Practice Exam 1

These practice questions do not cover every topic that may appear on the actual exam, but they should be a part of
your exam preparation. You should also study your class notes, quizzes, CengageNOW assignments, practice
problems as well as the assigned reading from the textbook.
01. The value of inventory in the financial statements of a manufacturer would include
A. Raw Materials and Direct Labor
B. Raw Materials and Overhead
C. Raw Materials and Overhead and Direct Labor
D. Raw Materials and Overhead and Period Costs
02. The cost of advertising using a billboard.
A. Variable cost
B. Fixed cost
C. Overhead cost
D. Mixed cost
03. The Garden Corporation recently had the following costs to produce 350 units: (a) direct materials $500, (b)
rent on the factory $3,000, (c) salaries to employees $2,000, (d) wages to factory workers $2,800 and (e)
utilities for factory of $500. What was the companys variable cost per unit rounded to the nearest penny?
A. 1.43
B. 8.00
Hint: All DL is Variable
C. 10.86
D. 19.43
E. None of the above
04. Using the accounting framework model for analyzing transactions, the entry used to record receiving a bill from
a supplier for items purchased on account would include an increase in
A. cash
B. revenues
C. accounts receivable
D. accounts payable
E. none of the above
05. Chow and Associates started operations in 2008 when owners invested $100,000. During 2008 the company
recorded $50,000 in revenues, $40,000 in expenses and $5,000 in dividends. During 2009 the company
recorded $60,000 in revenues, $10,000 in expenses and paid no dividends. What is the Retained Earnings
balance at the end of 2009?
A. $155,000
B. $60,000
C. ($40,000)
D. $65,000
E. None of the above 55,000
06. A company wants to know the cost of inventory on hand at the end of the current period. Which financial
statement should the company refer to?
A. Balance Sheet
B. Statement of Cash Flows
C. Income Statement
D. Statement of Retained Earnings
07. Franklin and Company recently reported total variable costs of $18,400, total fixed costs of $250 and total sales
of $20,000. If the companys sales price is $50 per unit, what is the contribution margin per unit rounded to the
nearest penny? 1600/400
A. $46.63
B. $0.01
C. $0.63
D. $4.00
E. $46.00
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08. Which financial statement would allow the user to assess the financial position of a company as of a specific
date?
A. Statement of Cash Flows
B. Balance Sheet
C. Income Statement
D. Statement of Owners Equity
09. When a company purchases equipment, how many of the following would be used to record the event in the
accounting framework model?
Accounts Payable
Cost of Goods Sold
Revenue
Equipment
Inventory
Cash
A. 1
B. 2
C. 3
D. 4
E. more than 4
10. Total liabilities and owners equity
A. is equal to the amount of money investors contribute to the equity of a firm.
B. is equal to revenues minus expenses.
C. is equal to assets minus liabilities
D. is usually found on the statement of cash flows
E. none of the above.
11. The Price Company had the following account balances:

What are the companys total assets?

A. 230,000
B. 480,000
C. 380,000
D. 20,000
E. None of the above

12. In a contribution margin model, the amount that should be used for fixed costs are:
A. fixed payroll costs
B. fixed overhead costs
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C. fixed period costs

D. all of the above
13. Direct labor is the payroll cost for employees who
A. work for the company.
B. are directly involved with the manufacture of a product.
C. manage the production of a product.
D. sell the product.
E. none of the above

14. The Tyson Chair Company recently sold 400 units for $30 each; reported total fixed costs of $2,400 and net
income of $800. If the company's unit variable costs decreased by $1 and its volume increased by 50 units,
what would be the company's net income?
A. 1,350
B. (1,050)
C. 4,050
D. 1,650
E. 750
15. The Billings Company started operations this month and had the following transactions during the month:

What is the companys cash balance at the end of the month?

A $10,000
B $20,000
C $50,000
D $60,000
E None of the above
16. Customers at Leonards restaurants order their meals at a counter and then help themselves to whatever
condiments, such as pickles and ketchup, they want at a self-service bar near the dining area. For Leonards,
the cost of pickles and ketchup would be classified as a:
A. Raw Material Cost
B. Direct Labor Cost
C. Overhead Cost
D. Period Cost
17. Considering the relationships between the financial statements, what is the proper order of statement
preparation for any given year?
A. Balance Sheet, Income Statement, Statement of Retained Earnings
B. Income Statement, Statement of Retained Earnings, Balance Sheet
C. Statement of Retained Earnings, Balance Sheet, Income Statement
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D. Income Statement, Balance Sheet, Statement of Retained Earnings

E. Balance Sheet, Statement of Retained Earnings, Income Statement
18. The Valsh Vexing Ts Company is in the business of selling t-shirts and had the following information available:
Cost of T-shirts
$8
Selling Price of T-shirts 17
Monthly Rent
600
Shipping for each shirt
3
What is the company break-even point, rounded to the nearest whole unit?
A. 75
B. 120
C. 86
D. 100
E. None of the above
19. Which of the following is most likely a mixed cost?
A. Mobile phone plan
B. Storage unit rental costs
C. Factory managers salary
D. Assembly line workers wage

20. Relevant range assumes that

A. All costs per unit will remain the same within a specified range of activity
B. Fixed costs per unit will remain the same within a specified range of activity
C. Total variable costs will remain the same within a specified range of activity
D. All costs per unit will change within a specified range of activity
E. None of the above
21. Wenneck, Inc. was founded on Jan. 1, 2010 and on Dec. 31, 2010, had the following account balances:

What was the companys net income for 2010?

A. $16,500
B. $11,500
C. $26,000
D. $26,500
E. None of the above
22. The payroll cost for a sales representative who is paid based solely on commission would be considered a:
A. Fixed cost
B. Variable cost
C. Mixed cost
D. Direct labor cost
E. Product cost
23. The Jade Corporation reported the following information for the production of 100,000 units:
Direct Materials
150,000
Direct Labor
100,000
Selling Costs
25,000
Variable Overhead
250,000
Advertising Costs
150,000
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If the company sold 75,000 units, what amount would it report as cost of goods sold at the end of the period?
A. 350,000
B. 675,000
C. 375,000
D. 506,250
E. None of the above
24. Garner Company had the following year end account balances (a) Capital 20,000, (b) Equipment 80,000, (c)
Retained earnings 10,000, (d) Cash 2,000 and (e) Inventory 20,000. What were the companys total liabilities?
A. 92,000
B. 72,000
C. 34,000
D. 144,000
E. None of the above
25. Which of the following correctly describes the effect of a transaction used to record a loan payment made to a
creditor?
A. Decrease liability and decrease cash
B. Increase liability and decrease equity
C. Decrease cash and decrease equity
D. Decrease cash only
E. None of the above
26. If a company reported accounts receivable in its financial statements, the company would be referring to
A. amounts due from customers to be paid to the company.
B. amounts to be paid by the company to its creditors.
C. amounts to be collected from creditors by the company.
D. amounts to be paid by the company to its customers.
27. Which of the following statements is true?
A. Decreases in the level of activity will cause total variable and total fixed costs to decrease.
B. The break-even point is the point at which total sales equals total contribution margin.
C. In cost-volume-profit analysis, the term cost includes only manufacturing costs.
D. None of the above.
28. If owners equity decreases from the beginning of the year to the end of the year, then
A. net income is less than dividends.
B. there was a net income and no dividends.
C. additional investments are greater than a net loss.
D. net income is greater than dividends.
29. A company reported total equity of $145,000 on its December 31, 2010 balance sheet. The following
information is available for the year ended December 31, 2008:
2011 Revenues............................................
2011 Expenses.............................................
Liabilities, at December 31, 2011.................

$210,000
165,000
92,000

What are the total assets of the company at December 31, 2011?
A. 137,000
B. 145,000
C. 237,000
D. 282,000
E. None of the above
30. The Blue Bunny Ice Cream Company had the following cost information available for a production run of 5,000
frozen treats made last month: (1) sugar and cream $6,000, (2) wages for factory workers $5,000, (3) utilities
for the factory $1,000, (4) wages for factory clean-up crew $500, (5) salaries for the office staff $3,500 working
at the factory. What did it cost the company to produce each unit?
A. 2.20
B. 2.40
C. 2.50
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D. 3.20
E. None of the above

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Practice Exam 1
Answer Key
Question
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

Answer
C
B
C
D
E
A
D
B
B
E
A
D
B
D
C
C
B
D
A
E
A
B
C
B
A
A
D
A
D
D

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