Name: ________________________ Class: ___________________ Date: __________

ID: A

ACCT1B - Managerial Accounting: Sample Exam 1

Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. Which of the following concepts of cash is not appropriate to use in preparing the statement of cash flows? a. cash b. cash and money market funds c. cash and cash equivalents d. cash and U.S. treasury bonds 2. On the statement of cash flows, the cash flows from operating activities section would include: a. receipts from the issuance of capital stock b. receipts from the sale of investments c. payments for the acquisition of investments d. cash receipts from sales activities 3. Cash paid to purchase long-term investments would be reported in the statement of cash flows in: a. the cash flows from operating activities section b. the cash flows from financing activities section c. the cash flows from investing activities section d. a separate schedule 4. A statement of cash flows would not disclose the effects of which of the following transactions? a. stock dividends declared b. bonds payable exchanged for capital stock c. purchase of treasury stock d. capital stock issued to acquire fixed assets 5. Which of the following represents an inflow of cash and therefore would be reported on the statement of cash flows? a. appropriation of retained earnings b. acquisition of treasury stock c. declaration of stock dividends d. issuance of long-term debt 6. Cash paid for preferred stock dividends should be shown on the statement of cash flows under: a. investing activities b. financing activities c. noncash investing and financing activities d. operating activities 7. A company purchases equipment for $29,000 cash. This transaction should be shown on the statement of cash flows under: a. investing activities b. financing activities c. noncash investing and financing activities d. operating activities

____

____

____

____

____

____

Name: ________________________ ____

ID: A

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____

____

____

8. Depreciation on factory equipment would be reported in the statement of cash flows prepared by the indirect method in: a. the cash flows from financing activities section b. the cash flows from investing activities section c. a separate schedule d. the cash flows from operating activities section 9. Which of the following should be deducted from net income in calculating net cash flow from operating activities using the indirect method? a. depreciation expense b. amortization of premium on bonds payable c. a loss on the sale of equipment d. dividends declared and paid 10. Which of the following below increases cash? a. depreciation expense b. acquisition of treasury stock c. borrowing money by issuing a six-month note d. the declaration of a cash dividend 11. Which one of the following below should be added to net income in calculating net cash flow from operating activities using the indirect method? a. a gain on the sale of land b. a decrease in accounts payable c. an increase in accrued liabilities d. dividends paid on common stock 12. The net income reported on the income statement for the current year was $275,000. Depreciation recorded on fixed assets and amortization of patents for the year were $40,000 and $9,000, respectively. Balances of current asset and current liability accounts at the end and at the beginning of the year are as follows: End $ 50,000 112,000 105,000 4,500 75,000 Beginning $ 60,000 108,000 93,000 6,500 89,000

Cash Accounts receivable Inventories Prepaid expenses Accounts payable (merchandise creditors)

What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method? a. $198,000 b. $324,000 c. $352,000 d. $296,000 ____ 13. Equipment with an original cost of $50,000 and accumulated depreciation of $20,000 was sold at a loss of $7,000. As a result of this transaction, cash would: a. increase by $23,000 b. decrease by $7,000 c. increase by $43,000 d. decrease by $30,000

Name: ________________________

ID: A

____ 14. Cash dividends of $80,000 were declared during the year. Cash dividends payable were $10,000 and $15,000 at the beginning and end of the year, respectively. The amount of cash for the payment of dividends during the year is: a. $85,000 b. $80,000 c. $95,000 d. $75,000 ____ 15. 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 payments for merchandise total: a. $49,000 b. $47,000 c. $51,000 d. $63,000 ____ 16. Income tax was $400,000 for the year. Income tax payable was $30,000 and $40,000 at the beginning and end of the year. Cash payments for income tax reported on the cash flow statement using the direct method is: a. $400,000 b. $390,000 c. $430,000 d. $440,000 ____ 17. Free cash flow is cash from operations, less cash for: a. dividends and cash for fixed assets needed to maintain productivity b. dividends and cash to redeem bonds payable c. fixed assets needed to maintain productivity d. dividends, cash for fixed assets needed to maintain productivity, and cash to redeem bonds payable ____ 18. Based on the following data, what is the quick ratio, rounded to one decimal point? Accounts payable Accounts receivable Accrued liabilities Cash Intangible assets Inventory Long-term investments Long-term liabilities Marketable securities Notes payable (short-term) Property, plant, and equipment Prepaid expenses a. b. c. d. 2.4 3.4 2.1 1.5 $ 30,000 65,000 7,000 20,000 40,000 72,000 100,000 75,000 36,000 20,000 625,000 2,000

Name: ________________________

ID: A

____ 19. Which of the following is a measure of the liquid position of a corporation? a. earnings per share b. inventory turnover c. current ratio d. number of times interest charges earned ____ 20. Which of the following is not included in the computation of the quick ratio? a. inventory b. marketable securities c. accounts receivable d. cash ____ 21. Which of the following ratios provides a solvency measure that shows the margin of safety of noteholders or bondholders and also gives an indication of the potential ability of the business to borrow additional funds on a long-term basis? a. ratio of fixed assets to long-term liabilities b. ratio of net sales to assets c. number of days' sales in receivables d. rate earned on stockholders' equity ____ 22. The balance sheets at the end of each of the first two years of operations indicate the following: 2006 $600,000 60,000 900,000 150,000 350,000 100,000 600,000 60,000 325,000 2005 $560,000 40,000 700,000 80,000 250,000 100,000 600,000 60,000 210,000

Total current assets Total investments Total property, plant, and equipment Total current liabilities Total long-term liabilities Preferred 9% stock, $100 par Common stock, $10 par Paid-in capital in excess of par-common stock Retained earnings

If net income is $115,000 and interest expense is $30,000 for 2006 what is the rate earned on total assets for 2006 (round percent to one decimal point)? a. 9.3% b. 10.1% c. 8.0% d. 7.4%

Name: ________________________ ____ 23. The following information is available for Watson Corp.: 2006 $25.00 1.25

ID: A

Market price per share of common stock Earnings per share on common stock

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____ 25.

____ 26.

____ 27.

____ 28.

____ 29.

Which of the following statements is correct? a. The price-earnings ratio is 20 and a share of common stock was selling for 20 times the amount of earnings per share at the end of 2006. b. The price-earnings ratio is 5.0% and a share of common stock was selling for 5.0% more than the amount of earnings per share at the end of 2006. c. The price-earnings ratio is 10 and a share of common stock was selling for 125 times the amount of earnings per share at the end of 2006. d. The market price per share and the earnings per share are not statistically related to each other. The independent auditor's report does which of the following? a. describes which financial statements are covered by the audit b. gives the auditor's opinion regarding the fairness of the financial statements c. summarizes what the auditor did d. states that the financial statements are truthful In order to be useful to managers, management accounting reports should possess all of the following characteristics except: a. provide objective measures of past operations and subjective estimates about future decisions b. be prepared in accordance with generally accepted accounting principles c. be provided at any time management needs information d. be prepared to report information for any unit of the business to support decision making The cost of a manufactured product generally consists of which of the following costs? a. Direct materials cost and factory overhead cost b. Direct labor cost and factory overhead cost c. Direct labor cost, direct materials cost, and factory overhead cost d. Direct materials cost and direct labor cost Which of the following is an example of a factory overhead cost? a. Repair and maintenance cost on the administrative building b. Factory heating and lighting cost c. Insurance premiums on salespersons' automobiles d. President's salary Which of the following items would not be classified as part of factory overhead? a. Direct labor used b. Amortization of manufacturing patents c. Production supervisors' salaries d. Factory supplies used Which of the following is considered a part of factory overhead cost? a. Sales commissions b. Depreciation of factory buildings c. Depreciation of office equipment d. Direct materials used

Name: ________________________

ID: A

____ 30. Which of the following manufacturing costs is an indirect cost of producing a product? a. Oil lubricants used for factory machinery b. Commissions for sales personnel c. Hourly wages of an assembly worker d. Memory chips for a microcomputer manufacturer ____ 31. Which of the following are the two main types of cost accounting systems for manufacturing operations? a. Process cost and general accounting systems b. Job order cost and process cost systems c. Job order and general accounting systems d. Process cost and replacement cost systems ____ 32. For which of the following businesses would the process cost system be appropriate? a. Book publisher b. Dress designer c. Lumber mill d. Printing firm ____ 33. The document authorizing the issuance of materials from the storeroom is the: a. materials requisition b. purchase requisition c. receiving report d. purchase order ____ 34. The entry to record direct labor costs into production in a job order cost accounting system is: a. debit Factory Overhead, credit Work in Process b. debit Finished Goods, credit Wages Payable c. debit Work in Process, credit Wages Payable d. debit Factory Overhead, credit Wages Payable ____ 35. The recording of the jobs completed would include a credit to: a. Factory Overhead b. Finished Goods c. Work in Process d. Cost of Goods Sold ____ 36. The finished goods account is the controlling account for the: a. cost ledger b. materials ledger c. work in process ledger d. stock ledger ____ 37. Materials purchased on account during the month amounted to $195,000. Materials requisitioned and placed in production totaled $168,000. From the following, select the entry to record the transaction on the day the materials were bought. a. Materials 168,000 Accounts Payable 168,000 b. Materials 195,000 Accounts Payable 195,000 c. Materials 195,000 Cash 195,000 d. Accounts Payable 195,000 Materials 195,000

Name: ________________________

ID: A

____ 38. The cost of production of completed and finished goods during the period amounted to $400,000, and the finished products shipped to customers had total production costs of $337,000. From the following, select the entry to record the transfer of costs from finished goods to cost of goods sold. a. Finished Goods 400,000 Cost of Goods Sold 400,000 b. Finished Goods 337,000 Cost of Goods Sold 337,000 c. Cost of Goods Sold 337,000 Finished Goods 337,000 d. Cost of Goods Sold 400,000 Finished Goods 400,000 ____ 39. Costs that are treated as assets until the product is sold are called: a. product costs b. period costs c. conversion costs d. selling expenses ____ 40. For the manufacturing business, inventory which is in the process of being manufactured is referred to as: a. supplies inventory b. work in process inventory c. finished goods inventory d. direct materials inventory Problem 41. On the basis of the details of the common stock account presented below, assemble in memorandum form the data needed to prepare a statement of cash flows, indicating the section of the statement in which the data would appear. Common Stock, $10 Par Date 20-Jan. 1 Item ... ... ... ... Debit ... ... ... ... Credit ... 50,000 10,000 20,000 Balance Debit Credit 500,000 550,000 560,000 580,000

Balance, 50,000 shares Mar. 7 5,000 shares issued at par for cash Sept. 20 1000-share stock dividend Dec. 10 1,000 shares issued at $20 for cash

Name: ________________________

ID: A

42. The board of directors declared cash dividends totaling $242,000 during the current year. The comparative balance sheet indicates dividends payable of $48,000 at the beginning of the year and $59,000 at the end of the year. What was the amount of cash payments to stockholders during the year?

Name: ________________________

ID: A

43. The comparative balance sheet of Nelson Company, for 2006 and the preceding year ended December 31, 2005, appears below in condensed form: Year 2006 $ 68,000 61,000 121,000 ..... 515,000 (153,000) $612,000 ======== $ 59,750 ..... 375,000 50,000 127,250 $612,000 ======== Year 2005 $ 42,500 70,200 105,000 100,000 425,000 (175,000) $567,700 ======== $ 47,250 75,000 325,000 25,000 95,450 $567,700 ========

Cash Accounts receivable (net) Inventories Investments Equipment Accumulated depreciation-equipment

Accounts payable Bonds payable, due 2010 Common stock, $20 par Premium on common stock Retained earnings

Additional data for the current year are as follows: (a) (b) (c) (d) (e) (f) (g) Net income, $71,800. Depreciation reported on income statement, $38,000. Fully depreciated equipment costing $60,000 was scrapped, no salvage, and equipment was purchased for $150,000. Bonds payable for $75,000 were retired by payment at their face amount. 2,500 shares of common stock were issued at $30 for cash. Cash dividends declared and paid, $40,000. Investments of $100,000 were sold for $125,000.

Prepare a statement of cash flows using the indirect method.

Name: ________________________

ID: A

10

Name: ________________________

ID: A

44. The cash flows from operating activities are reported by the direct method on the statement of cash flows. Determine the following: a. b. If sales for the current year were $475,000 and accounts receivable increased by $37,000 during the year, what was the amount of cash received from customers? If income tax for the current year was $38,000 and income tax payable decreased by $10,000 during the year, what was the amount of cash payments for income tax?

11

Name: ________________________

ID: A

45. Condensed data taken from the ledger of Jefferson Company at December 31, 2006 and 2005, are as follows: 2006 $150,000 450,000 20,700 70,000 200,000 225,000 125,700 2005 $130,000 400,000 30,000 80,000 250,000 150,000 80,000

Current assets Property, plant, and equipment Intangible assets Current liabilities Long-term liabilities Common stock Retained earnings

Prepare a comparative balance sheet, with horizontal analysis, for December 31, 2006 and 2005. (Round percents to one decimal point.)

12

Name: ________________________

ID: A

46. The following information has been condensed from the December 31 balance sheets of Henry Co.: 2006 Assets: Current assets Fixed assets (net) Total assets $ 825,500 1,473,600 $2,299,100 ========== 2005 $ 674,300 1,275,300 $1,949,600 ==========

Liabilities: Current liabilities Long-term liabilities Total liabilities Stockholders' equity Total liabilities and stockholders' equity

$ 313,500 703,000 $1,016,500 $1,282,600 $2,299,100 ==========

$ 309,600 545,000 $ 854,600 $1,095,000 $1,949,600 ==========

(a) (b) (c)

Determine the ratio of fixed assets to long-term liabilities for 2006 and 2005. Determine the ratio of liabilities to stockholders' equity for 2006 and 2006. Comment on the year-to-year changes for both ratios.

13

Name: ________________________

ID: A

47. KCT Printing Company uses a job order cost system. (a) Indicate the source of the data for debiting Work in Process for each of the following: (1) Direct materials requisitioned (2) Direct labor used Indicate the source of the data for crediting Work in Process for jobs completed. Present a list of the three controlling accounts used in the general ledger to record the inventories and, in each case, indicate the related subsidiary ledger.

(b) (c)

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Name: ________________________

ID: A

48. During June, the receipts and issuances of Material No. A2FO are as follows: Received 1,100 units at $15 1,700 units at $17 900 units at $18 Issued 700 units for Job No. 116 1,900 units for Job No. 117 800 units for Job No. 118

June 3 16 29

Balance

June 11 18 30 (a)

Determine the cost of each of the three issues under a perpetual system, using the first-in, first-out method. Present the journal entry to record the issuance of the materials for the month, assuming that the cost of issuances is determined by the first-in, first-out method.

(b)

49. The balance of Material Q on May 1 and the receipts and issuances during May are as follows: Balance May 1 Received May 11 Received May 25 Issued May 17 Issued May 27 8 at $32 23 at $34 15 at $35 14 18

Determine the cost of each of the issuances under a perpetual system, using the first-in, first-out method.

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Name: ________________________

ID: A

50. List the accounts used in the cost flow for (a) a manufacturer and (b) a service provider.

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ID: A

ACCT1B - Managerial Accounting: Sample Exam 1 Answer Section

MULTIPLE CHOICE 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: D D C A D B A D B C C D A D A B A C C A A A A B B C B A B A B C A C C D B C A PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: PTS: 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: DIF: 1 2 2 2 2 2 2 2 2 2 2 2 3 2 2 2 2 1 3 2 1 1 3 3 2 1 1 5 5 5 5 1 5 1 5 5 1 5 5 1 OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: OBJ: 01 01 01 01 01 01 01 02 02 02 02 02 02 02 03 03 04 02 02 02 02 03 03 05 01 03 03 03 03 03 04 04 05 05 05 05 05 05 05

ID: A 40. ANS: B PROBLEM 41. ANS: Cash flows from financing activities: Cash received from sale of common stock PTS: 1 DIF: 2 OBJ: 02 42. ANS: Dividends declared Less increase in dividends payable Dividends paid to stockholders during the year PTS: 1 DIF: 1 OBJ: 05

$70,000

$242,000 11,000 $231,000 ========

PTS: 1

DIF:

OBJ: 02

ID: A 43. ANS: Nelson Company Statement of Cash Flows For Year Ended December 31, 2006 Cash flows from operating activities: Net income, per income statement Add: Depreciation Decrease in accts. rec. Increase in accts. pay. Deduct: Increase in inventories Gain on sale of investments Net cash flow from operating activities Cash flows from investing activities: Cash from sale of investments Less: Cash paid for purchase of equipment Net cash flow used for investing activities Cash flows from financing activities: Cash from sale of common stock Less: Cash paid to retire bonds payable Cash paid for dividends Net cash flow used for financing activities Increase in cash Cash at the beginning of the year Cash at the end of the year

$ 71,800 $38,000 9,200 12,500 $16,000 25,000

59,700 $131,500 41,000 $ 90,500

$125,000 150,000 (25,000) $ 75,000 $ 75,000 40,000

115,000 (40,000) $ 25,500 42,500 $ 68,000 ========

PTS: 1

DIF:

OBJ: 02

ID: A 44. ANS: a. Sales Less increase in accounts receivable Cash received from customers $475,000 37,000 $438,000 ========

b. Income tax Add decrease in income taxes payable Cash payments for income tax $ 38,000 10,000 $ 48,000 ======== OBJ: 03

PTS: 1 45. ANS:

DIF:

Jefferson Company Comparative Balance Sheet December 31, 2006 and 2005 2006 Assets Current assets Property, plant, and equipment Intangible assets Total assets Liabilities Current liabilities Long-term liabilities Total liabilities Stockholders' Equity Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $150,000 450,000 20,700 $620,700 ======== $ 70,000 200,000 $270,000 $225,000 125,700 $350,700 $620,700 ======== 3 2005 $130,000 400,000 30,000 $560,000 ======== $ 80,000 250,000 $330,000 $150,000 80,000 $230,000 $560,000 ======== Increase (Decrease) Amount Percent $ 20,000 50,000 (9,300) $ 60,700 ======== $(10,000) (50,000) $(60,000) $ 75,000 45,700 $120,700 $ 60,700 ======== 15.4% 12.5% (31.0%) 10.8%

(12.5%) (20.0%) (18.2%) 50.0% 57.1% 52.5% 10.8%

PTS: 1

DIF:

OBJ: 02

ID: A 46. ANS: (a) 2006 2.10 2005 2.34

Ratio of fixed assets to long-term liabilities............... (b) Ratio of liabilities to stockholders equity (c)

.79

.78

There are fewer fixed assets on a proportionate basis to protect the interests of the long-term creditors. The interests of all the creditors in the total assets of the company, however, are rising slightly from year to year when compared to the shareholders' equity in those same assets.

PTS: 1 DIF: 3 OBJ: 03 47. ANS: (a) (1) Summary of materials requisitions (2) Summary of time tickets (b) (c) Summary of job cost sheets for jobs completed Controlling Account Materials Work in Process Finished Goods DIF: issue: issue: issue: 1 Subsidiary Ledger Materials ledger Cost ledger Finished goods ledger (or stock ledger) OBJ: 05 $10,500 31,500 14,200 $56,200 ======= 56,200 56,200 3 OBJ: 05 $460 $648 OBJ: 05

PTS: 1 48. ANS: (a) June 11 18 31

700 at $15 400 at $15 plus 1,500 at $17 200 at $17 plus 600 at $18

(b)

Work in Process Materials DIF:

PTS: 1 49. ANS: May 17 issue: May 27 issue: PTS: 1

8 at $32 plus 6 at $34 17 at $34 plus 2 at $35 DIF: 1

ID: A 50. ANS: (a) Materials Wages Payable Factory Overhead Work in Process Finished Goods Cost of Goods Sold (b) Supplies Wages Payable Overhead Work in Process Cost of Services DIF: 4 OBJ: 07

PTS: 1