ACCOUNTING QUESTIONS

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QUESTION 1 Net sales volume variance will not be favorable:  When actual units sold is greater than budgeted sales volume  When actual units sold are less than budgeted sales volume  When the sales volume variance is favorable  Under any of the above conditions 2.5 points   QUESTION 2 Which of the following is a suggested technique for managing the budgeting process in a manner that increases employee motivation?  Measure the budget against performance only when assessing poor performers  Never alter the budget  Top management should disassociate itself from the budget  Emphasize the budget as a planning device 2.5 points   QUESTION 3 In a manufacturing setting, the purchase budget is based on:  The sales budget  The production budget  The manufacturing labor budget  The cash disbursements 2.5 points   QUESTION 4 Which of the following is not used in the formulation of economic value added (EVA)?  A minimum rate of return set by top management  After tax income  The weighted average cost of capital  Total net assets 2.5 points   QUESTION 5 ______________ is the time a product exists–from conception to abandonment.  Product life cycle  Revenue producing life  Consumable life  Introduction stage 2.5 points   QUESTION 6 Brown Division operates as a revenue center. Data for this year are as follows:  ActualBudgetSales in Units44,00040,000Selling price per unit$190$200Variable expenses per unit $140  What is the total revenue variance? $220,000 (U)  $360,000 (F)  $180,000 (F)  $220,000 (F) 2.5 points   QUESTION 7 Which of the following situations gives rise to the need for a transfer price?  Two divisions of the same company sell to the same wholesaler  Two divisions of the same company sell competing products to the same customer  Two divisions of the same company sell to one another  Both B and C 2.5 points   QUESTION 8 When determining net present value, this is commonly done to consider higher than normal risk associated with a proposed investment:  Decrease the discount rate used in the analysis  Decrease the expected cash flows  Increase the discount rate used in the analysis  Increase the required payback period 2.5 points   QUESTION 9 Which of the following capital budgeting techniques provides the decision maker with answers expressed in dollars?  Payback method  Internal rate of return  Net present value  None of the above 2.5 points   QUESTION 10 A flexible budget variance for a manufacturing cost is computed as the difference between:  Flexible budget costs and static budget costs  Actual costs and flexible budget costs  Departmental costs and cost center costs  Flexible budget costs and original budget costs 2.5 points   QUESTION 11 A precondition for effective capital budgeting requires having:  A clearly defined mission  A well-defined business strategy  Long-range goals  All of the above 2.5 points   QUESTION 12 Structuring performance reports and addressing them to individuals as group members of an organization in a manner that emphasizes factors that can be controlled by them is accomplished by using which of the following?  Absorption costing  Value chain analysis  Responsibility accounting  Relational concepts 2.5 points   QUESTION 13 Assume that the standard cost to make one unit of product includes 15 units of raw materials at a price of $3 per unit. In July, 34,000 units of raw materials were purchased for $100,800, and 30,600 units of raw materials were used to produce 2,000 units of finished product. What is the materials quantity variance?  $2,400 (U)  $1,800 (U)  $1,200 (F)  $1,200 (U) 2.5 points   QUESTION 14 Budgetary slack refers to:  Intentionally requesting more funds in the budget than needed  The time lag between budget preparation and actual operations.  Overspending the budget allowance  The time lag between budget discussions and actual preparation of budgets 2.5 points   QUESTION 15 A balanced scorecard typically includes:  Financial measures  Customer satisfaction measures  Internal processes measures  All of the above 2.5 points   QUESTION 16 The objective of standard cost variance analysis is:  To identify standard cost variances and to explain the reasons for their occurrences  To explore the reason or reasons for variation in sales prices of products offered in the company’s main line of business  To identify the standard deviation in budgeted numbers over a period of time  To purge cost data of the effects of inflation 2.5 points   QUESTION 17 Which of the following aspects related to budgeting and human behavior is not correct?  Budgets often produce strong reactions in people.  The preparation period for a participative budget is generally longer than that for an imposed budget.  A disadvantage of the use of budgets is that they always decrease employee motivation.  Personnel who do not participate in budget preparation are likely to lack a commitment in achieving their part of the budget. 2.5 points   QUESTION 18 Information for Tube division is as follows: – Net earnings for division $40,000 – Asset base for division$100,000 – Target rate of return 16% – Operating income margin 12% – Weighted average cost of capital 8%. What is Tube’s residual income?  $26,000  $24,000  $32,000  $95,200 2.5 points   QUESTION 19 Which of the following is not an advantage of ROI?  It encourages managers of departments with high ROIs to invest in average ROI projects.  It encourages managers to pay careful attention to the relationships among sales, expenses, and investment.  It encourages cost efficiency.  It discourages excessive investment in operating assets. 2.5 points   QUESTION 20 Bosworth Boots, Inc. is considering the production of a new line of boots. Based on preliminary market research, management has decided that each pair of boots should be priced at $225. Furthermore, management believes that the profit margin should be 30 percent of sales revenue. What is the target cost?  $150.75  $225.50  $260.00  $157.50 2.5 points   QUESTION 21 Birchtown Company’s budgeted sales were 5,000 units at $400 per unit. Actual sales were 4,500 units at $420 per unit. Birchtown’s sales price variance was:  $ 34,000 (U)  $100,000 (U)  $ 90,000 (F)  $ 45,000 (F) 2.5 points   QUESTION 22 The Rob Wallace Corporation has a sales budget for next month of $400,000. Cost of goods sold (all of which is merchandise) is expected to be $250,000. All goods are paid for in the month following their purchase. The beginning inventory of merchandise is $16,000, and an ending inventory of $12,000 is desired. Beginning accounts payable is $52,000. How much merchandise inventory will The Rob Wallace Corporation need to purchase next month?  $2,50,000  $1,90,000  $2,46,000  $4,00,000 2.5 points   QUESTION 23 The return on investment is computed as:  Operating income divided by sales  Operating income divided by average operating assets  Sales divided by average operating assets  Operating asset turnover divided by the operating income margin 2.5 points   QUESTION 24 Clarinet Publishing is considering the purchase of a used printing press costing $38,400. The printing press would generate a net cash inflow of $20,000 a year for 5 years. At the end of 5 years, the press would have no salvage value. The company’s cost of capital is 10 percent. The investment’s payback period in years (rounded to two decimal points) is:  2.56  2.13  1.92  3 2.5 points   QUESTION 25 Generally, the first of the following budgets to be prepared is the:  Cash budget  Operations budget  Sales budget  Purchases budget 2.5 points   QUESTION 26 In a segment report for territories, the contribution margin less direct segment fixed costs is typically called the:  Segment sales  Product sales  Territory margin  Fixed costs 2.5 points   QUESTION 27 The internal rate of return:  Does not require a predetermined discount rate  Is often used to rank investment proposals  May be compared to the cost of capital in project evaluation  All of the above 2.5 points   QUESTION 28 Assume that the standard cost to make one finished unit includes 2 hour of direct labor at $8 per hour. During April, 22,000 direct labor-hours were worked, 10,500 units of product were manufactured, and total direct labor cost was $160,000. What is the labor rate variance for April?  $ 2,000 (U)  $ 2,000 (F)  $16,000 (U)  $16,000 (F) 2.5 points   QUESTION 29 Budgets based on the actual level of output, rather than the output originally budgeted, are called:  Activity budgets  Flexible budgets  Operating budgets  Static budgets 2.5 points   QUESTION 30 Cameo Company manufactures boxes. To manufacture a box, it takes 44 units of wood and 2 units of plastic. Scheduled production of boxes for the next two months is 2,100 and 2,500 boxes, respectively. Beginning inventory is 16,000 units of wood and 120 units of plastic. The ending inventory of wood is planned to decrease 4,000 units each of the next two months, and the plastic inventory is expected to increase 20 units each of the next two months. Based on this information, the number of units of wood that Cameo needs to purchase during the first month is:  84,000 units  82,000 units  8,000 units  88,400 units 2.5 points   QUESTION 31 When an outside market exists for an intermediate product that is perfectly competitive, the ideal method of transfer pricing is generally:  The one that creates the highest margin to the selling unit  The price at which the product sells in the external market  One that is higher than what the outside market is quoting  Based on management accounting numbers 2.5 points   QUESTION 32 What is residual income?  Excess income earned after budgeted income has been achieved  The excess of investment center income over the minimum return set by management  A percentage of income received by an organization for its participation in a joint venture  Income beyond the breakeven point determined by the product’s lifecycle 2.5 points   QUESTION 33 Read Publishing is considering the purchase of a used printing press costing $84,200. The printing press would generate a net cash inflow of $37,422 a year for 3 years. At the end of 3 years, the press would have no salvage value. The company’s cost of capital is 10 percent. YearPresent Value of $1.00 @ 10% per year10.90920.82630.75140.683Determine the net present value for the investment. The investment’s net present value is: $5,480  $19,200  $76,800  $8,832 2.5 points   QUESTION 34 ______________ is (are) the difference between the sales price needed to capture a predetermined market share and the desired profit per unit.  Gross profit  Target cost  Target price  Contribution margin 2.5 points   QUESTION 35 A project under consideration has a net present value of $10,000 for a required investment of $60,000. There are no other investment options at this time. However, the assumed discount rate used to calculate the net present value is 20%. On the basis of this information alone, this project should:  Definitely be rejected because $10,000 is only 17% of $60,000  Be rejected on the basis that the project loses $50,000  Probably be approved since the net present value is greater than zero  Be accepted if the cost of capital is greater than or equal to 20 percent 2.5 points   QUESTION 36 Which of the following amounts would be classified as part of the disinvestment phase for a project?  Depreciation  Collections of accounts receivable from sales  Expenditure to return plant site to its pre-project condition  Retiring bonds issues to finance the project 2.5 points   QUESTION 37 ________________ is a systematic approach to identifying the best practices to help an organization take action to improve performance.  Target costing  ISO 9000  Activity-based management  Benchmarking 2.5 points   QUESTION 38 Tom Gilgen is considering the production of a new line of jeans. Based on preliminary market research, management has decided that each pair of jeans should be priced at $170. Furthermore, management believes that the profit margin should be 25 percent of sales revenue. What is the target cost?  $62.00  $950.75  $112.00  $127.50 2.5 points   QUESTION 39 An awareness of the impact of today’s actions on tomorrow’s costs is a concept that underlies which of the following notions?  Marginal revenue  Target pricing  Kanban systems  Life-cycle costs 2.5 points   QUESTION 40 What is a transfer price?  The amount charged for a product or service that one division provides another  The amount charged for goods and services offered to the government  An amount charged to cover the costs associated with import/export taxes  The amount charged the final consumer to cover all costs incurred along the value chain 2.5 points   Click Save and Submit to save and submit. Click Save All Answers to save all answers.

ACCOUNTING QUESTIONS

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PROBLEMS CHAPTER 16, 17, 18 ACCOUNTING PROBLEMS 16.1. On a typical day, Park Place Clinic writes $1,000 in checks. It generally takes four days for those checks to clear. Each day the clinic typically receives $1,000 in checks that take 3 days to clear. What is the clinic’s average net float? 16.2. Drug’s R Us operates a mail-order pharmaceutical business on the West Coast. The firm receives an average of $325,000 in payments per day. On average, it takes four days for the firm to receive payment from the time customers mail their checks to the time the firm receives and processes them. A lockbox system that consists of 10 local depository banks and a concentration bank in San Francisco would cost $6,500 per month. Under this system, customers’ checks would be received at the lockbox locations one day after they are mailed, and the daily total would be wired to the concentration bank at a cost of $9.75 each. Assume that the firm could earn 10% on marketable securities and that there are 260 working days and hence 260 transfers from each lockbox location per year. a. What is the total annual cost of operating the lockbox location per year? b. What is the dollar benefit of the systems to Drugs ‘R Us? c. Should the firm initiate the lockbox system? 16.4. Langley Clinics Inc. buys 4400,000 in medical supplies each year (at gross prices) from its major supplier Consolidated Services which offers Langley terms of 2.5/10 net 45. Currently, Langley is paying the supplier the full amount due on Day 45 but it is considering taking the discount paying on Day 10 and replacing the trade credit with a bank loan that has a 10% annual cost. a. What is the amount of free trade credit that Langley obtains from Consolidated Services? (Assume 360 days per year throughout this problem.) b. What is the amount of costly trade credit? c. What is the approximate annual cost of the costly trade credits? d. Should Langley replace its trade credit with the bank loan? Explain your answer. 16.5. Milwaukee Surgical Supplies Inc. sells on terms of 3/10, net 30. Gross sales for the year are $1,200,000 and the collections department estimates that 30% of the customers pay on the tenth day and take discounts, 40% pay on the thirtieth day and the remaining 30% pay on average 40 days after the purchase. (Assume 360 days per year.) a. What is the firm’s average collection period? b. What is the firm’s current receivables balance? c. What would be the firm’s new receivables balance if Milwaukee Surgical toughened up on its collection policy with the result that all non-discount customers paid on the 30th day? d. Suppose that the firm’s cost of carrying receivables was 8% annually. How much would the toughened credit policy save the firm in annual receivables carrying expense? 17.1. Modern Medical Devices has a current ratio of 0.5. Which of the following actions would improve (i.e. increase) this ratio? a. Use cash to pay off current liabilities? b. Collect some of the current accounts receivable? c. Use cash to pay off some long term debt? d. Purchase additional inventory on credit (i.e. accounts payable)? e. Sell some of the existing inventory at cost? 17.4. Consider the following financial statements for BestCare HMO, a not-for-profit managed care plan: ________________________________________________________________________ BestCare HMO Statement of Operations and Change in Net Assets Year Ended June 30, 2011 (in thousands) ________________________________________________________________________ Revenue: $25,682 Premiums earned $1,689 C0-insurance Interest and other income $ 242 Total revenue $28,613 Expenses: Salaries and benefits $15,154 Medical supplies and drugs $7,507 Insurance $ 3,963 Provision for bad debts $ 19 Depreciation $ 367 Interest $ 385 Total Expenses $27,395 Net Income $ 1,218 Net assets, beginning of year $ 900 Net assets, end of year $ 2,118 ________________________________________________________________________ BestCare HMO Balance Sheet June 30, 2011 (in thousands) ______________________________________________________________________ Assets: Current Assets: Cash and equivalents $2,737 Net premiums receivable $ 821 Supplies $ 387 Total current assets $3,945 Net property and equipment $5,924 Total assets $9,869 Liabilities and Net Assets Accounts payable – medical services $2,145 Accrued expenses $ 929 Notes payable $ 141 Current portion of long-term debt 241 Total current liabilities $3,456 Long-term debt $4.295 Total liabilities $7,751 Net assets (equity) $2,118 Total liabilities and net assets $9.869 a. Perform a Du Pont analysis on BestCare. Assume that the industry average ratios are as follows: Total margins 3.8% Total asset turnover 2.1% Equity and multiplier 3.2% Return on equity (ROE) 25.5% b. Calculate and interpret the following ratios for BestCare: c. Return on assets (ROA) 8.0% d. Current ratio 1.3% e. Days cash on hand 41 days f. Average collection period 7 days g. Debt ratio 69% h. Debt-to-equity ratio 2.2% i. Times interest earned (TIE) ratio 2.8% j. Fixed asset turnover ratio 5.2% 17.5. Consider the following financial statements for Green Valley Nursing Home Inc. a for-profit, long-term care facility: ________________________________________________________________________ Green Valley Nursing Home Inc. Statement of Income and Retained Earnings Year Ended December 31, 2011 ________________________________________________________________________ Revenue: Net patient service revenue $3,163,258 Other revenue $ 106,146 Total revenues $3,269,404 Expenses: Salaries and benefits $1,515,438 Medical supplies and drugs $ 966,781 Insurance and other $ 296,357 Provision for bad debt $ 110,000 Depreciation $ 85,000 Interest $ 206,000 Total expenses $ 3,180,356 Operating Income $ 89,048 Provision for income taxes $ 31,167 Net Income $ 57,881 Retained earnings, beginning of year $ 199,961 Retained earnings, end of year $ 257,842 _______________________________________________________________________ Green Valley Nursing Home Inc. Balance Sheet December 31, 2011 ________________________________________________________________________ Assets Current Assets: Cash $105,737 Marketable securities $200,000 Net patient accounts receivable $215,600 Supplies $ 87,655 Total current assets $608,992 Property and equipment $2,250,000 Less accumulated depreciation $ 356,000 Net property and equipment $1,894,000 Total assets $2,502,992 Liabilities and Shareholder’s Equity Current liabilities: Accounts payable $ 72,250 Accrued expenses $ 192,900 Notes payable $ 100,000 Current portion of long-term debt $ 80,000 Shareholder’s Equity: Common stock $10 par value $100,000 Retained earnings $257,842 Total shareholder’s equity $357,842 Total liabilities and shareholder’s equity $2,502,992 a. Perform a Du Pont analysis on Green Valley. Assume that the industry average ratios are as follows: Total margin 3.5% Total asset turnover 1.5% Equity multiplier 2.5% Return on equity (ROE) 13.1% b. Calculate and interpret the following ratios: Industry average Return on assets (ROA) 5.2% Current ratio 2.0% Days cash on hand 22 days Average collection period 19 days Debt ratio 71% Debt-to-equity ratio 2.5% Times interest earned (TIE) ratio 2.6 Fixed asset turnover ratio 1.4 c. Assume that there are 10,000 shares of Green Valley’s stock outstanding and that some recently sold for $45 per share: 1. What is the firm’s price/earnings ratio? 2. What is its market/book ratio? 18.1. Suncoast Healthcare is planning to acquire a new X-ray machine that costs $200,000. The business can either lease the machine using an operating lease or buy it using a loan from a local bank. Suncoast’s balance sheet prior to acquiring the machine is as follows: Current assets $100,000 Debt $400,000 Net fixed assets $900,000 Equity $600,000 Total assets $1,000,000 Total claims $1,000,000 a. What is Suncoast’s current debt ratio? b. What would the new debt ratio be if the machine were leased? c. What would the debt ratio be if the machine were purchased? d. Is the financial risk of the business different under the two acquisition alternatives? 18.2. Big Sky Hospital plans to obtain a new MRI that costs $1.5 million and has an estimated four year useful life. It can obtain a bank loan for the entire amount and buy the MRI or it can lease the equipment. Assume that the following facts ally to the decision: • The MRI falls into the three-year class for tax depreciation so the MACRS allowances are 0.33, 0.45, 0.15 and 0.07 in years 1 through 4, respectively. • Estimated maintenance expenses are 475,000 payable at the beginning of each year whether the MRI is leased or purchased. • Big Sky’s marginal tax rate is 40% • The bank loan would have an interest rate of 15% • If leased, the lease 9rental) payments would be $00,000 payable at the end of each of the next four years. • The estimated residual (and salvage) value is $250,000 1. What are the NAL and IRR of the lease, INTERPRET EACH VALUE 2. Assume now that the salvage value estimate is $300,000, but all other facts remain the same. What are the new NAL and the new IRR? 18.3. HealthPlan Northwest must install a new $1 million computer to track patient records in its three service areas. It plans to use the computer for only three years at which time a brand new system will be acquired that will handle both billing and patient records. The company can obtain a 10% bank loan to buy the computer or it can lease the computer for three years. Assume that the following facts apply to the decision: • The computer falls into the three-year class for tax depreciation, so the MACRS allowances are 0.33, 0.45, 0.15 and 0.07 in years 1 through 4 respectively. • The company’s marginal tax rate is 34% • Tentative lease terms call for payments of $320,000 at the end of each year. • The best estimate for the value of the computer after three years of wear and tear is $200,000 1. What are the NAL and IRR of the lease? INTERPRET EACH VALUE 2. Assume now that the bank loan would cost 15% but all other facrts remain the same. What is the new NAL? 3. What is the new IRR? 18.4. Assume that you have been asked to place a value on the ownership position in Briarwood Hospital. Its projected profit and loss statements and equity reinvestment (asset) requirements are as follows in millions: 2012 2013 2014 2015 2016 Net revenues $225.0 $240.0 $250.0 $260.0 $275.0 Cash expenses $200.0 $205.0 $210.0 $215.0 $225.0 Depreciation $11.0 $12.0 $13.0 $14.0 $15.0 Earnings before interest And taxes (EBIT) $ 14.0 $23.0 $27.0 $31.0 $35.0 Interest $8.0 $9.0 $9.0 $10.0 $10.0 Earnings before taxes (EBT) $6.0 $14.0 $18.0 $21.0 $25.0 Taxes (40%) $ 2.4 $ 5.6 25.0 $ 8.4 $10.0 Net profit $3.6 $8.4 $10.8 $12.6 $15.0 Asset requirement $6.0 $6.0 $6.0 $6.0 $6.0 Briarwood’s cost of equity is 16%. The best estimate for Briarwood’s long term growth rate is 4%. 1. What is the equity value of the hospital? 2. Suppose that the expected long-ter growth rate was 6%. What impact would this change have on the equity value of the business? 3. What impact would a growth rate of 2% have on the business?

Accounting Questions

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  Question 1

A factor which distinguishes the corporate form of organization from a sole proprietorship or partnership is that a

corporation is organized for the purpose of making a profit.

corporation is subject to more federal and state government regulations.

corporation’s temporary accounts are closed at the end of the accounting period.

corporation is an accounting economic entity.
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Question 2

The following data is available for Blaine Corporation at December 31, 2012:
Common stock, par $10 (authorized 25,000 shares)  $200,000
Treasury Stock (at cost $15 per share)  900

Based on the data, how many shares of common stock are outstanding?

19,940

24,940

25,000

20,000
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Question 3

On January 1, Collins Corporation had 800,000 shares of $10 par value common stock outstanding. On March 31, the company declared a 15% stock dividend. Market value of the stock was $15/share. As a result of this event,

Collins’ Paid-in Capital in Excess of Par account increased $600,000.

Collins’ total stockholders’ equity was unaffected.

Collins’ Stock Dividends account increased $1,800,000.

All of the above.

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Question 4

Dillon Corporation splits its common stock 2 for 1, when the market value is $40 per share. Prior to the split, Dillon had 50,000 shares of $10 par value common stock issued and outstanding. After the split, the par value of the stock

is reduced to $20 per share.

remains the same.

is reduced to $2 per share.

is reduced to $5 per share.

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Question 5

A major disadvantage resulting from the use of bonds is that

taxes may increase.

earnings per share may be lowered.

interest must be paid on a periodic basis.

bondholders have voting rights.
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Question 6

Bargain Company has $1,600,000 of bonds outstanding. The unamortized premium is $21,600. If the company redeemed the bonds at 101, what would be the gain or loss on the redemption?

$16,000 loss

$5,600 loss

$16,000 gain

$5,600 gain
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Question 7

Horton Company purchased a building on January 2 by signing a long-term $480,000 mortgage with monthly payments of $4,400. The mortgage carries an interest rate of 10 percent. The amount owed on the mortgage after the first payment will be

$479,600.

$476,000.

$475,600.

$480,000.
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Question 8

Wise Company owns 30% interest in the stock of Dark Corporation. During the year, Dark pays $20,000 in dividends to Wise, and reports $200,000 in net income. Wise Company’s investment in Dark will increase Wise’s net income by

$6,000.

$60,000.

$66,000.

$80,000.
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Question 9

If an investor owns less than 20% of the common stock of another corporation as a long-term investment,

no dividends can be expected.

it is presumed that the investor has relatively little influence on the investee.

it is presumed that the investor has significant influence on the investee.

the equity method of accounting for the investment should be employed.
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Question 10

Reporting investments at fair value is

a conservative approach because only losses are recognized.

applicable to both debt and stock securities.

applicable to debt securities only.

applicable to stock securities only.
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Question 11

Available-for-sale securities are classified as

short-term investments only.

long-term investments only.

either short-term or long-term investments.

current assets only.
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Question 12

Which of the following changes in retained earnings during a period will be reported in the financing activities section of the statement of cash flows?
1. Declaration and payment of a cash dividend during the period.
2. Net income for the period.

1

2

Neither 1 nor 2.

Both 1 and 2.
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Question 13

Hark Inc. had cash sales of $400,000 and credit sales of $1,100,000. The accounts receivable balance increased $25,000 during the year. How much cash did Hark receive from its customers during the year?

$725,000

$1,500,000

$1,475,000

$1,075,000
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Question 14

The statement of cash flows is prepared from all of the following except

comparative balance sheets.

the current income statement.

selected transaction data.

the adjusted trial balance.
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Question 15

Corgan Company uses the direct method in determining net cash provided by operating activities, During the year, operating expenses were $290,000, prepaid expenses increased $20,000, and accrued expenses payable increased $30,000. Cash payments for operating expenses were

$240,000.

$280,000.

$300,000.

$340,000.
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Question 16

Assume the following sales data for a company:
2014 $1,050,000
2013 950,000
2012 800,000
2011 550,000

If 2011 is the base year, what is the percentage increase in sales from 2011 to 2013?

72.7%

100%

52.4%

90.9%
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Question 17

Darius, Inc. has the following income statement (in millions):
DARIUS, INC.
Income Statement
For the Year Ended December 31, 2012

Net Sales $300
Cost of Goods Sold 120
Gross Profit 180
Operating Expenses 44
Net Income $136

Using vertical analysis, what percentage is assigned to Net Income?

100%

75.6%

45.3%

None of the above.
Question 18

Parrish, Inc. decided on January 1 to discontinue its telescope manufacturing division. On July 1, the division’s assets with a book value of $1,250,000 are sold for $850,000. Operating income from January 1 to June 30 for the division amounted to $125,000. Ignoring income taxes, what total amount should be reported on Parrish’s income statement for the current year under the caption, Discontinued Operations?

$400,000 loss

$125,000

$275,000 loss

$525,000

Question 24

Each of these items must be considered in preparing a statement of cash flows for Kiner Co. for the year ended December 31, 2012. For each item, state how it should be shown in the statement of cash flows for 2012.
(a) Issued bonds for $200,000 cash. – C
(b) Purchased equipment for $150,000 cash. –
(c) Sold land costing $20,000 for $20,000 cash.  –
(d) Declared and paid a $50,000 cash dividend.  –
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Question 25

Villa Company reported net income of $195,000 for 2012. Villa also reported depreciation expense of $45,000 and a loss of $5,000 on the sale of equipment. The comparative balance sheet shows a decrease in accounts receivable of $15,000 for the year, a $17,000 increase in accounts payable, and a $4,000 decrease in prepaid expenses.
Instructions
Prepare the operating activities section of the statement of cash flows for 2012. Use the indirect method. (List multiple entries with a positive cash flow first and then the negative cash flow. List amounts from largest to smallest e.g. 10, 5, 3, 2. If amount decreases cash flow, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
VILLA COMPANY
Partial Statement of Cash Flows
For the Year Ended December 31, 2012
Cash flows from operating activities
$

Adjustments to reconcile net income
to net cash provided by operating activities              $
Net cash  by operating activities   $

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ACCOUNTING QUESTIONS

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Question 1

A subsidiary ledger is

used in place of the general ledger if the general ledger is destroyed or stolen.

a group of accounts with a common characteristic that provides detailed information about a control account in the general ledger.

used to post excess transactions if a general ledger account becomes full during an accounting period.

a group of accounts used by branches and subsidiaries of a corporate business.

Question 2

Evidence that the monthly posting of the sales journal total has been accomplished is indicated by

inspecting the postings in the accounts payable subsidiary ledger.

the general ledger account numbers under the double-lined total.

a signature of the accountant doing the posting.

a date under the double-line total.

Question 3

The entries recorded in the Other Accounts column of a cash payments journal

are posted individually to accounts in the general ledger.

are not posted individually but are posted as a column total to the general ledger.

do not require posting.

are posted to the accounts payable subsidiary ledger daily.

Question 4

Adjusting entries are recorded

in the special journals.

only on the worksheet.

in the general journal.

only in the general ledger.

Question 5

If merchandise from a cash sale is returned by a customer for a refund, the sales return is recorded in the

cash receipts journal.

general journal.

cash payments journal.

sales journal.

Question 6

A subsidiary ledger frees the general ledger from details of

the control account.

internal transactions.

individual balances.

external transactions.

Question 7

Debit postings to the individual accounts in an accounts receivable subsidiary ledger generally come from the

purchases journal.

cash payments journal.

sales journal.

cash receipts journal.

Question 8

The use of special journals to record transactions

should only be used if the volume of transactions is small

eliminates the need for a general ledger.

eliminates the need for a general journal.

can save time in the posting process.

Question 9

If a transaction cannot be recorded in a special journal

it is recorded in the general journal.

the company must refuse to enter into the transaction.

it is recorded directly in the accounts in the general ledger.

it is recorded as an adjustment on the work sheet.

Question 10

Accounts Receivable and Accounts Payable are examples of

both nominal accounts and controlling accounts.

nominal accounts.

subsidiary ledger accounts.

controlling accounts.

ACCOUNTING QUESTIONS

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A company receives a note payable for $3,500 at 9% for 45 days. How much interest (to the nearest

cent) will the customer owe using a 360-day year?

A. $39.38

B. $38.84

C. $354.38

D. $315.00

Meranda Corporation purchases a machine for $125,000. It has an estimated salvage value of $10,000

and is expected to produce 50,000 units in its lifetime. During the first year of operation, it produced

14,500 units. To the nearest dollar, the depreciation for the first year under the units of production method

will be

A. $33,350.

B. $35,500.

C. $36,250.

D. $31,250.

A truck costing $56,000 has accumulated depreciation of $50,000. The truck is scrapped for $0. The

journal entry to record this transaction is

A. debit Truck for $50,000, debit Loss on Disposal for $6,000 and credit Accumulated Depreciation— Truck for $56,000.

B. debit Truck for $56,000, credit Accumulated Depreciation— Truck for $50,000, and credit Gain on Disposal for $6,000.

C. debit Loss on Disposal $6,000, debit Accumulated Depreciation— Truck for $50,000, and credit Truck for $56,000.

D. debit Accumulated Depreciation— Truck for $50,000 and credit Truck for $50,000.

Nick Company has cash of $33,000; net accounts receivable of $41,000; short-term investments of

$15,000; and inventory of $25,000. It also has $30,000 in current liabilities and $50,000 in long-term

liabilities. The quick ratio for Nick Company is

A. 1.78.

B. 2.97.

C. 3.80.

D. 3.30.

Ryan Corporation made a basket purchase of three items. Item A was appraised at $35,000; item B

was appraised at $55,000; and item C was appraised at $60,000. The purchase price was $125,000. The

amount at which item C should be recorded (rounded to the nearest dollar) is

A. $83,300.

B. $50,000

C. $72,000.

D. $29,167.

A $400,000 issue of bonds that sold for $363,000 matures on August 1, 2015. The journal entry to

record the payment of the bond on the maturity date is

A. debit bonds payable, $363,000; credit cash, $363,000.

B. debit bonds payable, $400,000; credit cash, $400,000.

C. debit cash, $400,000; credit bonds payable, $400,000.

D. debit cash, $363,000; credit bonds payable, $363,000.

Brandon Company completed an aging of its accounts receivable and came up with an estimated

amount of $6,342. The credit sales for the period are $85,000. The balance in the allowance for doubtful

accounts is a debit of $817. If Brandon uses 5% of credit sales as its estimating uncollectable accounts,

how much will the credit be to the allowance for doubtful accounts if Brandon uses the estimate of aging

receivables as its method of estimating uncollectable accounts?

A. $4,250

B. $5,067

C. $7,159

D. $5,525

Ryan Corporation made a basket purchase of three items. Item A was appraised at $35,000; item B

was appraised at $55,000; and item C was appraised at $60,000. The purchase price was $125,000. The

amount at which item B should be recorded is

A. ($55,000/$95,000) × $125,000.

B. ($55,000/$95,000) × $150,000.

C. ($55,000/$125,000) × $150,000.

D. ($55,000/$150,000) × $125,000.

If a $6,000, 10%, 10-year bond was issued at 104 on October 1, 2011, how much interest will accrue

on December 31 if interest payments are made annually?

A. $104

B. $150

C. $500

D. None