Accounting Multiple Choice Questions

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Question 1

  1. Although depreciation is always a period cost in a merchandising firm, it can be a product cost in a manufacturing firm.

    True

    False

5 points Question 2

  1. Even departmental overhead rates will not correctly assign overhead costs in situations where a company has a range of products that differ in volume, lot size, or complexity of production.

    True

    False

5 points
Question 3

  1. An increase in the number of units sold will decrease the break-even point.

    True

    False

5 points
Question 4

  1. Fixed cost per unit increases as activity decreases and decreases as activity increases.

    True

    False

5 points
Question 5

  1. The usual starting point in budgeting is to make a forecast of cash receipts and cash disbursements.

    True

    False

5 points
Question 6

  1. Which of the following comparisons best isolates the impact that changes in prices of inputs and outputs have on performance?
    a. static planning budget and flexible budget
    b. static planning budget and actual results
    c. flexible budget and actual results
    d. master budget and static planning budget

5 points
Question 7

  1. If the actual labor hours worked exceed the standard labor hours allowed, what type of variance will occur?
    a. Favorable labor efficiency variance.
    b. Favorable labor rate variance.
    c. Unfavorable labor efficiency variance.
    d. Unfavorable labor rate variance.

5 points
Question 8

  1. Which of the following performance measures will decrease if there is an increase in the accounts receivable?

    Return on Investment Residual Income
    A) Yes Yes
    B) No Yes
    C) Yes No
    D) No No
    A
    B
    C
    D

5 points
Question 9

  1. Which of the following will not result in an increase in return on investment (ROI), assuming other factors remain the same?
    a. A reduction in expenses.
    b. An increase in net operating income.
    c. An increase in operating assets.
    d. An increase in sales.

5 points
Question 10

  1. Lyons Company consists of two divisions, A and B. Lyons Company reported a contribution margin of $50,000 for Division A, and had a contribution margin ratio of 30% in Division B, when sales in Division B were $200,000. Net operating income for the company was $25,000 and traceable fixed expenses were $40,000. Lyons Company’s common fixed expenses were:
    a. $85,000
    b. $70,000
    c. $45,000
    d. $40,000

10 points
Question 11

  1. The PDQ Company makes collections on credit sales according to the following schedule:

    25% in month of sale
    70% in month following sale
    4% in second month following sale
    1% uncollectible

    The following sales have been budgeted:

    Month Sales
    April $100,000
    May $120,000
    June $110,000

    Cash collections in June would be:

    a. $113,400
    b. $110,000
    c. $111,000
    d. $115,500

10 points
Question 12

  1. Misemer Corporation is developing standards for its products. One product requires an input that is purchased for $57.00 per kilogram from the supplier. By paying cash, the company gets a discount of 8% off this purchase price. Shipping costs from the supplier’s warehouse amount to $3.60 per kilogram. Receiving costs are $0.26 per kilogram. The standard price per kilogram of this input should be:
    a. $57.70
    b. $56.30
    c. $65.42
    d. $57.00

5 points
Question 13

  1. Vodopich Corporation has provided the following data from its activity-based costing system:

    Activity Cost Pool Total Cost Total Activity
    Assembly $698,950.00 35,000 machine-hours
    Processing orders $85,101.00 1,900 orders
    Inspection $107,440.00 1,580 inspection-hours

    Data concerning the company’s product P58Z appear below:

    Annual unit production and sales 400
    Annual machine-hours 1,000
    Annual number of orders 90
    Annual inspection-hours 30
    Direct material cost $34.78 per unit
    Direct labor cost $23.52 per unit

    According to the activity-based costing system, the unit product cost of product P58Z is closest to:

    a. $113.33 per unit
    b. $58.30 per unit
    c. $123.40 per unit
    d. $118.30 per unit

10 points
Question 14

  1. Green Company’s costs for the month of August were as follows: direct materials, $27,000; direct labor, $34,000; selling, $14,000; administrative, $12,000; and manufacturing overhead, $44,000. The beginning work in process inventory was $16,000 and the ending work in process inventory was $9,000. What was the cost of goods manufactured for the month?
    a. $105,000
    b. $132,000
    c. $138,000
    d. $112,000

5 points
Question 15

  1. Placek Hospital bases its budgets on patient-visits. The hospital’s static budget for October appears below:

    Budgeted number of patient visits 6,800
    Budgeted variable overhead costs:
    Supplies $2.60 per patient visit $17,680
    Laundry $5.60 per patient visit $38,080
    Total variable overhead cost $55,760
    Budgeted fixed overhead costs:
    Wages and salaries $21,080
    Occupancy costs $44,880
    Total fixed overhead costs $65,960
    Total budgeted overhead costs $121,720

    The total overhead cost at an activity level of 7,700 patient-visits per month should be:

    a. $129,550
    b. $121,720
    c. $129,100
    d. $137,830

5 points
Question 16

  1. Carver Company produces a product which sells for $30. Variable manufacturing costs are $15 per unit. Fixed manufacturing costs are $5 per unit based on the current level of activity, and fixed selling and administrative costs are $4 per unit. A selling commission of 10% of the selling price is paid on each unit sold. The contribution margin per unit is:
    a. $3
    b. $15
    c. $8
    d. $12

5 points
Question 17

  1. The following materials standards have been established for a particular product:

    Standard quantity per unit of output 5.1 grams
    Standard price $11.95 per gram

    The following data pertain to operations concerning the product for the last month:

    Actual materials purchased 6,800 grams
    Actual cost of materials purchased $86,360
    Actual materials used in production 6,300 grams

    Actual output

    1,000 units

    What is the materials quantity variance for the month?

    a. $15,240 U
    b. $6,350 U
    c. $14,340 U
    d. $5,975 U

Capitol budgets

  1. (Ignore income taxes in this problem.) Sibble Corporation is considering the purchase of a machine that would cost $330,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $50,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $76,000. The company requires a minimum pretax return of 12% on all investment projects. The net present value of the proposed project is closest to:
  2. -$56,020

    -$6,020

    -$48,764

    -$27,670

  3. 2 points

Question 2

    1. (Ignore income taxes in this problem.) The Higgins Company has just purchased a piece of equipment at a cost of $120,000. This equipment will reduce operating costs by $40,000 each year for the next eight years. This equipment replaces old equipment which was sold for $8,000 cash. The new equipment has a payback period of:
      8.0 years
      2.8 years
      10.0 years
      3.0 years
  1. 2 points

Question 3

    1. (Ignore income taxes in this problem.) Hartong Corporation is contemplating purchasing equipment that would increase sales revenues by $185,000 per year and cash operating expenses by $89,000 per year. The equipment would cost $416,000 and have a 8 year life with no salvage value. The annual depreciation would be $52,000. The simple rate of return on the investment is closest to:

      23.8%

      12.5%

      10.6%

      23.1%

  1. 2 points

Question 4

    1. (Ignore income taxes in this problem.) Gull Inc. is considering the acquisition of equipment that costs $480,000 and has a useful life of 6 years with no salvage value. The incremental net cash flows that would be generated by the equipment are:

      The payback period of this investment is closest to:

      3.1 years

      2.9 years

      5.0 years

      3.5 years

  1. 2 points

Question 5

    1. (Ignore income taxes in this problem.) The management of Melchiori Corporation is considering the purchase of a machine that would cost $310,000, would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $116,000 per year. The company requires a minimum pretax return of 16% on all investment projects.

      The present value of the annual cost savings of $116,000 is closest to:

      $427,460

      $696,000

      $175,448

      $1,041,462

  1. 2 points

Question 6

    1. (Ignore income taxes in this problem.) The management of Melchiori Corporation is considering the purchase of a machine that would cost $310,000, would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $116,000 per year. The company requires a minimum pretax return of 16% on all investment projects.

      The net present value of the proposed project is closest to:

      $286,179

      $386,000

      $117,460

      $158,431

  1. 2 points

Question 7

    1. (Ignore income taxes in this problem.) The Finney Company is reviewing the possibility of remodeling one of its showrooms and buying some new equipment to improve sales operations. The remodeling would cost $120,000 now and the useful life of the project is 10 years. Additional working capital needed immediately for this project would be $30,000; the working capital would be released for use elsewhere at the end of the 10-year period. The equipment and other materials used in the project would have a salvage value of $10,000 in 10 years. Finney’s discount rate is 16%.

      The immediate cash outflow required for this project would be:

    1. $(120,000)
    1. $(150,000)
    1. $(90,000)
    1. $(130,000)

C12

Question 1

  1. In a statement of cash flows, all of the following would be classified as financing activities except:
    the collection of cash related to a loan made to another entity.
    the payment of a cash dividend on the company’s own common stock.
    the cash paid to retire bonds payable.
    the sale of the company’s own common stock for cash.

2 points

Question 2

  1. All of the following should be recorded in the operating activities section of the statement of cash flows EXCEPT:
    a decrease in inventory.
    the total credits to the accumulated depreciation account.
    a decrease in prepaid expenses.
    a purchase of equipment in exchange for cash.
    an increase in income taxes payable.

2 points

Question 3

  1. Which of the following would be classified as a financing activity on the statement of cash flows?
    Interest paid to a lender.
    Dividends paid to the company’s common stockholders.
    Cash paid to acquire a long-term investment.
    Cash received from a loan that was made to another company.

2 points

Question 4

  1. The statement of cash flows:
    serves as a replacement for the income statement and balance sheet.
    explains the change in the cash balance at one point in time.
    explains the change in the cash balance for one period of time.
    both A and B above.

2 points

Question 5

  1. In a statement of cash flows, receipts from sales of property, plant, and equipment should be classified as a(n):
    Operating activity.
    Financing activity.
    Investing activity.
    Selling activity.

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Accounting Multiple Choice Questions

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1) The contribution-margin ratio is:

the difference between the selling price and the variable cost per unit.?
fixed cost per unit divided by variable cost per unit.?
variable cost per unit divided by the selling price.?
unit contribution margin divided by the selling price.?
unit contribution margin divided by fixed cost per unit.?

2) A company observed a decrease in the cost per unit. All other things being equal, which of the following is probably true?

The company is studying a variable cost, and total volume has increased.?
The company is studying a variable cost, and total volume has decreased.?
The company is studying a fixed cost, and total volume has increased.?
The company is studying a fixed cost, and total volume has decreased.?
The company is studying a fixed cost, and total volume has remained constant.?

3) A company has fixed costs of $900 and a per-unit contribution margin of $3. Which of the following statement is (are) true?

Total contribution margin equals the sum of variable cost plus fixed cost.?
The situation described is not possible and there must be an error.?
Once the break-even point is reached, the company will increase income at the rate of $3 per unit.?
The firm will definitely lose money in this situation.?

4) Ribco Co. makes and sells only one product. The unit contribution margin is $6 and the break-even point in unit sales is 24,000. The company’s fixed costs are:

$4,000.?
$14,400.?
$40,000.?
$144,000.?
an amount other than those above.?

5) Which of the following methods of cost estimation relies on only two data points?

Least-squares regression.?
The high-low method.?
The visual-fit method.?
Account analysis.?
Multiple regression.?

6) A manager who wants to determine the percentage impact on income of a given percentage change in sales would multiply the percentage increase/decrease in sales revenue by the:

contribution margin.?
gross margin.?
operating leverage factor.?
safety margin.?
contribution-margin ratio.?

7) Brooklyn sells a single product to wholesalers. The company’s budget for the upcoming year revealed anticipated unit sales of 31,600, a selling price of $20, variable cost per unit of $8, and total fixed costs of $360,000. If Brooklyn’s unit sales are 200 units less than anticipated, its breakeven point will:

increase by $12 per unit sold.?
decrease by $12 per unit sold.?
increase by $8 per unit sold.?
decrease by $8 per unit sold.?
not change.

8) Swanson and Associates presently leases a copy machine under an agreement that calls for a fixed fee each month and a charge for each copy made. Swanson made 7,000 copies and paid a total of $360 in March; in May, the firm paid $280 for 5,000 copies. The company uses the high-low method to analyze costs.?Swanson’s variable cost per copy is:

$0.040.??
$0.051.??
$0.053.??
$0.056.

9) At a volume of 20,000 units, Dries reported sales revenues of $1,000,000, variable costs of $300,000, and fixed costs of $260,000. The company’s contribution margin per unit is:

$22.?
$28.?
$35.?
$37.?
an amount other than those above.

10) A forecast of a cost at a particular level of activity is termed:

cost estimation.?
cost prediction.?
cost behavior.?
cost analysis.?
cost approximation.

11) At a volume of 20,000 units, Dries reported sales revenues of $1,000,000, variable costs of $300,000, and fixed costs of $260,000. The company’s break-even point in units is:

7,027 (rounded).?
8,667 (rounded).?
9,286 (rounded).?
7,429 (rounded).?
an amount other than those above.?

12) The difference between budgeted sales revenue and break-even sales revenue is the:

contribution margin.?
contribution-margin ratio.?
safety margin.?
target net profit.?
operating leverage.?

13) DuChien Corporation recently produced and sold 100,000 units. Fixed costs at this level of activity amounted to $50,000; variable costs were $100,000. How much cost would the company anticipate if during the next period it produced and sold 102,000 units?

$150,000.?
$151,000.?
$152,000.?
$153,000.?
Some other amount not listed above.

14) Which of the following costs changes in direct proportion to a change in the activity level?

variable cost.?
fixed cost.?
semivariable cost.?
step-variable cost.?
step-fixed cost.

15) Northlake, Inc., uses the high-low method to analyze cost behavior. The company observed that at 20,000 machine hours of activity, total maintenance costs averaged $10.50 per hour. When activity jumped to 24,000 machine hours, which was still within the relevant range, the average total cost per machine hour was $9.75. On the basis of this information, the company’s fixed maintenance costs were:

$24,000.?
$90,000.?
$210,00.?
$234,000.?
an amount other than those listed above.

16) Yellow Dot, Inc. sells a single product for $10. Variable costs are $4 per unit and fixed costs total $120,000 at a volume level of 10,000 units. What dollar sales level would Yellow Dot have to achieve to earn a target profit of $240,000?

$400,000.?
$500,000.?
$600,000.?
$750,000.?
$900,000.

17) Booster, Inc. recently conducted a least-squares regression analysis to predict selling expenses. The company has constructed the following regression equation: Y = 329,000 + 7.80X. Which of the following statements is false if the primary cost driver is number of units sold?

The company anticipates $329,000 of fixed selling expenses.?
“Y” represents total selling expenses.?
The company expects both variable and fixed selling expenses.?
For each unit sold, total selling expenses will increase by $7.80.?
“X” represents the number of hours worked during the period.

18) Within the relevant range, a curvilinear cost function can sometimes be graphed as a:

sloping straight line.?
jagged line.?
vertical straight line.?
curved line.?
horizontal straight line.

19) Swanson and Associates presently leases a copy machine under an agreement that calls for a fixed fee each month and a charge for each copy made. Swanson made 7,000 copies and paid a total of $360 in March; in May, the firm paid $280 for 5,000 copies. The company uses the high-low method to analyze costs.?How much would Swanson’s pay if it made 5,500 copies?

$382.50.??
$322.??
$300.??
$292.50

20) Swanson and Associates presently leases a copy machine under an agreement that calls for a fixed fee each month and a charge for each copy made. Swanson made 7,000 copies and paid a total of $360 in March; in May, the firm paid $280 for 5,000 copies. The company uses the high-low method to analyze costs.?Swanson’s monthly fixed fee is:

$80
$102.??
$106.??
$112.

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Accounting Multiple Choice Questions

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St. James, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products Beta and Zeta on the basis of direct labor hours. The company is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labor hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow.? ?The overhead cost allocated to Zeta by using traditional costing procedures would be:
Minimized ViewABC $240,000.??DEF $356,000.??GHI $444,000.??JKL $560,000.??MNsome other amount.

Cartwright Graphics uses a special purpose paper on 80% of its jobs. The paper is purchased in 100-sheet packages at a cost of $100 per package. Management estimates that the cost of placing and receiving a typical order is $15, and the annual cost of carrying a package in inventory is $1.50. Cartwright uses 2,600 packages each year. Production is constant, and the lead time to receive an order is 1 week. The economic order quantity is approximately:ABC 203 packages.??DEF 225 packages.??GHI 228 packages.??JKL 565 packages.??MN631 packages.

During a recent accounting period, Marty’s shipping department processed 26 orders. Each order typically takes four hours to complete; however, the average time increased to five hours because of various departmental inefficiencies. If shipping labor is paid $14 per hour, the company’s non-value-added cost would be:ABC $0.?DEF $56.?GHI $364.?JKL $1,456.?MN$1,820.?

St. James, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products Beta and Zeta on the basis of direct labor hours. The company is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labor hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow.? ?The overhead cost allocated to Zeta by using activity-based costing procedures would be:
Minimized ViewABC $240,000.??DEF $356,000.??GHI $444,000.??JKL $560,000.??MNsome other amount.

Burgoon uses an economic order quantity model and has determined an optimal order size of 500 units. Annual demand is 10,000 units, ordering costs are $50 per order, and holding costs are $4 per unit. The company’s annual ordering and holding costs total:ABC $2,000.??DEF $3,000.??GHI $21,000.??JKL $41,000.??MNsome other amount.

The following tasks are associated with an activity-based costing system:?1— Assignment of cost to products?2— Calculation of pool rates?3— Identification of cost drivers?4— Identification of cost pools?Which of the following choices correctly expresses the proper order of the preceding tasks??ABC 1, 2, 3, 4.??DEF 2, 4, 1, 3.??GHI 3, 4, 2, 1.??JKL 4, 2, 1, 3.??MN4, 3, 2, 1.??

St. James, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products Beta and Zeta on the basis of direct labor hours. The company is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labor hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow.? ?The overhead cost allocated to Beta by using traditional costing procedures would be:
Minimized ViewABC $240,000.??DEF $356,000.??GHI $444,000.??JKL $560,000.??MNsome other amount.

St. James, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products Beta and Zeta on the basis of direct labor hours. The company is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labor hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow.? ?The overhead cost allocated to Beta by using activity-based costing procedures would be:
Minimized ViewABC $240,000.??DEF $356,000.??GHI $444,000??JKL $560,000.??MNsome other amount.

In an activity-based costing system, direct materials used would typically be classified as a:ABC unit-level cost.?DEF batch-level cost.?GHI product-sustaining cost.?JKL facility-level cost.?MNmatrix-level cost.?

Cartwright Graphics uses a special purpose paper on 80% of its jobs. The paper is purchased in 100-sheet packages at a cost of $100 per package. Management estimates that the cost of placing and receiving a typical order is $15, and the annual cost of carrying a package in inventory is $1.50. Cartwright uses 2,600 packages each year. Production is constant, and the lead time to receive an order is 1 week. The reorder point is:ABC 25 packages.??DEF 50 packages.??GHI 100 packages.??JKL 203 packages.??MN225 packages.

At the economic order quantity:ABC total annual inventory costs, holding costs, and ordering costs are all minimized.?DEF total annual inventory costs and holding costs are minimized.?GHI total annual inventory costs are minimized, and holding costs equal ordering costs.?JKL total annual inventory costs are minimized, and holding costs exceed ordering costs.?MNtotal annual inventory costs are minimized, and ordering costs exceed holding costs.

Alaina’s customer service department follows up on customer complaints by telephone inquiry. During a recent period, the department initiated 10,000 calls and incurred costs of $312,000. Of these calls, 3,800 were for the company’s wholesale operation; the remainder were for the retail division. Costs allocated to the wholesale operation are:ABC $0.?DEF $31,200.?GHI $118,560.?JKL $193,440.?MN$203,000.

Consider the following statements:?I. Product diversity creates costing problems because diverse products tend to utilize manufacturing activities in different ways.?II. Overhead costs that are not incurred at the unit level create costing problems because such costs do not vary with traditional application bases such as direct labor hours or machine hours.?III. Product diversity typically exists when a single product (e.g., a ballpoint pen) is made in different colors.?Which of the above statements is (are) true?ABC I only.??DEF II only.??GHI I and II.??JKL I and III.??MNII and III.

Which of the following is classified as an inventory shortage cost?ABC Purchase order preparation.?DEF Production disruption.?GHI Lost sales and lost customers.?JKL Spoilage.?MNProduction disruption, lost sales, and lost customers.?

Consider the following statements regarding traditional costing systems:?I. Overhead costs are applied to products on the basis of volume-related measures.?II. All manufacturing costs are easily traceable to the goods produced.?III. Traditional costing systems tend to distort unit manufacturing costs when numerous goods are made that have widely varying production requirements.?Which of the above statements is (are) true?ABC I only.??DEF II only.??GHI III only.??JKL I and III.??MNII and III

Alamo’s customer service department follows up on customer complaints by telephone inquiry. During a recent period, the department initiated 7,000 calls and incurred costs of $203,000. If 2,940 of these calls were for the company’s wholesale operation (the remainder were for the retail division), costs allocated to the retail division should amount to:ABC $0.?DEF $29.?GHI $85,260.?JKL $117,740.?MN$203,000.

Activity-based costing systems:ABC use a single, volume-based cost driver.?DEF assign overhead to products based on the products’ relative usage of direct labor.?GHI often reveal products that were under- or over-costed by traditional costing systems.?JKL typically use fewer cost drivers than more traditional costing systems.?MNhave a tendency to distort product costs.

Which of the following does not minimize ordering costs when using JIT purchasing?ABC Reducing the number of vendors.?DEF Negotiating long-term supply agreements.?GHI Making less frequent payments.?JKL Maintaining a safety stock.?MNEliminating inspections.?

Inventory holding costs typically include:ABC clerical costs of purchase-order preparation.?DEF costs of deterioration, theft, or spoilage.?GHI costs associated with lost sales to customers.?JKL forgone interest on money tied up in inventory.?MNcosts of deterioration, theft, or spoilage and forgone interest on money tied up in inventory.?

Feinstein, Inc., an appliance manufacturer, is developing a new line of ovens that uses controlled-laser technology. The research and testing costs associated with the new ovens is said to arise from a:
AB unit-level activity.?CD batch-level activity.?E product-sustaining activity.?F facility-level activity.?competitive-level activity.?

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Accounting Multiple Choice Questions

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Which of the
following costs would be classified as a prevention cost on a quality report?


Reliability engineering.?

Materials inspection.?

Rework.?

Warranty repairs.?

Out-of-court liability settlements.?



The provisions of section 302 of the Sarbanes-Oxley
Act (as originally enacted) require the signing officers of a company to do all
of the following except:

Audit the internal controls over
financial reporting.
?

Establish the internal controls over
financial reporting.
?

Maintain the internal controls over
financial reporting.
?

Evaluate the internal controls over
financial reporting.
?

Disclose material weaknesses in the
internal controls over financial reporting.
?



A manufacturer’s raw-material
purchasing department would likely be classified as a:

cost center.?

revenue center.?

profit center.?

investment center.?

contribution center.?



A general calculation method for
transfer prices that achieves goal congruence begins with the additional outlay
cost per unit incurred because goods are transformed and then


adds the opportunity cost per unit to
the organization because of the transfer.
?

subtracts the opportunity cost per
unit to the organization because of the transfer.
?

adds the sunk cost per unit to the
organization because of the transfer.
?

subtracts the sunk cost per unit to
the organization because of the transfer.
?

adds the sales revenue per unit to
the organization because of the transfer.
?



A responsibility center in which the
manager is held accountable for the profitable use of assets and capital is
commonly known as a(n):

cost center.?

revenue center.?

profit center.?

investment center.?

contribution center.



Controllable costs, as used in a
responsibility accounting system, consist of:

only fixed costs.?

only direct materials and direct
labor.
?

those costs that a manager can
influence in the time period under review.
?

those costs about which a manager has
some knowledge.
?

those costs that are influenced by
parties external to the organization.
?





The Little Rock Division of Classics
Companies currently reports a profit of $3.6 million. Divisional invested
capital totals $9.5 million; the imputed interest rate is 12%. On the basis of
this information, Little Rock’s residual income is:

$432,000.?

$708,000.?

$1,140,000.?

$2,460,000.?

some other amount.?



Sand Fly Corporation operates two
stores: J and K. The following information relates to J:
?Sales
revenue $1,300,000
?Variable operating expenses 600,000?Fixed
expenses:
? Traceable to J and controllable by J
275,000
? Traceable to J and controllable by
others 80,000
?J’s segment contribution margin is:

$345,000.??

$425,000.??

$620,000.??

$700,000.??

$745,000.



The basic idea behind residual income
is to have a division maximize its:

earnings per share.?

income in excess of a corporate
imputed interest charge.
?

cost of capital.?

cash flows.?

invested capital.?



ROI is most appropriately used to
evaluate the performance of:

cost center managers.?

revenue center managers.?

profit center managers.?

investment center managers.?

both profit center managers and
investment center managers.
?



The difference between the profit
margin controllable by a segment manager and the segment profit margin is
caused by:

variable operating expenses.?

allocated common expenses.?

fixed expenses controllable by the
segment manager.
?

fixed expenses traceable to the
segment but controllable by others.
?

sales revenue.



Sunrise Corporation has a return on
investment of 15%. A Sunrise division, which currently has a 13% ROI and
$750,000 of residual income, is contemplating a massive new investment that
will (1) reduce divisional ROI and (2) produce $120,000 of residual income. If
Sunrise strives for goal congruence, the investment:

should not be acquired because it
reduces divisional ROI.
?

should not be acquired because it
produces $120,000 of residual income.
?

should not be acquired because the
division’s ROI is less than the corporate ROI before the investment is
considered.
?

should be acquired because it
produces $120,000 of residual income for the division.
?

should be acquired because after the
acquisition, the division’s ROI and residual income are both positive numbers.
?



Which of the following bodies
oversees audits and auditors, and sanctions firms and individuals for
violations of laws and regulations?

American Institute of Certified
Public Accountants (AICPA).
?

American Accounting Association
(AAA).
?

Public Company Accounting Oversight
Board (PCAOB).
?

Financial Accounting Standards Board
(FASB).
?

Accounting Principles Board (APB).?



When managers of subunits throughout
an organization strive to achieve the goals set by top management, the result
is:

goal congruence.?

planning and control.?

responsibility accounting.?

delegation of decision making.?

strategic control.



Which of the following is the correct
mathematical expression to derive a company’s capital turnover?

Sales revenue / invested capital.?

Contribution margin / invested
capital.
?

Income / invested capital.?

Invested capital / sales revenue.?

Invested capital / income.



Which of the following describes the
goal that should be pursued when setting transfer prices?

Maximize profits of the buying
division.
?

Maximize profits of the selling
division.
?

Allow top management to become
actively involved when calculating the proper dollar amounts.
?

Establish incentives for autonomous
division managers to make decisions that are in the overall organization’s best
interests (i.e., goal congruence).
?

Minimize opportunity costs.?



Weston Company had sales revenue and
operating expenses of $5,000,000 and $4,200,000, respectively, for the year
just ended. If invested capital amounted to $6,000,000, the firm’s ROI was:

13.33%.?

83.33%.?

120.00%.?

750.00%.?

some other figure.?



The amounts charged for goods and
services exchanged between two divisions are known as:

opportunity costs.?

transfer prices.?

standard variable costs.?

residual prices.?

target prices.



Under section 404 of the
Sarbanes-Oxley Act, auditors are required to:

Attest to and report on management’s
assessment of internal controls.
?

Establish and maintain internal
controls for audited companies.
?

Advise management on its preparation
of the Report on Internal Controls.
?

Evaluate the company’s internal
control system periodically throughout the year.
?

All of these.



Which of the following is an
appropriate base to distribute the cost of building depreciation to
responsibility centers?

Number of employees in the
responsibility centers.
?

Budgeted sales dollars of the
responsibility centers.
?

Square feet occupied by the
responsibility centers.
?

Budgeted net income of the
responsibility centers.
?

Total budgeted direct operating costs
of the responsibility centers.
?

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Accounting Multiple Choice Questions

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Chapter 14

Multiple Choice

1. Sentosa has acquired manufacturing equipment and incurred these expenses in doing so.
$
Gross invoice price, net of GST, subject to terms of 2/10, n/30) 9000
Transportation costs to get equipment to factory 1000
Special permit to allow wide load on freeway 300
Speeding ticket incurred by company driver while
delivering equipment to the factory 100
Cost to repair wall damaged during installation 500
The equipment should be recorded in Sentosa’s records at:
a. $10 900
b. $10 300
c. $10 120
d. $10 000

2. On what basis would the costs of several items of property, plant and equipment, acquired for a lump-sum payment, normally be allocated?
a. Net realisable value at acquisition date
b. Replacement cost at acquisition date
c. Independent valuation at acquisition date
d. Fair value at acquisition date

3. Kamp Gravel Co purchased three trucks for $50 000 each plus GST by making a $20 000 down payment and agreeing to pay the balance at the end six months. The journal entry to record the acquisition is:
$ $
a. Trucks 150 000
GST Outlays 15 000
Sundry creditor 165 000
b. Trucks 150 000
GST Outlays 15 000
Cash 20 000
Sundry creditor 145 000
c. Cash 20 000
Sundry creditor 130 000
Trucks 150 000
d. Trucks 20 000
Cash 20 000

4. In the financial statements prepared at the end of the accounting period the item Accumulated Depreciation appears:
a. On the income statement as an expense
b. On the balance sheet as a liability
c. On the balance sheet as a deduction from the related asset
d. On both the balance sheet and the income statement

5. The statement that best describes the nature of accounting depreciation is:
a. A charge representing the change in the asset’s market value
b. A charge representing the decline in the physical efficiency of the asset
c. The amount that can be claimed as a tax deduction
d. An allocation of the cost of the asset over its estimated useful life

6. The statement relating to depreciation that is true is:
a. Accumulated depreciation represents the amount of an asset’s cost that has been transferred to depreciation expense
b. The cash account is affected by charging depreciation
c. Accumulated depreciation is a contra-expense account
d. Depreciation represents cash that can be used to replace assets when they wear out

7. Which factor will affect the amount of depreciation charged on an asset in a particular accounting period?
a. Estimated useful life
b. Historical cost
c. Estimated residual value
d. All of the above

8. On 31 December 2009 a new motor vehicle with a life of five years and an estimated residual value of $3000 was purchased by a business at a cost of $23 000, net of GST. The straight-line depreciation method is employed. What is the carrying value of the motor vehicle at 31 December 2012 (after charging depreciation for that year)?
a. $23 000
b. $11 000
c. $12 000
d. $15 000

9. The Delivery Equipment account in the ledger of A co has a balance of $17 600 which is the cost of two trucks purchased on 1 January 2007. The Accumulated Depreciation Delivery Equipment account has a balance on 31 December 2009 of $8000, before adjusting entries. No additional delivery trucks have been acquired or sold. The residual value of each truck is estimated to be $800 and the straight-line depreciation method is used. The necessary adjusting entry to record annual depreciation on 31 December 2009 is:
Debit Credit
a. Depreciation Exp $8000 Delivery Equipment $8000
b. Accumulated Deprecn $4000 Delivery Equipment $4000
c. Depreciation Exp $8000 Cash at Bank $8000
d. Depreciation Exp $4000 Accumulated Deprecn $4000

10. On 1 January 2009 Dee Ltd acquired electronic equipment for $10 000, net of GST. If depreciation is provided at 10% p.a. on the diminishing-balance basis, the depreciation charge for the year ended 31 December 2011 is:
a. $700
b. $729
c. $810
d. $800

11. The statement concerning the diminishing-balance method of depreciation that is true is:
a. It charges the same amount of depreciation each period
b. It applies a declining percentage factor to the asset’s original cost
c. It is also known as the units-of-production method
d. It is an appropriate method when proportionately more of the asset’s benefits are consumed in the early years of its life

12. NG Ltd purchased a sprinkler system on 1 January of Year 1.
Cost (net of GST) $6500
Residual $1500
Estimated Useful Life 4 years
Under the diminishing-balance method, using a rate of 50%, the depreciation expense for year 2 will be:
a. $3250
b. $1625
c. $1500
d. $1250

13. On 1 July 2006 a retailer purchased a delivery truck for $21 000, net of GST. It has an estimated trade-in-value of $6000 and is expected to last for a total of 60 000 kilometres.
A schedule of distance travelled is set out below:
30/6/07 20 000 km
30/6/08 15 000 km
30/6/09 15 000 km
30/6/10 10 000 km
Using the units-of-production method the amount of depreciation charged for the year ended 30 June 2010 is:
a. $3750
b. $3500
c. $2500
d. $5000

14. A machine was purchased on 3 January 2009 for $48 000, net of GST. The machine had an estimated residual value of $6000 and an estimated useful life of 5 years. Depreciation expense for 2009, using sum-of-the-years’-digits method, is:
a. $8400
b. $14 000
c. $19 200
d. $16 000

15. Which of the following is an advantage of the use of accelerated depreciation methods for tax purposes as opposed to the straight-line method?
a. The total amount of tax paid over the lifetime of the asset is reduced
b. The business has the interest-free use of deferred tax dollars until the later years of the asset’s life
c. Lower tax payments are made during the early years of the asset’s life
d. B. and C.

16. Wong purchased a computer for $15 000, net of GST. Originally it had an estimated useful life of 4 years and a residual value of $3000. The straight-line method is used. At the start of the third year of usage Wong revised the life of the computer to a total life of 6 years. What depreciation expense should be recorded for the computer for year 3?
a. $1000
b. $1500
c. $3000
d. $4000

17. When estimates of useful life and residual value, made for the purposes of calculating depreciation, in later years turn out to be materially incorrect and the asset has not reached the end of its useful life, the procedure to be followed is to:
a. Issue corrected financial statements for all prior years
b. Issue corrected financial statements for only the most recent three years
c. Ignore the problem since estimates are not expected to be exact anyway
d. Spread the remaining depreciable amount over the remaining useful life

18. An advantage of maintaining a subsidiary ledger for depreciable assets is:
a. It provides information for the preparation of income tax returns
b. It provides information to support insurance claims in the event of loss from theft or accident
c. It provides information concerning servicing of the assets
d. All are advantages

19. The information to be disclosed about property, plant and equipment in the financial statements prepared for external reporting includes:
a. Cost
b. Accumulated Depreciation
c. Details of useful lives
d. All of the above

Chapter 15
Multiple Choice

1. The balance sheet of Brown Ltd at 31 December 2009 shows the following:
$
Plant 50 000
Accumulated Depreciation-Plant 30 000
20 000
On 1 January 2010, based on a valuer’s estimate of fair value, it was decided to revalue the plant to $35 000.
The journal entry to record the revaluation is:
a. Accumulated Depreciation-Plant 30 000
Plant 15 000
Revaluation reserve 15 000
b. Plant 15 000
Revaluation reserve 15 000
c. Expense on Revaluation of Plant 15 000
Plant 15 000
d. Plant 15 000
Expense on Revaluation of Plant 15 000
Accumulated Depreciation-Plant 30 000

2. The balance sheet of Brown Ltd at 31 December 2009 shows the following:
$
Plant 50 000
Accumulated Depreciation-Plant 30 000
20 000
On 1 January 2010, based on a valuer’s estimate of fair value, it was decided to revalue the plant to $35 000. The plant was then assessed to have a further useful life of 3 years and an expected residual amount of $5000. The journal entry in the books of Brown Ltd to record depreciation on plant on a straight-line basis for the half-year ending 30 June 2010 (balance date) is:
a. Depreciation Expense-Plant 10 000
Accumulated Depreciation-Plant 10 000
b. Depreciation Expense-Plant 5 000
Accumulated Depreciation-Plant 5 000
c. Accumulated Depreciation-Plant 5 000
Depreciation Expense-Plant 5 000
d. Depreciation Expense-Plant 7 500
Accumulated Depreciation-Plant 7 500

3. The statement relating to revaluations of non-current assets that is not true is:
a. Before assets are revalued any existing accumulated depreciation must be written off against the asset account
b. A revaluation increment should be credited directly to a revaluation reserve
c. A revaluation increment is regarded as income to be added to the firm’s profit for the year
d. Future depreciation charges will be based on the revalued carrying amount

4. The true statement is:
a. A revaluation decrement occurs if a non-current asset’s carrying amount is less than its fair value
b. An initial revaluation decrement should be treated as a debit to the revaluation reserve
c. An initial revaluation decrement should be treated as a debit against the current period’s profit or loss
d. None of the statements is true.

5. When a non-current asset is sold the gain or loss on disposal is the difference between:
a. Fair market value and accumulated depreciation
b. Selling price and accumulated depreciation
c. Fair value and selling price
d. Selling price and carrying amount

6. Assume that a machine with a cost of $3000 has accumulated depreciation of $1400 on the date of its disposal. If it was traded-in for $2000 on a new machine and the balance of $1500 was paid in cash what is the profit or loss on disposal of the old machine? (Ignore GST).
a. $1000 loss
b. $600 gain
c. $400 gain
d. $1200 loss

7. The basic accounting entry for a revaluation decrement is:
a. Debit expense on revaluation of asset; credit asset
b. Debit asset; credit expense on the revaluation of asset
c. Debit revaluation reserve; credit asset
d. Debit asset; credit revaluation reserve

8. Under IAS 36/AASB 136 ‘Impairment of Assets’ it is true that:
a. When an asset’s carrying amount exceeds its recoverable amount the asset is said to suffer impairment
b. Impairment losses are accounted for as decrements under the revaluation model
c. Accumulated depreciation is written off against the asset before the write down to recoverable amount
d. All are true statements

9. The statement relating to the composite-rate depreciation approach that is not true is:
a. It is often used in practice by business entities with many similar assets in the one class
b. A single average depreciation rate is applied to the cost of a functional group of assets
c. It is only used for items valued at less than $500 each
d. None of the above, i.e. all are true statements

10. Under IAS 38/AASB 138 the statement concerning internally generated intangible assets that is not true is:
a. They can only be recognised if their cost can be measured reliably
b. It is likely that the cost of internally generated brand names, mastheads and customer lists can be measured reliably
c. The tests for recognising internally generated intangibles are more stringent than for recognising internally generated property, plant and equipment
d. None of the above, i.e. all are true statements

11. The excess of the purchase price of a business over the fair values of the identifiable net assets acquired is a measure of:
a. Fair value
b. Revaluation reserve
c. Purchased goodwill
d. Improvements

12. The statement about goodwill that is true is:
a. Goodwill can be purchased or sold as a separate item
b. Goodwill arises from many factors, such as customer confidence, superior management and a favourable location
c. Under IFRS 3/AASB 3 goodwill must be amortised
d. Goodwill is classified as a current asset

13. On 1 June 2009 S Company acquired for $145,000 cash the business of G Ltd. The carrying amount of G Ltd’s net assets at the time of the transaction was $110 000 while independent valuers calculated their fair value at $130 000. S Company should debit ‘Goodwill’ for the amount of:
a. $0
b. $15 000
c. $20 000
d. $35 000

14. In rare cases the cost of purchasing a business combination may be genuinely less than the sum of the fair values of the identifiable assets and liabilities acquired (bargain purchase). If so IFRS 3/AASB 3 requires:
a. The acquirer to initially review the measurement of the cost and the fair values of the assets and liabilities acquired
b. Refer to the difference between the cost and the sum of the fair values as an ‘excess’
c. Recognise the excess immediately as income
d. All of the above

15. Which pairing of non-current assets and acquisition value does not match?
A. Mineral resources – cost
b. Biological assets and agricultural produce – cost
c. Identifiable intangible assets – cost
d. Goodwill – cost of the business combination less the sum of the fair values of the net assets acquired

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Accounting Multiple Choice Questions

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18. Sanderson sells a single product for $50 that has a
variable cost of $30. Fixed costs amount to $5 per unit when anticipated sales
targets are met. If the company sells one unit in excess of its break-even
volume, profit will be:
A.
$15.
B. $20.
C.
$50.
D.
an amount that cannot be derived
based on the information presented.
E. an amount other than those in
choices “A,” “B,” and “C”, but one that can be
derived based on the information presented.

Question:

19. At a volume of 20,000 units, Dries reported sales
revenues of $1,000,000, variable costs of $300,000, and fixed costs of
$260,000. The company’s contribution margin per unit is:
A.
$22.
B.
$28.
C. $35.
D.
$37.
E. an amount other than those above.

Question:



20. At a
volume of 20,000 units, Dries reported sales revenues of $1,000,000, variable
costs of $300,000, and fixed costs of $260,000. The company’s break-even point
in units is:
A.
7,027 (rounded).
B.
8,667 (rounded).
C.
9,286 (rounded).
D. 7,429 (rounded).
E. an amount other than those above.

Question:

21. A
recent income statement of Black Corporation reported the following data:

 

If these data are based on the sale of 20,000 units, the contribution margin
per unit would be:
A.
$40.
B. $150.
C.
$290.
D.
$360.
E. an amount other than those above.

Question:

22. A recent income statement of Black Corporation reported
the following data:

 

If these data are based on the sale of 20,000 units, the break-even point would
be:
A.
9,565 units (rounded).
B.
11,000 units (rounded).
C.
7,586 units (rounded).
D. 14,667 units (rounded).
E. an amount other than those above.

Question:


23. A recent income statement of Suni Corporation reported the following
data:

 

If these data are based on the sale of 20,000 units, the break-even point would
be:
A. 7,500 units.
B.
11,628 units.
C. 12,500 units.
D.
33,333 units.
E. an amount other than those above.

Question:

24. A recent income statement of Yang Corporation
reported the following data:

 

If these data are based on the sale of 5,000 units, the break-even sales would
be:
A. $2,000,000.
B.
$2,206,000.
C.
$2,500,000.
D.
$10,000,000.
E. an amount other than those above.

Question:

25. Lawson, Inc. sells a single product for $12. Variable
costs are $8 per unit and fixed costs total $360,000 at a volume level of
60,000 units. Assuming that fixed costs do not change, Lawson’s break-even
point would be:
A.
30,000 units.
B.
45,000 units.
C. 90,000 units.
D.
negative because the company loses
$2 on every unit sold.
E. a positive amount other than those
given above.

Question:

26. Grey, Inc. sells a single product for $20. Variable costs
are $8 per unit and fixed costs total $120,000 at a volume level of 5,000
units. Assuming that fixed costs do not change, Green’s break-even sales would
be:
A.
$160,000.
B. $200,000.
C.
$300,000.
D.
$480,000.
E. an amount other than those above.

Question:

27. Orion recently reported sales revenues of $800,000,
a total contribution margin of $300,000, and fixed costs of $180,000. If sales
volume amounted to 10,000 units, the company’s variable cost per unit must have
been:
A.
$12.
B.
$32.
C. $50.
D.
$92.
E. an amount other than those above.

Question:

28. Strayer has a break-even point of 120,000 units. If the
firm’s sole product sells for $40 and fixed costs total $480,000, the variable
cost per unit must be:
A.
$4.
B. $36.
C.
$44.
D.
an amount that cannot be derived
based on the information presented.
E. an amount other than those in
choices “A,” “B,” and “C”, but one that can be
derived based on the information presented.

Question:

29. Ribco Co. makes and sells only one product. The unit
contribution margin is $6 and the break-even point in unit sales is 24,000. The
company’s fixed costs are:
A.
$4,000.
B.
$14,400.
C.
$40,000.
D. $144,000.
E. an amount other than those above.



Question:

31. At a volume level of 500,000 units, Sullivan reported the
following information:

 

The company’s contribution-margin ratio is closest to:
A.
0.33.
B.
0.40.
C.
0.60.
D. 0.67.
E. an amount other than those above.

44. A
recent income statement of Dragonwood Corporation reported the following data:

 

If the company desired to earn a target profit of $1,270,000, it would have to
sell:
A.
5,778 units.
B. 8,600 units.
C.
10,160 units.
D.
11,908 units.
E. an amount other than those above.

Question:

45. Yellow Dot, Inc. sells a single product for $10. Variable
costs are $4 per unit and fixed costs total $120,000 at a volume level of
10,000 units. What dollar sales level would Yellow Dot have to achieve to earn
a target profit of $240,000?
A.
$400,000.
B.
$500,000.
C. $600,000.
D.
$750,000.
E. $900,000.



Question:

Narchie sells a single product for $50.
Variable costs are 60% of the selling price, and the company has fixed costs
that amount to $400,000. Current sales total 16,000 units.

46. Narchie:
A.
will break-even by selling 8,000
units.
B.
will break-even by selling 13,333
units.
C. will break-even by
selling 20,000 units.
D.
will break-even by selling 1,000,000
units.
E. cannot break-even because it loses
money on every unit sold.

Question:

47. Each
unit that Narchie sells will:
A. increase profit by $20.
B.
increase profit by $30.
C.
increase profit by $50.
D.
increase profit by some other
amount.
E. decrease profit by $5.

Question:

48. In
order to produce a target profit of $22,000, Narchie’s dollar sales must
total:
A.
$8,440.
B.
$21,100.
C.
$1,000,000.
D. $1,055,000.
E. an amount other than those above.

Question:

49. If
Narchie sells 24,000 units, its safety margin will be:
A. $200,000.
B.
$400,000.
C.
$1,000,000.
D.
$1,200,000.
E. an amount other than those above.

Question:

50. The difference between budgeted sales revenue and
break-even sales revenue is the:
A.
contribution margin.
B.
contribution-margin ratio.
C. safety margin.
D.
target net profit.
E. operating leverage.

Question:

51. Maxine’s budget for the upcoming year revealed the
following figures:

 

If the company’s break-even sales total $750,000, Maxine’s safety margin would
be:
A.
$(90,000).
B. $90,000.
C.
$246,000.
D.
$336,000.
E. $696,000.

Question:

52. Brooklyn sells a single product to wholesalers. The
company’s budget for the upcoming year revealed anticipated unit sales of
31,600, a selling price of $20, variable cost per unit of $8, and total fixed
costs of $360,000. Brooklyn’s safety margin in units is:
A.
(13,400).
B.
0.
C. 1,600.
D.
13,600.
E. an amount other than those above.

Question:

53. Brooklyn
sells a single product to wholesalers. The company’s budget for the upcoming
year revealed anticipated unit sales of 31,600, a selling price of $20,
variable cost per unit of $8, and total fixed costs of $360,000. If Brooklyn’s
unit sales are 200 units less than anticipated, its breakeven point will:
A.
increase by $12 per unit sold.
B.
decrease by $12 per unit sold.
C.
increase by $8 per unit sold.
D.
decrease by $8 per unit sold.
E. not change.

Question:

54. Brooklyn
sells a single product to wholesalers. The company’s budget for the upcoming
year revealed anticipated unit sales of 31,600, a selling price of $20,
variable cost per unit of $8, and total fixed costs of $360,000. If Brooklyn’s
unit sales are 300 units more than anticipated, its break-even point
will:
A.
increase by $12 per unit sold.
B.
decrease by $12 per unit sold.
C.
increase by $8 per unit sold.
D.
decrease by $8 per unit sold.
E. not change.

Question:

56. Danielle
sells a single product at $20 per unit. The firm’s most recent income statement
revealed unit sales of 100,000, variable costs of $800,000, and fixed costs of
$400,000. If a $4 drop in selling price will boost unit sales volume by 20%,
the company will experience:
A.
no change in profit because a 20%
drop in sales price is balanced by a 20% increase in volume.
B.
an $80,000 drop in profit.
C. a $240,000 drop in
profit.
D.
a $400,000 drop in profit.
E. a change in profit other than those
above.

Question:

60. O’Dale
sells three products: R, S, and T. Budgeted information for the upcoming
accounting period follows.

 

The company’s weighted-average unit contribution margin is:
A.
$3.00.
B. $3.55.
C.
$4.00.
D.
$19.35.
E. an amount other than those above.

Answer:



Question:

Jamal
& Co. makes and sells two types of shoes, Plain and Fancy. Data concerning
these products are as follows:

 

Sixty percent of the unit sales are Plain, and annual fixed expenses are
$45,000.

62. The
weighted-average unit contribution margin is:
A.
$4.80.
B. $9.00.
C.
$9.25.
D.
$17.00.
E. an amount other than those above.



Question:

63. Assuming that the sales mix remains constant, the total
number of units that Jamal must sell to break even is:
A.
2,432.
B.
2,647.
C.
4,737.
D. 5,000.
E. an amount other than those above.

Question:

64. Assuming that the sales mix remains constant, the number
of units of Plain that Jamal must sell to break even is:
A.
2,000.
B. 3,000.
C.
3,375.
D.
5,000.
E. 5,625.

Question:

65. Assuming
that the sales mix remains constant, the number of units of Fancy that Jamal
must sell to break even is:
A. 2,000.
B.
3,000.
C.
3,375.
D.
5,000.
E. 5,625.

Question:

77. The following information relates
to Dazie Company:

 

Dazie’s operating leverage factor is closest to:
A.
0.067.
B.
0.167.
C.
0.400.
D.
2.500.
E. 6.000.

Question:

78. The
following information relates to Paternus Company:

 

If a manager at Paternus desired to determine the percentage impact on income
of a given percentage change in sales, the manager would multiply the
percentage increase/decrease in sales revenue by:
A.
0.25.
B.
0.40.
C.
2.50.
D. 4.00.
E.
10.00.


Question:

Edmonco
Company produced and sold 45,000 units of a single product last year, with the
following results:

Answer:

79. Edmonco’s operating leverage factor was:
A.
4.
B. 5.
C.
6.
D.
7.
E. 8.

Question:

80. If Edmonco’s sales revenues increase 15%, what will be the
percentage increase in income before income taxes?
A.
15%.
B.
45%.
C.
60%.
D. 75%.
E. An amount other than those above.

Question:

83. A company, subject to a 40% tax rate, desires to earn
$500,000 of after-tax income. How much should the firm add to fixed costs when
figuring the sales revenues necessary to produce this income level?
A.
$200,000.
B.
$300,000.
C.
$500,000.
D. $833,333.
E.
$1,250,000.


Question:

84. Barrey,
Inc. is subject to a 40% income tax rate. The following data pertain to the
period just ended when the company produced and sold 45,000 units:

How many units must Barrey sell to earn an after-tax profit of $180,000?
A.
42,000.
B.
45,000.
C.
51,000.
D. 61,000.
E. An amount other than those above.

Question:

85. Barrey, Inc. is subject to a 40% income tax rate. The
following data pertain to the period just ended when the company produced and
sold 45,000 units:

 

How many units must Barrey sell to earn an after-tax profit of $225,000?
A. 67,250.
B.
62,250.
C.
61,000.
D.
51,000.
E. An amount other than those above

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Accounting Multiple Choice Questions

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Description

PDF Corp. needs to replace an old lathe with a new, more efficient model. The old lathe was purchased for $50,000 nine years ago and has a current book value of $5,000. (The old machine is being depreciated on a straight-line basis over a ten-year useful life.) The new lathe costs $100,000. It will cost the company $10,000 to get the new lathe to the factory and get it installed. The old machine will be sold as scrap metal for $2,000. The new machine is also being depreciated on a straight-line basis over ten years. Sales are expected to increase by $8,000 per year while operating expenses are expected to decrease by $12,000 per year. PDF’s marginal tax rate is 40%. Additional working capital of $3,000 is required to maintain the new machine and higher sales level. The new lathe is expected to be sold for $5,000 at the end of the project’s ten-year life. What is the incremental free cash flow during year 1 of the project?
Answer
a. $12,800
b. $14,400
c. $11,400
d. $15,200

Free cash flows represent the benefits generated from accepting a capital-budgeting proposal.
Answer
a. True
b. False

Project C requires a net investment of $1,000,000 and has a payback period of 5.6 years. You analyze Project C and decide that Year 1 free cash flow is $100,000 too low, and Year 3 free cash flow is $100,000 too high. After making the necessary adjustments
Answer
a. the payback period for Project C will be longer than 5.6 years.
b. the payback period for Project C will be shorter than 5.6 years.
c. the IRR of Project C will increase.
d. the NPV of Project C will decrease.

Jiffy Co. expects to pay a dividend of $2.00 per share in one year. The current price of Jiffy common stock is $20 per share. Flotation costs are $1.00 per share when Jiffy issues new stock. What is the cost of internal common equity (retained earnings) if the long-term growth in dividends is projected to be 6 percent indefinitely?
Answer
a. 10.60 percent
b. 16.00 percent
c. 16.53 percent
d. 16.60 percent

Zellars, Inc. is considering two mutually exclusive projects, A and B. Project A costs $75,000 and is expected to generate $48,000 in year one and $45,000 in year two. Project B costs $80,000 and is expected to generate $34,000 in year one, $37,000 in year two, $26,000 in year three, and $25,000 in year four. Zellars, Inc.’s required rate of return for these projects is 10%. The profitability index for Project A is;
Answer
a. 1.47.
b. 1.22.
c. 1.13.
d. 1.08.

A company has preferred stock with a current market price of $18 per share. The preferred stock pays an annual dividend of 4% based on a par value of $100. Flotation costs associated with the sale of preferred stock equal $1.50 per share. The company’s marginal tax rate is 40%. Therefore, the cost of preferred stock is;
Answer
a. 28.80%.
b. 24.24%.
c. 22.22%.
d. 14.55%.

Which of the following should be included in the initial outlay?
Answer
a. taxable gain on the sale of old equipment being replaced
b. first year depreciation expense on any new equipment purchased
c. preexisting firm overhead reallocated to the new project
d. increased investment in inventory and accounts receivable

If depreciation expense in year one of a project increases for a highly profitable company,
Answer
a. net income decreases and incremental free cash flow decreases.
b. net income increases and incremental free cash flow increases.
c. the book value of the depreciating asset increases at the end of year one.
d. net income decreases and incremental free cash flow increases.

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Accounting Multiple Choice Questions

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Quiz
Note: It is recommended that you save your response as you complete each question.

Question 1 (2 points)
Use the following information to calculate the COGS for Beth’s Jewels.

Beginning merchandise inventory $41,000
Ending merchandise inventory 34,000
Purchases 52,000
Purchases discounts 1,300
Freight-in 900

Key your response using a dollar sign and appropriate commas but no decimal places.

Question 1 options:

Question 2 (2 points)

Determine the cost of goods sold for L. I. Grill from the information given below: Key your response with a dollar sign and appropriate commas but no decimal places.
Merchandise Inventory, January 1, 20–

$57,700
Merchandise Inventory, December 31, 20–

48,300

Purchases98,000

Purchases Returns and Allowances6,100

Purchases Discounts8,175

Freight-In1,100

Question 2 options:

Question 3 (2 points)

When a fiscal year that starts and ends at the time the stock of merchandise is normally at its lowest level is selected, it is known as a(n)

Question 3 options:

A)natural business year.

B)calendar year.

C)base year.

D)accounting cycle.

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Question 4 (2 points)

The following data applies to a particular item of merchandise:

On hand at start of period

300
$5.10

1st purchase

500

5.20

2nd purchase

700

5.30

3rd purchase

600

5.50

Number of units available for sale

2,100

On hand at end of period

500

Number of units sold during period

1,600

Of the 1,600 units sold during the period, 300 were from the beginning inventory; 500 from the first purchase; 600 from the second purchase; and 200 from the last purchase. Using the specific identification costing method, the value of inventory on hand at the end of the period would be

Question 4 options:

A)

$8,390.

B)

$8,410.

C)

$2,570.

D)

$2,730.

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Question 5 (2 points)

The following data applies to a particular item of merchandise:

On hand at start of period

300

$5.10

1st purchase

500

5.20

2nd purchase

700

5.30

3rd purchase

600

5.50

Number of units available for sale

2,100

On hand at end of period

500

Number of units sold during period

1,600

Of the 1,600 units sold during the period, 300 were from the beginning inventory; 500 from the first purchase; 600 from the second purchase; and 200 from the last purchase. Using the weighted-average costing method, the value of the inventory on hand at the end of the period would be

Question 5 options:

A)

$2,730.

B)

$2,650.

C)

$2,530.

D)

$2,750.

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Question 6 (2 points)

The following data applies to a particular item of merchandise:

On hand at start of period

300

$5.10

1st purchase

500

5.20

2nd purchase

700

5.30

3rd purchase

600

5.50

Number of units available for sale

2,100

On hand at end of period

500

Number of units sold during period

1,600

Of the 1,600 units sold during the period, 300 were from the beginning inventory; 500 from the first purchase; 600 from the second purchase; and 200 from the last purchase. Using the specific identification costing method, the amount of the cost of goods sold would be

Question 6 options:

A)

$2,730.

B)

$13,870.

C)

$11,140.

D)

$8,410.

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Question 7 (2 points)

An error in the reported inventory will cause errors in all of the following EXCEPT

Question 7 options:

A)

the cash account.

B)

the statement of owner’s equity.

C)

the following year’s financial statements.

D)

the balance sheet.

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Question 8 (2 points)

The following data applies to a particular item of merchandise:

On hand at start of period

300

$5.10

1st purchase

500

5.20

2nd purchase

700

5.30

3rd purchase

600

5.50

Number of units available for sale

2,100

On hand at end of period

500

Number of units sold during period

1,600

Of the 1,600 units sold during the period, 300 were from the beginning inventory; 500 from the first purchase; 600 from the second purchase; and 200 from the last purchase. Using the last-in, first-out costing method, the value of the inventory on hand at the end of the period would be

Question 8 options:

A)

$8,570.

B)

$2,570.

C)

$2,730.

D)

$2,750.

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Question 9 (2 points)

When merchandise is sold and the perpetual system of inventory is used, the journal entry for a sale would include

Question 9 options:

A)

debiting Cost of Goods Sold and crediting Sales.

B)

debiting Accounts Receivable and crediting Cost of Goods Sold.

C)

debiting Accounts Receivable and crediting Sales.

D)

debiting Accounts Receivable and crediting Merchandise Inventory.

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Question 10 (2 points)

Refer to the following data:

Net sales, first month

$13,000

Normal gross profit as a percentage of sales

45%

Inventory, start of period

$8,000

Net purchases, first month

$7,000

Using the gross profit method of inventory estimation, the amount of normal gross profit would be

Question 10 options:

A)

$6,750.

B)

$5,850.

C)

$15,000.

D)

$3,600.

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Question 11 (2 points)

The merchandise costing method that matches the most current cost of items purchased against the current sales revenue is called the

Question 11 options:

A)

specific identification method.

B)

weighted-average method.

C)

last-in, first-out method.

D)

first-in, first-out method.

Save

Question 12 (2 points)

The following data applies to a particular item of merchandise:

On hand at start of period

300

$5.10

1st purchase

500

5.20

2nd purchase

700

5.30

3rd purchase

600

5.50

Number of units available for sale

2,100

On hand at end of period

500

Number of units sold during period

1,600

Of the 1,600 units sold during the period, 300 were from the beginning inventory; 500 from the first purchase; 600 from the second purchase; and 200 from the last purchase. Using the first-in, first-out costing method, the value of the inventory on hand at the end of the period would be

Question 12 options:

A)

$2,730.

B)

$2,750.

C)

$2,570.

D)

$8,390.

Save

Question 13 (2 points)

Question 13 options:

A fire completely destroyed the entire inventory of Printing Delight Co. on March 15, 20–. Fortunately, the books were not destroyed in the fire. The following information is taken from the books of Printing Delight Co. for the time period, January 1, 20– through March 15, 20–:

Beginning inventory, January 1, 20–

$ 45,000

Net purchases, January 1, through March 15, 20–

252,000

Net sales, January 1, through March 15, 20–

378,000

Normal gross profit percentage of sales

37%

Fill in the following blanks, using dollar signs and appropriate commas but no decimal places.

The estimated cost of goods sold for the time period January 1 through March 15, 20–, using the gross profit method is

. The estimated amount of merchandise inventory destroyed in the fire on March 15, 20–, using the gross profit method, is

.
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Question 14 (2 points)

Question 14 options:

The following information is taken from the books of All in the Family Center for the first quarter of its fiscal year ending on April 30, 20–:

Cost

Retail

Inventory, start of period (January 1, 20–)

$ 37,000

$ 66,000

Net purchases during the period

174,000

330,000

Net sales for the period

310,500

Fill in the following blanks, using dollar signs and appropriate commas but no decimal places.

The estimated ending inventory as of April 30, 20–, using the retail inventory method, is

. The estimated cost of goods sold for the time period, January 1, through April 30, using the retail inventory method, is

.
Save

Question 15 (6 points)

Question 15 options:

The April 1 inventory of Inotech Inc. had a cost of $37,000 and had a retail value of $79,000. During April, merchandise was purchased for $125,000 and marked to sell for $262,500. April sales totaled $201,000.

Calculate the following items using the retail method of inventory estimation. Fill in the blanks using dollar signs and commas but no decimal places.

(1) The retail value of the ending inventory is

. (2) The cost of goods sold in April is

. (3) The cost of ending inventory is

.
Save

Question 16 (12 points)

Question 16 options:

Smart Tech’s beginning inventory and purchases for the month of August were as follows:

# of
Units

Cost per
Unit

Amount

Beginning inventory

600

$7.00

$ 4,200

First purchase

400

$7.50

3,000

Second purchase

500

$8.00

4,000

Third purchase

300

$8.75

2,625

Number of units available for sale

1,800

$13,825

On hand

400

Number of units sold

1,400

Calculate the total amount to be assigned to cost of goods sold and ending inventory for August 31, using each of the following methods.
Fill in the blanks using dollar signs and appropriate commas but no decimal places.

(1) COGS under FIFO is

. Ending inventory under FIFO is

.

(2) COGS under LIFO is

. Ending inventory under LIFO is

.

(3) COGS under weighted average is

. Ending inventory under weighted average is

.
Save

Question 17 (6 points)

Question 17 options:

Over the past several years, Landmark Supplies has averaged a gross profit of 34%. At the end of 20–, the income statement of the company included the information shown below:

Sales

$1,100,000

Cost of goods sold:

Merchandise inventory, January 1, 20–

$ 67,000

Purchases

840,000

Goods available for sale

$907,000

Less merchandise inventory, December 31, 20–

130,000

Cost of goods sold

777,000

Gross profit on sales

$ 323,000

Investigation revealed that employees of the company had not taken an actual physical count of the inventory on December 31, 20–. Instead, they had merely estimated the inventory. Under the gross profit method of inventory estimation, determine the following items to check the accuracy of the employees’ estimates. Fill in the blanks using dollar signs and appropriate commas but no decimal places.

(1) Gross profit on sales is

. (2) Cost of goods sold is

. (3) Ending inventory is

.
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Question 18 (2 points)

The income summary account, after adjusting entries are posted, reflects the

Question 18 options:

A)

beginning inventory amount.

B)

cash income from business transactions.

C)

beginning and ending inventory amounts.

D)

ending inventory amount.

Save

Question 19 (2 points)

Which of the following accounts is never debited or credited during the accounting period?

Question 19 options:

A)

Interest Income

B)

Merchandise Inventory

C)

Purchases Returns and Allowances

D)

Owner’s Capital

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Question 20 (2 points)

A beginning inventory of $75,000 is removed from the merchandise inventory account by

Question 20 options:

A)

debiting $75,000 to Purchases.

B)

crediting $75,000 to Merchandise Inventory.

C)

crediting $75,000 to Income Summary.

D)

debiting $75,000 to Merchandise Inventory.

Save

Question 21 (2 points)

During the accounting period, the Unearned Revenue account had a balance of $50,000 for computer equipment and software yet to be delivered. On March 31, a delivery of all of the equipment was made, leaving $5,000 worth of software pending. The correct journal entry to record this activity on March 31 is to

Question 21 options:

A)

debit Unearned Revenue and credit Revenue for $45,000.

B)

debit Cash and credit Unearned Revenue for $45,000.

C)

debit Unearned Revenue and credit Revenue for $5,000.

D)

debit Computer Equipment and credit Cash for $45,000.

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Question 22 (2 points)

At the end of the accounting period, the correct entry in the general journal to adjust for ending inventory is to

Question 22 options:

A)

debit Merchandise Inventory and credit Unearned Revenue.

B)

debit Income Summary and credit Merchandise Inventory.

C)

debit Other Revenue and credit Income Summary.

D)

debit Merchandise Inventory and credit Income Summary.

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Question 23 (2 points)

In preparing a work sheet, the amounts for the Trial Balance columns are copied from the

Question 23 options:

A)

current chart of accounts.

B)

sales and purchases journal.

C)

general ledger.

D)

general journal.

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Question 24 (2 points)

On a work sheet, the Debit columns of the Income Statement and the Balance Sheet both total more than the Credit columns. This represents

Question 24 options:

A)

a net income.

B)

an error in the accounting procedures for the period.

C)

no gain or loss.

D)

a net loss.

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Question 25 (2 points)

If a difference is found between the physical count and the amount in the perpetual inventory records, an adjusting entry is made to which of the following accounts?

Question 25 options:

A)

Accounts Payable

B)

Purchases

C)

Inventory Short and Over

D)

Accounts Receivable

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Question 26 (2 points)

Which of the following is NOT a formal part of the accounting system?

Question 26 options:

A)

income statement

B)

statement of owner’s equity

C)

balance sheet

D)

the work sheet

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Question 27 (2 points)

A typical account found under the heading of “Revenue” in a chart of accounts is

Question 27 options:

A)

Freight-In.

B)

Purchases.

C)

Sales.

D)

Cash.

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Question 28 (2 points)

A trial balance of the general ledger accounts taken after the temporary owner’s equity accounts have been closed is usually referred to as a

Question 28 options:

A)

pre-closing trial balance.

B)

subsidiary trial balance.

C)

new accounting period trial balance.

D)

post-closing trial balance.

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Question 29 (2 points)

In a multiple-step income statement, operating expenses are subtracted from gross profit to compute

Question 29 options:

A)

net income.

B)

net loss.

C)

other income.

D)

income from operations.

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Question 30 (2 points)

The following information was taken from the financial statements of Sunshine City:

Total current assets

$ 53,000

Property, plant, and equipment

6,000

Current liabilities

21,000

Long-term liabilities

4,000

Owner’s equity

34,000

Beginning inventory

31,000

Ending inventory

33,000

Cost of goods sold

152,000

Net income

42,000

The inventory turnover (rounded to one decimal place) for Sunshine City is

Question 30 options:

A)

2.2 times.

B)

3.0 times.

C)

4.8 times.

D)

5.0 times.

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Question 31 (2 points)

Cash and all other assets that may be reasonably expected to be converted to cash or consumed within one year or the normal operating cycle of the business are classified as

Question 31 options:

A)

temporary investments.

B)

marketable securities.

C)

current assets.

D)

investments.

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Question 32 (2 points)

Accumulated depreciation amounts are shown as deductions from the

Question 32 options:

A)

accounts payable account.

B)

cost of building and equipment accounts.

C)

prepaid insurance account.

D)

accounts receivable account.

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Question 33 (2 points)

Net sales minus cost of goods sold equals

Question 33 options:

A)

operating income.

B)

operating expenses.

C)

other expenses.

D)

gross profit.

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Question 34 (2 points)

Reversing entries are made in the

Question 34 options:

A)

cash receipts journal.

B)

sales journal.

C)

purchases journal.

D)

general journal.

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Question 35 (2 points)

Those obligations that are due within one year or the normal operating cycle of the business and will be paid with money provided by the current assets are called

Question 35 options:

A)

long-term liabilities.

B)

current liabilities.

C)

investments.

D)

marketable securities.

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Question 36 (2 points)

The information needed in journalizing the closing entries is obtained from the

Question 36 options:

A)

general journal.

B)

income statement.

C)

work sheet.

D)

accounts receivable ledger.

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Question 37 (2 points)

Information needed in journalizing the first three closing entries is obtained from which of the following work sheet columns?

Question 37 options:

A)

Adjustments

B)

Income Statement

C)

Trial Balance

D)

Adjusted Trial Balance

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Question 38 (8 points)

Question 38 options:

The Income Statement and Balance Sheet columns below are from the work sheet of Bleeker Street Bounty for the year ended December 31, 20–.
Using the work sheet below, compute (a) total current assets, (b) working capital, (c) current ratio, and (d) accounts receivable turnover. (Accounts receivable balance on January 1, 20– was $23,200). Round to 2 decimal places. All sales are on account.

Bleeker Street Bounty
Work Sheet (partial)
For the year ended December 31, 20–

Income Statement

Balance Sheet

Account Title

Debit

Credit

Debit

Credit

Cash

12,300

Accounts Receivable

25,000

Merchandise Inventory

16,000

Store Supplies

1,100

Office Supplies

600

Prepaid Insurance

1,500

Store Equipment

66,000

Accumulated Depreciation—Store Equipment

38,000

Office Equipment

18,000

Accumulated Depreciation—Office Equipment

10,000

Accounts Payable

22,300

Salaries Payable

400

Long-Term Notes Payable

36,000

Carlo Perez, Capital

50,600

Carlo Perez, Drawing

32,000

Income Summary

17,000

16,000

Sales

61,500

Sales Returns and Allowances

500

Purchases

23,000

Purchases Returns and Allowances

700

Purchases Discounts

400

Sales Salary Expense (selling)

9,200

Office Salary Expense (general)

10,500

Store Supplies Expense (selling)

300

Office Supplies Expense (general)

400

Insurance Expense (general)

800

Depreciation Expense—Store Equipment (selling)

800

Depreciation Expense—Office Equipment (general)

900

63,400

78,600

172,500

157,300

Net Income

15,200

15,200

78,600

78,600

172,500

172,500

Fill in the blanks below using dollar signs and appropriate commas but no decimal places for any dollar amounts.
(a) Total current assets =
(b) Total working capital =
(c) The current ratio (round to two decimal places) = to 1.
(d) Accounts receivable turnover =

times. (Accounts receivable balance on January 1, 20– was $23,200). Round to 2 decimal places. All sales are on account.)
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Accounting Multiple Choice Questions

$13.00

Description

Kristen and Jeff are married taxpayers who file a joint return. In 2012, they had AGI of $600,000 and their preliminary itemized deductions totaled $40,000. In 2013, they also had AGI of $600,000 and preliminary itemized deductions of $40,000. In 2012 and 2013 their itemized deductions include mortgage interest. Which of the following is TRUE?

a. When comparing their 2012 and 2013 returns, they will deduct more itemized deductions on their 2013 return
b. When comparing their 2012 and 2013 returns, they will deduct the same amount of itemized deductions on each return
c. When comparing their 2012 and 2013 returns, they will deduct more itemized deductions on their 2012 return
d. They will not deduct any itemized deductions on either their 2012 return or their 2013 return

Which of the following statements is TRUE?

a. Taxpayers usually prefer deductions FROM AGI to deductions FOR AGI
b. The U.S. government always “breaks-even” with regards to alimony payments (i.e., because the reduction in taxes for the spouse paying the alimony will always equal the increase in taxes for the spouse receiving the alimony)
c. A dependent’s earned income amount could never impact the size/amount of his/her standard deduction amount
d. The amount of tax-exempt interest received by a taxpayer could impact the amount of his/her Social Security benefits that are subject to taxation

Assume that Tamella received some unique payments in 2013. Which of the following items may Tamella exclude from gross income?

a. $75,000 of punitive damages received from a lawsuit against Big Company, Inc.
b. $500 received from her NCAA basketball pool winnings
c. $10,000 received as a gift from Tamella’s college buddy
d. All of the above

In early 2013, Yenisey received a gift of a home valued at $500,000 (from Yenisey’s Uncle, Moses). Moses also gave Yenisey a $50,000 cash gift. During 2013, Yenisey rented the home to Mellissa. As a result of the lease with Mellissa, Yenisey earned net rental income of $20,000 (for 2013). What amount of income should Yenisey’s 2013 tax return include from these transactions?

a. $570,000
b. $70,000
c. $20,000
d. $0

Johnathan has AGI of $100,000 in 2013. During 2013, Johnathan also had an uninsured personal casualty loss of $25,000 (after the $100 reduction). The personal casualty loss related to an accident that Johnathan had with Pedro. Johnathan carried no collision insurance and Pedro was also an uninsured motorist. Assume Johnathan itemizes deductions in 2013. What is the casualty loss amount that Johnathan may deduct on his return?

a. $25,000
b. $15,000
c. $10,000
d. $0

Refer to the facts in the previous question. However, for purposes of this question assume that Johnathan takes the standard deduction in 2013. What is the casualty loss amount that Johnathan may deduct on his return?

a. $25,000
b. $15,000
c. $10,000
d. $0
TXX5761 Inc. paid all of the premiums for a $200,000 group-term life insurance policy on its 68-year-old President, Janice. Assume that pursuant to the applicable table, the cost per $1,000 of protection for a 1-month period is $1.27 (for a person aged 65 to 69). What amount relating to the policy (if any) must be included in Janice’s Gross Income for the year (assume Janice was covered for all twelve months)?

a. $200,000
b. $150,000
c. $2,286
d. $0

On January 1, 2013, Yanela purchased a 20-year annuity for $80,000 from INYAM & ASSOCIATES (an established insurance company). Under the annuity, Yanela will receive payments of $740 for each month of annuity’s life. What amount of the annuity payments may be excluded from Yanela’s Gross Income for 2013 (assume all 12 monthly payments are made in 2013)?

a. $0
b. $4,000
c. $4,880
d. $8,880

Assuming the same facts as in the previous problem, what amount of the annuity payments from INYAM & ASSOCIATES must be included in Yanela’s Gross Income for 2013?

a. $0
b. $4,000
c. $4,880
d. $8,880
In March 2013, Pedro, a calendar-year taxpayer, purchased new 7-year property for $1,000,000. The property was immediately placed into service (and is being used exclusively in Pedro’s extremely profitable business). No other personal property will be purchased by Pedro in 2013. Pedro wants to take the largest possible tax deduction in 2013 relating to the equipment. Compute the largest tax deduction possible in 2013 for the equipment (consider the Section 179 election, Bonus Depreciation, and MACRS, if applicable):

a. $1,000,000
b. $785,725
c. $500,000
d. $139,000

During 2013, 5-year MACRS property was placed in service by Charles, a calendar-year taxpayer. Assume that Charles does NOT make a Section 179 election or take any bonus depreciation. The property will most likely be depreciated over:

a. Six calendar years
b. Five calendar years
c. Two and one-half calendar years
d. One calendar year
Janice’s business incurred a casualty loss in 2013. Immediately before the casualty, her business truck had an adjusted basis of $35,000 and a fair market value of $40,000. Immediately after the casualty, the truck had a fair market value of $30,000. Because of the truck damage, Janice’s insurance company provided $5,000 as a reimbursement in 2013. What was Janice’s 2013 casualty loss deduction?

a. $30,000
b. $10,000
c. $5,000
d. Unknown

In 2007, Moses (a single taxpayer) loaned $10,000 to his friend Jamie. In 2013, Jamie declared bankruptcy, with the result that the debt became totally worthless. How should Moses treat the loss relating to this debt (assume that the debt is a nonbusiness debt that is a bona fide debt that arose from a debtor-creditor relationship)?

a. As an itemized deduction
b. As a short-term capital loss
c. As a long-term capital loss
d. Moses may not take any deduction relating to the debt (it is a nonbusiness debt)

Assume the facts stated in the prior question. Assume further that Moses has no other capital gains or losses in 2013 (or any prior years). What is the maximum amount (related to the bad debt) that Moses can deduct in 2013?

a. $10,000
b. $7,000
c. $3,000
d. $0

Assume the facts stated in the prior two questions. Assume further that for 2013 Moses will offset his wages (with any deduction related to the debt) to the maximum extent permitted by law. What is the amount of Moses’s capital loss carryover to 2014?

a. $10,000
b. $7,000
c. $3,000
d. $0

Compute the casualty loss on Yanela’s uninsured rental property under the following facts:

Adjusted basis $200,000
FMV before the loss $300,000
FMV after the loss $0

a. N/A
b. $100,000
c. $200,000
d. $300,000

Batista Corporation acquired new computer equipment on May 13, 2013, for $70,000. Batista did not elect immediate expensing under Section 179. Batista also elects not to take the additional first-year depreciation. Determine Batista’s cost recovery for 2013.

a. $70,000
b. $14,000
c. $7,000
d. $0

On August 5, 2013, Kristen purchased a new office building for $3 million. On October 3, 2013, she began to rent out office space in the building. What is Kristen’s cost recovery for 2013?

a. $0
b. $16,050
c. $92,973
d. $3,000,000

Assume the same facts as in the previous problem. Assume further that Kristen sells the office building on July 12, 2017. What is Kristen’s cost recovery for 2017?

a. $0
b. $41,665
c. $76,920
d. $92,973

BACKGROUND INFORMATION FOR QUESTIONS 49-50
Janice and Jamie recently formed a corporation named J&J Inc. (or “J&J”). On December 31, 2012, J&J issued 800,000 shares of common stock to Jamie and 800,000 shares of common stock to Janice. Jamie and Janice each paid $0.01 per share for their stock ($0.01 equaled the per share fair market value on December 31, 2012). Their stock is subject to a 4-year “repurchase option” (at cost) in favor of J&J. Each J&J repurchase option will “lapse” over time so that on December 31 (of 2013, 2014, 2015 and 2016), 200,000 shares will be released from the repurchase option. For example, if Jamie quits J&J before December 31, 2016, J&J can repurchase Jamie’s “unvested shares” for $0.01 per share (no matter what the fair market value is on that date).

Assume that Janice DID NOT file a timely “83(b) election.” On December 31, 2013, Janice is still working at J&J and thus 200,000 of Janice’s 800,000 shares are “released” from the J&J repurchase option (i.e., 200,000 of Janice’s shares “vest” on December 31, 2013). On that same day, the fair market value of the J&J stock equals $1.01 per share. What 2013 income, if any, must Janice report as a result of these events?

a. $800,000
b. $202,000
c. $200,000
d. $0

Assume that Jamie DID file a timely “83(b) election.” On December 31, 2013, Jamie is also still working at J&J and thus 200,000 of Jamie’s 800,000 shares are also “released” from the J&J repurchase option (i.e., 200,000 of Jamie’s shares “vest” on December 31, 2013). On that same day, the fair market value of the J&J stock equals $1.01 per share. What 2013 income, if any, must Jamie report as a result of these events?

a. $800,000
b. $202,000
c. $200,000
d. $0

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Accounting Multiple Choice Questions

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1. Callie was admitted to the Adams & Beal Partnership four years ago. The partnership has a deficiency at year end for the current year. How could this deficiency be accounted for?

-Use the profit and loss ratios to absorb the deficiency

-Do not account for the loss in the year incurred, it can be offset against income in future years

-Do not account for the loss in the year incurred, it could be offset against income in future years or carried back to offset income in prior years

-Losses are not passed on to individual partners in a partnership

2. The following is the priority sequence in which liquidation proceeds will be distributed for a partnership

-partnership drawings, partnership liabilities, partnership loans, partnership capital balances

-partnership liabilities, partnership loans, partnership capital balances

-partnership liabilities, partnership loans, partnership drawings, partnership capital balances

-partnership liabilities, partnership capital balances, partnership loans

3. Which of the following statements is correct regarding a partner’s debit capital balances?

-The partner should make contributions to reduce the debit balance to whatever extent possible

-If contributions are not possible, the other partners with credit capital balances will be allocated a portion of the debit balance based on their proportionate profit-and-loss-sharing percentages

-Partners who absorb another’s debit capital balance have a legal claim against the deficient partner

-All of these statements are correct

4. In a lump-sum liquidation of a partnership

-all assets are paid to the partners based on their initial contribution, with the oldest partnering being paid back first

-all assets are paid to the partners based on an equal distribution regardless of when the partner was admitted to the partnership

-all assets must be realized before any distribution can be made

-all assets are paid to the partners, at the same time, based the fair market value at the time they were initial donated to the partnership

5. When a partner withdraws from a partnership and the remaining partners acquire that interest

-this may have an effect on the liquidity of the partnership

-this will increases the cash flow into the partnership

-this will always create goodwill for an amount equal to the withdrawing partner’s original interest in the partnership

-this will cause all assets to be written down to offset the acquisition cost of the withdrawing partner’s interest at the time of the withdraw

6. The parent’s entry to record the interest in the foreign subsidiary’s undistributed income would be

-a debit to the investment of the subsidiary and a credit to subsidiary income

-a debit to the investment of the subsidiary receivable and a credit to subsidiary income payable

-a debit to the investment of the subsidiary receivable and a credit to subsidiary income payable

-a debit to the investment of the subsidiary receivable and a credit to subsidiary income payable

-no entry since the income is undistributed

7. You are the controller of A company that has just recently merged with B company. You are doing some research and based on your old accounting textbooks from 1999 you are thinking about using the pooling method for this transaction. This method

-requires assets only to be recorded at historical costs and liabilities at fair value

-requires all assets to be recorded at historical cost

-requires all assets and liabilities to be recorded at fair value

-is no longer an acceptable method

8. For financial accounting purposes, assets of an individual partner contributed to a partnership are recorded by the partnership at

-historical cost

-book value

-fair market value

-lower of cost or market

9. Which of the following would be least likely to be used as a means of allocating profits among partners who are active in the management of the partnership?

-Salaries

-Bonus as a percentage of net income before the bonus

-Bonus as a percentage of sales in excess of a targeted amount

-Interest on average capital balances

10. Assuming that the functional currency of a foreign subsidiary is not the local currency, which of the following accounts would be re measured at the historical rate?

-Accounts Payable

-Long-term notes payable

-Land

-Sales Revenue

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