Multiple Choice Answers

After the sales budget is prepared, the capital expenditures budget is normally prepared next.

True
False

In an investment center, the manager has responsibility and authority for making decisions that affect:

a. costs
b. revenues
c. assets
d. costs, revenues, and assets

The relevant range is useful for analyzing cost behavior for management decision-making purposes.

True
False

The costs of services charged to a profit center on the basis of its use of those services are called:

a. operating expenses
b. noncontrollable charges
c. service department charges
d. activity charges

McClelland Corporation uses the total cost concept of product pricing. Below is cost information for the production and sale of 40,000 units of its sole product. McClelland desires a profit equal to a 14% rate of return on invested assets of $400,000.
Fixed factory overhead cost $25,000.00
Fixed selling and administrative costs 5,000.00
Variable direct materials cost per unit 3.00
Variable direct labor cost per unit 1.25
Variable factory overhead cost per unit .75
Variable selling and administrative cost per unit 3.00
The cost per unit for the production and sale of the company’s product is:

a. $ 8.00
b. $ 8.75
c. $10.00
d. $ 9.00
Which of the following conditions would cause the break-even point to increase?

a. Total fixed costs decrease
b. Unit selling price increases
c. Unit variable cost decreases
d. Unit variable cost increases

Managers of what type of decentralized units have authority and responsibility for revenues, costs, and assets invested in the unit?

a. Profit center
b. Investment center
c. Production center
d. Cost center

The following data relate to direct labor costs for February:
Actual costs 3,200 hours at $14.40
Standard Costs 3,000 hours at $14.00
What is the direct labor rate variance?

a. $1,200 unfavorable
b. $1,280 favorable
c. $1,200 favorable
d. $1,280 unfavorable

Which of the following are present value methods of analyzing capital investment proposals?

a. Internal rate of return and average rate of return
b. Average rate of return and net present value
c. Net present value and internal rate of return
d. Net present value and payback

The standard factory overhead rate is $10 per direct labor hour ($8 for variable factory overhead and $2 for fixed factory overhead) based on 100% capacity of 30,000 direct labor hours. The standard cost and the actual cost of factory overhead for the production of 5,000 units during May were as follows:
Standard: 25,000 hours at $10 $250,000
Actual: Variable factory overhead 202,500
Fixed factory overhead 60,000
What is the amount of the variable factory overhead controllable variance?

a. $10,000 favorable
b. $2,500 unfavorable
c. $10,000 unfavorable
d. $2,500 favorable
The rate of earnings is 10% and the cash to be received in one year is $10,000. Determine the present value amount, using the following partial table of present value of $1 at compound interest:
Year 6% 10% 12%
1 .943 .909 .893
2 .890 .826 .797
3 .840 .751 .712
4 .792 .683 .636

a. $9,090
b. $9,000
c. $9,430
d. $8,930
An unfavorable volume variance may be due to a failure of supervisors to maintain an even flow of work.

True
False

Mendoza Corporation uses the total cost concept of product pricing. Below is cost information for the production and sale of 50,000 units of its sole product. Mendoza desires a profit equal to a 12% rate of return on invested assets of $1,000,000.
Fixed factory overhead cost $80,000.00
Fixed selling and administrative costs 50,000.00
Variable direct materials cost per unit 5.00
Variable direct labor cost per unit 8.50
Variable factory overhead cost per unit 2.50
Variable selling and administrative cost per unit 1.00
The cost per unit for the production and sale of the company’s product is:

a. $16.00
b. $19.60
c. $17.00
d. $17.50

Which of the following expressions is termed the profit margin factor as used in determining the rate of return on investment?

a. Sales/Income From Operations
b. Income From Operations/Sales
c. Invested Assets/Sales
d. Sales/Invested Assets

Which of the following expenses incurred by the sporting goods department of a department store is a direct expense?

a. Depreciation expense-office equipment
b. Insurance on inventory of sporting goods
c. Uncollectible accounts expense
d. Office salaries
The process of transferring the cost of natural resources to an expense is termed __________.

a. Depreciation
b. Amortization
c. Depletion
d. Reserve recognition

Conversion cost is the combination of direct labor cost and factory overhead cost.

True
False

Which method of depreciation is used by most companies?

a. Straight-line
b. Units-of-production
c. Declining balance
d. All are used about equally

The due date of a 90-day note dated July 1 is:

a. September 30
b. September 28
c. September 29
d. October 1

On June 5 Apex Co. issued a $60,000, 8%, 120-day note payable to Jones Co. What is the maturity value of the note?

a. $60,160
b. $58,400
c. $61,600
d. $59,840
**********************************
The budgeted volume of production is normally computed as the sum of (1) the expected sales volume and (2) the desired ending inventory.

True
False

Soap Company manufactures Soap X and Soap Y and can sell all it can make of either. Based on the following data, if Soap could reduce the processing time for X by 10%, which of the following statements is true?
X Y
Sales Price $20 $25
Variable Costs 14 15
Hours needed to process 3 5

a. There would be no difference in the contribution margin per hour as compared to it before the processing time reduction.
b. It would take 162 minutes to process one unit of X. =3*90
c. The contribution margin per hour for X would be $2.
d. Soap Y would still be the most profitable.

Periods in time that experience increasing price levels are known as periods of:

a. inflation
b. recession
c. depression
d. deflation

The anticipated purchase of a fixed asset for $400,000 with a useful life of 5 years and no residual value is expected to yield total income of $150,000. The expected average rate of return, giving effect to depreciation on investment is 15%.

True
False

Which of the following is NOT an example of a cost that varies in total as the number of units produced changes?

a. Electricity per KWH to operate factory equipment
b. Direct materials cost
c. Straight-line depreciation on factory equipment
d. Wages of assembly worker
Amos Company acquired land in exchange for 10,000 shares of its $10 par common stock. The fair market value of the land is not determinable, but the stock is widely traded and was selling for $25 per share when exchanged for the land. At what amount should the land be recorded by Amos Company?

a. $150,000
b. $250,000
c. $350,000
d. $100,000

After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receivable has a balance of $400,000 and Allowance for Doubtful Accounts has a balance of $35,000. What is the net realizable value of the accounts receivable?

a. $365,000
b. $400,000
c. $435,000
d. $35,000

Before a stock dividend can be declared or paid, there must be sufficient cash.

True
False
Current liabilities are:

a. due but not receivable for more than one year
b. due but not payable for more than one year
c. due and receivable within one year
d. due and payable within one year

A written promise to pay a sum of money on demand or at a definite time is called a(n):

a. default
b. deferral
c. accrual
d. promissory note
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. Which of the following records the proper provision for doubtful accounts?

a. increase Uncollectible Accounts Expense, $15,500; increase Allowance for Doubtful Accounts, $15,500
b. decrease Allowance for Doubtful Accounts, $500; decrease Uncollectible Accounts Expense, $500
c. decrease Allowance for Doubtful Accounts, $14,500; decrease Uncollectible Accounts Expense, $14,500
d. increase Uncollectible Accounts Expense, $14,500; increase Allowance for Doubtful Accounts, $14,500

Allowance for Doubtful Accounts has an unadjusted balance of $1,100 at the end of the year, and an analysis of customers’ accounts indicates doubtful accounts of $12,900. Which of the following records the proper provision for doubtful accounts?

a. increase Uncollectible Accounts Expense, $14,000; increase Allowance for Doubtful Accounts, $14,000
b. decrease Allowance for Doubtful Accounts, $14,000; decrease Uncollectible Accounts Expense, $14,000
c. decrease Allowance for Doubtful Accounts, $11,800; decrease Uncollectible Accounts Expense, $11,800
d. increase Uncollectible Accounts Expense, $11,800; increase Allowance for Doubtful Accounts, $11,800

On April 1, a machine with a useful life of 4 years and a residual value of $12,000 was purchased for $87,000. What is depreciation expense in the year of purchase under declining balance depreciation assuming a December 31 year end?

a. $32,625
b. $28,125
c. $43,500
d. $37,500
An employee whose cumulative gross pay is $20,000 receives an hourly rate of $15 with time and a half for all hours worked in excess of 40 during the week. Payroll data for the current week are as follows: hours worked, 44; federal income tax withheld, $120; FICA tax rate, 7.5%; federal unemployment compensation tax, 5.4% on the first $7,000; state unemployment tax, 0.8% on the first $7,000. What is the employer’s payroll tax expense for the current week?

a. $ -0-
b. $51.75
c. $93.27
d. $42.78
Research and development costs are __________.

a. Added to the cost of patents
b. Capitalized under intangible assets
c. Charged to operating expenses
d. Charged to operating expenses only if there is no future benefit
The direct labor and overhead costs of providing services to clients are accumulated in:

a. finished services expense
b. work in process
c. administrative salaries expense
d. overhead
The basis for recording direct and indirect labor costs incurred is a summary of the period’s:

a. job order cost sheets
b. time tickets
c. employees’ earnings records
d. clock cards
All receivables that are expected to be realized in cash within a year are presented in the current assets section of the balance sheet.

True
False

A fully depreciated asset must be __________.

a. Removed from the books
b. Kept on the books until sold
c. Disclosed only in the notes to the financial statements
d. Recognized on the income statement as a loss

Compute conversion costs given the following data: Direct Materials, $247,800; Direct Labor, $183,400; Factory Overhead, $121,300.

a. $431,200
b. $552,500
c. $304,700
d. $369,100

******************************************************
The inventory data for an item for November are:
Nov. 1 Inventory 20 units at $20
4 Sold 10 units
10 Purchased 30 units at $21
17 Sold 20 units
30 Purchased 10 units at $22
Using the perpetual system, costing by the first-in, first-out method, what is the cost of the merchandise inventory of 30 units on November 30?

a. $640
b. $610
c. $620
d. $630

Based on the following data, what is the acid-test ratio, rounded to one decimal point?
Accounts payable $32,000
Account receivable 64,000
Accrued liabilities 7,000
Cash 20,000
Intangible assets 40,000
Inventory 72,000
Long-term investments 100,000
LOng-term liabilities 75,000
Marketable securities 35,000
Notes payable (short-term) 20,000
Property, plant, and equipment 625,000
Prepaid expenses 2,000

a. 3.2
b. 3.3
c. 2.0
d. 1.4
The ratio of the sum of cash, receivables, and marketable securities to current liabilities is called the:

a. price-earnings ratio
b. earnings ratio
c. acid-test ratio
d. current ratio

The cost of a manufactured product generally consists of direct materials cost, direct labor cost, and factory overhead cost.

True
False
For an automotive repair shop, the wages of mechanics would be classified as direct labor cost.

True
False
If paid-in capital in excess of par–preferred stock is $80,000, preferred stock is $500,000, paid-in capital in excess of par–common stock is $50,000, common stock is $1,000,000, and retained earnings is $230,000, the total stockholders’ equity is $1,860,000.

True
False

Most employers are required to withhold from employees which of the following employment taxes?

a. only FICA tax
b. FICA tax, state and federal unemployment compensation tax
c. only state unemployment compensation tax
d. only federal unemployment compensation tax

What term is used to refer to the cost of changing direct materials into a finished manufactured product?

a. Factory overhead cost
b. Period cost
c. Conversion cost
d. Direct labor cost
A machine with a useful life of 8 years and a residual value of $4,000 was purchased for $27,000. What is annual depreciation under the straight-line method?

a. $3,375
b. $6,750
c. $2,875
d. $5,750
Which of the following is an example of direct materials cost for an automobile manufacturer?

a. Cost of oil lubricants for factory machinery
b. Cost of wages of assembly worker
c. Salary of production supervisor
d. Cost of interior upholstery
Goodwill is __________.

a. Amortized similar to other intangibles
b. Only written down if an impairment in value occurs
c. Charged to expense immediately
d. Amortized over 40 years or its economic life whichever is shorter
The ability of a business to pay its debts as they come due is referred to as the factor of:

a. leverage
b. profitability
c. wealth
d. solvency
A machine with a useful life of 10 years and a residual value of $2,000 was purchased for $18,000. What is depreciation expense for the second year under the declining balance method?

a. $1,620
b. $2,880
c. $2,560
d. $2,960

A corporation purchased 1,000 shares of its $10 par common stock at $20 and subsequently sold 500 of the shares at $30. What is the amount of revenue realized from the sale?

a. $0
b. $2,500
c. $5,000
d. $15,000
Corporate annual reports typically do not contain which of the following?

a. financial highlights
b. SEC statement expressing an opinion
c. management report
d. historical summary
Allowance for Doubtful Accounts has an unadjusted balance of $400 at the end of the year, and uncollectible accounts expense is estimated at 1% of net sales. If net sales are $300,000, the amount of the adjustment to record the provision for doubtful accounts is:

a. $3,000
b. $3,400
c. $400
d. $2,600
The recording of the jobs completed would decrease:

a. Factory Overhead
b. Finished Goods
c. Work in Process
d. Cost of Goods Sold

Which of the following manufacturing costs is an indirect cost of producing a product?

a. Oil lubricants used for factory machinery
b. Commissions for sales personnel
c. Hourly wages of an assembly worker
d. Memory chips for a microcomputer manufacturer

The effect on the accounts and the financial statements of the payment of an ordinary note is a(n):

a. decrease in Notes Payable, an increase in Interest Receivable, and a decrease in Cash
b. decrease in Notes Payable, an increase in Interest Expense, and a decrease in Cash
c. decrease in Accounts Payable and a decrease in Cash
d. increase in Cash and an increase in Notes Payable
Based on the following data for the current year, what is the inventory turnover?
Net sales on account during year $1,000,000
Cost of merchandise sold during year 600,000
Accounts receivable, beginning of year 45,000
Accounts receivable, end of year 35,000
Inventory, beginning of year 90,000
Inventory, end of year 110,000

a. 6.0
b. 8.0
c. 16.0
d. 7.6
*******************************************
Recording direct labor costs in a job order cost accounting system:

a. increases Factory Overhead, decreases Work in Process
b. increases Finished Goods, increases Wages Payable
c. increases Work in Process, increases Wages Payable
d. increases Factory Overhead, increases Wages Payable
Which of the following expenditures would NOT be included in the cost of an asset?

a. Freight costs
b. Vandalism
c. Sales tax
d. Costs of clearing land

For which of the following taxes is there no ceiling on the amount of employee annual earnings subject to the tax?

a. only FICA tax
b. only federal income tax
c. only federal unemployment compensation tax
d. only state unemployment compensation tax

The percentage analysis of increases and decreases in corresponding items in comparative financial statements is referred to as horizontal analysis.

True
False
On April 1, a machine with a useful life of 4 years and a residual value of $12,000 was purchased for $87,000. What is depreciation expense for the second year under declining balance depreciation assuming a December 31 year end?

a. $21,750
b. $18,750
c. $27,187.50
d. $23,437.50
Uncollectible Accounts Expense is a contra asset account.

True
False

Based on the following data, what is the amount of working capital?
Accounts payable $32,000
Account receivable 64,000
Accrued liabilities 7,000
Cash 20,000
Intangible assets 40,000
Inventory 72,000
Long-term investments 100,000
LOng-term liabilities 75,000
Marketable securities 35,000
Notes payable (short-term) 20,000
Property, plant, and equipment 625,000
Prepaid expenses 2,000

a. $162,000
b. $134,000
c. $193,000
d. $62,000
If a firm has a current ratio of 3, the subsequent issuance of a 90-day note payable for an account payable will cause the ratio to remain unchanged at 3.

True
False

The number of days’ sales in inventory is one means of expressing the relationship between the cost of goods sold and inventory.

True
False
A 60-day, 10% note for $6,000 dated April 15 is received from a customer on account. The face value of the note is:

a. $6,000
b. $5,400
c. $5,900
d. $6,100
A current asset account must be debited for revenue expenditures since they only benefit the current period.

True
False
A summary of the materials requisitions completed during a period serves as the basis for transferring the cost of the materials from the materials account to:

a. work in process and cost of goods sold
b. work in process and factory overhead
c. finished goods and cost of goods sold
d. work in process and finished goods
If the amount of factory overhead cost incurred exceeds the amount applied, the factory overhead account will have a:

a. positive balance and be underapplied
b. positive balance and be overabsorbed
c. negative balance and be overapplied
d. positive balance and be overapplied
Cash dividends become a liability to a corporation on the date of record.

True
False

Factors which reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred to as solvency and profitability.

True
False
Conversion cost is the combination of direct materials cost and factory overhead cost.

True
False

Based on the following data, what is the amount of quick assets?
Account payable $32,000
Accoutns receivable 64,000
Accrued liabilities 7,000
Cash 20,000
Intangible assets 40,000
Inventory 72,000
Long-term investments 100,000
Long-term liabilities 75,000
Marketable securities 35,000
Notes payable (short-term) 20,000
Property, plant, and equipment 625,000
Prepaid expenses 2,000

a. $161,000
b. $193,000
c. $119,000
d. $55,000

If the cost of employee wages is not a significant portion of the total product cost, the wages are classified as direct materials cost.

True
False

A 90-day, 12% note for $10,000 dated May 1 is received from a customer on account. The maturity value of the note is:

a. $10,000
b. $10,300
c. $450
d. $9,550

For which of the following businesses would the job order cost system be appropriate?

a. Meat processor
b. Automobile manufacturer
c. Oil refinery
d. Construction contractor
*********************************************************
Stock issued at a price that is greater than par is said to be issued at a discount.

True
False

Of the three widely used inventory costing methods (fifo, lifo, and average), the lifo method of costing inventory is based on the assumption that costs are charged against revenues in the order in which they were incurred.

True
False
The use of the lower of cost or market method of inventory valuation increases the gross profit for the period in which the inventory replacement price declined.

True
False

In a job order cost accounting system used by a service business, which of the following items would normally not be included as part of overhead?

a. Materials
b. Direct labor
c. Rent
d. Supplies

An analysis in which all the components of an income statement are expressed as a percentage of net sales is called:

a. vertical analysis
b. horizontal analysis
c. liquidity analysis
d. common-size analysis
Allen Company acquired a building valued at $155,000 for property tax purposes in exchange for 10,000 shares of its $10 par common stock. The stock is widely traded and selling for $15 per share. At what amount should the building be recorded by Allen Company?

a. $100,000
b. $150,000
c. $155,000
d. $250,000

Allowance for Doubtful Accounts is listed on the balance sheet under the caption:

a. stockholders’ equity
b. investments
c. fixed assets
d. current assets

The cost of materials entering directly into the manufacturing process is classified as:

a. direct labor cost
b. factory overhead cost
c. burden cost
d. direct materials cost

During a period of consistently rising prices, the method of inventory that will result in reporting the greatest cost of merchandise sold is:

a. fifo
b. lifo
c. average cost
d. weighted average
For which of the following taxes is there a ceiling on the amount of employee annual earnings subject to the tax?

a. social security, federal and state unemployment tax
b. only federal unemployment tax
c. only state unemployment tax
d. only social security
On June 1st, Green Pea, Inc. purchased $1,200 worth of supplies on account. On December 31st, the fiscal year end for Green Pea, it is determined that $700 dollars of supplies still remain. What is the balance in the supplies account after adjustment?

a. $600
b. $700
c. $500
d. $1,200

The following assets are included in Ace Auto Parts, Inc.’s December 31, 2004 balance sheet.
Accounts Receivable (net of Allowance for Uncollectable Accounts) $50,000
Accumulated Depreciation, Building 20,000
Building 100,000
Cash 60,000
Land 130,000
Land Held for Future Use 40,000
Merchandise Inventory 70,000
Trademark 110,000
The total dollar amount of assets classified as property, plant, and equipment on Ace Auto Parts’ December 31, 2004 classified balance sheet is __________.

a. $210,000
b. $50,000
c. $360,000
d. $430,000
The most important output of the accounting cycle is the __________.

a. Accounting equation
b. Financial statements
c. Balance sheet
d. Income statement
Cost of merchandise sold is the same as operating expenses.

True
False
If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms are:

a. consigned
b. n/30
c. FOB shipping point
d. FOB destination
Bonds payable due in 2020 are reported on the balance sheet as long-term liabilities.

True
False

The current year’s advertising costs are normally considered period costs.

True
False

Preferred stockholders have preferential rights over common stockholders and creditors.

True
False

The relationship of 120 to 100 can be expressed as 1.2, 1.2:1, or 120%.

True
False

If a firm has a current ratio of 2, the subsequent receipt of a 60-day note receivable on account will cause the ratio to decrease.

True
False
*****************************************************************
Accompanying the bank statement was a debit memorandum for bank service charges. On the bank reconciliation, the item is:

a. a deduction from the balance per depositor’s records
b. an addition to the balance per bank statement
c. a deduction from the balance per bank statement
d. an addition to the balance per depositor’s records

The “rules” of accounting are called __________.

a. Income tax regulations
b. SEC regulations
c. Internet rules
d. Generally Accepted Accounting Principles

Under the indirect method on preparing the statement of cash flows, increases in current assets are __________ net income in the cash flows from operating activities section.

a. Subtracted from
b. Added to
c. Not used
d. Cannot tell from the information given

The portion of a corporation’s net income retained in the business is called __________.

a. Income statement
b. Balance sheet
c. Statement of cash flows
d. Retained earnings

Which of the following would NOT affect the operating activities section of the statement of cash flows, using the indirect method?

a. Decrease in merchandise inventory
b. Payment on a note payable
c. Decrease in unearned rent
d. Depreciation expense
ABN Company sold goods, receiving $10,000 in cash and $25,000 on credit. How much revenue should it record under the accrual basis of accounting?

a. $10,000
b. $35,000
c. $25,000
d. None at this time

Publicly held corporations are required to use the accrual basis of accounting.

True
False
Capital market stakeholders expect to receive a return on their investments proportionate to their degree of __________.

a. Stock
b. Investment
c. Profit
d. Risk

Accompanying the bank statement was a credit memorandum for a short-term note collected by the bank for the customer. What adjustment is required in the depositor’s accounts?

a. increase Notes Receivable; decrease Cash
b. increase Cash; increase Miscellaneous Income
c. increase Cash; decrease Notes Receivable
d. increase Accounts Receivable; decrease Cash

For EFG Co., the transaction “Payment of interest expense” would __________.

a. Increase the assets
b. Decrease the assets
c. Have no effect on the assets
An increase in Stockholders’ Equity from revenues earned will result in an increase also in __________.

a. Liabilities
b. Assets
c. Stockholders’ equity
d. No financial statement element

An example of a preventive control is:

a. the use of a bank account
b. separation of the Cashier Department and Accounting Department personnel
c. bonding employees who handle cash
d. accepting payment in currency only

Which of the following is an example of deferred revenue?

a. Prepaid advertising
b. Premiums received in advance
c. Insurance expense
d. Accounts Receivable
If depreciation expense is deducted to arrive at net income, it must be __________ to reconcile net income to cash flows from operations.

a. Added back
b. Subtracted
c. Transferred to accumulated deprecation
d. Closed to retained earnings

The primary difference between the cash and accrual bases of accounting involves the __________.

a. Matching concept
b. Unit of measure
c. Accounting period
d. Going concern
A voucher is the notification accompanying the check issued to a creditor that indicates the specific invoice being paid.

True
False

Which of the following is part of the four basic financial statements?

a. Income statement
b. Balance sheet
c. Statement of cash flows
d. All of the above

Accounting systems are based upon either the cash or accrual basis of accounting.

True
False

Paying expenses affects which financial statement elements?

a. Cash only
b. Stockholders’ equity only
c. Cash and stockholders’ equity
d. Cash and capital stock

Managers are evaluated primarily on the business’ __________.

a. Tax collections
b. Growth
c. Economic performance
d. All of the above
*******************************************************************
Which of the following is NOT an administrative expense?

a. Salespersons’ salaries
b. Office salaries
c. Depreciation of office equipment
d. Office supplies used
Good internal control requires that one employee handle the tasks of ordering supplies, receiving the supplies, and paying the supplier.

True
False

Exhibit 2-1
Total Assets
Total Liabilities
Beginning of the year $100,000 $50,000
End of the year $500,000 $350,000
Refer to Exhibit 2-1. What is net income assuming $50,000 of stock was issued, and $25,000 of dividends were paid?

a. $75,000
b. $50,000
c. $70,000
d. $10,000

The basic type of stock issued to owners is called preferred stock.

True
False

The payment of a liability __________.

a. Decreases assets and stockholders’ equity
b. Increases assets and decreases liabilities
c. Decreases assets and increase liabilities
d. Decreases assets and decreases liabilities
In a perpetual inventory system, merchandise returned to vendors reduces the merchandise inventory account.

True
False

On a multiple-step income statement, losses on sales of fixed assets would be listed as a selling expense item.

True
False

When reconciling net income to net cash flows from operating activities on the statement of cash flows, a decrease in accounts payable would __________.

a. Be added back
b. Be subtracted
c. Not be impacted

Since merchandise inventory is normally sold within a year, how is it reported on the balance sheet?

a. As a revenue
b. As the cost of merchandise sold
c. It does not appear on the Balance Sheet
d. As a current asset.

The resources a business owns are called __________.

a. Assets
b. Liabilities
c. Products
d. Stockholders’ equity
Which of the following is not defined as Cash?

a. coins
b. checks
c. money orders
d. commercial paper

Jiminy Cricket Co.
Jiminy Cricket Co. has a five-day workweek (Monday through Friday). Employees earn $500 per day.
Refer to Jiminy Cricket Co. If the month ends on Wednesday, with wages paid on Friday, how much wage expense should be accrued on Wednesday?

a. $500
b. $1,500
c. $2,500
d. $1,000

A debit memorandum from the bank indicates that the bank has deducted an amount from the depositor’s account.

True
False

The basic elements of a financial accounting system include a framework for preparing financial statements.

True
False

Equality of the accounting equation means that no errors have occurred.

True
False
A check drawn by a depositor for $195 in payment of a liability was recorded as $915. This item would be included on the bank reconciliation as a(n):

a. addition to the balance per the depositor’s records
b. addition to the balance per the bank statement
c. deduction from the balance per the bank statement
d. deduction from the balance per the depositor’s records

Accumulated depreciation is what type of an account?

a. Revenue account
b. Expense account
c. Contra asset account
d. Liability account

Preventive controls are the same as detective controls.

True
False

Receipts from cash sales of $7,500 were recorded incorrectly as $5,700. This item would be included on the bank reconciliation as a(n):

a. deduction from the balance per depositor’s records
b. addition to the balance per bank statement
c. deduction from the balance per bank statement
d. addition to the balance per depositor’s records
*************************************************
A payment of dividends decreases which section on the statement of cash flows?

a. Operating activities
b. Investing activities
c. Financing activities
d. None of the above
Expenses that are incurred directly or entirely in connection with the sale of merchandise are classified as:

a. selling expenses
b. general expenses
c. other expense
d. administrative expense
The arrangements between buyer and seller as to when payments for merchandise are to be made are called:

a. credit terms
b. net cash
c. cash on demand
d. gross cash
A customer’s check received in settlement of an account receivable is considered cash.

True
False

A check drawn by a depositor for $195 in payment of a liability was recorded as $915. What adjustment is required in the depositor’s accounts?

a. decrease Accounts Payable; decrease Cash
b. increase Cash; decrease Accounts Receivable
c. increase Cash; increase Accounts Payable
d. increase Accounts Receivable; decrease Cash

XYZ Co. paid $1,000 in dividends to stockholders. How does this transaction affect the accounts of XYZ?

a. Cash will decrease by $1,000 and retained earnings will decrease by $1,000
b. Cash will decrease by $1,000 and revenues will increase $1,000
c. Cash will decrease by $1,000 and revenues will decrease $1,000
d. Net income will decrease by $1,000
For EFG Co., the transaction “Payment of quarterly taxes” would __________.

a. Increase the assets
b. Decrease the assets
c. Have no effect on the assets

Under accrual accounting, revenue is normally recognized when __________.

a. Cash is received
b. When it is greater that expenses
c. When a transaction is recorded
d. It is earned
On June 1st, Green Pea, Inc. purchased $1,200 worth of supplies on account. How does this transaction affect Green Pea’s accounts?

a. Increase supplies and accounts payable by $1,200
b. Increase supplies and decrease cash by $1,200
c. Increase supplies and decrease accounts payable by $1,200
d. No effect since cash has not been paid

In preparing a bank reconciliation, the amount of outstanding checks is added to the balance per bank statement.

True
False

Using a perpetual inventory system, the purchase of $30,000 of merchandise on account would include a(n):

a. increase in Sales
b. increase in Merchandise Inventory
c. decrease in Merchandise Inventory
d. decrease in Sales

B. Bonds Company The following is a single-step income statement for the B. Bonds Company:
B. Bonds Company Income Statement
For the Year Ended December 31, 2004
Revenues
Net Sales $200,000
Interest Income 17,500
Total Revenues $217,500
Expenses
Cost of Goods Sold $50,000
Selling Expenses 20,000
General and Administrative Expenses 27,500
Interest Expense 12,500
Income Tax Expense 39,000
Total Expenses 149,000
Net Income $68,500
Refer to B. Bonds Company. If the income statement were prepared in a multiple-step format, income from operations would be __________.

a. $ 77,500
b. $ 80,000
c. $ 102,500
d. $ 97,500

A check drawn by a depositor in payment of a voucher for $925 was recorded in the journal as $295. What entry is required in the depositor’s accounts?

a. decrease Accounts Payable; decrease Cash
b. increase Cash; decrease Accounts Receivable
c. increase Cash; increase Accounts Payable
d. increase Accounts Receivable; decrease Cash

CPA Assume a CPA bills his clients $20,000 for fees earned in September. He collects $5,000 in September and the balance in October. Refer to CPA. Under the cash basis of accounting, how much revenue should the CPA recognize in September?

a. $0
b. $20,000
c. $15,000
d. $5,000

Bank customers are considered creditors of the bank so the bank shows their accounts as a liability on the bank’s records.

True
False

Using a perpetual inventory system, the return from a customer of merchandise sold on account:

a. decreases Sales Returns and Allowances
b. decreases Merchandise Inventory
c. decreases Cost of Merchandise Sold
d. increases Cost of Merchandise Sold
For EFG Co., the transaction “Payment to creditors” would __________.

a. Increase the assets
b. Decrease the assets
c. Have no effect on the assets

Accounts Receivable had a net decrease of $10,000 for the year. How does this impact the cash flows from operations?

a. Increases it by $20,000
b. No impact
c. Decreases it by $10,000
d. Increases it by $10,000

In accrual accounting, when revenues are earned and recorded, all expenses incurred in generating the revenues must also be recorded.

True
False

Received $4,000 in payments from clients for services billed in a previous month. Which accounts will be affected and by what amounts under the accrual basis of accounting?

a. Cash will increase by $4,000 and accounts receivable decrease by $4,000
b. Cash will increase by $4,000 and revenues will increase $4,000
c. Accounts receivable will increase by $4,000 and revenue will increase by $4,000
d. Accounts receivable will increase by $4,000 and cash will increase by $4,000

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
The bank reconciliation:

a. should be prepared by an employee who records cash transactions
b. is part of the internal control system
c. is for information purposes only
d. is sent to the bank for verification

Which financial statement is often presented in a downward sequence with three sections, beginning with assets?

a. Balance sheet
b. Statement of Retained earnings
c. Statement of Cash Flows
d. Income statement

The adjustment to record inventory shrinkage would increase Merchandise Inventory.

True
False

What is the term applied to the excess of net revenue from sales over the cost of merchandise sold?

a. gross profit
b. income from operations
c. net income
d. gross sales

The inventory system employing accounting records that continuously disclose the amount of inventory is called:

a. retail
b. periodic
c. physical
d. perpetual
****************************************
Direct labor costs are included in the conversion costs of a product.

True
False

Recording depreciation __________.

a. Decreases net income and cash flows
b. Decreases net income and has no effect on cash flows
c. Decreases net income, assets and cash flows
d. Decreases net income and has no effect on assets and cash flows

If factory overhead applied exceeds the actual costs, overhead is said to be underapplied.

True
False

For which of the following taxes is there a ceiling on the amount of employee annual earnings subject to the tax?

a. only federal income tax
b. federal and state unemployment tax
c. only state unemployment compensation tax
d. only federal unemployment compensation tax

Which of the following is an example of direct labor cost for an airplane manufacturer?

a. Cost of oil lubricants for factory machinery
b. Cost of wages of assembly worker
c. Salary of plant supervisor
d. Cost of jet engines
Sales to customers who use bank credit cards, such as MasterCard and Visa, are generally treated as:

a. sales on account
b. sales returns
c. cash sales
d. sales when the credit card company remits the cash
Using a perpetual inventory system, the sale of merchandise on account:

a. decreases Sales
b. increases to Merchandise Inventory
c. decreases Merchandise Inventory
d. decreases Accounts Receivable
Which of the following is NOT considered when figuring net purchases?

a. Cost of goods sold
b. Purchase returns
c. Purchases discounts
d. Purchases
“Brand name” recognition is an example of goodwill.

True
False
For a corporation, stockholders’ equity consists of __________.

a. Assets plus liabilities
b. Current assets plus long-term assets
c. Intangible assets
d. Capital stock and retained earnings
The primary disadvantage of the cash basis of accounting is __________.
a. Expenses are not recorded
b. Revenues and expenses may not always be properly matched on the income statement
c. The amounts match the cash basis
Deferred expenses (prepaid expenses) are items initially recorded as assets but are expected to become __________ over time.

a. Liabilities
b. Assets
c. S/E
d. Expenses
If Liabilities have a balance of $10,000 and Stockholders’ Equity has a balance of $70,000, then Assets must have a balance of __________.

a. $80,000
b. $60,000
c. $70,000
d. $10,000
When merchandise that was sold on account is returned, which accounts are affected?

a. Cash, accounts receivable, cost of goods sold, and sales returns
b. Sales returns, accounts receivable, merchandise inventory, and cost of goods sold
c. Sales returns, accounts receivable, purchases, and cost of goods sold
d. Sales returns, accounts receivable, purchases, and merchandise inventory
Under a differentiation strategy, a business designs products that possess __________ for which customers are willing to pay a premium price.

a. Unique attributes
b. High costs
c. Competitive efficiencies
d. Longer warranties

Accounting is sometimes called the __________.

a. Language of business
b. Report function
c. Results of operations
d. Stockholders’ equity report

Discounts taken by the buyer for early payment of an invoice are called purchases discounts by the buyer.

True
False

If merchandise costing $2,500, terms FOB destination, 2/10, n/30, with transportation costs of $100, is paid within 10 days, the amount of the purchases discount is $52.

True
False

Physical assets of a long-term nature are referred to as fixed assets.

True
False

Service businesses produce products rather than provide services to customers.

True
False