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Multiple Choice Questions

1. A trial balance does not balance. The difference has been entered in a Suspense account. The following errors are found.
1. The purchase ledger Control account balance of $ 48300 has been included as a debit balance.
2. Provision for depreciation has been overcast by $960.
3. A Cash payment of $630 for rent has been credited in the cash book and debited to the Bad Debts account.

What is the correcting debit entry to the Suspense account?
A. $47340
B $ 95010
C $95640
D $97560

2. A Company s Share capital consists of 150000 ordinary shares of $0.50 each. It makes a rights issue of 1 ordinary share for every 3 already held At $ 1.20 per share. It then makes a bonus issue of 1 share for every 5 held.

Which amount will shown in the Balance Sheet for share capital?
A.$120000
B $145000
C 155000.
D $165000

3. Production overhead expenditure in a period totaled $102660 compared with a budget of $105270. Direct Lab our hours used to absorb production overheads 8700. Direct Lab our hours were worked in the period and production overhead was over-absorbed by $1740.

What was the production overhead absorption rate per direct lab our hour?
A$11.60
B $11.80
C $12.00
D $12.10

4. A company sells two products X and Y

Sales units 1000 2000

Selling price /Unit $22 $12
Contribution/units $12 $4

Which would increase the company's profit by $ 10000?

A. a 30% increase in the sale of X
B. a 50% increase in the sales of both products
C. an increase in the selling price of X by $1 and Y by $6
D. a reduction in the variable cost of both products by $5

5. A business provides the following data for the year.
Budgeted output units 10,000
Actual outputs units 8,000
Budgeted fixed production costs $1,200,000
Budgeted variable production cost 800,000
Budgeted fixed selling overhead 600,000

What is the absorption cost per unit used for stocktaking?

A $200
B$250
C$260
D$325

6 A business has the following budgeted and actual results for a period

Budgeted fixed overheads $354,000

Budgeted number of units $118,000

Actual fixed overheads $360,000

Under absorption of overheads $3.000

The fixed overheads are absorbed per unit.

What is the actual level of activity in units?
A. 118,000
B 119,000
C 120,000
D 121,000

7. A Company has an issued share capital of 8 million shares at $0.50 par value each. It pays a dividend of $1.6 million. The dividend yield is currently 12.5%

What is the current market price of each share?

A $0.50
B $0.80
C.$1.60
D $3.20

8. The following figures relate to the budgeted figures for a product.

Sales $1, 100,000
Direct materials $150,000
Direct labour $300,000
Fixed overheads $400,000 $850,000
Profit 250,000

The volume of sales for the product increased by 20%

What would be the increase in profit?

A. 20%
B 52%
C 76%
D 88

9. A company is about to quote a price for making a special order which requires 1000 kg of material X and 1500 of Y

The following information is available about these resources.

Type of original cost current purchasing net realizable
Material per kg $ price per kg $ value per kg

X 3 4 2

Y 5 7 6

The stock of material X can not be used by the company for any other product. Material Y is used frequently for other products.

Which cost of materials should be included in the quotation for the manufacture of this special order?

A $10500
B $11000
C $12500
D $14500

10.Which cost is described by the following ?

Cost which should be achieved under efficient conditions, but allowing for normal wastage.

A. basic standard
B. currently attainable standard
C. flexible standard
D. ideal standard

10. The following information relates to a possible capital investment costing $900,000
Year Cashflow discounted cash flow discounted
At 6% Cash flow at 8%
0 (900) (900) (900)

1 400 377 370
2 600 534 514
100 11 (16)

The company has a cost of capital of 8%

Which statement about the project is correct?

A. it has an internal rate of return greater than the cost of capital
B. it has an internal rate of return less than the cost of capital.
C. It will be viable if discounted at 9 %
D. It will be viable if the capital cost is increased to $ 1m.

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Solution Preview

A trial balance does not balance. The difference has been entered in a
Suspense account. The following errors are found.
1. The purchase ledger Control account balance of $ 48300 has been included as
a debit balance.
2. Provision for depreciation has been overcast by $960.
3. A Cash payment of $630 for rent has been credited in the cash book
and debited to the Bad Debts account.

What is the correcting debit entry to the Suspense account?
A.$47340 B$ 95010 C $95640 D 97560

Answer: C $95640

Error 3 is a misclassification that does not affect the amount.
Error 1:
Instead of $ 48300 on the credit side it has been taken on the debit side.
Thus correcting entry = 2x $ 48300=$ 96,600 on credit side
Error 3: Depreciation overstated by 960
Hence 960 needs to be reduced from credit side. Thus an entry of $ 960 on the debit side.

Therefore amount= $96,600-$960= $95640

2. A Company s Share capital consists of 150000 ordinary shares of $0.50
Each. It makes a rights issue of 1 ordinary share for every 3 already held
At $ 1.20 per share. It then makes a bonus issue of 1 share for every
5 held.

Which amount will shown in the Balance Sheet for share capital?
A.$120000 B $145000 C 155000. D $165000

Answer: A.$120000

Initial no of shares= 150,000
No of shares after rights issue= 150,000 + 1/3 (150,000)= 200,000
No of shares after bonus issue= 200,000+ 1/5 ( 200,000)= 240,000
Par value= $ 0.50
There Amount in share capital= 240,000 x $ 0.50=$ 120,000

3. Production overhead expenditure in a period totaled $102660 compared
With a budget of $105270.
Direct Lab our hours used to absorb production overheads 8700. Direct
Lab our hours were worked in the period and production overhead was
Over-absorbed by $1740.

What was the production overhead absorption rate per direct lab our hour?
A$11.60 B $11.80 C $12.00 D $12.10
Answer: C $12.00

Actual expenditure= $102660
Over absorbed by $ 1740
Thus expenditure at standard rate= $102660+$1740=$104400
Labor hrs= 8700
Thus rate= =$104400/8700=$12.00

4. A company sells two ...

Solution Summary

Answers multiple choice questions on suspense account, share capital, production overhead absorption rate, absorption cost, actual level of activity, current market price of share, profits, special order, cost of capital.

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