1) The computations required for the net present value method are less than those the
computation required for the average rate of return method.
2) The underapplied factory overhead amount may be transferred to cost of goods sold
at the end of the fiscal year.
3) Budgetary slack can be avoided if lower and mid-level managers are requested to
support all of their spending requirements with specific operational plans.
4) The basic elements of a financial accounting system include a framework for
preparing financial statements.
5) Using a standard costing system for nonmanufacturing expenses is easily
administered because the expenses generally relate to a repetitive, measurable output.
6) Nonmanufacturing activities are usually controlled using a static budget rather than a
standard costing system.
7) If the standard to produce a given amount of product is 900 units of direct materials
at $11 and the actual was 800 units at $12, the direct materials quantity variance was
$1,100 unfavorable.
8) A corporation is a business that is legally separate and distinct from its owners.
9) Merchandise inventory shrinkage will decrease Retained Earnings.
10) In job order cost accounting system, perpetual inventory records are maintained in
controlling accounts and subsidiary ledgers for materials, work in process, and finished
goods.
11) If income from operations for a division is $6,000, invested assets are $25,000, and
sales are $30,000, the profit margin calculated would be 24%.
12) If the total unit cost of manufacturing Product Y is currently $40 and the total unit
cost after modifying the style is estimated to be $48, the differential cost for this
situation is $8.
13) Revenues decrease stockholders’ equity.
14) Ideal standards are developed under conditions that assume no idle time, no
machine breakdowns, and no materials spoilage.
15) The popularity of the sole proprietorship is due to the ease and low cost of
organizing.
16) The rate of return on investment can be computed by dividing investment turnover
by the profit margin.
17) A job order cost system provides for a separate record of the costs for each
particular quantity of product that is manufactured.
18) The minimum amount of desired divisional income from operations is set by top
management by establishing a minimum rate of return considered acceptable for
invested assets.
19) Employees view budgeting more positively when goals are established for them by
senior management.
20) 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 total factory overhead cost
variance is:
A.$3,900 favorable
B.$10,400 favorable
C.$10,400 unfavorable
D.$9,900 unfavorable
21) A list of assets, liabilities, and owners’ equity as of a specific date is a(n):
A.income statement
B.balance sheet
C.statement of cash flows
D.retained earnings statement
22) The amount of deposits in transit is included on the bank statement as a(n):
A.deduction from the cash balance per books
B.deduction from the cash balance per bank
C.addition to the cash balance per bank
D.addition to the cash balance per books
23) Merchandise with a list price of $7,500 and a cost of $7,000 is sold on account,
terms 1/10, n/30. Prior to payment, merchandise with a list price of $1,000 and a cost of
$800 is returned. The correct amount is paid within the discount period.
Record the following transactions, using the integrated financial statement framework
that follows:
(a) Sold the merchandise.
(b) Received the returned merchandise
(c) Received the amount owed.
24) Which of the following isnot a characteristic of a corporation?
A.Corporations are organized as a separate legal taxable entity
B.Ownership is divided into shares of stock
C.Corporations experience an ease in obtaining large amounts of resources by issuing
stock
D.A corporation can elect to be taxed as a partnership
25) An anticipated purchase of equipment for $1,200,000, with a useful life of 8 years
and no residual value, is expected to yield the following annual net incomes and net
cash flows:
What is the cash payback period?
A.5 years
B.4 years
C.6 years
D.3 years
26) For EFG Co., the transaction “payment of quarterly taxes” would:
A.increase total assets
B.decrease total assets
C.have no effect on total assets
D.increase stockholders equity
27) When merchandise sold is assumed to be in the order in which the expenditures
were made, the inventory costing method is called:
A.first-in, last-out
B.last-in, first-out
C.first-in, first-out
D.average cost
28) Two divisions of Crowson Company (Divisions X and Y) have the same profit
margins. Division X’s investment turnover is larger than that of Division Y (1.2 to 1.0).
Which of the following statements is true?
A.Division Y will have a higher return on investment as it is using its assets more
efficiently in generating sales
B.Division X will have a higher return on investment as it is generating more income
from its operations
C.Division X will have a higher return on investment as it is using its assets more
efficiently in generating sales
D.Division Y will have a higher return on investment as it is generating more income
from its operations
29) The management of London Corporation is considering the purchase of a new
machine costing $750,000. The company’s desired rate of return is 6%. The present
value factors for $1 at compound interest of 6% for 1 through 5 years are 0.943, 0.890,
0.840, 0.792, and 0.747, respectively. In addition to this information, use the following
data in determining the acceptability in this situation:
The cash payback period for this investment is:
A.3 years
B.5 years
C.20 years
D.4 years
30) In credit terms of 1/10, n/30, the 10 represents the:
A.number of days in the discount period
B.full amount of the invoice
C.number of days when the entire amount is due
D.percent of the cash discount
31) Which statement is normally prepared first?
A.Income statement
B.Balance sheet
C.Statement of cash flows
D.Retained earnings statement
32) When the contract rate of interest on bonds is less than the market rate of interest,
the bonds sell at:
A.a premium
B.their face value
C.their maturity value
D.a discount
33) The standard price and quantity of direct materials are separated because:
A.GAAP reporting requires this separation
B.direct materials prices are controlled by the purchasing department, and quantity used
is controlled by the production department
C.standard quantities are more difficult to estimate than standard prices
D.standard prices change more frequently than standard quantities
34) On which of the following dates, a company incurs liability for a dividend?
A.The date of record
B.The date of payment
C.The date of liquidation
D.The date of declaration
35) Some organizations use internal service departments to provide services to several
divisions or departments within an organization. Which of the following would
probably not lend itself as a service department?
A.Inventory Control
B.Payroll Accounting
C.Information Systems
D.Human Resources
36) On September 1, a machine was purchased for $47,000 with a useful life of 8 years,
and a residual value of $3,000. What is the depreciation expense in the year of purchase
under straight-line method, assuming a December 31 year-end?
A.$3,917
B.$3,667
C.$1,958
D.$1,833
37) The difference between sales and cost of merchandise sold for a merchandising
business is:
A.sales
B.net sales
C.gross sales
D.gross profit
38) Which of the following is not a disadvantage of decentralized operation?
A.Competition among managers decreases profits of the company
B.Duplication of operations
C.Price cutting by departments that are competing in the same product market
D.Top management has less time to devote to long range strategic planning
39) A. Bonds Company
The following is a single-step income statement for the A. Bonds Company:
Refer to A. Bonds Company. If the income statement were prepared in a multiple-step
format, gross profit would be:
A.$200,000
B.$127,500
C.$101,000
D.$152,500
40) Which expenses are subtracted from gross profit to arrive at income from
operations?
A.All expenses
B.Cost of merchandise sold
C.Operating expenses
D.Sales discounts
41) Standard Corporation uses a standard cost system. The following information was
provided for the period that just ended:
The fixed factory overhead volume variance is
A.$6,000 favorable
B.$3,000 favorable
C.$3,000 unfavorable
D.$6,000 unfavorable
42) Using the following information, list the items that will require adjustments to the
accounts of Salem Co. Also, indicate which accounts will increase or decrease due to
the adjustment.
(a) The bank statement balance is $2,597.
(b) The cash account balance is $2,680.
(c) Outstanding checks amounted to $703.
(d) Deposits in transit are $732.
(e) The bank service charge is $25.
(f) Interest added to the checking account by the bank is $7.
(g) A check drawn for $59 was incorrectly charged by the bank as $95.
43) Foggy Co. has the following operating data for its manufacturing operations:
The company has decided to increase the wages of hourly workers, which will increase
the unit variable cost by 10%. Increases in the salaries of factory supervisors and
property taxes for the factory will increase fixed costs by 4%. If sales prices are held
constant, the break-even point for Foggy Co. will:
A.increase by 400 units
B.increase by 640 units
C.decrease by 640 units
D.increase by 800 units
44) If Liabilities have a balance of $10,000 and Stockholders’ Equity has a balance of
$60,000, then Assets must have a balance of:
A.$50,000
B.$60,000
C.$70,000
D.$10,000
45) Kohlman Company began its operations on March 31 of the current year. Projected
manufacturing costs for the first three months of business are $156,800, $195,200, and
$217,600, respectively, for April, May, and June. Depreciation, insurance, and property
taxes represent $28,800 of the estimated monthly manufacturing costs. Insurance was
paid on March 31, and property taxes will be paid in November. Three-fourths of the
remainder of the manufacturing costs are expected to be paid in the month in which
they are incurred with the balance to be paid in the following month.
Refer to the information provided for Kohlman Company. The cash payments for
manufacturing in the month of May are:
A.$185,600
B.$156,800
C.$124,800
D.$146,400
46) If fixed costs are $750,000 and variable costs are 60% of sales, what is the
break-even point (in dollars)?
A.$1,875,000
B.$1,250,000
C.$1,666,667
D.$1,350,000
47) If Assets have a balance of $40,000 and Stockholders’ Equity has a balance of
$30,000, then Liabilities must have a balance of:
A.$70,000
B.$30,000
C.$40,000
D.$10,000
48) Identify each of the following expenditures as chargeable to (a) Land, (b) Land
Improvements, (c) Buildings, (d) Machinery and Equipment, or (e) Other accounts.
49) Cape Corporation sells a single product. Budgeted sales for the year are anticipated
to be 640,000 units, estimated beginning inventory is 98,000 units, and desired ending
inventory is 80,000 units. The quantities of direct materials expected to be used for each
unit of finished product are given below.
Refer to the information provided for Cape Corporation. The amount of direct material
A purchased during the year is:
A.$216,000
B.$186,600
C.$192,000
D.$245,400
50) A business received an offer from an exporter for 5,000 units of product at $10 per
unit. The acceptance of the offer will not affect normal production or domestic sales
prices. The following data are available:
Based on the above data, what is the differential revenue from the acceptance of the
offer?
A.$45,000
B.$40,000
C.$50,000
D.$60,000
51) A bank reconciliation should be prepared periodically because:
A.the depositor’s records and the bank’s records are in agreement
B.the bank has not recorded all of its transactions
C.any differences between the depositor’s records and the bank’s records should be
determined, and any errors made by either party should be discovered and corrected
D.the bank must make sure that its records are correct
52) Which of the following would not be an example of a merchandising business?
A.The Walt Disney Company
B.JCPenney
C.Amazon.com
D.Wal-Mart
53) Direct materials, work-in-process, and finished goods inventory are most likely to
be reported on the balance sheet of a(n):
A.financial consultant
B.apparel boutique
C.automobile company
D.insurance company
54) Deferred revenues (unearned revenues) are items initially recorded as liabilities, but
expected to become _____ over time.
A.liabilities
B.assets
C.revenues
D.expenses
55) Depreciable cost is computed as:
A.cost less accumulated depreciation
B.book value less residual value
C.cost less residual value
D.market value less residual value
56) Kohlman Company began its operations on March 31 of the current year. Projected
manufacturing costs for the first three months of business are $156,800, $195,200, and
$217,600, respectively, for April, May, and June. Depreciation, insurance, and property
taxes represent $28,800 of the estimated monthly manufacturing costs. Insurance was
paid on March 31, and property taxes will be paid in November. Three-fourths of the
remainder of the manufacturing costs are expected to be paid in the month in which
they are incurred with the balance to be paid in the following month.
Refer to the information provided for Kohlman Company. The cash payments for
manufacturing in the month of April are:
A.$128,000
B.$117,600
C.$156,800
D.$96,000
57) What cost concept used in applying the cost-plus approach to product pricing
includes total manufacturing costs and total selling and administrative expenses in the
cost amount to which the markup is added?
A.Variable cost concept
B.Total cost concept
C.Product cost concept
D.Opportunity cost concept