In a partnership liquidation, gains and losses on the sale of partnership assets are
divided among the partners’ capital accounts on the basis of their capital balances.
Answer:
The customers subsidiary ledger is controlled by the general ledger account entitled
Accounts Payable.
Answer:
Under the perpetual inventory system, a company purchases merchandise on terms
2/10, n/30. If payment is made within 10 days of the purchase, the entry to record the
payment will include a credit to Cash and a credit to Purchase Discounts.
Answer:
The process by which management plans, evaluates, and controls long-term investment
decisions involving fixed assets is called cost-volume-profit analysis.
Answer:
In the job order system, the finished goods account is the controlling account for the
factory overhead ledger.
Answer:
When you are interpreting financial ratios, it is useful to compare a company’s ratios to
some form of standard.
Answer:
Custom-made goods would be accounted for using a process costing system.
Answer:
When a partner invests noncash assets in a partnership, the assets are recorded at the
partner’s book value.
Answer:
When the board of director’s declares a cash or stock dividend, this action decreases
retained earnings.
Answer:
A transaction that is recorded in the journal is called a journal entry.
Answer:
If a firm has a quick ratio of 1, the subsequent payment of an account payable will
cause the ratio to increase.
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Nonmanufacturing costs are classified into two categories: selling and administrative.
Answer:
The balance of the account can be determined by adding all of the debits, adding all of
the credits, and adding the amounts together.
Answer:
In calculating the present value of an investment in equipment, the present value of the
terminal residual value should be added to the cash inflows.
Answer:
The ratio of income from operations to sales is termed the profit margin component of
the rate of return on investment.
Answer:
Most companies will not take a purchases discount, because 1% or 2% discounts are
insignificant.
Answer:
The rate earned on total assets measures the profitability of total assets, without
considering how the assets are financed.
Answer:
The drawing account is a temporary account.
Answer:
The work sheet is a working paper that accountants can use to summarize adjusting
entries and the account balances for the financial statements.
Answer:
The amount that a partner withdraws as a monthly salary allowance does not affect the
division of net income.
Answer:
A decentralized business organization is one in which all major planning and operating
decisions are made by top management.
Answer:
The profit center income statement should include only controllable revenues and
expenses.
Answer:
At year-end, the balance in the prepaid insurance account, prior to any adjustments, is
$6,000. The amount of the journal entry required to record insurance expense will be
$4,000 if the amount of unexpired insurance applicable to future periods is $2,000.
Answer:
Conversion costs are usually incurred evenly throughout a process.
Answer:
Once the useful life of a depreciable asset has been estimated and the amount to be
depreciated each year has been determined, the amounts can not be changed.
Answer:
Office Equipment is an example of a current asset account.
Answer:
Though favorable volume variances are usually good news, if inventory levels are too
high, additional production could be harmful.
Answer:
Closing entries for a merchandising business are not similar to those for a service
business.
Answer:
A major disadvantage of the indirect method of reporting cash flows from operating
activities is that the difference between the net amount of cash flows from operating
activities and net income is emphasized.
Answer:
In most businesses, cost standards are established principally by accountants.
Answer:
When the voucher system is used, the amount due on each voucher represents the credit
balance of an account payable if the voucher is in full payment to a creditor.
Answer:
The budgeted direct materials purchases is normally computed as the sum of (1) the
materials for production and (2) the desired ending inventory.
Answer:
A contra asset account for Land will normally appear in the balance sheet.
Answer:
A building with a cost of $153,000 and accumulated depreciation of $42,000 was sold
for a $11,000 gain. When using the indirect method, the cash generated from this
investing activity was $121,000.
Answer:
The statement of cash flows shows the effects on cash of a company’s operating,
investing, and financing activities.
Answer:
Supervisor salaries, maintenance, and indirect factory wages would normally appear in
the factory overhead cost budget.
Answer:
For an interest bearing note payable, the amount borrowed is equal to the face amount
of the note.
Answer:
Freight-in is considered a cost of purchasing inventory.
Answer:
In rate of return on investment analysis, the investment turnover component focuses on
efficiency in the use of assets and indicates the rate at which sales are being generated
for each dollar of invested assets.
Answer:
When a large number of individual accounts with a common characteristic are grouped
together, accounting calls this a controlling account.
Answer:
Partridge Co. can further process Product J to produce Product D. Product J is currently
selling for $21 per pound and costs $15.75 per pound to produce. Product D would sell
for $38 per pound and would require an additional cost of $9.25 per pound to produce.
What is the differential cost of producing Product D?
A.$6.50 per pound
B.$9.25 per pound
C.$17 per pound
D.$5.25 per pound
Answer:
Fees receivable would appear on the balance sheet as a(n)
A.asset
B.liability
C.fixed asset
D.unearned revenue
Answer:
On the first day of the fiscal year, Hawthorne Company obtained a $ 88,000,
seven-year, 5% installment note from Sea Side Bank. The note requires annual
payments of $15,208, with the first payment occurring on the last day of the fiscal year.
The first payment consists of interest of $4,400 and principal repayment of $10,808.
The journal entry Hawthorne would record to make the first annual payment due on the
note would include:
A.a debit to Cash of $15,208
B.a credit to Notes Payable for $10,808
C.a debit to Interest Expense for $4,400
D.a debit to Notes Payable for $15,208
Answer:
For which of the following businesses would the job order cost system be appropriate?
A.Meat processor
B.Automobile manufacturer
C.Oil refinery
D.Construction contractor
Answer:
Zipee Inc.’s unit selling price is $90, the unit variable costs are $40.50, fixed costs are
$170,000, and current sales are 12,000 units. How much will operating income change
if sales increase by 5,000 units?
A.$125,000 decrease
B.$175,000 increase
C.$75,000 increase
D.$247,500 increase
Answer:
At the end of April, the first month of the year, the usual adjusting entry transferring
rent earned to a revenue account from the unearned rent account was omitted. Indicate
which items will be incorrectly stated, because of the error, on (a) the income statement
for April and (b) the balance sheet as of April 30. Also indicate whether the items in
error will be overstated or understated.
Answer:
Which one of the following below is not an element of internal control?
A.risk assessment
B.monitoring
C.information and communication
D.cost-benefit considerations
Answer:
Which of the following is not true of a corporation?
A.It may enter into binding legal contracts in its own name.
B.It may sue and be sued.
C.The acts of its owners bind the corporation.
D.It may buy, own, and sell property.
Answer:
Flyer Company sells a product in a competitive marketplace. Market analysis indicates
that their product would probably sell at $48 per unit. Flyer management desires a
12.5% profit margin on sales. Their current full cost per unit for the product is $44 per
unit.
What is the target cost of the company’s product?
A.$44
B.$42
C.$43
D.$40
Answer:
A partnership liquidation occurs when
A.a new partner is admitted
B.a partner dies
C.the ownership interest of one partner is sold to a new partner
D.the assets are sold, liabilities paid, and business operations terminated
Answer:
In capital rationing, an initial screening of alternative proposals is usually performed by
establishing minimum standards. Which of the following evaluation method(s) are often
used?
A.Cash payback method and average rate of return method
B.Average rate of return method and net present value method
C.Net present value method and cash payback method
D.Internal rate of return and net present value methods
Answer:
A new partner may be admitted to a partnership by
A.inheriting a partnership interest
B.contributing assets to the partnership
C.purchasing a specific quantity of assets from the partnership
D.a written approval under the federal law
Answer:
Radley and Smithers share income and losses in a 2:1 ratio after allowing for salaries to
Radley of $48,000 and $60,000 to Smithers. Net income for the partnership is $96,000.
Income should be divided as follows:
A.Radley, $48,000; Smithers, $48,000
B.Radley, $56,000; Smithers, $40,000
C.Radley, $64,000; Smithers, $32,000
D.Radley, $40,000; Smithers, $56,000
Answer:
Assuming that the standard fixed overhead rate is based on full capacity, the cost of
available but unused productive capacity is indicated by the:
A.factory overhead cost volume variance
B.direct labor cost time variance
C.direct labor cost rate variance
D.factory overhead cost controllable variance
Answer:
Selected transactions completed by a proprietorship are described below. Indicate the
effects of each transaction on assets, liabilities, and owner’s equity by inserting “+” for
increase and “-” for decrease in the appropriate columns at the right. If appropriate, you
may insert more than one symbol in a column.
Answer:
An asset was purchased for $58,000 and originally estimated to have a useful life of 10
years with a residual value of $3,000. After two years of straight line depreciation, it
was determined that the remaining useful life of the asset was only 2 years with a
residual value of $2,000.
a) Determine the amount of the annual depreciation for the first two years.
b) Determine the book value at the end of the 2nd year.
c) Determine the depreciation expense for each of the remaining years after revision.
Answer:
Soledad and Winston are partners who share income in the ratio of 1:3 and have capital
balances of $100,000 and $140,000 at the time they decide to terminate the partnership.
After all noncash assets are sold and all liabilities are paid, there is a cash balance of
$130,000. What amount of loss on realization should be allocated to Soledad?
A.$60,000
B.$27,500
C.$92,500
D.$32,500
Answer:
Zennia Company provides its employees with varying amount of vacation per year,
depending on the length of employment. The estimated amount of the current year’s
vacation cost is $135,000. The journal entry to record the adjusting entry required on
December 31, the end of the current year, to record the current month’s accrued
vacation pay is
A.$135,000
B.$67,500
C.$0
D.$11,250
Answer:
The entry to adjust the accounts for wages accrued at the end of the accounting period
is
A.debit Wages Payable; credit Wages Income
B.debit Wages Income; credit Wages Payable
C.debit Wages Payable; credit Wages Expense
D.debit Wages Expense; credit Wages Payable
Answer:
For the year ending December 31, Orion, Inc. mistakenly omitted adjusting entries for
$1,500 of supplies that were used, (2) unearned revenue of $4,200 that was earned, and
(3) insurance of $5,000 that expired. For the year ending December 31, what is the
effect of these errors on revenues, expenses, and net income?
A.Revenues are overstated by $4,200.
B.Net income is overstated by $2,300.
C.Expenses are overstated by $6,500.
D.Expenses are understated by $3,500.
Answer:
The graph of a variable cost when plotted against its related activity base appears as a:
A.circle
B.rectangle
C.straight line
D.curved line
Answer:
Which of the following would not normally operate as a service business?
A.Pet Groomers
B.Grocers
C.Lawn Care Company
D.Styling Salon
Answer:
The manufacturing cost of Mocha Industries for three months of the year are provided
below:
Using the high-low method, determine the (a) variable cost per unit, and (b) the total
fixed costs.
Answer:
Which of the following group of companies are all examples of a merchandising
business?
A.Delta Airlines, Marriott, Gap
B.Gap, Amazon, NIKE
C.GameStop, Sony, Dell
D.GameStop, Best Buy, Gap
Answer:
Which of the following describes the behavior of the variable cost per unit?
A.Varies in increasing proportion with changes in the activity level
B.Varies in decreasing proportion with changes in the activity level
C.Remains constant with changes in the activity level
D.Varies in direct proportion with the activity level
Answer:
The entry to record the return of merchandise from a customer would include a
A.debit to Sales
B.credit to Sales
C.debit to Sales Returns and Allowances
D.credit to Sales returns and Allowances
Answer:
The following data are taken from the financial statements:
Answer:
On October 1, Black Company receives a 9% interest bearing note from Reese
Company to settle a $20,000 account receivable. The note is due in six months. At
December 31, Black should record interest revenue of
A.$0
B.$450
C.$900
D.$1,800
Answer:
ABC Corporation has three service departments with the following costs and activity
base:
ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and
activity information are as follows:
What will the income of the Super Division be after all service department allocations?
A.$300,000
B.$325,000
C.$550,000
D.$200,000
Answer:
Which of the following statements is true regarding fixed and variable costs?
A.Both costs are constant when considered on a per unit basis.
B.Both costs are constant when considered on a total basis.
C.Fixed costs are constant in total, and variable costs are constant per unit.
D.Variable costs are constant in total, and fixed costs vary in total.
Answer:
The net income reported on an income statement for the current year was $63,000.
Depreciation recorded on fixed assets for the year was $24,000. Balances of the current
asset and current liability accounts at the end and beginning of the year are listed below.
Prepare the cash flows from operating activities section of a statement of cash flows
using the indirect method.
Answer:
Based on the following, what is free cash flow?
Answer:
The following information was taken from a recent annual report of Harrison Company:
(in millions)
Answer:
Match the following terms with the best definition given.
Answer:
Journalize the entries to record the following selected bond investment transactions for
Southwest Bank:
Answer:
Doran Technologies produces a single product. Expected manufacturing costs are as
follows:
Variable costs
Direct materials $4.00 per unit
Direct labor $1.20 per unit
Manufacturing overhead $0.95 per unit
Fixed costs per month
Depreciation $6,000
Supervisory salaries $13,500
Other fixed costs $3,850
Estimate manufacturing costs for production levels of 25,000 units, 30,000 units, and
35,000 units per month.
Answer:
The following data were extracted from the accounting records of Meridian Designs for
the year ended March 31, 2014.
Prepare the cost of merchandise sold section of the income statement for the year ended
March 31, 2014, using the periodic method. Also determine gross profit.
Answer:
Warmfeet manufactures comforters. Assume the estimated inventories on January 1,
2012, for finished goods, work in process, and materials were $39,000, $33,000 and
$27,000 respectively. Also assume the desired inventories on December 31, 2012, for
finished goods, work in process, and materials were $42,000, $35,000 and $21,000
respectively. Direct material purchases were $575,000. Direct labor was $212,000 for
the year. Factory overhead was $156,000. Prepare a cost of goods sold budget for
Warmfeet, Inc.
Answer:
Sorenson Co., is considering the following alternative plans for financing their
company:
Income tax is estimated at 40% of income.
Determine the earnings per share of common stock under the two alternative financing
plans, assuming income before bond interest and income tax is $1,000,000.
Answer:
The Cavy Company estimates that the factory overhead for the following year will be
$1,470,000. The company has decided that the basis for applying factory overhead
should be machine hours, which is estimated to be 40,000 hours. Calculate the
predetermined overhead rate to apply factory overhead.
Answer:
The assets and liabilities of Amos Moving Services at March 31, 2014, the end of the
current year, and its revenue and expenses for the year are listed below. The capital of
the owner was $180,000 at April 1, 2013, the beginning of the current year. Mr. Amos
invested an additional $25,000 in the business during the year.
Prepare a statement of owner’s equity for the current year ended March 31, 2014.
Answer:
A machine costing $85,000 with a 5-year life and $5,000 residual value was purchased
January 2, 2011. Compute depreciation for each of the five years, using the
declining-balance method at twice the straight-line rate.
Answer:
The end-of-period spreadsheet (work sheet) for the current year for Jamal Company
shows Balance Sheet columns with a debit total of $630,430 and a credit total of
$614,210. This is before the amount for net income or net loss has been included. In
preparing the income statement from work sheet, what is the amount of net income or
net loss?
Answer:
Solar Company has 600,000 shares of $75 par common stock outstanding. On February
13, Solar declared a 3% stock dividend to be issued on April 30 to stockholders of
record on March 14. The market price of the stock was $90 per share on February 13.
Journalize the entries required on February 13, March 14, and April 30.
Answer:
Bradenton Company reports the following for 2012:
* Net of any tax effect
Answer:
Stephanie Roe utilizes the direct write-off method of accounting for uncollectible
receivables. On September 15th she is notified by the attorneys for Jacob Marley that
Jacob Marley is bankrupt and no cash is expected in the liquidation of Jacob Marley.
Write off the $675 of accounts receivable due Jacob Marley.
Answer: