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1. If a company purchases equipment for $65,000 by issuing a note payable: *A. Total assets will increase by $65,000..

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1. If a company purchases equipment for $65,000 by issuing a note

*A. Total assets will increase by


2. Which of the following is not a generally accepted accounting
principle relating to the valuation of assets? .*C. The safety principle – assets are valued at no more
than the value for which they are insured.


3. Decreases in owners’
equity are caused by:  *D. Distributions
of assets to the owner and unprofitable operations.


4. A trial balance consists of: .*D. A
two-column schedule listing names and balances of all ledger accounts.


5. In February of each year, the Carlton Hotel holds a very popular
wine tasting event. Tickets must be ordered and paid for in advance, and are
typically sold out by November of the preceding year. The realization principle
indicates that the revenue from these ticket sales should be recognized in the
period in which the.*B. Wine
tasting is held.


6. On June 18, Baltic Arena paid $6,600 to Marvin Maintenance, Inc.
for cleaning the arena following a monster truck show held on June 9th.
This transaction: .

*C. Causes a decrease in owners’ equity by
increasing expenses for June.


7. Which of the following businesses is likely to have the shortest
operating cycle? *A. A food
B. A department store.C. An
art store.D. A car store.


8. Gross profit is the difference between: *A. Net sales and the cost of goods sold. 9. Hicksville’s Department Store uses a perpetual inventory
system. At year-end, the balance in the Inventory controlling account is
$1,200,000. Assuming that the inventory records have been maintained properly, a
year-end physical inventory:

*A. Is unnecessary.  B. Is needed to establish the ending inventory, as the $1,200,000
balance in the Inventory controlling account represents the beginning inventory.
C. Probably will indicate more than $1,200,000 in merchandise on hand.

D. Probably will indicate less than $1,200,000 in merchandise on hand.


10. When a bank reconciliation has been satisfactorily completed,
the only related entries to be made in the depositor’s records are: .*C. To record outstanding checks and bank service charges.


11. The purpose of establishing a petty cash fund is to: *A. Achieve internal control over small cash disbursements
not made by check.


12. The valuation principle
of “mark-to-market” applied to investments classified as available
for sale securities: A. Affects the current period income statement,
but not the balance sheet.*B. Enhances
usefulness of the balance sheet in evaluating solvency of a business.
C. Applies to marketable securities and inventories.D. Requires
a corporation to adjust its capital stock account to reflect current market
value of its outstanding capital stock.


13. During periods of inflation, when comparing LIFO with
FIFO: A. LIFO inventory and cost of sales would be higher.B. LIFO
inventory and cost of sales would be lower.*C. LIFO
inventory would be lower and cost of sales would be higher.
D. LIFO inventory would be higher and cost of sales would be lower.


14. Which of the following will cause net income to be overstated
for the following year?  *A. Current
year’s ending inventory is understated.

15. The
lower-of-cost-or-market rule: .*C. Can be
used in conjunction with LIFO but not FIFO.

16. Tomassi Company paid $450,000 to acquire a piece of real estate
consisting of land and an office building with a parking lot. In this situation: .*C. Land, Land Improvement, and Building accounts should
each be debited for the respective appraisal value of each item.

17. Which of the following statements about MACRS is not
correct? A. MACRS is the only accelerated depreciation method that
may be used on newly acquired assets for federal income tax purposes.B. The
method permits “depreciating” the asset to a tax basis of $0 over a
specified recovery period.*C. If a
company uses MACRS in its income tax returns, it also must use MACRS in its
financial statements.
D. Most businesses would benefit
from using MACRS rather than straight-line depreciation in their income tax

18. Harvard Company purchased equipment having an invoice price of
$11,500. The terms of sale were 2/10, n/30, and Harvard paid within the
discount period. In addition, Harvard paid a $160 delivery charge, $185
installation charge, and $931 sales tax. The amount recorded as the cost of
this equipment is: .  *D. $12,546 {(11500 * (1-2%)) + 160+185+931 = 12546}

19. Ultimate Company is a defendant in a lawsuit alleging damages of
$3 billion. The litigation is expected to continue for several years, and no
reasonable estimate can be made at this time of Ultimate Company’s ultimate
financial responsibility. This situation is an example of:

A. Off-balance-sheet financing.
*B. A loss contingency which should be
disclosed in notes to Ultimate Company’s financial statements.

C. An estimated liability which must appear in Ultimate Company’s balance
D. A loss in purchasing power caused by inflation.

20. On November 1, Metro Corporation borrowed $55,000 from a bank
and signed a 12%, 90-day note payable in the amount of $55,000. The November 30
adjusting entry will be: (assume 360 days in year)
*B. Debit Interest Expense $550 and
credit Interest Payable $550.

21. Stone Corporation has 25 employees and incurs total wages and salaries
expense of $900,000 per year. The following table shows various payroll amounts
as a percentage of this annual wage and salaries expense.
In addition, Stone provides group health insurance for its entire workforce.
The cost of this insurance is $350 per month for each employee.

Refer to the above
data. The company’s annual payroll-related expenses amount to

A. $1,085,600.

B. $1,181,850.

C. $1,250,700.

*D. Some other amount.($340,000)

22.  Coronet Corp. has total stockholders’ equity of $7,400,000. The
company’s outstanding capital stock includes 100,000 shares of $10 par value
common stock and 20,000 shares of 6%, $100 par value preferred stock. (No
dividends are in arrears.) The book value per share of common stock is:

*C. $54. ( Available Equity for Common shareholders = 7,400,000 – 200,000*100 = 5,400,000)

23. On September 1, 2009, Maryland Corporation’s common stock was selling
at a market price of $200 per share. On that date, Maryland announced a 3 for 2
stock split. At what price would you expect the stock to trade immediately
after the split goes into effect?

*C. $133.33. (2*200/3)

24. The following two items are disclosed in the stockholders’ equity
section of Riverside Corporation’s December 31, 2009, balance sheet:

If the company had reacquired 700 shares of treasury stock in February of 2009,
then for what amount was the other treasury stock sold for during 2009? .

*C. $2 per share above its cost.

Total Treasury cost sold = 700-200 = 500. In
additional paid in account is $1000. That means 1000/500 or $2 was received
above its cost.

25. The gross profit rate represents: .

*C. The percentage of sales revenue
remaining after providing for the cost of the merchandise sold.

26. If a company has a current ratio of 2 to 1, and purchases
inventory on credit, what will this do to its current ratio?

*B. Decrease the current ratio. Because inventory adds
nothing to the numerator of the ratio and the increased liability adds to the
denominator, a purchase of inventory on credit will decrease the quick ratio.

27. During the years 2009 through 2011, Powers, Inc., reported the
following amounts of net income (dollars in thousands):
Relative to the prior year, the percentage change in net income:
A. Was the same in 2010 and 2011.
B. Was larger in 2011 than in 2010.
*C. Was smaller in 2011 than in 2010..  Change
in 2010 = (150-120)/120 = 25%

Change in 2011 = (170-150)/150 = 13.33%

28. Flynn Corporation purchased bicycles from a British manufacturer
at a price of 45,000 British pounds on November 15, 2009, with payment due in
60 days. Using the following exchange rates, what gain or loss from currency
fluctuations should be recognized in 2009 and 2010?

*A. A $2,250 loss in 2009 and a $900 gain
in 2010.

2009: Forex loss = 45000*(1.75-1.70) = 2250

2010: Forex gain = 45000*(1.75-1.73) = 900

29. Tuliptime, Inc. sold American fashions to a Japanese company at
a price of 4 million yen. On the sale date, the exchange rate was $.0100 per
Japanese yen, but when Tuliptime received payment from its customer, the
exchange rate was $.0103 per Japanese yen. When the foreign receivable was
collected, Tuliptime:

*C. Credited Gain on Fluctuation of
Foreign Currency for $1,200. {4m * (.0103-.0100)}

30. Gains and losses from fluctuations in exchange rates on transactions
carried out in a foreign currency are reported in:

*B. The income statement..

31. In comparison with a financial statement prepared in conformity
with generally accepted accounting principles, a managerial accounting report
is less likely to:

*A. Focus upon the entire organization as
the accounting entity.

B. Focus upon future accounting periods.
C. Make use of estimated amounts.
D. Be tailored to the specific needs of an individual decision maker.

32. The following information is available about the August
transactions of the Helpful Tool Co:
The product costs to be deducted from revenue in August amount to:
*D. $739,000.

33. In a manufacturing company, the cost of finished goods
manufactured is equal to: .
*D. The beginning inventory of work in
process, plus total manufacturing costs for the period, less the ending
inventory of work in process.

34. Overhead costs are assigned to production using an overhead
application rate, whereas no such “application rate” is used to
assign the costs of direct materials and direct labor to production. The reason
for this difference in procedures is that:

*A. Overhead is an indirect cost which
cannot be traced easily and directly to specific units of product.

35. Moran Company uses a job order cost system and has established a
predetermined overhead application rate for the current year of 150% of direct
labor cost, based on budgeted overhead of $900,000 and budgeted direct labor
cost of $600,000. Job no. 1 was charged with direct materials of $36,000 and
with overhead of $27,000. What is the total cost of job no. 1?
*B. $81,000..The question says overhead cost is 150% of
Direct labor cost. Then Labor cost is 27000/150% = 18000. So total cost
36000+18000+27000 = 81,000

36. Edwards Auto Body uses a job order cost system. Overhead is
applied to jobs on the basis of direct labor hours. During the current period,
Job No. 337 was charged $425 in direct materials, $475 in direct labor, and
$190 in overhead. If direct labor costs an average of $16 per hour, the
company’s overhead application rate is: .
*B. $6.40 per direct labor hour.No.
of labor hours used = 475/16 = 29.6875
 Then overhead rate = 190/29.6875 = $6.40

37. If unit sales prices are $7 and variable costs are $5 per unit
how many units would have to be sold to break-even if fixed costs equal
*C. 4,000 {BEP = FC/(SP-VC)} (BEP = 8000/(7-5) = 4000)
38. If the unit sales price is $12, variable costs are $6 per unit and
fixed costs are $26,000 what is the contribution ratio per unit?
*B. 50% CM ratio = CM/SP = (12-6)/12 = 6/12 = 50%

39. A product sells for $125, variable costs are $80 and fixed costs are
$45,000. If the selling price can be increased by 20% with a similar increase
in variable costs, how many less units would have to be sold to earn

*C. 1278 Unit Sold without increase =(45000+300000)/(125-80) = 345000/45 = 7667 units Units Sold After Increase =

= 345000/54 = 6389

New SP = 125*(1+20%) = 150

New VC = 80*(1+20%) = 96

Then Lesss units = 7667-6389
= 1278

40. The Fine Point Company currently produces all of the components
for its one product; an electric pencil sharpener. The unit cost of
manufacturing the motor for this pencil sharpener is:

The company is considering the possibility of buying this motor from a
subcontractor and has been quoted a price of $3.60 per unit. The relevant cost
of manufacturing the motor to be considered in reaching the decision is:
*B. $4.15. (exclude the fixed overhead as will incurred irrespective of the

41. Seidman Company manufactures and sells 30,000 units of product X per
month. Each unit of product X sells for $16 and has a contribution margin of
$7. If product X is discontinued, $85,000 in fixed monthly overhead costs would
be eliminated and there would be no effect on the sales volume of Seidman
Company’s other products. If product X is discontinued, Seidman Company’s
monthly income before taxes should: .

*D. Decrease by $125,000. 

Contribution Margin by X = 30000*7 = 210,000 / Contribution toward Income before taxes by X = 210000-85000 =
125,000/So, X is discontinued, Seidman income will decrease by 125,000

42. Speedy Co. manufactures four products. Direct materials and
direct labor are available in sufficient quantities, but machine capacity is
limited to 3,000 hours. Cost and revenue data for the four products are given
Of the four products which is the most profitable for Speedy Co.?

*C. Product C. (because CM per machine
hour is more than other products)

We need to compute contribution margin per
units of the constraint (machine hour in this question).

A: CM per machine hour = 17/3 = 5.67

B: CM per machine hour = 26/4 = 6.50

C: CM per machine hour = 21/2 = 10.50

D: CM per machine hour = 19/3 = 6.33

43. Wateredge Corporation has budgeted a total of $361,800 in costs
and expenses for the upcoming quarter. Of this amount, $45,000 represents
depreciation expense and $7,300 represents the expiration of prepayments.
Wateredge’s current payables balance is $265,000 at the beginning of the quarter.
Budgeted payments on current payables for the quarter amount to

$370,000. The company’s estimated current payables balance at the end of
the quarter is: .
*B. $204,500.
Budgeted Cash cost & expenses =
361800-45000-7300 = 309500

Ending balance = 265000+309500 – 370000 = 204,500

44. On October 1 of the current year, Molloy Corporation prepared a
cash budget for October, November, and December. All of Molloy’s sales are made
on account. The following information was used in preparing estimated cash
Approximately 60% of all sales are collected in the month of the sale, 30% is
collected in the following month, and 10% is collected in the month thereafter. Refer to the
information above. Budgeted collections from customers in October total:
*C. $31,000.  { 40000*10% + 50000*30% + 20000*60%)}.

45. 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, Carson produced 60,000 units and incurred total manufacturing
costs of $180,000.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? .
*D. Fixed manufacturing overhead,

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