(i) In a manufacturing company, the costs debited to the Work in Process Inventory account represent:
a. Direct materials used, direct labour, and manufacturing overhead.
b. Cost of finished goods manufactured.
c. Period costs and product costs.
d. None of these.
(ii) The Work in Process Inventory account had a beginning account had a beginning balance of Rs. 4,200 on February 1. During February, the cost of direct materials used was Rs. 29,000 and direct labour cost applied to production was Rs. 3000. Overhead is applied at the rate of Rs. 20 per direct labour hour. During February, 180 direct labour hours were used in the production process. If the cost finished goods manufactured was Rs. 34,100, compute the balance in the Work in Process Inventory account at the end of February.
a. Rs. 9,900
b. Rs. 1,500
c. Rs. 2,100
d. Rs. 5,700
e. None of these_
(iii) The purpose of an overhead application is to:
a. Assign an appropriate portion of indirect manufacturing costs to each product manufactured.
b. Determine the type and amount of costs to be debited to the Manufacturing Overhead account.
c. Charge the Work in Process Inventory account with the appropriate amount of direct manufacturing costs.
d. Allocate manufacturing overhead to expense in production to the number of units manufactured during the period.
e. None of these
(iv) If Gurgson, Inc uses a job order cost system, each of the following is true, EXCEPT:
a. Individual job cost sheets accumulate all manufacturing costs applicable to each job, and together constitute a subsidiary ledger for the Work in Process Inventory account.
b. Direct labour cost applicable to individual jobs is recorded when paid by a debit to Work in Process Inventory and a credit to Cash, as well as by entering the amount on the job cost sheets.
c. The amount of direct materials used in individual jobs is recorded by debiting the Work in Process Inventory account and crediting the Materials Inventory account, as well as by entering the amount used on job cost sheets.
d. The manufacturing overhead applied to each job is transferred from the Manufacturing Overhead account to the Work in Process Inventory account, as well as entered on the individual job cost sheets.
e. None of these
(v) When a job cost system is in use, underapplied overhead:
a. Represents the cost of manufacturing overhead that relates to unfinished jobs.
b. Is indicated by a credit balance remaining at year-end in the Manufacturing Overhead account.
c. Is closed out at year-end into the Cost of Goods Sold account if the amount is not material.
d. Results when actual overhead costs incurred during a year are less than the amounts applied to individual jobs.
e. None of these.
(vi) Shabbir Manufacturing has operations that involve three processing departments: Assembly, Painting, and Packaging. Debits to the Work in Process Inventory: Painting Department account could involve a credit to any of the following, EXCEPT:
a. Work in Process Inventory: Packaging Department
b. Direct Labour
c. Manufacturing Overhead
d. Work in Process Inventory: Assembly Department
e. None of these
(vii) When actual overhead costs incurred are charged to processing departments each month:
a. The cost of infrequent items, such as a major plant refurbishing, is spread uniformly over all units produced throughout the year
b. Under or overapplied overhead may occur, but it is treated in the same as when an overhead application rate is used.
c. It is no longer necessary to compute the equivalent final units of production for individual departments.
d. The monthly per-unit cost of producing a product will vary from fluctuations in the level of production when a significant portion of overhead cost is fixed.
e. None of these.
(viii) When a business is organized as corporation:
a. Stockholders are liable for the debts of the business only in proportion to their percentage ownership of capital stock.
b. Stockholders do not have to pay personal income taxes on dividends received, because the corporation is subject to income taxes on its earnings.
c. Fluctuations in the market value of outstanding shares of capital stock do not affect the amount of stockholders’ equity shown in the balance sheet.
d. Each stockholder has the right to bind the corporation to contracts and to make other managerial decisions.
e. None of these.
(ix) Which of the following is NOT a characteristic of common stock of a large, publicly owned corporation?
a. The shares may be transferred from one investor to another without disrupting the continuity of business operations.
b. Voting rights in the election of the board of directors
c. A cumulative right to receive dividends
d. After issuance, the market value of the stock is unrelated to its par value.
e. None of these.
(x) Tri-State Electric is a profitable utility company that has increased its dividend to common stockholders every year for 62 consecutive years. Which of the following is least likely to affect the market place of the company’s preferred stock?
a. The company’s earnings are expected to increase significantly over the next several years.
b. An increase in long-term interest rates
c. The annual dividend paid to preferred shareholders
d. Whether or not the preferred stock carries a conversion privilege.
e. None of these
(xi) The primary purpose of showing special types of events separately in the income statement is to:
a. Increase earnings per share.
b. Assist users of the income statement in evaluating the profitability of normal, ongoing operations.
c. Minimize the income taxes paid on the results of ongoing operations
d. Prevent unusual losses from recurring
e. None of these
(xii) Which of the following situations would NOT be presented in a separate section of the current year’s income statement of Zeeshan Corporation? During the current year:
a. Zeeshan’s Peshawar headquarters are destroyed by a flood.
b. Zeeshan sells its entire juvenile furniture operations and concentrates upon its remaining children’s clothing segment.
c. Zeeshan changes from the straight-line method of depreciation to the double declining balance method
d. Zeeshan’s accountant discovers that the entire price paid several years ago to purchase company offices in
Islamabad had been charged to Land account; consequently, no depreciation has ever been taken on these buildings.
e. None of these
(xiii) When a corporation has outstanding both common and preferred stock:
a. Primary and fully diluted earnings per share and reported only if the preferred stock is cumulative
b. Earnings per share are reported for each type of stock outstanding.
c. Earnings per share may be computed without regard to the amount of dividends declared on common stock
d. Earnings per share may be computed without regard to the amount of the annual preferred dividends.
e. None of these
(xiv) The statement of retained earnings:
a. Need to be prepared if a separate statement of stockholder’s equity accompanies the financial statements.
b. Indicates the amount of cash available for the payment of dividends
c. Includes prior period adjustments and cash dividends, but not stock dividends.
d. Shows revenues, expenses and dividends for the accounting period.
e. None of these
(xv) On December 10, 2008, Star Corporation reacquired 2,000 of its own Rs 5 par stock at a price of Rs 60 per share. In 2009, 500 of the treasury shares are reissued at a price of Rs. 70 per share. Which of the following statements is correct?
a. The treasury stock purchased is recorded at cost and is shown in Star’s December 31, 2008, balance sheet as an asset.
b. The two treasury stock transactions result in an overall reduction in Star’s stockholder’s equity of Rs. 85,000
c. Star recognizes a gain of Rs. 10 per share on the reissuance of the 500 treasury shares in 2009.
d. Star’s stockholder’s equity was increased by Rs. 110,000 when the treasury stock was acquired.
e. None of these
(xvi) J.Q. Corporation was organized with authorization to issue 100,000 shares of Re. 1 par value common stock.
Forty thousand shares were issued to Hassan Mir, the company’s founder, at a price of Rs. 5 per share. No other
shares have yet been issued.
a. J.Q. owns 40% of the stockholder’s equity of the corporation.
b. The corporation should recognize a Rs. 160,000 gain on the issuance of the shares.
c. If the balance sheet includes retained earnings of Rs. 50,000, total paid-in capital amounts to Rs. 250,000
d. In the balance sheet, the Additional Paid-in Capital account will have a Rs. 160,000 balance, regardless of the profits earned or losses incurred since the corporation was organized.
e. None of these
(xvii) Which ratio best measures a company’s success in earning net income for its owners?
a. Profit Margin
b. Return on common stockholders’ equity
c. Price earnings ratio
d. Dividend yield
e. None of these
(xviii) Which of the following is true for an installment note requiring a series of equal total cash payments?
a. Payments consist of increasing interest and decreasing principal
b. Payments consist of changing amounts of principal but constant interest
c. Payments consist of decreasing interest and increasing principal
d. None of these_
(xix) How does a stock dividend impact assets and retained earnings?
a. Stock dividends does not transfer assets to stockholders
b. Stock dividend requires an amount of contributed capital to be transferred to retained earning account
c. Stock dividend does transfer assets to stockholders
d. None of these
(xx) Which of the following is least useful as a basis for comparison when analyzing ratios?
a. Company results from a different economic setting
b. Standards from past experience
c. Rule of Thumb Standards
d. Industry Wages
e. None of these
