A production cost report provides inventory and cost of goods sold data that are needed
for the balance sheet.
A current ratio that has increased from the prior period indicates an improvement in the
company’s ability to pay its current debts.
A creditor is a person who owes money to the business.
In making product mix decisions, when fixed costs are irrelevant, a company should
emphasize the product with the highest contribution margin per unit of the constraint.
The cash balance in a company’s general ledger and the bank’s balance on the bank
statement will always be the same.
Outside investors would ordinarily use managerial accounting information to decide
whether or not to invest in a business.
Small and large stock dividends have no effect on the Common Stock account.
An investment center manager is responsible for generating profits and managing
invested capital.
A deposit ticket is a document that instructs a bank to pay the designated person a
specified amount of money.
Fixed costs divided by the contribution margin ratio equals the breakeven point in sales
dollars.
No journal entry is made on the dividend declaration date.
An annuity is a series of unequal payments over equal intervals.
Sales through credit cards or debit cards transfer the risk of collection of receivables
from the seller to the card issuer.
Before signing a check, the controller or the treasurer should examine the purchase
order, the invoice, and the receiving report to determine that the company received the
goods and that the company is paying only for the goods received.
To accurately determine the financial performance of a company, it is necessary to
compare its performance from year to year, with a competing company, and with the
same industry as a whole.
Cost amounts that are transferred out of one department become the transferred in cost
for the next department.
The declaration of a cash dividend does not create an obligation for the corporation.
Special pricing orders increase operating income if the special price exceeds the
differential costs of filling the special order.
Direct materials and direct labor are prime costs.
The Accounting Rate of Return method evaluates the lifetime return of an investment,
whereas Return on Investment evaluates the annual return of an investment.
Free cash flow is the amount of cash available from operating activities before paying
for planned investments in long-term assets.
Depreciation is the allocation of a plant asset’s cost to expense over its useful life.
The horizontal analysis of the balance sheet shows the changes in net sales and net
income.
The capital expenditures budget represents the company’s plan for purchasing the
long-term assets.
The actual direct labor costs are assigned to individual jobs, and the actual direct labor
cost is recorded with a debit to Work-in-Process Inventory.
Debt is a less expensive source of capital than stock.
Cash inflows include future cash revenue generated from an investment and any future
residual value of the asset but exclude any future savings in ongoing cash operating
costs resulting from the investment.
A static budget is a financial plan for only one level of sales volume.
Assuming that costs are changing during the accounting period, under the last-in,
first-out inventory costing method, the amount of cost of goods sold calculated using
the perpetual inventory system will usually differ from the amount calculated using the
periodic. inventory system.
A job order costing system is used by companies that manufacture batches of unique
products or provide specialized services.
In service companies, variable costing can be used for profitability analysis and
contribution margin analysis.
The last step in the preparation of the master budget is the budgeted income statement.
Contribution margin is the amount that contributes to covering variable costs.
All items on the book side of the bank reconciliation require journal entries.
Journal entries are required if the bank reconciliation includes a book error.
The payee is the issuer of a check.
Sensitivity analysis empowers managers with better information for decision making by
analyzing how various business strategies will affect profits earned by the company.
To compute the variable overhead cost variance, first compute the difference between
actual cost and standard cost. Then, multiple this difference by standard quantity.
On a bank reconciliation, deposits in transit are added on the bank side of the
reconciliation.
The budgeted income statement________.
A) reports cash paid for purchases of direct materials
B) includes amounts from the sales, cost of goods sold, cash, and capital expenditures
budgets
C) is accrual-based
D) does not include depreciation expense
Preferred stock is stock ________.
A) that sells for a high price
B) that is distributed to employees as annual bonuses
C) that is distributed by corporations to avoid liquidation
D) that gives its owners certain advantages over common stockholders
Castle, Inc. had the following transactions in 2017, its first year of operations:
• Issued 20,000 shares of common stock. The stock has a par value of $3.00 per share
and was issued at $19.00 per share.
• Issued 2,000 shares of $200 par value preferred stock at par.
• Earned net income of $40,000.
• Paid no dividends.
At the end of 2017, what is the total amount of paid-in capital?
A) $820,000
B) $460,000
C) $380,000
D) $780,000
Lush Lawns Corporation earned $1,000 for lawn mowing services rendered. The
customer promised to pay at a later time. Which of the following accounts increased as
a result of this transaction?
A) Accounts Payable
B) Supplies
C) Cash
D) Accounts Receivable
At the beginning of 2017, Delicious Drinks, Inc. has the following account balances:
Accounts Receivable $44,000 (debit balance)
Allowance for Bad Debts $6,000 (credit balance)
Bad Debts Expense $0
During the year, credit sales amounted to $800,000. Cash collected on credit sales
amounted to $760,000, and $18,000 has been written off. At the end of the year, the
company adjusted for bad debts expense using the percent-of-sales method and applied
a rate, based on past history, of 3.5%. The ending balance of Accounts Receivable is
________.
A) $44,000
B) $66,000
C) $56,140
D) $18,000
A profit center responsibility report ________.
A) should not include costs for which the profit center manager is not accountable
B) does not include revenues since that information only appears on the revenue center
responsibility report
C) includes traceable fixed expenses
D) is the same as a performance report
If a bond’s stated interest rate is lower than the market rate, which of the following is
true?
A) The bond will be issued at a premium.
B) The bond will be issued at par.
C) The bond will be issued at a discount.
D) The bond will be issued for an amount higher than the maturity value.
The Gain on Disposal of Trading Securities is reported in the ________.
A) other revenues and expenses section of the income statement
B) stockholders’ equity section of the income statement
C) current assets section of the balance sheet
D) fixed assets section of the balance sheet
Which of the following is an example of the coordination and communication function
of the budgeting process?
A) A budget demands integrated input from different business units and functions.
B) Employees are motivated to achieve the goals set by the budget.
C) Each department acts independently because the department manager will be
evaluated on actual departmental results.
D) A budget adjustment in one department will have no effect on other departments.
On September 30, the Drying Department of Green Tea, Inc. had Work-in-Process
Inventory that was 28% complete for materials and 23% complete for conversion costs.
This means that for the ending Work-in-Process inventory, ________% of materials and
________% of the conversion costs were added during September.
A) 77; 72
B) 72; 77
C) 23; 28
D) 28; 23
The activities that are included in the operating activities section of the statement of
cash flows are ________.
A) activities that involve stockholders’ equity
B) activities that create revenue or expenses
C) activities that increase or decrease long-term assets
D) activities that pertain to construction of new facilities
Which of the following statements is true of the corporate form of business?
A) The board of directors sets policy for the corporation and appoints the officers.
B) Changes in the ownership of stock has a negative effect on the continuity of the
corporation.
C) Any stockholder may commit the corporation to a contract.
D) It is easy for stockholders to lodge an effective protest against management.
Under the equity method, dividend revenue is treated as ________.
A) a debit to revenue from investments
B) dividend revenue
C) a return of capital
D) a credit to current assets
Assets are listed in the order of their ________ on the balance sheet.
A) magnitude
B) dates of purchase
C) liquidity
D) durability
Uniq Works purchased raw materials amounting to $126,000 on account and $16,000
for cash. The materials will be used to manufacture upholstery for furniture
manufacturers on a contract basis. Which of the following journal entries correctly
records this transaction?
A)
B)
C)
D)
Which of the following is the correct formula for calculating residual income?
A) Weighted average cost of capital – Net operating profit after tax
B) Operating income – Minimum acceptable operating income
C) Historical cost of assets – Accumulated depreciation
D) Operating income / Average assets
If there is an unrealized holding gain on available-for-sale investments, it is reported
________.
A) as an adjustment to stockholders’ equity on the balance sheet
B) as a debit to the long-term assets
C) as a separate line item on the income statement
D) as a credit to the short-term assets
Home Industries is considering replacing a machine that is presently used in its
production process. Which of the following amounts represents a sunk cost?
A) $55,000
B) $33,000
C) $9,000
D) $45,000
Pan Services, Inc. owns 32% of voting stock of Grey Investments, Inc. During the year
2017, Grey Investments, Inc. earned profits of $320,000. Under the equity method,
which of the following journal entries will Pan Services record?
A)
B)
C)
D)
The field of accounting that focuses on providing information for internal decision
makers is ________.
A) managerial accounting
B) financial accounting
C) nonmonetary accounting
D) governmental accounting
St. Petersburg Corporation makes a $1,200 purchase of merchandise inventory for cash.
This transaction will be recorded in the ________.
A) cash payments journal
B) general journal
C) cash receipts journal
D) purchase journal
Peterson Enterprises manufactures picture frames. Its production operations are divided
into two departments — Assembly and Finishing. The company uses a process costing
system. Peterson incurred the following costs during the year to produce 6,000 picture
frames:
If Peterson can only sell 5,100 picture frames during the year, what will be the cost per
unit of the picture frames produced? (Round your answer to the nearest cent.)
A) $2.34
B) $1.99
C) $1.62
D) $1.90
Underallocated overhead occurs when ________.
A) allocated overhead costs are less than actual overhead costs
B) actual overhead costs are less than allocated overhead costs
C) estimated overhead costs are greater than budgeted overhead costs
D) estimated overhead costs are greater than actual overhead costs
The total assets and the total liabilities of Smart Financial Services are shown below.
The company issued no common stock and paid no dividends during the year.
What was the amount of net income for the year?
A) $50,000
B) $30,000
C) $20,000
D) $80,000
Downs Tax Planning Service bought communications equipment for $9,600 on January
1, 2017. It has an estimated useful life of five years and zero residual value. Downs uses
the straight-line method to calculate depreciation and records depreciation expense in
the books at the end of every month. As of June 30, 2017, the balance in the
Accumulated Depreciation account for this equipment is ________.
A) $160
B) $1,920
C) $800
D) $960
Which of the following is a reason why a job order costing system is appropriate for a
custom furniture manufacturer?
A) The cost incurred for each job will differ as per the order specifications.
B) The direct costs incurred for each job are the same, only indirect costs vary.
C) The raw materials used have already been accounted for using process costing.
D) Custom furniture manufacturers produce large quantities of similar products.
Which of the following transactions is recorded by selecting the “Receive payment”
action of QuickBooks?
A) making electricity bill payments
B) selling merchandise inventory on account
C) selling products for cash
D) paying interest to bondholders
Brown, Inc. owed one of its creditors $350,000, but it did not have enough cash to
repay the debt. Following lengthy negotiations, the parties agreed that Brown, Inc.
would issue 50,000 shares of common stock to settle the debt. On the statement of cash
flows, this transaction is shown in the ________.
A) investing activities section
B) financing activities section
C) operating activities section
D) non-cash investing and financing activities section
Which of the following accounts will be credited by the borrower when a promissory
note is issued?
A) Note Payable
B) Note Receivable
C) Interest Payable
D) Cash
On June 30, 2017, Texas, Inc. showed the following data on the equity section of their
balance sheet:
On July 1, 2017, the company declared and distributed a 11% stock dividend. The market
value of the stock at that time was $20 per share. As a result of this stock dividend, what is
the balance of Retained Earnings?
A) $770,580
B) $951,000
C) $981,780
D) $621,200
The vertical analysis statement of Peterson, Inc. is as shown below:
Peterson, Inc.
Comparative Income Statement
Years Ended December 31, 2017 and 2016
The 20% shown for net income in 2017 signifies that net income ________.
A) is 20% of net sales revenues
B) increased by 20% over the previous year
C) is 20% of gross profit
D) equals 20 times of the income before income tax
Provide an explanation for each of the follow liability accounts.
What does the variable overhead efficiency variance measure?
Powderhouse, Inc. has two processes—Coloring Department and Mixing Department.
The company sold 2,000 gallons of paint for $220,000, of which $150,000 was sold on
account. The total cost of processing was $385,000 for 5,500 gallons of paint. What are
the journal entries to record a sale if the company follows a process costing system?
Martell, Inc. purchased inventory on account for $6,500. Provide the journal entry to
record the purchase of inventory on account. (Assume a perpetual inventory system.)
Stephen Company provides cleaning services for residential and commercial customers.
Following are data for the month of June:
For each type of customer, determine both the contribution margin per customer and the
contribution margin ratio. Round to two decimal places. Show your computations. What
type of service is more profitable?
Define extraordinary items. Describe the types of items that would be reported in the
extraordinary items section of the income statement.
Patrick Manufacturing Systems uses job order costing and a perpetual inventory
system. When recording the sale of a job, which account(s) is(are) credited?
Define variance. What is the difference between a favorable and an unfavorable
variance?
Journalize the following purchase transactions for Schaeffer Office Supplies using the
periodic inventory system. Explanations are not required.
Define period cost. Give three examples of period costs of a merchandising company.
Brio Motors Company produces a part that is used in the manufacture of one of its
products. The unit manufacturing costs of this part, assuming a production level of
6,000 units, are as follows:
Direct materials $5
Direct labor (variable cost) 6
Variable manufacturing overhead 3
Fixed manufacturing overhead 4
Total cost $18
Finn Motors Company has offered to sell 6,000 units of the same part to Brio for $17.50
per unit. Assuming the company has no other use for its facilities and that the fixed
manufacturing costs are unavoidable, what should Brio do?
Supermart, Inc. completed the following treasury stock transactions in 2016:
Mar. 3 Purchased 1,800 shares of the company’s $ 3 par value common stock as
treasury stock, paying cash of $ 10 per share.
Mar. 17 Sold 400 shares of the treasury stock for cash of $ 12 per share.
Mar. 25 Sold 600 shares of the treasury stock for cash of $ 7 per share.
(Assume the balance in Paid-In Capital from Treasury Stock Transactions on March 24
is $ 1,200.)
Journalize these transactions. Explanations are not required.
How will Supermart, Inc. report treasury stock on its balance sheet as of December 31,
2016?
Provide answers to the following just-in-time costing questions.
If the likelihood of a future event is probable and the amounts of the expense cannot be
estimated, how should the company report the contingency?
Rightz Petroleum Products owns furniture that was purchased for $20,000.
Accumulated depreciation is $16,000. The furniture was sold for $3,800. Prepare the
journal entry to record this transaction.
In order to expand its business, the management of Vereos, Inc. issued a long-term
notes payable for $50,000. The note will be paid over a 10-year period with equal
annual principal payments, beginning in one year. The annual interest rate is 12%.
Prepare the journal entry for the issuance of the note.
ANS, Inc. has 50,000 shares of common stock outstanding and 2,000 shares of
preferred stock outstanding. The common stock has a $1.00 par value. The preferred
stock has a $100 par value, a 5% dividend rate, and is noncumulative. On October 31,
2017, the company declares the annual preferred dividend and dividends of $0.25 per
share for common. Prepare the journal entry for the declaration of dividends.
The periodic inventory records of Witte Veterinary Supply indicate the following for the
month of
April:
As of April 30, Witte counts 8 units of merchandise inventory on hand.
Compute ending merchandise inventory and cost of goods sold for Witte using the
weighted-average inventory method. (Round the per unit cost to two decimal places.)
From the following details provided by NutShell, Inc., prepare the manufacturing
overhead budget for the year. Also, calculate the predetermined overhead allocation
rate, using direct labor hours as the allocation base.
