Cash in the bank is more liquid than a petty cash fund.
In practice, most companies face complex situations. In these cases, a spreadsheet can
help in preparing the statement of cash flows.
Most capital budgeting methods focus on accrual-based income.
Normally, companies with low gross profit percentages will have low asset turnover.
A business keeps cash in a bank account because banks have established practices for
safeguarding the business’s money.
Credit terms of 2/10, n/30 indicate that a discount of 2% will be given if payment is
made within 10 days of the invoice date. Otherwise, the total invoice amount is due
within 30 days of the invoice date.
Retained earnings represents amounts received from stockholders of a corporation in
exchange for stock.
A budget is a managerial accounting tool used in the planning process.
Both the sales volume variance and the flexible budget variance help revenue center
managers understand why they have exceeded or fallen short of budgeted revenue.
Prenumbered source documents provide necessary control in a system by automatically
assigning a sequential number to each new transaction.
The employee federal and state income tax and Social Security tax are optional payroll
deductions.
Walker, Inc. uses the indirect method to prepare the statement of cash flows. Refer to
the following section of the comparative balance sheet:
Walker, Inc.
Comparative Balance Sheet
December 31, 2017 and 2016
The change in Accounts Receivable is shown as a negative cash flow in the adjustments to
net income.
Bank errors are posting errors made by the bank that either incorrectly increase or
decrease the bank balance.
If a company allows division managers to negotiate a cost-based transfer price, it is
better to use actual costs rather than standard costs. Otherwise, the selling division has
no motivation to control costs.
When using an activity-based costing system in service companies, the allocation of
indirect costs to the cost object is the last step of the process.
Quality management systems (QMS) are systems that help managers improve the
business’s performance by providing quality products and services.
Freight out is an addition to the Merchandise Inventory account if the seller uses the
perpetual inventory system.
A budget is a financial plan that managers use to coordinate a business’s activities.
The Sarbanes-Oxley Act was passed by the Public Company Accounting Oversight
Board.
A preferred stock is an example of a debt security.
Debit card transactions are considered electronic funds transfer.
Communicating top management’s expectations to segment managers improves goal
congruence.
An amortization schedule details each loan payment’s allocation between principal as
well as interest and the beginning and ending balances of the loan.
A company changes its inventory costing method each period in order to maximize net
income. This is a violation of the consistency principle.
Manufacturing overhead costs, which are also known as indirect costs, cannot be
cost-effectively traced to products.
Management decisions are based primarily on quantitative data because the qualitative
factors are usually not relevant to the decision-making process.
In absorption costing, all product costs are recorded first as assets in the inventory
accounts.
Sales mix, or product mix, is the combination of products that make up total sales.
The statement of retained earnings informs users about how much of the earnings were
kept and reinvested in the company.
The Merchandise Inventory account is an expense account that is used for goods
purchased that the business owns and intends to resell to customers, as well as for
purchase of office supplies and equipment.
A direct labor cost variance is unfavorable if the employer pays workers more per hour
than budgeted.
In a bank reconciliation, a book error will be shown on the bank side of the
reconciliation.
The amount by which sales can decrease before the company incurs an operating loss is
called breakeven point.
Stock dividends have no effect on total stockholders’ equity.
The percent-of-sales method calculates bad debts expense based on a percentage of net
cash sales.
In the weighted-average inventory costing method, when using the periodic inventory
system, a single weighted average cost per using is computed for the entire period.
In cloud computing, the software and data are stored on the company’s server instead of
a third-party server.
Bonds affect the percentage of ownership of a corporation.
For good controls over cash payments, the company officer approving a payment
voucher should be the same as the person who ordered the goods, to ensure that the
correct amount of cash is paid.
Parkinson Ladders Company provides the following financial information:
Calculate return on investment based on the information given above. (Round your answer
to two decimal places.)
A) 15.38%
B) 11.67%
C) 13.33%
D) 11.76%
A company has net credit sales of $91,000, beginning net accounts receivable of
$24,000 and ending net accounts receivable of $16,000. Calculate the days’ sales in
receivables. (Round any intermediate calculations to two decimal places, and your final
answer to the nearest whole day.)
A) 61 days
B) 50 days
C) 91 days
D) 80 days
A company is analyzing its month-end results by comparing it to both static and flexible
budgets. During the previous month, the actual sales volume was lower than the
expected sales volume as per the static budget. This difference results in an unfavorable
________.
A) flexible budget variance for variable costs
B) sales volume variance for variable costs
C) flexible budget variance for sales revenue
D) sales volume variance for sales revenue
Where does net income appear on a worksheet?
A) Net income appears only in the income statement debit column.
B) Net income appears in the balance sheet credit column and in the income statement
debit column.
C) Net income appears in the income statement credit column and in the balance sheet
debit column.
D) Net income appears only in the balance sheet credit column.
Ego Manufacturing produces a pesticide chemical and uses process costing. There are
three processing departments—Mixing, Refining, and Packaging. On January 1, the
Refining Department had 2,000 gallons of partially processed product in production.
During January, 33,000 gallons were transferred in from the Mixing Department, and
29,000 gallons were completed and transferred out. At the end of the month, there were
6,000 gallons of partially processed product remaining in the Refining Department. See
additional details below.
Refining Department, beginning balance at January 1
Quantity: 2,000 units (partially processed)
Cost: $15,600 of costs transferred in
$4,500 of materials cost
$1,000 of conversion cost
21,100 total account balance
Costs added during January
Cost of units transferred in $222,400
Direct materials cost $93,750
Conversion cost $48,000
Refining Department, ending balance at January 31
Quantity: 6,000 units (partially processed)
Percent complete for materials cost: 90%
Percent complete for conversion cost: 75%
What was the cost per equivalent unit with respect to conversion costs for the Refining
Department in the month of January? (Use the weighted-average method, and round
your calculations to the nearest cent.)
A) $1.42
B) $1.46
C) $1.40
D) $8.17
Brink Moving Company reported the following amounts on its balance sheet as of
December 31, 2016 and December 31, 2017:
For the vertical analysis, what is the percentage of current assets as of December 31, 2017?
(Round your answer to two decimal places.)
A) 27.88%
B) 28.25%
C) 39.38%
D) 38.67%
On November 1, 2017, Oster, Inc. declared a dividend of $4.50 per share. Oster, Inc.
has 23,000 shares of common stock outstanding and no preferred stock. Which of the
following is the journal entry needed to record the declaration of the dividend?
A) Debit Dividends Payable—Common $103,500, and credit Retained Earnings
$103,500.
B) Debit Cash Dividends $103,500, and credit Cash $103,500.
C) Debit Cash Dividends $103,500, and credit Dividends Payable—Common $103,500.
D) Debit Cash $103,500, and credit Dividends Payable—Common $103,500.
On November 1, 2017, Austin Services issued $305,000 of five-year bonds with a
stated rate of 12%. The bonds were issued at par, and Austin makes semiannual
payments on April 30 and October 31. On December 31, 2017, Austin made an
adjusting entry to accrue interest at year-end. No further entries were made until April
30, 2018, when the first payment was made. What amount of interest expense was
recorded for the period of January 1 to April 30, 2018?
A) $12,200
B) $36,600
C) $18,300
D) $29,280
A business receives $40,000 for services that it will perform over the next four months.
Which of the following accounts is credited?
A) Cash
B) Accounts Payable
C) Service Revenue
D) Unearned Revenue
Which of the following is true of a network?
A) It connects a computer’s hardware to the software.
B) It does not link computers.
C) It is the same as software.
D) It allows different computers to share the same information.
O’Reilly Corp. purchased a mine on January 1, 2016, for $530,000. The mine is
estimated to contain 39,000 tons of iron ore. There is no residual value. The business
extracted and sold 9,500 tons of ore in 2016 and 13,800 tons of ore in 2017. What is the
book value of the mine at the end of 2017? (Round any intermediate calculations to two
decimal places, and your final answer to the nearest dollar.)
A) $452,000
B) $213,353
C) $371,000
D) $530,000
No journal entries are required for the reconciling items on the bank side because
________.
A) those transactions have already been recorded in the company’s ledger
B) the adjusted balances on both sides are the same amounts
C) the amounts are immaterial
D) those transactions are already included in the bank balance
Which of the following is a weak internal control over cash collections from
receivables?
A) The credit department should have no access to cash.
B) A credit department should evaluate customers’ credit applications to determine
whether they meet the company’s approval standards.
C) A company should have written approval standards for processing customers’ credit
applications.
D) In order to avoid losing sales, all customers’ credit applications should be approved.
On January 1, Biden, Inc.’s Work-in-Process Inventory account had a balance of
$31,900. During the year, $58,500 of direct materials was placed into production.
Manufacturing wages incurred amounted to $85,000, of which $64,500 were for direct
labor. Manufacturing overhead is allocated on the basis of 120% of direct labor cost.
Actual manufacturing overhead was $90,300. Jobs costing $220,800 were completed
during the year. What is the December 31 balance of Work-in-Process Inventory?
A) $154,900
B) $31,900
C) $232,300
D) $11,500
Cash and cash equivalents are divided by ________ to determine the cash ratio.
A) total current liabilities
B) fixed assets
C) equity
D) total long-term liabilities
Trina Productions is a price-taker. The company produces large spools of electrical wire
in a highly competitive market; thus, it uses target pricing. The current market price of
the electric wire is $800 per unit. The company has $3,100,000 in average assets, and
the desired profit is a return of 6% on assets. Assume all products produced are sold.
The company provides the following information:
If fixed costs cannot be reduced, how much reduction in variable costs will be needed to
achieve the desired target?
A) $186,000
B) $13,000,000
C) $1,086,000
D) $75,900,000
Berkley’s gross pay for the month is $14,400.00. His deduction for federal income tax is
based on a rate of 18%. He has no voluntary deductions. His yearly pay is under the
limit for OASDI. What is Berkley’s net pay? (Assume a FICA—OASDI Tax of 6.2%
and FICA—Medicare Tax of 1.45%.)
A) $10,706.40
B) $14,400.00
C) $13,298.40
D) $11,808.00
Which of the following is a true statement regarding the effect of a stock split and stock
dividend on total assets or liabilities?
A) Both a stock split and a stock dividend will decrease total assets.
B) Both a stock split and a stock dividend will increase total liabilities.
C) A stock split will increase total assets, but a stock dividend will not.
D) Neither a stock split nor a stock dividend will affect total assets or total liabilities.
When a company uses the perpetual inventory method, which of the following would
be the entry to adjust inventory to lower-of-cost-or-market?
A) debit Loss on Inventory and credit Merchandise Inventory
B) debit Merchandise Inventory and credit Inventory Adjustment
C) debit Cost of Goods Sold and credit Merchandise Inventory
D) debit Merchandise Inventory and credit Cost of Goods Sold
Whitney Chemicals Company received cash of $40,000 and issued common stock.
Which of the following accounts will be credited?
A) Accounts Receivable
B) Cash
C) Common Stock
D) Accounts Payable
The ________ section of the statement of cash flows includes increases and decreases
in long-term assets.
A) investing activities
B) financing activities
C) operating activities
D) non-cash operating activities
Which of the following accounting methods is used to account for controlling interest
investments?
A) equity method
B) acquisition method
C) consolidation method
D) discounted cash flow method
Seidner, Inc. provides the following data:
Calculate the asset turnover ratio for 2017. (Round your answer to two decimal places.)
A) 4.01 times
B) 1.07 times
C) 0.60 times
D) 2.14 times
Cassa Company is a price-taker and uses target pricing. Refer to the following
information:
With the current cost structure, Cassa 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 year? Assume all units produced are sold.
A) $11,608,000
B) $12,020,000
C) $5,400,000
D) $17,008,000
On November 1, 2017, President, Inc. declared a dividend of $3.00 per share. President,
Inc. has 10,000 shares of common stock outstanding and 20,000 of preferred stock. The
date of record is November 15, and the payment date is November 30, 2017. Regarding
the date of record, which of the following statements is true?
A) No journal entry is made on the date of record.
B) The liability must be recorded on the date of record.
C) Cash is disbursed to shareholders on the date of record.
D) The company transfers cash to a brokerage firm on the date of record.
Dunby, Inc. is a consulting firm that offers optimal legal solutions. It allocates indirect
costs using a single predetermined overhead allocation rate with direct labor hours as
the allocation base. The estimated indirect costs for this year amount to $160,000. The
company is expected to work 6,000 direct labor hours during the year. The direct labor
rate is $200 per hour. Clients are billed at 120% of direct labor cost. Last month,
Dunby’s consultants spent 170 hours on Xyme, Inc. What is the predetermined
overhead allocation rate per direct labor hour?
A) $800 per hour
B) $27 per hour
C) $941 per hour
D) $30 per hour
Maywood, Inc. signs a $11,000, 8.5%, six-month note dated November 1, 2017. The
interest expense recorded for this note in 2017 will be ________.
A) $935
B) $156
C) $468
D) $312
Nordic Avionics makes aircraft instrumentation. Its basic navigation radio requires $70
in variable costs and $3,000 per month in fixed costs. Further processing the radio, to
enhance its functionality, will require an additional $26 per unit of variable costs but no
change to the fixed costs. The marketing manager believes that the company would be
able to increase the sales price from $270 to $290. If Nordic decides to further process
the product, operating income would ________.
A) remain the same
B) increase by $26 per unit
C) increase by $96 per unit
D) decrease by $6 per unit
Titanium, Inc. reports the following information for April:
What is the contribution margin ratio of Beta? (Round your answer to two decimal places.)
A) 16.67%
B) 10.67%
C) 42.86%
D) 6.00%
Jason Retail had the following balances and transactions during 2017.
The company maintains its records of inventory on a perpetual basis using the FIFO
inventory costing method. Calculate the amount of ending Merchandise Inventory at
December 31, 2017 using the lower-of-cost-or-market rule.
A) $810
B) $830
C) $1,660
D) $2,490
Which of the following statements is true of the worksheet?
A) Net income is recorded in the income statement credit column.
B) Net income is recorded in the adjusted trial balance debit column.
C) Net income is recorded in the income statement debit column.
D) Net income is recorded in the balance sheet debit column.
Which of the following is a condition to record an investment as an available-for-sale
security?
A) The investor plans to hold the debt security until it matures.
B) The investor should have a significant interest in the voting stock of the investee.
C) It must be a debt security.
D) The ownership in the voting stock of the investee should be less than 20 percent.
Crossword, Inc. uses the direct method to prepare its statement of cash flows. Refer to
the following financial statement information for the year ended December 31, 2017:
Crossword, Inc.
Comparative Balance Sheet
December 31, 2017 and 2016
Crossword, Inc.
Comparative Balance Sheet
December 31, 2017 and 2016
Use the direct method to compute the payments to suppliers for Merchandise Inventory
and other operating expenses. (Accrued Liabilities relate to other operating expense.)
A) $197,000
B) $177,500
C) $19,500
D) $201,000
Which of the following financial statements lists the entity’s assets, liabilities, and
stockholders’ equity as of a specific date?
A) Balance sheet
B) Statement of retained earnings
C) Income statement
D) Statement of cash flows
At the end of the year, Beta, Inc. has an unadjusted debit balance in the Manufacturing
Overhead account of $4,000. The adjusting journal entry needed to adjust the balance to
zero will include a ________.
A) debit to Cost of Goods Sold $4,000 and credit to Manufacturing Overhead $4,000
B) debit to Manufacturing Overhead $4,000 and credit to Cost of Goods Sold $4,000
C) debit to Work-in-Process Inventory $4,000 and credit to Manufacturing Overhead
$4,000
D) debit to Gross Profit $4,000 and credit to Cost of Goods Sold $4,000
On January 1, Springfield Corp. accepted a one-year note for $5,000 at 4% from one of
its customers. When the note matured on December 31, the customer was unable to pay,
and the company treated it as a dishonored note. Prepare the journal entry that
Springfield will make to record the dishonored note.
On March 1, 2016, LeBlanc, Inc. paid $60,000 for office rent covering the three-month
period ending May 31, 2016. Journalize the adjusting entry on March 31 by using the
alternative treatment of deferred expenses.
Data for Kalil, Inc. follows:
Kalil, Inc.
Comparative Income Statement
Years Ended Dec. 31, 2017 and 2016
2017 2016
Net Sales Revenue $550,000 $500,000
Expenses:
Cost of Goods Sold 245,000 220,000
Selling and Administrative Expenses 100,000 96,000
Other Expenses (Interest Expense) 12,000 9,000
Income Tax Expense 58,000 47,000
Total Expenses $415,000 $372,000
Net Income $135,000 $128,000
Prepare a horizontal analysis of the comparative income statement of Kalil, Inc. (Round
to one decimal place.) Use a multi-step format for the income statement.
Complete the following table:
Data for Nobell, Inc. follow:
Nobell, Inc.
Comparative Balance Sheet
December 31, 2017 and 2016
2017 2016
Assets
Current Assets:
Cash $121,000 $100,000
Accounts Receivables, Net 117,000 125,000
Merchandise Inventory 70,000 85,000
Total Assets $308,000 $310,000
Liabilities
Total Current Liabilities $63,500 $50,000
Long-term Liabilities 100,000 100,000
Total Liabilities 163,500 150,000
Stockholders’ Equity
Retained Earnings 94,500 110,000
Common Stockholders’ Equity 50,000 50,000
Total Liabilities and Stockholders’ Equity $308,000 $310,000
Prepare a horizontal analysis of the comparative balance sheet of Nobell, Inc. (Round to
one decimal place.)
What is the margin of safety? List three ways in which margin of safety can be
expressed.
Explain the difference between price-takers and price-setters.
Managers can use activity-based management to make what two kinds of decisions?
The following is the adjusted trial balance as of December 31, 2016 of Aims
Photography:
Provide the closing entry for expenses.
Use the following to calculate the inventory turnover ratio for the year 2017.
2017 2016
Cost of Goods Sold 585,000 475,000
Merchandise Inventory 320,000 295,000
List two objectives in setting transfer prices.
The following is the adjusted trial balance as of December 31, 2016 of Mason
Photography:
Provide the closing entry for revenues.
Henderson Products is a price-setter that uses the cost-plus pricing approach. The
products are specialty components used in industrial equipment. The CEO is certain
that the company can produce and sell 500,000 units per year, due to the high demand
for the product. Variable costs are $3.25 per unit. Total fixed costs are $860,000 per
year. The target operating income for the year is $150,000. What sales price would
allow the CEO to achieve the target if the cost-plus pricing method is used? (Round
your answer to nearest cent.) Show all computations.
Reid Art Supply Company uses a perpetual inventory system. The company had the
following transactions during August 2017:
Aug. 5: Purchased $2,900 of merchandise on account. Freight and credit terms were
FOB shipping point, 3/15, n/60.
Aug. 9: Paid transportation costs of $440 for the Aug. 5 purchase.
Aug. 10: Returned $600 of defective merchandise that had been purchased on Aug. 5.
Aug. 15: Paid for the merchandise purchased on Aug. 5.
Give journal entries for August 10 and 15.
Complete the statement, using the following terms: increase, decrease, or have no
effect on.
Decreases in sales price per unit_______ contribution margin per unit and ________
the breakeven point.
Ipswich Corporation is considering an investment opportunity with the expected net
cash inflows of $300,000 for four years. The residual value of the investment, at the end
of four years, would be $70,000. The company uses a discount rate of 14%, and the
initial investment is $290,000. Calculate the NPV of the investment.
Present value of an ordinary annuity of $1:
Present value of $1:
At the end of the year, Delta, Inc. has an unadjusted debit balance in the Manufacturing
Overhead account of $3,950. Provide the year-end adjusting entry needed to adjust the
account.
Musings, Inc. completed the production of 500 units with standard costs of $520 for
direct materials and $75 for conversion costs. During the current year, it incurred
$260,000 for direct materials and $31,000 for conversion costs. Record the adjusting
entry for the amount of underallocated or overallocated conversion costs.
Prepare the journal entry to record an uncollectible account receivable of $10,000,
using the direct write-off method.