
The methods of evaluating capital investment proposals can be grouped into two
general categories: (1) average rate of return method and (2) cash payback method.
a. True
b. False
Only a single line, which represents the difference between total sales revenues and
total costs, is plotted on the profitvolume graph.
a. True
b. False
Production and sales estimates for June are as follows:
Estimated inventory (units), June 118,500
Desired inventory (units), June 3019,000
Expected sales volume (units):
Area X3,000
Area Y4,000
Area Z5,500
Unit sales price$20
The number of units expected to be manufactured in June is:
a. 10,000.
b. 12,000.
c. 13,000.
d. 12,500.
Research and development costs incurred for developing patents are recorded as:
a. current operating expenses.
b. longterm operating assets.
c. accrued expenses.
d. working capital.
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
Assets = Liabilities + Stockholders’ Equity
CashAccounts
ReceivableMerchandise
InventoryAccounts
PayableCapital
StockRetained
Earnings
Statement of Cash FlowsIncome Statement
(a) Buyer
Assets = Liabilities + Stockholders’ Equity
CashAccounts
ReceivableMerchandise
InventoryAccounts
PayableCapital
StockRetained
Earnings
Statement of Cash FlowsIncome Statement
(b) Seller
Assets = Liabilities + Stockholders’ Equity
CashAccounts
ReceivableMerchandise
InventoryAccounts
PayableCapital
StockRetained
Earnings
Statement of Cash FlowsIncome Statement
(b) Buyer
Assets = Liabilities + Stockholders’ Equity
CashAccounts
ReceivableMerchandise
InventoryAccounts
PayableCapital
StockRetained
Earnings
Statement of Cash FlowsIncome Statement
(c) Seller
Assets = Liabilities + Stockholders’ Equity
CashAccounts
ReceivableMerchandise
InventoryAccounts
PayableCapital
StockRetained
Earnings
Statement of Cash FlowsIncome Statement
(c) Buyer
Assets = Liabilities + Stockholders’ Equity
CashAccounts
ReceivableMerchandise
InventoryAccounts
PayableCapital
StockRetained
Earnings
Statement of Cash FlowsIncome Statement
For the year that just ended, a company reports net income of $1,500,000. There are
500,000 shares authorized, 300,000 shares issued, and 250,000 shares of common stock
outstanding. What is the earnings per share?
a. $5.00
b. $2.50
c. $6.00
d. $3.00
The _____ is the difference between the actual variable overhead costs and the
budgeted variable overhead for actual production.
a. variable factory overhead quantity variance
b. variable factory overhead controllable variance
c. variable factory overhead rate variance
d. variable factory overhead volume variance