1) Part of the budgeting process is summarizing the financial statement effects on the
budgeted income statement and the budgeted balance sheet.
2) Personnel who will have performance evaluated according to the budget standards
should not be consulted and involved in preparing the budget.
3) Product costs can refer to expenditures necessary to finish products and to the
administrative support during the time period.
4) Just-in-time manufacturing is a system that acquires inventory and produces product
only when needed for an order.
5) The price-earnings ratio is computed by dividing earnings per share by the market
price per share.
6) Standard costs are preset costs for delivering a product or service under normal
conditions.
7) One of the usual differences between financial and managerial accounting is the
timeliness of the information reported.
8) Control is the process of setting goals and determining ways to achieve them.
9) Jarrod Automotive, owned and operated by Jarrod Johnson, began business in
September of the current year. Jarrod, a mechanic, had no experience with recording
business transactions. As a result, Jarrod entered all of September€s transactions
directly into the ledger accounts. When he tried to locate a particular entry he found it
confusing and time consuming. He has hired you to improve his accounting procedures.
The accounts in his General Ledger follow:
Prepare the general journal entries, in chronological order (a) through (e), from the
T-account entries shown. Include a brief description of the probable nature of each
transaction.
10) For each of the following separate cases, use the information provided to calculate
the missing cash inflow or cash outflow using the direct method.
11) The financial statement that identifies a company’s cash receipts and cash payments
over a period of time is the:
A.Statement of financial position.
B.Statement of cash flows.
C.Balance sheet.
D.Income statement.
E.Statement of changes in owner’s equity.
12) If assets are $300,000 and liabilities are $192,000, then equity equals:
A.$108,000.
B.$192,000.
C.$300,000.
D.$492,000.
E.$792,000.
13) A company’s payroll for the week ended May 15 included earned salaries of
$20,000. All of that week’s pay is subject to FICA social security taxes of 6.2% and
Medicare taxes of 1.45%. In addition, the company withholds the following amounts
for this weekly pay period: $900 for medical insurance, $3,400 for federal income
taxes, and $180 for union dues.
a. Prepare the general journal entry to accrue the payroll.
b. The company is subject to state unemployment taxes at the rate of 2% and federal
unemployment taxes at the rate of 0.6%. By May 15, some employees had earned over
$7,000, so only $11,000 of the $20,000 weekly gross pay was subject to unemployment
tax. Prepare the general journal entry to accrue the employer’s payroll tax expense.
14) Direct labor and indirect labor are recorded, respectively, to:
A.Factory Overhead and Work in Process Inventory.
B.Work in Process Inventory and Finished Goods Inventory.
C.Finished Goods Inventory and Work in Process Inventory.
D.Work in Process Inventory and Factory Overhead.
E.Cost of Goods Sold and Finished Goods Inventory.
15) A company is considering a new project that will cost $19,000. This project would
result in additional annual revenues of $6,000 for the next 5 years. The $19,000 cost is
an example of a(n):
A.Sunk cost.
B.Fixed cost.
C.Incremental cost.
D.Uncontrollable cost.
E.Opportunity cost.
16) Williams Company computed its cost per equivalent unit for direct materials to be
$2.60 and its cost per equivalent unit for conversion to be $3.75. A total of 250,000
units of product were completed and transferred out as finished goods during the
month, and 36,000 of equivalent units remained unfinished at the end of the month. The
amount that should be reported in ending Work in Process Inventory is:
A.$93,600.
B.$135,000.
C.$1,816,100.
D.$1,587,500.
E.$228,600.
17) On May 22, Jarrett Company borrows $7,500 from Fairmont Financing, signing a
90-day, 8%, $7,500 note. What is the journal entry needed to record the transaction by
Jarrett Company?
A.Debit Cash $7,500; credit Accounts Payable $7,500.
B.Debit Accounts Payable $7,500; credit Notes Payable $7,500.
C.Debit Cash $7,650; credit Notes Payable $7,650.
D.Debit Cash $7,500; credit Notes Payable $7,500.
E.Debit Notes Receivable $7,500; credit Cash $7,500.
18) On September 30, Waldon Co. has $540,250 of accounts receivable. Waldon uses
the allowance method of accounting for bad debts and has an existing credit balance in
the allowance for doubtful accounts of $13,750.
1> Prepare journal entries to record the following selected October transactions. The
company uses the perpetual inventory system.
2> Show how Accounts Receivable and the Allowance for Doubtful Accounts appear
on its October 31 balance sheet.
a. Sold $305,000 of merchandise (that cost $178,500) to customers on credit.
b. Received $395,100 cash in payment of accounts receivable.
c. Wrote off $15,700 of uncollectible accounts receivable.
d. In adjusting the accounts on October 31, its fiscal year-end, the company estimated
that 4.0% of accounts receivable will be uncollectible.
19) The comparison of a company’s financial condition and performance across time is
known as:
A.Horizontal analysis.
B.Vertical analysis.
C.Political analysis.
D.Financial reporting.
E.Investment analysis.
20) Sharon and Nancy formed a partnership by making capital contributions of
$130,000 and $195,000 respectively. The annual partnership income of $230,000 is to
be allocated assuming a salary allowance of $40,000 to Sharon and $35,000 to Nancy;
interest allowances of 12% on their initial capital investments; and the balance shared
equally. Prepare the entries to record the initial capital investments, the allocation of net
income, and close the partner’s withdrawal accounts assuming that Sharon withdrew
$50,000 and Nancy withdrew $45,000.
21) Long-term investments in available-for-sale securities are reported at their _______
on the balance sheet.
22) A _____________________________ provides information for managers to use to
evaluate the profitability or cost effectiveness of each department’s activities.
23) The legal document identifying the rights and obligations of both the bondholders
and the issuer is called the ____________________________________.
24) Selected information from Richards Company’s flexible budget is presented below:
Operating Richards Company applies overhead to production at a rate of $31.25 per
unit based on a normal operating level of 80% of capacity. For the current period,
Richards Company produced 5,400 units and incurred $62,000 of fixed overhead costs
and $96,000 of variable overhead costs. The company used 11,000 labor hours to
produce the 5,400 units. Calculate the variable overhead spending and efficiency
variances, and the fixed overhead spending and volume variances. Indicate whether
each variance is favorable or unfavorable.
25) Goodfellow Company had the following results of operations for the past year:
A foreign company (whose sales will not affect Goodfellow’s regular sales) offers to
buy 2,000 units at $5.00 per unit. In addition to variable manufacturing costs, there
would be shipping costs of $1,200 in total on these units. Prepare an analysis of this
additional business to show whether Goodfellow should take this order.
26) Discuss how the principles of internal control apply to cash receipts
over-the-counter by giving several examples of good control measures that should be
implemented.
27) What is capital budgeting? Why are capital budgeting decisions often difficult and
risky?
28) Use the information provided to calculate the cash paid for insurance for the period.