1) Working capital is computed as current liabilities minus current assets.
2) The Perk’s earnings per share is $3.11. Its common dividend is $0.36 per share and
its stock price is $40 per share. Its dividend yield equals 0.9%.
3) Electronic funds transfer (EFT) is the electronic transfer of cash from one party to
another.
4) In applying the lower of cost or market method to inventory valuation, market is
defined as the current selling price.
5) Specific accounting principles are basic assumptions, concepts, and guidelines for
preparing financial statements and arise out of long-used accounting practice.
6) Standard material, labor, and overhead costs can be obtained from standard cost
tables published by the Institute of Management Accountants.
7) Activity-based costing can be especially effective in situations where many different
products are manufactured in the same department or departments.
8) Ordinary repairs are expenditures that keep assets in normal, good operating
condition.
9) A company can use present and future value computations to estimate the interest
component of holding assets over time.
10) A responsibility accounting performance report usually compares actual costs to
budgeted costs amounts.
11) The purchasing department is often responsible for the price paid for materials that
may create a direct materials price variance.
12) A special order of goods or services should always be accepted when the
incremental revenue exceeds the incremental costs.
13) A capital deficiency can arise from liquidation losses, excessive withdrawals before
liquidation, or recurring losses in prior periods.
14) General standards of comparisons include the 2:1 level for the current ratio and 1:1
level for the acid-test ratio.
15) Assets tied up in inventory are not productive assets.
16) The present value of 1 formula is often useful when a borrowed asset must be
repaid in full at a later date and the borrower wants to know its worth at the future date.
17) A debit entry is always favorable.
18) Beewell’s net income for the year ended December 31, Year 2 was $185,000.
Information from Beewell’s comparative balance sheets is given below. Compute the
cash received from the sale of its common stock during Year 2.
A.$185,000
B.$106,000
C.$95,000
D.$50,000
E.$145,000
19) A company has the following per unit original costs and replacement costs for its
inventory:
Part A: 50 units with a cost of $5, and replacement cost of $4.50
Part B: 75 units with a cost of $6, and replacement cost of $6.50
Part C: 160 units with a cost of $3, and replacement cost of $2.50
Under the lower of cost or market method, the total value of this company’s ending
inventory is:
A.$1,180.00
B.$1,075.00
C.$1,075.00 or $1,112.50, depending upon whether LCM is applied to individual items
or the inventory as a whole
D.$1,112.50
E.$1,180.00 or $1,075.00, depending upon whether LCM is applied to individual items
or to the inventory as a whole
20) The interest accrued on $6,500 at 6% for 60 days is:
A.$36
B.$42
C.$65
D.$180
E.$420
21) Standard costs are:
A.Actual costs incurred to produce a specific product or perform a service
B.Preset costs for delivering a product or service under normal conditions
C.Established by the IMA
D.Rarely achieved
E.Uniform among companies within an industry
22) Betterments:
A.Are expenditures making a plant asset more efficient or productive
B.Are also called improvements
C.Do not always increase an asset’s life
D.Are capital expenditures
E.All of these
23) Generally accepted accounting principles require that the inventory of a company
be reported at:
A.Market value
B.Historical cost
C.Lower of cost or market
D.Replacement cost
E.Retail value
24) A company has net income of $850,000. It has 125,000 weighted-average common
shares outstanding, a market value per share of $115, and a book value of $100 per
share. The company’s price-earnings ratio equals:
A.16.9
B.14.7
C.92.0
D.13.5
E.8.0
25) Duxbury Co. reports the following data for the current year:
Required:
(a) Calculate Duxbury’s pretax income.
(b) Calculate Duxbury’s degree of operating leverage.
26) A company had revenues of $187,000 and expenses of $109,000 for the accounting
period. The owner withdrew $37,000 during the year. Which of the following entries
could not be a closing entry?
A.Debit Income Summary $78,000; credit Owner’s, Capital $78,000
B.Debit Capital $37,000; credit Withdrawals $37,000
C.Debit Revenues $187,000; credit Income Summary $187,000
D.Debit Income Summary $109,000, credit Expenses $109,000
E.Debit Income Summary $187,000; credit Revenues $187,000
27) Sales variance analysis is useful for:
A.Planning purposes only
B.Budgeting purposes only
C.Control purposes only
D.Planning and control purposes
E.Planning and budgeting purposes
28) Regardless of the inventory costing system used, cost of goods available for sale
must be allocated between
A.beginning inventory and net purchases during the period
B.ending inventory and beginning inventory
C.net purchases during the period and ending inventory
D.ending inventory and cost of goods sold
E.beginning inventory and cost of goods sold
29) The broad principle that requires expenses to be reported in the same period as the
revenues that were earned as a result of the expenses is the:
A.Recognition principle
B.Cost principle
C.Cash basis of accounting
D.Matching principle
E.Time period principle
30) Which department is often responsible for the direct materials price variance?
A.The accounting department
B.The production department
C.The purchasing department
D.The finance department
E.The budgeting department
31) On February 15, Seacroft buys 7,000 shares of Kebo common at $28.53 per share
plus a brokerage fee of $400. The stock is classified as available-for-sale securities. On
March 15, Kebo declares a dividend of $1.15 per share payable to stockholders of
record on April 15. Seacroft received the dividend on April 15 and ultimately sells half
of the Kebo stock on November 17 of the current year for $29.30 per share less a
brokerage fee of $250. The fair value of the remaining shares is $29.50 per share. The
amount that Seacroft should report in the equity section of its year-end December 31
balance sheet for its investment in Kebo is:
A.$10,295
B.$8,050
C.$2,245
D.$3,195
E.$6,390
32) The document that the purchasing department prepares and sends to the vendor to
place an order is the
A.Purchase requisition
B.Purchase order
C.Invoice
D.Receiving report
E.Invoice approval
33) The impact of technology on internal controls includes:
A.Reduced processing errors
B.Elimination of the need for regular audits
C.Elimination of the need to bond employees
D.Elimination of separation of duties
E.Elimination of fraud
34) A company’s history indicates that 20% of its sales are for cash and the rest are on
credit. Collections on credit sales are 20% in the month of the sale, 50% in the next
month, 25% the following month, and 5% is uncollectible. Projected sales for
December, January, and February are $60,000, $85,000 and $95,000, respectively. The
February expected cash receipts from all current and prior credit sales is:
A.$57,000
B.$61,200
C.$66,400
D.$80,750
E.$90,250
35) All of the following statements related to preparation of the statement of cash flows
under U.S. GAAP and IFRS are true except:
A.Both U.S. GAAP and IFRS permit the reporting of cash flows from operating
activities using either the direct or indirect method
B.IFRS permits classification of cash outflows for interest expense under operating or
financing depending on which one results in better cash flows from operating activities
C.U. S. GAAP requires cash outflows for income tax be classified as operating
activities
D.IFRS permits the splitting of income tax cash flows among operating, investing and
financing depending on the sources of that tax
E.IFRS permits classification of interest expense under operating or financing activities
provided it is consistently applied across periods
36) Cash, not including cash equivalents, includes:
A.Postage stamps
B.Coins, currency, and checking accounts
C.IOUs
D.Two-year certificates of deposit
E.Money market funds
37) Classifying costs by behavior involves:
A.Identifying fixed cost and variable cost
B.Identifying cost of goods sold and operating costs
C.Identifying all costs
D.Identifying costs in a physical manner
E.Identifying both quantitative and qualitative cost factors
38) Alton Company has an overhead application rate of 160% and allocates overhead
based on direct materials. During the current period, direct labor is $50,000 and direct
materials used are $80,000. Determine the amount of overhead Alton Company should
record in the current period.
A.$31,250
B.$50,000
C.$80,000
D.$128,000
E.$208,000
39) When preparing the cash budget, all the following should be considered except:
A.Cash receipts from customers
B.Cash payments for merchandise
C.Depreciation expense
D.Cash payments for income taxes
E.Cash payments for capital expenditures
40) A product sells for $200 per unit, and its variable costs per unit are $130. The fixed
costs are $420,000. If the firm wants to earn $35,000 pretax income, how many units
must be sold?
A.6,500
B.6,000
C.500
D.5,000
E.5,500
41) Jane, Castle, and Sean are partners who share income and loss in a 3:2:2 ratio. The
partnership’s capital balances are as follows: Jane, $332,000; Castle, $124,000; and
Sean, $214,000. Sean decides to withdraw from the partnership, and the partners agree
not to have the assets revalued upon Sean’s retirement. Prepare journal entries to record
Sean’s withdrawal from the partnership under each of the following separate
assumptions: Sean (a) sells his interest to Conner for $200,000 after Jane and Castle
approve the entry of Conner as a partner; (b) is paid $214,000 in partnership cash for
his equity; (c) is paid $205,000 in partnership cash for his equity; (d) is paid $220,000
in partnership cash for his equity.
42) A company is considering the purchase of new equipment for $45,000. The
projected after-tax net income is $3,000 after deducting $15,000 of depreciation. The
machine has a useful life of 3 years and no salvage value. Management of the company
requires a 12% return on investment. The present value of an annuity of 1 for various
periods follows:
What is the net present value of this machine assuming all cash flows occur at
year-end?
43) A debit is used to record:
A.A decrease in an asset account
B.A decrease in an expense account
C.An increase in a revenue account
D.An increase in the balance of an owner’s capital account
E.An increase in the balance of the owner’s withdrawals account
44) A company sells a climbing kit and uses the perpetual inventory system to account
for its merchandise. The beginning balance of the inventory and its transactions during
January were as follows:
If the ending inventory is reported at $276, what inventory method was used?
A.LIFO method
B.FIFO method
C.Weighted average method
D.Specific identification method
E.Retail inventory method
45) Match the following terms with the appropriate definitions.
Cash receipts journal:;The special journal that is used to record all receipts of cash.
Segment return on assets:A measure of the profitability of a segment, calculated as
segment operating income divided by segment average assets.
1>Special journal A. An information system principle requiring that an accounting
information system conform with a company’s activities, personnel, and structure.
2>Sales journal B. An information system principle requiring that the benefits from an
activity in an accounting information system outweigh the costs of that activity.
3>Schedule of accounts receivable C. A journal used to record all purchases on credit.
4>Controlling account D. A journal used to record sales of merchandise on credit.
5>Cost-benefit principle E. The component of an accounting system that keeps data in a
form accessible to information processors.
6>Purchases journal F. Any journal used for recording and posting transactions of a
similar type.
7>Information storage G. A general ledger account, the balance of which (after posting)
equals the sum of the balances of the accounts in a related subsidiary ledger.
8>Compatibility principle H. A list of each customer from the accounts receivable
ledger with their balances and the total.
46) Inadequacy refers to:
A.The insufficient capacity of a company’s plant assets to meet the company’s growing
production demands
B.An asset that is worn out
C.An asset that is no longer useful in producing goods and services
D.The condition where the salvage value is too small to replace the asset
E.The condition where the asset’s salvage value is less than its cost
47) Braybar Company is deciding between two projects. Each project requires an initial
investment of $350,000. The projected net cash flows for the two projects are listed
below. The revenue is to be received at the end of each year. Braybar requires a 10%
return on its investments. The present value of an annuity of 1 and present value of an
annuity factors for 10% are presented below. Use net present value to determine which
project should be pursued and explain why.
48) When the final production department completes goods, the cost of the completed
goods are transferred to ___________________.
49) What is a capital expenditures budget?
50) What are the standards for comparisons in financial analysis? Give an example of
each.
51) Kelley Company and Mason Company each have sales of $200,000 and costs of
$140,000. Kelley Company’s costs consist of $40,000 fixed and $100,000 variable,
while Mason Company’s costs consist of $100,000 fixed and $40,000 variable. Which
company will suffer the greatest decline in profits if sales volume declines by 15%?
Prepare income statements and compute degree of operating leverage to assess.
52) In this chapter, you examined several short-term managerial decision tasks. Identify
(list) any three of these types of decision tasks:
___________________________
_________________________
_________________________
53) On January 1, a company issued 10-year, 10% bonds payable with a par value of
$500,000, and received $442,647 in cash proceeds. The market rate of interest at the
date of issuance was 12%. The bonds pay interest semiannually on July 1 and January
1. The issuer uses the straight-line method for amortization. Prepare the issuer’s journal
entry to record the first semiannual interest payment on July 1.