Accounting 212 Final Exam

If $1,000,000 of 8% bonds are issued at 102 3/4, the amount of cash received from the sale is

$1,027,500. Amount of Cash Received from Sale of Bonds = Face Value of Bond × Bond Quote = $1,000,000 × 1.0275 = $1,027,500

When using the spreadsheet (work sheet) method to prepare the statement of cash flows using the indirect method, the first step is to

list the title of each balance sheet account in the Accounts column

Which of the following manufacturing costs is an indirect cost of producing a product?

oil lubricants used for factory machinery

Period costs include

operating costs that are shown on the income statement in the period in which they are incurred

Heston and Burton, CPAs, currently work a 5-day week. They estimate that net income for the firm would increase by $75,000 annually if they worked an additional day each month. The cost associated with the decision to continue the practice of a 5-day workweek is an example of a(n)

opportunity cost

Managerial accounting reports are

prepared according to management needs

Direct labor and direct materials are

product costs and expensed when the goods are sold.

The primary purpose of a stock split is to

reduce the market price of the stock per share

The graph of a variable cost when plotted against its related activity base appears as a

straight line

A common measure of liquidity is

the accounts receivable turnover

One potential advantage of a corporation issuing bonds rather than additional common stock is

the interest expense reduces taxable income and, thus, income tax expense

The target cost approach assumes that

the selling price is set by the marketplace

Which of the following is true of the cash payback period?

the shorter the payback, the less likely the possibility of obsolescence

In evaluating the profit center manager, the income from operations should be compared

to historical performance or budget

What cost concept used in applying the cost-plus approach to product pricing includes only desired profit in the markup?

total cost concept.

The times interest earned ratio is computed as

(Income Before Income Tax + Interest Expense) ÷ Interest Expense

Use the information provided for Harding Company to answer the question that follow. Harding CompanyAccounts payable $40,000 Accounts receivable 65,000 Accrued liabilities 7,000 Cash 30,000 Intangible assets 40,000 Inventory 72,000 Long-term investments 110,000 Long-term liabilities 75,000 Notes payable (short-term) 30,000 Property, plant, and equipment 625,000 Prepaid expenses 2,000 Temporary investments 36,000 Based on the data for Harding Company, what is the quick ratio (rounded to one decimal place)?

1.7. Quick Ratio = Quick Assets ÷ Current Liabilities = (Accounts Receivable + Cash + Temporary Investments) ÷ (Accounts Payable + Accrued Liabilities + Notes Payable) = ($65,000 + $30,000 + $36,000) ÷ ($40,000 + $7,000 + $30,000) = $131,000 ÷ $77,000 = 1.7

Balance sheet and income statement data indicate the following: Bonds payable, 6% (due in 15 years) $1,200,000 Preferred 8% stock, $100 par (no change during the year) 200,000 Common stock, $50 par (no change during the year) 1,000,000 Income before income tax for year 320,000 Income tax for year 80,000 Common dividends paid 60,000 Preferred dividends paid 16,000 Based on the data presented, what is the times interest earned ratio (round to two decimal places)?

5.44. Times Interest Earned = (Income Before Income Tax + Interest Expense) ÷ Interest Expense = [$320,000 + ($1,200,000 × 6%)] ÷ ($1,200,000 × 6%) = ($320,000 + $72,000) ÷ $72,000 = $392,000 ÷ $72,000 = 5.44

Which of the following increases cash?

borrowing money by issuing a 6-month note

The last item on the statement of cash flows prior to the schedule of noncash investing and financing activities reports

cash at the end of the period

A disadvantage of the corporate form of business entity is

corporations are subject to more governmental regulations

A manager is responsible for costs but not revenues in a(n)

cost center

The following income statement information is for Sadie Company: Sales $175,000 Cost of merchandise sold 115,000 Gross profit $60,000 Using vertical analysis of the income statement for Sadie Company, determine the change in gross profit.

34.3%. Change in Gross Profit = Gross Profit ÷ Sales = $60,000 ÷ $175,000 = 34.3%

The adjusting entry for the amortization of a discount on bonds payable is

debit Interest Expense, credit Discount on Bonds Payable

Costs that remain constant in total dollar amount as the level of activity changes are called

fixed costs

Which of the following would appear as an unusual item on the income statement?

gain resulting from the disposal of a segment of the business

On the statement of cash flows prepared by the indirect method, the operating activities section would include

gains or losses on fixed assets

The profit margin is the ratio of

income from operations to sales

Which of the following items appear on the corporate income statement before income from continuing operations?

income tax expense

The primary difference between a static budget and a flexible budget is that a static budget

is a plan for a single level of production, whereas a flexible budget can be converted to any level of production

If the market rate of interest is 7%, the price of 6% bonds paying interest semiannually with a face value of $500,000 will be

less than $500,000. If the market rate is greater than the contract rate, the bonds will sell for less than their face value. Thus, the price of the bond will be less than $500,000.

Use this information for Chicks Division to answer the question that follow. Chicks Division had $1,100,000 in invested assets, sales of $1,210,000, income from operations of $302,500, and a minimum acceptable return of 15%. The profit margin for Chicks Division is

25%. Profit Margin = Income from Operations ÷ Sales = $302,500 ÷ $1,210,000 = 25%

Lee Industry's sales are $525,000, variable costs are 53% of sales, and income from operations is $19,000. What is the contribution margin ratio?

47%. Contribution Margin Ratio = (Sales - Variable Costs) ÷ Sales = [$525,000 - (53% × $525,000)] ÷ $525,000 = $246,750 ÷ $525,000 = 47%

Alma Corp. issues 1,000 shares of $10 par common stock at $14 per share. When the transaction is journalized, credits are made to

Common Stock, $10,000, and Paid-In Capital in Excess of Par—Common Stock, $4,000. Total Cash Raised through Issue of Shares = 1,000 × $14 = $14,000 Par Value of Common Stock Issued = Number of Shares Issued × Par Value of Each Share = 1,000 × $10 = $10,000 Paid-In Capital in Excess of Par—Common Stock = $14,000 - $10,000 = $4,000

Which of the following should be deducted from net income in computing net cash flows from operating activities using the indirect method?

a decrease in accounts payable

Cost of goods manufactured is equal to

total manufacturing costs plus beginning work in process inventory less ending work in process inventory

Jase Manufacturing Co.'s static budget for 10,000 units of production includes $40,000 for direct labor and $4,000 for variable electric power. Total fixed costs are $24,000. At 12,000 units of production, a flexible budget would show

variable costs of $52,800 and $24,000 of fixed costs. Direct labor (12,000 × $4.00* per unit)$48,000 Electric power (12,000 × $0.40** per unit)4,800 Total variable costs$52,800 Total fixed costs$24,000 *$40,000 ÷ 10,000 units = $4.00 per unit **$4,000 ÷ 10,000 units = $0.40 per unit

Which of the following statements concerning taxation is accurate?

Corporations pay federal and state income taxes.

Use this information about July production to answer the question that follows. Production estimates for July are as follows: Estimated inventory (units), July 1st 8,500 Desired inventory (units), July 31st 10,500 Expected sales volume (units), July 76,000 For each unit produced, the direct materials requirements are as follows: Direct material A ($5 per lb.) 3 lb. Direct material B ($18 per lb.) ½ lb. The total direct materials purchases of Material A and Material B (assuming no beginning or ending material inventory) required for July production is

$1,170,000 for A; $702,000 for B. Expected units to be sold 76,000 Plus desired ending inventory 10,500 Total units required 86,500 Less estimated beginning inventory 8,500 Total units to be produced 78,000 Direct materials requirements: Material A: 78,000 × 3 lb. = 234,000 lb. Material B: 78,000 × 0.5 lb. = 39,000 lb. Direct materials purchases: Material A: 234,000 × $5 = $1,170,000 Material B: 39,000 × $18 = $702,000

If fixed costs are $750,000 and variable costs are 60% of sales, what is the break-even point in sales dollars?

$1,875,000. Contribution Margin Ratio = Sales % - Variable Cost % = 100% - 60% = 40% Break-Even Sales ($) = Fixed Costs ÷ Contribution Margin Ratio = $750,000 ÷ 40% = $1,875,000

If budgeted beginning inventory is $8,000, budgeted ending inventory is $9,400, and budgeted cost of goods sold is $10,260, budgeted production should be

$11,660. Ending inventory $9,400 Cost of goods sold 10,260 Cost of finished goods available for sale $19,660 Beginning inventory 8,000 Cost of goods manufactured $11,660

Sage Company 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 $11 excluding 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?

$120,000 cost decrease

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 97.5, what is the amount of gain or loss on redemption?

$15,000 gain. Gain on Redemption of Bonds = Carrying Amount of Bonds - Redemption Value of Bonds = ($1,000,000 - $10,000) - ($1,000,000 × 0.975) = $990,000 - $975,000 = $15,000

The following information is available from the current period financial statements: Net income $165,000 Depreciation expense 28,000 Increase in accounts receivable 16,000 Decrease in accounts payable 21,000 The net cash flows from operating activities using the indirect method is

$156,000. Cash flows from (used for) operating activities: Net income $165,000 Adjustments to reconcile net income to net cash flows from (used for) operating activities: Depreciation expense 28,000 Changes in current operating assets and liabilities: Increase in accounts receivable (16,000) Decrease in accounts payable (21,000) Net cash flows from operating activities $156,000

Kansas Company acquired a building valued at $210,000 for property tax purposes in exchange for 12,000 shares of its $5 par common stock. The stock is widely traded and selling for $15 per share. At what amount should the building be recorded by Kansas Company?

$180,000. Value of Building = Market Price of Shares × Number of Shares Exchanged = $15 × 12,000 = $180,000.

Nebraska Inc. issues 3,000 shares of common stock for $45,000. The stock has a stated value of $10 per share. The journal entry for the stock issuance would include a credit to Common Stock for

$30,000. Amount of Common Stock Issued = Number of Shares Issued × Par Value of Each Share = 3,000 × $10 = $30,000

The cost of merchandise sold during the year was $50,000. 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 paid for merchandise during the year is

$49,000. Cash Paid for Merchandise = Cost of Merchandise Sold - Decrease in Inventories + Decrease in Accounts Payable = $50,000 - ($12,500 - $10,500) + ($6,000 - $5,000) = $50,000 - $2,000 + $1,000 = $49,000

Bonds Payable has a balance of $1,000,000, and Discount on Bonds Payable has a balance of $15,500. If the issuing corporation redeems the bonds at 98.5, what is the amount of gain or loss on redemption?

$500 loss. Loss on Redemption = Redemption Value of Bonds - Carrying Value of Bonds = ($1,000,000 × 0.985) - ($1,000,000 - $15,500) = $985,000 - $984,500 = $500

Use this information for Chacha Company to answer the question that follow. Division A of Chacha Company has sales of $140,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000. What is the profit margin for Division A?

10.0%. Profit Margin = Income from Operations ÷ Sales = ($140,000 - $83,000 - $43,000) ÷ $140,000 = $14,000 ÷ $140,000 = 10.0%

Mason Division had $650,000 in invested assets, sales of $700,000, income from operations of $99,000, and a minimum acceptable return of 15%. The profit margin for Mason Division is

14.1%. Profit Margin = Income from Operations ÷ Sales = $99,000 ÷ $700,000 = 14.1%

The Central Division of Nebraska Company has a return on investment of 28% and a profit margin of 14%. What is the investment turnover?

2.0. Investment Turnover = Return on Investment ÷ Profit Margin = 0.28 ÷ 0.14 = 2.0

Production and sales estimates for May for Cardinal Co. are as follows: Estimated inventory (units), May 1st 19,500 Desired inventory (units), May 31st 19,300 Expected sales volume (units): Area W 6,000 Area X 7,000 Area Y 8,000 Unit sales price$20 The number of units expected to be sold in May is

21,000. Expected Sales = 6,000 + 7,000 + 8,000 = 21,000 units

Based on the following data for the current year, what is the number of days' sales in receivables? Sales on account during year $584,000 Cost of merchandise sold during year 300,000 Accounts receivable, beginning of year 45,000 Accounts receivable, end of year 35,000 Merchandise inventory, beginning of year 90,000 Merchandise inventory, end of year 110,000

25 days. Number of Days' Sales in Receivables = Average Accounts Receivable ÷ Average Daily Sales = [($45,000 + $35,000) ÷ 2] ÷ ($584,000 ÷ 365 days) = 25 days

Flyer Company sells a product in a competitive marketplace. Market analysis indicates that its product would probably sell at $48 per unit. Flyer's management desires a 12.5% profit margin on sales. Its current full cost for the product is $44 per unit. If the company cannot cut costs any lower than they already are, what would the profit margin on sales be to meet the market selling price?

8.3%. Profit Margin to Meet Market Selling Price = (Expected Selling Price - Current Full Cost) ÷ Expected Selling Price = ($48 - $44) ÷ $48 = 8.3%

The formula for computing the present value factor for an annuity of $1 is

Amount to Be Invested ÷ Equal Annual Net Cash Flows

Which of the following accounts will not be found on the statement of cost of goods manufactured?

Cost of Goods Sold

Which of the following is true of preparing managerial accounting reports?

Managerial accounting reports may be prepared at fixed intervals or on an as-needed basis.

Treasury stock that had been purchased for $5,600 last month was reissued this month for $8,500. The journal entry for the reissuance would include a credit to

Paid-In Capital from Sale of Treasury Stock for $2,900. Effect of Reissuance of Treasury Stock = $8,500 - $5,600 = $2,900 $2,900 will be credited to Paid-In Capital from Sale of Treasury Stock.

A company sells goods for $150,000 that cost $54,000 to manufacture. Which of the following statements is true?

The company will decrease finished goods by $54,000.

Carmen Co. can further process Product J to produce Product D. Product J is currently selling for $20.00 per pound and costs $15.75 per pound to produce. Product D would sell for $38.00 per pound and would require an additional cost of $8.55 per pound to produce. What is the differential revenue of producing Product D?

$18.00 per pound. Differential Revenue of Producing Product D = Revenue per Pound of Product D - Revenue per Pound of Product J = $38.00 - $20.00 = $18.00 per pound

For March, sales revenue is $1,000,000, sales commissions are 5% of sales, the sales manager's salary is $80,000, advertising expenses are $65,000, shipping expenses total 1% of sales, and miscellaneous selling expenses are $2,100 plus 1% of sales. Total selling expenses for the month of March are

$217,100. Sales commission (5% of $1,000,000) $50,000 Sales manager's salary 80,000 Advertising expenses 65,000 Shipping expenses (1% of $1,000,000) 10,000 Miscellaneous selling expenses ($2,100 + 1% of $1,000,000) 12,100 Total selling expenses $217,100

Production and sales estimates for April are as follows: Estimated inventory (units), April 1st 9,000 Desired inventory (units), April 30th 8,000 Expected sales volume (units): Area A 3,500 Area B 4,750 Area C 4,250 Unit sales price$20 The budgeted total sales for April is

$250,000. Expected Units to Be Sold = 3,500 + 4,750 + 4,250 = 12,500 units Budgeted Sales = 12,500 × $20 = $250,000

On January 1, Year 1, Zero Company obtained a $52,000, 6.5%, 4-year installment note from Regional Bank. The note requires annual payments of $15,179, beginning on December 31, Year 1. The December 31, Year 2 carrying amount in the amortization table for this installment note will be equal to

$27,635. ABCDEYear EndingDec. 31Jan. 1CarryingAmountNotePayment(Cash Paid)Interest Expense(6.5% × A)Decrease inNotes Payable(B - C)Dec. 31CarryingAmount(A - D)Year 1$52,000$15,179$3,380$11,799$40,201Year 2 40,201 15,179 2,613 12,566 27,635

Cash dividends of $50,000 were declared during the year. Cash dividends payable were $10,000 and $5,000 at the beginning and end of the year, respectively. The amount of cash paid for dividends during the year is

$55,000. Cash Paid for Dividends During Year = Dividends Payable at Beginning of Year + Dividends Declared During Year - Dividends Payable at End of Year = $10,000 + $50,000 - $5,000 = $55,000

The amount of the average investment for a proposed investment of $120,000 in a fixed asset with a useful life of 4 years, straight-line depreciation, no residual value, and an expected total net income of $21,600 for the 4 years is

$60,000. Average Investment = (Initial Cost + Residual Value) ÷ 2 = ($120,000 + $0) ÷ 2 = $60,000

Assume that divisional income from operations amounts to $215,000, and top management has established 15% as the minimum acceptable return on divisional assets totaling $1,000,000. The residual income for the division is

$65,000. Income from operations $215,000 Less minimum acceptable income from operations as a percent of invested assets($1,000,000 × 15%) 150,000 Residual income $65,000

Use this information for Square Yard Products Inc. to answer the question that follow. Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $5.00 per unit. However, the same materials are available with Division 6. Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3.00 per unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no reduction in Division 6's current sales. How much will Division 6's income from operations increase?

$8,000. Increase in Division 6's Income from Operations = (Transfer Price - Variable Cost per Unit) × Units Transferred = ($3.20 - $3.00) × 40,000 = $8,000

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 45,000 shares were originally issued and 5,000 were subsequently reacquired. What is the amount of cash dividends to be paid if a $2-per-share dividend is declared?

$80,000. Amount of Cash Dividends to Be Paid = Number of Shares Outstanding × Dividend per Share = (45,000 - 5,000) × $2 = 40,000 × $2 = $80,000

On the statement of cash flows, the financing activities section would include all of the following except

cash paid for the interest on bonds payable

Which of the following are reported on the income statement as part of cost of goods?

cost of goods manufactured

Which of the following should be deducted from net income in computing the net cash flows from operating activities using the indirect method?

gain on sale of land

A firm operated at 90% of capacity for the past year, during which fixed costs were $420,000, variable costs were 40% of sales, and sales were $1,000,000. Income from operations was

$180,000. Variable Costs = $1,000,000 × 40% = $400,000 Contribution Margin = Sales - Variable Costs = $1,000,000 - $400,000 = $600,000 Income from Operations = Contribution Margin - Fixed Costs = $600,000 - $420,000 = $180,000

Reynold's Grocery has fixed costs of $350,000, the unit selling price is $29, and the unit variable costs are $20. What is the break-even point in sales units (rounded to a whole number) if the unit variable costs are decreased by $4?

26,923 units. Break-Even Sales (units) = Fixed Costs ÷ Unit Contribution Margin = $350,000 ÷ [$29 - ($20 - $4)] = $350,000 ÷ $13 = 26,923 units

Payton Industries has fixed costs of $490,000, the unit selling price is $35, and the unit variable costs are $20. What is the break-even point in sales units if fixed costs are reduced by $40,000?

30,000 units. Break-Even Sales (units) = Fixed Costs ÷ Unit Contribution Margin = ($490,000 − $40,000) ÷ ($35 − $20) = $450,000 ÷ $15 = 30,000 units

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 40,000 shares were originally issued and 10,000 were subsequently reacquired. What is the number of shares outstanding?

30,000. Number of Shares Outstanding = Number of Shares Originally Issued - Number of Shares Reacquired = 40,000 - 10,000 = 30,000

Budgets need to be fair and attainable for employees to consider the budget important in their normal daily activities. Which of the following is not considered a human behavior problem?

allowing employees the opportunity to be a part of the budget process

Which of the following are two methods of analyzing capital investment proposals that both ignore present value?

average rate of return and cash payback method

Sabas Company has issued and outstanding 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends: Year 1 $10,000 Year 2 $45,000 Year 3 $90,000 Determine the dividend per share for preferred and common stock for the third year.

$3.25 and $0.25. Yearly Preferred Stock Dividend to Be Paid = 20,000 × $100 × 2% = $40,000. Preferred Stock dividend to be paid: Year 1 = $40,000 Year 2=$70,000. Year 3=$65,000. Preferred Stock dividend paid: Year 1 =$10,000 Year 2=$45,000 Year 3= $65,000 Arrears: Year 1=$30,000 Year 2= $25,000 Year 3 =$0 $40,000 + $30,000 $40,000 +$25,000 Common Stock Dividend to Be Paid in Year 3 = $90,000 - $65,000 = $25,000 Dividend per share: Preferred stock: $65,000 / 20,000 = $3.25 Common stock: $25,000 / 100,000= $0.25

Use the information provided for Darwin Company to answer the question that follow. Darwin CompanySales $76,500 Direct materials used 7,300 Depreciation on factory equipment 4,700 Indirect labor 5,900 Direct labor 10,500 Factory rent 4,200 Factory utilities 1,200 Sales salaries expense 15,600 Office salaries expense 8,900 Indirect materials 1,200 Darwin Company's product costs are

$35,000. Product Costs = Direct Materials Cost + Direct Labor Cost + Factory Overhead Cost = $7,300 + $10,500 + $4,700 + $5,900 + $4,200 + $1,200 + $1,200 = $35,000

On January 1, a $2,000,000, 10%, 5-year bond was issued for $1,960,000. Interest is paid semiannually on January 1 and July 1. If the issuing corporation uses the straight-line method to amortize the discount on bonds payable, the semiannual amortization amount is

$4,000. Semiannual Discount Amortization Amount = (Face Value - Issue Price) ÷ (5 × 2) = ($2,000,000 - $1,960,000) ÷ 10 = $4,000