Allowance for Doubtful Accounts has an unadjusted balance of $400 at the end of the
year, and uncollectible accounts expense is estimated at 1% of net sales. If net sales are
$300,000, compute the amount of the adjustment to record the provision for doubtful
accounts.
a. $400.
b. $3,400.
c. $3,000.
d. $2,600.
Liabilities that will not be due for more than one year are called longterm liabilities.
a. True
b. False
The payment of $20,000 for expenses was incorrectly recorded by Elite Co. as an
increase in cash of $20,000 and a decrease in retained earnings of $20,000. What is the
effect of this error on the accounting equation?
a. Total assets will exceed total liabilities and stockholders’ equity by $20,000.
b. Total assets will exceed total liabilities and stockholders’ equity by $40,000.
c. Total assets will be less than total liabilities and stockholders’ equity by $40,000.
d. The error will not affect the accounting equation.
A company has a margin of safety of 25%, a contribution margin ratio of 30%, and
sales of $1,000,000.
(a)What was the breakeven point?
(b)What was the operating income?
(c)If neither the relationship between variable costs and sales nor the amount of fixed
costs is expected to change in the next year, how much additional operating income can
be earned by increasing sales by $110,000?
Which of the following best explains inventory shrinkage under the perpetual inventory
system?
a. It is the discount taken by the buyer for early payment of an invoice.
b. It is the damaged merchandise returned by the buyer to the seller.
c. It is the amount that is entered on a cash register and recorded in the accounts by
increasing inventory.
d. It is the difference between the physical count of inventory and the balance of the
inventory account.
An unfavorable cost variance occurs when budgeted cost at actual volumes exceeds
actual cost.
a. True
b. False
In capital rationing, alternative proposals are initially screened by establishing
minimum standards using the cash payback and the average rate of return methods.
a. True
b. False
A company acquired mineral rights for $7,500,000. The mineral deposit is estimated at
600,000 tons and during the year 100,000 tons were extracted and sold.
(a)Calculate depletion expense for the year.
(b)Show the effects of (a) on the accounts and the financial statements of the company.
(c)What is the book value of the mineral rights at the end of the current year?
Which of the following businesses buys products from other businesses to sell them to
customers?
a. A merchandising business
b. A manufacturing business
c. A service business
d. An investment business
The methods of evaluating capital investment proposals can be grouped into two
general categories: (1) methods that ignore present values and (2) methods that use
present values.
a. True
b. False
Which of the following is most likely to be a product cost?
a. Salary of the vice president of sales
b. Advertising for a particular product
c. Drill bits for a drill press used in the plant assembly area
d. Salary of the company receptionist
The balance sheets at the end of each of the first two years of operations indicate the
following:
20172016
Total current assets$600,000$560,000
Total investments60,00040,000
Total property, plant, and equipment900,000700,000
Total current liabilities125,00080,000
Total longterm liabilities350,000250,000
Preferred 9% stock, $100 par100,000100,000
Common stock, $10 par600,000600,000
Paidin capital in excess of parcommon stock60,00060,000
Retained earnings325,000210,000
Based on the above information, if net income is $130,000 and interest expense is
$40,000 for 2017, what is the return on stockholders’ equity for 2017 (round to one
decimal place)?
a. 16.5%
b. 12.7%
c. 12.0%
d. 13.2%
Which of the following would not be considered as an internal centralized service
department?
a. Payroll accounting department
b. Manufacturing department
c. Information systems department
d. Purchasing department
To determine cash payments for operating expenses for the cash flow statement using
the direct method, a decrease in prepaid expenses is added to operating expenses other
than depreciation.
a. True
b. False
For a strong internal control system over cash, it is important to have the duties related
to cash receipts and cash payments divided among different employees.
a. True
b. False
Which of the following scenarios reduces the risk of an employee fraud?
a. An accountant being responsible for approving payments to a vendor
b. The bank reconciliation being prepared by an accountant
c. A sales clerk having access to the cash register
d. Remittance advices being sent directly to the cashier
Motel 6, a company that helps customers find budget motels across the nation, is an
example of a business using which of the following?
a. Lowcost emphasis
b. Outreach emphasis
c. Customer emphasis
d. Premiumprice emphasis
Use the following data to calculate cost of merchandise sold under FIFO method.
September 1Beginning Inventory15 units at $20 each
September 10Purchase20 units at $25 each
September 20Purchase25 units at $28 each
September 30Ending Inventory30 units
a. $825
b. $750
c. $675
d. $600
In credit terms of 1/10, n/30, the “1” represents the:
a. number of days in the discount period.
b. full amount of the invoice.
c. number of days when the entire amount is due.
d. percent of the cash discount.
Which of the following is included in the computation of the quick ratio?
a. Accounts receivable
b. Supplies
c. Prepaid rent
d. Inventory
The two methods that use present values to analyse capital investment proposal
consider the _____.
a. time value of money concept
b. going concern concept
c. historical cost concept
d. conservatism concept
The formula to compute direct material quantity variance is:
a. actual costs – standard costs.
b. standard costs – actual costs.
c. (actual quantity × standard price) – standard costs.
d. actual costs – (standard price × standard costs).
A company sold office furniture costing $15,800 with accumulated depreciation of
$13,000 for $1,500 cash. The entry to record the sale would include:
a. an increase in accumulated depreciation for $15,800.
b. a loss for $1300.
c. a total decrease in office furniture for $2,800.
d. a decrease in cash for $1,300.
St. Nick Corporation’s ToyMaking Supplies account showed a beginning balance of
$200 and supplies purchased of $800. There were $400 of supplies on hand at yearend.
The yearend adjustment would include an increase in ToyMaking Supplies Expense for
a. $1,000.
b. $800.
c. $600.
d. $400.
In the case of a failing company, the first claim to the company’s assets lies with:
a. the state governments.
b. the creditors of the company.
c. the owners of the company.
d. the managers of the company.
Which of the following best explains a job order cost system?
a. It provides product costs for each manufacturing department or process.
b. It is often used by companies that manufacture custom products for customers or
batches of similar products.
c. It is often used by companies that manufacture units of a product that are
indistinguishable from each other.
d. It is used by companies that manufacture units of a product using a continuous
production process.
The basic financial statements include the:
a. trial balance.
b. bank reconciliation statement.
c. balance sheet.
d. ledger account.
Which of the following is true of justintime processing?
a. In justintime processing, supervisors enter materials into manufacturing so as to keep
all the manufacturing departments (processes) operating.
b. In justintime processing, a worker typically performs only one function.
c. It assigns service activities to centralized service departments.
d. It is a management approach that focuses on reducing time and cost and eliminating
poor quality.
Accompanying the bank statement was a debit memorandum for an NSF check
received from a customer. This item would require an adjusting entry including a:
a. debit to Accounts Receivable.
b. debit to Cash.
c. debit to Accounts Payable.
d. credit to Accounts Payable.
5130.3760.279
a. $17,400
b. $17,000
c. $20,000
d. $15,451
If an asset is discarded, a loss is recognized equal to its salvage value.
a. True
b. False
The independent auditor’s report does which of the following?
a. Summarizes what the auditor did.
b. States that the financial statements are effective.
c. Gives the auditor’s opinion regarding the fairness of the financial statements.
d. Describes that the commonsized statements are covered by the audit.
Terri Co. established a petty cash fund of $2,300. What is the effect of this transaction?
a. Accounts payable increases
b. Retained earnings decreases
c. Cash decreases
d. Expenses increases
The following items are reported on a company’s balance sheet:
Cash$258,000
Marketable securities114,000
Accounts receivable187,000
Inventory204,000
Notes payable (shortterm)249,000
Determine the (a) current ratio and (b) quick ratio. (Round your answer to one decimal
place.)
Standard Corporation uses a standard cost system. The following information was
provided for the period that just ended:
Standard time per completed unit3 hrs.
Actual total factory overhead$108,000
Fixed factory overhead$60,000
Standard fixed factory overhead rate$2.00 per labor hour
Standard variable factory overhead rate$1.50 per labor hour
Normal capacity30,000 hours
Plant operated during the period28,000 hours
Units completed during the period9,000
The fixed factory overhead volume variance is
a. $6,000 favorable.
b. $3,000 favorable.
c. $3,000 unfavorable.
d. $6,000 unfavorable.