West Los Angeles College Accounting 2 Exam-3

West Los Angeles College Accounting 2 Exam #3 Please select the best answer from an accounting point of view.stray marks. The machine scoring will be final. Fall 2016 Use a Scantron answer sheet and leave no Student: ___________________________________________________________________________1. Della’s Donuts owner made investments of $50,000 and withdrawals of $20,000. The company has revenuesof $83,000 and expenses of $64,000. Calculate its net income.A. $30,000.B. $83,000.C. $64,000.D. $19,000.E. $49,000. 2. Reston had income of $150 million and average invested assets of $1,800 million. Its return on assets is:A. 8.3%.B. 83.3%.C. 12%.D. 120%.E. 16.7%. 3. Distributions of assets by a business to its owners are called:A. Withdrawals.B. Expenses.C. Assets.D. Retained earnings.E. Net Income. 4. If the liabilities of a business increased $75,000 during a period of time and the owner’s equity in the businessdecreased $30,000 during the same period, the assets of the business must have:A. Decreased $105,000.B. Decreased $45,000.C. Increased $30,000.D. Increased $45,000.E. Increased $105,000. 1 5. The area of accounting aimed at serving the decision making needs of internal users is:A. Financial accounting.B. Managerial accounting.C. External auditing.D. SEC reporting.E. Bookkeeping. 6. A buyer failed to take advantage of the vendor’s credit terms of 2/15, n/45, but instead paid the invoice in fullat the end of 60 days. By not taking advantage of the cash discount, the buyer lost the equivalent of____________ annual interest on the amount of the purchase.A. 12.2%B. 16.2%C. 18.9%D. 24.3%E. 24.5% 7. The following statements regarding gross profit are true except:A. Gross profit is also called gross margin.B. Gross profit less other operating expenses equals income from operations.C. Gross profit is not calculated on the multiple-step income statement.D. Gross profit must cover all operating expenses to yield a return for the owner of the business.E. Gross profit equals net sales less cost of goods sold. 8. Sales less sales discounts less sales returns and allowances equals:A. Net purchases.B. Cost of goods sold.C. Net sales.D. Gross profit.E. Net income. 2 9. A company sells a climbing kit and uses the periodic inventory system to account for its merchandise. Thebeginning balance of the inventory and its transactions during January were as follows: If the ending inventory is reported at $357, what inventory method was used?A. LIFO.B. FIFO.C. Weighted average.D. Specific identification.E. Retail inventory method. 10. An error in the period-end inventory causes an offsetting error in the next period and therefore:A. Managers can ignore the error.B. It is sometimes said to be self-correcting.C. It affects only income statement accounts.D. If affects only balance sheet accounts.E. Is immaterial for managerial decision making. 11. Days’ sales in inventory is calculated as:A. Ending inventory divided by cost of goods sold.B. Cost of goods sold divided by ending inventory.C. Ending inventory divided by cost of goods sold times 365.D. Cost of goods sold divided by ending inventory times 365.E. Ending inventory times cost of goods sold. 12. Some companies choose to avoid assigning incidental costs of acquiring merchandise to inventory byrecording them as expenses when incurred. The argument that supports this is called:A. The matching principle.B. The materiality constraint.C. The cost principle.D. The conservation constraint principle.E. The lower of cost or market principle. 3 13. An expense resulting from failing to take advantage of cash discounts on purchases is called:A. Sales discounts.B. Trade discounts.C. Purchases discounts.D. Discounts lost.E. Discounts earned. 14. A company using the net method of recording purchases failed to take advantage of a discount available.When they pay the full (gross) amount of an invoice at the end of the credit period the journal entry will includea debit to:A. Merchandise Inventory.B. Sales Discounts.C. Discounts Lost.D. Cash.E. Accounts Receivable. 15. In the process of reconciling Marks Enterprises’ bank statement for September, Mr. Marks compiles thefollowing information: The adjusted cash balance per the books on September 30 is:A. $6,900B. $8,160C. $4,600D. $6,520E. $5,840 4 16. The allowance method based on the idea that a given percent of a company’s credit sales for the period areuncollectible is:A. The percent of sales method.B. The percent of accounts receivable method.C. The aging of accounts receivable method.D. Direct write-off method.E. Factoring method. 17. A promissory note:A. Is a short-term investment for the maker.B. Is a written promise to pay a specified amount of money at a certain date.C. Is a liability to the payee.D. Is another name for an installment receivable.E. Cannot be used in payment of an account receivable. 18. The direct method for the preparation of the operating activities section of the statement of cash flows:A. Separately lists each major item of operating cash receipts and cash payments.B. Reports adjustments to reconcile net income to net cash provided or used by operating activities in thestatement.C. Reports a different amount of cash flows from operations than if the indirect method is used.D. Is required if the company is a merchandiser.E. Is required by the FASB. 19. Analysis reveals that a company had a net decrease in cash of $4,000 for the current year. Net cash providedby operating activities was $18,000; net cash used in investing activities was $10,000 and net cash used infinancing activities was $12,000. If the year-end cash balance is $21,000, the beginning cash balance was:A. $3,000.B. $7,000.C. $17,000.D. $25,000.E. $39,000. 5 20. In preparing a company’s statement of cash flows for the most recent year, the following information isavailable: Net cash flows from investing activities for the year were:A. $134,000 of net cash used by investing activities.B. $134,000 of net cash provided by investing activities.C. $120,000 of net cash used by investing activities.D. $252,000 of net cash used by investing activities.E. $221,000 of net cash provided by investing activities. 21. When analyzing the changes on a spreadsheet used to prepare a statement of cash flows, the cash flows fromfinancing activities generally affectA. Net income, current assets, and current liabilities.B. Noncurrent assets.C. Noncurrent liability and the equity accounts.D. Both noncurrent assets and noncurrent liabilities.E. Equity accounts only. 22. The purchase of long-term assets by issuing a note payable for the entire amount is reported on thestatement of cash flows in the:A. Operating activities.B. Financing activities.C. Investing activities.D. Schedule of noncash financing and investing activities.E. Reconciliation of cash balance. 6 23. The reporting of net cash provided or used by operating activities that lists the major items of operating cashreceipts, such as receipts from customers, and subtracts the major items of operating cash disbursements, suchas cash paid for merchandise, is referred to as the:A. Direct method of reporting net cash provided or used by operating activities.B. Cash basis of accounting.C. Classified statement of cash flows.D. Indirect method of reporting net cash provided or used by operating activities.E. Net method of reporting cash flows from operating activities. 24. The cash flow on total assets ratio:A. Is the same as return on assets.B. Is the same as profit margin.C. Can be an indicator of earnings quality.D. Is highly affected by accounting principles of income recognition and measurement.E. Is average net assets divided by cash flows from operations. 25. Castine reports net income of $305,000 for the year ended December 31, Year 2. It also reports $93,700depreciation expense and a $10,000 loss on the sale of equipment. Its comparative balance sheet reveals a$40,200 increase in accounts receivable, a $10,200 decrease in prepaid expenses, a $15,200 increase in accountspayable, a $12,500 decrease in wages payable, a $75,000 increase in equipment, and a $100,000 decrease innotes payable. Calculate the increase in cash for Year 2.A. $216,400.B. $281,400.C. $381,400.D. $206,400.E. $406,400. 26. The statement of cash flows helps address questions such asA. How is the increase in investments financed?B. What is the source of cash for new plant assets?C. How much cash is generated from or used in operations?D. Why is cash flow from operations different from income?E. All of these. 7 27. A machine with a cost of $130,000 and accumulated depreciation of $85,000 is sold for $50,000 cash. Theamount that should be reported as a source of cash under cash flows from investing activities is:A. $50,000.B. $5,000.C. $45,000.D. Zero. This is an operating activity.E. Zero. This is a financing activity. 28. Alton Company has an overhead application rate of 160% and allocates overhead based on direct materials.During the current period, direct labor is $50,000 and direct materials used are $80,000. Determine the amountof overhead Alton Company should record in the current period.A. $31,250.B. $50,000.C. $80,000.D. $128,000.E. $208,000. 29. The two basic types of cost accounting systems are:A. Job order costing and perpetual costing.B. Job order costing and customized product costing.C. Job order costing and customized service costing.D. Job order costing and process costing.E. Job order costing and periodic costing. 30. The job order cost sheets used by Garza Company revealed the following: Job No. 125 was completed during May and Jobs No. 124 and 125 were shipped to customers in May. Whatwas the company’s cost of goods sold for May and the goods in process inventory on May 31?A. $3,200; $900.B. $2,900; $1,200.C. $1,200; $2,900.D. $1,700; $1,200.E. $4,100; $0. 8 31. Docksider Boats uses a job order cost accounting system. During one month Docksider purchased $153,000of raw materials on credit; issued materials to production of $164,000 of which $24,000 were indirect.Docksider incurred a factory payroll of $95,000, paid in cash, of which $25,000 is classified as indirect labor.Docksider uses a predetermined overhead application rate of 170% of direct labor cost. The journal entry torecord the application of factory overhead to production is:A. Debit Goods in Process Inventory $55,800; credit Factory Overhead $55,800.B. Debit Goods in Process Inventory $161,500; credit Factory Overhead $161,500.C. Debit Goods in Process Inventory $119,000; credit Factory Overhead $119,000.D. Debit Factory Overhead $119,000; credit Goods in Process Inventory $119,000.E. Debit Goods in Process Inventory $95,000; credit Factory Payroll $95,000. 32. If a company applies overhead to production with a predetermined rate, a credit balance in the FactoryOverhead account at the end of the period means that:A. The bookkeeper has made an error because the debits don’t equal the credits.B. The balance will be carried forward to the next period as an overhead cost.C. Actual overhead incurred was less than the overhead amount charged to production.D. The overhead was underapplied for the period.E. Actual overhead was greater than the overhead amount charged to production. 33. A job cost sheet shows information about each of the following items except:A. The direct labor costs assigned to the job.B. The name of the customer.C. The costs incurred by the marketing department in selling the job.D. The overhead costs assigned to the job.E. The direct materials costs assigned to the job. 34. Bard Manufacturing uses a job order cost accounting system. During one month Bard purchased $198,000of raw materials on credit; issued materials to production of $195,000 of which $30,000 were indirect. Bardincurred a factory payroll of $150,000, paid in cash, of which $40,000 is classified as indirect labor. Bard uses apredetermined overhead application rate of 150% of direct labor cost. The journal entry to record payment ofthe factory payroll is:A. Debit Goods in Process Inventory $150,000; credit Factory Payroll $150,000.B. Debit Goods in Process Inventory $150,000; credit Cash $150,000.C. Debit Factory Payroll $150,000; credit Cash $150,000.D. Debit Goods in Process Inventory $110,000; debit Factory Overhead $40,000; credit Factory Payroll$150,000.E. Debit Goods in Process Inventory $110,000; debit Factory Overhead $40,000; credit Cash $150,000. 9 35. Finished goods inventory is $190,000. If overhead applied to these goods is $72,000, and the overhead rateis 120% of direct labor, how much direct materials cost was incurred in producing the inventory?A. $31,600.B. $58,000.C. $56,000.D. $60,000.E. $86,400. 36. A company’s product sells at $12 per unit and has a $5 per unit variable cost. The company’s total fixedcosts are $98,000.The contribution margin per unit is:A. $5.00.B. $7.00.C. $8.17.D. $12.00.E. $17.00. 37. A CVP graph presents data on:A. Profit and loss on a per unit basis.B. Profit, loss, and break-even on a total dollar basis.C. Profit, loss, and break-even on a per unit basis.D. Only profit and loss on a total basis.E. Profit and loss on a budget and actual basis. 38. A hybrid costing system would be most appropriate when:A. A manufacturer is able to standardize processes while at the same time attempting to meet individualcustomer needs.B. Large quantities of identical products are being produced.C. The volume of production is low and costs are high.D. There is no standardization of units of production.E. All of these would necessitate a hybrid costing system. 39. A company uses the weighted-average method for inventory costing. At the end of the period, 22,000 unitswere in the ending goods in process inventory and are 100% complete for materials and 75% complete for laborand overhead. The equivalent costs per unit are; materials, $2.65, labor, $2.15, and overhead, $3.20. Computethe cost that would be assigned to the ending goods in process inventory for the period.A. $146,575.B. $176,000.C. $87,725.D. $93,775.E. $132,000.10 40. The following data are available for a company’s manufacturing activities: If materials are added when the production process begins and direct labor is applied uniformly throughout theprocess, what are the equivalent units for direct materials and for direct labor, respectively using the FIFOmethod of process costing?A. 16,250; 19,250.B. 16,250; 21,750.C. 21,000; 19,250.D. 19,250; 18,750.E. 21,000; 22,250. 41. During March, the production department of a process manufacturing system completed a number of unitsof a product and transferred them to finished goods. Of the units transferred, 25,000 were in process at thebeginning of March and 110,000 were started and completed in March. March’s beginning inventory units were100% complete with respect to materials and 55% complete with respect to labor. At the end of March, 30,000additional units were in process in the production department and were 100% complete with respect to materialsand 30% complete with respect to labor. Compute the number of equivalent units with respect to both materialsand direct labor respectively for March using the weighted-average method.A. 165,000; 165,000.B. 135,000; 119,000.C. 140,000; 130,250.D. 165,000; 144,000.E. 144,000; 144,000. 42. At the beginning of the recent period, there were 900 units of product in a department, one-third completed.These units were finished and an additional 5,000 units were started and completed during the period. 800 unitswere still in process at the end of the period, one-fourth completed. Using the weighted average method, theequivalent units produced by the department were:A. 5,000 units.B. 5,900 units.C. 6,100 units.D. 5,500 units.E. 6,700 units. 11 43. A system of accounting in which the costs of each process are accumulated and then assigned to the units ofproduct that passed through the process is a:A. General cost accounting system.B. Process cost accounting system.C. Job order cost accounting system.D. Manufacturing cost accounting system.E. Goods in process accounting system. 44. Which of the following is the best explanation for why it is necessary to calculate equivalent units ofproduction in a process costing environment?A. In most manufacturing environments, it is not possible to conduct a physical count of units.B. Companies often use a combination of a process costing and job order costing systems.C. In most process costing systems, direct materials are added at the beginning of the process while conversioncosts are added evenly throughout the manufacturing process.D. All of the work to make a unit 100% complete and ready to move to the next stage of production or tofinished goods inventory may not have been completed in a single time period.E. In most cases, there is no difference between physical units and equivalent units of production. 45. In a process operation, the direct labor of a production department includes:A. All labor used exclusively by that department, even if the labor is not applied to the product itself.B. All labor used exclusively by that department, but only if the labor is applied to the product itself.C. All labor for that department, including labor for services that help more than one production department,such as clerical, repair, and computer technicians.D. Only labor that helps more than one production department, such as clerical, repair, and computertechnicians.E. Only that labor that is recorded in the Factory Payroll account. 46. Which of the following products is least likely to be produced in a process manufacturing system?A. Compact disks.B. Slacks for casual wear.C. Baseball hats.D. Calculators.E. Custom cabinets. 12 47. The following is an account for a production department, showing its costs for onemonth: Assume that materials are added at the beginning of the production process and that direct labor and overheadare applied uniformly. If the units in ending goods in process inventory cost $4,590, and the started andcompleted units cost $41,850, what was the cost of completing the units in the beginning goods in processinventory?A. $12,150.B. $2,160.C. $7,560.D. $54,000.E. $37,260. 13 14 48. What interest rate is required to accumulate $6,802.50 in four years from an investment of $5,000?A. 5%.B. 8%.C. 10%.D. 12%.E. 15%. 49. A company is considering investing in a project that is expected to return $350,000 four years from now.How much is the company willing to pay for this investment if the company requires a 12% return?A. $55,606.B. $137,681.C. $222,425.D. $265,764.E. $350,000. 50. Crowe Company has acquired a building with a loan that requires payments of $20,000 every six months for5 years. The annual interest rate on the loan is 12%. What is the present value of the building?A. $72,096B. $113,004C. $147,202D. $86,590E. $200,000 15