In a statement of cash flows, payments of dividends are classified as:
A. Operating activities.
B. Financing activities.
C. Investing activities.
D. Costs and Expenses.
Hoffman, Inc. adjusts its books each month but closes its books at the end of the year.
The trial balance at March 31 before adjustments is as follows:
Refer to the information above. Employees are owed $750 for services since the last
payday in March, to be paid the first week in April. The amount to be reported in the
March income statement for salaries expense is:
A. $7,800.
B. $750.
C. $7,050.
D. $8,550.
Supervox Corporation declared a 3-for-2 common stock split, but this transaction was
erroneously recorded as a 50% common stock dividend. As a result:
A. Retained earnings is understated.
B. The total dollar amount of stockholders’ equity is overstated.
C. The corporate records do not show the correct number of shares of common stock
outstanding.
D. The common stock account is understated.
Skelton Corporation had planned to produce 50,000 units of product during the first
quarter of the current year. The company prepared the following budget on May 1:
During the first quarter, Skelton produced 60,000 units and incurred total manufacturing
costs of $184,000.
Refer to the information above. Which of the following amounts should not be included
in Skelton’s flexible budget at a 60,000-unit level?
A. Direct materials used, $43,200.
B. Direct labor, $54,000.
C. Variable overhead, $27,000.
D. Fixed manufacturing overhead, $70,200.
Financial assets–effects of transactions
Five events involving financial assets are described below:
(a.) Received dividends earned on investment in marketable securities.
(b.) Invested excess cash in marketable securities.
(c.) Determined that a specific account receivable is worthless and wrote it off against
the allowance for doubtful accounts.
(d.) Made sale of merchandise for cash.
(e.) Sold available for sale marketable securities at a loss. Cash proceeds from the sale
were equal to the current market value reflected in the last balance sheet.
Indicate the effects of each independent transaction or adjusting entry upon the financial
measurements shown in the column headings below. Use the code letters, I for increase,
D for decrease, and NE for no effect.
Dividends become a liability of a corporation:
A. On the date the board of directors declares the dividend.
B. On the date of record.
C. On the date payment is to be made.
D. When cumulative preferred stock dividends are in arrears.
The worksheet:
A. Is one of the basic financial statements.
B. Is prepared throughout the year.
C. Is not a formal step in the accounting cycle.
D. Starts with the first column being the adjusted trial balance.
Refer to the information above. What is the capital turnover for Brookes, Inc. (round
your answer to the nearest full percentage point)?
A. 38%.
B. 54%.
C. 70%.
D. 86%.
A trial balance consists of:
A. A two-column schedule of all debit and credit entries posted to ledger accounts.
B. A two-column financial statement intended for distribution to interested parties
outside the business.
C. A two-column schedule showing the totals of all debits and of all credits made in
journal entries.
D. A two-column schedule listing names and balances of all ledger accounts.
Washington Warehouse is a small retail business that specializes in the sale of
top-of-the-line televisions. This year, the store has begun to carry the Flat TV
manufactured by Bass Co. Thus far, Washington has recorded the following transactions
involving the Flat TV:
Jan. 5 Purchased 8 Flat TVs at a unit cost of $1,400
Jan. 18 Purchased 5 additional Flat TVs at $1,400 each
Feb. 12 Sold 9 Flat TVs to the Duke Hotel for $15,300
Refer to the information above. The gross profit on the Flat TVs as of February 12th is:
A. $11,200.
B. $2,700.
C. $4,100.
D. $15,300.
The term, classified financial statements, refers:
A. To the financial statements of all companies working on government projects.
B. Only to the financial statements of defense contractors working on secret projects.
C. To financial statements prepared for use by management, but not for distribution
outside of the organization.
D. To financial statements in which items with certain characteristics are placed
together in a group in an effort to develop useful subtotals.
During a period of steadily falling prices, which of the following methods of measuring
the cost of goods sold is likely to result in reporting the highest gross profit?
A. Specific identification.
B. Average cost.
C. LIFO.
D. FIFO.
The field of accounting may best be described as:
A. Recording the financial transactions of an economic entity.
B. Developing information in conformity with generally accepted accounting
principles.
C. The art of interpreting, measuring, and describing economic activity.
D. Developing the information required for the preparation of income tax returns.
The use of inexpensive, low quality, materials often results in:
A. A favorable materials quantity variance.
B. A favorable labor rate variance.
C. An unfavorable materials quantity variance.
D. An unfavorable materials price variance.
Perry’s Cycle Company manufactures annually 20,000 units of TushSeat, a bicycle seat
used on many of the company’s products, and also sold directly to retailers for $38 per
unit. At the current level of production, the cost per unit to produce TushSeat consists
of:
It has come to the attention of management that a seat of similar quality can be
purchased from outside suppliers.
Refer to the information above. Assume that seats can be purchased from the outside
supplier at $25 each, and that 60% of total fixed costs incurred in producing TushSeat
will be eliminated by this strategy. Buying the seats instead of manufacturing them
would cause Perry’s operating income to:
A. Decrease by $20,000.
B. Increase by $36,000.
C. Increase by $16,000.
D. Decrease by $24,000.
Taylor, Inc. had accounts receivable of $310,000 and an allowance for doubtful
accounts of $19,500 just before writing off as worthless an account receivable from
Burton Company of $1,300. The net realizable value of the accounts receivable before
and after the write-off were:
A. $290,500 before and $289,200 after.
B. $290,500 before and $290,500 after.
C. $310,000 before and $308,700 after.
D. $329,500 before and $328,200 after.
Refer to the information above. After closing the accounts, Retained Earnings at
December 31 equals:
A. Zero.
B. $18,400.
C. $19,360.
D. $16,640.
Evaluating the quality of receivables
(a.) The 2015 annual report of Modern Books, a publicly traded corporation, reports
accounts receivable (net of allowance for doubtful accounts), of $190,714 as of
February 28, 2015. What assurance do readers of Modern Books ‘ annual report have
that these receivables really exist and are not fictitious assets recorded to make the
balance sheet “look good”?
(b.) The accounts receivable turnover rate is frequently used in evaluating the liquidity
of accounts receivable. How is the accounts receivable turnover rate computed? What
type of information does the accounts receivable turnover rate provide?
Stock values
Presented below is an excerpt from the stock listings of a recent issue of the Wall Street
Journal.
Answer the following questions based on the information about the Russell Corporation
given above:
(a) How many shares of Russell Corporation stock were sold on this day?
(b) If you had purchased 10 shares of Russell Corporation stock at the lowest price of
the day, what would be the total price that you would have paid for the stock?
(c) What was the closing price of Russell Corporation Stock on the previous day?
(d) If the board of directors of Russell Corporation increased the amount of the annual
dividends to $1.00 per share, what would be the amount of the yield percentage on the
stock?
The gross profit margin:
A. Is the dollar amount of gross profit expressed as a percentage of cost of sales.
B. May indicate popular products and successful marketing strategies.
C. Must be computed for the business as a whole rather than for specific sales
departments.
D. Is equal to cost of goods sold plus gross operating expenses.
The monthly high and low levels of direct labor hours and of total manufacturing
overhead for Onyx Company are as shown:
Refer to the information above. On the basis of the above data, the cost formula for
Onyx’s monthly manufacturing overhead can be expressed as:
A. $18.00 average cost per direct labor hour.
B. $1.80 average cost per direct labor hour.
C. $26,000 fixed cost plus $1.50 per direct labor hour.
D. $18,000 fixed cost plus $2.00 per direct labor hour.
On December 1, Year 1, Bradley Corporation incurs a 15-year $200,000 mortgage
liability in conjunction with the acquisition of an office building. This mortgage is
payable in monthly installments of $2,400, which include interest computed at the rate
of 12% per year. The first monthly payment is made on December 31, Year 1.
Refer to the information above. Over the 15-year life of the mortgage, the total amount
Bradley will pay for interest charges is:
A. $232,000.
B. $360,000.
C. $200,000.
D. $432,060.
Which of the following is generally not considered one of the general purpose financial
statements issued by a corporation?
A. Income statement forecast for the coming year.
B. Balance sheet.
C. Statement of financial position.
D. Statement of cash flows.
The completion of a computer by First Wireless, Inc. would require a debit to which of
the following accounts?
A. Cost of Goods Sold.
B. Work in Process Inventory.
C. Finished Goods Inventory.
D. Materials Inventory.
Refer to the information above. At a price of $80, Summit’s market research indicates
that it can sell 60,000 units per year. Assuming Summit can reach its new target cost,
how will Summit’s profit at the $80 price compare to what it would have earned in the
absence of the competitor’s product?
A. Profit will be $75,000 higher.
B. Profit will be $75,000 lower.
C. Profit will be unaffected if Summit can reach the revised target cost.
D. None of these.
When preparing a bank reconciliation, deposits in transit will:
A. Increase the balance per depositor’s records.
B. Decrease the balance per depositor’s records.
C. Increase the balance per the bank statement.
D. Decrease the balance per the bank statement.
Which of the following accounts normally has a credit balance?
A. Cash.
B. Service revenue.
C. Accounts receivable.
D. Utilities expense.
Cash management
(a.) What is meant by the term “cash management”?
(b.) Identify at least three basic objectives of effective cash management.
Which one of the following would cause a lease to be accounted for as a capital lease?
A. The lease payments are greater than $10,000 per month.
B. The leased property is located on premises owned by the lessee.
C. The lease term is more than 75% of economic life of the property.
D. The value of the leased property is greater than 10% of the net assets of the lessee.
At the end of the first year of operations, the balance sheet of Midwood Medical Supply
showed the following account balances: Accounts Receivable, $5,000; Accounts
Payable, $6,000; Inventory, $3,000; and Unexpired Insurance, $2,000. The corporation
reported net income of $79,000 for the year, including depreciation expense of $5,000,
and uses the indirect method of computing net cash flow from operating activities.
Solely on the basis of this information, net cash flow from operating activities is:
A. $78,000.
B. $82,000.
C. $77,000.
D. $80,000.
A company with a liquid inventory will have:
A. A high inventory turnover and a high average number of days to sell inventory.
B. A high inventory turnover and a low average number of days to sell inventory.
C. A low inventory turnover and a high average number of days to sell inventory.
D. A low inventory turnover and a low average number of days to sell inventory.
Which method will yield higher cash flows from operating activities?
A. The indirect method.
B. The direct method.
C. Both direct and indirect methods will yield the same amount.
D. Depends upon the situation.
Cash flows from operating activities include all of the following except:
A. Collections from customers for sales of goods.
B. Interest and dividends received.
C. Payments of interest.
D. Payments of dividends.