Leather Head Sports operates on a small production scale using expensive, top-quality
materials. How does cost-volume-profit analysis benefit this company?
Answer:
____________________________ is an outgrowth of ABC that draws on the link
between activities and cost incurrence for better management.
Answer:
The accounts payable ledger has a controlling account in the general ledger and a
separate subsidiary account for each creditor in the accounts payable ledger.
Answer:
Equivalent units of production refer to the number of units that would be completed if
all effort during a period had been applied only to those units that were started and
completed in a period.
Answer:
Given the following data, total product cost per unit under variable costing will be
greater than total product cost under absorption costing.
Answer:
The Income Summary account is closed to the retained earnings account.
Answer:
A high level of expected risk suggests a low price-earnings ratio.
Answer:
Due to electronic files and web communication, source documents are no longer
required.
Answer:
Product costs can be classified as one of three types: direct materials, direct labor, or
overhead.
Answer:
A time ticket is a source document used by an employee to record the number of hours
worked on a particular job during the work day.
Answer:
The decision to accept additional business should be based on a comparison of the
incremental (differential) costs of the added production with the additional revenues to
be received.
Answer:
During a given year, a company had net sales of $500,000 and average accounts
receivable of $80,000. Its accounts receivable turnover is equal to 6.25.
Answer:
Double-entry accounting requires that the impact of each transaction be recorded in at
least two accounts.
Answer:
A company received dividends of $0.35 per share on 300 shares of stock. The journal
entry to record this transaction would be to debit Cash for $105 and credit Dividend
Revenue for $105.
Answer:
If accepting additional business would cause existing sales to decline, the offer should
always be declined.
Answer:
Product costs consist of direct labor, direct materials, and overhead.
Answer:
A capital deficiency can arise from liquidation losses, excessive withdrawals before
liquidation, or recurring losses in prior periods.
Answer:
The matching principle and the full disclosure principle are the two main accounting
principles used in accrual accounting.
Answer:
The cash flow on total assets ratio is defined as the total cash flows from operations
divided by the average total assets.
Answer:
The following journal entry would be made to record the use of direct labor in the
reporting period covered by the information:
Answer:
Activities are the cost objects of the second stage of ABC.
Answer:
The Merchandise Inventory account balance at the end of one period is equal to the
amount of beginning merchandise inventory for the next period.
Answer:
The purchase of a property that included land, building, and improvements is called a
lump-sum purchase.
Answer:
Expense allocations cannot always avoid some arbitrariness.
Answer:
A clock card is a source document that an employee uses to report how much time was
spent working on a job or on overhead and that is used to determine the amount of
direct labor to charge to the job or to determine the amount of indirect labor to charge to
factory overhead.
Answer:
It is not necessary to keep separate accounts for all items of importance for business
decisions.
Answer:
A dishonored note receivable is usually reclassified as an account receivable.
Answer:
Cost-volume-profit analysis provides approximate, but not precise, answers to questions
about the relations among costs, volume, and profits.
Answer:
For internal users, one purpose of financial statement analysis is to provide information
helpful in improving the company’s efficiency and effectiveness in providing products
and services.
Answer:
LIFO assumes that inventory costs flow in the order they were incurred.
Answer:
Other names for the income statement are earnings statement, statement of operations,
or profit and loss statement.
Answer:
Comparative horizontal analysis is used to reveal patterns in data covering successive
periods.
Answer:
Each sales transaction of a seller that uses a perpetual system involves recognizing
both revenue and cost of merchandise sold.
Answer:
The gross margin ratio reflects the relation between sales and cost of goods sold.
Answer:
If a production department has 100 equivalent units of production with respect to direct
materials in a given reporting period, the equivalent units of production with respect to
direct labor also must be 100.
Answer:
A transaction that decreases an asset account and increases a liability account must also
affect one or more other accounts.
Answer:
An advantage of LIFO is that it assigns the most recent costs to cost of goods sold and
does a better job of matching current costs with revenues on the income statement.
Answer:
A direct labor cost variance may be broken down into a controllable variance and a
volume variance.
Answer:
A company has two products: A1 and B2. It uses activity-based costing and has
prepared the following analysis showing budgeted cost and activity for each of its three
activity cost pools:
Annual production and sales level of Product A1 is 8,480 units, and the annual
production and sales level of Product B2 is 22,310 units. What is the approximate
overhead cost per unit of Product A1 under activity-based costing?
A. $8.00
B. $9.00
C. $10.00
D. $12.00
E. $4.00
Answer:
Termus Industries is operating at 85% of its manufacturing capacity of 50,000 product
units per year. A customer has offered to buy an additional 4,000 units at $25 each and
sell them outside the country so as not to compete with Termus. The following data are
available:
In producing 4,000 additional units, fixed overhead costs would remain at their current
level but incremental variable overhead costs of $4 per unit would be incurred. What is
the effect on income if Termus accepts this order?
A. Income will decrease by $6 per unit.
B. Income will increase by $6 per unit.
C. Income will increase by $7 per unit.
D. Income will decrease by $3 per unit.
E. Income will increase by $3 per unit.
Answer:
Selected balances from a company’s financial statements are shown below:
Use the information above to calculate the following current year ratios:
(a) 2014 inventory turnover.
(b) Days’ sales uncollected at Dec. 31, 2014.
(c) 2014 profit margin.
(d) 2011 return on total assets.
Answer:
Promissory notes that require the issuer to make a series of payments consisting of both
interest and principal are:
A. Debentures
B. Discounted notes
C. Installment notes
D. Indentures
E. Investment notes
Answer:
A company borrowed money from the bank and signed a long-term note payable. This
transaction would be recorded in which of the following journals?
A. Sales journal
B. Purchases journal
C. Cash disbursements journal
D. Cash receipts journal
E. General journal
Answer:
A premium on common stock:
A. Is the amount paid in excess of par by purchasers of newly issued stock.
B. Is the difference between par value and issue price when the amount paid is below
par
C. Represents profit from issuing stock.
D. Represents capital gain on sale of stock.
E. Is prohibited in most states.
Answer:
A target income refers to:
A. Income at the break-even point.
B. Income from the most recent period.
C. Income planned for a future period.
D. Income only in a multiproduct environment.
E. Income at the minimum contribution margin.
Answer:
Net sales divided by average total assets is equal to the:
A. Profit margin
B. Total asset turnover
C. Current ratio
D. Sales return ratio
E. Return on total assets
Answer:
Using a traditional costing approach, which of the following manufacturing costs are
assigned to products?
A. Direct materials and direct labor.
B. Direct labor and variable manufacturing overhead.
C. Fixed manufacturing overhead, direct materials, and direct labor.
D. Variable manufacturing overhead, direct materials, and direct labor.
E. Variable manufacturing overhead, direct materials, direct labor, and fixed
manufacturing overhead.
Answer:
Goods in transit are included in a purchaser’s inventory:
A. At any time during transit.
B. When the purchaser is responsible for paying freight charges.
C. When the supplier is responsible for freight charges.
D. If the goods are shipped FOB destination.
E. After the halfway point between the buyer and seller.
Answer:
The following costs are included in a recent summary of data for a company:
advertising expense, $85,000; depreciation expense factory building, $133,000; direct
labor, $250,000; direct material used, $300,000; factory utilities, $105,000; and sales
salaries expense, $150,000. Determine the dollar amount of conversion costs.
A. $1,023,000
B. $550,000
C. $488,000
D. $235,000
E. $238,000
Answer:
Internal users of financial information:
A. Are not directly involved in operating a company.
B. Are those individuals involved in managing and operating the company.
C. Include shareholders and lenders.
D. Include directors and customers.
E. Include suppliers, regulators and the press.
Answer:
A debit memorandum is:
A. Required whenever a journal entry is recorded,
B. The source document for the purchase of merchandise inventory,
C. Required when a purchase discount is granted,
D. The document a buyer issues to inform the seller of a debit made to the seller’s
account in the buyer’s records,
E. Not necessary in a perpetual inventory system,
Answer:
In which comparative financial statements is each amount expressed as a percentage of
a base amount?
A. Asset comparative statements.
B. Percentage comparative statements.
C. Common-size comparative statements.
D. Sales comparative statements.
E. General-purpose financial statements.
Answer:
An expression of the activity of a process as the number of units that would have been
processed during a period if all effort had been applied to units that were started and
finished during the period is called:
A. Manufacturing overhead.
B. Units in process.
C. A job cost sheet.
D. Equivalent units of production.
E. Process cost summary.
Answer:
Increases in retained earnings from a company’s earnings activities are:
A. Assets
B. Revenues
C. Liabilities
D. Stockholder’s equity
E. Expenses
Answer:
Current assets minus current liabilities is equal to:
A. Profit margin
B. Financial leverage
C. Current ratio
D. Working capital
E. Quick assets
Answer:
Romtech Company sold 43,000 units of its product at a price of $300 per unit. Total
variable cost per unit is $175, consisting of $168 in variable production cost and $7 in
variable selling and administrative cost. Compute the manufacturing margin for the
company under variable costing.
A. $5,375,000
B. $5,676,000
C. $12,599,000
D. $12,900,000
E. $7,525,000
Answer:
Deltan Corp. allocates overhead to production on the basis of direct labor costs. If
Deltan’s total estimated overhead is $450,000 and estimated direct labor cost is
$180,000, determine the amount of overhead to be allocated to finished goods
inventory. There is $20,000 of total direct labor cost in the jobs in the finished goods
inventory.
A. $8,000
B. $20,000
C. $70,000
D. $50,000
E. $90,000
Answer:
Beginning assets were $700,000, beginning equity was $225,000, revenue for the year
was $523,000, common stock issued during the year totaled $320,000, expenses for the
year were $392,000, ending equity is $751,000, and ending assets are $963,000.
What were the beginning liabilities for the year?
A. $738,000
B. $998,000
C. $131,000
D. $203,000
E. $475,000
Answer:
A company paid $37,800 plus a broker’s fee of $525 to acquire 8% bonds with a
$40,000 maturity value. The company intends to hold the bonds to maturity. The cash
proceeds the company will receive upon the maturity of the bond is:
A. $37,800
B. $38,325
C. $40,000
D. $40,525
E. $43,200
Answer:
Metro Express has five sales employees, each of whom earns $4,000 per month and is
paid on the last working day of the month. Each employee’s wages are subject to FICA
Social Security taxes of 2% and Medicare taxes of 1.45% on all wages. Withholding for
each employee also includes federal income tax of 16% and monthly medical insurance
premiums of $110 for each employee.
a. Prepare the general journal entry to accrue the monthly sales salaries expense at
January 31.
b. The employer payroll taxes for Metro Express include: FICA taxes, federal
unemployment taxes of 0.8% on the first $7,000 paid to each employee, and state
unemployment taxes of 4.0% on the first $7,000 paid to each employee. Prepare the
journal entry to record the employer’s payroll taxes at January 31 for Metro Express.
Answer:
Outback Products reports the following information:
Required:
a. Calculate Outback Products degree of operating leverage (DOL).
b. Outback Products forecasts a 6% increase in sales. What is the expected effect in
percent on pretax income?
Answer:
Presented below are terms preceded by letters (a) through (f) and followed by a list of
definitions 1 through 6. Match the letter of the terms with the definitions. Use the space
provided preceding each definition.
(a) Incremental cost
(b) Opportunity cost
(c) Out-of-pocket cost
(d) Relevant cost
(e) Sunk cost
(f) Relevant benefits.
__________ (1) A cost that requires a current outlay of cash.
__________ (2) The incremental revenue generated by selecting a particular course of
action over another.
__________ (3) An avoidable cost.
__________ (4) A cost that cannot be avoided or changed in any way because it arises
from a past decision; irrelevant to current and future decisions.
__________ (5) An additional cost incurred only if a particular action is taken.
__________ (6) The potential benefits of one alternative that are lost by choosing an
alternative course of action.
Answer:
The Income Summary account is used:
A. To adjust and update asset and liability accounts.
B. To close the revenue and expense accounts.
C. To determine the appropriate dividend amount.
D. In some situations to replace the income statement.
E. To replace the retained earnings account in some businesses.
Answer:
The inventory valuation method that tends to smooth out erratic changes in costs is:
A. FIFO
B. Weighted average
C. LIFO
D. Specific identification
E. WIFO
Answer:
Base Runner, Inc. manufactures baseball bats that go through two operations, cutting
and sanding, before they are complete. Expected costs and activities for the two
departments are shown in the following table:
a. Compute a departmental overhead rate for the cutting department based on machine
hours.
b. Compute a departmental overhead rate for the sanding department based on machine
hours.
Answer:
An income statement that includes cost of goods sold as another expense and shows
only one subtotal for total expenses is a:
A. Balanced income statement.
B. Single-step income statement.
C. Multiple-step income statement.
D. Combined income statement.
E. Simplified income statement.
Answer:
Reference: 21_01
Five Rings, Inc, has collected the following data on one of its products:
The direct materials quantity variance is:
A. $30,000 favorable
B. $13,750 unfavorable
C. $16,250 favorable
D. $30,000 unfavorable
E. $13,750 favorable
Answer:
Wrap-It Company, a manufacturer of wrapping paper, began operations on June 1 of the
current year. During this time, the company produced 370,000 units and sold 310,000
units at a sales price of $50 per unit. Cost information for this period is shown in the
following table:
a. Prepare Wrap-Its December 31t income statement for the current year under
absorption costing.
b. Prepare Wrap-Its December 31 income statement for the current year under variable
costing.
Answer:
Stockholders’ equity consists of:
A. Long-term assets.
B. Contributed capital and retained earnings.
C. Contributed capital and par value.
D. Retained earnings and cash.
E. Premiums and discounts.
Answer:
Corona Company’s balance sheet accounts follow:
What is Corona Companys inventory turnover ratio for 2014, assuming net sales and
gross profit for the period were $1,236,783, $927,587 respectively?
A. 10.96
B. 3.25
C. 3.00
D. 3.65
E. 4.20
Answer:
Dell reported net sales of $8,739 million and average accounts receivable of $864
million. Its accounts receivable turnover is:
A. 0.90
B. 10.1
C. 36.1
D. 50.0
E. 3,686
Answer:
A classified balance sheet:
A. Measures a company’s ability to pay its bills on time.
B. Organizes assets and liabilities into important subgroups.
C. Presents revenues, expenses, and net income.
D. Reports operating, investing, and financing activities.
E. Reports the effect of profit and dividends on retained earnings.
Answer:
Should both favorable and unfavorable variances be investigated, or only the
unfavorable ones? Explain.
Answer:
A company purchased two new delivery vans for a total of $250,000 on January 1,
2013. The company paid $40,000 cash and signed a $210,000, three-year, 8% note for
the remaining balance. The note is to be paid in three annual end-of-year payments of
$81,487 each, with the first payment on December 31, 2013. Each payment includes
interest on the unpaid balance plus principal.
(1) Prepare a note amortization table using the format below:
(2) Prepare the general journal entries to record the purchase of the vans on January 1,
2013 and the second annual installment payment on December 31, 2014.
Answer:
How are bond issue prices determined?
Answer:
A company purchased a machine for $75,000 that was expected to last six years and
have a salvage value of $6,000. At the beginning of the machine’s fourth year, the
company decided that the machine’s estimated useful life should be revised to a total of
10 years instead of 6 years. Also, the salvage value was re-estimated to be $5,500.
Straight-line depreciation was used throughout the machine’s life. Calculate the
depreciation expense for the fourth year of the machine’s useful life.
Answer:
A company’s income before interest expense and income taxes is $302,400 and its
interest expense is $72,000. Calculate the company’s times interest earned ratio.
Answer:
Abrams Co. has total fixed costs of $240,000 and a contribution margin ratio of 40%. If
rent expense increases by $5,000, how much will sales have to increase to cover this
increase in costs?
Answer:
Detalo Co. held bonds of Schooner Corp. with a cost of $125,000 and a market value
of $127,000. Detalo also held 1,500 shares of Tranco common stock with a cost of
$25,000 and a market value of $24,700. These are classified as long-term
available-for-sale securities. Prepare the journal entry to record the market value of the
investments as of December 31.
Answer:
Corona Company has credit sales of $4.60 million for year 2014. The company
estimates that 1.42% of accounts receivable will be uncollectible. On December 31,
2014, the companys Allowance for Doubtful Accounts has an unadjusted credit balance
of $13,164. Corona prepares a schedule of its December 31, 2014, accounts receivable
by age. Based on past experience, it estimates the percent of receivables in each age
category that will become uncollectible. This information is summarized here:
Assuming the company uses the percent of accounts receivable method, determine the
amount that should be recorded for bad debt expense on December 31, 2014.
Answer:
A __________ cost is one that includes both fixed and variable cost components; a
______________ cost is one that reflects a step pattern.
Answer:
A company is evaluating the purchase of a machine for $900,000 with a six-year useful
life and no salvage value. The company uses straight-line depreciation and it assumes
that the annual net cash flow from using the machine will be received uniformly
throughout each year. In calculating the accounting rate of return, what is the company’s
average investment?
Answer:
The ______________ refers to the steps in preparing financial statements for users.
Answer:
What is the balance sheet? What is its purpose?
Answer:
___________________ bonds have an option exercisable by the issuer to retire them at
a stated dollar amount prior to maturity.
Answer:
On October 1 of the current year a corporation sold, at par plus accrued interest,
$1,000,000 of its 12% bonds, which were dated July 1 of this year. What amount of
bond interest expense should the company report on its current year income statement?
Answer:
On May 1, a company’s board of directors declared a 10% stock dividend to be
distributed on June 1 to the stockholders of record on May 21. The company had
250,000 shares of $10 par value common stock outstanding with a market value of $22
per share. Prepare the journal entries required on May 1, May 21, and June 1.
Answer:
For each of the following items, indicate whether it would be classified as an (O)
operating activity, an (I) investing activity, a (F) financing activity or a significant, (N)
noncash financing and investing activity.
Answer:
How does ABC differ from using multiple departmental rates?
Answer:
Unearned revenues are amounts received _________from______ for future products or
services.
Answer:
A company established a petty cash fund in February of the current year and
experienced the following transactions affecting the fund during February:
Prepare the journal entry to reimburse the fund and to reduce its amount on February
28.
Answer: