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1A company whose balance sheet shows total assets $100,000 and total liabilities $40,000 is worth:
A)$100,000
B)$160,000
C)$60,000
D)Probably none of these


2If Company A has an accounting net worth of $500,000 with 100,000 shares of common stock outstanding and Company B has a net worth of the same amount but with only 50,000 shares outstanding, the market value of a share of Company B stock will be twice that of a Company A share.
A)True
B)Very unlikely


3The current ratio is the ratio of current liabilities to current assets.
A)True
B)False


4All assets are valued at the current fair market values.
A)True
B)False


5In most situations a company's revenues for the period, its net income for the period, and its cash inflow for the period are likely to be three entirely different amounts.
A)True
B)False


6The accountant's concept of the accrual basis of accounting represents a practical compromise between, on the one hand, the cash basis of accounting and, on the other hand, the economist's theory that income accrues as production proceeds.
A)True
B)False


7Under the accrual basis of accounting, revenue (and result¬ing income) is recognized in the period when:
A)Cash is collected if the customer pays in advance of delivery of the product
B)Cash is collected if the customer pays after product delivery
C)Cash is collected
D)The goods or services are delivered to new owners


8An expense is:
A)Any loss
B)Any amount spent
C)Any item of factory overhead
D)A cost incurred to produce for an asset revenue


9Retained earnings is equal to accumulated net income over the years less dividend distributed.
A)True
B)False


10Bad debts are an operating expense.
A)True
B)False


11Working capital (or net working capital) is the arithmetic excess of cash over bank loan.
A)True
B)False


12Working capital increases when we borrow money from a bank on a short-term loan.
A)True
B)False
Sales and other revenues $320,000
Cost of product sold$180,000 
Selling expenses41,000 
General expenses62,000 
Income taxes10,000293,000
Net income $27,000
Dividends on common stock 20,000
Earnings retained $7,000

NOTE: Depreciation total of $15,000 is included in the expenses listed above.



13The "gross margin" of Essex Products Co. for 20XX, as evidenced by the income statement, was:
A)$7,000
B)$27,000
C)$140,000
D)$180,000


14Increases in assets are recorded by:
A)Debits
B)Credits


15Increases in expenses are recorded by:
A)Debits
B)Credits


16Increases in liabilities are recorded by:
A)Debits
B)Credits


17Increases in owners' equity are recorded by:
A)Debits
B)Credits


18Increases in revenues are recorded by:
A)Debits
B)Credits


19A discount which you are allowed to take upon paying a bill before a certain date is properly classified as:
A)Income
B)Adjustment of cost of item purchased


20From the managerial point of view, the more important of the following items of information is the amount:
A)Of discounts you have "earned"
B)Of discounts you have "lost"
Assume:
DateItemUnitsCost
Jan. 1Initial inventory10,000$ 100,000
Jan. 12Purchase12,000150,000
Jan. 24Purchase8,000120,000
Jan. 31Inventory15,000?




21The cost of the January 31 inventory, using FIFO, is:
A)$162,500
B)$185,000
C)$207,500
D)None of these


22See question 21. The cost of inventory using LIFO is:
A)$162,500
B)$185,000
C)$207,500
D)None of these


23See question 21. The cost of the January 31 inventory at average cost is:
A)$162,500
B)$185,000
C)$207,500
D)None of these


24During a given year our sales total $250,000, our cost of goods sold is $150,000, and our ending inventory (at FIFO cost) is $10,000. Our inventory turnover approximates:
A)25 times
B)15 times
During a given year our sales total $250,000, our cost of goods sold is $150,000, and our ending inventory (at FIFO cost) is $10,000. Our inventory turnover approximates:



25See question 24. Our ending inventory amounts to approximately:
A)24 days' supply
B)17 days' supply


26We trade in an automobile that cost $10,000 originally and on which we have, so far, recorded depreciation of $7,000. We have been offered a fair cash price of $3,500 for our car, but we elect to give the car, plus $8,600 in cash, for a new car which has a list price of $13,000. The new car should be put on our books at the following valuation:
A)$11,600
B)$12,100
C)$13,000
D)$18,600


27The straight-line method of recording depreciation has merit when the depreciable asset renders approximately the same amount of service in each month, year, or other uniform time period.
A)True
B)False


28Because most depreciable assets render more valuable (or less costly) services per period in the earlier periods of use¬ful life than they do in the later periods, some form of increasing-charges depreciation method is generally to be preferred.
A)True
B)False


29If an asset which cost $1,000 has an estimated useful life of 5 years and probable salvage value of $400, the amount of annual depreciation charge by the straight-line method is:
A)$280
B)$200
C)$120
D)$110


30See question 29. The annual depreciation for the second year will be the following amount if the sum-of-years' digits method is used:
A)$200
B)$160
C)$120
D)$80


31If we were to use the declining-balance method for the asset in question 29, the amount of depreciation in year 1 would be:
A)$400
B)$240
C)$200
D)$120


32Depreciation is a source of cash flow.
A)True
B)False


33See question 26. Assume that instead of trading the automobile in, we accept the cash offer. One element in the entry to record the sale would be:
A)Credit Gain on Sale, $500
B)Credit Gain on Sale, $1,400


34Depreciation must be recorded in order to provide for re-placement of the asset.
A)True
B)False


35In a balance sheet the account, Allowance for Depreciation, denotes that the company has reserved funds in an amount at least as great as the balance of that account.
A)True
B)False


36A stock split automatically increases the value of the com¬mon stock held by a stockholder.
A)True
B)False


37A stock dividend distributes corporate earnings.
A)True
B)False


38Because of the ambiguity of the term reserve, use of the term as the title of an item in the balance sheet is generally discouraged by professional accountants.
A)True
B)False


39When long-term notes (or bonds) are issued at a price above par value, they are said to be issued at a:
A)Discount
B)Premium


40Bond premium represents income to the debtor company at the time of issuance.
A)True
B)False


41Bond discount should be amortized (accumulated) over the life term of the bond issue and thus shown as an addition to the periodic interest expense.
A)True
B)False


42Under so-called "actual" cost accounting procedures, the actual overhead costs of manufactured goods are approx¬imated by use of applied overhead rates that are established on the basis of estimates made at the beginning of the period.
A)True
B)False


43Of the two objectives of cost accounting, (1) the determina¬tion of the cost of goods manufactured and (2) the minimi¬zation of costs, the latter is likely to be the much more significant to the welfare of the business.
A)True
B)False


44Under a system of standard cost accounting, if we purchase 10,000 pounds of material for $11,000 during a period when our standard cost for that material is $1 per pound, we should record a materials price variance of $1,000 as a credit.
A)True
B)False


45If we consume 8,500 pounds of the material referred to in question 44 to produce 100 units of product with a standard raw material content of 80 pounds per unit, we should record a materials quantity (usage) variance of:
A)$150 debit
B)$550 credit
C)$500 debit
D)$500 credit


46If we turn out 1,000 units of product today in a department which has a standard direct labor allowance of 5 hours per unit and a standard wage rate of $10 per hour, the standard cost of the day's output, as far as direct labor is concerned, is $50,000.
A)True
B)False


47See question 46. If we actually use 5,500 direct labor hours to produce the 1,000 units and if the actual wage rate is $11.00 per hour, our direct labor efficiency variance is:
A)$5,500 debit
B)$5,500 credit
C)$5,000 debit
D)$5,000 credit


48In a given department the capacity level of operation for a 4-week period is considered to be 6,000 machine hours, with departmental fixed overhead of $6,000 and variable overhead of $2 per hour. In the 4 weeks just past, this department operated for 4,500 machine hours and had fixed overhead of $6,000 and variable overhead of $10,000. The overhead budget variance for the period was:
A)$2,000 debit
B)$2,000 credit
C)$1,000 debit
D)$1,000 credit


49See question 48. The cost standards for this department provide for 4,300 machine hours for the amount of product actually turned out. The overhead efficiency variance for the period was:
A)$1,700 debit
B)$3,400 credit
C)$600 debit
D)$600 credit


50See questions 48 and 49. The idle capacity variance for the 4-week period was:
A)$1,500 debit
B)$4,500 debit
C)$4,500 credit
D)Zero


51The essential element of "responsibility" accounting is the assigning of responsibility for costs, as they are incurred, to the persons most immediately in a position to control them.
A)True
B)False


52Under a system of responsibility accounting, costs that have once been assigned as the responsibility of one individual are never subsequently transferred to another department.
A)True
B)False


53The term "direct costing" denotes a system in which only the direct costs of material and labor are charged to prod¬ucts.
A)True
B)False


54Under a system of direct costing, fixed costs are known as "period" costs, and they are assigned to products on the basis of predetermined allocation rates.
A)True
B)False


55If the fixed costs for a given period amount to $20,000 and the variable costs are $5 per unit of product, the differential cost of production at 80 percent of capacity (8,000 units) versus production at 60 percent of capacity is:
A)$10,000
B)$14,000
C)$20,000
D)Zero


56See question 55. If we sell our products for cash only, at $10 each, and are able to sell only 6,000 units per period, what percent of bad-debt losses could we afford to incur (and break even on the added sales) if we were to increase our sales to 8,000 units by allowing the new customers to charge their purchases?
A)20 percent
B)30 percent
C)50 percent
Your accountant presents the following analysis of cost and profit data with respect to a component part: Comparative Costs

 To makeTo buy
Direct materials$50$ -
Direct labor30 
Variable factory overhead30 
Nonvariable factory overhead20 
General administrative overhead102
Purchasing overhead, nonvariable1015
Normal profit margin50-
Invoice cost of complete part 120
 $200$137




57If your make-or-buy decision is to be resolved on the basis of incremental (differential) costs, the decision should be to:
A)Buy
B)Make


58See question 57. The unit differential cost of producing the part internally appears to be approximately:
A)$100
B)$110
C)$50
D)$120


59See question 57. If your make-or-buy decision is to be re-solved on the basis of full, or total, costs, the decision should be:
A)Buy
B)Make


60See question 57. The numbers to be compared in arriving at the decision in question 59 are:
A)$130 and $120
B)$140 and $120
C)$150 and $137
D)$200 and $137


61You are contemplating purchase of an item of machinery and your accountant provides you with the following data:

Invoice cost of machine, $25,000; installation cost, $5,000; probable useful life, 10 years, with no salvage value. Benefits from machine: labor cost saving of $10,000 per year.

Operating costs of machine per year: power, $2,000; maintenance, $1,000; depreciation, $3,000; sundry cash costs, $1,000. The estimated approximate payback period for this machine on the basis of the available data is:
A)10 years
B)6 years
C)5 years
D)4 years


62Would acquisition of the machine of question 61 be justified if you decide it must produce a 15 percent (before-tax) rate of return over its lifetime? (NOTE: the present value of $1 per year for 10 years, discounted at 15 percent per period, is approximately $5.02).
A)Yes, by a considerable margin (more than $2,000)
B)Yes, by a narrow margin
C)No, by a considerable margin (more than $2,000) b. No, by a very narrow margin.


63See question 62. In order to estimate the probable rate of return to be earned by a new machine, we assume that our cost (assume $30,000) represents the present value, at our effective earning rate, of the future periodic cash flow (as¬sume $6,000 per period). Thus, for each $1 of cash flow we will have to invest $30,000/$6,000 = $5. By reference to compound-interest tables for 10-year periods, we find the present value of $1 per period that most nearly approxi¬mates $5. The column in which this amount appears will be headed by the sought-for interest rate. In the present case the rate is approximately:
A)5 percent
B)10 percent
C)20 percent
D)15 percent


64Consolidated statements automatically contain at least some element of fiction.
A)True
B)False


65The terms "consolidated" and "combined" statements have the same meaning for accounting purposes.
A)True
B)False


66When one company owns sufficient voting stock of another company to be able to exercise a major influence upon the decisions of the other company, the two companies are properly referred to as:
A)Affiliated companies
B)Consolidated companies


67One of the principal tasks to be performed in the prepara¬tion of consolidated statements is that of eliminating inter-company items.
A)True
B)False


68Entries for eliminations referred to in question 67 are not made on the books of either the parent or its subsidiaries-they are, essentially, worksheet entries.
A)True
B)False


6969. The stockholders' equity of Sub Co. stands as follows on the date when Parent Co. acquires 80 percent of Sub Co. com¬mon stock for $2,000,000, cash:

Capital stock, common, par $10 $1,000,000
Retained earnings 500,000

If the other assets of Sub Co. are already reasonably valued in their balance sheet, preparation of a consolidated balance sheet at date of acquisition would probably call for recognition of goodwill amounting to:
A)$500,000
B)$1,000,000
C)$800,000
D)Zero


70To reflect acquisition of the Sub Co. stock (see question 69), Parent Co. would record a credit to cash and debit(s) to:
A)The various assets held by Sub Co. plus goodwill
B)Inter-company liabilities
C)Investment in Subsidiary


71See question 70. On Sub Co. books, entries must be made to mirror those made by Parent Co. at date of acquisition.
A)True
B)False


72The preparation of a consolidated balance sheet commonly requires elimination from Inventories, and correspond¬ingly from Retained Earnings, of the amount of profits (booked by any of the affiliates) resulting from sales among affiliates and upon which the profits have not yet been "realized" through sale to outsiders.
A)True
B)False


73In the preparation of consolidated income statements the key principle is that sales and expenses representing strictly transactions between affiliates must be eliminated.
A)True
B)False


74The term deferred asset, or deferred liability, refers to ac-count balances that now show on the asset side of the bal¬ance sheet and will later show up in the income statement as expenses (charges against income).
A)True
B)False


75The term deferred liability refers to account balances that are now shown on the right-hand side of the balance sheet and will later show up in the income statement as credits (additions to income).
A)True
B)False


76Income taxes have characteristics similar to the various classes of operating expenses and accordingly should be matched, as realistically as is feasible, against the income to which they pertain.
A)True
B)False


77If we, as lessors of machinery, collect rentals in advance for the next year, our accountant should record the receipts as a debit to Cash and should make a credit to:
A)A revenue account (such as Lease Revenue)
B)A deferred credit account (such as Deferred Lease Income)
See question 77.



78If we are required to pay income tax this year on the advance leasehold collections, our accountant should record the payment (or accrual) as a credit to Cash (or Taxes Payable) and a debit to:
A)Income Tax Expense
B)Deferred Income Tax


79In the case of certain types of installment sales, the income of which is fully recognized in the books at date of sale but is deferred for income tax purposes until collections are made, tax allocation is accomplished in the period of sale by:
A)Making credits to a deferred credit account
B)Making credits to an accrued tax liability account


80If the depreciation that we record on our books is less than that reported on our tax return and we fail to make tax allocation entries, then our current income will be:
A)Overstated
B)Understated


81The tax allocation entry appropriate for question 80 consists of a debit to tax expense accounts and a credit to:
A)Deferred income tax credit
B)Accrued income tax liability


82If in a given period we record expenses which are not allowable as tax deductions until a later period, we must make appropriate tax allocation entries so that our net in-come will not be:
A)Overstated
B)Understated


83The term net assets means:
A)Total assets minus total liabilities
B)Plant assets minus allowances for depreciation
C)Receivables minus allowance for uncollectibles
D)The sum of (b) and (c)


84In the case of an acquisition (purchase), good accounting requires that the acquired assets be recorded at reasonably current (appraised) values and that goodwill (or other intan¬gibles) be recognized in the event that the purchase price exceeds the aggregate appraised values of the tangible as-sets minus liabilities.
A)True
B)False


85If the transaction whereby Company A takes over the business of Company B is interpreted and accounted for as an acquisition, the probabilities are that the reported income for the ensuing period will be somewhat different than if the transaction is handled as a pooling of interests. How different?
A)Larger
B)Smaller


86Goodwill recognized in the process of an acquisition:
A)Must be kept on the books permanently
B)Must be amortized over a period of reasonable length
C)Must immediately be charged off to Retained Earnings
Use following information to answer the next two questions:

Product K's expected selling price per unit is $36, projected variable cost per unit is $20, and estimated fixed costs per month are $12,000.



87The break-even point in sales units per month is
A)1,800
B)1,500
C)1,250
D)750
Product K's expected selling price per unit is $36, projected variable cost per unit is $20, and estimated fixed costs per month are $12,000.



88The break-even point in dollars per month is
A)36,000
B)27,000
C)45,000
D)25,000


89Period costs are:
A)treated as expenses in the period in which they are incurred.
B)always directly traceable to products.
C)costs including direct labor.
D)costs including factory overhead.
The Spotts Company uses a process costing system. Assume that materials are added at the beginning of the period and labor and overhead are added continuously throughout the process. The company uses the FIFO method. The following data are available for one of its accounting periods:

 Units
Beginning Work in Process32,000
(60% complete for labor and overhead)
Units started192,000
Units transferred out204,000
Ending Work in Process20,000
(40% complete for labor and overhead)




90Equivalent units for materials are
A)212,000 units
B)244,000 units
C)224,000 units
D)192,000 units


91Equivalent units for labor and overhead
A)232,000 units
B)192,800 units
C)212,000 units
D)204,000 units


92When a company reaches the break-even point in sales, fixed costs equal
A)The contribution margin
B)Total costs.
C)Variable costs.
D)Sales.
E)Zero


93When the break-even point is 800 units and the contribution margin per unit is $2, fixed costs are
A)$400
B)$800
C)$1,000
D)None of the above


94To reach a target net income of $20,000, a firm with fixed costs of $10,000 and a per-unit contribution margin of $5 must sell
A)2,000 units
B)4,000 units
C)6,000 units
D)8,000 units
Use the following information to answer the next two questions about Alexis Company.

Actual units completed800 units
Standard labor rate per hour$10
Standard hours per unit140 hours
Labor rate variance $29,000 Unfavorable
Labor efficiency variance$10,000 Unfavorable




95Given the above information, the standard labor cost per unit is
A)$1,400
B)$2,000
C)$4,000
D)$8,000


96Given the above information, the actual hours were
A)80,000 hours
B)112,000 hours
C)113,000 hours
D)The answer cannot be determined.


97Which of the following should not be included in Manufacturing overhead costs:
A)Utility bills relating to the factory
B)Indirect materials used in production
C)Depreciation of machinery used in production
D)Advertising costs for the finished good
E)Indirect labor such as custodial service costs


98Under the job-order cost system, when factory overhead is applied by a predetermined rate
A)Factory overhead is debited
B)Goods in process is credited
C)Factory overhead applied is credited
D)None of the above


99When job-order cost system is used, the accounting entry for jobs completed would include
A)A debit to Cost of Goods sold
B)A credit to Finished Goods
C)A credit to Work in Process Goods
D)A debit to Finished


100Materials purchased on account during the month amounted to $175,000. Materials requisitioned and placed in production totaled $159,000. From the following, select the entry to record the transaction on the day the materials were bought.
A)Materials 159,000 Accounts Payable 159,000
B)Materials 175,000 Accounts Payable 175,000
C)Work In Process 159,000 Materials 159,000
D)Accounts Payable 175,000 Materials 175,000





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