Which of the following is not a benefit of following a well-designed budgeting process?
A. Improved decision-making processes.
B. Improved performance evaluations.
C. Improved coordination of business activities.
D. Assurance of future profits.
E. Improved commitment to meet expected performance by those affected.
Answer:
Changes in accounting estimates are:
A. Considered accounting errors.
B. Reported as prior period adjustments.
C. Accounted for with a cumulative “catch-up” adjustment.
D. Extraordinary items.
E. Accounted for in current and future periods.
Answer:
Stritch Company is trying to decide how many units of merchandise to order each
month. The company’s policy is to have 20% of the next month’s sales in inventory at
the end of each month. Projected sales for August, September, and October are 30,000
units, 20,000 units, and 40,000 units, respectively. How many units must be purchased
in September?
A. 14,000
B. 20,000
C. 22,000
D. 24,000
E. 28,000
Answer:
Clic, Inc. provides the following data for the next four months:
Desired ending inventory:
Raw materials = 30% of next month’s production needs
Finished goods = 20% of next month’s sales
Pounds of raw material required for each finished Unit = 5 lbs.
Direct labor hours per unit = 0.5 hrs
Direct labor rate = $12/hour
Required:
a. Calculate the budgeted production for April and May.
b. Calculate the amount of purchases of raw materials in pounds for April and May.
c. Calculate the cost of direct labor for May.
Answer:
On October 10, 2013, Printfast Company sells a commercial printer for $2,350 with a
one-year warranty that covers parts. Warranty expense is projected to be 4% of sales.
On February 28, 2014, the printer requires repairs. The cost of the parts for the repair is
$80 and Printfast pays their technician $150 to perform the repair. What is the warranty
liability for this printer at the end of 2013?
A. $49.00
B. $84.80
C. $94.00
D. $0, there is no liability at the end of 2013
E. $230.00
Answer:
A company had a fixed interest expense of $6,000, its income before interest expense
and any income taxes was $18,000 and its net income was $8,400. The company’s times
interest earned ratio is equals to
A. 0.33
B. 0.71
C. 1.40
D. 3.00
E. 12,000
Answer:
A corporation purchased a $40,000 delivery truck by paying 4,000 cash and signing a
$36,000 note payable. Immediately prior to this transaction the corporation had assets,
liabilities, and owners’ equity in the amounts of $75,000, $52,000, and $23,000
respectively. What is the total amount of the corporation’s assets after this transaction
has been recorded?
A. $115,000
B. $111,000
C. $79,000
D. $71,000
E. $75,000
Answer:
Use the following information and the indirect method to calculate the net cash
provided or used by operating activities:
A. $22,000
B. $117,000
C. $69,000
D. $37,000
E. $91,000
Answer:
Labor costs in manufacturing can be:
A. Direct or indirect.
B. Indirect or sunk.
C. Direct or payroll.
D. Indirect or payroll.
E. Direct or sunk.
Answer:
Reference: 22_01
Joint products A and B are produced in a single operation from Material M. Three
hundred gallons of Material M, costing $450, produced 200 gallons of Product A,
selling for $2 per gallon, and 100 gallons of Product B, selling for $6 per gallon.
The portion of the $450 cost that should be allocated to Product A using the value basis
of allocation is:
A. $0
B. $180
C. $225
D. $300
E. $425
Answer:
Reference: 21_05
A job was budgeted to require three hours of labor per unit at $8 per hour. The job
consisted of 8,000 units and was completed in 22,000 hours at a total labor cost of
$198,000.
The entry to record the labor costs and variances would include a:
A. debit to Goods in Process for $198,000.
B. credit to Factory Payroll for $192,000.
C. debit to Direct Labor Cost Variance for $6,000.
D. credit to Direct Labor Cost Variance for $6,000.
E. credit to Direct Labor Efficiency Variance for $16,000
Answer:
A planning budget based on a single predicted amount of sales or production volume is
called a:
A. Sales budget.
B. Standard budget.
C. Flexible budget.
D. Fixed budget.
E. Variable budget.
Answer:
Spirit Company, a merchandiser, recently completed its 2013 calendar year. For the
year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash
receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to
Accounts Payable reflect cash payments for inventory, and (5) Other Expenses are paid
in advance and are initially debited to Prepaid Expenses. The company’s balance sheet
and income statement follow:
Additional information on year 2013 transactions:
a. The loss on the cash sale of equipment was $5,875 (details in b).
b. Sold equipment costing $46,500, for a loss of $5,875.
c. Purchased equipment costing $99,000 by paying $35,000 cash and signing a
long-term note payable for the balance.
d. Borrowed $2,000 cash by signing a nonsales-related short-term note payable.
e. Paid $47,500 cash to reduce the long-term notes payable.
f. Issued 2,400 shares of common stock for $20 cash per share.
g. Net income and dividends were the only items that affected retained earnings.
Required: What is the amount of dividends declared and distributed in 2013?
A. $180,350
B. $8,375
C. $61,875
D. $56,600
E. $70,250
Answer:
A plan that lists dollar amounts to be received from disposing of plant assets and dollar
amounts to be spent on purchasing additional plant assets is called a:
A. Cash budget
B. Capital expenditures budget
C. Rolling budget
D. Sales budget
E. Production budget
Answer:
The statement of cash flows reports on cash flows for: A. Operating activities
B. Revenue activities
C. Expense activities
D. Planning activities
E. Equity activities
Answer:
On July 22, a company purchased merchandise inventory at a cost of $5,250 with
credit terms 2/10, net 60. If the company borrows money at 12% to pay for the purchase
on the last day of the discount period and pays the loan off on the last day of the credit
period, what would be the net savings for the company?
A. $99.50
B. $-20.43
C. $84.57
D. $20.43
E. $-84.57
Answer:
On December 1, Martin Company signed a $5,000, 3-month, 6% note payable, with the
principle plus interest due on March 1 of the following year. What amount of interest
expense is accrued at December 31 on the note?
A. $0
B. $25
C. $50
D. $75
E. $300
Answer:
Reference: 19_04
Cool Pools, a manufacturer of above ground pools, began operations on January 1 of
the current year. During this time, the company produced 45,000 units and sold 44,000
units at a sales price of $60 per unit. Cost information for this year is shown in the
following table:
Given the Cool Pools Company data, what is net income using absorption costing?
A. $1,649,480
B. $1,648,600
C. $1,627,150
D. $1,709,480
E. $1,708,600
Answer:
Martin Corporation issued $3,000,000 of 8%, 20-year bonds payable at par value on
January 1, 2013. Interest is payable each June 30 and December 31.
(a) Prepare the general journal entry to record the issuance of the bonds on January 1,
2013.
(b) Prepare the general journal entry to record the first interest payment on June 30,
2013.
Answer:
The following data concerns a proposed equipment purchase:
Assuming that net cash flows are received evenly throughout the year, the accounting
rate of return is:
A. 24.13%
B. 20.98%
C. 95%
D. 59.00%
E. 25.45%
Answer:
Which of the following statements is not true about assets?
A. They are economic resources owned or controlled by the business.
B. They are expected to provide future benefits to the business.
C. They appear on the balance sheet.
D. They appear on the statement of retained earnings.
E. Claims on them are shared between creditors and owners.
Answer:
A performance report compares the differences between:
A. Actual results and predicted results.
B. Actual results over several periods.
C. Predicted results over several periods.
D. Predicted results over several levels of activity.
E. Predicted results and standard results.
Answer:
A product sells for $210 per unit, and its variable costs per unit are $130. The fixed
costs are $420,000. If the firm wants to earn $35,000 after tax income (assume a 30%
tax rate), how many units must be sold?
A. 6,500
B. 6,275
C. 500
D. 5,875
E. 5,500
Answer:
Presented below are terms or phrases preceded by letters (a) through (j) and followed
by a list of definitions 1 through 10. Match the correct definitions with the terms or
phrases by placing the letter of the term or phrase in the answer space provided at the
beginning of the definition.
(a) Budget
(b) Capital expenditure budget
(c) Manufacturing budget
(d) Sales budget
(e) Production budget
(f) Cash budget
(g) Budgeted balance sheet
(h) Continuous budgeting
(i) Selling expense budget
(j) Rolling budgets
_____ (1.) A plan that lists the types and amounts of selling expenses expected during
the budget period.
_____ (2.) A plan that shows the predicted costs for direct materials, direct labor, and
overhead costs to be incurred in manufacturing the units in the production budget.
_____ (3.) An accounting report that presents predicted amounts of the company’s
assets, liabilities, and equity as of the end of the budget period.
_____ (4.) A formal statement of future plans, usually expressed in monetary terms.
_____ (5.) A plan showing the units of goods to be sold and the sales to be derived;
usually the starting point in the budgeting process.
_____ (6.) A plan that lists dollar amounts to be both received from disposing of plant
assets and spent on purchasing additional plant assets to carry out the budgeted business
activities.
______ (7.) The practice of preparing budgets for a selected number of several periods
and revising those budgets as each period is completed.
______ (8.) A plan showing the number of units to be produced each month.
______ (9) A plan that shows the expected cash inflows and outflows during the budget
period, including receipts from loans needed to maintain a minimum cash balance and
repayments of such loans.
______ (10) A new set of budgets added to replace the ones that have lapsed as each
budget period goes by.
Answer:
A company reported the following data related to its ending inventory:
Calculate the lower of cost or-market on both the:
(a) Inventory as a whole.
(b) Inventory applied separately to each product.
Answer:
Sindler Corporation sold 3,000 units of its product at a price of $13 per unit. Total
variable cost per unit is $7.50, consisting of $6.80 in variable production cost and $.70
in variable selling and administrative cost. Compute contribution margin for the
company.
A. $39,000
B. $22,500
C. $16,500
D. $18,600
E. $36,900
Answer:
Narrows Co. is considering the production and sale of a new product line with the
following sales and cost data: unit sales price $125; unit variable costs $75; and total
fixed costs of $140,000. Calculate the break-even point:
a. In units.
b. In dollar sales.
Answer:
The inventory valuation method that results in the lowest taxable income in a period of
inflation is:
A. LIFO method
B. FIFO method
C. Weighted-average cost method
D. Specific identification method
E. Gross profit method
Answer:
The following company information is available for January:
The direct material price variance is:
A. $5,000 favorable
B. $ 300 favorable
C. $5,300 unfavorable
D. $5,000 unfavorable
E. $5,300 favorable
Answer:
A company purchased equipment and signed a seven-year installment loan at 9%
annual interest. The annual payments equal $9,000. The present value factor for an
annuity for seven years at 9% is 5.0330. What value for this equipment should be
recorded on the companys books on the day the contract is signed?
A. $9,000
B. $5,033
C. $63,000
D. $57,330
E. $45,297
Answer:
A company has bonds outstanding with a par value of $100,000. The unamortized
discount on these bonds is $4,500. The company retired these bonds by buying them on
the open market at 97. What is the gain or loss on this retirement?
A. $0 gain or loss
B. $1,500 gain
C. $1,500 loss
D. $3,000 gain
E. $3,000 loss
Answer:
Using the debt to equity ratio, which of the following franchises would be assessed as
having the riskiest financing structure?
A. Franchise A
B. Franchise B
C. Franchise C
D. Franchise D
E. Franchise E
Answer:
Marina, Inc., held 1,500 of Navia common stock with a cost of $36,900. These shares
were classified as a long-term available-for-sale investment. It sold the shares on
December 13 for $42,100. Prepare the necessary journal entry to record this sale.
Answer:
A process cost summary involves computations and analysis at four sequential steps.
These are (1) _________ (2) _____________, (3) _______________, and (4)
______________.
Answer:
A company’s January 1 goods in process inventory contained 30,000 units that were
one-fourth complete with respect to direct labor. The beginning inventory was
completed this year and another 120,000 units were started. Of those started, 80,000
were finished and the remaining 40,000 were left one-fifth complete. Using FIFO,
calculate the equivalent units of production for the year.
Answer:
The rate of interest that borrowers are willing to pay and lenders are willing to accept
for a particular bond and its risk level is the ____________________ of interest.
Answer:
A company paid $500,000 for 12% bonds with a par value of $500,000. The bonds pay
6% interest semiannually on September 1 and March 1. The company intends to hold
the bonds until they mature. Prepare the journal entries for the following dates and
transactions related to this bond acquisition.
(1) Bonds purchased on September 1, 2012.
(2) Year-end adjusting entry, December 31,
(3) Receipt of semiannual interest March 1, 2013.
(4) Redemption of the bonds at maturity on August 31, 2019.
Answer:
The current portion of long-term debt is classified with the
_________________________.
Answer:
Why is the sales budget usually prepared first?
Answer:
On August 31, 2013, Gilliam Corporation’s common stock is priced at $50 per share
before any stock dividend, and the stockholders’ equity section of its balance sheet
appears as follows. Assume that the company declares and immediately distributes a
35% stock dividend.
What is the total amount in the Retained Earnings account immediately after the stock
dividend?
Answer:
Comparative calendar year financial data for a company are shown below:
Calculate:
(1) Return on total assets for 2014.
(2) Return on common stockholders’ equity for 2014.
Answer:
What is a scatter diagram? How is a scatter diagram used to estimate cost behavior?
Answer:
Sales discounts can benefit a seller by decreasing the delay in receiving cash and
___________.
Answer:
Under the ___________ system, each purchase, purchase return and allowance,
purchase discount, and transportation-in transaction is recorded in a separate temporary
account.
Answer:
_____________________ are systems that interpret, transform, and summarize
information for use in analysis and reporting.
Answer:
Materials Corporation sold 12,000 units of its product at a price of $67 per unit. Total
variable cost per unit is $54.94, consisting of $45.05 in variable production cost and
$9.89 in variable selling and administrative cost. Compute the contribution margin for
the company.
Answer:
___________________ refer to reductions in the selling price of merchandise sold to
customers, often involving damaged or defective merchandise that a customer is willing
to purchase with a decrease in the selling price.
Answer: