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In selecting machine usage as the primary cost driver for the Production Department,
management feels that there is a direct relationship between the number of machine
hours used and the amount of overhead costs incurred.
The current ratio is calculated as total current assets divided by total current liabilities.
When a seller grants a sales allowance, the customer does not return any goods to the
seller.
In variable costing, all fixed manufacturing overhead costs are expensed in the period
incurred.
Revenue and expense accounts are closed to the Income Summary account.
The production cost report for Department 1 shows that $154,000 was assigned to the
36,000 units transferred to Department 2. This transfer cost assigned to units transferred
to Department 2 is recorded with a debit to Work-in-Process—Department 2.
Source documents provide the evidence and data for accounting transactions.
Unlike the sales journal, entries in the cash receipts journal are posted monthly to the
accounts receivable subsidiary ledger and daily to the general ledger.
FICA tax is a tax that is paid both by the employer and the employee.
Generally accepted accounting principles require that interest expense be measured
using the straight-line amortization method.
Discounted cash flow methods incorporate compound interest by assuming that
companies will reinvest future cash flows when they are received.
The income from continuing operations helps investors make predictions about the
company's past performance.
Premium on Bonds Payable is additional Interest Expense of the company that issues
the bond.
When using the effective-interest amortization method, the amount of the interest
expense is calculated using the carrying value of the bonds and the market interest rate.
Installment payments for mortgages generally contain both an amount for principal
repayment and an amount for interest.
In the case of deferred revenue, the adjusting entry at the end of the period includes a
debit to Service Revenue. Assume the deferred revenue is initially recorded as a
liability.
Companies conduct time-and-motion studies and use benchmarks from other companies
when developing standards.
Adjusting entries either credit a revenue account or debit an expense account.
The direct write-off method of accounting for uncollectible receivables is primarily
used by small, nonpublic companies.
When a bond is issued, the issue price is the present value of the interest payments the
bondholder will receive while holding the bond plus the present value of the bond
principal that will be received at maturity.
The statement of stockholders' equity has less information than the statement of
retained earnings.
Fixed costs per unit is inversely proportional to the volume of units produced.
One of the advantages of decentralization is that it allows top management to
concentrate on long-term strategic planning.
In most organizations, managers are often rewarded based on how well they meet the
budget.
The Finished Goods Inventory account must be considered when calculating the
amount of materials to be purchased.
In a production cost report, the number of units to account for must always be greater
than the number of units accounted for.
The entry to accrue the warranty payable includes a credit to Warranty Expense.
A profit center performance report includes both revenues and expenses.
Differential analysis is a method that looks at how operating income would differ under
each budget scenario.
Managers should look at any variance that is significant.
The sales mix provides the weights that make up total product sales.
The declaration of a stock dividend creates a liability for the corporation.
In the first step in developing an activity-based costing system, the management team
must think about how each activity for a product or service might be improved or
whether is it necessary at all.
Fixed overhead volume variance is a flexible budget variance.
The system of accounting in which every transaction affects at least two accounts is
called the double-entry system.
Budgeted financial statements are financial statements based on budgeted amounts
rather than actual amounts.
A responsibility accounting system evaluates the performance of each responsibility
center and its manager.
Net income is entered as the balancing amount on the debit side of the income
statement columns and the credit side of the balance sheet columns of the worksheet.
A wholesaler is a merchandiser who buys merchandise from a manufacturer and sells
the same to a retailer.
Venlite, Inc. produces and sells cosmetic products. Currently, the company is operating
at 70% of its capacity. The sales price of its product is $30 per unit, and it incurs a full
cost of $25 to produce each unit. Its yearly fixed manufacturing overhead amounts to
$20,000. The company has received a one-time order for supplying 5,000 units at $26
per unit. This order can be executed within the excess production capacity and will not
involve any additional costs. To make this decision, the management of Venlite should
use ________.
A) absorption costing as the decision is long-term in nature
B) variable costing as the decision is short-term in nature
C) absorption costing as the decision is short-term in nature
D) variable costing as the decision is long-term in nature
Lake Country Promotional Services uses a job order system for costing and billing
promotional services for dance and ballet performances. Lake Country has four public
relations specialists plus an office staff. At the beginning of the year, Lake Country
estimated the total cost of salaries and benefits for the public relations specialists at
$672,000 and a total of 7,000 billable hours for the year. The office and administrative
costs were estimated at $406,000. The allocation base for office and administrative
costs is billable hours. In June, Lake Country signed a contract for a Russian ballet
performance. It negotiated a price of $6,500 for its services. When the job was
complete, Lake Country's records showed that it had logged 38.0 billable hours. What
was the amount of gross profit that Lake Country made on the job?
A) $6,500
B) $3,648
C) $648
D) $2,204
The Assembling Department of Oberon, Inc. had 11,000 units in process on December
1 and received 30,400 units from the Sewing Department. During the month, it
completed 20,700 units and transferred them to the Packaging Department. Calculate
the number of units accounted for by the Assembling Department for December. The
company uses the FIFO method.
A) 20,700 units
B) 41,400 units
C) 11,000 units
D) 30,400 units
Which of the following is an example of appraisal costs?
A) employee training cost
B) product testing cost
C) warranty costs
D) equipment maintenance costs
Dean Art is a new business. During its first year of operations, credit sales were
$41,000 and collections of credit sales were $38,000. One account, $725, was written
off. Management uses the aging-of-receivables method to account for bad debts
expense and estimated $525 as uncollectible at year end. The ending balance of the
Allowance for Bad Debts is ________.
A) $505
B) $1,230
C) $1,250
D) $525
An unfavorable flexible budget variance in operating income might be due to a(n)
________.
A) increase in sales price per unit
B) decrease in sales volume
C) increase in variable cost per unit
D) decrease in fixed costs
Which of the following entries would be made to record the purchase of inventory on
account, if a company uses the perpetual inventory system?
A) a debit to Purchases and a credit to Accounts Payable
B) a debit to Accounts Payable and a credit to Purchases
C) a debit to Merchandise Inventory and a credit to Accounts Payable
D) a debit to Accounts Payable and a credit to Merchandise Inventory
The following transactions have been journalized and posted to the proper accounts.
Prepare a trial balance at the end of the first month using the following details:
a) Received $15,000 cash and issued common stock.
b) Paid the first month's rent with $800 cash.
c) Purchased equipment by paying $4,000 cash and executing a note payable for
$4,000.
d) Purchased office supplies for $200 cash. The supplies remain at the end of the month.
e) Billed clients for a total of $7,000 for design services rendered.
f) Received $1,000 cash from clients for services rendered above.
Which of the following statements regarding the capital expenditures budget is correct?
A) Installment payments related to the purchase of long-term assets are included in the
capital expenditures budget.
B) Capital expenditures are purchases of long-term assets, such as office supplies.
C) The decision to purchase long-term assets is part of a strategic plan.
D) Capital expenditures are inexpensive assets.
On January 1, 2016, Alldredge Company purchased equipment and signed a six-year
mortgage note for $186,000 at 15%. The note will be paid in equal annual installments
of $49,148, beginning January 1, 2017. Calculate the portion of interest expense paid on
the third installment. (Round your answer to the nearest whole number.)
A) $49,148
B) $21,048
C) $27,900
D) $164,752
Ocean Auto Parts Company uses the direct method to prepare its statement of cash
flows. Refer to the following information reported for 2017:
1. Sales Revenue, $520,000
2. Accounts Receivable, beginning balance, $99,000
3. Accounts Receivable, ending balance, $62,000
Compute the collections from customers.
A) $557,000
B) $458,000
C) $161,000
D) $359,000
Which of the following describes the operating activities section of the statement of
cash flows?
A) It reports cash receipts and cash payments that increase or decrease long-term assets.
B) It includes cash inflows and outflows involved in long-term liabilities and equity.
C) It reports on activities that create revenue or expenses for the entity's business.
D) It reports on how cash flows affect the total assets and total liabilities.
Which of the following is true of assets?
A) Assets include cash, merchandise inventory, and accounts payable.
B) Assets are something of value the business owns or controls.
C) Assets do not need to provide future benefit to the business.
D) Assets can be recorded at the expected cost if acquired at a bargain.
Goods that have been started in the manufacturing process but are not yet complete are
included in the ________.
A) Finished Goods Inventory account
B) Work-in-Process Inventory account
C) Raw Materials Inventory account
D) Cost of Goods Sold account
Costs assigned to goods sold are transferred to the Cost of Goods Sold account from the
________.
A) Finished Goods Inventory account
B) Work-in-Process Inventory account
C) Raw Materials Inventory account
D) Sales Revenue account
Lewis Marine Company manufactures special metallic materials and decorative fittings
for luxury yachts that require highly skilled labor. Lewis uses standard costs to prepare
its flexible budget. For the first quarter of the year, direct materials and direct labor
standards for one of their popular products were as follows:
Direct materials: 4 pounds per unit; $6 per pound
Direct labor: 4 hours per unit; $17 per hour
During the first quarter, Lewis produced 4,000 units of this product. Actual direct
materials and direct labor costs were $66,000 and $328,000, respectively.
For the purpose of preparing the flexible budget, what is the total standard direct labor
cost at a production volume of 4,000 units?
A) $68,000
B) $66,000
C) $272,000
D) $328,000
Which of the following would be considered a product cost for a manufacturing
company?
A) depreciation on delivery vehicles
B) depreciation on administrative building furniture and fixtures
C) depreciation on manufacturing equipment
D) depreciation on the accounting department's computer equipment
The matching principle states that ________.
A) financial statements can be prepared for specific periods
B) a business's activities can be sliced into small time segments
C) all expenses should be recorded when they are incurred during the period
D) companies should record revenue when it has been earned
Which of the following statements is true of costing systems?
A) A process costing system would be used by manufacturers of custom-made
perfumes.
B) A job order costing system would be used by manufacturers of baking utensils.
C) A construction company would likely use a process costing system.
D) An accounting firm would likely use a job order costing system.
If bonds with a face value of $205,000 are issued at 110, the amount of cash proceeds is
________.
A) $225,390
B) $205,000
C) $186,364
D) $225,500
A check was written by a business for $507 but was recorded in the journal as $705.
How would this error be included on the bank reconciliation?
A) a deduction on the bank side
B) an addition on the book side
C) an addition on the bank side
D) a deduction on the book side
A business makes a payment in cash for advertising expense. Which of the following
accounts is debited?
A) Cash
B) Accounts Payable
C) Accounts Receivable
D) Advertising Expense
Amoeba Manufacturing, Inc. provided the following information for the year:
The inventory account balances as of January 1 are given below.
What is the ending balance in the Raw Materials Inventory account?
A) $135,000
B) $6,000
C) $110,240
D) $24,760
When a previously declared dividend is paid, which of the following occurs?
A) assets increase
B) stockholders' equity increases
C) liabilities decrease
D) assets remain unchanged
Which of the following is most likely a service company?
A) a law firm
B) a car dealership
C) a grocery store
D) a bakery
The Salaries Payable account is a(n) ________.
A) liability account with a normal debit balance
B) asset account with a normal debit balance
C) liability account with a normal credit balance
D) asset account with a normal credit balance
Kyanite Corporation, a manufacturer, reports costs for the year as follows:
How much is the total period costs for Kyanite?
A) $735,000
B) $510,000
C) $26,000
D) $700,000
Cash purchases are generally recorded in the ________.
A) sales journal
B) cash receipts journal
C) cash payments journal
D) purchases journal
Caterpillars, Inc., a manufacturing company, acquired equipment on January 1, 2014 for
$600,000. Estimated useful life of the equipment was seven years and the estimated
residual value was $18,000. On January 1, 2017, after using the equipment for three
years, the total estimated useful life has been revised to nine total years. Residual value
remains unchanged. The company uses the straight-line method of depreciation.
Calculate depreciation expense for 2017. (Round any intermediate calculations to two
decimal places, and your final answer to the nearest dollar.)
A) $57,143
B) $55,429
C) $66,667
D) $64,667
Crystal Company, a manufacturer of office supplies, provides the following financial
information:
Calculate the return on investment for the Pencil Division. (Round your answer to two
decimal places.)
A) 17.24%
B) 15.09%
C) 15.69%
D) 14.55%
A business repays the amount borrowed on a note with cash. Which of the following
accounts is debited?
A) Cash
B) Accounts Payable
C) Notes Payable
D) Notes Receivable
A business makes a cash payment to a supplier on account for office supplies that were
purchased earlier. Which of the following accounts is credited?
A) Cash
B) Accounts Payable
C) Office Supplies
D) Utilities Expense
When the total variable costs are deducted from total mixed costs, we obtain ________.
A) mixed cost per unit
B) variable cost per unit
C) total high-low costs
D) total fixed costs
Pluto Hand Blenders Company sold 3,000 units in October at a sales price of $45 per
unit. The variable cost is $25 per unit. Calculate the total contribution margin.
A) $135,000
B) $60,000
C) $75,000
D) $37,500
What does free cash flow represent? How is it used to evaluate business performance?
If net cash inflows are unequal, how is the payback period (in years) of an investment is
calculated?
For decisions that affect analyzing profitability, consider the following decision focus.
State the appropriate costing method and the reason for your answer.
A truck was acquired for $100,000 and has accumulated depreciation of $70,000. The
business exchanges the truck for a new one. The new truck has a market value of
$120,000 and the business pays $100,000 cash. Assume the exchange has commercial
substance. Prepare the journal entry to record this transaction.
What is cost of goods sold? Describe the flow of this cost through the job order costing
system. Your answer should include the accounts involved and whether the flow
involves a debit or credit.
On January 1, 2017, Door #2 Services issued $20,000 of 8% bonds that mature in five
years. They were issued at par. The bonds pay semiannual interest payments on June 30
and December 31 of each year. Provide the journal entry for the payment made on June
30, 2017.
On January 1, 2017, NOLA Services issued $20,000 of 8% bonds that mature in five
years. The bonds were issued for $20,750. Prepare the journal entry to issue bonds.
Define cost-based transfer price. When should cost-based transfer pricing be used?
Explain your answer.
Norman Manufacturing reports the following data for the month:
Journalize the entries relating to materials and labor. Omit explanations.
Sunrays, Inc. wrote off the account of one of its customers, Brad Doe, in 2016 for $500.
On January 21, 2017, Brad unexpectedly repaid his account in full. The company uses
the direct write-off method to account for uncollectible receivables. Journalize the
entries required for Sunrays, Inc. on January 21, 2017.
If a business operates in an industry that does not experience significant cost changes,
should the business prepare its production cost report using the FIFO method or the
weighted-average method? Explain your answer.
Gideon Electronics paid $200,000 to acquire Tabletz, Inc., an electronic
gadget-advertising website. At the time of the acquisition, Tabletz's balance sheet
reported total assets of $200,000 and liabilities of $100,000. The fair market value of
Tabletz's assets was $200,000. The fair market value of its liabilities was $100,000.
Journalize the acquisition of Tabletz in the books of Gideon Electronics.
Why is it necessary to journalize transactions from the bank reconciliation? List two
examples of items that need to be journalized.
On September 1, 2017, Neighborhood, Inc. borrowed $125,000 by signing a
nine-month, 7.2% note payable. Prepare the journal entry to accrue interest expense on
December 31, 2016.
Dreams Manufacturing, Inc. provided the following information for the year:
Required: Prepare a statement of the cost of goods manufactured using the following
format:
Schedule of Cost of Goods Manufactured
What does the fixed overhead volume variance measure?
Prepare an income statement and a statement of retained earnings for the month of May.
Also, prepare a balance sheet as of May 31, 2017, for McGuire Corporation. The
financial transactions of McGuire Corporation for the month of May, their first month
of operations, are as follows:
• On May 1, 2017, McGuire Corporation issued common stock in exchange for $20,000
cash from a stockholder, Deborah Merchant.
• On May 3, the corporation borrowed $5,000 from a creditor and executed a note
payable with the principal and interest to be due in one year.
• On May 7, the corporation purchased $15,000 of equipment for cash.
• On May 8, McGuire Corporation rendered service to a client and earned $3,000 in
cash.
• On May 12, the corporation incurred a repair expense of $1,800 and promised to pay
the repair contractor the following month.
• On May 18, the corporation rendered service to a new client in the amount of $8,000
on account, as the client promised to pay the following month.
• At the end of May, McGuire Corporation distributed cash dividends of $1,500.
A business purchases a building for $250,000. The current market value is $375,000.
The assessment value is $325,000. What value should the building be recorded at, and
which accounting principle supports your answer?
A customer of Mason Manufacturing has requested a one-time order at a reduced sales
price. Before making the special pricing decision, what are three questions that
management of Mason Manufacturing must consider?
Suminski Flooring Company buys a building for $115,000, paying $30,000 cash and
signing a 30-year mortgage note for $85,000 at 11% annual interest. The payment will
be made in equal monthly installments of $809. Prepare the journal entry for the first
monthly payment. (Round your answers to the nearest whole dollar number.)
