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# Accounting Multiple Choice - Cannon Company

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1.) Cannon Company is considering a capital project that will return \$100,000 each year for five years. At the company's hurdle rate of 10%, the present value of the annuity is \$379,100. If the return on investment in the first year is \$37,910, what is the return of investment that year?

(a) \$137,910
(b) \$100,000
(c) \$62,090
(d) None of the above

2.) Andre wants to determine the net present value for a proposed capital investment. He has determined the desired rate of return, the expected investment time period, a series of cash inflows of equal amount, the salvage value of the investment, and the required cash outflows. Which of the following tables would most likely be used to calculate the net present value of the investment?

(a) Present Value of Annuity
(b) Present Value of a Lump Sum
(c) Both of the above
(d) None of the above

3.) Summer Company's static budget is based on a planned activity level of 25,000 units. At the same time the static budget was prepared, the management accountant prepared two additional budgets, one based on 20,000 units and one based on 30,000. The company actually produced and sold 29,000 units. In evaluating its performance, management should compare the company's actual revenues and costs to which of the following budgets?

(a) A budget based on 29,000 units
(b) A budget based on 25,000 units
(c) A budget based on 30,000 units
(d) A budget based on 20,000 units

4.) Johansson Company developed the following static budget at the beginning of the company's accounting period:

Revenue (8,000 units) \$16,000
Variable costs 4,000
Contribution margin \$12,000
Fixed costs 4,000
Net income \$ 8,000

If actual production totals 8,200 units, the flexible budget would show variable costs of:

(a) \$16,400
(b) \$ 4,000
(c) \$ 4,100
(d) \$4,800

5.) McDavid Company has completed its sales budget for the first quarter of 2007. Projected credit sales for the first four months of the year are shown below:

January \$30,000
February \$36,000
March \$45,000
April \$48,000

The company's past records show collection of credit sales as follows: 30% in the month of sale and the balance in the following month. The total cash collection from receivables in March will be:

(a) \$38,700
(b) \$45,000
(c) \$42,300 units
(d) \$31,800

6.) Flint Company produces a product whose cost is \$12. Assuming the company uses a cost-plus pricing system, what profit would be earned on a selling price set to earn a profit margin of 20% of cost?

(a) \$2.40
(b) \$9.60
(c) \$12.00
(d) \$14.40

7.) Felix Company produces a product that has a selling price of \$12.00 and a variable cost of \$9.00 per unit. The company's fixed costs are \$60,000. What is the breakeven point in sales dollars?

(a) \$240,000
(b) \$120,000
(c) \$ 80,000
(d) \$100,000

8: Carter Manufacturing Company experienced an accounting event that affected its financial statements as indicated below:
Assets = Liab. + Equity Rev - Exp. = Net Inc. Cash Flow
+ - n/a n/a n/a n/a n/a n/a

Which of the following accounting events could have caused the indicated effects on the firm's accounting equation?

(a) Purchased raw materials inventory with cash
(b) Transferred cost from finished goods inventory to cost of goods sold
(c) Recognized revenue from merchandise sold for cash
(d) None of the above

9. Purchasing production supplies for cash is a/an:

(a) Asset source transaction
(b) Asset use transaction
(c) Asset exchange transaction
(d) Claims exchange transaction

10.) The following information is provided for Steinberg Company:

Sales revenue \$200,000
Variable manufacturing costs 60,000
Fixed manufacturing costs 26,000
Variable selling and general costs 24,000
Fixed selling and general costs 20,000

What is this company's contribution margin?

(a) \$140,000
(b) \$116,000
(c) \$114,000
(d) \$90,000

#### Solution Preview

1.) Cannon Company is considering a capital project that will return \$100,000 each year for five years. At the company's hurdle rate of 10%, the present value of the annuity is \$379,100. If the return on investment in the first year is \$37,910, what is the return of investment that year?

(a) \$137,910
(b) \$100,000
(c) \$62,090
(d) None of the above

2.) Andre wants to determine the net present value for a proposed capital investment. He has determined the desired rate of return, the expected investment time period, a series of cash inflows of equal amount, the salvage value of the investment, and the required cash outflows. Which of the following tables would most likely be used to calculate the net present value of the investment?

(a) Present Value of Annuity
(b) Present Value of a Lump Sum
(c) Both of the above
(d) None of the above