Net income (loss) is the difference between the total debits and the total credits in the
income statement columns of the worksheet.
Capitalizing a cost involves crediting the asset account.
The direct method restates the income statements in terms of cash.
A publicly traded company in the United States does not come under Securities and
Exchange Commission regulations as long as it follows the rules of GAAP.
A system cannot be overcome or broken into if its internal controls are properly
designed and structured.
When more units are sold than produced, operating income is less under absorption
costing.
Repair and maintenance costs of vehicles used to deliver products to customers are
product costs.
To complete the statement of cash flows, the net change in cash and cash balances must
be shown.
Jones Company is considering purchasing a new truck. The decision has been narrowed
to two models. The cost of each of these two trucks is relevant to this business decision.
When a corporation sells 9,000 shares of $12 par value common stock for $159,000,
Common Stock is credited for $108,000.
A sunk cost is a cost that was incurred in the past and cannot be changed regardless of
what future action is taken.
The balanced scorecard focuses only on lead indicators, because lag indicators are not
important for performance evaluation.
A creditor who has loaned money to a business has a claim to some of the assets of the
business until the debt is paid.
The face value of a bond payable minus the current balance of the discount account or
plus the current balance of the premium account is the bond’s carrying amount.
The aging-of-receivables method is a balance sheet approach of estimating
uncollectible accounts.
In a manufacturing plant, indirect materials costs such as lubricants and cleaning fluids
are product costs.
The balances in the liability and revenue accounts are increased with a credit.
The Accounts Receivable account is a permanent account.
The Public Company Accounting Oversight Board is a watchdog agency that monitors
the work of independent accountants who audit public companies.
Variable costing cannot be used in service companies.
The trial balance is an internal document used only by employees of the company.
The sales volume variance is the difference between the expected results in the flexible
budget for the actual units sold and the static budget.
When preparing the worksheet for a merchandising business using the perpetual
inventory system, the Merchandise Inventory account must be adjusted based on a
physical count due to inventory shrinkage.
An alternative to calling the bonds is to purchase any available bonds in the open
market at their current market price.
The balance sheet shows whether or not a business is earning profits.
Pluto Travel Services provided the following information:
Direct labor rate: $40 per hour
Predetermined overhead allocation rate for indirect costs: $21 per direct labor hour
Pluto is negotiating a job with a new client. The job will require 10 hours of direct
labor. If Pluto wishes to have at least a 15% gross profit on the revenues, it needs to
earn $713 of revenues.
Target cost is calculated by deducting desired gross profit from target sales price.
Companies make a year-end adjustment of the trading investment to bring the account
to historical value.
The accounting rate of return method considers the time value of money.
When a corporation issues stock at par value, the Cash account is debited and the
Common Stock account is credited for an amount equal to the number of shares issued
times the par value per share.
The trial balance is also known as the balance sheet.
The Common Stock account is a permanent account.
An overstatement of ending merchandise inventory in the current period results in an
overstatement of net income in the current period.
GAAP requires publicly traded companies to prepare a post-closing trial balance and
publish it in their annual report.
Manufacturing overhead costs allocated to a job amounted to $492,000. The actual
manufacturing costs incurred during the year were $570,000. Overhead costs have been
underallocated.
Manufacturing overhead includes indirect manufacturing costs, such as insurance and
depreciation on the factory building.
In a manufacturing company, wages and benefits of assembly line workers are included
in manufacturing overhead.
A cost variance measures the difference in quantities of actual inputs used and the
standard quantity of inputs allowed for the actual number of units produced.
The balance sheet helps analyze the business performance in terms of profitability.
The only time the Petty Cash account is used in a journal entry is when the account is
established, increased, or decreased.
Which of the following would be considered a long-term asset?
A) Accounts Payable
B) Land
C) Cash
D) Common Stock
Which of the following is a basic right of stockholders?
A) Stockholders may sell their stock back to the company if they wish.
B) Stockholders may authorize a business contract on behalf of the corporation.
C) Stockholders may receive dividends from corporate earnings.
D) Stockholders may determine the issue price of common stock.
South State, Inc. used $153,000 of direct materials and incurred $63,000 of direct labor
costs during the year. Indirect labor amounted to $270,000, while indirect materials
used totaled $53,000. Other operating costs pertaining to the factory included utilities of
$135,500; maintenance of $70,260; repairs of $53,400; depreciation of $133,000; and
property taxes of $74,640. There was no beginning or ending finished goods inventory,
but Work-in-Process inventory began the year with a $5,000 balance and ended the year
with a $7,400 balance.
How much is the cost of goods manufactured?
A) $12,400
B) $1,003,400
C) $1,010,800
D) $1,005,800
Gross profit is calculated as ________.
A) sales revenue less sales discounts and allowances
B) sales revenue less operating expenses
C) net sales revenue less sales discounts
D) net sales revenue less cost of goods sold
Customer A. Smith owed Stonebridge Electronics $225. On April 27, 2016, Stonebridge
determined this account receivable to be uncollectible and wrote off the account. The
company uses the direct write-off method. On July 15, 2016, Stonebridge received a
check for $225 from the customer. How should the July 15, 2016 transaction be
recorded?
A)
B)
C)
D)
Case Wines Company issues $805,000 of 9%, 10-year bonds on March 31, 2017. The
bonds pay interest on March 31 and September 30. Which of the following statements
is true?
A) If the market rate of interest is 10%, the bonds will issue at a premium.
B) If the market rate of interest is 10%, the bonds will issue at a discount.
C) If the market rate of interest is 10%, the bonds will issue at par.
D) If the market rate of interest is 10%, the bonds will issue above par.
The explanation of why the net income differs from the change in cash balance for the
period is explained in the ________.
A) income statement
B) balance sheet
C) statement of retained earnings
D) statement of cash flows
Sonesta Farm Equipment Company sold equipment for cash. The income statement
shows a loss on the sale of $7,000. The net book value of the asset was $28,900. Which
of the following statements describes the cash effect of the transaction?
A) positive cash flow of $35,900 from financing activities
B) negative cash flow of $21,900 for operating activities
C) negative cash flow of $21,900 for financing activities
D) positive cash flow of $21,900 from investing activities
Julian Company is a price-taker and uses target pricing. Refer to the following
information:
With the current cost structure, Julian cannot achieve its profit goals. It will have to reduce
either the fixed costs or the variable costs. Assuming that fixed costs cannot be reduced,
what are the target variable costs per unit per year? Assume all units produced are sold.
(Round your answer to the nearest cent.)
A) $5.10
B) $12.00
C) $17.16
D) $18.00
An enterprise resource planning (ERP) is a ________.
A) hardware system that controls the access of employees to different levels of
production in a firm
B) software system used by small companies to record revenue and expenses
C) hardware system of electronic linkages that allows different computers to share the
same information
D) software system that can integrate all of a company’s functions, departments, and
data into a single system
On June 1, 2017, Wilke Services issued $31,000 of 7% bonds that mature in five years.
The bonds were issued at a premium, for a total of $32,292. The bonds pay semiannual
interest payments on June 30 and December 31 of each year. On December 31, 2017,
what is the total amount paid to bondholders?
A) $1,085
B) $2,170
C) $1,130
D) $2,260
Assets that are expected to be converted to cash, sold, or used up during the next 12
months, or within the business’s normal operating cycle if the cycle is longer than a
year, are called ________ assets.
A) intangible
B) plant
C) long-term
D) current
Unrealized holding gains or losses on trading investments are reported in the ________.
A) current assets section of the balance sheet
B) other revenues and expenses section of the income statement
C) intangible assets section of the balance sheet
D) accumulated other comprehensive income section of stockholder’s equity
Revenues and expenses are transferred to the ________ account before their final
transfer into the Retained Earnings account.
A) Net Income
B) Income Summary
C) Dividends
D) Assets
The term goal congruence refers to the ________.
A) matching of financial goals of the company with its nonfinancial goals
B) aligning the goals of business segment managers with the goals of top management
C) achievement of the goals set by the management by utilizing the resources available
D) duplication of costs as a result of decentralization
Which of the following is the primary focus of financial accounting?
A) providing information that managers need to make operational decisions
B) providing summarized information on operational results to investors and creditors
C) providing budgets for future periods
D) providing highly detailed information on product lines, regions, and divisions
A new factory manager was hired for a company that was experiencing slow production
rates and lower production volumes than demanded by management. Upon
investigation, the manager found that the workers were poorly motivated and not
closely supervised. Midway through the quarter, an incentive program was initiated,
and cash bonuses were given when workers hit their production targets. Within a short
time, production output increased, but the bonuses had to be charged to the direct labor
budget, and the manager was worried about the impact of these costs on operating
income. This could produce a(n) ________.
A) unfavorable direct materials cost variance
B) unfavorable direct materials efficiency variance
C) favorable direct labor efficiency variance
D) favorable direct labor cost variance
The level of employee satisfaction is a key performance indicator of the ________
perspective of a balanced scorecard.
A) financial
B) learning and growth
C) internal business
D) customer
For a promissory note, the entity to whom the promise of future payment is made is the
________.
A) maker of the note
B) endorser of the note
C) banker of the note
D) payee of the note
On March 1, 2016, Baker Services issued a 5% long-term notes payable for $21,000. It
is payable over a 3-year term in $7,000 annual principal payments on March 1 of each
year plus interest, beginning March 1, 2017. How will the notes payable be shown on
the balance sheet dated December 31, 2016?
A) $21,000 shown as current liability only
B) $7,000 shown as current liability and $21,000 shown as long-term liability
C) $7,000 shown as current liability and $14,000 shown as long-term liability
D) the entire $21,000 shown as long-term liability
The first step in the journalizing and posting process is to ________.
A) post the journal entry to the ledger
B) identify the accounts involved and the account type
C) decide whether each account increases or decreases
D) record the transaction in the journal
On December 1, 2016, Gardner Products borrowed $92,000 on a 5%, 10-year note with
annual installment payments of $9,200 plus interest due on December 1 of each
subsequent year. Which of the following describes the first installment payment made
on December 1, 2017? (Round your answer to the nearest whole number.)
A) $9,200 principal plus $4,600 interest
B) $9,200 principal plus $460 interest
C) $9,200 principal plus $9,200 interest
D) $4,600 interest only
A contingency was evaluated at year-end and considered to have a reasonable
possibility of becoming an actual liability. If this was not reported in the notes to the
financial statements, what is the effect on the financial reporting of the company?
A) There would be no effect.
B) The liabilities on the balance sheet would be understated.
C) The information about the transaction would be inadequately disclosed in the notes.
D) The net income of the company would be understated.
A journal entry for a $50 payment for rent expense was posted as a debit to Salaries
Expense and a credit to Cash. Which of the following statements correctly states the
effect of the error on the trial balance?
A) The sum of the credits will equal the sum of the debits.
B) The sum of the debits will exceed the sum of the credits by $50.
C) The sum of the debits will exceed the sum of the credits by $100.
D) The sum of the credits will exceed the sum of the debits by $100.
When a company collects the face value of a long-term investment in bonds at maturity,
________.
A) total assets and equity of the firm remains unchanged
B) both assets and liabilities of the firm increase
C) both assets and equity of the firm increase
D) liabilities decrease and equity increases
A company is analyzing its month-end results by comparing it to both static and flexible
budgets. During the previous month, the actual variable costs per unit were lower than
the expected variable costs per unit as per the static budget. This difference results in
a(n) ________.
A) favorable flexible budget variance for variable costs
B) favorable sales volume variance for variable costs
C) unfavorable flexible budget variance for variable costs
D) unfavorable sales volume variance for variable costs
Which of the following is true of product costs?
A) They are expensed in the period they are paid.
B) For external reporting, GAAP requires that they be expensed before the products are
sold.
C) They are first recorded in an inventory account.
D) For merchandising companies, product costs do not include freight costs.
The Allowance for Bad Debts account has a debit balance of $8,000 before the
adjusting entry for bad debts expense. After analyzing the accounts in the accounts
receivable subsidiary ledger using the aging-of-receivables method, the company’s
management estimates that uncollectible accounts will be $13,000. What amount of bad
debts expense will be reported on the income statement?
A) $6,000
B) $21,000
C) $5,000
D) $13,000
Which of the following statements is true if the variable cost per unit increases while
the sales price per unit and total fixed costs remain constant?
A) The breakeven point decreases.
B) The contribution margin increases.
C) The breakeven point remains the same.
D) The breakeven point increases.
Which of the following statements is true of the behavior of total variable costs, within
the relevant range?
A) They will decrease as production increases.
B) They will remain the same as production levels change.
C) They will decrease as production decreases.
D) They will increase as production decreases.
A company issues a 60-day, 13% note for $16,000. What is the principal amount of the
note? (Round your answer to the nearest dollar.)
A) $18,080
B) $16,000
C) $15,653
D) $16,347
Which of the following is the rate of return, based on discounted cash flows, a company
can expect to earn by investing in a capital asset?
A) accounting rate of return
B) bank interest rate
C) internal rate of return
D) return on investment
Handbags R Us sells designer and everyday priced handbags. Top management is
deciding which product line to emphasize. Company accountants have provided the
following data:
The store has 5,000 square feet of floor space. If the company emphasizes everyday
handbags, it can display 1,000 items in the store. If the store emphasizes designer
handbags, it can display only 680 items, These numbers are also the average monthly sales
in units.
Prepare an analysis to show which product the company should emphasize. Explain your
answer. (Do not round intermediate answers.)
Orange Office Supply Corporation completed the following stock issuance transactions:
Prepare the journal entries to record these transactions. Explanations are not required.
List three cash inflows and three cash outflows for capital investments.
Mason Lawn Equipment uses a perpetual inventory system. Journalize the following
sales transactions for this company. Explanations are not required.
A company purchased inventory for $2,000 from a vendor on account, FOB shipping
point, with terms of 2/10, n/30. The company paid $100 cash for freight in. Prepare the
journal entry to record payment of the invoice within 10 days by the purchaser.
(Assume a perpetual inventory system.)
On November 1, 2016, Everett Janitorial Supply sold merchandise with a cost of $3,200
for $5,000, FOB destination, and payment terms of 2/10, n/30. The company uses a
perpetual inventory system. Give journal entries to record the sales revenue.
How does a merchandise company calculate unit cost per item? Why do managers need
to know the unit cost per item?
Isphase, Inc. has provided the following financial data for the year:
There are no beginning inventories. Prepare an income statement for the year using the
traditional format.
Both job order and process costing systems use a four-step method to track product
costs. List each of the four steps.
Define sensitivity analysis. Why do managers conduct sensitivity analysis during the
budget process?
Danby, Inc. has the following cost data:
Calculate the unit product cost using absorption costing when production is 200 units, 400
units, and 800 units.
On June 30, 2017, Regal Furniture discarded fully depreciated equipment with a cost
$35,000 and no residual value. Prepare the journal entry for the disposal of the
equipment.
At the end of the year, Martin, Inc. has an unadjusted credit balance in the
Manufacturing Overhead account of $95. Provide the year-end adjusting entry needed
to adjust the account.
An adjusted trial balance for a merchandiser is given below.
Give the journal entry to close the Sales Revenue account.
Magnolia Tree Service has a weekly payroll of $50,000. December 31, 2016 falls on
Thursday and Magnolia will pay its employees the following Monday (January 4, 2017)
for the previous full week. Assume that Anthony has a five-day workweek and has an
unadjusted balance in Salaries Expense of $845,000. Prepare the December 31, 2016
adjusting entry.
Felix Sales, Inc. offers warranties on all its electronic goods. Warranty expense is
estimated at 3.5% of sales revenue. In 2017, Felix had sales of $333,000. In the same
year, Felix replaced defective goods with merchandise inventory costing $8,750.
Prepare the journal entry to record the warranty expense.
Challenger Corporation currently has 120,000 shares outstanding of $1 par value
common stock. The stock was originally issued for $12 per share. On March 15, the
board of directors declares and distributes a 10% stock dividend when the stock is
selling for $16 per share. Prepare the journal entry to record the stock dividend.
Data for Dumouchelle, Inc. follow:
Dumouchelle, Inc.
Comparative Balance Sheet
December 31, 2017 and 2016
2017 2016
Assets
Current Assets:
Cash $12,000 $10,200
Accounts Receivable, Net 16,100 16,800
Merchandise Inventory 45,000 31,000
Prepaid Expenses 6,500 3,900
Total Current Assets 79,600 61,900
Property, Plant, and Equipment, Net 265,000 233,000
Total Assets $344,600 $294,900
Liabilities
Total Current Liabilities $9,900 $11,200
Long-term Liabilities 60,000 50,000
Total Liabilities 69,900 61,200
Stockholders’ Equity
Preferred Stock, 3%, $50 par 75,000 75,000
Common Stockholders’ Equity, no par 199,700 158,700
Total Liabilities and Stockholders’ Equity $344,600 $294,900
Prepare a horizontal analysis of the comparative balance sheet of Dumouchelle, Inc.
(Round to one decimal place.)
Mitchell Corporation’s accounting records include the following items for the year
ending December 31, 2017:
Gain on Sale of Equipment $12,000 Gain on Discontinued Operations $75,000
Loss on Disposal of Equipment 5,000 Extraordinary Loss 15,000
Net Sales 650,000 Cost of Goods Sold 285,000
Operating Expenses 120,000
The income tax rate for the company is 45%. The company had 15,000 shares of
common stock outstanding during 2017 and no preferred stock. Prepare Mitchell’s
income statement for the year ending December 31, 2017. Show how Mitchell reports
EPS data on its 2017 income statement.
