Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
An operational budget is a short-term financial plan that coordinates activities needed to
achieve short-term goals.
A retailer purchases goods from a manufacturer and sells them to customers.
Horizontal analysis provides a year-to-year comparison of a company's performance in
different periods.
A debit always means a decrease, and a credit always means an increase.
Gains and losses on the normal sale of plant assets are reported as discontinued
operations.
When a merchandiser records sales returns, Accounts Receivable is credited. (Assume
the seller uses the perpetual inventory system.)
Gross pay is the total amount of salary, wages, commissions, and bonuses earned by an
employee during a pay period, after taxes or any other deductions.
The most that the owner of a sole proprietorship can lose, as a result of business debts
or lawsuits, is the amount he/she has invested in the business.
Favorable and unfavorable variances are netted together in the same way debits and
credits are.
Under a process costing system, product costs are accumulated with respect to jobs
completed.
When stock is issued for assets other than cash, the transaction is always recorded at the
market value of the stock issued.
Balancing errors can be detected by computing the difference between total debits and
total credits on the trial balance.
Setting standard costs is a function of the company's production department and does
not require input from other departments.
Trading investments are categorized as noncurrent assets.
Activity-based management focuses on making decisions that improve customers'
satisfaction while also increasing profits.
Service companies do not have product costs, so they often consider all operating
expenses as part of their cost of service.
In a standard costing system, each input of direct materials, direct labor, and
manufacturing overhead has a cost standard and an efficiency standard.
Benefits are extra compensation—items that are not paid directly to an employee.
The third section presented on the statement of cash flows is the non-cash operating
activities section.
A merchandiser does not need to calculate cost per unit because it resells goods that are
already manufactured.
In the first step in developing an activity-based costing system for a manufacturing
company, the management team must determine the activities that incur the majority of
the product and period costs.
In cash basis accounting, revenue is recorded when cash is received, and expenses are
recorded when they are paid.
When favorable variances are added to unfavorable variances, the result is always a
total favorable variance.
Contribution margin ratio is the ratio of contribution margin to net income.
A major criticism of the payback method is that it focuses only on the time to recover
the investment and ignores profitability.
Accounts receivable are also known as trade receivables.
The Long-term Investments account is debited for the receipt of a dividend on an equity
method investment because the dividend increases the investee's equity.
The effective-interest amortization method allocates an amount of bond discount or
premium, based on the market interest rate at issuance, to each interest period over the
life of the bond.
The heading of a balance sheet will show the date as a specific date, not a period of
time.
Brookside Market recently traded in store fixtures. The exchange had commercial
substance. The old fixtures had a cost of $72,000 and accumulated depreciation of
$66,000. Brookside paid $100,000 for the new store fixtures. These new fixtures had a
market value of $127,000. There is a loss of $21,000 on this exchange.
When evaluating variances, exceptions can be expressed as a percentage of a budgeted
amount or a dollar amount.
Kostner Financial Services, Inc. performed accounting services for a client in
December. A bill was mailed to the client on December 30. The company received the
client's check by mail on January 5. Which of the following accounts should appear on
the income statement for the year ended December 31 as related to the services
performed?
A) Service Revenue
B) Unearned Revenue
C) Accounts Payable
D) Prepaid Expense
Evans, Inc. had the following balances and transactions during 2017:
What is the amount of the company's Merchandise Inventory, as disclosed in the December
31, 2017 balance sheet, using the periodic LIFO inventory costing method?
A) $405
B) $497
C) $567
D) $355
How is the management of a company accountable to its employees?
A) The management must provide products that are safe and free of defects.
B) The management must provide a safe workplace.
C) The management must ensure that it earns a net positive return on its investments.
D) The management must ensure the business is environmentally responsible to its
community.
Which of the following is true of the statement of cash flows?
A) It indicates when long-term debt will mature.
B) It reports on the qualitative behavior of the company's performance.
C) It covers a span of time and is dated the same as the income statement.
D) It shows how the profits or losses of the company were generated.
At Radiant, Inc., the sales department is also responsible for recording cash transactions
as it does not have a separate accounting department.
In the above situation, which internal control procedure needs strengthening?
A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents
The balance in the Bonds Payable is a credit of $74,000. The balance in the Premium on
Bonds Payable is a credit of $1,600. What is the bond carrying amount?
A) $1,600
B) $75,600
C) $74,000
D) $72,400
When preparing the worksheet for a merchandising business using the perpetual
inventory system, which of the following is not a new merchandising account that is
shown on the worksheet?
A) Accumulated Depreciation — Building
B) Sales Returns and Allowances
C) Cost of Goods Sold
D) Merchandise Inventory
On January 1, 2017, Taggart Sales issued $16,000 in bonds for $19,800. These are
eight-year bonds with a stated interest rate of 10% that pay semiannual interest. Taggart
Sales uses the straight-line method to amortize the bond premium. After the first
interest payment on June 30, 2017, what is the bond carrying amount?
A) $19,800
B) $19,562
C) $16,238
D) $16,000
In a ________, the manager is responsible for generating revenues and controlling
costs.
A) cost center
B) profit center
C) revenue center
D) transfer pricing center
The highest value of total cost was $70,000 in June for Fargo Beverages, Inc. Its lowest
value of total cost was $52,000 in December. The company makes a single product. The
production volume in June and December were 13,000 and 7,000 units, respectively.
What is the variable cost per month? (Round your answer to the nearest cent.)
A) $1.38 per unit
B) $2.57 per unit
C) $3.00 per unit
D) $11.67 per unit
A business that accepts payments by credit and debit cards ________.
A) is usually unable to attract more customers
B) must check each customer's credit rating
C) generally receives proceeds from credit and debit card transactions 30 - 45 days after
the sale
D) almost always pays a fee to the seller to cover the processing costs
Michael's Hats, Inc. has two product lines—batting helmets and football helmets. The
income statement data for the most recent year is as follows:
If $90,000 of fixed costs will be eliminated by dropping the football helmets line, how will
dropping football helmets affect operating income of the company?
A) Operating income will increase by $90,000.
B) Operating income will increase by $120,000.
C) Operating income will decrease by $150,000.
D) Operating income will decrease by $30,000.
E-trax, Inc. has provided the following financial information for the year:
What is the unit product cost for the year using absorption costing?
A) $65
B) $82
C) $119
D) $64
Clinton Manufacturing uses a predetermined overhead allocation rate based on a
percentage of direct labor costs. The following are the details of production during the
year:
Calculate the amount of manufacturing overhead costs allocated to production. (Round any
percentages to two decimal places and your final answer to the nearest dollar.)
A) $150,000
B) $164,571
C) $154,296
D) $160,000
Gilbert, Inc. generated sales revenues of $1,400,000 in 2017. Its cost of goods sold
amounted to Calculate Gilbert's gross profit percentage.
A) 40%
B) 60%
C) 167%
D) 250%
A company has $120,000 in current assets; $600,000 in total assets; $90,000 in current
liabilities, and $140,000 in total liabilities. Calculate the current ratio of the company.
(Round your answer to two decimals.)
A) 1.33
B) 1.71
C) 1.75
D) 0.86
Huntswell Corporation has two major divisions: Agricultural Products and Industrial
Products. It provides the following information for the year.
Calculate the profit margin for the Industrial Division of the company. (Round your answer
to two decimal places.)
A) 3.96%
B) 5.18%
C) 17.44%
D) 12.57%
The activity-based costing system improves the allocation of ________.
A) indirect manufacturing costs
B) direct labor
C) direct materials
D) sales commissions
A company's production department was experiencing a high defect rate on the
assembly line, which was slowing down production and causing wastage of valuable
direct materials. The production manager decided to recruit some highly skilled
production workers from another company to bring down the defect rate but was
worried that the higher wages of these workers might negatively affect operating
income. This would produce a(n) ________.
A) unfavorable direct materials cost variance
B) unfavorable direct labor cost variance
C) unfavorable direct labor efficiency variance
D) unfavorable direct materials efficiency variance
Which of the following is true of the internal control component—information system?
A) Internal auditors monitor company controls to safeguard assets, and external
auditors monitor the controls to ensure that the accounting records are accurate.
B) Control procedures are designed to ensure that the business's goals are achieved.
C) Only authorized users have access to various parts of the information system.
D) The information system is the "tone at the top" or the culture of the business.
The interest rate that investors demand to earn for loaning their money is known as the
________.
A) yield to maturity
B) coupon rate
C) differential rate
D) market interest rate
A company produces 1,000 packages of chicken feed per month. The sales price is $4
per pack. Variable cost is $1.60 per unit, and fixed costs are $1,700 per month.
Management is considering adding a vitamin supplement to improve the value of the
product. The variable cost will increase from $1.60 to $1.70 per unit, and fixed costs
will increase by 20%. At what sales price for the new product will the two alternatives
(sell as is or process further) produce the same operating income? (Round your answer
to the nearest cent.)
A) $3.74
B) $4.44
C) $0.70
D) $4.00
Which of the following organizations is responsible for the creation and governance of
accounting standards in the United States?
A) Financial Accounting Standards Board
B) Institute of Management Accountants
C) American Institute of Certified Public Accountants
D) Securities and Exchange Commission
Uncle's Caps, Inc., a merchandising company, has provided the following budgeted
amounts for the next budget period.
A minimum cash balance of $250,000 is required to be maintained. The company can
borrow in increments of $10,000 as and when required. Assume the company can borrow
the needed funds at the end of the period. Calculate the ending cash balance for the budget
period.
A) $713,400
B) $254,700
C) $204,700
D) $733,000
The accountant of Omega Consulting, Inc. failed to make an adjusting entry to record
$6,000 for unearned service revenues that were earned before the end of the fiscal year.
Assume the company initially recorded a liability. Which of the following statements is
true?
A) The total liabilities will be overstated.
B) The total liabilities will be understated.
C) The total assets will be overstated.
D) The total assets will be understated.
The following information has been provided by New Age, Inc.:
Calculate the beginning balance of the Work-in-Process Inventory account.
A) $93,250
B) $60,200
C) $4,750
D) $44,250
To which of the following accounts should the balance in the Income Summary account
be closed?
A) Dividends
B) Net Income
C) Retained Earnings
D) Service Revenue
Beige Corporation pays $500,000 to acquire 40% of the equity securities of Olive
Technologies, Inc. on May 5, 2017. This investment will be classified as a(n) ________.
A) trading investment
B) available-for-sale
C) significant interest investment
D) held-to-maturity
Which of the following journal entries would be recorded if a business renders service
and receives cash of $900 from the customer?
A)
B)
C)
D)
New Corporation had net income for 2016 of $80,000. New Corporation had 13,000
shares of common stock outstanding at the beginning of the year and 24,000 shares of
common stock outstanding at the end of the year. There were 12,000 shares of preferred
stock outstanding all year. During 2016, New Corporation declared and paid preferred
dividends of $21,000. What is New Corporation's earnings per share? (Round the
answer to two decimal places.)
A) $3.33
B) $3.19
C) $4.32
D) $2.46
Analysts look for red flags in financial statements that may signal financial trouble.
Which of the following is a red flag that suggests that a company may be in trouble?
A) a decline in days' sales in inventory
B) a decrease in dividend payout ratio from year to year
C) a reduction in the debt ratio
D) net cash flow from operating activities is consistently lower than net income
Samson, Inc. reported the following information for the year:
How much was the unit cost per service? (Round your answer to the nearest cent.)
A) $5.71
B) $3.71
C) $2.00
D) $7.71
Which capital budgeting method uses accrual accounting, rather than net cash flows, as
a basis for calculations?
A) payback
B) accounting rate of return
C) net present value
D) internal rate of return
Mira Financial Advisors provides accounting and finance assistance to customers in the
retail business. Mira has four professionals on staff, plus an office with six clerical staff.
Total compensation, including benefits, for the professional staff runs about $756,000
per year, and it normally has about 8,300 billable hours per year. The professional staff
keep detailed time sheets organized by client number. The total office and
administrative costs for the year are $574,000.
Mira allocates office and administrative costs to clients monthly, using a predetermined
overhead allocation rate based on billable hours. During July, Mira's professionals spent
36 hours on their client, Riley Sales. Mira adds a 25% markup on its costs to calculate
the amount billed to the customer. How much should the company charge Riley Sales
for the month of July? (Round your intermediate calculations to the nearest cent, and
your final answer to the nearest dollar.)
A) $1,330,000
B) $182,000
C) $7,211
D) $5,769
Rosewood, Inc. recently signed a $350,000, six-month note on August 22, 2017. The
interest rate is 7%. How much interest will be due at maturity?
A) $10,208
B) $24,500
C) $12,250
D) $8,167
Water Drops, Inc. purchased equipment for $200,000. The company recorded total
depreciation of $140,000. On January 1, 2017, the company exchanges the equipment
for new equipment, paying $150,000 cash. The fair market value of the new equipment
is $250,000. Prepare the journal entry to record this transaction. Assume the exchange
has commercial substance.
Anglin Corporation has excess cash to invest and pays $200,000 to buy 7%, five-year
bonds of Richmond Corporation, at face value, on June 30, 2016. The bonds pay
interest on June 30 and December 31. Anglin intends to hold the bonds to maturity. The
bonds are disposed of, at face value, on June 30, 2021.
Prepare the journal entry for June 30, 2016 (omit the explanation).
For each of the following variances, state which manager is most likely to be
responsible for the variance.
Search Engine Corp. has provided the following details concerning budgeted sales:
Budgeted Sales
Jan $75,000
Feb 69,000
March 80,000
April 82,000
May 80,500
June 92,000
The collection policy of the company is to collect 20% in the month of sale, 40% in the
following month, and remaining 40% in the second month after the month of sale. All
sales are made on account.
Calculate the cash receipts from customers for the first six months.
Fernandez Manufacturing uses a standard cost system. Standard and actual data for
manufacturing overhead are as follows:
Variable overhead allocation rate: $30 per direct labor hour
Fixed overhead allocation rate: $10 per direct labor hour
Actual overhead incurred (variable and fixed): $45,600
Standards for direct labor are as follows:
Hours per unit 0.5, Direct labor cost per hour $18.00
Actual direct labor for the month: 1,200 hours for a total cost of $24,000
Actual and planned production for the month: 3,000 units
Prepare the journal entry to allocate overhead cost (both variable and fixed) to
production.
Comment on how an investor would use each of the following ratios to evaluate
business performance.
On December 31, 2016, Axle Services, Inc. prepared the following accrual adjustment:
The company paid salaries amounting to $1,500 on January 7, 2017 for the two-week pay
period that ended on January 6, 2017. Journalize the entries for January 1, 2017 and
January 7, 2017, assuming the company uses reversing entries.
Provide an explanation for each of the follow asset accounts.
Pandora Manufacturing purchased $95,000 of raw materials on account and $5,000 of
raw materials for cash. The materials will be used to produce furniture. Provide the
journal entry for the purchase of materials.
Database Services sells service plans for commercial computer maintenance. The price
for each plan is $1,350 per year, paid in advance. On October 1, 2017, a service plan
was sold to a new customer for cash, and the plan covers the period October 1, 2017 to
September 30, 2018. Prepare the December 31, 2017 adjusting entry.
List and briefly discuss three accounting concepts and principles that apply to accrual
basis accounting.
Using the periodic inventory system, state which accounts are used and whether the
account is debited or credited. All transactions involve the purchase of inventory.
The Brighton Dental Corporation prepays the rent on its dental office. On July 1, the
corporation paid $18,000 for 6 months of rent. How much Rent Expense should
Brighton Dental Corporation record the three months ended September 30 under the
accrual basis? Why?
State the purpose of a subsidiary ledger? What is included in the accounts receivable
subsidiary ledger?
A manufacturer, using a standard cost system, purchased 250 units of direct materials at
a cost of $2 per unit. The standard cost per unit of direct materials is $1.85. Prepare the
journal entry to record the direct materials cost variance at the time of purchase.
List two strengths and one weakness of the accounting rate of return capital budgeting
method.
Samuel Corp. has provided the following information for the year ended December 31,
2017.
Samuel Corp
Comparative Balance Sheet
December 31, 2017 and 2016
Increase
2017 2016 (Decrease)
Cash $33,000 $13,000 $20,000
Accounts Receivable 29,000 36,000 (7,000)
Merchandise Inventory 56,000 29,000 27,000
Plant Assets, net 126,000 92,000 34,000
Total Assets $244,000 $170,000 $74,000
Accounts Payable $9,000 $13,000 $(4,000)
Accrued Liabilities 7,000 3,000 4,000
Long-term Notes Payable 70,000 79,000 (9,000)
Total Liabilities 86,000 95,000 (9,000)
Common Stock 55,000 3,000 52,000
Retained Earnings 115,000 78,000 37,000
Treasury Stock (12,000) (6,000) (6,000)
Total Stockholders' Equity 158,000 75,000 83,000
Total Liabilities and Stockholders' Equity $244,000 $170,000 $74,000
Samuel Corp
Income Statement
Year ended December 31, 2017
Sales Revenue $291,300
Interest Revenue 1,000
Gain on Sale of Plant Assets 6,000
Total Revenues and Gains $298,300
Cost of Goods Sold 145,000
Salaries and Wages Expense 49,000
Depreciation Expense—Plant Assets 16,000
Other Operating Expense 25,000
Interest Expense 3,500
Income Tax Expense 7,800
Total Expenses 246,300
Net Income $52,000
Additional information provided by the company includes the following:
Equipment costing $60,000 was purchased for cash.
Equipment with a net book value of $10,000 was sold for $16,000.
Depreciation expense of $16,000 was recorded during the year.
During 2017, the company repaid $43,000 of long-term notes payable.
During 2017, the company borrowed $34,000 on a new long-term note payable.
There were no stock retirements during the year.
There were no sales of treasury stock during the year.
All sales are on credit.
Prepare the 2017 statement of cash flows, using the indirect method.
