ACCT 5103 Sample Exam

Over Chapters 8, 9, 10, 12, and 13

Fall 2012 Semester Term II

1.If an investment's net present value is positive, then:

a. The investment provides a return greater than the discount rate.
b. The investment provides a return less than the discount rate.
c. The present value of the cash outflows must have been greater than the present value of
the cash inflows.
d. The investment should be deemed as unacceptable.

2.Woody Manufacturing Inc. is considering the purchase of a new machine. They have narrowed their choices
down to two machines, Machine #1 and Machine #2, each having a cost of $35,000. The following
information is available regarding the expected cash inflows from each machine:

Year Machine #1 Machine #2

1 $14,000 $42,000
2 14,000 0
3 14,000 0

When using net present value analysis, Woody uses the same cost of capital for both machines and both
machines have a positive net present value.

Based on the above information, which of the following statements is true?

a. Machine #1 will have a higher net present value than Machine #2.
b. Machine #1 will have a lower net present value than Machine #2.
c. Machines #1 and #2 will have the same net present values.
d. Machines #1 and #2 will have the same internal rates of return.

3.Newman Auto Repair is considering the purchase of a hydraulic machine costing approximately $35,000.
Using a discount rate of 18%, the present value of future cash inflows are calculated to be $42,000. To
yield at least an 18% return, the actual cost of the machine should not exceed the $35,000 estimate by
more than:
a. $28,000.
b. $49,000.
c. $7,000.
d. $6,300.

4.O'Malley Inc. purchased an asset costing $90,000. Annual operating cash inflows are expected to be $20,000
each year for six years. No salvage value is expected at the end of the asset's life. Assuming O'Malley's
cost of capital is 16 percent, what is the asset's net present value? (ignore income taxes)
a. $(16,306)
b. $30,000
c. $(5,600)
d. $4,800
5.Finch Corporation purchased an asset costing $12,000. Annual operating cash inflows generated from the asset
are expected to be $2,168 each year for eight years. No salvage value is expected at the end of the asset's
life. Using time value of money tables, which of the following rates is closest to the internal rate of return
on the project?
a. 8%
b. 9%
c. 10%
d. 16%

6.Which type of activity includes ensuring that the objectives and goals developed by the organization are being
attained?
a. Planning
b. Operating
c. Control
d. Bookkeeping

7.The usual starting point when developing a sales forecast is:

a. the production budget.
b. the cash budget.
c. last year's level of sales.
d. competitor budget information.

8.In 2012, Wingen Inc. sold 325,000 units at $8 each. Sales volume is expected to increase by 15 percent in 2013
while the price of each unit is expected to decrease by 15 percent. The expected sales revenue for 2013 is:
a. $ 373,750
b. $2,541,500
c. $1,878,500
d. $2,990,000

9.Homestyle Interiors sells a variety of home furnishings including sleeper sofas. On March 31, the company had
225 sofas in inventory. The company's policy is to maintain a sleeper sofa inventory equal to 15% of next
month's expected sales. The company expects the following sales activity for the second quarter of the
year:

April 1,500 sofas

May 1,600 sofas
June 1,700 sofas

What is the projected production for May?

a. 1,600 sofas
b. 1,105 sofas
c. 1,585 sofas
d. 1,615 sofas
10.Ingalls Mercantile Inc. sells bolts of fabric to retailers for $80 per bolt. The company's accountant has
prepared the following sales forecast (in bolts) for the first quarter of 2013:

January 600 bolts

February 1,000 bolts
March 700 bolts

Historically, the cash collection of sales has been as follows: 60 percent in the month of sale, 30 percent
in the month following sale, and 9 percent in the second month following sale.

Cash receipts for March are expected to be:

a. $ 61,920
b. $182,160
c. $ 33,600
d. $ 57,840

11.A(n) ____ is attainable only when near-perfect conditions exist.

a. practical standard
b. ideal standard
c. static budget
d. flexible budget

12.Summerlin Law Offices applies overhead to clients based on direct labor hours. The office manager
determined that overhead will be applied at a rate of $25 per direct labor hour. The static budget for the
month of November showed an estimated 2,500 direct labor hours would be incurred. During November,
2,800 direct labor hours were actually incurred and actual overhead costs were $58,800. What should be
the total overhead cost according to the firm's flexible budget for November?
a. $70,000
b. $58,800
c. $62,500
d. $52,500

13. Differences in sales revenue between the flexible budget and actual results can be attributed to:
a. the sales volume variance.
b. the flexible budget variance.
c. the sales price variance.
d. the variable overhead efficiency variance.

14.Dorffman Inc. has a $18,000 favorable flexible budget variance for May. Which of the following statements
is true, if May's actual net operating income was $72,000?
a. Dorffman's static budget must have showed a net operating income of $54,000.
b. Dorffman's static budget must have showed a net operating income of $90,000.
c. Dorffman's flexible budget must have showed a net operating income of $54,000.
d. Dorffman's flexible budget must have showed a net operating income of $90,000.
 Fox Manufacturing
At the beginning of the year, Fox Manufacturing had budgeted for the production and sale of 24,000
units. The standard sales price and variable costs per unit were budgeted to be $20.00 and $8.00,
respectively. Actual sales for the year totaled 21,000 units, and the actual sales price and variable costs
per unit were $19.50 and $8.00, respectively. Both budgeted and actual fixed costs were $20,000.

15.Refer to the Fox Manufacturing information above. What was Fox's sales price variance for the year?
a. $10,500 F
b. $10,500 U
c. $12,000 F
d. $12,000 U

16.Which of the following statements regarding financial statement analysis is true?

a. It will show how a company is guaranteed to perform in the future.
b. It should not be relied upon as an indicator of future performance.
c. It should be performed by only managers and creditors.
d. It provides supplemental information not provided directly by the financial statements.

17.Drucker Inc. has the following information available for 2011 and 2012:

2011 2012
Current assets $500,000 $700,000

Performing a horizontal analysis on current assets shows that they have:

a. increased by 40 percent.
b. increased by 28.6 percent.
c. increased by 2.5 percent.
d. increased by 3.5 percent.

18.On a common-size balance sheet, current assets should be stated as a percentage of:
a. net income.
b. current assets.
c. cash.
d. total assets.

19.A quick ratio ____ is often a concern for creditors and managers.
a. of more than one
b. of less than one
c. equal to one
d. of more than two

20.Which of the following ratios would be the best measure of solvency?

a. Return on assets ratio
b. Price earnings ratio
c. Current ratio
d. Times-interest-earned ratio
21.Cash received from the sale of property is classified in which section of the statement of cash flows?
a. Operating
b. Investing
c. Financing
d. Noncash

22.BTE Corporation has the following information available for 2011:

Cash balance on 1/1/2011 $20,000

Cash balance on 12/31/2011 8,000
Net cash provided by operating activities 180,000
Net cash utilized by investing activities 160,000

The financing activity section of BTE's statement of cash flows would show:
a. net cash provided by financing activities of $32,000.
b. net cash utilized by financing activities of $32,000.
c. net cash utilized by financing activities of $8,000.
d. net cash provided by financing activities of $8,000.

23.Given the following events, which ones affect cash flows from investing activities?

1. Collection from issuing capital stock

2. Payment of a dividend
3. Purchases of property, plant, and equipment
4. Collection from the sale of property, plant, and equipment

a. 1 and 2
b. 3 and 4
c. 2 and 4
d. 1, 2, 3, and 4

24.Culpepper Inc. had the following information related to last year's sales:

Cash sales $245,000

Credit sales 150,000
Accounts receivable – beginning 21,500
Accounts receivable – ending 15,000

What amount would be reported as "cash collections from customers" on the statement of cash flows
using the direct method?
a. $238,500
b. $431,500
c. $401,500
d. $143,500
25.Atlantic Inc. had the following noncash current asset and current liabilities balances at the end of 2010 and
2011:

2010 2011
Accounts receivable $ 50,000 $ 42,000
Inventory 190,000 160,000
Prepaid insurance 10,000 6,000
Accounts payable 25,000 30,000

Net income for 2011 was $940,000 and depreciation expense was $25,000. All sales and all purchases are
on account. Atlantic uses the indirect method for preparing the statement of cash flows.

Net cash flows from operating activities for 2011 would be:
a. $ 918,000
b. $1,012,000
c. $1,002,000
d. $ 987,000
Answers
1. A
2. B
3. C
4. A
5. B
6. C
7. C
8. B
9. D
10. A
11. B
12. A
13. C
14. C
15. B
16. D
17. A
18. D
19. B
20. D
21. B
22. B
23. B
24. C
25. B