A formal written statement of management’s plans for the future, expressed in financial
terms, is called a budget.
Answer:
Bonds may be purchased directly from the issuing corporation or through one of the
bond exchanges.
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The fixed cost per unit varies with changes in the level of activity.
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The chart of accounts should be the same for each business.
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The matching concept supports matching expenses with the related revenues.
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Net present value and the payback period are examples of discounted cash flow
methods used in capital budgeting decisions.
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Income that cannot be associated definitely with operations, such as a gain from the sale
of a fixed asset, is listed as Other Income on the multiple-step income statement.
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Indirect labor would be included in factory overhead.
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The lower of cost or market is a method of inventory valuation.
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The amount of a corporation’s retained earnings that has been restricted/appropriated
should be reported in the notes to the financial statements.
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During periods of increasing costs, the use of the FIFO method of costing inventory
will yield an inventory amount for the balance sheet that is higher than LIFO would
produce.
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Other income and expenses are items that are not related to the primary operating
activity.
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A business is an organization in where basic resources or inputs, like materials and
labor, are assembled and processed to provide outputs in the form of goods or services
to customers.
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The methods of evaluating capital investment proposals can be grouped into two
general categories that can be referred to as (1) average rate of return and (2) cash
payback methods.
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The seller records the sales tax as part of the sales amount.
Answer:
When a sale for $1,350 takes place, with a $250 deposit having been received in
advance, only the $1,100 on account is recorded into the Revenue journal.
Answer:
If 10,000 units which were 50% completed are in process at November 1, 90,000 units
were completed during November, and 20,000 were 20% completed at November 30,
the number of equivalent units of production for November was 90,000. (Assume no
loss of units in production and that inventories are costed by the first-in, first-out
method.)
Answer:
The bank often informs the company of bank service charges by including a credit
memo with the monthly bank statement.
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Indirect labor and indirect materials would be part of factory overhead.
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A low operating leverage is normal for highly automated industries.
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If the products of a manufacturing process are produced to customer specifications, a
process cost system is more appropriate than a job order cost system.
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Cash flows from investing activities, as part of the statement of cash flows, include
receipts from the sale of land.
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There are two methods of amortizing a bond discount or premium: the straight-line
method and the double-declining-balance method.
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The double-declining-balance method is an accelerated depreciation method.
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When minor errors occur in the estimates used in the determination of depreciation, the
amounts recorded for depreciation expense in the past should be corrected.
Answer:
During periods of increasing costs, the use of the FIFO method of costing inventory
will result in a greater amount of net income than would result from the use of the LIFO
cost method.
Answer:
If the straight-line method of amortization of discount on bonds payable is used, the
amount of yearly interest expense will increase as the bonds approach maturity.
Answer:
Trade receivables occur when two companies trade or exchange notes receivables.
Answer:
Controllable expenses are those that can be influenced by the decisions of the profit
center management.
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If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost
after modifying the style is estimated to be $48, the differential cost for this situation is
$48.
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Vertical analysis is useful for analyzing financial statement changes over time.
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The accounts included on specialized journals should not be customized for a
businesses particular activities.
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A partnership is a legal entity separate from its owners.
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Normally standard costs should be revised when labor rates change to incorporate new
union contracts.
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Deferred expenses that benefit a relatively short period of time are listed on the balance
sheet as current assets.
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The seller may prepay the freight costs even though the terms are FOB shipping point.
Answer:
The budget procedure that requires all levels of management to start from zero in
estimating sales, production, and other operating data is called continuous budgeting.
Answer:
The rights or claims to the assets of a business may be subdivided into rights of
creditors and rights of owners.
Answer:
Allowance for Doubtful Accounts has a debit balance of $600 at the end of the year
(before adjustment), and an analysis of accounts in the customers ledger indicates
uncollectible receivables of $13,000. Which of the following entries records the proper
adjusting entry for bad debt expense?
A.debit Bad Debt Expense, $600; credit Allowance for Doubtful Accounts, $600
B.debit Bad Debt Expense, $12,400; credit Allowance for Doubtful Accounts, $12,400
C.debit Allowance for Doubtful Accounts, $600; credit Bad Debt Expense, $600
D.debit Bad Debt Expense, $13,600; credit Allowance for Doubtful Accounts, $13,600
Answer:
A corporation purchases 10,000 shares of its own $10 par common stock for $35 per
share, recording it at cost. What will be the effect on total stockholders’ equity?
A.increase, $100,000
B.increase, $350,000
C.decrease, $100,000
D.decrease, $350,000
Answer:
What is the total stockholders’ equity based on the following data?
A.$1,070,000
B.$1,005,000
C.$940,000
D.$565,000
Answer:
Addison, Inc. uses a perpetual inventory system. The following is information about
one inventory item for the month of September:
If Addison uses LIFO, the cost of the ending merchandise inventory on September 30 is
A.$800
B.$650
C.$750
D.$700
Answer:
The Rocky Company reports the following data.
Rocky Company’s operating leverage is:
A.6.7
B.2.7
C.1.0
D.1.3
Answer:
The journal entry to record a note received from a customer to replace an account is
A.debit Notes Receivable; credit Accounts Receivable
B.debit Accounts Receivable; credit Notes Receivable
C.debit Cash; credit Notes Receivable
D.debit Notes Receivable; credit Notes Payable
Answer:
Based on the above data, what is the quick ratio, rounded to one decimal point?
A.2.7
B.2.6
C.1.7
D.0.9
Answer:
The excess of issue price over par of common stock is termed a(n)
A.discount
B.income
C.deficit
D.premium
Answer:
During the period, labor costs incurred on account amounted to $275,000 including
$200,000 for production orders and $75,000 for general factory use. In addition, factory
overhead applied to production was $32,000. From the following, select the entry to
record the factory overhead applied to production.
A.Work in Process75,000
Factory Overhead 75,000
B.Factory Overhead32,000
Work in Process32,000
C.Work in Process32,000
Factory Overhead32,000
D.Factory Overhead75,000
Accounts Payable75,000
Answer:
If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest
semiannually would sell at an amount
A.less than face value.
B.equal to the face value.
C.greater than face value.
D.that cannot be determined.
Answer:
Six selected transactions for the current month are indicated by letters in the following
T accounts in a job order cost accounting system:
Answer:
In the accounting cycle, the last step is
A.preparing the financial statements
B.journalizing and posting the adjusting entries
C.preparing a post-closing trial balance
D.journalizing and posting the closing entries
Answer:
The controlling account in the general ledger that summarizes the debits and credits to
the individual customers accounts in the subsidiary ledger is entitled
A.Purchases
B.Accounts Payable
C.Fees Earned
D.Accounts Receivable
Answer:
Which of the following would probably not be found in the accounting system of a
service provider?
A.Cost ledger
B.Finished jobs ledger
C.Deferred revenue account
D.Job cost sheets
Answer:
Which of the following best describes accounting?
A.records economic data but does not communicate the data to users according to any
specific rules.
B.is an information system that provides reports to users regarding economic activities
and condition of a business.
C.is of no use by individuals outside of the business.
D.is used only for filling out tax returns and for financial statements for various type of
governmental reporting requirements.
Answer:
Fashion Jeans, Inc. sells two lines of jeans; Simple Life and Fancy Life. Simple Life
sells for $85.00 a pair and Fancy Life sells for $100.00 a pair. The company sells all of
its jeans on credit and estimates that 60% is collected in the month of the sale, 35% is
collected in the following month, and the rest is considered to be uncollectible. The
estimated sales for Simple are as follows: January 20,000 jeans, February 27,500 jeans,
and March 25,000 jeans. The estimated sales for Fancy are as follows: January 18,000
jeans, February 19,000, and March 20,500 jeans. What are the expected cash receipts
for the month of March?
A.$3,988,125
B.$2,505,000
C.$2,125,000
D.$4,175,000
Answer:
Held to maturity securities
A.are reported at fair market value
B.include stocks as well as bonds
C.may be reported as current or noncurrent assets
D.all of the above
Answer:
Prior to the adjusting process, accrued revenue has
A.been earned and cash received
B.been earned and not recorded as revenue
C.not been earned but recorded as revenue
D.not been recorded as revenue but cash has been received
Answer:
The market interest rate related to a bond is also called the
A.stated interest rate
B.effective interest rate
C.contract interest rate
D.straight-line rate
Answer:
Power Company sells merchandise with a one year warranty. In 2012, sales consisted of
1,600 units. It is estimated that warranty repairs will average $10 per unit sold, and 30%
of the repairs will be made in 2012 and 70% in 2013. In the 2012 income statement,
Power should show warranty expense of
A.$4,800
B.$11,200
C.$16,000
D.$0
Answer:
Department R had 5,000 units in work in process that were 75% completed as to labor
and overhead at the beginning of the period, 30,000 units of direct materials were added
during the period, 32,000 units were completed during the period, and 3,000 units were
40% completed as to labor and overhead at the end of the period. All materials are
added at the beginning of the process. The first-in, first-out method is used to cost
inventories. The number of equivalent units of production for conversion costs for the
period was:
A.32,450
B.29,450
C.31,950
D.26,000
Answer:
Details of a purchase invoice and related credit memo are summarized as follows:
Assume that the credit memo was received prior to payment and that the invoice is paid
within the discount period. Determine the following:
(a) Amount of the cash discount allowed.
(b) Amount to be paid by the purchaser if the discount is taken.
(c) Cost of the merchandise to the purchaser if the discount is NOT taken.
Answer:
The following data were taken from Harrison Company’s balance sheet:
Dec. 31, 2012 Dec. 31, 2011
Total liabilities $150,000 $105,000
Total owner’s equity 75,000 60,000
a. Compute the ratio of liabilities to owner’s equity.
b. Has the creditors’ risk increased or decreased from December 31, 2011, to December
31, 2012?
Answer:
In the income statement of a manufacturing company, what replaces purchases in the
cost of goods section of a retail company?
A.Finished goods
B.Cost of merchandise available
C.Cost of goods manufactured
D.Work in process completed
Answer:
Production and sales estimates for April are as follows:
The number of units expected to be manufactured in April is:
A.11,500
B.10,000
C.12,500
D.13,500
Answer:
Taking a physical count of inventory
A.is not necessary when a periodic inventory system is used
B.should be done near year-end
C.has no internal control relevance
D.is not necessary when a perpetual inventory system is used
Answer:
Kristin’s Boutiques has identified the following items for possible inclusion in its
December 31, 2010 inventory. Which of the following would not be included in the
year end inventory?
A.Merchandise purchased FOB shipping point was picked up by the freight company
but had still not arrived at Kristin’s Boutique as of December 31, 2010.
B.Kristin has in its warehouse merchandise on consignment from Abby Co.
C.Kristin has sent merchandise to various retailers on a consignment basis.
D.Kristin has merchandise on hand which has been returned by customers because of
wrong size.
Answer:
The debit balance in Cash Short and Over at the end of an accounting period is reported
as
A.an expense on the income statement
B.income on the income statement
C.an asset on the balance sheet
D.a liability on the balance sheet
Answer:
Which of the following manufacturing costs is an indirect cost of producing a product?
A.Oil lubricants used for factory machinery
B.Commissions for sales personnel
C.Hourly wages of an assembly worker
D.Memory chips for a microcomputer manufacturer
Answer:
Use the following worksheet to answer the following questions.
Based on the preceding trial balance, the entry to close C. Finley, Drawing would be:
A.debit C. Finley, Capital $3,000, credit C. Finley, Drawing $3,000
B.debit C. Finley, Capital $12,000, credit C. Finley, Drawing $12,000
C.debit C. Finley, Drawing $3,000; credit C. Finley, Capital $3,000
D.debit C. Finley, Drawing $12,000; credit C. Finley, Capital $12,000
Answer:
Bob Evans owns a business, Beachside Realty, that rents condominiums and
furnishings. Below is the adjusted trial balance at December 31, 2010.
Prepare the entry required to close the Drawing account at the end of the period.
Answer:
Prior to adjustment at August 31, 2014, Salary Expense has a debit balance of
$298,500. Salaries owed but not paid as of the same date total $7,200.
Answer:
Rachel Cake Factory normally sells their specialty cake for $22. An offer to buy 100
cakes for $19 per cake was made by an organization hosting a national event in the city.
The variable cost per cake is $11. A special decoration per cake will add another $1 to
the cost. Determine the differential income or loss per cake from selling the cakes.
Answer:
Darnell Company purchased $88,000 of computer equipment from Joseph Company.
Darnell Company paid for the equipment using cash that had been obtained from the
initial investment by Donnie Darnell.
Which entity or entities (Darnell Company, Joseph Company, Donnie Darnell) should
record the transaction involving the computer equipment on their accounting records?
Answer:
Match each of the following terms with the phrase that most closely describes it. Each
answer may be used only once.
Answer:
The Svelte Jeans Company produces two different types of jeans. One is called the
“Simple Life” and the other is called the “Fancy Life”. The company sales budget
estimates that 400,000 of the Simple Life Jeans and 250,000 of the Fancy Life will be
sold during 20–. The company begins with 8,000 Simple Life Jeans and 17,000 Fancy
Life Jeans. The company desires ending inventory of 7,500 of Simple Life Jeans and
10,000 Fancy Life Jeans. Prepare a Production Budget for the 20–.
Answer:
A company reports the following income statement and balance sheet information for
the current year:
Determine the rate earned on total assets. Round your answer to one decimal place.
Answer:
Conquest Company uses a perpetual inventory system. Conquest purchased $1,500 of
merchandise on account and payment was made within the discount period. The credit
terms were 2/10,n/30. Journalize Conquest’s purchase and payment.
Answer:
Discuss the use of job order costing for professional services businesses. What are the
similarities and differences between service and manufacturing business job order
costing?
Answer:
Describe the flow of materials in a process cost accounting system.
Answer:
Sutton Company purchased 10% of the outstanding stock of Roberts Company on
January 1, 2012. Roberts reported net income of $155,000 and declared dividends of
$40,000 during 2012. How would these events be reported by Sutton using the cost
method?
Answer:
The cash flows from operating activities are reported by the direct method on the
statement of cash flows. Determine the following:
Answer:
Franklin Industries has several divisions. The Northern Division has $350,000 of
invested assets, income from operations of $200,000, and residual income of $158,000.
Determine the minimum acceptable rate of return on divisional assets.
Answer:
Journalize the entries to record the following selected equity investment transactions
completed by Flurry Company during 2012. Flurry’s purchase represents less than 20%
of the total outstanding Braxter stock.
Answer:
Bob Evans owns a business, Beachside Realty, that rents condominiums and
furnishings. Below is the adjusted trial balance at December 31, 2010.
Prepare the closing entry required to transfer the income or loss at the end of the period.
Answer:
The cost and fair value of the trading securities held by AdBrand Company as of
December 31, 2012 are as follows:
(1) Complete the table above to find the total cost and fair value for the company’s
trading securities portfolio.
(2) Calculate and record the required December 31, 2012 adjustment.
(3) Explain how the adjustment from step (2) is reported on AdBrand’s 2012 financial
statements.
Answer:
From the following data for Norton Company for the year ended December31, 2012
prepare a multiple-step income statement. Show parenthetically earnings per share for
the following: income from continuing operations, loss on discontinued operations (less
applicable income tax), income before extraordinary item, extraordinary item (less
applicable income tax), and net income.
Answer:
The materials used by the Holly Company Division A are currently purchased from
outside supplier. Division B is able to supply Division A with 20,000 units at a variable
cost of $42 per unit. The normal price that Division B normally sells its units is $53 per
unit. What is the range of transfer prices that the two division managers should
negotiate?
Answer:
On January 8th, Damien Lawson transfers ownership of several pieces of office
equipment to his new business, JumpStart. When new, these items were worth $72,500.
The fair market value of the equipment is $60,000. Journalize this transfer.
Answer: