The difference between the balance of a fixed asset account and the balance of its
related accumulated depreciation account is termed the book value of the asset.
Answer:
Average rate of return equals average investment divided by estimated average annual
income.
Answer:
A responsibility center in which the authority over and responsibility for costs and
revenues is vested in the department manager is termed a profit center.
Answer:
Past performance is the best overall basis for evaluating current performance and
assessing the need for corrective action.
Answer:
If a company has preferred stock, the preferred stock dividend is added to net income
when computing earnings per common share.
Answer:
A job order cost system would be appropriate for a crude oil refining business.
Answer:
The times interest earned ratio is calculated by dividing Bonds Payable by Interest
Expense.
Answer:
The last step of the accounting cycle is to prepare a post-closing trial balance.
Answer:
The method used to calculate the depletion of a natural resource is the straight line
method.
Answer:
A capital expenditures budget is prepared before the operating budgets.
Answer:
The partner capital accounts may change due to capital additions, net income, or
withdrawals.
Answer:
Only large companies such as Wal-Mart, JCP, General Motors, and the Bank of
America can be organized as corporations.
Answer:
When a new partner purchases the entire interest of an old partner, the new partner’s
capital account should be credited for the amount he or she paid to the old partner.
Answer:
All owner’s equity accounts record increases to the accounts with credits.
Answer:
The task of preparing a budget should be the sole task of the most important department
in an organization.
Answer:
A bottleneck begins when demand for the company’s product exceeds the ability to
produce the product.
Answer:
A company is planning to purchase a machine that will cost $24,000, have a six-year
life, and have no salvage value. The company expects to sell the machine’s output of
3,000 units evenly throughout each year. Total income over the life of the machine is
estimated to be $12,000. The machine will generate cash flows per year of $6,000. The
accounting rate of return for the machine is 16.7%.
Answer:
Unrealized gains and losses on trading securities are not included in the calculation of
net income.
Answer:
An advantage of the partnership form of business is that each partner’s potential loss is
limited to that partner’s investment in the partnership.
Answer:
Once the adjusted trial balance is in balance, the flow of accounts will now go into the
financial statements.
Answer:
If the share of losses on realization of the sale of noncash assets exceed the balance in a
partner’s capital account, the resulting balance is called a deficiency.
Answer:
Expenditures that increase operating efficiency or capacity for the remaining useful life
of a fixed asset are betterments.
Answer:
Vertical analysis refers to comparing the financial statements of a single company for
several years.
Answer:
There is a loss on redemption of bonds when bonds are redeemed above carrying value.
Answer:
Supervisor salaries, maintenance, and indirect factory wages would normally appear in
the operating expenses budget.
Answer:
Labor costs that are directly traceable to the product are part of factory overhead.
Answer:
The payback method can be used only when net cash inflows are the same for each
period.
Answer:
The customers ledger and the creditors ledger refer to subsidiary ledgers.
Answer:
When preparing an income statement vertical analysis, each revenue and expense is
expressed as a percent of net income.
Answer:
One reason a dollar today is worth more than a dollar 1 year from today is the time
value of money.
Answer:
Transactions are initially entered into a record called a journal.
Answer:
Make or buy decisions should be made only with related parties.
Answer:
The accounts Purchases, Purchases Returns and Allowances, Purchases Discounts, and
Freight In are found on the balance sheet.
Answer:
A company is planning to purchase a machine that will cost $24,000, have a six-year
life, and have no salvage value. The company expects to sell the machine’s output of
3,000 units evenly throughout each year. Total income over the life of the machine is
estimated to be $12,000. The machine will generate cash flows per year of $6,000. The
payback period for the machine is 4 years.
Answer:
In order to maintain the original value of a trading security, the fair value adjustments
are debited or credited to the account Valuation Allowance for Trading Investments.
Answer:
An accounting system is the methods and procedures used to collect, classify,
summarize, and report the businesses financial information
Answer:
Budgetary slack can be avoided if lower and mid-level managers are requested to
support all of their spending requirements with specific operational plans.
Answer:
The role of accounting is to provide many different users with financial information to
make economic decisions.
Answer:
Adjusting entries affect only expense and asset accounts.
Answer:
One reason that distributions of income and loss are prepared is to obtain the
information to record a closing entry.
Answer:
The total assets and total liabilities of Paul’s Pools, a proprietorship, at the beginning
and at the end of the current fiscal year are as follows:
(a) Determine the amount of net income earned during the year. The owner did not
invest any additional assets in the business during the year and made no withdrawals.
(b) Determine the amount of net income during the year. The assets and liabilities at the
beginning and at the end of the year are unchanged from the amounts presented above.
However, the owner withdrew $53,000 in cash during the year (no additional
investments).
(c) Determine the amount of net income earned during the year. The assets and
liabilities at the beginning and at the end of the year are unchanged from the amounts
presented above. However, the owner invested an additional $35,000 in cash in the
business in June of the current fiscal year (no withdrawals).
(d) Determine the amount of net income earned during the year. The assets and
liabilities at the beginning and at the end of the year are unchanged from the amounts
presented above. However, the owner invested an additional $12,000 in cash in August
of the current fiscal year and made twelve monthly cash withdrawals of $1,500 each
during the year.
Answer:
The St. Augustine Corporation originally budgeted for $360,000 of fixed overhead at
100% production capacity. Production was budgeted to be 12,000 units. The standard
hours for production were 5 hours per unit. The variable overhead rate was $3 per hour.
Actual fixed overhead was $360,000 and actual variable overhead was $170,000.
Actual production was 11,700 units.
Compute the factory overhead volume variance.
A.$9,000F
B.$9,000U
C.$5,500F
D.$5,500U
Answer:
An installment note payable for a principal amount of $94,000 at 6% interest requires
Lawson Company to repay the principal and interest in equal annual payments of
$22,315 beginning December 31, 2014, for each of the next five years. After the final
payment, the carrying amount on the note will be
A.$ 1,263
B.$21,053
C.$22,315
D.$ 0
Answer:
Which of the following is not a commonly used approach to setting transfer prices?
A.Market price approach
B.Revenue price approach
C.Negotiated price approach
D.Cost price approach
Answer:
A new machine with a purchase price of $109,000, with transportation costs of $12,000,
installation costs of $5,000, and special acquisition fees of $6,000, would have a cost
basis of
A.$114,000
B.$126,000
C.$121,000
D.$132,000
Answer:
The Balance Sheet should be prepared
A.before the income statement and the statement of owner’s equity
B.before the income statement and after the statement of owner’s equity
C.after the income statement and the statement of owner’s equity
D.after the income statement and before the statement of owner’s equity
Answer:
The inventory system employing accounting records that continuously disclose the
amount of inventory is called
A.retail
B.periodic
C.physical
D.perpetual
Answer:
Herberto Company had a net income of $74,000, and other comprehensive loss of
$8,500 for 2012. On January 1, 2012, the Retained Earnings balance was $425,000 and
the Accumulated Other Comprehensive Income balance was $52,000. Determine the (a)
comprehensive income for 2012, (b) Retained Earnings balance on December 31, 2012,
and (c) the Accumulated Other Comprehensive Income on December 31, 2012.
Answer:
Using the variable cost concept determine the selling price for 30,000 units using the
following data: Variable cost per unit $15.00, total fixed costs $90,000 and desired
profit $150,000.
A.$10
B.$15
C.$8
D.$23
Answer:
Merritt Company acquired a building valued at $210,000 for property tax purposes in
exchange for 12,000 shares of its $5 par common stock. The stock is widely traded and
selling for $18 per share. At what amount should the building be recorded by Merritt
Company?
A.$60,000
B.$216,000
C.$210,000
D.$156,000
Answer:
Under the _________ inventory method, accounting records maintain a continuously
updated inventory value.
A.retail
B.periodic
C.physical
D.perpetual
Answer:
Merchandise inventory is classified on the balance sheet as a
A.Current Liability
B.Current Asset
C.Long-Term Asset
D.Long-Term Liability
Answer:
Utilizing the Revenue Journal, below, journalize the following five transactions of
Porshe Creations:
(a) On March 20th Porshe sells 25 cell phone covers to Xtreme at $4.50 per cover on
invoice 887.
(b) On March 21st Porshe sells 5 cell phone covers to Sidekick for $7.50 per cover on
invoice 908.
(c) On March 22nd Porshe sells 18 cell phone covers to Rock-On at $4.25 per cover on
invoice 938.
(d) On March 26th Porshe sells 200 cell phone covers to Micro at $3.75 each on invoice
959.
(e) On March 29th Porshe sells 6 cell phone covers to Charmers for $8.35 each on
invoice 997.
Answer:
Department S had no work in process at the beginning of the period. 12,000 units of
direct materials were added during the period at a cost of $84,000, 9,000 units were
completed during the period, and 3,000 units were 30% completed as to labor and
overhead at the end of the period. All materials are added at the beginning of the
process. Direct labor was $49,500 and factory overhead was $9,900.
The total conversion costs for the period were:
A.$59,400
B.$49,500
C.$143,400
D.$9,900
Answer:
When the fixed costs are $120,000 and the contribution margin is $30, the break-even
point is
A.16,000 units
B. 8,000 units
C. 6,000 units
D. 4,000 units
Answer:
Rusty Co. sells two products, X and Y. Last year Rusty sold 5,000 units of X’s and
35,000 units of Y’s. Related data are:
What was Rusty Co.’s weighted average unit contribution margin?
A.$60.00
B.$20.00
C.$40.00
D.$22.50
Answer:
The classified Balance Sheet will subsection the assets section as follows
A.Current Assets and Other Assets
B.Current Assets and Property, Plant, and Equipment
C.Current Assets and Short-Term Assets
D.Other Assets and Property, Plant and Equipment
Answer:
A necessary element of internal control is
A.database
B.systems design
C.systems analysis
D.information and communication
Answer:
The following information is available for Dorman Company:
Which of the following statements is correct?
A.The dividend yield is 6.0%, which is of interest to investors seeking an increase in
market price of their stocks.
B.The dividend yield is 6.0%, which is of special interest to investors seeking to earn
revenue on their investments.
C.The dividend yield is 16.7%, which is of interest to bondholders.
D.The dividend yield is 16.7% which is an important measure of solvency.
Answer:
The formula for depreciable cost is
A.initial cost + residual value
B.initial cost – residual value
C.initial cost – accumulated depreciation
D.depreciable cost = initial cost
Answer:
Round tripping is a fraudulent scheme where business A artificially inflates revenue by
lending money to customer B who uses that money to buy products from A.
Answer:
Garrison Company uses the retail method of inventory costing. They started the year
with an inventory that had a retail cost of $45,000. During the year they purchased an
inventory with a retail cost of $300,000. After performing a physical inventory, they
calculated their inventory cost at retail to be $80,000. The mark up is 100% of cost.
Determine the ending inventory at its estimated cost.
A.$160,000
B.$80,000
C.$40,000
D.$45,000
Answer:
For each of the following scenarios, indicate the amount of the adjusting journal entry
for Bad Debt Expense to be recorded in 2014, the balance in Allowance for Doubtful
Accounts after adjustment at December 31, 2014, and the net realizable value of
Accounts Receivable at December 31, 2014:
a) Based on an analysis of Simmon’s Company’s $380,000 balance in Accounts
Receivable at December 31, 2014, is was estimated that $15,500 will be uncollectible.
There is a credit balance of $1,200 in Allowance for Doubtful Accounts before
adjustment.
b) Blake Company had net credit sales of $900,000 during 2014, and has an Accounts
Receivable balance of $425,000 at December 31, 2014, and an Allowance for Doubtful
Accounts credit balance of $11,000 before adjustment. Blake estimates Bad Debt
Expense as 3/4 of 1% of net credit sales.
c) Hidgon Inc. has a balance of $812,000 in Accounts Receivable at December 31,
2014. An analysis of those receivables shows $24,000 will probably not be collected.
Before adjusting entries are prepared, the Allowance for Doubtful Accounts has a debit
balance of $750.
Answer:
For each of the following, identify whether it would be disclosed as an operating (O),
financing (F), or investing (I) activity on the statement of cash flows under the indirect
method.
a. Receipt of dividends
b. Payment of dividends
c. Purchase of equipment
d. Net income
e. Issuance of the company’s common stock
f. Amortization expense
Answer:
When the market rate of interest was 11%, Munson Corporation issued $1,000,000,
12%, 8-year bonds that pay interest semiannually. The selling price of this bond issue
was
A.$1,052,310
B.$1,154,387
C.$1,000,000
D.$ 720,495
Answer:
Nuthatch Corporation began its operations on September 1 of the current year.
Budgeted sales for the first three months of business are $260,000, $375,000, and
$400,000, respectively, for September, October, and November. The company expects
to sell 30% of its merchandise for cash. Of sales on account, 80% are expected to be
collected in the month of the sale and 20% in the month following the sale.
The cash collections in September from accounts receivable are:
A.$223,600
B.$145,600
C.$182,000
D.$168,000
Answer:
The inventory at June 1 and costs charged to Work in Process – Department 60 during
June are as follows:
During June, 32,000 units were placed into production and 31,200 units were
completed, including those in inventory on June 1. On June 30, the inventory of work in
process consisted of 4,600 units which were 85% completed. Inventories are costed by
the first-in, first-out method and all materials are added at the beginning of the process.
Determine the following, presenting your computations (Prepare your computations
using unit cost data to four decimal places, i.e. $4.4444, to minimize rounding
differences):
(a) equivalent units of production for conversion cost
(b) conversion cost per equivalent unit
(c) total and unit cost of finished goods started in prior period and completed in the
current period
(d) total and unit cost of finished goods started and completed in the current period
(e) total cost of work in process inventory at June 30
Answer:
Japan Company produces lamps that require 2.25 standard hours per unit at an hourly
rate of $15.00 per hour. If 7,700 units required 19,250 hours at an hourly rate of $14.90
per hour, what is the direct labor (a) rate variance, (b) time variance, and (c) cost
variance?
Answer:
Xavier and Yolonda have original investments of $50,000 and $100,000 respectively in
a partnership. The articles of partnership include the following provisions regarding the
division of net income: interest on original investment at 10%, salary allowances of
$27,000 and $18,000 respectively, and the remainder equally. How much of the net
income of $40,000 is allocated to Xavier?
A.$20,000
B.$22,000
C.$32,000
D.$0
Answer:
Requirement: Make the journal entries for both of the following:
(a) On December 1, $18,000 was received for a service contract to be performed from
December 1 through until April 30.
(b) If the service work for this contract is performed evenly and on a regular basis
throughout this period, prepare the adjusting journal entry as of year-end, December 31.
Answer:
The Bottlebrush Company has income from operations of $60,000, invested assets of
$345,000, and sales of $786,000. Use the DuPont formula to calculate the rate of return
on investment, and show (a) the profit margin, (b) the investment turnover, and (c) rate
of return on investment. Round profit margin percentage to two decimal places and
investment turnover to three decimal places.
Answer:
The management of River Corporation is considering the purchase of a new machine
costing $380,000. The company’s desired rate of return is 6%. The present value factor
for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing
information, use the following data in determining the acceptability in this situation:
The average rate of return for this investment is:
A.5%
B.10.5%
C.25%
D.15%
Answer:
The post-closing trial balance differs from the adjusted trial balance in that it
A.does not take into account closing entries
B.does not take into account adjusting entries
C.does not include balance sheet accounts
D.does not include income statement accounts
Answer:
During May, Blast sold 650 portable CD players for $50 each. Each CD player cost
Blast $25 to purchase and carried a one-year warranty. If 10 percent of the goods sold
typically need to be replaced over the warranty period, what amount should Blast debit
Product Warranty Expense for in May?
A.$3,250
B.$1,625
C.$ 650
D.$1,300
Answer:
The following totals for the month of April were taken from the payroll register of
Magnum Company.
The entry to record accrual of employer’s payroll taxes would include a
A.debit to Payroll Tax Expense for $1,170
B.debit to FICA Taxes Payable for $1,500
C.credit to Payroll Tax Expense for $420
D.debit to Payroll Tax Expense for $1,620
Answer:
Sweet Dreams, Inc. manufactures bedding sets. The budgeted production is for 52,000
comforters in 2012. Each comforter requires 1.5 hours to cut and sew the material. If
cutting and sewing labor costs $11.00 per hour, determine the direct labor budget for
2012.
Answer:
Using the following data taken from Hsu’s Imports Inc., determine the gross profit to be
reported on the income statement for the year ended March 31, 2011.
Answer:
On May 7, Carpet Barn Company offered to pay $83,000 for land that had a selling
price of $105,000. On May 15, Carpet Barn accepted a counteroffer of $95,000. On
June 5, the land was assessed at a value of $115,000 for property tax purposes. On
December 10, Carpet Barn Company was offered $135,000 for the land by another
company. At what value should the land be recorded in Carpet Barn Company’s
records?
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 an income statement for the current year ended March 31, 2014 .
Answer:
Given the following data, prepare an amortization table (use the effective method)
1/1/10 – issue $800,000, 9%, 3 year bonds, interest paid annually on 12/31, to yield 8%
Use the following format (round to nearest dollar – may have a slight rounding
difference);
Date Cash paid Int. expense Amortization Bond carry value
Answer:
Steven Company has fixed costs of $160,000. The unit selling price, variable cost per
unit, and contribution margin per unit for the company’s two products are provided
below.
The sales mix for product X and Y is 60% and 40% respectively. Determine the
break-even point in units of X and Y.
Answer:
S. Stephens and J. Perez are partners in Space Designs. Stephens and Perez share
income equally. D. Fredricks will be admitted to the partnership. Prior to the admission,
equipment was revalued downward by $8,000. The capital balances of each partner are
$100,000 and $139,000, respectively, prior to the revaluation.
Answer:
Under the accrual basis, some accounts in the ledger require updating. Discuss the three
main reasons for this updating and give an example of each.
Answer:
Sienna Company has the following information for January.
Show your calculations to find the cost of goods manufactured.
Answer:
Magnus Industries has the following data:
Show how you would calculate Raw Materials Used.
Answer:
On the basis of the following data for Grant Co. for 2011 and the preceding year ended
December 31, 2010, prepare a statement of cash flows. Use the indirect method of
reporting cash flows from operating activities. Assume that equipment costing $125,000
was purchased for cash and equipment costing $85,000 with accumulated depreciation
of $65,000 was sold for $15,000; that the stock was issued for cash; and that the only
entries in the retained earnings account were net income of $56,000 and cash dividends
declared of $18,000.
Answer:
Based upon the following data, determine the cost of merchandise sold for August.
Answer:
Match each of the following terms associated with the best description of that term.
Answer:
Consider the following journal entry made by Jones Company. Upon investigation,
what might you find happened to create this amount of Cash Over/Short account
difference? Give three possible reasons for this difference.
Answer:
Journalize the following transactions:
Answer:
On the first day of the fiscal year, a company issues a $500,000, 8%, 10 year bond that
pays semi-annual interest of $20,000 ($500,000 x 8% x 1/2), receiving cash of
$520,000. Journalize the entry to record the first interest payment and amortization of
premium using the straight-line method.
Answer:
A double-declining balance rate for calculating depreciation expense is determined by
doubling the straight-line rate. Assuming that an asset has a useful life of 25 years,
determine the rate to be used if using the double-declining balance method.
Answer:
Distinguish preventive controls from detective controls and give examples of each as
they relate to cash.
Answer:
Discuss the process of posting from a revenue journal to the subsidiary ledger and to the
general ledger.
Answer: