Bonding does not discourage loss from theft because employees know that bonding is
an insurance policy against loss from theft.
If at the time of partnership liquidation, a partner has a $5,000 capital deficiency and
pays the partnership $5,000 out of personal assets to cover the deficiency, then that
partner is entitled to share in the final distribution of cash.
A company has sales of $350,000 and estimates that 0.7% of its sales are uncollectible.
The estimated amount of bad debts expense is $2,450.
Adjustments are necessary to bring an asset or liability account to its proper amount and
also update a related expense or revenue account.
When a partner leaves a partnership, the present partnership ends, but the business can
still continue to operate.
The usual first step in preparing the statement of cash flows is computing the net
increase or net decrease in cash.
Stock is attractive to investors because stockholders are not liable for the corporation’s
actions and debts and because stock is easily transferred.
Current assets and current liabilities are expected to be used up or come due within one
year or the company’s operating cycle whichever is longer.
Evaluation of the performance of managers of profit centers assumes that the managers
can control or influence both costs and revenue generation.
The contribution margin per unit is equal to the sales price per unit minus the variable
costs per unit.
A manufacturing budget should include a list of equipment to be scrapped and
additional equipment to be purchased if the proposed production budget is carried out.
On a bank statement, deposits are listed as debits because the bank increases its cash
account when the deposit is made.
If the Cash Over and Short account has a debit balance at the end of the period, the
amount is reported as miscellaneous revenue.
A retailer is an intermediary that buys products from manufacturers and sells them to
wholesalers.
The accrual basis of accounting recognized expenses when cash is paid.
Cost of goods sold is also called cost of sales.
Because sellers assume that their customers will pay within the discount period, the
seller usually records the discount at the time of the sale.
If the predetermined overhead allocation rate is 85% of direct labor cost, and the
Polishing Department’s direct labor cost for the reporting period is $20,000, the
following entry would be made to record the allocation of overhead to the products
processed in this department:
The closing process takes place after financial statements have been prepared.
Micron owns 30% of JVT stock. Micron received $6,500 in cash dividends from its
investment in JVT. The entry to record receipt of these dividends includes a debit to
Cash for $6,500 and a credit to Long-Term Investments for $6,500.
Traditional two-stage cost allocation means that indirect costs are first allocated to both
operating and service departments, then operating department costs are allocated to
service departments.
The net present value decision rule is: When an asset’s expected cash flows are
discounted at the required rate and yield a positive net present value, the asset should be
acquired.
If the purchase price of retired stock exceeds the net amount removed from paid-in
capital, the excess is debited to Retained Earnings.
Damaged and obsolete goods are not included in inventory if they cannot be sold.
Outstanding checks are checks the bank has paid and deducted from the customer’s
account during the month.
Errors in the period-end inventory balance only affect the current period’s records and
financial statements.
Obligations not due within one year or the company’s operating cycle, whichever is
longer, are reported as current liabilities.
The raw materials section of a job cost sheet shows the materials costs assigned to a
job, but the direct labor section only shows the total hours of labor exerted by
employees on the job.
The retail inventory method estimates the cost of ending inventory by applying the
gross profit ratio to net sales.
A bank reconciliation explains any differences between the balance of a checking
account on the depositor’s records and the balance reported on the bank statement.
Debt securities are recorded at cost when purchased, and interest revenue for
investments in debt securities is recorded when earned.
Accrued expenses at the end of one accounting period are expected to result in cash
payments in a future period.
Investments in trading securities are accounted for using the equity method with
consolidation.
A company borrowed $6,000 by signing a 4-month promissory note at 12%. The total
interest on the note is $720.
When a company constructs a building, the cost of the building includes materials and
labor, design fees, building permits, and insurance during construction.
The FIFO inventory method assumes that costs for the earliest units purchased are the
first to be charged to the cost of goods sold.
The times interest earned ratio is calculated by dividing income before interest expense
and income taxes by interest expense.
The process of evaluating performance can be improved by using budgets.
A time ticket is a source document an employee uses to record the number of hours at
work and that is used each pay period to determine the total labor cost.
The FIFO method separates work done on beginning inventory in the previous period
from work done on it in the current period.
The times interest earned computation is:
A.(Net income + Interest expense + Income taxes)/Interest expense.
B.(Net income + Interest expense – Income taxes)/Interest expense.
C.(Net income – Interest expense – Income taxes)/Interest expense.
D.(Net income – Interest expense + Income taxes)/Interest expense.
E.Interest expense/(Net income + Interest expense + Income taxes expense).
Match the appropriate definition a through h with the following terms:
A) A center whose manager is responsible for using the center’s assets to generate
income for the center.
B) Compares actual and budgeted costs and expenses under the control of a manager.
C) A department whose manager is judged on the ability to control costs by keeping
them within a satisfactory range.
D) Departmental sales in excess of its direct costs and expenses.
E) A factor that causes the cost of an activity to go up and down.
F) A department whose manager is judged on the ability to generate revenues in excess
of the department’s costs.
G) A temporary account accumulating the costs a company incurs to support an
identified set of activities.
H) Provides information that management can use to evaluate the performance of a
department’s managers.
When analyzing the changes on a spreadsheet used to prepare a statement of cash flows,
the cash flows from operating activities generally affect:
A.Net income, current assets, and current liabilities.
B.Noncurrent assets.
C.Noncurrent liability and the equity accounts.
D.Both noncurrent assets and noncurrent liabilities.
E.Equity accounts only.
Unearned revenue is initially recognized with a:
A.Credit to unearned revenue.
B.Credit to revenue.
C.Debit to revenue payable.
D.Debit to revenue.
E.Debit to unearned revenue.
The margin of safety is the excess of:
A.Break-even sales over expected sales.
B.Expected sales over variable costs.
C.Expected sales over fixed costs.
D.Fixed costs over expected sales.
E.Expected sales over breakeven sales.
In the preparation of departmental income statements, the preparer completes the
following steps in the following order:
A.Identify direct expenses; allocate indirect expenses; allocate service department
expenses.
B.Identify indirect expenses; allocate direct expenses; allocate service department
expenses.
C.Identify service department expenses; allocate direct expenses; allocate indirect
expenses.
D.Identify direct expenses, allocate service department expenses, allocate indirect
expenses.
E.Allocate all expenses.
A company issued 8%, 15-year bonds with a par value of $550,000. The current market
rate is 8%. The journal entry to record each semiannual interest payment is:
A.
B.
C.
D.
E.No entry is needed, since no interest is paid until the bond is due.
The usual starting point for preparing a master budget is forecasting or estimating:
A.Expenditures.
B.Sales.
C.Production.
D.Income.
E.Cash payments.
Phoenix Company reported sales of $400,000 for 2009, $450,000 for 2010, and
$500,000 for 2011. Using 2009 as the base year, what were the percentage increases for
2010 and 2011 compared to the base year?
A.80% for 2010 and 90% for 2011.
B.88% for 2010 and 80% for 2011.
C.88% for 2010 and 90% for 2011.
D.112.5% for 2010 and 125% for 2011.
E.125% for 2010 and 112.5% for 2011.
On March 31, 2009, Phoenix, Inc. paid Melanie Publishing Company $15,480 for a
3-year subscription for five different magazines. The subscriptions started immediately.
What amount should appear in the Prepaid Subscription account for Phoenix Company
after adjustments on December 31 each year?
A.2009, $15,480; 2010, $11,610; 2011, $6,540; 2012, $1,290.
B.2009, $3,870; 2010, $5,160; 2011, $5,160; 2012, $1,290.
C.2009, $5,160; 2010, $5,160; 2011, $5,160.
D.2009, $11,610; 2010, $6,450; 2011, $1,290; 2012, $0.
E.The answer cannot be determined based on the information given.
A company uses a process cost accounting system. Its Sewing Department completed
and transferred out 120,000 units during the current period. The ending inventory in the
Sewing Department consists of 40,000 units (20% complete with respect to direct
materials and 60% complete with respect to direct labor). Overhead is applied on the
basis of direct labor.
Determine the equivalent units of production for the Sewing Department for direct
materials, direct labor and overhead assuming the weighted average method.
A.120,000; 120,000; 120,000
B.120,000; 160,000; 120,000
C.128,000; 120,000; 120,000
D.128000; 144,000; 144,000
E.128,000; 184,000; 160,000
Gross pay is:
A.Take-home pay.
B.Total compensation earned by an employee before any deductions.
C.Salaries after taxes are deducted.
D.Deductions withheld by an employer.
E.The amount of the paycheck.
The following information pertains to the Hewett Corporation:
What is the cost of goods sold for the period?
A.$250,000.
B.$290,000.
C.$242,000.
D.$258,000.
E.$246,000.
The amount of federal income taxes withheld from an employee’s paycheck is
determined by:
A.The employee’s annual earnings rate and number of withholding allowances.
B.The employer’s merit rating.
C.The amount of social security taxes.
D.Multiplying the gross pay by 6.2%.
E.All of these.
The current ratio:
A.Is used to measure a company’s profitability.
B.Is used to measure the relation between assets and long-term debt.
C.Measures the effect of operating income on profit.
D.Is used to help evaluate a company’s ability to pay its debts in the near future.
E.Is calculated by dividing current assets by equity.
Resources owned or controlled by a company that are expected to yield future benefits
are:
A.Assets.
B.Revenues.
C.Liabilities.
D.Owner’s Equity.
E.Expenses.
A company’s income statement showed the following: net income, $124,000;
depreciation expense, $30,000; and gain on sale of plant assets, $14,000. An
examination of the company’s current assets and current liabilities showed the following
changes as a result of operating activities: accounts receivable decreased $9,400;
merchandise inventory increased $18,000; prepaid expenses decreased $6,200; accounts
payable increased $3,400. Calculate the net cash provided or used by operating
activities.
A.$139,000.
B.$141,000.
C.$145,800.
D.$155,000.
E.$167,000.
Adidas issued 10-year, 8% bonds with a par value of $200,000. Interest is paid
semiannually. The market rate on the issue date was 7.5%. Adidas received $206,948 in
cash proceeds. Which of the following statements is true?
A.Adidas must pay $200,000 at maturity and no interest payments.
B.Adidas must pay $206,948 at maturity and no interest payments.
C.Adidas must pay $200,000 at maturity plus 20 interest payments of $8,000 each.
D.Adidas must pay $206,948 at maturity plus 20 interest payments of $8,000 each.
E.Adidas must pay $200,000 at maturity plus 20 interest payments of $7,500 each.
A manufacturing firm’s cost of goods manufactured is equivalent to a merchandising
firm’s:
A.Cost of goods sold.
B.Cost of goods purchased.
C.Cost of goods available.
D.Beginning merchandise inventory.
E.Ending merchandise inventory.
Conan Company has total fixed costs of $112,000. Its product sells for $35 per unit and
variable costs amount to $25 per unit. Next year Conan Company wishes to earn a
pretax income that equals 10% of fixed costs. How many units must be sold to achieve
this target income level?
A.1,120.
B.8,214.
C.11,200.
D.12,320.
E.14,080.
When preparing an unadjusted trial balance using a periodic inventory system, the
amount shown for Merchandise Inventory is:
A.The ending inventory amount.
B.The beginning inventory amount.
C.Equal to the cost of goods sold.
D.Equal to the cost of goods purchased.
E.Equal to the gross profit.
The operating cycle for a merchandiser that sells only for cash moves from:
A.Purchases of merchandise to inventory to cash sales.
B.Purchases of merchandise to inventory to accounts receivable to cash sales.
C.Inventory to purchases of merchandise to cash sales.
D.Accounts receivable to purchases of merchandise to inventory to cash sales.
E.Accounts receivable to inventory to cash sales.
Partnership accounting:
A.Uses a capital account for each partner.
B.Uses a withdrawals account for each partner.
C.Allocates net income to each partner according to the partnership agreement.
D.Allocates net loss to each partner according to the partnership agreement.
E.All of these.
Accumulated Depreciation, Accounts Receivable, and Service Fees Earned would be
sorted to which respective columns in completing a work sheet?
A.Balance Sheet or Statement of Owner’s Equity-Credit; Balance Sheet or Statement of
Owner’s Equity Debit; and Income Statement-Credit.
B.Balance Sheet or Statement of Owner’s Equity-Debit; Balance Sheet or Statement of
Owner’s Equity-Credit; and Income Statement-Credit.
C.Income Statement-Debit; Balance Sheet or Statement of Owner’s Equity-Debit; and
Income Statement-Credit.
D.Income Statement-Debit; Income Statement-Debit; and Balance Sheet or Statement
of Owner’s Equity-Credit.
E.Balance Sheet or Statement of Owner’s Equity-Credit; Income Statement-Debit; and
Income Statement-Credit.
Which of the following accounts would all appear on a manufacturing statement?
A.Raw materials, factory insurance expired, indirect labor.
B.Raw materials, goods in process, finished goods.
C.Factory buildings, delivery equipment, and depreciation on factory equipment.
D.Direct labor, indirect labor, sales salaries.
E.Direct labor, factory repairs and maintenance, wages payable.
A company pays $15,000 per period to rent a small building that has 10,000 square feet
of space. This cost is allocated to the company’s three departments on the basis of the
amount and value of the space occupied by each. Department One occupies 2,000
square feet of ground-floor space, Department Two occupies 3,000 square feet of
ground-floor space, and Department Three occupies 5,000 square feet of second-floor
space. If rents for comparable floor space in the neighborhood average $2.20 per square
foot for ground-floor space and $1.10 per square foot for second-floor space and the
rent is allocated based on the total value of the space, Department One should be
charged rent expense for the period of:
A.$4,400.
B.$4,000.
C.$3,000.
D.$2,200.
E.$2,000.
Andrea Conaway opened Wonderland Photography on January 1 of the current year.
During January, the following transactions occurred and were recorded in the
company’s books:
1) Conaway invested $13,500 cash in the business.
2) Conaway contributed $20,000 of photography equipment to the business.
3) The company paid $2,100 cash for an insurance policy covering the next 24 months.
4) The company received $5,700 cash for services provided during January.
5) The company purchased $6,200 of office equipment on credit.
6) The company provided $2,750 of services to customers on account.
7) The company paid cash of $1,500 for monthly rent.
8) The company paid $3,100 on the office equipment purchased in transaction #5
above.
9) Paid $275 cash for January utilities.
Based on this information, the balance in the cash account at the end of January would
be:
A. $41,450.
B. $12,225
C. $18,700.
D. $15,250.
E. $13,500.
Internal control systems are:
A.Developed by the Securities and Exchange Commission for public companies.
B.Developed by the Small Business Administration for non-public companies.
C.Developed by the Internal Revenue Service for all U.S. companies.
D.Required by Sarbanes-Oxley (SOX) to be documented and certified if the company’s
stock is traded on an exchange.
E.Required only if a company plans to engage in interstate commerce.
A company bought a new display case for $42,000 and was given a trade-in of $2,000
on an old display case, so the company paid $40,000 cash with the trade-in. The old
case had an original cost of $37,000 and accumulated depreciation of $34,000. If the
transaction has commercial substance, the company should record the new display case
at:
A.$ 2,000.
B.$ 3,000.
C.$40,000.
D.$42,000.
E.$43,000.
The rules adopted by the accounting profession as guides in preparing financial
statements are:
A.Comprised of both general and specific principles.
B.Known as generally accepted accounting principles.
C.Abbreviated as GAAP.
D.Intended to make information in financial statements relevant, reliable, and
comparable.
E.All of these.
Goodwill:
A.Is not amortized, but is tested annually for impairment.
B.Is amortized using the straight-line method.
C.Is amortized using the units-of-production method.
D.May be amortized using either the straight-line or units-of-production method.
E.Is never amortized or tested for impairment.
Manning, Co. collected 6-months’ rent in advance from a tenant on November 1 of the
current year. When it collected the cash, it recorded the following entry:
Prepare the required adjusting entry at December 31 of the current year.
The par value of a bond is also known as its ________________________.
Calculate the current ratio in each of the following separate cases.
Explain how a service firm, such as an advertising agency, might use job order costing.
Discuss how accrual accounting enhances the usefulness of financial statements.
A company issued 10%, 5-year bonds with a par value of $2,000,000, on January 1,
2009. Interest is to be paid semiannually each June 30 and December 31. The bonds
were sold at $2,162,290 to yield the buyers an 8% annual return. The company uses the
effective interest method of amortization.
(1) Prepare an amortization table for the first two semiannual payment periods using the
format shown below.
(2) Prepare the journal entry to record the first semiannual interest payment.
Increases in assets are _______________ to asset accounts, increases in liabilities are
_______________ to liability accounts.
Identify and discuss the factors involved in computing federal income taxes for
employees.
Present Value of 1
Future Value of 1
Present Value of an Annuity of 1
Future Value of an Annuity of 1
Troy has $105,000 now. He has a loan of $175,000 that he must pay at the end of 5
years. He can invest his $105,000 at 10% interest compounded semiannually. Will Troy
have enough to pay his loan at the end of the 5 years?
A ______________________ system means that a company acquires or produces
inventory only when needed.
A company purchased $8,750 worth of merchandise, with terms of 2/10, n/30. The
invoice was paid within the cash discount period. Accordingly, the company received a
cash discount of _______________.
A _____________________ is an unincorporated association of two or more people to
pursue a business for profit as co-owners.
Discuss the importance of periodic reporting and the time period principle.
The internal document that is used to notify the appropriate person that ordered goods
have been received and to describe the quantities and condition of the goods is the
____________________.
The partners of Samanta Shoes know that knowledge of partnerships and their financial
implications are important to success. What are some of the advantages or
disadvantages of the partnership form of business? What areas did the partners focus
on?
What is the maturity date of a 6-month note receivable dated February 5?