Basic Accounting Exam Preparation Guide
Course Introduction
Basic Accounting introduces students to the fundamental principles and practices of accounting, emphasizing the systematic recording, reporting, and analysis of financial transactions. The course covers essential topics such as the accounting cycle, double-entry bookkeeping, preparation and interpretation of financial statements, and the role of accounting in business decision-making. Students will gain practical skills in managing financial records, understanding debits and credits, and applying accounting concepts to real-world scenarios, forming a solid foundation for further study in accounting and finance.
Recommended Textbook
Fundamental Accounting Principles 21st Edition by
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Page 2
John J. Wild
Chapter 1: Accounting in Business
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Sample Questions
Q1) Revenues are:
A)The same as net income.
B)The excess of expenses over assets.
C)Resources owned or controlled by a company
D)The increase in equity from a company's earning activities.
E)The costs of assets or services used.
Answer: D
Q2) 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.
Answer: B
Q3) Congress passed the ______________________ to help curb financial abuses at companies that issue their stock to the public.
Answer: Sarbarnes-Oxley Act
Q4) ______________ is the area of accounting aimed at serving external users.
Answer: Financial accounting
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Chapter 2: Analyzing and Recording Transactions
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Q1) Management Services,Inc.provides services to clients.On May 1,a client prepaid Management Services $60,000 for 6-months services in advance.Management Services' general journal entry to record this transaction will include a:
A)Debit to Unearned Management Fees for $60,000.
B)Credit to Management Fees Earned for $60,000.
C)Credit to Cash for $60,000.
D)Credit to Unearned Management Fees for $60,000.
E)Debit to Management Fees Earned for $60,000.
Answer: D
Q2) An accountant has debited an account for $3,500 and credited a liability account for $2,000.Which of the following would be an incorrect way to complete the recording of this transaction:
A)Credit another asset account for $1,500.
B)Credit another liability account for $1,500.
C)Credit an expense account for $1,500.
D)Credit the owner's capital account for $1,500.
E)Debit another asset account for $1,500.
Answer: E
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Page 4
Chapter 3: Adjusting Accounts and Preparing Financial Statements
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Sample Questions
Q1) Describe the two alternate methods used to account for prepaid expenses.
Answer: The first method places all prepaid expenses in the expense accounts when cash is paid.Adjusting entries are used to place unexpired amounts into the asset accounts.The second method places all prepaid expenses into asset accounts when cash is paid.Adjusting entries are used to recognize expired amounts which are placed into expense accounts.
Q2) An _______________________ is a listing of all of the accounts in the ledger with their account balances before adjustments are made.
Answer: unadjusted trial balance
Q3) The cash basis of accounting recognizes revenues when cash payments from customers are received.
A)True
B)False
Answer: True
Q4) A salary owed to employees is an example of an accrued expense. A)True
B)False
Answer: True
Page 5
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Chapter 4: Completing the Accounting Cycle
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Q1) Accumulated Depreciation,Accounts Receivable,and Service Fees Earned would be sorted to which respective columns in completing a work sheet?
A)Balance Sheet and Statement of Owner's Equity-Credit; Balance Sheet and Statement of Owner's Equity Debit; and Income Statement-Credit.
B)Balance Sheet and Statement of Owner's Equity-Debit; Balance Sheet and Statement of Owner's Equity-Credit; and Income Statement-Credit.
C)Income Statement-Debit; Balance Sheet and Statement of Owner's Equity-Debit; and Income Statement-Credit.
D)Income Statement-Debit; Income Statement-Debit; and Balance Sheet and Statement of Owner's Equity-Credit.
E)Balance Sheet and Statement of Owner's Equity-Credit; Income Statement-Debit; and Income Statement-Credit.
Q2) Adjustments must be entered in the journal and posted to the ledger after the work sheet is prepared.
A)True
B)False
Q3) What is the purpose of a post-closing trial balance?
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Chapter 5: Accounting for Merchandising Operations
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Sample Questions
Q1) A company's current assets were $17,980,its quick assets were $11,420 and its current liabilities were $12,190.Its quick ratio equals:
A)0.94.
B)1.07.
C)1.48.
D)1.57.
E)2.40.
Q2) A period's ___________________ becomes the next period's beginning inventory.
Q3) Expenses of promoting sales by displaying and advertising merchandise,making sales,and delivering goods to customers are:
A)General and administrative expenses.
B)Cost of goods sold.
C)Selling expenses.
D)Purchasing expenses.
E)Non-operating activities.
Q4) Distinguish between selling expenses and general and administrative expenses.
Q5) FOB _________________ means the buyer accepts ownership when the goods depart the seller's place of business.The buyer is responsible for paying shipping costs and bears the risk of damage or loss when goods are in transit.
Page 7
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) A company issued a check for $7,900 in payment of merchandise.Identify the journal the transaction would be recorded in.
A)Cash disbursements journal.
B)Sales journal.
C)Cash receipts journal.
D)Purchases journal.
E)General journal.
Q2) The sales journal is used for recording:
A)Credit purchases.
B)Credit sales.
C)Cash sales.
D)Cash purchases.
E)Cash receipts.
Q3) The flexibility principle prescribes that an accounting information system conform with a company's activities,personnel,and structure and adapt to a company's unique characteristics.
A)True
B)False
Q4) Using _______________ ledgers removes unnecessary details from the general ledger.
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Chapter 8: Cash and Internal Controls
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Sample Questions
Q1) A check involves 3 parties: the maker who signs the check,the payee who is the recipient,and the bank on which the check is drawn.
A)True
B)False
Q2) The gross method of recording purchases refers to the method of recording:
A)Purchases at the invoice price less any cash discounts.
B)Specified amounts and timing of payments that a buyer agrees to make in return for being granted credit.
C)Purchases at the full invoice price, without deducting any cash discounts.
D)Inventory at its selling price.
E)Inventory at the lower of cost or market.
Q3) A voucher system is a series of prescribed control procedures:
A)Designed to eliminate the need for subsidiary ledgers.
B)Designed to determine if the company is operating profitably.
C)Used almost exclusively by small companies.
D)Used to ensure that the company sells on credit only to creditworthy customers.
E)Designed to control cash disbursements and the acceptance of obligations.
Q4) Discuss the purpose of a bank reconciliation.
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Chapter 9: Accounting for Receivables
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Q1) To write off an uncollectible account receivable when the allowance method of accounting for uncollectible accounts is used,a company should debit _______________________ and credit accounts receivable.
Q2) A high accounts receivable turnover in comparison with competitors suggests that the firm should tighten its credit policy.
A)True
B)False
Q3) Companies use two methods to account for uncollectible accounts,the direct write-off method and the allowance method.
A)True
B)False
Q4) Each December 31,Davis Company ages its accounts receivable to determine the amount of its adjustment for bad debts.At the end of the current year,management estimated that $16,900 of the accounts receivable balances would be uncollectible.The Allowance for Doubtful Accounts account had a debit balance of $3,200 before any year-end adjustment for bad debts.Prepare the adjusting journal entry that Davis Company should make on December 31,of the current year,to estimate bad debts expense.
Q5) What is the maturity date of a 6-month note receivable dated February 5?
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Chapter 10: Plant Assets, natural Resources, and Intangibles
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Sample Questions
Q1) On September 30 of the current year,a company acquired and placed in service a machine at a cost of $700,000.It has been estimated that the machine has a service life of five years and a salvage value of $40,000.Using the double-declining-balance method of depreciation,prepare a schedule showing depreciation amounts for the current year and the next 4 years (round answers to the nearest dollar).The company closes its books on December 31 of each year.
Q2) A machine originally had an estimated useful life of 5 years,but after 3 complete years,it was decided that the original estimate of useful life should have been 10 years.At that point the remaining cost to be depreciated should be allocated over the remaining:
A)2 years.
B)5 years.
C)7 years.
D)8 years.
E)10 years.
Q3) Describe the accounting for natural resources,including their acquisition,cost allocation,and account titles.
Q4) Describe the accounting for intangible assets,including their acquisition,cost allocation,and accounts involved.
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Chapter 11: Current Liabilities and Payroll Accounting
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Sample Questions
Q1) An employee earned $4,300 working for an employer.The current rate for FICA Social Security is 6.2% and the rate for FICA Medicare 1.45%.The employer's total FICA payroll tax for this employee is:
A)$ 62.35.
B)$266.60.
C)$328.95.
D)$657.90.
E)Zero, since the FICA tax is a deduction from an employee's pay, and not an employer tax.
Q2) The wage bracket withholding table is used to:
A)Compute social security withholding.
B)Compute Medicare withholding.
C)Compute federal income tax withholding.
D)Prepare the W-4.
E)All of the choices are correct.
Q3) An employee earned $3,450 for the current period.Calculate the total and individual amounts to be withheld for social security (6.2%),Medicare (1.45%)and federal income tax (15%)assuming the entire employee's pay is subject to FICA taxes.
Q4) Identify and explain the types of employer payroll taxes.
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Chapter 12: Accounting for Partnerships
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Sample Questions
Q1) A relatively new form of business organization that protects partners with limited liability,allows limited partners to assume an active management role,and is taxed as a partnership is a ______________________________
Q2) Sam and Dave's company is organized as a partnership.At the prior year-end,Sam's equity balance was $258,000 and Dave's was $212,000.For the current year,partnership net income is $125,000 ($75,000 allocated to Sam and $50,000 allocated to Dave); withdrawals are $77,000 ($40,000 for Sam and $37,000 for Dave).Compute the total partnership return on equity and the individual partner return on equity ratios.
Q3) Smith,West,and Krug form a partnership.Smith contributes $180,000,West contributes $150,000,and Krug contributes $270,000.Their partnership agreement calls for a 5% interest allowance on the partner's capital balances with the remaining income or loss to be allocated equally.If the partnership reports income of $174,000 for its first year,what amount of income is credited to West's capital account?
A)$58,000.
B)$57,000.
C)$61,500.
D)$55,500.
E)$48,000.
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13
Chapter 13: Accounting for Corporations
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Sample Questions
Q1) A company's stock is selling for $35 per share at year-end.This current year it paid shareholders a $2.45 per share cash dividend,reported earnings per share of $12.00,and had 750,000 common shares outstanding at year-end.Calculate the company's dividend yield.
Q2) A company declared a $0.50 per share cash dividend.The company has 20,000 shares authorized,9,000 shares issued,and 8,000 shares of common stock outstanding.The journal entry to record the dividend declaration is:
A)Debit Retained Earnings $4,000; credit Common Dividends Payable $4,000.
B)Debit Common Dividends Payable $4,000; credit Cash $4,000.
C)Debit Retained Earnings $4,500; credit Common Dividends Payable $4,500.
D)Debit Common Dividends Payable $4,500; credit Cash $4,500.
E)Debit Retained Earnings $10,000; credit Common Dividends Payable $10,000.
Q3) A preemptive right means shareholders can purchase their proportional share of common stock issued later by the corporation.
A)True
B)False
Q4) _____________ is the amount of income earned per share of a company's outstanding common stock.
Q5) What are the rights generally granted to common stockholders?
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Chapter 14: Long-Term Liabilities
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Sample Questions
Q1) Term bonds are scheduled for maturity on one specified date,whereas serial bonds mature at more than one date.
A)True B)False
Q2) The debt-to-equity ratio is calculated by dividing total stockholders' equity by total liabilities.
A)True B)False
Q3) A company has 10%,20-year bonds outstanding with a par value of $500,000.The company calls the bonds at 96 when the unamortized discount is $24,500.Calculate the gain or loss on the retirement of these bonds.
Q4) ____________________ leases are long-term or noncancelable leases by which the lessor transfers substantially all risks and rewards of ownership to the lessee.
Q5) A company issued 10-year,9% bonds,with a par value of $500,000 when the market rate was 9.5%.The issuer received $484,087 in cash proceeds.Prepare the issuer's journal entry to record the bond issuance.
Q6) What is a lease?
Explain the difference between an operating lease and a capital lease.
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Chapter 15: Investments and International Operations
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Q1) On May 15,Briar Company purchased 10,000 shares of Broder Corp.for $80,000.The securities are considered available-for-sale securities.On September 30,the stock had a market value of $85,000.The $5,000 difference must be reported on the income statement as a $5,000 gain.
A)True
B)False
Q2) Long-term investments in available-for-sale securities are reported at their _______ on the balance sheet.
Q3) If a company owns more than 20% of the stock of another company and the stock is being held as a long-term investment,which method would the investor normally use to account for this investment?
A)Equity method.
B)Fair value method.
C)Historical cost method.
D)Cost with amortization method.
E)Effective method.
Q4) _________________________ securities reflect a creditor relationship while ____________________ securities reflect an owner relationship.
Q5) Explain how to record the sale of trading securities.
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Chapter 16: Reporting the Statement of Cash Flows
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Q1) Which of the following is included in the cash flows from financing activities section of the statement of cash flows?
A)Interest revenue.
B)Sale of equipment.
C)Interest expense.
D)Purchase of treasury stock.
E)Purchase of stock in another company.
Q2) The primary purpose of the statement of cash flows is to report all major cash receipts (inflows)and cash payments (outflows)during a period.
A)True
B)False
Q3) The cash flow on total assets ratio can be used as an indicator of earnings quality. A)True B)False
Q4) The FASB requires a reconciliation of net income to net cash provided or used by operating activities when the ______________ method is used.
Q5) Explain how cash flows from investing and financing activities are determined.
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Chapter 17: Analysis of Financial Statements
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Q1) A common focus of financial statement users in evaluating a company's performance includes evaluation of its (1)__________________,(2)______________,and (3)___________________.
Q2) Measures taken from a selected competitor or a group of competitors are often excellent standards of comparison for analysis.
A)True
B)False
Q3) A ratio expresses a mathematical relation between two quantities and can be expressed as a percent,rate,or proportion.
A)True
B)False
Q4) Annual cash dividends per share divided by market price per share is the:
A)Price-earnings ratio
B)Price-dividends ratio.
C)Profit margin.
D)Dividend yield ratio.
E)Earnings per share.
Q5) Describe the purpose of horizontal financial statement analysis and how it is applied.
18
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Chapter 18: Managerial Accounting Concepts and Principles
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Q1) A _________________ system means that a company acquires or produces inventory only when needed.
Q2) Which of the following costs would not be classified as factory overhead?
A)Property taxes on maintenance machinery.
B)Expired insurance on factory equipment.
C)Wages of the factory janitor.
D)Metal doorknobs used on wood cabinets produced.
E)Small tools used in production.
Q3) Which of the following items are management concepts that were created to improve companies' performances?
A)Just-in-time manufacturing.
B)Customer orientation.
C)Total quality management.
D)Continuous improvement.
E)All of the above are ways that management can improve companies' performances.
Q4) ___________________ is the process of setting goals and making plans to achieve them.
Q5) Control is the process of setting goals and determining ways to achieve them.
A)True
B)False
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Chapter 19: Job Order Costing
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Q1) Key Manufacturing Co.applies factory overhead to production on the basis of direct labor costs.Assume that at the beginning of the current year the company estimated that direct material costs would be $178,800,direct labor costs would be $154,000,and factory overhead costs would be $231,000.
(1)If the $28,000 cost of Key's goods in process inventory included $5,200 of direct labor cost,what amount of direct materials cost was included?
(2)If $8,100 of the company's $34,300 finished goods inventory was direct materials cost,determine the direct labor cost and factory overhead cost of the finished goods inventory.
Q2) Deltan Corp.allocates overhead to production on the basis of direct labor costs.Deltan's total estimated overhead is $450,000 and estimated direct labor is $180,000.Determine the amount of overhead to be allocated to finished goods inventory if there is $20,000 of total direct labor cost in the jobs in the finished goods inventory.
A)$ 8,000.
B)$20,000.
C)$70,000.
D)$50,000.
E)$90,000.
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Chapter 20: Process Costing
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Q1) A unique feature of process costing systems is the use of a single Goods in Process Inventory control account when more than one production department exists.
A)True
B)False
Q2) Prepare general journal entries to record the following production activities for Sherman Manufacturing.
a.Purchased $82,000 of raw materials on credit.
b.Used $63,500 of direct materials in production.
c.Used $12,800 of indirect materials.
Q3) Process cost accounting systems are used only by companies that manufacture physical products; meaning that companies and other organizations that provide services to their customers do not use process cost accounting.
A)True B)False
Q4) In process costing,indirect materials are charged directly to Goods in Process Inventory.
A)True
B)False
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) A product has a contribution margin per unit of $17 and sells at $25 per unit.If the break-even point is 82,000 units,calculate (a)the variable costs per unit and (b)the total fixed costs.
Q2) Baines Brothers manufactures and sells two products,A and Z in the ratio of 4: 2.Product A sells for $75; Z sells for $95.Variable costs for product A are $35; for Z $40.Fixed costs are $418,500.Compute the number of units of Product Z Baines must sell to break even.
A)5,080.
B)6,200.
C)2,540.
D)3,100.
E)2,790.
Q3) The following data relate to a product sold by Nelson Company:
Total Variable costs $90,000
Total fixed costs 27,000
Predicted after-tax income (30% tax) 12,600
Contribution margin per unit 5
(a)Calculate the number of units expected to be sold.
(b)Calculate the expected total dollar sales.
Q4) Discuss how CVP analysis can be useful in planning.
Page 22
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Chapter 22: Master Budgets and Planning
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Q1) The merchandise purchases budget is the starting point for preparing the master budget.
A)True
B)False
Q2) Describe at least five benefits of budgeting.
Q3) The sales budget for Carmel shows that 20,000 units of Product A and 22,000 units of Product B are going to be sold for prices of $10 and $12,respectively.The desired ending inventory of Product A is 20% higher than its beginning inventory of 2,000 units.The beginning inventory of Product B is 2,500 units.The desired ending inventory of B is 3,000 units.Budgeted purchases of Product A for the year would be:
A)22,400 units.
B)20,400 units.
C)20,000 units.
D)19,500 units.
E)12,200 units.
Q4) Briefly describe a master budget and the sequence in which the individual budgets within the master budget are prepared.
Q5) What is a cash budget?
How can management use a cash budget?
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Chapter 23: Flexible Budgets and Standard Costs
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Q1) Overhead cost variance is:
A)The difference between the overhead costs actually incurred and the overhead budgeted at the actual operating level.
B)The difference between the actual overhead incurred during a period and the standard overhead applied.
C)The difference between actual and budgeted cost caused by the difference between the actual price per unit and the budgeted price per unit.
D)The costs that should be incurred under normal conditions to produce a specific product (or component) or to perform a specific service.
E)The difference between the total overhead cost that would have been expected if the actual operating volume had been accurately predicted and the amount of overhead cost that was allocated to products using the standard overhead rate.
Q2) Identify the four steps in the budgetary control process.
Q3) In the analysis of variances,management commonly focuses on four categories of production costs: __________________ cost,___________________ cost; _____________ cost; and _________________ cost.
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Chapter 24: Performance Measurement and Responsibility Accounting
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Q1) A company produces two products,X and Y,from a single raw material called ZZ.ZZ is purchased in 55-gallon drums,and the contents of one drum are sufficient to produce 30 gallons of X and 15 gallons of Y.X sells for $10.00 per gallon and Y sells for $30.00 per gallon.During the current period,the company used 400 drums of ZZ to produce X and Y.The cost of ZZ was $90 per drum.
Required:
(1)If the cost of ZZ is allocated to the X and Y products on the basis of the number of gallons produced,how much of the total cost of the 400 drums should be charged to each product?
(2)If the cost of ZZ is allocated to the X and Y products in proportion to their market values,how much of the total cost of the 400 drums should be charged to each product? (3)Which basis of allocating the cost is most likely to be used by the company?
The relative number of gallons of each product produced or the relative market values of each product at the point of separation.
Q2) What is the main difference between a cost center and a profit center?
Q3) In the two-stage cost allocation,___________________ costs are allocated to operating departments,and the operating department costs are allocated to
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Chapter 25: Capital Budgeting and Managerial Decisions
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Q1) A company is considering the purchase of new equipment for $45,000.The projected after-tax net income is $3,000 after deducting $15,000 of depreciation.The machine has a useful life of 3 years and no salvage value.Management of the company requires a 12% return on investment.The present value of an annuity of 1 for various periods follows: \[\begin{array} { c c } \text { Period } & \text { Present value of and annuity of } 1 \text { at } 12 \% \\
1 \ldots \ldots & 0.8929 \\
2 \ldots \ldots & 1.6901 \\
3 \ldots \ldots &2.4018 \end{array}\] What is the net present value of this machine assuming all cash flows occur at year-end?
Q2) The accounting rate of return uses cash flows in its calculation.
A)True
B)False
Q3) The ___________ is computed by discounting the future net cash flows from the investment at the project's required rate of return and then subtracting the initial amount invested.
Q4) Identify the five steps involved in managerial decision making.
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Chapter 26: Time Value of Money B
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Q1) The present value of $2,000 to be received nine years from today at 8% interest compounded annually is $1,000.
A)True B)False
Q2) At an annual interest rate of 8% compounded annually,$5,300 will accumulate to a total of $7,210.65 in 5 years.
A)True B)False
Q3) To calculate present value of an amount,two factors are required:
and
Q4) A company borrows money from the bank by promising to make 6 annual year-end payments of $25,000 each.How much is the company able to borrow if the interest rate is 9%?
Q5) _____________ is a borrower's payment to the owner of an asset for its use.
Q6) A company is setting aside $21,354 today,and wishes to have $30,000 at the end of three years for a down payment on a piece of property.What interest rate must the company earn?
Q7) Explain the concept of the present value of a single amount.
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Chapter 27: Activity-Based Costing C
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Sample Questions
Q1) A factor that causes the cost of an activity to go up or down is a(n):
A)Direct factor.
B)Indirect factor.
C)Cost driver.
D)Product cost.
E)Contribution factor.
Q2) Under traditional cost allocation methods,low-volume complex products are often ________________ and high-volume simpler products are likely to be
Q3) Activity-based costing is a costing method that is designed to provide managers with product cost information for external financial reports.
A)True
B)False
Q4) Unit costs can be significantly different when using activity-based costing compared to traditional cost allocation methods.
A)True
B)False
Q5) Why would a firm use activity-based costing (ABC)rather than traditional two-stage methods of cost allocation for overhead?
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