To check for accuracy after posting: first a trial balance is completed, then the
subsidiary ledgers are tested by preparing a schedule of the controlling account.
Answer:
Revenues are increases in retained earnings from a company’s earnings activities.
Answer:
A transaction that increases an asset and decreases a liability must also affect one or
more other accounts.
Answer:
The balanced scorecard aids in continuous improvement by augmenting financial
measures with drivers or indicators of future financial performance.
Answer:
Whether a cost is controllable or not controllable by an employee depends on the
employee’s level of responsibility.
Answer:
If Department J uses $40,000 of direct materials and Department K uses $70,000 of
direct materials, the following journal entry would be recorded by the process cost
accounting system:
Answer:
On the work sheet, net income is entered in the Income Statement Credit column as
well as the Balance Sheet Debit column.
Answer:
Activity-based costing often shifts overhead costs from large volume, standardized
products to low-volume, specialty products that consume disproportionate resources.
Answer:
A process cost summary is an accounting report that describes the costs charged to a
department, the equivalent units of production by the department, and how the costs
were assigned to the output.
Answer:
A basic present value concept is that cash in the future is worth less than the same
amount of cash today.
Answer:
A sunk cost has already been incurred and cannot be avoided or changed, so it is
irrelevant to decision making.
Answer:
A buyer did not take advantage of a supplier’s credit terms of 2/10, n/30, but instead
paid the invoice in full at the end of 30 days. By not taking the discount, the buyer lost
the equivalent of 18% annual interest on the amount of the purchase.
Answer:
When preparing the operating section of the statement of cash flows using the indirect
method, an increase in income taxes payable is added back to net income.
Answer:
The FIFO method of process costing has slightly different objectives from the
weighted-average method of process costing.
Answer:
Sanuk purchased on credit £20,000 worth of parts from a British company when the
exchange rate was $1.66 per British pound. At the year-end balance sheet date, the
exchange rate increased to $1.69. Sanuk must record a gain of $600.
Answer:
If insurance coverage for the next three years is paid for in advance, the amount of the
payment is debited to an asset account called Prepaid Insurance.
Answer:
Under a job order cost accounting system, individual jobs are always charged with
actual overhead costs when they are transferred to finished goods.
Answer:
Since goodwill is intangible, it is amortized each year using the straight-line method,
the same as other intangibles are amortized.
Answer:
Planning refers to defining an organization’s ideas, goals, and actions.
Answer:
In accrual accounting, accrued revenues are recorded as liabilities.
Answer:
Cost of goods sold represents the value of merchandise sold to customers.
Answer:
Partner return on equity can be used by each partner to help decide whether additional
investment or withdrawal of resources is best for that partner.
Answer:
Intangible assets are long-term resources that benefit business operations, usually lack
physical form, and have uncertain benefits.
Answer:
A partnership has an unlimited life.
Answer:
An out-of-pocket cost requires a future cash outlay and is relevant for decision making.
Answer:
Accounts are normally decreased by debits.
Answer:
A budget performance report that includes variances can have variances caused by both
price differences and quantity differences.
Answer:
The assignment of costs to cost of goods sold and inventory using weighted average
usually yields different results depending on whether a perpetual or periodic system is
used
Answer:
Job order manufacturing systems would be appropriate for companies that produce
training films for a specific customer.
Answer:
Accounting information processes are structured to eliminate the need for professional
judgment.
Answer:
To convert variable costing income to absorption costing income, management will
need to change the way fixed overhead costs are treated.
Answer:
Fill in the blanks (a) through (g) for the Hendricks Company for each of the income
statements for 2012, 2013, and 2014.
HENDRICKS COMPANY Income Statements For the Years Ended December 31
2012 2013 2014
Sales $7,500 $10,000 (f)
Cost of goods sold
Merchandise inventory (beginning) (a) 375 750
Total cost of merchandise purchases 2,400 3,625 4,875
Merchandise inventory (ending) (b) 750 625
Cost of goods sold 2,770 (d) 5,000
Gross profit (c) 6,750 5,200
Operating expenses 3,750 3,750 (g)
Net income $ 980 (e) $ 2,500
Answer:
Casco Co. planned to produce and sell 40,000 units. At that volume level, variable costs
are determined to be $320,000 and fixed costs are $30,000. The planned selling price is
$10 per unit. Casco actually produced and sold 42,000 units.
Required:
Using a contribution margin format:
a. Prepare a fixed budget income statement for the planned level of sales and
production.
b. Prepare a flexible budget income statement for the actual level of sales and
production.
c. Which budget should we use to compare to actual results and why?
Answer:
During 2013, Schmidt invested $75,000 and Baldwin invested $90,000 in a
partnership. They agreed that Baldwin would get a salary allowance of $30,000 and
they would share any remaining income or loss equally. During 2013 the partnership
earned net income of $300,000 and they each withdrew $12,000 from the partnership.
Which of the following statements is correct?
A. Schmidt Capital at the end of 2013 is $213,000.
B. Schmidt Capital at the end of 2013 is $210,000.
C. Baldwin Capital at the end of 2013 is $243,000.
D. Baldwin Capital at the end of 2013 is $255,000.
E. Total Capital at the end of 2013 has increased by $300,000.
Answer:
Shown below are selected data taken from the unadjusted and adjusted trial balances
for the Simonson Company for the current year ended December 31. Determine the
items A through H below.
Answer:
A company’s gross profit was $83,750 and its net sales were $347,800. Its gross margin
ratio equals:
A. 4.2%
B. 24.1%
C. 75.9%
D. $83,750
E. $264,050
Answer:
A company is considering the purchase of a new machine for $48,000. Management
predicts that the machine can produce sales of $16,000 each year for the next 10 years.
Expenses are expected to include direct materials, direct labor, and factory overhead
totaling $8,000 per year plus depreciation of $4,000 per year. The company’s tax rate is
40%. What is the payback period for the new machine?
A. 3.0 years
B. 6.0 years
C. 7.5 years
D. 12.0 years
E. 20.0 years
Answer:
A company had expenses other than cost of goods sold of $51,000. Determine sales
and gross profit given cost of goods sold was $25,000 and net income was $60,000.
A. Sales: $136,000; gross profit: $111,000
B. Sales: $136,000; gross profit: $85,000
C. Sales: $85,000; gross profit: $136,000
D. Sales: $111,000; gross profit: $136,000
E. Sales: $60,000; gross profit: $25,000
Answer:
Given Advanced Companys data, and the knowledge that the product is sold for $50 per
unit and operating expenses are $200,000, compute the net income under variable
costing.
A. $55,000
B. $67,500
C. $80,500
D. $122,500
E. $205,000
Answer:
Equity securities are:
A. Recorded at cost to acquire them plus accrued interest.
B. Recorded at cost to acquire them plus dividends earned.
C. Recorded at cost to acquire them.
D. Not recorded until dividends are received.
E. Not recorded until interest is received.
Answer:
Identify items (a), (b), and (c) in the cost-volume-profit chart shown below.
Answer:
A parcel of land is: offered for sale at $150,000, assessed for tax purposes at $95,000,
recognized by its purchasers as being worth $140,000, and purchased for $137,000. The
land should be recorded in the purchaser’s books at:
A. $95,000
B. $137,000
C. $138,500
D. $140,000
E. $150,000
Answer:
Landlubber Company established a standard direct materials cost of 5 gallons at $2 per
gallon for one unit of its product. During the past month, actual production was 6,500
units. The material quantity variance was $700 favorable and the material price
variance was $470 unfavorable. The entry to charge Goods in Process Inventory for the
standard material costs during the month and to record the direct material variances in
the accounts would include:
A. A credit to Goods in Process for $19,270.
B. A debit to Raw Materials for $19,500.
C. A debit to Direct Material Price Variance for $470.
D. A debit to Direct Material Quantity Variance for $700.
E. A credit to Goods in Process for $19,500.
Answer:
The matching principle requires:
A. That expenses be ignored if their effect on the financial statements are less important
than revenues to the financial statement user.
B. The use of the direct write-off method for bad debts.
C. The use of the allowance method of accounting for bad debts.
D. That bad debts be disclosed in the financial statements.
E. That bad debts not be written off.
Answer:
The Unadjusted Trial Balance columns of a work sheet total $84,000. The Adjustments
columns contain entries for the following:
Office supplies used during the period, $1,200.
Expiration of prepaid rent, $700.
Accrued salaries expense, $500.
Depreciation expense, $800.
Accrued service fees receivable, $400.
The Adjusted Trial Balance columns total is:
A. $80,400
B. $84,000
C. $85,700
D. $85,900
E. $87,600
Answer:
Employee vacation benefits:
A. Are estimated liabilities.
B. Are contingent liabilities.
C. Are recorded as an expense when the employee takes a vacation.
D. Are recorded as an expense when the employee retires.
E. Increase net income.
Answer:
IFRS tends to be more principles-based compared with GAAP, which is viewed as
more rules-based. Which of the following is a true statement about a principles-based
system?
A. A principles-based system eliminates the need for internal controls.
B. A principles-based system is significantly weaker than a rules-based system.
C. A principles-based system will eliminate all fraud.
D. A principles-based system is a way to calculate interest receivable or payable.
E. A principles-based system depends heavily on control procedures to reduce the
potential for fraud or misconduct.
Answer:
The understatement of the ending inventory balance causes:
A. Cost of goods sold to be overstated and net income to be understated.
B. Cost of goods sold to be overstated and net income to be overstated.
C. Cost of goods sold to be understated and net income to be understated.
D. Cost of goods sold to be understated and net income to be overstated.
E. Cost of goods sold to be overstated and net income to be correct.
Answer:
If beginning retained earnings was $184,300, the company distributed $46,000 in
dividends and ending retained earnings was $345,000, what was the net income for the
period?
A. $154,700
B. $206,700
C. $114,700
D. $575,300
E. $160,700
Answer:
A company has bonds outstanding with a par value of $600,000. The unamortized
discount on these bonds is $3,000. The company retired these bonds by buying them on
the open market at 98. What is the gain or loss on this retirement?
A. $0 gain or loss
B. $9,000 gain
C. $9,000 loss
D. $14,500 gain
E. $14,500 loss
Answer:
Which one of the following items is normally not a manufacturing cost?
A. Direct materials.
B. Factory overhead.
C. General and administrative expenses.
D. Direct labor.
E. Conversion cost.
Answer:
Duke Corporation reports the following components of stockholders equity on
December 31, 2013:
What is the amount in the Retained Earnings account immediately after the May 25
sale?
A. $460,000
B. $328,500
C. $444,000
D. $433,000
E. $338,500
Answer:
Based on predicted production of 22,000 units, a company anticipates $15,000 of fixed
costs and $27,500 of variable costs. The flexible budget amounts of fixed and variable
costs for 16,000 units are:
A. $10,910 fixed and $20,000 variable.
B. $10,910 fixed and $27,500 variable.
C. $20,000 fixed and $15,000 variable.
D. $15,000 fixed and $20,000 variable.
E. $15,000 fixed and $27,500 variable.
Answer:
Reference: 18_03
A company’s product sells at $12 per unit and has a $5 per unit variable cost. The
company’s total fixed costs are $98,000.
The contribution margin per unit is:
A. $5.00
B. $7.00
C. $8.17
D. $12.00
E. $17.00
Answer:
Which of the following pair of journal entries correctly records the current months
activity where $125,000 of raw material was purchased for cash, and $75,000 of direct
material and $30,000 of indirect materials were used in the production process?
A. Cash 125,000
Raw Materials Inventory
125,000
Raw Materials Inventory 105,000
Goods in Process Inventory
75,000
Factory Overhead
30,000
B. Raw Materials Inventory 125,000
Cash
125,000
Goods in Process Inventory 75,000
Factory Overhead 30,000
Raw Materials Inventory
105,000
C. Raw Materials Inventory 125,000
Cash
125,000
Raw Materials Inventory 105,000
Goods in Process Inventory
75,000
Factory Overhead
30,000
D. Cash 125,000
Raw Materials Inventory
125,000
Goods in Process Inventory 75,000
Factory Overhead 30,000
Raw Materials Inventory
105,000
E. Raw Materials Inventory 125,000
Cash
125,000
Goods in Process Inventory 125,000
Raw Materials Inventory
125,000
Answer:
In business decision-making, managers typically examine the two fundamental factors
of:
A. Risk and capital investment.
B. Risk and rate of return.
C. Capital investment and rate of return.
D. Risk and payback.
E. Payback and rate of return.
Answer:
A company has already incurred a $15,000 cost in partially producing its three products.
Their selling prices when partially and fully processed are shown in the following table
with the additional costs necessary to finish their processing. Based on this information,
should any products be processed further?
A. All of these products should be processed further.
B. None of these products should be processed further.
C. Only product A should be processed further.
D. Only product B should be processed further.
E. Only product C should be processed further.
Answer:
The following information describes a product expected to be produced and sold by
Hadley Company:
Required:
a. Calculate the contribution margin ratio.
b. Calculate the break-even point in dollar sales.
c. What dollar amount of sales would be necessary to achieve a pretax income of
$120,000?
Answer:
Allocating joint costs to products can be based on their relative:
A. Market values
B. Direct costs
C. Gross margins
D. Total costs
E. Variable costs
Answer:
Baker Company’s sales mix is 3 units of A, 2 units of B, and 1 unit of C. Selling prices
for each product are $20, $30, and $40, respectively. Variable costs per unit are $12,
$18, and $24, respectively. Fixed costs are $320,000. What is the break-even point in
composite units?
A. 1,111
B. 1,600
C. 2,666
D. 4,000
E. 5,000
Answer:
In comparing the canceled checks on the bank statement with the entries in the
accounting records, it is found that check number 2889 for December’s utilities was
correctly written and drawn for $790 but was erroneously entered in the accounting
records as $970. The journal entry to adjust the books for the bank reconciliation would
include which of the following for this situation?
A. $180 decrease to Cash and a $180 decrease to Utility Expense.
B. $180 increase to Cash and a $180 decrease to Utility Expense.
C. $20 decrease to Cash and a $20 decrease to Utility Expense.
D. $20 increase to Cash and a $120 decrease to Utility Expense.
E. $970 increase to Cash.
Answer:
You are reviewing the accounting records of Cathy’s Antiques, Inc. owned by Cathy
Miller. You have uncovered the following situations. Compose a memo to Ms. Miller
that cites the appropriate accounting principle and the suggested action for each
separate situation.
A. In August, a check for $500 was written to Wee Day Care Center. This amount
represents child care for her son Brandon.
B. Cathy plans a Going Out of Business Sale for May, since she will be closing her
business for a month-long vacation in June. She plans to reopen July 1 and will
continue operating Cathy’s Antiques indefinitely.
C. Cathy received a shipment of pine furniture from Quebec, Canada. The invoice was
stated in Canadian dollars.
D. Joseph Clark paid $1,500 for a dining table. The amount was recorded as revenue.
The table will be delivered to Mr. Clark in six weeks.
Answer:
Explain how to record the sale of trading securities.
Answer:
A company recorded two days of accrued salaries of $1,400 for its employees on
January 31. On February 9, it paid its employees for these accrued salaries and for other
salaries earned through February 9. The January 31 and February 9 journal entries are:
A
B.
C.
D.
E.
Answer:
Based on the following income statement and balance sheet for Montego Bay
Corporation, determine the cash flows from operating activities using the direct method.
Answer:
What is a cash budget? How can management use a cash budget?
Answer:
A company reported net cash provided by operating activities of $131.4 million. Assets
totaled $2,197.7 million at the beginning of the year and $2,040.0 million at the end of
the year. Calculate this companys cash flow on total assets ratio.
Answer:
What is a profit center?
Answer:
___________________________ is a statistical method of identifying an estimated line
of cost behavior.
Answer:
List the steps required to prepare a departmental income statement.
Answer:
Tecom had net sales of $315,000 and average accounts receivable of $75,600. Its
competitor, ZCom, had net sales of $299,000 and average accounts receivables of
$81,350. Calculate the accounts receivable turnover for both companies. Which
company is doing a better job of managing its accounts receivables?
Answer:
An interest rate is also called a discount rate.
Answer:
The difference between the actual sales and the flexible budget sales is called the
______________________ variance.
Answer:
When purchase costs regularly rise, the ___________________ method of inventory
valuation yields the highest gross profit and net income.
Answer:
As a long-term investment, Elmer’s Equipment Enterprise purchased 35% of Sticky
Supplies Inc.’s 300,000 shares for $350,000 at the beginning of the fiscal year of both
companies. On the purchase date, the fair value and book value of Stickys net assets
were equal. During the year, Stickys earned net income of $430,000 and distributed
cash dividends of 0.42 cents per share. The fair value of Stickys assets at the end of the
year totaled $349,450. What is Elmers balance for this investment at the end of the
year?
Answer:
The issue price of bonds is found by computing the present value of the bond’s cash
payments, discounted at the _______________ rate of interest at the time of issuance.
Answer:
A company paid a cash dividend of $0.44 per share during the current year and
reported 18,000 shares of common stock issued and 2,000 common shares in treasury
stock during the current year. The year-end market price per share was $27.50.
Calculate the following: (1) total amount of cash dividends paid to common
shareholders and (2) dividend yield.
Answer:
Product costs consist of direct labor, direct materials, and _________________.
Answer: