Ending inventory equals the cost of goods available for sale less beginning inventory.
The two major types of receivables are interest receivable and taxes receivable.
A manufacturer produced 7,500 total units. The cost of goods manufactured is $88,000
and the cost of goods sold is $71,000. The unit product cost is $9.47.
Gain on Disposal of a trading investment is an equity account and is reported in the
Other Revenues and (Expenses) section of the income statement.
Medicare is a required column in a payroll register.
In deciding whether to accept a special pricing order, management should only consider
the quantitative data and disregard qualitative factors.
The cash paid for the purchase of equipment will typically be shown in the investing
activities section of the statement of cash flows.
Allen Moving Company uses the indirect method to prepare its statement of cash flows.
Refer to the following portion of the comparative balance sheet:
Allen Company
Comparative Balance Sheet
December 31, 2017 and 2016
If the net income for the year was $67,000, the company must have declared $42,000 as
dividends during the year.
John contributed $6,000 to the business by opening a bank account in the name of the
business, United Internists. The corporation issued common stock to John. This
transaction results in an increase in the assets of the business.
The Service Revenue account is a temporary account.
Internal auditors are employees of the business who ensure that employees are
following company policies and that operations are running efficiently.
The party who issues a check is the maker.
A trial balance summarizes the ledger by listing all the accounts with their balances at a
point in time.
The purchase discount amount is calculated on the amount of the invoice minus the
returns and allowances.
Generally accepted accounting principles require that interest expense be measured
using the effective-interest amortization method, unless the straight-line amounts are
similar.
Accrued revenue represents the receipt of cash before the revenue has been earned.
If upper management uses a short time frame to calculate ROI and RI, division
managers have an incentive to take actions that will lead to an immediate increase in
these measures.
Activity-based management (ABM) can be used to make pricing and product mix
decisions.
The Merchandise Inventory account is an asset account that is used only for goods
purchased that the business owns and intends to resell to customers.
When a business accepts payment by credit cards or debit cards, a fee is paid to the card
processor.
When a business makes a cash payment, the Cash account is debited.
Management’s discussion and analysis of financial condition and results of operations
section of the annual report is the company’s attempt to explain its financial statements
and discuss its performance.
Repair and maintenance costs for manufacturing equipment are included in
manufacturing overhead.
The use of computer firewalls is an essential element of good internal controls for
e-commerce.
Stockholders primarily use managerial accounting information for decision-making
purposes.
Regarding controls over cash receipts by mail, the accounting department should
compare the bank deposit slip to the remittance advices.
Realized gains or losses occur when a company adjusts an asset to fair value but has not
yet disposed of the asset.
For the vertical analysis of the balance sheet, the base amount is also the total of
liabilities and stockholders’ equity.
Avalon Event Planning Services, Inc. records deferred expenses and deferred revenues
using the alternative treatments. It makes adjusting entries as needed to bring its books
to the full accrual basis once a year at the end of the year. On October 1, it paid $3,600
for insurance for a one-year period. At the end of the year, it will make an adjusting
entry that debits Insurance Expense for $1,200.
A contingency was evaluated at year-end and considered to have a reasonable
possibility of becoming an actual liability. If this was not reported on the balance sheet
or in the notes to the financial statements, it could be considered a violation of generally
accepted accounting principles.
The double-declining-balance method ignores the residual value until the depreciation
expense takes the book value below the residual value.
Under just-in-time costing, the purchase of raw materials is recorded by debiting the
Raw Materials Inventory account.
If a business operates in an industry that experiences significant cost changes, it would
be to its benefit to use the first-in, first-out (FIFO) method.
A trial balance is a list of all of the accounts of a company with their balances at a point
in time.
A company made net sales revenue of $530,000, and cost of goods sold totaled
$238,500. Calculate its gross profit percentage.
A) 55%
B) 45%
C) 130%
D) 300%
Weston Jewelers uses the perpetual inventory system. On April 2, Weston sold
merchandise with a cost of $6,000 for $9,000 to a customer on account with terms of
2/15, n/30. On April 4, the customer reported damaged goods, and Michelin granted a
$1,000 sales allowance. On April 10, Weston received payment from the customer.
Calculate the amount of net sales revenue.
A) $8,840
B) $9,000
C) $8,000
D) $7,840
The balances of select accounts of McCarthy, Inc. as of December 31, 2016 are given
below:
The Unearned Revenue is the amount of cash received for services to be rendered in
January 2017. Interest Payable will be paid on February 5, 2017. What are the total
long-term liabilities shown on the balance sheet?
A) $1,500
B) $6,000
C) $5,100
D) $25,000
The budget process is a loop that consists of ________.
A) planning, acting, and controlling
B) developing strategies, planning, acting, and controlling
C) developing strategies, planning, and acting
D) developing strategies, acting, and controlling
In a company with different business units, individual managers make decisions by
changing various assumptions of its budget in order to determine how the modifications
would affect the operational and financial results. This is an example of ________.
A) financial statement analysis
B) responsibility accounting
C) sensitivity analysis
D) zero-based budgeting
York Casting Services started the year with total assets of $110,000 and total liabilities
of $50,000. The revenues and the expenses for the year amounted to $140,000 and
$50,000, respectively. During the year, the company did not issue any common stock,
but it distributed dividends of $70,000. Calculate the amount of increase or decrease in
stockholders’ equity for the year.
A) a $20,000 increase
B) a $80,000 increase
C) a $60,000 decrease
D) a $70,000 increase
Damsel, Inc. is a large manufacturer of auto tires. Damsel has provided the following
information:
Calculate the amount of ending Finished Goods Inventory reported on Damsel’s balance
sheet.
A) $32,000
B) $71,000
C) $34,500
D) $6,500
On December 1, 2017, Going Places, Inc. sold machinery to a customer for $22,000.
The customer could not pay at the time of sale but agreed to pay 10 months later and
signed an 10-month note at 9% interest. What was the total amount of cash collected by
Going Places on the maturity of the note? (Round your answer to the nearest dollar.)
A) $23,980
B) $23,650
C) $20,350
D) $1,650
Operating leverage predicts the effects that fixed costs have on changes in operating
income when ________.
A) production is discontinued
B) there are no sales returns
C) variable costs change
D) sales volume changes
Ragas, Inc. sold goods with a selling price of $50,000 in the 2017 and estimated 5%
warranty expense for the year. Customers complained of defects, and goods with a cost
of $1,500 had to be replaced. Which of the following is the correct journal entry for
honoring the warranties with goods?
A)
B)
C)
D)
A company that uses the periodic inventory system provided the following information:
1. Beginning inventory $6,000
2. Purchases $130,000
3. Purchase discounts $2,400
4. Purchase returns and allowances $600
At the end of the period, the company does an inventory count and finds $16,000 worth
of inventory on hand. What is the amount of cost of goods sold?
A) $117,000
B) $104,200
C) $149,000
D) $128,800
Discounted cash flow methods typically ________.
A) use simple interest calculations
B) assume that cash flows will be reinvested when received
C) focus on the payback period
D) comply with the requirements of GAAP
The income statement of a service company will most likely include ________.
A) salaries expense
B) factory overhead
C) cost of goods sold
D) direct materials
The sum of all the depreciation expense recorded to date for a depreciable asset is
called ________.
A) book value
B) residual value
C) depreciation expense
D) accumulated depreciation
Bubble Wraps Company receives cash from a stockholder, John Trent, and issues
common stock to him. The two accounts involved in this transaction are ________.
A) Accounts Payable and Cash
B) Cash and Common Stock
C) Common Stock and Accounts Payable
D) Common Stock and Accounts Receivable
Mars Chemicals Company uses the indirect method to prepare its statement of cash
flows. Refer to the following portion of the comparative balance sheet:
Mars Chemicals Company
Comparative Balance Sheet
December 31, 2017 and 2016
Net Income for the year was $60,000.
Which of the following statements is true of Taylor’s statement of cash flows for 2016?
A) The company issued stocks for $33,000.
B) The company declared $61,000 as dividends.
C) The company purchased treasury stock for $8,500.
D) The net cash flow from financing activities is $178,500.
Winnie, Inc. has two processes—Coloring Department and Mixing Department. The
company assigned $390,000 to the 6,000 gallons of paint transferred from Mixing
Department to Finished Goods Inventory. The journal entry to record completion of
processing is ________.
A) debit Work-in-Process Inventory—Mixing, $390,000; credit Finished Goods
Inventory, $390,000
B) debit Finished Goods Inventory, $390,000; credit Cost of Goods Sold, $390,000
C) debit Cost of Goods Sold, $390,000; credit Finished Goods Inventory, $390,000
D) debit Finished Goods Inventory, $390,000; credit Work-in-Process Inventory—
Mixing, $390,000
Which of the following is an example of a direct labor efficiency standard?
A) $20 per direct labor hour
B) 50 square feet per unit
C) $0.95 per square foot
D) 6 direct labor hours per unit
The static budget, at the beginning of the month, for Redwyne Company follows:
Static budget:
Sales volume: 2,000 units; Sales price: $50.00 per unit
Variable costs: $14.00 per unit; Fixed costs: $25,000 per month
Operating income: $47,000
Actual results, at the end of the month, follows:
Actual results:
Sales volume: 1,900 units; Sales price: $58.50 per unit
Variable costs: $16.00 per unit; Fixed costs: $33,000 per month
Operating income: $47,750
Calculate the flexible budget variance for variable costs.
A) $30,400 U
B) $4,350 U
C) $3,800 U
D) $26,600 F
A company is considering an iron ore extraction project that requires an initial
investment of $512,000 and will yield annual cash inflows of $156,000 for four years.
The company’s discount rate is 9%. What is the NPV of the project?
Present value of an ordinary annuity of $1:
A) $6,560
B) $(102,400)
C) $102,400
D) $(6,560)
Peri Corporation is considering an investment opportunity with the following expected
net cash inflows: Year 1, $230,000; Year 2, $370,000; Year 3, $360,000. The company
uses a discount rate of 13%, and the initial cost of the investment is $720,000.
Present Value of $1:
The IRR of the project will be ________.
A) less than 13%
B) between 13% and 14%
C) between 14% and 15%
D) more than 13%
Which of the following is the basic internal control measure for cash?
A) keeping money in a bank account
B) checking for counterfeit bills
C) counting cash receipts twice
D) internal audit of cash procedures
Shasta Company is trying to decide whether to continue to manufacture a particular
component or to buy the component from an outside supplier. Which of the following is
irrelevant with respect to this decision?
A) the quality of the component purchased from the outside supplier
B) the outside supplier’s ability to deliver the component on a timely basis
C) the alternative uses of the facilities currently being used to manufacture the
component
D) the unavoidable fixed manufacturing costs associated with the manufacture of the
component
A corporation originally issued $13 par value common stock for $15 per share. Which
of the following is included in the entry to record the purchase of 300 shares of treasury
stock for $11 per share?
A) Treasury Stock—Common is debited for $3,300.
B) Treasury Stock—Common is credited for $45.
C) Retained Earnings is debited for $1,650.
D) Treasury Stock—Common is debited for $1,650.
Which of the following best describes a standard?
A) a sales price, cost, or quantity that is expected under normal conditions
B) costs incurred to produce a product
C) budgeted amount for total product cost
D) actual sales price, cost, or quantity
Jackson & Murphy Enterprises expects the following for 2017:
The business plans to spend $107,000 to purchase equipment.
What is the expected amount of free cash flow for 2017?
A) $109,000
B) $125,000
C) $76,000
D) $60,000
Equity securities in which the investor owns less than 20% ownership in the voting
stock of the investee can be ________.
A) significant interest investments
B) controlling interest investments
C) held-to-maturity investments
D) either trading investments or available-for-sale investments
Campaign Services hired a new accounting manager. He signed a contract for a new
accounting information system, but his position did not specify whether he was
authorized to do so or not.
In the above situation, which internal control procedure needs strengthening?
A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents
An unfavorable flexible budget variance in variable costs suggests a(n) ________.
A) increase in sales price per unit
B) decrease in sales volume
C) increase in variable cost per unit
D) decrease in fixed costs
What does a favorable direct materials cost variance indicate?
A) The actual quantity of direct materials used was less than the standard quantity.
B) The actual cost of direct materials purchased was less than the standard cost of direct
materials purchased.
C) The actual cost of direct materials purchased was greater than the standard cost of
direct materials purchased.
D) The actual quantity of direct materials used was greater than the standard quantity.
Felix Time Company manufactures and sells watches for $40 each. Times Products
Company has offered Felix Time $25 per watch for a one-time order of 5,000 watches.
The total manufacturing cost per watch is $28 per unit and consists of variable costs of
$20 per watch and fixed overhead costs of $8 per watch. Assume that Felix Time has
excess capacity and that the special pricing order would not adversely affect regular
sales. What is the change in operating income that would result from accepting the
special sales order?
A) increase of $25,000
B) decrease of $25,000
C) increase of $125,000
D) decrease of $125,000
________ is the maximum cost to develop, produce, and deliver a product or service
and earn the desired profit.
A) Marginal cost
B) Target cost
C) Variable cost
D) Sunk cost
