Direct labor costs are accumulated in the Manufacturing Overhead account.
For a centralized company, the major planning and controlling decisions are made by
top management.
The terms of payment for a note receivable are generally longer than that of an account
receivable.
The cost-plus pricing approach is emphasized by price-setters.
The balanced scorecard is a performance evaluation system that requires management
to consider financial measures of performance, but not nonfinancial measures.
All else being equal, the shorter the investment period, the higher the total amount of
interest earned.
Wellesley, Inc. uses the indirect method to prepare the statement of cash flows. Refer to
the following section of the comparative balance sheet:
Wellesley, Inc.
Comparative Balance Sheet
December 31, 2017 and 2016
The change in Merchandise Inventory is shown as a negative cash flow in the adjustments
to net income.
The Other Accounts DR columns of a purchases journal are used for recording
merchandise inventory and office supplies.
The bank statement reports the activity in the customer’s account and issued on an
annual basis.
Managerial accounting provides financial statements that report results of operations,
financial position, and cash flows both to managers and to external stockholders.
Long-term investments are investments in bonds or stocks in which the company
intends to hold the investment for longer than one year.
A net loss for the year decreases the balance in Retained Earnings.
Jupiter Service Company decides to increase the amount of the petty cash fund from
$500 to $600. A journal entry must be made to debit the Cash account and credit the
Petty Cash account for $100.
When direct materials are received on the production floor, they are recorded on the job
cost record.
In the case of a deferred expense, the adjusting entry required at the end of a period will
consist of a debit to the Prepaid Expense account. Assume the deferred expense was
initially recorded as an asset.
A debtor is a party to a credit transaction who will receive the cash for the transaction at
a later date.
In a multi-step income statement, interest revenue and interest expense are included in
operating income.
The breakeven point is the point where the sales revenues are equal to the total variable
costs plus the total fixed costs.
Activity-based management is not suitable for service companies as it deals with the
proper allocation of manufacturing overhead costs.
Amortization is the process by which businesses spread the allocation of an intangible
asset’s cost over its useful life.
Royal, Inc. purchases each unit of product X for $100 and can sell it in the market for
$135. The price of the product for Royal would be $100.
A company that is controlled by another corporation is called a parent company.
Unearned revenue is a liability account.
If fixed costs increase, and all other factors remain the same, the margin of safety will
become larger.
The high-low method requires the identification of the lowest and highest levels of total
costs, not activity, over a period of time.
Adjusting entries may involve any account, including Cash.
An accounting information system collects, records, stores, and processes accounting
data to produce information that is useful for decision makers.
The salary of a manufacturing plant manager will be included in manufacturing
overhead.
When preparing the statement of cash flows using the indirect method, a decrease in
current liabilities is added to the net income to arrive at net cash flow from operating
activities.
Quality costs can be hard to measure.
Present value is the amount a person would invest now to receive a greater amount in
the future.
Two methods of analyzing potential capital investments—payback and accounting rate
of return—ignore the time value of money.
If an asset is disposed of when it is fully depreciated and has no residual value, the
business does not need to make a journal entry because the book value is zero.
Laramie, Inc. signed a contract with a service provider for security services at a rate of
$260 per month for the period of January through June. Laramie, Inc. will pay the
service provider the entire amount at the end of June. The company makes adjusting
entries each month. During the month of June, it should record total security expense of
$520.
The payback method provides management with valuable information about the time
period in which the cash invested will be recouped.
A company check for payment must be signed by ________.
A) any employee of the company
B) a bank employee
C) an employee specifically authorized by the company
D) the external auditor
Credit sales of assets other than merchandise inventory occur infrequently and are
recorded in the ________.
A) sales journal
B) cash receipts journal
C) accounts receivable journal
D) general journal
Jack, an employee of Desert Sky, Inc., has gross salary for May of $16,000. The entire
amount is under the OASDI limit of $117,000 and thus subject to FICA. He is also
subject to federal income tax at a rate of 24%. Which of the following is a part of the
journal entry for accrual of the employer payroll taxes? (Assume a FICA—OASDI Tax
of 6.2% and FICA—Medicare Tax of 1.45%.) Jack’s income to date exceeds the FUTA
and SUTA tax income limits.
A) credit to Salaries Payable for $16,000
B) debit to Cash for $11,256.00
C) debit to Employee Income Taxes payable of $3,840.00
D) credit to FICA—Medicare Taxes Payable of $232.00
GAAP refer to guidelines for accounting information in the United States. The acronym
GAAP in this statement refers to ________.
A) Globally Accepted and Accurate Policies
B) Global Accommodation Accounting Principles
C) Generally Accredited Accounting Policies
D) Generally Accepted Accounting Principles
A petty cash fund was established with a $150 balance. It currently has cash of $25 and
petty cash tickets as follows: Office expense $120 and Entertainment Expense $20.
Which of the following would be included in the journal entry to replenish the Petty
Cash fund?
A) debit to Cash Short & Over for $10
B) credit to Cash Short & Over for $15
C) credit to Cash Short & Over for $10
D) debit to Cash Short & Over for $15
Steel Rolling Corp. purchased a mine, which holds an estimated 38,000 tons of iron ore,
on January 1, 2017, for $538,000. The mine is expected to have zero residual value. The
business extracted and sold 15,500 tons of ore in 2017 and 8,800 tons of ore in 2018.
What is the depletion expense for 2017? (Round any intermediate calculations to two
decimal places, and your final answer to the nearest dollar.)
A) $124,608
B) $219,480
C) $86,608
D) $318,600
Arthur, Inc. plans to develop a shopping center. In the first quarter, the following
amounts were spent:
What amount should be recorded as the land improvement cost?
A) $9,100
B) $10,500
C) $19,060
D) $2,500
Riverside Manufacturing provided the following information for the month ended
March 31:
Compute gross profit.
A) $5,900
B) $15,400
C) $24,900
D) $7,900
Misty, Inc. had 24,000 units of ending inventory that were recorded at the cost of $6.00
per unit using the FIFO method. The current replacement cost is $4.75 per unit. Which
of the following amounts would be reported as Ending Merchandise Inventory on the
balance sheet using the lower-of-cost-or-market rule?
A) $144,000
B) $258,000
C) $168,000
D) $114,000
When does a company account for revenue if it uses cash basis accounting?
A) when services are performed, even though cash may be received at a later date
B) when cash is received after the service is performed
C) when the services are being performed
D) when cash is received, either prior to, at the time of, or after the services are
performed
The sales volume variance is the difference between the ________.
A) actual results and the expected results in the flexible budget for the actual units sold
B) expected results in the flexible budget for the actual units sold and the static budget
C) static budget and actual amounts due to differences in sales price
D) flexible budget and static budget due to differences in fixed costs
Angela’s gross pay for the week is $970.00. Her deduction for federal income tax is
based on a rate of 20%. She has voluntary deductions of $220.00. Her yearly pay is
under the limit for OASDI. What is the amount of FICA—Medicare Tax deducted from
her pay? (Assume a FICA—OASDI Tax of 6.2% and FICA—Medicare Tax of 1.45%.)
A) $194.00
B) $14.07
C) $60.14
D) $268.21
The following details are provided by Blue Bell Merchandisers. The company uses the
periodic inventory system.
Calculate the amount of net purchases.
A) $153,000
B) $88,500
C) $90,000
D) $107,000
Gray Financial Services, Inc. invested $33,000 to acquire 6,250 shares of Mitt
Investments, Inc. on March 15, 2013. This investment represents less than 20% of the
investee’s voting stock. On May 7, 2017, Gray Financial Services, Inc. sells 2,500
shares for $19,250. When the journal entry to record the sale is made, ________.
A) Gain on Disposal will be credited
B) Long-term Investments—Available-for-Sale will be debited
C) Cash will be credited
D) Long-term Investments—Held-to-Maturity will be debited
Regarding relevant nonfinancial information, which of the following statements is
incorrect?
A) Nonfinancial, or qualitative, factors play a role in managers’ decisions and, as a
result, can be relevant.
B) Relevant qualitative information has the same characteristics as relevant financial
information.
C) Managers must always consider the potential quantitative and qualitative effects of
their decisions.
D) Qualitative factors can be ignored because these factors are difficult to measure.
For a manufacturing company, which of the following is a period cost?
A) direct materials used
B) office rent
C) wages expense of factory workers
D) indirect materials used
The financial statements for Stephens’ Electric Company include the following items:
Compute the 2016 cash ratio. (Round your answer to two decimal places.)
A) 1.29
B) 1.15
C) 2.03
D) 0.63
Marygrove Glassware Company issues $1,014,000 of 10%, 10-year bonds at 97 on
February 28, 2017. The bond pays interest on February 28 and August 31. On August
31, 2017, how much cash did Marygrove pay to the bondholders?
A) $51,968
B) $50,700
C) $101,400
D) $49,432
Selected data for Lemon Grass, Inc. for the year are provided below:
What is the total manufacturing overhead?
A) $442,000
B) $56,000
C) $69,700
D) $13,700
MFL Sales expects to sell 460 units of Product A and 450 units of Product B each day at
an average price of $15 for Product A and $33 for Product B. The expected cost for
Product A is 38% of its selling price and the expected cost for Product B is 57% of its
selling price. MFL Sales has no beginning inventory, but it wants to have a six-day
supply of ending inventory for each product. Compute the budgeted cost of goods sold
for the next (seven-day) week. (Round the answer to the nearest dollar.)
A) $67,032
B) $66,519
C) $130,500
D) $77,606
First Street, Inc. has 6 units in ending merchandise inventory on December 31. The
units were purchased in November for $190 each. The price lists from suppliers indicate
the current replacement cost of the item to be $182 each. Which of the following
statements is true of the effects of the adjustments to ending merchandise inventory on
the cost of goods sold?
A) The cost of goods sold would increase by $8.
B) The cost of goods sold would not be affected.
C) The cost of goods sold would decrease by $48.
D) The cost of goods sold would increase by $48.
An automobile parts retailer purchases merchandise inventory on account. When using
a manual accounting information system, this transaction is recorded in the ________.
A) purchases journal
B) general journal
C) cash payments journal
D) sales journal
Madison Company has provided the following information:
What is the amount of sales in dollars required for Madison to break even? (Round any
percentages to two decimal places and your final answer to the nearest dollar.)
A) $711
B) $23,273
C) $582
D) $12,800
Rocca Hats, Inc. has two product lines—batting helmets and football helmets. The
income statement data for the most recent year is as follows:
Assuming the football helmet line is dropped, total fixed costs remain unchanged, and the
space formerly used to produce the football helmet line is used to double the production of
batting helmets, operating income will be ________.
A) $450,000
B) $180,000
C) $720,000
D) $360,000
When a company is preparing a budgeted statement of cash flows, the payments to
suppliers for purchases of direct materials can be obtained from the ________.
A) cash budget
B) sales budget
C) production budget
D) budgeted balance sheet
On January 1 Primary Manufacturing had a beginning balance in Work-in-Process
Inventory of $81,900 and a beginning balance in Finished Goods Inventory of $20,000.
During the year, Primary incurred manufacturing costs of $351,000.
In addition, the following transactions occurred during the year:
Job A-12 was completed for a total cost of $122,000 and was sold for $128,000.
Job A-13 was completed for a total cost of $206,000 and was sold for $212,000.
Job A-15 was completed for a total cost $61,000 but was not sold as of year-end.
The Manufacturing Overhead account had an unadjusted credit balance of $12,000, and
was adjusted to zero at year-end.
What was the final balance in the Cost of Goods Sold account?
A) $316,000 debit balance
B) $340,000 debit balance
C) $328,000 debit balance
D) $12,000 credit balance
Which of the following is an example of a direct labor cost standard?
A) $40 per direct labor hour
B) 50 square feet per unit
C) $0.95 per square foot
D) 0.5 direct labor hours per unit
Which of the following correctly describes the accounting for administrative expenses
of a manufacturing company?
A) Administrative expenses are product costs and are expensed as incurred.
B) Administrative expenses are period costs and are expensed as incurred.
C) Administrative expenses are product costs and are expensed when the manufactured
product is sold.
D) Administrative expenses are period costs and are expensed when the manufactured
product is sold.
Door to Door Moving Company is considering purchasing new equipment that costs
$720,000. Its management estimates that the equipment will generate cash flows as
follows:
Present value of $1:
The company’s annual required rate of return is 8%. Using the factors in the table,
calculate the present value of the cash inflows. (Round all calculations to the nearest whole
dollar.)
A) $38,804
B) $774,000
C) $884,000
D) $885,326
Which of the following correctly describes the term cost driver?
A) the inflation rate that causes costs to rise
B) the average inventory costs incurred at any point of time
C) the primary factor that causes a cost to be incurred
D) the total material, labor, and overhead costs of a completed job
Which of the following sections of the statement of cash flows includes activities that
increase and decrease long-term liabilities and stockholders’ equity?
A) the financing activities section
B) the operating activities section
C) the investing activities section
D) the non-cash investing and financing section
Oxygen, Inc. reports the following information:
Assume that the production costs and sales prices were the same in the previous year.
Assume no beginning inventories.
Requirements:
a) Calculate unit product cost using absorption costing and variable costing.
b) Calculate the operating income using absorption costing and variable costing.
Which of the following accounts will be included in a post-closing trial balance?
A) Service Revenue
B) Rent Expense
C) Interest Expense
D) Unearned Revenue
Perfect Clean, Inc. provides housekeeping services. The following financial data have
been provided.
Calculate the contribution margin and the contribution margin ratio. (Round your
contribution margin to the nearest dollar, and your contribution margin ratio to two
decimal places.)
A) $74,850; 93.56%
B) $60,650; 75.81%
C) $32,950; 41.19%
D) $38,650; 48.31%
The cash ratios of four companies are listed below.
Which company has the maximum ability to repay its current liabilities?
A) Juan Corp.
B) Rose, Inc.
C) Freelance, Inc.
D) Pioneer Corp.
What does the gross profit percentage measure? How is it computed?
What is a contingent liability? Provide two examples of contingencies.
On January 1, 2016, WAX-D purchased equipment for $60,000 cash, expecting it to
remain in service for six years. The equipment is depreciated using the straight-line
method with $2,000 estimated residual value. On April 30, 2018, the equipment was
sold for $48,000 cash. Record depreciation expense for 2018 and the sale of the
equipment on April 30, 2018. (Do not round your intermediate calculations.)
Explore, a travel magazine, collected $500,000 in subscription revenue in May. Each
subscriber will receive an issue of the magazine for each of the next 12 months,
beginning with the June issue. The company uses the accrual method of accounting.
Provide the journal entry for collection of cash in May. (Ignore explanation). Assume
the magazine initially records a liability for the subscription revenue.
What is measured by days’ sales in receivables? Both Smith Enterprises and Jones
Enterprises have credit terms of 2/10, net 30. The days’ sales in receivables are 40 for
Smith Enterprises and 35 for Jones Enterprise. Analyze this information.
Anthem 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. At the date of purchase, Anthem intended to hold
the bonds to maturity. The bonds are disposed of, at face value, on June 30, 2021.
Prepare the journal entry for (omit the explanation) June 30, 2021 (assume that the last
interest payment has already been recorded).
A business hired a repair service to overhaul its plumbing system. The repair service
began work on September 15 and completed it on October 15. The business agreed to
pay the service $4,000 when the work was completed. As of September 30, the work
was 50% complete, and the business made an adjusting entry to accrue repair expense
as of the end of September. On October 15, the work was completed, and the repair
service was paid in full. Provide the journal entry for the cash payment on October 15.
(Ignore explanation).
On October 1, 2017, Zircon Jewelry Company accepted a 4-month, 10% note for
$2,400 in settlement of an overdue account receivable. Interest revenue was accrued
through December 31, 2017. Zircon receives the maturity value of the note at maturity.
Prepare the journal entry to record the collection.
Define indirect cost.
Fun Time Amusement Park provides a variety of attractions. Fun Time sells tickets at
$50 per person as a one-day entrance fee. Variable costs are $28 per person, and fixed
costs are $178,800 per month.
Assume that Fun Time reduces fixed costs from $178,800 per month to $166,500 per
month. Compute the new breakeven point in tickets and in sales dollars.
Selected production and cost data of Westgate Manufacturing Company follow for
June:
On June 30, the Mixing Department ending Work-in-Process Inventory was 80% complete
for materials and 40% complete for conversion costs. The Finishing Department ending
Work-in-Process Inventory was 75% complete for materials and 60% complete for
conversion costs.
Requirements:
1. Compute the equivalent units of production for direct materials and for conversion costs
for the Mixing Department.
2. Compute the equivalent units of production for transferred in costs, direct materials, and
conversion costs for the Finishing Department.
List the four special journals that are often used in a manual accounting information
system. State what types of transactions are recorded in each of these special journals.
McBride Industries completed the following transactions during 2016:
Journalize the transactions (explanations are not required). Round to the nearest dollar.
Five O’Clock, Inc. purchased a van on January 1, 2017, for $800,000. Estimated life of
the van was five years, and its estimated residual value was $90,000. Five O’Clock uses
the straight-line method of depreciation. Prepare the depreciation schedule.
Florian Plant Services completed a special landscaping job for Pierre Designs
Company. Florian uses ABC and has the following predetermined overhead allocation
rates:
Predetermined Overhead
Activity Allocation Base Allocation Rate
Designing Number of designs $275 per design
Planting Number of plants $15 per plant
The Pierre Designs project required $1,200 in landscape materials, $700 in direct labor,
one design, and 35 plants.
Requirements:
1. What is the total cost of the work done for Pierre Designs?
2. If Pierre Designs paid $3,900 for the job, what is the operating income or loss?
3. If Florian desires an operating income of 50% of cost, how much should the
company charge for the Pierre Designs project?