Services provided on account is recorded in the revenue journal.
Answer:
For years one through five, a proposed expenditure of $500,000 for a fixed asset with a
5-year life has expected net income of $40,000, $35,000, $25,000, $25,000, and
$25,000, respectively, and net cash flows of $90,000, $85,000, $75,000, $75,000, and
$75,000, respectively. The cash payback period is 5 years.
Answer:
Net income for the year was $29,500. Accounts receivable increased $2,500, and
accounts payable increased $5,400. Under the indirect method, the cash flow from
operations is $32,400.
Answer:
Companies with large amounts of fixed costs will generally have a high operating
leverage.
Answer:
A corporation has 12,000 shares of $20 par value stock outstanding that has a current
market value of $150. If the corporation issues a 4-for-1 stock split, the market value of
the stock will fall to approximately $50.
Answer:
The majority of businesses end their fiscal year on December 31.
Answer:
A performance report that identifies the amount of employee downtime is a financial
accounting report.
Answer:
The abbreviation FOB stands for Free On Board.
Answer:
The cost of treasury stock is deducted from total paid-in capital and retained earnings in
determining total stockholders’ equity.
Answer:
The equity method is usually more appropriate for accounting for investments where
the purchaser does not have significant influence over the investee.
Answer:
If direct materials cost per unit increases, the break-even point will increase.
Answer:
The financial budgets of a business include the cash budget, the budgeted income
statement, and the budgeted balance sheet.
Answer:
The computations involved in the net present value method of analyzing capital
investment proposals are less involved than those for the average rate of return method.
Answer:
The T account got its name because it resembles the letter “T.”
Answer:
Long lived assets held for sale are classified as fixed assets.
Answer:
If divisional income from operations is $75,000, invested assets are $737,500, and the
minimum rate of return on invested assets is 6%, the residual income is $36,750.
Answer:
Investments in stocks that are expected to be held for the long term are listed in the
stockholder’s equity section of the balance sheet.
Answer:
If the balance in Cash Short and Over at the end of a period is a credit, it indicates that
cash shortages have exceeded cash overages for the period.
Answer:
A voucher is a written authorization to make a cash payment.
Answer:
If a new partner is given a 20% interest in the firm then the new partner will receive a
20% interest in earnings.
Answer:
The adjusted trial balance verifies that total debits equals total credits before the
adjusting entries are prepared.
Answer:
Accruals are needed when an unrecorded expense has been incurred or an unrecorded
revenue has been earned.
Answer:
Retailers record all credit card sales as credit sales.
Answer:
Equivalent units are the sum of direct materials used and direct labor incurred.
Answer:
A cash flow per share amount should be reported on the statement of cash flows.
Answer:
A diagram of the operating structure of an organization is called an organization chart.
Answer:
A post-closing trial balance should be prepared before the financial statements are
prepared.
Answer:
The ratio of sales to investment is termed the rate of return on investment.
Answer:
The plant managers in a cost center can be held responsible for major differences
between budgeted and actual costs in their plants.
Answer:
In preparing a bank reconciliation, the amount of a canceled check omitted from the
journal is added to the balance per company’s records.
Answer:
In a merchandise business, sales minus operating expenses equals net income.
Answer:
The amount of income that would result from an alternative use of cash is called
opportunity cost.
Answer:
The effects of differences in accounting methods are of little importance when
analyzing comparable data from competing businesses.
Answer:
Control is the process of monitoring operating results and comparing actual results with
the expected results.
Answer:
In deciding whether to accept business at a special price, the short-run price should be
set high enough to cover all variable costs and expenses.
Answer:
A purchase order establishes an initial record of the receipt of the inventory.
Answer:
The cash budget is affected by the sales budget, the various budgets for manufacturing
costs and operating expenses, and the capital expenditures budget.
Answer:
In preparing a bank reconciliation, the amount indicated by a credit memo for a note
receivable collected by the bank is added to the balance per company’s records.
Answer:
In a profit center, the department manager has responsibility for and the authority to
make decisions that affect:
A.not only costs and revenues, but also assets invested in the center
B.the assets invested in the center, but not costs and revenues
C.both costs and revenues for the department or division
D.costs and assets invested in the center, but not revenues
Answer:
The journal entry a company records for the payment of interest, interest expense, and
amortization of bond premium is
A.debit Interest Expense, credit Cash and Premium on Bonds Payable
B.debit Interest Expense, credit Cash
C.debit Interest Expense and Premium on Bonds Payable, credit Cash
D.debit Interest Expense, credit Interest Payable and Premium on Bonds Payable
Answer:
Which of the following should be deducted from net income in calculating net cash
flow from operating activities using the indirect method?
A.a decrease in inventory
B.a decrease in accounts payable
C.preferred dividends declared and paid
D.a decrease in accounts receivable
Answer:
A credit balance in which of the following accounts would indicate a likely error?
A.Fees Earned
B.Salary Expense
C.Janet James, Capital
D.Accounts Payable
Answer:
The net book value of a fixed asset is determined by
A.Original cost less accumulated depreciation
B.Original cost less depreciation expense
C.Original cost less accumulated depreciation plus depreciation expense
D.Original cost plus accumulated depreciation
Answer:
Which of the following is not a right possessed by common stockholders of a
corporation?
A.the right to vote in the election of the board of directors
B.the right to receive a minimum amount of dividends
C.the right to sell their stock to anyone they choose
D.the right to share in assets upon liquidation
Answer:
A business borrowed $40,000 on March 1 of the current year by signing a 60-day, 9%
interest bearing note. Assuming a 360-day year, when the note is paid on April 30, the
entry to record the payment should include a
A.debit to Interest Payable $600
B.debit to Interest Expense $600
C.credit to Cash for $40,000
D.credit to Cash for $46,300
Answer:
A borrower has two alternatives for a loan: (a) issue a $480,000, 60-day, 8% note or (2)
issue a $480,000, 60-day note that the creditor discounts at 8%. (Assume a 360-day
year is used for interest calculations.)
Answer:
Department J had no work in process at the beginning of the period, 18,000 units were
completed during the period, 2,000 units were 30% completed at the end of the period,
and the following manufacturing costs were debited to the departmental work in
process account during the period (Assuming the company uses FIFO and rounds
average cost per unit to two decimal places):
Assuming that all direct materials are placed in process at the beginning of production,
what is the total cost of the departmental work in process inventory at the end of the
period?
A.$90,000
B.$283,140
C.$199,500
D.$16,438
Answer:
The inventory at June 1 and costs charged to Work in Process – Department 60 during
June are as follows:
During June, 32,000 units were placed into production and 31,200 units were
completed, including those in inventory on June 1. On June 30, the inventory of work in
process consisted of 4,600 units which were 40% completed. Inventories are costed by
the average cost method and all materials are added at the beginning of the process.
Determine the following, presenting your computations:
(a) equivalent units of production for conversion cost
(b) conversion cost per equivalent unit and material cost per equivalent unit.
(c) total and unit cost of finished goods completed in the current period
(d) total cost of work in process inventory at June 30
Answer:
Fixed assets are ordinarily presented in the balance sheet
A.at current market values
B.at replacement costs
C.at cost less accumulated depreciation
D.in a separate section along with intangible assets
Answer:
Department E had 4,000 units in Work in Process that were 40% completed at the
beginning of the period at a cost of $12,500. Of the $12,500, $8,000 was for material
and $4,500 was for conversion costs. 14,000 units of direct materials were added during
the period at a cost of $28,700. 15,000 units were completed during the period, and
3,000 units were 75% completed at the end of the period. All materials are added at the
beginning of the process. Direct labor was $32,450 and factory overhead was $18,710.
If the average cost method is used the material cost per unit (to the nearest cent) would
be:
A.$2.04
B.$1.59
C.$1.91
D.$2.00
Answer:
The following lots of a particular commodity were available for sale during the year:
The firm uses the periodic system and there are 25 units of the commodity on hand at
the end of the year.
What is the amount of the inventory at the end of the year using the average cost
method?
A.$1,685
B.$1,575
C.$1,805
D.$3,705
Answer:
Moon Shoe Factory is an investment center and is responsible for all of their net income
and the use of their assets. In 2012, the invested assets totaled $475,000 and net income
was $125,000. What is the rate of return on assets?
A.26.3%
B.25.0%
C.4.0%
D.380.0%
Answer:
Use the following information to answer the following questions.
Izabelle and Marta are forming a partnership. Izabelle will invest a piece of equipment
with a book value of $7,500 and a fair market value of $20,000. Marta will invest a
building with a book value of $40,000 and a fair market value of $58,000.
What amount will be recorded to Marta’s capital account ?
A.$18,000
B.$20,000
C.$40,000
D.$58,000
Answer:
A company with $70,000 in current assets and $50,000 in current liabilities pays a
$1,000 current liability. As a result of this transaction, the current ratio and working
capital will
A.both decrease.
B.both increase.
C.increase and remain the same, respectively.
D.remain the same and decrease, respectively.
Answer:
An anticipated purchase of equipment for $580,000, with a useful life of 8 years and no
residual value, is expected to yield the following annual net incomes and net cash
flows:
What is the cash payback period?
A.5 years
B.4 years
C.6 years
D.3 years
Answer:
Two common areas of accounting that respectively provide information to internal and
external users are:
A.forensic accounting and financial accounting
B.managerial accounting and financial accounting
C.managerial accounting and environmental accounting
D.financial accounting and tax accounting systems
Answer:
The correct ordering of the steps is:
A.2, 4, 3, 1
B.4, 2, 3, 1
C.2, 3, 4, 1
D.2, 3, 1, 4
Answer:
Bonds Payable has a balance of $1,000,000 and Premium on Bonds Payable has a
balance of $7,000. If the issuing corporation redeems the bonds at 101, what is the
amount of gain or loss on redemption?
A.$3,000 loss
B.$3,000 gain
C.$7,000 loss
D.$7,000 gain
Answer:
On June 1, 2014, Aaron Company purchased equipment at a cost of $120,000 that has a
depreciable cost of $90,000 and an estimated useful life of 3 years and 30,000 hours.
Using straight line depreciation, calculate depreciation expense for the second year.
A.$17,500
B.$30,000
C.$12,500
D.$40,000
Answer:
Depreciation Expense and Accumulated Depreciation are classified, respectively, as
A.expense, contra asset
B.asset, contra liability
C.revenue, asset
D.contra asset, expense
Answer:
Assume that Corn Co. sold 8,000 units of Product A and 2,000 units of Product B
during the past year. The unit contribution margins for Products A and B are $30 and
$60 respectively. Corn has fixed costs of $378,000. The break-even point in units is:
A.8,000 units
B.6,300 units
C.12,600 units
D.10,500 units
Answer:
The following is an example of:
A.product analysis
B.vertical analysis
C.horizontal analysis
D.percentage analysis
Answer:
Which of the following companies would be more likely to use the specific
identification inventory costing method?
A.Gordon’s Jewelers
B.Lowe’s
C.Best Buy
D.Wal-Mart
Answer:
The last item on the statement of cash flows prior to the schedule of noncash investing
and financing activities reports
A.the increase or decrease in cash
B.cash at the end of the year
C.net cash flow from investing activities
D.net cash flow from financing activities
Answer:
Wendell Company owns 28% of the common stock of Porter Company and accounts
for the investment using the equity method. Assuming that Wendell Company
purchased the stock several years ago, the balance in the investment account would be
equal to the cost of the
A.investment only
B.investment plus Wendell’s share of Porter’s net income earned since the investment
was purchased
C.investment plus the total amount of dividends Wendell has received from Porter since
the investment was purchased
D.investment plus Wendell’s share of Porter’s net income earned since the investment
was purchased minus the total amount of dividends Wendell has received from Porter
since the investment was purchased
Answer:
Based on the following production and sales data of Shingle Co. for March of the
current year, prepare (a) a sales budget and (b) a production budget.
Answer:
You have just received notice that a customer of yours with an Account Receivable
balance of $100 has gone bankrupt and will not make any future payments. Assuming
you use the allowance method, the entry you make is to
A.debit Bad Debt Expense and credit Allowance for Doubtful Accounts.
B.debit Bad Debt Expense and credit Accounts Receivable.
C.debit Allowance for Doubtful Accounts and credit Accounts Receivable.
D.debit Allowance for Doubtful Accounts and credit Bad Debt Expense
Answer:
Albright Company purchased as a long-term investment $500,000 of Benton
Corporation 10-year, 9% bonds. Present entries to record the following selected
transactions:
Answer:
The production department is proposing the purchase of an automatic insertion
machine. They have identified 3 machines and have asked the accountant to analyze
them to determine the best average rate of return.
A.Machine B
B.Machine C
C.Machine B or C
D.Machine A
Answer:
Which of the following should be reported net of the related income tax effect on the
income statement?
A.sale of an inventory item at a loss
B.loss due to sale of fixed assets
C.loss due to a discontinued operations of the business
D.sale of a temporary investment at a loss
Answer:
When the bonds are sold for more than their face value, the carrying value of the bonds
is equal to
A.face value
B.face value plus the unamortized discount
C.face value minus the unamortized premium
D.face value plus the unamortized premium
Answer:
The cost per equivalent units of direct materials and conversion in the Bottling
Department of Mountain Springs Water Company is $.45 and $.12, respectively. The
equivalent units to be assigned costs are as follows.
The beginning work in process inventory had a cost of $2,200. Determine the cost of
completed and transferred out production, and the ending work in process inventory.
Answer:
Match the transaction below with the journal or ledger in which it would be entered.
Answer:
An activity base is used to charge service department expenses. Match each of the
following questions with an activity base.
Answer:
The Owl Company produces and sells Product X at a total cost of $35 per unit, of
which $28 is product cost and $7 is selling and administrative expenses. In addition, the
total cost of $35 is made up of $24 variable cost and $11 fixed cost. The desired profit
is $6 per unit. Determine the mark up percentage on product cost.
Answer:
Dorman Company reported the following data:
Prepare the Cash Flows from Operating Activities section of the statement of cash flows
using the indirect method.
Answer:
The following data regarding purchases and sales of a commodity were taken from the
related perpetual inventory account:
Answer:
Match the following terms with the best definition given.
Answer:
The following information was taken from the financial statement of Fox Resources for
December 31 of the current fiscal year:
The net income was $600,000 and the declared dividends on the common stock were
$125,000 for the current year. The market price of the common stock is $20 per share.
Calculate for the common stock:
(1) earnings per share
(2) the price-earnings ratio
(3) the dividends per share and the dividend yield.
Round to one decimal place except earnings per share, which should be rounded to two
decimal places.
Answer:
On December 31, Bowman Company estimated that goodwill of $80,000 was impaired.
In addition, a patent with an estimated useful economic life of 10 years was acquired
for $252,000 on June
Answer:
The net present value has been computed for Proposals P and Q. Relevant data are as
follows:
Determine the present value index for each proposal. Round your answers to two
decimal places.
Answer:
Door & Window Co. was organized on August 1 of the current year. Projected sales for
the next three months are as follows:
The company expects to sell 40% of its merchandise for cash. Of the sales on account,
25% are expected to be collected in the month of the sale and the remainder in the
following month.
Prepare a schedule indicating total cash collections for August, September, and October.
Answer:
Each of the following transactions for Morrison Company requires an adjusting entry,
which if omitted, will overstate or understate assets, liabilities, owner’s equity,
revenues, expenses, or net income. Indicate the amount and direction of the
misstatement that would result if the end of period adjusting entry suggested by the
transaction was omitted. Place your results in the table following the transactions and
use (+) for overstate, (-) for understate, and (NE) for no effect.
1) Morrison purchased supplies on December 1 for $900. On December 31, $350 of
supplies were on hand.
2) Prepaid insurance had a debit balance of $5,400 on December 1, which represented a
prepayment for 2 years of insurance.
3) The unearned rent revenue account has a credit balance of $390 on December 1,
which represents 3 months rent.
Answer:
The Svelte Jeans Company produces two different types of jeans. One is called the
“Simple Life” and the other is called the “Fancy Life”. The company sales budget
estimates that 400,000 of the Simple Life Jeans and 250,000 of the Fancy Life will be
sold during 20–. The company begins with 8,000 Simple Life Jeans and 17,000 Fancy
Life Jeans. The company desires ending inventory of 7,500 of Simple Life Jeans and
10,000 Fancy Life Jeans. Prepare a Production Budget for the 20–.
Answer:
List the four basic types of accounts that require adjusting entries and give an example
of each.
Answer:
Flanders Industries collects 35% of its sales on account in the month of the sale and
65% in the month following the sale. If sales on account are budgeted to be $175,000
for May and $225,000 for June, what are the budgeted cash receipts from sales on
account for June?
Answer:
The debits and credits from two transactions are presented in the following customer
account:
NAME: Boogie Board Water Wear
ADDRESS: 2340 Xtreme Surf
Describe each transaction and the source of each posting.
Answer:
Trevor Smith contributed equipment, inventory, and $54,000 cash to a partnership. The
equipment had a book value of $30,000 and a market value of $36,000. The inventory
had a book value of $60,000, but only had a market value of $20,000, due to
obsolescence. The partnership also assumed a $17,000 note payable owed by Smith that
was used originally to purchase the equipment.
Provide the journal entry for Smith’s contribution to the partnership.
Answer:
Icon Company acquired patent rights on January 1, 2009 for $1,125,000. The patent has
a useful life equal to its legal life of 15 years. On January 2, 2012, Icon successfully
defended the patent in a lawsuit at a cost of $90,000.
Answer:
Match the term with the correct definition.
Answer:
A company had the following stockholders equity information available at year end.
– issued 11,000 shares of $2.00 par value common stock for $12.00 per share
– issued 5,000 shares of $50 par value 6% preferred stock for $70 per share
– purchased 1,000 shares of previously issued common stock for $15.00 per share
-reported net income of $200,000
– declared and paid the preferred stock dividend
Calculate the earnings per share for the current year.
Answer: