Acb239 Practice Final Exam Questions and Answers

AC 239 PRACTICE FINAL EXAM QUESTIONS & ANSWERS

Chapter 16

1. The statement of cash flows reports a. cash flows from operating activitiesb. total assetsc. total changes in stockholders' equityd. changes in retained earnings

ANS: A

2. A ten-year bond was issued at par for $150,000 cash. This transaction should be shown on a statement of cash flows under a. investing activitiesb. financing activitiesc. noncash investing and financing activitiesd. operating activities

ANS: B

3. Cash receipts from interest and dividends are classified asa. investing activities.b. operating activities.c. either financing or investing activities.d. financing activities.

ANS: B

4. Which one of the following below should be added to net income in calculating net cash flow from operating activities using the indirect method?a. a gain on the sale of landb. a decrease in accounts payablec. an increase in accrued liabilitiesd. dividends paid on common stock

ANS: C

5. If a gain of $9,000 is incurred in selling (for cash) office equipment having a book value of $55,000, the total amount reported in the cash flows from investing activities section of the statement of cash flows is a. $46,000b. $9,000c. $55,000d. $64,000

ANS: D

6. Which of the following should be deducted from net income in calculating net cash flow from operating activities using the indirect method?a. a decrease in inventoryb. a decrease in accounts payablec. preferred dividends declared and paidd. a decrease in accounts receivableANS: B

7. Concerning the Indirect Statement of Cash Flows, select the correct statement.a. The management of a company would mostly utilize the Indirect Statement of Cash Flows

as a management tool since it starts with Net Income from the Income Statement.b. The management of a company would not normally distribute the Indirect Statement of

Cash Flows as a statement within its annual reports because it would most likely confuse the average reader.

c. The management of a company would most likely distribute the Indirect Statement of Cash Flows as a statement within its annual reports because it starts with Net Income and ends in the current cash balance which increases reader confidence in the report.

d. The management of a company would most likely distribute the Indirect Statement of Cash Flows as a statement within its annual reports because it does not present any relation to the other statements of the report, therefore it is least likely to confuse the reader.

ANS: A

8. Operating expenses other than depreciation for the year were $400,000. Prepaid expenses increased by $17,000 and accrued expenses decreased by $30,000 during the year. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be a. $353,000b. $413,000c. $447,000d. $383,000

ANS: C

9. The cost of merchandise sold during the year was $45,000. Merchandise inventories were $12,500 and $10,500 at the beginning and end of the year, respectively. Accounts payable were $6,000 and $5,000 at the beginning and end of the year, respectively. Using the direct method of reporting cash flows from operating activities, cash payments for merchandise total a. $48,000b. $42,000c. $50,500d. $44,000

ANS: A

Chapter 17

10. If comparative balance sheets indicate no notes receivable on the preceding year and a $40,000 note receivable on the current year, the increase of $40,000 a. can be stated as 0%b. can be stated as 100% increasec. cannot be stated as a percentaged. can be stated as 500% increase

ANS: C

11. In a common size balance sheet the 100 percent figure isa. total property, plant and equipment.b. total current assets.c. total liabilities.d. total assets.

ANS: D

12. Which of the following is not an analysis used in assessing solvency?a. number of times interest charges are earnedb. current position analysisc. ratio of net sales to assetsd. inventory analysis

ANS: C

13. Which of the following is not included in the computation of the quick ratio?a. inventoryb. marketable securitiesc. accounts receivabled. cash

ANS: A

14. Which of the following ratios provides a solvency measure that shows the margin of safety of noteholders or bondholders and also gives an indication of the potential ability of the business to borrow additional funds on a long-term basis?a. ratio of fixed assets to long-term liabilitiesb. ratio of net sales to assetsc. number of days' sales in receivablesd. rate earned on stockholders' equity

ANS: A

15. The numerator of the rate earned on common stockholders' equity ratio is equal to a. net incomeb. net income minus preferred dividendsc. income plus interest expensed. income minus interest expense

ANS: B

16. A company that is leveraged is one that a. contains debt financing.b. contains equity financing.c. has a high current ratio.d. has a high earnings per share.

ANS: AChapter 18

17. Which of the following is most associated with managerial accounting?a. Must follow GAAPb. May rely on estimates and forecastsc. Is prepared for users outside the organization.d. Always reports on the entire entity

ANS: B

18. What term is used to describe the process of developing the organization’s objectives and goals?a. Supervisingb. Planningc. Improvingd. Decision making

ANS: B

19. If the cost of direct materials is a small portion of total production cost, it may be classified as part of:a. direct labor costb. selling and administrative costsc. miscellaneous costsd. factory overhead cost

ANS: D

20. Which of the following is not a prime cost?a. Supervisor’s wagesb. Direct labor wagesc. Machine operator wagesd. Assembly line wages

ANS: A

Chapter 19

21. For which of the following businesses would the job order cost system be appropriate?a. Meat processorb. Automobile manufacturerc. Oil refineryd. Construction contractor

ANS: D

22. The Collins Company forecasts that total overhead for the current year will be $12,000,000 and that total machine hours will be 200,000 hours. Year to date, the actual overhead is $8,000,000 and the actual machine hours are 100,000 hours. If the Collins Company uses a predetermined overhead rate based on machine hours for applying overhead, as of this point in time (year to date) the overhead is over/under applied by?a. $2,000,000 overb. $2,000,000 underc. $4,000,000 overd. $4,000,000 under

ANS: B

23. The amount of time spent by an employee in the factory is usually recorded on:a. time cardsb. job order cost sheetsc. employees' earnings recordsd. statement of owners’ equity

ANS: A

24. The recording of the application of factory overhead costs to jobs would include a credit to:a. Factory Overheadb. Wages Payablec. Work in Processd. Cost of Goods Sold

ANS: A

25. Materials purchased on account during the month amounted to $195,000. Materials requisitioned and placed in production totaled $168,000. From the following, select the entry to record the transaction on the day the materials were bought.a. Materials                             168,000

   Accounts Payable                                   168,000

b. Materials                             195,000   Accounts Payable                                   195,000

c. Materials                             195,000   Cash                                                       195,000

d. Accounts Payable                195,000   Materials                                                195,000

ANS: B

26. The cost of production of completed and finished goods during the period amounted to $400,000, and the finished products shipped to customers had total production costs of $337,000. From the following, select the entry to record the transfer of costs from finished goods to cost of goods sold.a. Finished Goods                    400,000

Cost of Goods Sold                              400,000b. Finished Goods                    337,000

Cost of Goods Sold 337,000c. Cost of Goods Sold             337,000

Finished Goods                                     337,000d. Cost of Goods Sold             400,000

Finished Goods                                     400,000

ANS: C

27. A manufacturing company applies factory overhead based on direct labor hours. At the beginning of the year, it estimated that factory overhead costs would be $360,000 and direct labor hours would be 45,000. Actual manufacturing overhead costs incurred were $377,200, and actual direct labor hours were 46,000. What is the predetermined overhead rate per direct labor hour?a. $8.00b. $8.20c. $8.38d. $7.83

ANS: A

28. Which of the following entries would probably not be found on the books of a service provider?a. Debit Work in Process; credit Materialsb. Debit Work in Process; credit Wages Payablec. Debit Work in Process; credit Overheadd. Debit Cost of Services; credit Work in Process

ANS: A

Chapter 21

29. Which of the following describes the behavior of the fixed cost per unit?a. Decreases with increasing productionb. Decreases with decreasing productionc. Remains constant with changes in productiond. Increases with increasing production

ANS: A

30. Which of the following describes the behavior of the variable cost per unit?a. Varies in increasing proportion with changes in the activity levelb. Varies in decreasing proportion with changes in the activity levelc. Remains constant with changes in the activity leveld. Varies in direct proportion with the activity level

ANS: C

Given the following cost and activity observations for Sanchez Company’s utilities, use the high-low method to calculate Sanchez’s variable utilities costs per machine hour.

Cost Machine HoursMay $8,300 15,000June 10,400 20,000July 7,200 12,000August 9,500 18,000

a. $10.00b. $.60c. $.40d. $.52

ANS: C

31. As production increases, what should happen to the variable costs per unit?a. Stay the same.b. Increase.c. Decrease.d. Either increase or decrease, depending on the fixed costs.

ANS: A

32. A firm operated at 80% of capacity for the past year, during which fixed costs were $210,000, variable costs were 65% of sales, and sales were $1,000,000. Operating profit was:a. $140,000b. $150,000c. $310,000d. $200,000

ANS: A

33. If fixed costs are $300,000, the unit selling price is $25, and the unit variable costs are $20, what is the break-even sales (units) if fixed costs are reduced by $40,000?a. 60,000 unitsb. 52,000 unitsc. 62,000 unitsd. 64,000 units

ANS: B

34. Which of the following conditions would cause the break-even point to decrease?a. Total fixed costs increaseb. Unit selling price decreasesc. Unit variable cost decreasesd. Unit variable cost increases

ANS: C

35. If fixed costs are $240,000, the unit selling price is $32, and the unit variable costs are $20, what are the old and new break-even sales (units) if the unit selling price increases by $4?a. 7,500 units and 6,667 unitsb. 20,000 units and 30,000 unitsc. 20,000 units and 15,000 unitsd. 12,000 units and 15,000 units

ANS: C

36. Assume that Crowley Co. sold 8,000 units of Product A and 2,000 units of Product B during the past year. The unit contribution margins for Products A and B are $20 and $45 respectively. Crowley has fixed costs of $350,000. The break-even point in units is:a. 14,000 unitsb. 25,278 unitsc. 8,000 unitsd. 10,769 units

ANS: A

37. When units manufactured exceed units sold:a. variable costing income equals absorption costing incomeb. variable costing income is less than absorption costing incomec. variable costing income is greater than absorption costing incomed. variable costing income is greater by the number of units produced multiplied by the

variable cost ratio.

ANS: B

Chapter 22

38. Which of the following budgets allow for adjustments in activity levels?a. Static Budgetb. Continuous Budgetc. Zero-Based Budgetd. Flexible Budget

ANS: D

39. Christiansen and Sons' static budget for 10,000 units of production includes $50,000 for direct materials, $44,000 for direct labor, utilities of $5,000, and supervisor salaries of $15,000. A flexible budget for 12,000 units of production would show:a. the same cost structure in totalb. direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor

salaries of $18,000c. total variable costs of $136,800d. direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor

salaries of $15,000

ANS: D

40. The first budget customarily prepared as part of an entity's master budget is the:a. production budgetb. cash budgetc. sales budgetd. direct materials purchases

ANS: C

41. If the expected sales volume for the current period is 7,000 units, the desired ending inventory is 200 units, and the beginning inventory is 300 units, the number of units set forth in the production budget, representing total production for the current period, is:a. 7,000b. 6,900c. 7,100d. 7,200

ANS: B

42. If the expected sales volume for the current period is 9,000 units, the desired ending inventory is 200 units, and the beginning inventory is 300 units, the number of units set forth in the production budget, representing total production for the current period, is:a. 9,000b. 8,900c. 8,700d. 9,100

ANS: B

43. O'Neill Co. has $296,000 in accounts receivable on January 1. Budgeted sales for January are $860,000. O'Neill expects to sell 20% of its merchandise for cash. Of the remaining 80% of sales on account, 75% are expected to be collected in the month of sale and the remainder the following month. The January cash collections from sales are:a. $812,000b. $688,000c. $468,000d. $984,000

ANS: D

44. As of January 1 of the current year, the Joyner Company had accounts receivables of $50,000. The sales for January, February, and March of 2007 were as follows: $120,000, $140,000 and $150,000. 20% of each months sales are for cash. Of the remaining 80% (the credit sales), 60% are collected in the month of sale, with remaining 40% collected in the following month. What is the total cash collected (both from accounts receivable and for cash sales) in the month of January?a. $$74,000b. $110,000c. $71,600d. $131,600

ANS: D

Chapter 23

45. Standard costs are used in companies for a variety of reasons. Which of the following is not one of the benefits for using standard costs?a. Used to indicate where changes in technology and machinery need to be made.b. Used to value inventoryc. Used to plan direct materials, direct labor, and factory manufacturing cost.d. Used to control costs.

ANS: A

46. The standard costs and actual costs for direct materials for the manufacture of 2,500 actual units of product are as follows:

Standard CostsDirect materials (per completed unit) 1.04 kilograms @$8.75

Actual CostsDirect materials 2,500 kilograms @ $8

The amount of direct materials price variance is:a. $1,875 unfavorableb. $1,950 favorablec. $1,875 favorabled. $1,950 unfavorable

ANS: C

47. If the wage rate paid per hour differs from the standard wage rate per hour for direct labor, the variance is termed:a. variable varianceb. rate variancec. quantity varianced. volume variance

ANS: B

The following data relate to direct labor costs for February:

Actual costs 7,700 hours at $13Standard costs 7,000 hours at $9

48. What is the direct labor time variance?a. $9,100 favorableb. $9,100 unfavorablec. $6,300 unfavorabled. $6,300 favorable

ANS: C

49. Calculate the Direct Labor Time Variance using the above informationa. $2,362.50 Favorableb. $2,362,50 Unfavorablec. $11,340.00 Favorabled. $11,340.00 Unfavorable

ANS: C

5. Variances from standard costs are usually reported to:a. suppliersb. stockholdersc. managementd. creditors

ANS: C

Chapter 24

51. The following are advantages of decentralization except:a. Managers make better decisions when closer to the operation of the company.b. Expertise in all areas of the business is difficult, decentralization makes it better to

delegate certain responsibilities.c. Each decentralized operation purchases their own assets and pays for operating costs.d. Decentralized managers can respond quickly to customer satisfaction and quality service.

ANS: C

52. In a profit center, the manager has responsibility and authority for making decisions that affect:a. liabilitiesb. assetsc. equityd. costs

ANS: D

53. The following financial information was summarized from the accounting records of Block Corporation for the current year ended December 31:

SoftwareDivision

HardwareDivision

CorporateTotal

Cost of goods sold $47,200 $30,720Direct operating expenses 27,200 20,040Net sales 95,000 64,000Interest expense $  2,040General overhead 18,160Income tax 4,700

54. The gross profit for the Software Division is:a. $47,800b. $20,600c. $13,240

d. $33,280ANS: A

55. Stevenson Corporation had $275,000 in invested assets, sales of $330,000, income from operations amounting to $49,500 and a desired minimum rate of return of 7.5%. The rate of return on investment for Stevenson is:a. 8%b. 10%c. 18%d. 7.5%

ANS: C

56. What is Anderson Company's residual income?a. $252,000b. $900,000c. $1,400,000d. $760,000

ANS: D

57. Which of the following expressions is termed the profit margin factor as used in determining the rate of return on investment?a. Sales/Income From Operationsb. Income From Operations/Salesc. Invested Assets/Salesd. Sales/Invested Assets

ANS: B

58. Assume that Division P has achieved income from operations of $165,000 using $900,000 of invested assets. If management desires a minimum rate of return of 8%, the residual income is:a. $72,000b. $13,200c. $185,000d. $93,000

ANS: D

59. The Koko Company has income from operations of $80,000, invested assets of $400,000, and sales of $930,000.

What is the profit margin?a. 43%b. 8.6%c. 20%d. 4.3%

ANS: B

60. The Hua Company's radio division currently is purchasing transistors from the Xiang Co. for $3.50 each. The total number of transistors needed is 8,000 per month. Hua Company's electronics division can produce the transistors for a cost of $4.00 each. The $4 is made up of $3 in variable costs, and $1 in allocated fixed costs.

What should be the range of a possible transfer price?a. No transfer should take place.b. $3.51 to $3.99c. $3.01 to $3.99d. $3.01 to $3.49

ANS: D

Chapter 25

61. A business is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for $15 per unit. The unit cost for the business to make the part is $20, including fixed costs, and $12, not including fixed costs. If 30,000 units of the part are normally purchased during the year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease from making the part rather than purchasing it?a. $150,000 cost increaseb. $ 90,000 cost decreasec. $150,000 cost increase

d. $ 90,000 cost increaseANS: B

62. Mathews Company is considering replacing equipment which originally cost $500,000 and which has $460,000 accumulated depreciation to date. A new machine will cost $790,000 and the old equipment can be sold for $8,000. What is the sunk cost in this situation?a. $53,000b. $40,000c. $37,000d. $290,000

ANS: B

63. Franklin and Johnson, CPAs, currently work a five-day week. They estimate that net income for the firm would increase by $45,000 annually if they worked an additional day each month. The cost associated with the decision to continue the practice of a five-day work week is an example of:a. differential revenueb. sunk costc. differential incomed. opportunity cost

ANS: D

64. Discontinuing a product or segment is a huge decision that must be carefully analyzed. Which of the following would be a valid reason not to discontinue an operation?a. when the losses are minimalb. when the variable costs are less than revenuesc. when the variable costs are more than revenuesd. when fixed costs are more than revenues

ANS: B

65. In contrast to the total product and variable cost concepts used in setting seller's prices, the target cost approach assumes that:a. a markup is added to total costb. selling price is set by the marketplacec. a markup is added to variable costd. a markup is added to product cost

ANS: B

66. Which equation better describes Target Costing?a. Selling Price - Desired Profit = Target Costsb. Selling Price - Target Costs = Profitc. Target Variable Costs + Contribution Margin = Selling Priced. Selling Price = Target Variable Costs + Target Fixed Costs + Profit

ANS: A