Exam W17 FINAL 4005

Name_________________________________________________________

MULTIPLE CHOICE. Choose the one alternative that best answers the question.

1) Financial accounting is primarily concerned with:1) __D_____

A) feasibility analysis.
B) reporting exclusively to internal users.
C) long term decision making.
D) reporting to external investors and creditors.

2) A manufacturing business which operates five days per week has four different departments. Each
department makes a different part. One of each of these parts is required to make a single unit of final product.
Maximum daily production capacities of each department are : Department A - 100 units; Department B - 135
units; Department C - 95 units, and Department D - 110 units.
Maximum weekly output of completed product units is? 2) ____D___

A) 440 B) 550 C) 675 D) 475

3) The management cycle proceeds in what order? 3) ___D____

A) Implementation, control, planning B) Control, implementation, planning
C) Implementation, planning, control D) Planning, implementation, control

4) Which one of the following costs should NOT be considered an indirect cost of serving a particular customer at
a Dairy Queen fast food outlet? 4) ___D____

A) The cost of heating and lighting the kitchen.

B) The salary of the outlet's manager.
C) The wages of the employee who takes the customer's order.
D) The cost of the hamburger patty in the burger they ordered.

5) The following account balances have been extracted from Jimbob Co.'s general ledger:

What was the total of manufacturing costs? 5) ___C____ (direct material, direct labour , everything that is in the
factory)

A) $510,000. B) $400,000. C) $560,000. D) $740,000.

6) A manufacturing company prepays its insurance coverage for a three-year period. The premium for the
three years is $2,700 and is paid at the beginning of the first year. Eighty percent of the premium applies to
manufacturing operations and 20% applies to selling and administrative activities. What amounts should be
considered product and period costs respectively for the first year of coverage?

6) D (2700/3 = 900X0.8 900X0.2)

A) choice a. B) choice b. C) choice c. D) choice d.

7) Jimbob Company has two business alternatives - A & B with different total annual costs as set out below:

Additionally, if alternative B is chosen the business will have to use some space for its own purposes
that is currently being rented to an outside business for $5,000 per year.
What is the total dollar differential between the two alternatives? 7) ___D____
Add of of A add all of B and then subtract from 5k
80k-78k = 2k , 5k-3k = 2k

A) $7,000. B) $3,000. C) $5,000. D) $2,000.

8) Which of the following statements is true? 8) ___A____

A) Total variable cost change in direct proportion to changes in the amount of the activity.
B) In the long run, all costs are fixed.
C) In the short run, all cost are variable.
D) Mixed costs are step costs.
Raymore Company would like to classify the following costs according to their cost behaviour:

9) For Raymore Company, which of the following classifications best describes the behaviour of Cost A above?
9) ___D____

A) Variable. B) Fixed. C) Direct. D) Mixed.

10) For Raymore Company, which of the following classifications best describes the behaviour of Cost B above?
10) __B____

A) Mixed. B) Fixed. C) Variable. D) Direct.

11) For Raymore Company, which of the following classifications best describes the behaviour of Cost C above?
11) ___D___

A) Mixed. B) Direct. C) Fixed. D) Variable.

12) Chap.6 question: A business sells a product with variable costs per unit of $30. Fixed costs are $10,000 per
period. The selling price per unit is $100. Assuming 1,000 units are sold in a period, what is the contribution
margin for the period? 12) ___A___

A) $70,000. B) $30,000. C) $100,000. D) $60,000.

13) Bridget Company uses activity-based costing. The company has two products: A and B. The annual
production and sales of Product A are 2,000 units and of Product B are 3,000 units. There are three activity
cost pools, with estimated total cost and expected activity as follows:

The cost per unit of Product A under activity-based costing is closest to: 13) ______

A) $13.80. B) $8.63. C) $9.60. D) $6.40.

Estimated cost / total x products A expected activity – add them all up / 2000 (The annual production
and sales of Product A) 19200/2000

14) Once the break-even point is reached, which of the following statements is true? 14) ______
A) The contribution margin ratio begins to decrease.
B) Variable expenses will remain constant in total.
 C) The total contribution margin changes from negative to positive.
D) Net income will increase by the unit contribution margin for each additional item sold.

15) The contribution margin ratio always increases when the: 15) ___C___
A) break-even point increases.
B) variable expenses as a percentage of sales increase.
C) variable expenses as a percentage of sales decrease.
D) break-even point decreases.

16) The break-even point in units sold will decrease if there is an increase in which of the following?
16) ___D___

A) Total fixed expenses. B) Unit sales volume.

C) Unit variable expenses. D) Selling price.

17) Last year, Twins Company reported $750,000 in sales (25,000 units) and a net income of $25,000.
At the break-even point the company's total contribution margin equals $500,000. Based on this information,
which of the following is true? 17) ___A___

A) The variable expense per unit is $9.

B) The variable expenses are 60% of sales.
C) The contribution margin ratio is 40%.
D) The break-even point is 24,000 units.
Variable Expenses = Sales - Fixed Cost - Net Operating Income / # of Units
= $750k - $500k - $25k / 25k units
= $225k / 25k units
= $9 per unit

18) Costs that are always relevant in decision-making are: 18) ______
A) fixed costs. B) future costs.
C) sunk costs. D) avoidable costs.

19) Consider a decision facing a firm of either accepting or rejecting a special offer for one of its products. A cost
that is not relevant is: 19) ______

A) direct materials.
B) common fixed overhead that will continue if the special offer is not accepted.
C) fixed overhead that will be avoided if the special offer is accepted.
D) variable overhead.

20) The Lantern Corporation has 1,000 obsolete lanterns that are carried in inventory at a manufacturing cost of
$20,000. If the lanterns are remachined for $5,000, they could be sold for $9,000. Alternatively, the lanterns could
be sold for scrap for $1,000. Which alternative is more desirable and what are the total relevant costs for that
alternative? 20) ___D___
9000-5000=1000

A) Remachine and $25,000. B) Scrap and $1, 000.

C) Scrap and $21, 000. D) Remachine and $5,000.

21) A study has been conducted to determine if one of the departments in Parry Company should be discontinued.
The contribution margin in the department is $50,000 per year. Fixed expenses charged to the department are
$65,000 per year. It is estimated that $40,000 of these fixed expenses could be eliminated if the department is
discontinued. These data indicate that if the department is discontinued, the company's overall net operating
income would: 21) __B____

A) increase by $10,000 per year. B) decrease by $10,000 per year.

C) decrease by $25,000 per year. D) increase by $25,000 per year.

22) Which of the statements below is correct about sunk costs? 22) ___A___

A) Sunk costs are not relevant to decision making.

B) Sunk costs acts as a substitute for opportunity costs.
C) Sunk costs are always relevant to decision making.
D) Sunk costs are relevant to long-run decisions but not to short-run decisions.

23) Which of the following best describes relevant cost? 23) __A____
A) Future costs that differ between alternatives are relevant cost.
B) Sunk costs that do not differ between alternatives are relevant cost.
C) Future costs that do not differ between alternatives are relevant cost.
D) Sunk costs that differ between alternatives are relevant cost.

24) Which of the statements below is correct about opportunity costs? 24) ______
A) Always the same as variable cost.
B) Always relevant to decision making.
C) An important consideration used for decision making.
D) All of these answers are correct.

25) In computing the margin in a ROI analysis, which of the following is used in the denominator?
25) __C____

A) Net operating income. B) Sales.

C) Average operating assets. D) Residual income.

26) During Cummings most profitable year its net income was $25,000. What is the ROI if the investment was
$50,000? 26) ______

A) 51%. B) 63%. C) 50%. D) 28%.

profit / investment x 100

27) Keeping all other factors constant, which of the following would not cause an increase in the ROI?
27) ___C___

A) Increase in sales. B) Reduction in operating assets.

C) Increase in liabilities. D) Reduction in expenses.

28) A segment of a business responsible for both revenues and expenses would be called: 28) __B____

A) an investment centre. B) a profit centre.

C) a motivation centre. D) a cost centre.

29) Which of the following are benefits of decentralization?

 I Giving a manager of a division greater decision making control over his/her division provides vital
training for a manager who is on the rise in the company.
II Managers at corporate headquarters have greater control in seeing that the goals of the company are
realized.
III Added decision-making authority and responsibility often leads to increased job satisfaction and often
persuades a manager to put forth his/her best efforts. 29) ___B___

A) Only I and II. B) Only I and III.

C) Only II and III. D) Only I.

The following selected data pertain to the belt division of Allen Corp. for last year:

30) At Allen Corp., how much is the return on investment? 30) __D____
A) 16%. B) 20%. C) 15%. D) 40%.
ROI = net income / investment x 100
= 80k / 200k x 100
= 0.4 x 100
= 40%

31) Mari Inc.'s managers are considering alternative strategies to see if it is possible to improve ROI from that
originally budgeted for the coming year. Alternative 1 has more money spent on advertising to increase sales
while alternative 2 includes reductions of a number of operating expenses. Adjustments to operating assets are
anticipated in each of the two alternatives as well. The numbers as in the original budget and in the two
alternatives are set out below:

What is the relative ranking based upon ROI of the above three choices (highest to lowest)? 31) ___A___

A) Alternative 2, Original Budget, Alternative 1.

B) Original Budget, Alternative 2, Alternative 1.
C) Alternative 1, Alternative 2, Original Budget.
D) Original Budget, Alternative 1, Alternative 2.

Sales - Operating expense (= income) / average operating assets x 100

Sales - Operating Expenses = Income
Original Budget : 27.7%
Alternative 1: 24.3%
Alternative 2: 29.7%

32) A corporation: 32) ___C___

A) Is regulated by Canada Revenue Agency.
B) Can only have two owners.
C) Is a legal entity separate and distinct from its owners.
D) Has shareholders who have unlimited liability for the acts of the corporation.
E) Is not a legal entity.

33) If the assets of a business increased $9,000 during a period of time and its liabilities increased $5,000 during
the same period, equity in the business must have: 33) ______

A) Decreased $4,000.
B) Decreased $6,000.
C) Increased $4,000.
D) Decreased $14,000.
E) Increased $14,000.
Assets = liabilities + owners equity

34) Most employers engaged in employing workers must pay: 34) ______

A) Workers' Compensation.
B) Canada Pension Plan.
C) Vacation pay.
D) Employment Insurance.
E) All of these answers are correct.

35) Employers never make deductions from employees' wages for: 35) ______
A) Federal income taxes.
B) Canada Pension Plan.
C) Union dues.
D) Workers' Compensation.
E) Employment Insurance.

36) Green's Book Store purchased a new automobile that cost $25,000, made a down payment of $4,000, and
signed a note payable for the balance. The entry to record this transaction is: 36) ___E___

A)
Cash 25,000
Automobile 25,000
B)
Automobile 25,000
Cash 21,000
Janfer, Capital 4,000
C)
Automobile 25,000
Cash 25,000
D)
Cash 21,000
Note Payable 4,000
Automobile 25,000
 E)
Automobile 25,000
Notes Payable 21,000
Cash 4,000

37) The current ratio: B

A) Is used to measure a company's profitability and to evaluate a company's ability to pay its short-term
obligations.
B) Is used to evaluate a company's ability to pay its short-term obligations.
C) Measures the effect of operating income on profit.
D) Is used to measure a company's profitability.
E) Is used to measure the relationship between assets and long-term debt.

38) The acid-test ratio: 38) ___B___

A) Measures liquidity.
B) Is also called the quick ratio and measures liquidity.
C) Is also called the quick ratio.
D) Measures profitability.
E) All of these answers are correct.
QUIZ

The following transactions occurred during July for Hurley Services:

(1)Received $800 cash for photography services provided to customer during the month.

(2)Received $500 cash from Barbara Blanc, the owner of the business.

(3)Received $300 from a customer in partial payment of his account receivable which arose as a result of sales
during June.

(4)Rendered photography services to a customer on credit, $1,500.

(5)Borrowed $800 from the bank by signing a promissory note.

(6)Received $500 from a customer in payment for services to be rendered next year.

How much revenue was earned in July? 2.3k

The ability to meet short-term obligations and to efficiently generate revenues is called:

Liquidity and efficiency

Most employers engaged in employing workers must pay: EI

Blue Company collected $2,000 cash for work completed. The effects on the accounting equation are:

Answer: total assets increase and equity increases

A financial statement providing information that helps users understand a company's financial status at a specific
date, is called a(n):

Answer Balance sheet

The assets of a business total $20,000; the liabilities, $8,000. The claims of the owners are:

12k
How would the accounting equation of Lenore Turner's consulting business be affected by the billing of a client
for $2,000 for consulting work completed?

Answer Accounts Receivable,$2000 increase, Equity,$2000 increase.

At the end of its first year of operations, Lockerbie and Role Company has total assets of $3,000,000 and total
liabilities of $1,200,000. The owner originally invested $200,000 in the business, but has not made any further
investments or taken any withdrawals. What is the first year's net income for Lockerbie and Role Company?

Answer 1600000

Of the following accounts, the one that normally has a debit balance is:

Answer: accounts receivable

Top of Form

Double-entry accounting is:

Answer: An accounting system that records the effects of transactions and other events in at least two accounts
with equal debits and credits.

1. If a parcel of land is offered for sale at $45,000, is assessed for tax purposes at $20,000, is considered by its
purchasers to be worth $36,000, and is purchased for $34,000, the land should be recorded in the purchaser's
books at:

answer: 34k

2. Assets created by selling products or services on credit are:

answer: accounts receivable

3. The FastForward Company balance sheet shows cash $5,000, accounts receivable $7,000, office equipment
$3,000, and accounts payable $4,000. What is the amount of equity?
answer: 11k

4. Today, Cedar Park Company paid $600 of its accounts payable in cash. What is the effect on the accounting
equation?

answer: Assets $600 decrease ; liabilities $600 decrease; equity no effect

5. Under which one of the following situations can a company recognize revenue under Generally Accepted
Accounting Principles?

answer: a customer signs a contract to purchase goods to be delivered within two weeks

6. If assets are $144,000 and liabilities are $37,000, then equity equals:

answer: 107k

8. The primary objective of financial accounting is:

answer: to provide external reports to help users analyze an organization's activities

9.From the following information taken from the records of Peach Company at December 31 of this year,
calculate equity.

Liabilities $1,000

Cash 3,000

Accounts Receivable 2,000

Buildings 3,500

Equity ?

Answer: 7.5k

10. Reese's Company reported equity of $22,000 on its December 31, 2014 balance sheet. The following
information is available for the year ended December 31, 2015:

Revenues $73,000
Expenses 59,000

Liabilities 11,000

What are the total assets of Reese's Company at December 31, 2015?

Answer: 47k

11. Of the following accounts, the one that normally has a credit balance is:

Answer: sales salaries payable

12. On March 2, 2015, Lang Company provided snow removal services to a customer for $1,000 cash. What is the
impact of this transaction on the net assets of Lang?

Answer: Increase of 1k

13. Green's Book Store purchased a new automobile that cost $25,000, made a down payment of $4,000, and
signed a note payable for the balance. The entry to record this transaction is:

answer: automobile 25k notes payable 21k cash 4k

14. The following T-accounts reflect the correct posting of a journal entry on January 9, 2017 by Bailey
Company:

answer: Bailey paid a supplier $10,000 cash to pay down the amount owing on their account.

15. A place or location within an accounting system in which the increases and decreases in a specific asset,
liability, or equity item is recorded and stored is called a(n):

answer: account

16. An asset created by a payment for economic benefits that does not expire until some later time is:

answer: recorded as a debit to prepaid expense account

17. On June 30, the Cash account of Lutness Company had a normal balance of $4,300. During July the account
was debited for a total of $3,400 and credited for a total of $3,600. What was the balance in the Cash account on
August 1?
answer: 4.1k debit

18. A tax levied by a province, the proceeds of which are used to pay benefits to workers who have been injured
on the job, is called:

answer: workers compensation

19. Employers never make deductions from employees' wages for:

answer: federal income taxes

20. The amount an employee earns before any deductions such as EI, CPP, and income tax withholdings is the:

answer: gross pay

21. A company's sales personnel earned salaries of $15,000 during the pay period December 5-10, all of which
were subject to 1.88% EI withholdings. All employees had reached the annual maximum earnings for the Canada
Pension Plan. In addition, the company has agreed with its employees to withhold the following amounts: $900
for hospital insurance, $2,600 for federal and provincial income taxes, and $180 for union dues. Calculate the
general journal entry credit amount on December 10 to "Salaries Payable."

Answer 11,038.00

282

+900, 2600 , 180 = 3962

15k-3962

22. The ability to generate future revenues and meet long-term obligations is called:

Solvency

23. Current assets divided by current liabilities is called the:

answer: current ratio

24. Three of the most common tools of financial analysis are:

answer: Horizontal analysis, vertical analysis, ratio analysis.

25. Analytical tools comparing a company's financial condition and performance across time are:

answer: horizontal analysis

26. Fast-Tech Corp's common shares have a market value of $63. The corporation's profit is $1,350,000 and the
total number of shares outstanding is 450,000. The price-earnings ratio is:

Answer: 211.0

27. When a company raises money by selling share of ownership to the public using a stock exchange, it is called

answer: raising capital with an IPO (initial public offering)

28. What does "Financing a company" mean?

answer: seeking and obtaining a mix of debt and capital to fund a company

29. Paradise Hills Berry Farm has 28 employees who are paid biweekly. The payroll register showed the
following payroll deductions for the pay period ending March 23, 2015.

Gross Pay EI Premium Income Taxes CPP Medical Ins. United Way

74,950.00 1,409.00 10,337.00 3,523.45 1,375.00

1,544.00

Prepare journal entries to record the following August 2017 transactions of a new business called The Pixel Shop.
(If no entry is required for a transaction/event, select "No journal entry required" in the first account field.

Aug. 1

Joseph Eetok, the owner, invested $22,000 cash and photography equipment with a fair value of $44,000.
 1 Rented a studio, paying $12,600 for the next three months in advance.

5 Purchased office supplies for $1,900 cash.

20 Received $9,300 in photography revenue.

31 Paid $1,420 for August utilities.

30. On November 1, 2017, Jean Higgins started a wedding planning company, Extraordinary Studios. On
November 30, 2017, the company’s records showed the following items.

Cash $ 20,000

Accounts receivable 17,800

Office supplies 5,800

Automobiles 44,000

Office equipment 25,890

Accounts payable 8,300

Owner’s investments 92,000

Owner’s withdrawals 4,560

Wedding consulting revenue 30,000

Rent expense 2,950

Salaries expense 6,800

Telephone expense 1,760

Utilities expense 740

Quiz 1 Answers and Questions:

Assets created by selling products or services on credit are:

Answer: Accounts Receivable

Under which one of the following situations can a company recognize revenue under Generally Accepted
Accounting Principles?

Answer:

Blue Company collected $2,000 cash for work completed. The effects on the accounting equation are:

Answer: Total assets increase, and equity increases

The primary objective of financial accounting is:

Answer: To provide external reports to help users analyze an organization's activities.

Today, Cedar Park Company paid $600 of its accounts payable in cash. What is the effect on the accounting
equation?

Answer: Assets, $600 decrease; liabilities, $600 decrease; equity, no effect.

A financial statement providing information that helps users understand a company's financial status at a specific
date, is called a(n):

Answer: Balance Sheet

The assets of a business total $20,000; the liabilities, $8,000. The claims of the owners are:

Answer: $12,000

How would the accounting equation of Lenore Turner's consulting business be affected by the billing of a client
for $2,000 for consulting work completed?

Answer: Accounts receivable, $2,000 increase, equity, $2,000 increase.

At the end of its first year of operations, Lockerbie and Role Company has total assets of $3,000,000 and total
liabilities of $1,200,000. The owner originally invested $200,000 in the business but has not made any further
investments or taken any withdrawals. What is the first year's net income for Lockerbie and Role Company?

Answer: $1,600,000

Wesson Servicing provides support to customers in the area of ecommerce. Using the format provided, show the
effects of the activities listed in (a) through (f). (Enter all amounts as positive values.)
a. Marnie Wesson, the owner, invested cash of $42,000 into the business.
b. The owner purchased office supplies on credit; $1,450.
c. Wesson Servicing did work for a client and received $8,700 cash.
d. Completed an application form for a $18,500 government grant.
e. The owner paid her assistant’s salary; $6,200 cash.
f. Completed work for a customer on credit; $2,100.

Answer:

Double-entry accounting is:

Answer: An accounting system that records the effects of transactions and other events in at least two accounts
with equal debits and credits.

On March 2, 2015, Lang Company provided snow removal services to a customer for $1,000 cash. What is the
impact of this transaction on the net assets of Lang?

Answer: Increase of $1000

Of the following accounts, the one that normally has a credit balance is:

Answer: Sales Salary Payable

The following T-accounts reflect the correct posting of a journal entry on January 9, 2017 by Bailey Company:
What transaction is represented by the posting?

Answer: Bailey paid a supplier $10,000 cash to pay down the amount owing on their account.

Of the following accounts, the one that normally has a debit balance is:

Answer: Accounts Receivable

The following transactions occurred during July for Hurley Services:

(1)Received $800 cash for photography services provided to customer during the month.

(2)Received $500 cash from Barbara Blanc, the owner of the business.

(3)Received $300 from a customer in partial payment of his account receivable which arose as a result of sales
during June.

(4)Rendered photography services to a customer on credit, $1,500.

(5)Borrowed $800 from the bank by signing a promissory note.

(6)Received $500 from a customer in payment for services to be rendered next year.

How much revenue was earned in July?

Answer: $2,300

On June 30, the Cash account of Lutness Company had a normal balance of $4,300. During July the account was
debited for a total of $3,400 and credited for a total of $3,600. What was the balance in the Cash account on
August 1?

Answer: $4,100 debit

Prepare journal entries to record the following August 2017 transactions of a new business called The Pixel
Shop. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Aug.1 Joseph Eetok, the owner, invested $22,000 cash and photography equipment with a
fair value of $40,000.

1 Rented a studio, paying $11,400 for the next three months in advance.

5 Purchased office supplies for $1,700 cash.

20 Received $9,100 in photography revenue.

31 Paid $1,380 for August utilities.

Answer:

Most employers engaged in employing workers must pay:

Answer:

Employers never make deductions from employees' wages for:

Answer:

The amount an employee earns before any deductions such as EI, CPP, and income tax withholdings is the:

Answer: Gross Pay

A company's sales personnel earned salaries of $15,000 during the pay period December 5-10, all of which
were subject to 1.88% EI withholdings. All employees had reached the annual maximum earnings for the
Canada Pension Plan. In addition, the company has agreed with its employees to withhold the following
amounts: $900 for hospital insurance, $2,600 for federal and provincial income taxes, and $180 for union
dues. Calculate the general journal entry credit amount on December 10 to "Salaries Payable."

Answer: $11,038.00

Paradise Hills Berry Farm has 30 employees who are paid biweekly. The payroll register showed the following
payroll deductions for the pay period ending March 23, 2015.

Gross Pay EI Premium Income Taxes CPP Medical Ins. United Way

76,950.00 1,447.00 10,613.00 3,609.12 1,425.00 1,594.00

Required:
Prepare a journal entry to record the employer’s share of payroll deductions. (If no entry is required for a
transaction/event, select "No journal entry required" in the first account field. Round the final answers to
2 decimal places.)

Three of the most common tools of financial analysis are:

Answer: Horizontal analysis, vertical analysis, ratio analysis.

The ability to meet short-term obligations and to efficiently generate revenues is called:

Answer: Liquidity and Efficiency

Current assets divided by current liabilities is called the:

Answer: Current Ratio

The ability to generate future revenues and meet long-term obligations is called:

Answer: Solvency

Targot's current assets were $16,825. Its quick assets were $11,220. Its current liabilities were $13,190. The quick
ratio is:

Answer: 0.85

When a company raises money by selling share of ownership to the public using a stock exchange, it is called

Answer: Raising capital with an IPO (Initial Public Offering)

In class we have discussed that the total value of a company can be assessed in different ways. One way is referred
to as the Market Capitalization, or Market Cap. This oft hear term in business refers to which of the following:

Answer: The value of a company estimated by using their share market value(s) and the total number of shares.

HOMEWORKS

Celery Company has assets of $150,000, liabilities of $90,000, and equity of $60,000. It buys supplies for cash
$5,000. What effect would this transaction have on the accounting equation?
Multiple Choice
a) Assets, no effect, liabilities, no effect.

The following information is available for Isla Company for last May. How much is the net income for the month?

Employee salaries $15,000

Interest paid on bank loan 2,500
Rent paid to landlord 12,500
Service Revenue 50,000

Multiple Choice
a) $20,000.

At the end of its first year of operations, Lockerbie and Role Company has total assets of $3,000,000 and total
liabilities of $1,200,000. The owner originally invested $200,000 in the business, but has not made any further
investments or taken any withdrawals. What is the first year's net income for Lockerbie and Role Company?
Multiple Choice
 a) $1,600,000.Correct

Eli opened a new business by investing the following assets: cash, $6,000; land, $30,000; building, $100,000.
Also, the business will assume responsibility for a note payable of $22,000. Eli signed the note as part of his
payment for the land and building. Which journal entry should be used on the books of the new business to record
the investment by Eli?
Multiple Choice

a) Cash 6,000
Land 30,000
Building 100,000
Note Payable 22,000
Eli, Capital 114,000

The following transactions occurred during July for Hurley Services:

(1)Received $800 cash for photography services provided to customer during the month.
(2)Received $500 cash from Barbara Blanc, the owner of the business.
(3)Received $300 from a customer in partial payment of his account receivable which arose as a result of sales
during June.
(4)Rendered photography services to a customer on credit, $1,500.
(5)Borrowed $800 from the bank by signing a promissory note.
(6)Received $500 from a customer in payment for services to be rendered next year.

How much revenue was earned in July?

Answer : $2,300.

The following is a correct journal entry:

Cash....................14,400
Consulting revenue....................14,400

What is this journal entry recording?

Answer: An increase in an asset and an increase in owners' equity.

Unearned revenues are:

Answer: Liabilities created by advance cash payments from customers for products or services.

During the month of November, Cornish Company had cash receipts of $3,500 and paid out $1,000 for expenses.
The November 30th cash balance was $4,300. What was the cash balance on November 1?
Answer: $1,800.

Delmar Corporation is considering the use of residual income as a measure of the performance of its divisions.
What major disadvantage of this method should the company consider before deciding to institute it?
Answer: This method does not make allowance for difference in the size of compared divisions.

A segment of a business responsible for both revenues and expenses would be called:
Answer: a profit centre.

The direct materials budget:

Answer: must provide for desired ending inventory as well as for production.

The master budget process usually begins with the:

Answer: sales budget.

Which one of the following tasks should be done first, when developing a comprehensive budget for a
manufacturing company?
Answer: Development of a sales budget.

Which one of the following is the last schedule to be prepared in a normal budget preparation process?
Answer: The cash budget.
Which of the following statements is true about zero-based budgeting?
Answer: Managers are required to justify all budgeted expenditures.

Costs that are always relevant in decision-making are:

Answer: avoidable costs.

Consider a decision facing a firm of either accepting or rejecting a special offer for one of its products. A cost that
is not relevant is:
Answer: common fixed overhead that will continue if the special offer is not accepted.

The opportunity cost of making a component part in a factory with no excess capacity is the:
Answer: net benefit foregone from the best alternative use of the capacity required.

Which of the statements below is correct about opportunity costs?

Answer: An important consideration used for decision making.

Which of the statements below is correct about sunk costs?

Ans: Sunk costs are not relevant to decision making.

In a make or buy decision, which of the costs below are relevant?

Ans: Fixed costs that can be avoided in the future if the decision is to buy.

SB Tolar Company has 400 obsolete desk calculat...

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Tolar Company has 400 obsolete desk calculators that are carried in inventory at a total cost of $26,800. If these
calculators are upgraded at a total cost of $10,000, they can be sold for a total of $30,000. As an alternative, the
calculators can be sold in their present condition for $11,200.
Ans: $26,800.

The Lantern Corporation has 1,000 obsolete lanterns that are carried in inventory at a manufacturing cost of
$20,000. If the lanterns are remachined for $5,000, they could be sold for $9,000. Alternatively, the lanterns could
be sold for scrap for $1,000. Which alternative is more desirable and what are the total relevant costs for that
alternative?
Ans: Remachine and $5,000.

Relay Corporation manufactures batons. Relay can manufacture 300,000 batons a year at a variable cost of
$750,000 and a fixed cost of $450,000. Based on Relay's predictions for next year, 240,000 batons will be sold at
the regular price of $5.00 each. In addition, a special order was placed for 60,000 batons to be sold at a 40%
discount off the regular price. Total fixed costs would be unaffected by this order. By what amount would the
company's net operating income be increased or decreased as a result of the special order?
Ans: $30,000 increase.

One of Simplex Company's products has a contribution margin of $50,000 and fixed costs totaling $60,000. If the
product is dropped, $40,000 of the fixed costs will continue unchanged. As a result of dropping the product, the
company's net operating income should:
Ans: decrease by $30,000