The just-in-time costing system waits until the units are completed to record the cost of
production.
An annuity is a stream of equal cash payments made at equal time intervals.
Developing efficiency standards based on best practices is called benchmarking.
After comparing budgets with the actual results, the feedback allows managers to
determine what, if any, corrective action should be taken.
On the income statement, a service company reports the cost of merchandise inventory
that has been sold to customers.
The cost of goods sold is added to net sales revenue to determine gross profit.
Vacation, health, and pension benefits must be estimated and recorded as a liability.
Treasury stock is recorded at cost, without reference to par value.
If the variable cost per unit decreases, the total number of units required to break even
will increase.
If preferred stock is issued for an amount above the par value, the amount of the par
value times the number of shares issued is credited to Paid-In Capital in Excess of Par
—Preferred.
A lump-sum purchase or basket purchase involves paying a single price for several
assets as a group.
In reviewing the T-account for Accounts Receivable, you find that the beginning
balance is zero, the total increases are $5,400 and the total decreases are $2,100. This
means that the ending balance of the account is a credit balance of $3,300.
If the maker of the note fails to pay on the maturity date, the note is said to be
dishonored.
As long as the same person deposits customer checks and records the deposits into the
journal, there will be good internal control over cash receipts.
Net sales revenue is equal to sales revenue less cost of goods sold.
A company is uncertain whether a complex transaction should be recorded as gain or
loss. Under the conservatism principle, it should choose to treat it a loss.
A deposit ticket is a document that instructs a bank to pay the designated person a
specified amount of money.
Under process costing, the costs incurred by each department are reported in a separate
production cost report for each department.
Under the just-in-time costing system, underallocated and overallocated conversion
costs are treated just like underallocated and overallocated manufacturing overhead.
The balance sheet of a business summarizes an entity’s revenues and expenses.
Residual income is used as a key performance indicator for evaluating an investment
center’s financial performance.
If a company fails to make an adjusting entry for accrued revenues, the net income will
be overstated.
Prepaid Rent is always classified as a long-term asset.
The Accounts Payable account is a temporary account.
International Financial Reporting Standards are comparatively more specific and more
rule-based than U.S. GAAP.
Financial statements prepared for investors and creditors often include forward-looking
information because they make decisions based on a company’s future prospects.
The process for calculating present values is often called discounting future cash flows
because future amounts are discounted to their present value.
The depreciation method that allocates an equal amount of depreciation each year is
called the straight-line method.
Under the going concern principle, accountants must provide proof that the business
will remain in operations long enough to use existing resources for their intended
purpose.
The steps of the accounting cycle are followed throughout the accounting period.
The balance sheet shows the balance in Bonds Payable plus any discount or minus any
premium.
An adverse opinion is issued if the auditor finds that the financial statements are not
presented fairly.
The issue price is the price the stock initially sells for the first time it is sold.
When using the allowance method, the receipt of a payment on receivables that have
been written-off requires an entry to reverse the write-off to the Allowance for Bad
Debts account and an entry to record the receipt of cash.
The old age, survivors, and disability insurance component of FICA tax is imposed on
the entire amount of an individual employee’s earnings.
Issuing preferred stock to stockholders in exchange for cash is shown under the
financing activities section of the statement of cash flows.
Activity-based costing can be used in determining the cost of services as well as
products.
The Cash account is a temporary account.
When a manufacturing company uses a standard cost system, the direct materials cost
variance is recorded at the time direct materials are issued in production.
An accounts receivable requires the business to pay cash in the future.
Steve Coleman has just won the state lottery and has the following three payout options
for after-tax prize money:
1. $166,000 per year at the end of each of the next six years
2. $306,000 (lump sum) now
3. $518,000 (lump sum) six years from now
The annual discount rate is 9%. Compute the present value of the second option.
(Round to nearest whole dollar.)
Present value of $1:
A) $684,000
B) $103,600
C) $414,400
D) $306,000
Which of the following is not included in continuing operations?
A) gain on sale of machinery
B) a segment of a business that has been discontinued
C) cost of goods sold
D) losses due to lawsuits
Which of the following is the correct formula for calculating depreciation under the
straight-line method?
A) Straight-line depreciation = (Cost + Residual value) / Useful life
B) Straight-line depreciation = (Cost – Residual value) / Useful life
C) Straight-line depreciation = (Cost + Residual value) × Useful life
D) Straight-line depreciation = (Cost – Residual value) × Useful life
In a large company, the person who is responsible for comparing cash and the bank
balance is the ________.
A) CEO
B) CFO
C) controller
D) treasurer
A business purchases $500 of office supplies on account. Which of the following
accounts is credited?
A) Cash
B) Accounts Payable
C) Office Supplies
D) Service Revenue
The retained earnings of a corporation is ________.
A) internally generated equity that is earned by profitable operations that is not
distributed to stockholders
B) externally generated equity that is contributed by shareholders
C) externally generated equity that is acquired from banks and other creditors
D) internally generated equity that is received from employee stock purchases
In reconciling a bank statement, the bank balance is $1,500, and the checkbook balance
is $2,105, Which of the following is the most probable reason for the checkbook
balance being larger than the bank balance?
A) The bank has not cleared certain outstanding checks.
B) The bank has added interest revenue to the account balance.
C) A deposit in transit was made at the end of the month.
D) The bank received an EFT from a customer.
The advance cash payments of future expenses are called ________.
A) accrued revenues
B) deferred expenses
C) deferred revenues
D) accrued expenses
Which of the following sections from the statement of cash flows includes the cash paid
for the purchase of Treasury Stock?
A) the financing activities section
B) the operating activities section
C) the investing activities section
D) the non-cash investing and financing section
Portland Antique Weaponry is owned and operated by a craftsman who makes replicas
of historic firearms for museums, sportsmen, and collectors. He is currently producing
40 flintlock muskets per month. Data are as follows:
If Portland expects to sell 60 units per month, how much is his margin of safety expressed
in sales revenue?
A) $13,630
B) $24,800
C) $23,200
D) $48,000
Which of the following accounting methods is generally used to compute amortization
expense?
A) declining-balance
B) units-of-production
C) straight-line
D) first-in, first-out
Which of the following states that the business should use the same accounting methods
from period to period?
A) materiality concept
B) consistency principle
C) conservatism
D) disclosure principle
The employees of Sinclair Services, Inc. worked the last two weeks of December. They
received their paychecks on January 2. Which of the following accounts should appear
on the balance sheet as of December 31?
A) Accounts Payable
B) Salaries Payable
C) Salaries Expense
D) Prepaid Expense
Arturo Manufacturing, Inc. provided the following information for the year:
How much is the cost of goods manufactured?
A) $838,170
B) $750,670
C) $900,670
D) $766,010
Which of the following sequences is the normal sequence of flow of accounting data?
A) Ledger → Journal → Source document
B) Journal → Source document → Ledger
C) Source document → Journal → Ledger
D) Source document → Ledger → Journal
The following information relates to Nebula, Inc.
Calculate the operating income.
A) $13,000
B) $70,000
C) $240,000
D) $23,000
Sherman Hats, Inc. has two product lines—batting helmets and football helmets. The
income statement data for the most recent year is as follows:
Assuming the football helmets line is dropped, total fixed costs remain unchanged, and the
space formerly used to produce the line is rented for $110,000 per year, how will operating
income be affected?
A) Operating income will increase by $80,000.
B) Operating income will increase by $30,000.
C) Operating income will decrease by $30,000.
D) Operating income will decrease by $80,000.
Gross profit is calculated by deducting ________ from sales revenue.
A) total fixed costs
B) cost of goods sold
C) total variable costs
D) selling and administrative costs
The Carlin Fabrication Plant suffered a fire incident at the beginning of the year, which
resulted in the loss of property including the accounting records. Some data for the year
were retrieved, and extracts from it are shown below:
The company’s manufacturing overhead allocation is based on the number of machine
hours. What is the amount of manufacturing overhead cost allocated to Work-in-Process
Inventory during the year? (Round any intermediate calculations to two decimal places,
and your final answer to the nearest dollar.)
A) $30,419
B) $335,666
C) $104,900
D) $192,708
Which of the following is true of retained earnings?
A) Retained earnings decrease with payment of dividends.
B) Retained earnings increase with purchase of assets.
C) Retained earnings decrease with collection of revenue.
D) Retained earnings increase with payment on account.
Dynamic Corporation provides the following financial information:
Calculate the residual income of Dynamic Corporation.
A) $1,480,000
B) $305,000
C) $185,000
D) $6,521,250
Which of the following statements is true if total fixed costs decrease while the sales
price per unit and variable cost per unit remain constant?
A) The contribution margin increases.
B) The breakeven point increases.
C) The contribution margin decreases.
D) The breakeven point decreases.
Maywood, Inc. has a current ratio of 6.00. This indicates that the company has $6 in
________.
A) current liabilities for every $1 of current assets
B) total assets for every $1 of current liabilities
C) current assets for every $1 of current liabilities
D) total assets for every $1 of current assets
Which of the following statements regarding the manufacturing overhead budget is
incorrect?
A) Both fixed and variable manufacturing overhead costs are budgeted.
B) The manufacturing overhead budget calculates the budgeted overhead costs for the
year and also the predetermined overhead allocation rate for the year.
C) The cost accountant and the production manager work together to project variable
and fixed manufacturing costs.
D) Depreciation on manufacturing equipment is not included because the production
manager has no control over that cost allocation.
Story Manufacturing produces a chemical pesticide and uses process costing. There are
three processing departments—Mixing, Refining, and Packaging. On January 1, the
first department—Mixing—had a zero beginning balance. During January, 42,000
gallons of chemicals were started into production. During the month, 34,000 gallons
were completed, and 8,000 remained in process, partially completed. In the Mixing
Department, all direct materials are added at the beginning of the production process,
and conversion costs are applied evenly through the process.
During January, the Mixing Department incurred $63,000 in direct materials costs and
$240,000 in conversion costs. At the end of the month, the ending inventory in the
Mixing Department was 60% complete with respect to conversion costs. First, calculate
the equivalent units, then calculate the cost per equivalent unit, and then calculate the
total cost of the product that was completed and transferred out during January. The
weighted-average method is used.
The total cost of product transferred out was ________. (Round any intermediate
calculations two decimal places, and your final answer to the nearest dollar.)
A) $51,000
B) $240,000
C) $303,000
D) $261,460
Which of the following accounts would appear in the balance sheet debit column?
A) Unearned Revenue
B) Accumulated Depreciation
C) Service Revenue
D) Prepaid Insurance
On December 1, 2017, Falcon, Inc. sold machinery to a customer for $25,000. The
customer could not pay at the time of sale but agreed to pay 11 months later and signed
a 11-month note at 8% interest. How much interest revenue was earned for the entire
term of the note? (Round your answer to the nearest dollar.)
A) $1,833
B) $1,670
C) $167
D) $2,000
Zenith Fashions uses standard costs for their manufacturing division. From the
following data, calculate the fixed overhead cost variance.
A) $36,000 F
B) $36,000 U
C) $8,000 F
D) $8,000 U
The current ratio measures ________.
A) a company’s ability to sell its long-term assets
B) a company’s ability to pay current liabilities with its total assets
C) a company’s ability to pay current liabilities with current assets
D) a company’s profitability during a particular period
Which of the following is a major reason why corporate ownership is popular in the
United States?
A) Stockholders have limited liability for the debts of the corporation.
B) Most corporations are small- or medium-sized.
C) The life of a corporation is limited by the death of the owner.
D) A corporation is usually managed by the owners.
Which one of the following is true of the bank reconciliation?
A) It should not be prepared by an employee who handles cash transactions.
B) It is prepared in place of the cash ledger.
C) It is a financial statement.
D) It guarantees that no errors have been made.
Which of the following is the record holding all the accounts, the changes in those
accounts, and their balances?
A) Source document
B) Journal
C) Ledger
D) Trial balance
The balance of stockholders’ equity at the beginning of the year and the end of the year
was $50,000 and $60,000, respectively. The company issued no common stock during
the year. Dividends were $20,000. What was the net income or loss for the year?
A) Net income of $80,000
B) Net loss of $80,000
C) Net loss of $30,000
D) Net income of $30,000
The trial balance for a merchandiser is as follows. A physical count of inventory at the
end of the accounting year reveals $28,000 of inventory on hand. (Assume a perpetual
inventory system.)
Give journal entry to record the inventory shrinkage, and the entries to close the Sales
Revenue account, the expense accounts and contra revenue accounts with a debit balance,
and the the Income Summary account and the Dividends account.
List and briefly describe the method used to account for investments in equity securities
with 50% or more ownership.
How is a production cost report prepared using the FIFO method?
On January 1, 2017, Doyle Manufacturing Corporation purchased a machine for
$40,000,000. The corporation expects to use the machine for 24,000 hours over the next
six years. The estimated residual value of the machine at the end of the sixth year is
$40,000. The corporation used the machine for 3,600 hours in 2017 and 5,000 hours in
2018. Calculate depreciation expense for 2018 if the company uses the
units-of-production method of depreciation.
Lewis, Inc. uses the indirect method to prepare its statement of cash flows. Refer to the
following portion of the comparative balance sheet:
Lewis, Inc.
Comparative Balance Sheet
December 31, 2017 and 2016
2017 2016 Increase (Decrease)
Cash $42,000 $36,000 $6,000
Accounts Receivable 62,000 70,000 (8,000)
Merchandise Inventory 106,000 50,000 56,000
PP&E, net 240,000 180,000 60,000
Total Assets $450,000 $336,000 $114,000
Additional information provided by the company includes the following:
Equipment costing $104,000 was purchased for cash.
Equipment with a net book value of $20,000 was sold for $28,000.
Depreciation Expense of $24,000 was recorded during the year.
Use the T-account format and evaluate the transactions affecting Property, Plant, and
Equipment, net.
On January 1, 2015, Alda Solutions paid $200,000 to acquire Fancy Phones, Inc., an
electronic gadget-advertising website. At the time of the acquisition, Fancy Phone’s
balance sheet reported total assets of $200,000 and liabilities of $100,000. The fair
market value of Fancy Phone’s assets was $200,000. The fair market value of its
liabilities was $100,000. At the end of 2018, goodwill was measured, and its fair value
was determined to be $60,000. Record the impairment of goodwill.
Karaoke Records Company uses the indirect method to prepare its statement of cash
flows. Refer to the following sections of the comparative balance sheet:
Karaoke Records Company
Comparative Balance Sheet
December 31, 2017 and 2016
2017 2016 Increase (Decrease)
Accounts Payable $ 6,000 $ 9,000 $(3,000)
Accrued Liabilities 3,000 1,500 1,500
Long-term Notes Payable 126,000 135,000 (9,000)
Total Liabilities $ 135,000 $ 145,500 $(10,500)
Common Stock 45,000 3,000 42,000
Retained Earnings 169,500 111,000 58,500
Treasury Stock (12,000) (7,500) (4,500)
Total Equity 202,500 106,500 96,000
Total Liabilities and Stockholders’ Equity $337,500 $252,000 $85,500
Additional information for 2017:
• No stock was retired.
• No treasury stock was sold.
• The company repaid $60,000 of long-term notes payable.
• The company borrowed $51,000 on a new long-term note payable.
• Net income for the year was $68,000.
Prepare the financing section of the statement of cash flows for the year ended
December 31, 2017.
What are the strengths of the net present value capital budgeting method?
Open Space Furniture began June with merchandise inventory of 45 sofas that cost a
total of $31,500. During the month, Open Space purchased and sold merchandise on
account as follows:
Prepare a perpetual inventory record, using the LIFO inventory costing method, and
determine the company’s cost of goods sold, ending merchandise inventory, and gross
profit.
On November 1, 2017, Pink Rose, Inc. declared a dividend of $3.00 per share. Pink
Rose, Inc. has 20,000 shares of common stock outstanding and no preferred stock. The
date of record is November 15, and the payment date is November 30, 2017. Provide
the journal entry needed on November 30.
Ace Plastics produces different kinds of products, all in one manufacturing facility.
They have identified four activities for their costing system:
Materials management—allocated by number of purchase orders
Chemical processing—allocated on metric tons
Molding—allocated on direct labor hours
Packaging—allocated by number of units produced
The activity rates are as follows:
Materials management $12.00 Per purchase order
Chemical processing $7.50 Per metric ton
Molding $24.00 Per direct labor hour
Packaging $0.10 Per unit
Engineering design shows that the order will require direct materials that cost $540;
direct labor cost will be $90. The order will also require four purchase orders to be
placed, use two metric tons of chemical base, and need eight direct labor hours. The
size of the order is to produce 3,000 units of product. Calculate the total production of
the order.
List the order in which the balance sheet, statement of retained earnings, and income
statement are prepared. Briefly discuss why this order is necessary.
Blue Manufacturing Company is trying to decide whether to trade in equipment used in
its manufacturing process for a newer model. The new equipment will save money
because it will be more efficient to use. Indicate if the following items are relevant or
irrelevant to this decision.
On June 30, 2017, Nightvale, Inc. purchased merchandise inventory for $500,000 by
signing a six-month, 8% note payable. Prepare the journal entry for the payment of the
note on December 30, 2016.
Why is using a single plantwide predetermined overhead allocation rate not always
accurate?
Journalize the above transactions that should be recorded in the general journal. If a
transaction should not be recorded in the general journal, identify the special journal that
should be used. Assume the company uses the perpetual inventory system.
Gregory Cable Company is considering investing $450,000 in telecommunications
equipment that has an estimated life of five years with no residual value. The cash flows
are as shown below:
Present value of an ordinary annuity of $1:
Present value of $1:
Calculate the IRR of the project. Show your computations.
What does inventory turnover measure? What does a low rate of inventory turnover
indicate?
The ending inventory of a company was $552,000 as per the perpetual inventory
records. The current replacement cost for the ending inventory is $547,000. Prepare the
journal entry to adjust inventory.