Knowing the unit cost per item helps managers set appropriate selling prices.
When a manufacturing company uses a standard cost system, Work-in-Process
Inventory is debited at standard input quantities and standard costs.
Process costing is the most appropriate costing method for a restaurant serving specialty
cuisine.
Certified Public Accountants are licensed professional accountants who serve the
general public.
A basic principle of internal control over cash receipts is that the deposit of the cash and
the recording of the receipts into the journal should be separated.
Benchmarking is the comparison of a company’s current year results with a previous
year’s performance.
The future value is the bond’s market price.
Only unfavorable variances should be investigated, if substantial, to determine their
causes.
When a company issues stock at an amount greater than the par value, a gain is
recorded for the difference between the issue price and the par value.
Unearned revenues are current liabilities until they are earned.
The cost of goods manufactured is recorded with a debit to the Finished Goods
Inventory account and a credit to the Work-in-Process Inventory account.
If the bank reconciliation includes a deposit in transit, a journal entry is required that
includes a debit to cash.
Managers generally use payback as the sole method for deciding whether to invest in an
asset.
Significant interest investments must be accounted for using the equity method.
Fixed cost per unit is assumed to be constant within a particular relevant range of
activity.
The inventory costing method affects the process of preparing the cost of goods sold
budget.
Wing Company makes a special kind of racing tire. Variable costs are $320, and fixed
costs are $35,500 per month. Wing sells 600 units per month at a sales price of $410. If
Wing upgrades the quality of the tire, management believes that the sales price can be
increased to $470. If so, the variable cost will increase to $350, and the fixed costs will
rise by 30%. The CEO wishes to increase his operating income by 21%. If the company
decides to upgrade the product, the CEO will reach his goal.
The Raw Materials Inventory account is debited when direct materials are issued for
production.
A small stock dividend, a large stock dividend and a stock split have no effect on total
assets.
The rate of return on total assets is a ratio that measures a company’s success in using
its assets to earn income.
Companies are now spending less amounts of cash to ensure that their data and
information are secure.
The forecast of sales revenue is the cornerstone of the master budget.
The manager of a cost center is responsible for controlling costs and generating
revenues for the company.
The Merchandise Inventory account is debited to write down the inventory as per the
lower-of-cost-or-market rule.
Under process costing, depreciation on plant machinery is debited to the respective
department’s Work-in-Process Inventory.
To adequately evaluate an investment center’s financial performance, summary
performance measures should include both the division’s operating income and its
assets.
The audit report in the annual report attests to the fairness of the presentation of the
financial statements.
The weighted-average method determines the cost of equivalent units of production by
accounting for beginning inventory costs separately from current period costs.
The trial balance is one of the three basic financial statements that are issued to external
users of the business.
The consistency principle states that a business should use the same accounting
methods and procedures from period to period.
Bad debt expense is not debited when a company writes off an account receivable when
using the allowance method because the company has already recorded the Bad Debt
Expense as an adjusting entry.
The Office Supplies account is a temporary account.
A merchandiser’s statement of retained earnings looks exactly like that of a service
business.
In the case of a deferred expense, the adjusting entry required at the end of a period will
consist of a credit to the Prepaid Expense account. Assume the deferred expense was
initially recorded as an asset.
Businesses must maintain a single Accounts Receivable account regardless of the
number of customers.
An adjusted trial balance does not list the revenues and expenses of a business.
A chart of accounts provides more detail than a ledger.
Depletion expense should not be recorded for natural resources because they do not
decrease in value over time.
The United Way Payable account would normally be shown on the balance sheet under
current liabilities.
When indirect materials are issued to production, the Raw Materials Inventory account
is credited.
Dentofax, Inc. reports the following information for August:
Calculate the operating income for August using absorption costing.
A) $430,000
B) $240,000
C) $995,000
D) $370,000
Flexlux, Inc. reports the following information:
What is the unit product cost using variable costing?
A) $110
B) $92
C) $95
D) $15
A company has purchased inventory and received an invoice that requires the buyer to
pay the transportation costs for delivering the merchandise. The terms are ________.
A) FOB destination
B) FOB shipping point
C) FOB, 2/10, n/30
D) FOB in transit
Reversing entries are used in conjunction with ________.
A) accrual-type adjustments
B) closing entries
C) GAAP
D) Unearned Revenue and Prepaid Rent
Paramount Event Planning Services collects fees from its customers in advance. On
January 1, 2017, the balance of its Unearned Revenue account was $3,000 (CR). During
January and February, the company collected $4,000 and $600 as advance fees. During
the two-month period, it performed services of $5,500 related to the deferred revenue.
What is the balance in Unearned Revenue at the end of February?
A) debit balance of $3,000
B) credit balance of $3,000
C) debit balance of $2,100
D) credit balance of $2,100
It is mandatory for both the employer and employee to pay ________.
A) FICA
B) SUTA
C) employee income tax
D) federal unemployment tax
State unemployment compensation tax (SUTA) is paid by the employer and is not
deducted from an employee’s gross earnings.
Dan Jones and Pat Smith are two employees of Lone Star, Inc. In January 2017, Dan’s
gross pay was $11,500, and Pat’s gross pay was $15,400. All earnings are subject to
FICA—OASDI Tax of 6.2% and FICA—Medicare Tax of 1.45%. Which of the
following would be included in the entry to record the payroll tax expense to be paid
out by Lone Star, Inc. for January?
A) a debit to Salaries Payable to employees for $390.05
B) a debit to FICA—OASDI Taxes Payable for $390.05
C) a credit to FICA—Medicare Taxes Payable for $390.05
D) a credit to Salaries Expense for $390.05
A ________ is a schedule that summarizes the earnings, withholdings, and net pay for
each employee.
A) payroll register
B) bin card
C) cash ledger
D) bank reconciliation statement
Which of the following statements is true if the income statement credit column
exceeds the income statement debit column on a worksheet?
A) The company made a net profit.
B) The company incurred a net loss.
C) The retained earnings account decreased during the period.
D) An error was made.
Acme, Inc. has prepared its third quarter budget and provided the following data:
The cash balance on June 30 is projected to be $4,100. The company has to maintain a
minimum cash balance of $5,000 and is authorized to borrow at the end of each month to
make up any shortfalls. It may borrow in increments of $5,000 and has to pay interest
every month at an annual rate of 5%. All financing transactions are assumed to take place
at the end of the month. The loan balance should be repaid in increments of $5,000
whenever there is surplus cash. How much will the company have to borrow at the end of
July?
A) $0
B) $5,000
C) $15,000
D) $10,000
When inventory costs are declining, which of the following inventory costing methods
will result in the highest cost of goods sold?
A) first-in, first-out
B) last-in, first-out
C) weighted-average
D) specific identification
Which of the following statements is true of performance reporting?
A) Responsibility reports should focus on the person responsible for unfavorable
variances, rather than information.
B) Managers should not be held accountable for uncontrollable variances.
C) Only unfavorable variances should be explained in the reports.
D) Every variance, regardless of magnitude, must be investigated by the managers.
Which of the following will be listed in the operating section of the statement of cash
flows that is prepared using the indirect method?
A) collections from customers
B) payments to suppliers
C) interest received
D) increases/decreases in current liabilities
The two methods of accounting for uncollectible receivables are ________.
A) the direct write-off method and the liability method
B) the asset method and the sales method
C) the allowance method and the liability method
D) the allowance method and the direct write-off method
During August, the Filtering Department of Union Square, Inc. had a beginning
Work-in-Process Inventory balance of 120 units with costs of $60,000. During the
month, it started and completed 260 units. It had 30 units in the ending Work-in-Process
Inventory. What is the number of equivalent units of production for transferred in units
in the Filtering Department in August under the first-in, first-out (FIFO) method?
A) 120 units
B) 410 units
C) 290 units
D) 230 units
Ibis Paper Company prepared the following static budget for November:
If a flexible budget is prepared at a volume of 13,300 units, calculate the operating income
at 13,300 units of production. The production level is within the relevant range.
A) $172,900
B) $156,000
C) $143,000
D) $159,900
A company uses the weighted-average method of inventory valuation under a periodic
inventory system. The company began the year with a zero inventory balance. They had
the following transactions during the year.
1. Purchased 64 units at $5 per unit
2. Purchased 110 units at $5 per unit
3. Sold 90 units at $10 per unit
4. Purchased 55 units at $6 per unit
5. Sold 90 units at $13.50 per unit
At the end of the year, the company counted the inventory and found 49 units
remaining. Calculate the cost of goods sold for the year. (Round the unit costs to two
decimal places and total costs to the nearest dollar.)
A) $5
B) $257
C) $1,200
D) $943
Which of the following is a current asset that is expected to be converted to cash, sold,
or consumed during the next year (or the normal operating cycle, if longer)?
A) Land
B) Equipment
C) Building
D) Accounts Receivable
Notes Payable due within two years are classified as ________.
A) current liabilities
B) current assets
C) long-term liabilities
D) long-term assets
Which of the following transactions would be shown in the non-cash investing and
financing activities section of the statement of cash flows?
A) sold equipment with book value of $8,000 in exchange for $8,000 cash
B) borrowed $32,000 cash on a note payable
C) issued 15,000 shares of common stock at $3 per share
D) purchased a building in exchange for 20,000 shares of common stock
Which of the following is an example of an intangible asset?
A) Equipment
B) Plant
C) Property
D) Copyright
During September, the Filtering Department of Davis, Inc. had a beginning
Work-in-Process Inventory of 600 units with costs of $140,000. During the month, it
started and completed 800 units. It had 220 units in the ending Work-in-Process
Inventory. What is the number of equivalent units of production for transferred in units
in the Filtering Department in September under the first-in, first-out (FIFO) method?
A) 600 units
B) 1,020 units
C) 1,620 units
D) 380 units
The ________ details how the business expects to go from the beginning cash balance
to the desired ending cash balance.
A) capital expenditures budget
B) budgeted income statement
C) cash flow statement
D) cash budget
When using management by exception, which of the following variances would not
affect the production manager?
A) direct materials efficiency
B) variable overhead efficiency
C) direct labor cost
D) direct labor efficiency
Career Hunter, Inc. has two products—Resume Reader and Cover Letter Cure.
Financial data for both the products follow:
Career Hunter has two sales representatives—Steve Payne and Amanda Niles. Each sales
representative sold a total of 1,350 units during the month of March. Steve had a sales mix
of 80% Resume Reader and 20% Cover Letter Cure. Amanda had a sales mix of 70%
Resume Reader and 30% Cover Letter Cure. Based on the above information, calculate
Amanda’s total contribution to company profits.
A) $448,200
B) $496,800
C) $240,030
D) $208,170
Which of the following is the correct formula to calculate weighted-average unit cost
for merchandise inventory?
A) Weighted-average unit cost = Cost of goods available for sale + Number of units
available
B) Weighted-average unit cost = Cost of goods available for sale × Number of units
available
C) Weighted-average unit cost = Cost of goods available for sale – Number of units
available
D) Weighted-average unit cost = Cost of goods available for sale / Number of units
available
A company has prepared the operating budget and the cash budget and is now preparing
the budgeted balance sheet. The balance of Accounts Receivable can be obtained from
the ________.
A) schedule of inventory, purchases, and cost of goods sold budget
B) cash receipts from customers
C) capital expenditures budget
D) selling and administrative expenses budget
A ________ ownership in the investee’s voting stock can significantly influence the
investee’s decisions.
A) 10 percent
B) 5 percent to 10 percent
C) 15 percent to 20 percent
D) 20 percent to 50 percent
When using financial performance measures, which of the following statements is
incorrect?
A) Most companies use a weighted-average to determine the amount of average
inventory.
B) Average total assets are used for both ROI and RI computations.
C) The limitations of financial performance measures reinforce the importance of the
balanced scorecard.
D) In general, calculating ROI based on the net book value of assets gives managers an
incentive to continue using old, outdated equipment because its low net book value
results in a higher ROI.
Period costs under the variable costing method include ________.
A) variable manufacturing overhead
B) variable selling and administrative costs
C) direct materials
D) direct labor
Top managers of Computer Manufacturing are alarmed by their operating losses. They
are considering dropping the desktop product line. The company accountants have
prepared the following analysis to help make this decision.
Computer Manufacturing
Income Statement
For the Year Ended December 31, 20XX
Total fixed manufacturing costs will not change if the company stops selling the desktop
product line. The fixed selling and administrative costs, however, will be avoided.
Prepare a differential analysis to show whether Computer Manufacturing should drop the
desktop product line. Should the desktop product line be dropped? Explain your answer.
Iowa, Inc. purchased raw materials for $6,000 and $25,000 for cash and on account,
respectively. Provide the journal entry to record the purchase of raw materials.
List the three steps, in order of occurrence, of the operating cycle of a merchandising
business.
At Sea, a cruise industry magazine, collected $480,000 in subscription revenue in May.
Each subscriber will receive an issue of the magazine for each of the next 12 months,
beginning with the June issue. The company uses the accrual basis of accounting.
Provide the adjusting entry needed on June 30. (Ignore explanation). Assume the
magazine initially records a liability for the subscription revenue.
Bridget Company manufactures candles. The standard direct materials quantity required
to produce one large candle is 1 pound at a cost of $5 per pound. Every candle requires
2 direct labor hours at a standard cost of $3 per direct labor hour. During November,
7,200 large candles were produced using 7,500 pounds costing $45,000. At the end of
November, an examination of the labor cost records showed that the company used
15,000 direct labor hours (DLHr) at a cost of $4 per hour.
Using the format below, prepare an analysis of the direct labor cost variances.
On December 1, 2017, Sheehan, Inc. sold machinery to a customer for $2,000. Sheehan
regularly sells machinery. The customer could not pay at the time of sale but agreed to
pay 9 months later and signed a 9-month note at 12% interest. Prepare the journal entry
to record the revenue at the time of sale. Ignore the entry for cost of goods sold.
Marisol Company has just completed operations for the year ended December 31, 2016.
This is the second year of operations for the company. The following data have been
assembled for the business.
Prepare the statement of retained earnings. Use a proper heading.
Best, Inc., a merchandiser, sells office supplies. The following information summarizes
Best’s operating activities during the year:
Required: Prepare an income statement for Best, Inc. for the year ended December 31,
using the format below.
NewAge, Inc. made total cash sales in February of $666,000, which are subject to 7.5%
sales tax. Prepare the summary entry to record the transaction.
Describe the transactions recorded in the purchases journal.
Fill in the blanks:
Direct materials cost and direct labor cost can be ________ ________ to products.
Manufacturing overhead costs are ________ in cost pools and then ________ to
products.
Modern Dcor Furniture began June with merchandise inventory of 45 sofas that cost a
total of $31,500. During the month, Modern Dcor purchased and sold merchandise on
account as follows:
Prepare a perpetual inventory record, using the FIFO inventory costing method, and
determine the company’s cost of goods sold, ending merchandise inventory, and gross
profit.
Define the terms Relevant Cost and Sunk Cost.
Why would the manager of a service company need to use job order costing?
Use the balance sheet of Maine, Inc. to calculate the current ratio for 2017 and 2018
Maine, Inc.
Comparative Balance Sheet
December 31, 2018 and 2017
2018 2017
Assets
Total Current Assets $200,000 $100,000
Property, Plant, and Equipment, Net 550,000 500,000
Other Assets 50,000 50,000
Total Assets $800,000 $650,000
Liabilities
Total Current Liabilities $150,000 $100,000
Long-term Debt 350,000 250,000
Total Liabilities 500,000 350,000
Stockholders’ Equity
Total Stockholders’ Equity 300,000 300,000
Total Liabilities and Stockholders’ Equity $800,000 $650,000
List the steps of the capital budgeting process and identify actions that relate to each
step.
Provide responses to the following questions regarding the discount rate.
Clothesall, Inc., a retailer, accepts payment through credit cards. During August, credit
card sales amounted to $12,000. The processor charges a 3% fee. Assume that the
processor deposits the net amount. Prepare the journal entry for card sales. (Ignore cost
of goods sold.)
