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Accounting is the information system that measures business activities, processes the
information into reports, and communicates the results to decision makers.
Revenue center responsibility reports show all costs incurred by the department and are
useful when management needs to know the full cost of operating the department.
In a vertical analysis of the balance sheet, each line item is shown as a percentage of
stockholders' equity.
The following formula is used to compute the present value of a lump sum:
Future value = Present value × PV factor for i = X%, n = X periods
When a business pledges its accounts receivable, it transfers the right to collect cash
from customers to the bank.
The key difference in the closing process under the periodic inventory system is how
merchandise inventory is handled.
FICA tax is paid by the employee only and is deducted from gross earnings.
For the next year, Hall & Co. predicts sales of 15,000 units of a product with a
contribution margin of $6 per unit and 30,000 units of another product with a
contribution margin of $10 per unit. The weighted-average contribution margin per unit
is $8.67.
A receivable is a monetary claim against a business or an individual.
Even in a perpetual inventory system that updates the inventory account as and when
transactions occur, the business must count its inventory at least once in a year.
Activity-based costing focuses on a single predetermined overhead rate for cost
analysis.
The contribution margin for service companies is calculated by subtracting fixed costs
from service revenue.
A natural resource is an asset that comes from the earth and is consumed.
The amortization of bond premium increases interest expense over the life of the bonds.
The number of times a company collects the average accounts receivable balance in a
year is known as the accounts receivable turnover ratio.
The equivalent units of production for direct materials and conversion costs must be the
same.
The days' sales in receivables for Barker Sales is 35. The days' sales in receivables for
Xanadu Company is 25. This suggests that Xanadu is having greater difficulty than
Barker is in collecting its accounts receivable.
An unfavorable variance means more cost has been incurred than planned.
External auditors evaluate company controls to ensure the financial statements are
presented fairly, in accordance with Generally Accepted Accounting Principles.
Preferred Stock is included in the long-term asset section of the balance sheet.
A favorable variance has a debit balance and is a contra revenue.
The disclosure principle states that a company should report enough information for
outsiders to make knowledgeable decisions about the company.
Most states prohibit corporations from paying a dividend if a deficit will occur.
A company discovers that its cost of goods sold is understated by an insignificant
amount. It does not need to correct the error because of the materiality concept.
A flexible budget summarizes revenues and costs for various levels of sales volume
within a relevant range.
Business owners use accounting information to set goals, evaluate progress toward
those goals, and make adjustments when needed.
Since a company usually does not know the amount of the year-end bonus at year-end,
the company estimates the amount of the bonus based on a percentage.
The gross profit percentage is an indicator of how well a company is positioned to pay
off its short-term liabilities.
The audit report in the annual report is prepared by an internal auditor of a company.
Debt securities do not include U.S. government securities.
Ross Corp. uses the indirect method to prepare the statement of cash flows. Refer to the
following section of the comparative balance sheet:
Ross Corp.
Comparative Balance Sheet
December 31, 2017 and 2016
The change in Accrued Liabilities is shown as a negative cash flow in the adjustments to
net income.
The fixed overhead cost variance measures the difference between actual fixed
overhead and allocated fixed overhead.
Days' sales in receivables measures the return on average receivables.
The fair value of a trading security is the price that would be used if the company were
to sell the investment on the market.
The transfer price is the transaction amount of one unit of goods when the transaction
occurs between the company and its customers.
An efficiency variance measures how well the business uses its materials or human
resources.
The unrealized holding gains and losses on available-for-sale investments are recorded
as an adjustment to the Unrealized Holding Gain—Available-for-Sale account or
Unrealized Holding Loss—Available-for-Sale account.
Asset and liability accounts are closed to the Income Summary account.
In a period of rising costs, the last-in, first-out (LIFO) method results in lower cost of
goods sold and higher net income than the first-in, first-out (FIFO) method.
Lewis, Inc. had the following balances and transactions during 2016:
What would be reported as Cost of Goods Sold on the income statement for the year
ending December 31, 2016 if the perpetual inventory system and the weighted-average
inventory costing method are used? (Round the unit costs to two decimal places and total
costs to the nearest dollar.)
A) $22,005
B) $32,600
C) $14,595
D) $10,595
Malibu Corporation provided the following information for the year:
What was the amount of the cost of goods manufactured for the year?
A) $1,363,000
B) $1,164,000
C) $1,135,000
D) $1,193,000
Exposition, Inc. had 400 units of inventory on hand at the end of the year. These were
recorded at a cost of $18 each using the last-in, first-out (LIFO) method. The current
replacement cost is $15 per unit. The selling price charged by Exposition, Inc. for each
finished product is $26. As a result of recording the adjusting entry as per the
lower-of-cost-or-market rule, the gross profit will ________.
A) increase by $6,000
B) decrease by $6,000
C) increase by $1,200
D) decrease by $1,200
Which of the following provides a key in analyzing short-term business decisions?
A) focus on costs that do not change under two alternatives and on historic costs
B) focus on qualitative data only and ignore future cash flows
C) focus on sunk costs and quantitative data
D) focus on relevant costs and use the contribution margin approach
Which of the following is a column in a purchases journal?
A) Cost of Goods Sold CR
B) Accounts Payable CR
C) Sales Revenue DR
D) Interest Revenue CR
A variable costing income statement is used for ________.
A) filing income tax returns
B) external reporting purposes
C) determining the amount of gross profit
D) internal decision-making purposes
Investors who want to know the amount of cash a company has available for new
opportunities, such as expanding into a new sales region, should analyze the company's
________.
A) free cash flow
B) net cash flow from investing activities
C) acid ratio
D) earnings per share
Amounts owed for products or services purchased on account are called ________.
A) accounts payable
B) unearned revenue
C) accrued expense
D) warranty payable
The first-in, first-out (FIFO) method creates better month-to-month cost comparisons
than the weighted-average method ________.
A) because it does not recognize transferred in units from other processes
B) when there are substantial quantities of units in process at the end of the period
C) because it merges costs from the prior period with the current period
D) because it is used by industries that do not experience significant cost changes
DGT Industries expects to sell 470 units of Product A and 410 units of Product B each
day at an average price of $25 for Product A and $28 for Product B. The expected cost
for Product A is 45% of its selling price and the expected cost for Product B is 65% of
its selling price. DGT Industries has no beginning inventory, but it wants to have a
four-day supply of ending inventory for each product. Compute the budgeted purchases
for the next (seven-day) week. (Round the answer to the nearest dollar.)
A) $89,247
B) $92,920
C) $162,610
D) $140,245
Which one of the following account groups will decrease with a debit?
A) assets and expenses
B) revenues and expenses
C) liabilities and revenues
D) assets and liabilities
Kelemen, Inc. provides the following information for 2017:
The company has no preferred stock outstanding. Calculate the price/earnings ratio of
common stock. (Round any intermediate calculations and your final answer to two decimal
places.)
A) 40.32 times
B) 50.00 times
C) 34.72 times
D) 28.90 times
An accounting information system is said to be relevant, if it ________.
A) works smoothly with the business's employees and organizational structure
B) safeguards a business's assets and reduces the likelihood of fraud and errors
C) provides information that will improve decision making and reduce uncertainty
D) accommodates changes in the business over time
The Allowance for Bad Debts account has a credit balance of $8,700 before the
adjusting entry for bad debts expense. After analyzing the accounts in the accounts
receivable subsidiary ledger using the aging-of-receivables method, the company's
management estimates that uncollectible accounts will be $15,000. What will be the
balance of the Allowance for Bad Debts reported on the balance sheet?
A) $15,000
B) $6,300
C) $23,700
D) $13,500
On October 1, 2017, Android, Inc. made a loan to one of its customers. The customer
signed a 4-month note for $150,000 at 11%. How much interest revenue did the
company record in the year 2017? (Round your answer to the nearest dollar.)
A) $1,650
B) $1,375
C) $5,500
D) $4,125
A company received a bank statement showing a balance of $75,000. Reconciling items
included outstanding checks of $2,400 and a deposit in transit of $9,500. What is the
company's adjusted bank balance?
A) $63,100
B) $67,900
C) $82,100
D) $65,500
All of the accounts and the account balances of a company appear on the ________.
A) statement of retained earnings
B) balance sheet
C) adjusted trial balance
D) income statement
Accruex Corporation invests excess cash of $25,000 in corporate bonds on March 30,
2017. The bonds will mature in two years from the date of purchase. When the bonds
mature in 2019, Accruex plans to use the cash for its business expansion. Which of the
following is included in the journal entry on March 30, 2017?
A) a debit to Long-term Investments—Held-to-Maturity for $25,000
B) a debit to Short-term Investments—U.S. Treasury Notes for $25,000
C) a debit to Long-term Investments—Available-for-Sale for $25,000
D) a credit to Long-term Investments—Available-for-Sale for $25,000
Which of the following statements correctly describes the term "conversion costs"?
A) the cost to convert finished goods to sales to customers
B) the cost incurred for direct and indirect materials during production
C) the cost of direct materials, direct labor, and manufacturing overhead costs incurred
during production
D) the cost of direct labor combined with manufacturing overhead
Which of the following financial statements would be most useful if an analyst wants to
know the likelihood of repayment of business debts?
A) income statement
B) balance sheet
C) statement of retained earnings
D) statement of cash flows
Healthy Living, a diet magazine, collected $240,000 in subscription revenue on May
31. Each subscriber will receive an issue of the magazine in each of the next 12 months,
beginning with the June issue. The company uses the accrual method of accounting.
What is the amount of Subscription Revenue that has been earned by the end of
December?
A) $100,000
B) $180,000
C) $240,000
D) $140,000
Abadeer Company manufactures ceiling fans and uses an activity-based costing system.
Each ceiling fan has 20 separate parts. The direct materials cost is $70, and each ceiling
fan requires 4.00 hours of machine time to manufacture. Additional information is as
follows:
What is the cost of assembling per ceiling fan? (Round any intermediate calculations and
your final answer to the nearest cent.)
A) $70.00
B) $6.00
C) $24.80
D) $21.00
Which of the following statements, regarding notes receivable, is incorrect?
A) Notes receivable usually have longer terms than accounts receivable.
B) A notes receivable is a written promise that a customer will pay a fixed amount of
principal plus interest by a certain date in the future.
C) All notes receivable are considered long-term assets.
D) Notes receivable are sometimes called promissory notes.
Which of the following will be classified as a conversion cost?
A) cost of direct materials used
B) depreciation on factory equipment
C) salary of sales personnel
D) depreciation on office furniture
When projecting future cash flows of an investment ________.
A) cash flows includes depreciation
B) cash inflows and outflows are treated separately, rather than being netted together
C) cash flows are projected by accounting personnel without considering input from
other departments
D) the initial investment is a significant cash outflow that is treated separately from all
other cash flows
A(n) ________ is an example of equity securities.
A) preferred stock
B) municipal bond
C) corporate bond
D) Treasury bill
On January 1, Frederic Manufacturing had a beginning balance in Work-in-Process
Inventory of $160,000 and a beginning balance in Finished Goods Inventory of
$20,000. During the year, Frederic incurred manufacturing costs of $205,000.
During the year, the following transactions occurred:
Job C-62 was completed for a total cost of $140,000 and was sold for $158,000.
Job C-63 was completed for a total cost of $181,000 and was sold for $213,000.
Job C-64 was completed for a total cost $84,000 but was not sold as of year-end.
The Manufacturing Overhead account had an unadjusted credit balance of $26,000 and
was adjusted to zero at year-end.
What was the final balance in the Cost of Goods Sold account?
A) $295,000 debit balance
B) $347,000 debit balance
C) $347,000 credit balance
D) $295,000 credit balance
The vertical analysis statement of Bateman, Inc. is as shown below:
Bateman, Inc.
Comparative Income Statement
Years Ended December 31, 2017 and 2016
The figure 47.0% shown for gross profit in 2017 signifies that the gross profit is ________.
A) equal to 47.0% of net income
B) increased by 47.0% over the previous year
C) 47.0% of net sales revenue
D) 47.0% of cost of goods sold
When preparing the report to analyze a proposed quality improvement program, which
of the following costs are included in the total costs of not undertaking the quality
improvement program?
A) preventive maintenance
B) sales returns
C) inspection of finished goods
D) total appraisal costs
Quality Stereo Company has provided the following information regarding its
activity-based costing system:
• Purchasing department costs are allocated based on purchase orders, and the
predetermined overhead allocation rate is $79 per purchase order.
• Assembly department costs are allocated based on the number of parts used, and the
predetermined overhead allocation rate is $2 per part.
• Packaging department costs are allocated based on the number of units produced, and
the predetermined overhead allocation rate is $2 per unit produced.
Each stereo produced has 50 parts, and the direct materials cost per unit is $62. There
are no direct labor costs. Quality Stereo has an order for 1,000 stereos, which will
require 40 purchase orders in all. What is the total cost for the 1,000 stereos?
A) $167,160
B) $104,480
C) $103,160
D) $164,000
Wilson, Inc. provides the following data:
Calculate accounts receivable turnover ratio form 2017. (Round your answer to two
decimal places.)
A) 5.60 times
B) 3.40 times
C) 2.95 times
D) 2.19 times
Indiana Hot Tubs, Inc. reports the following information for August:
Calculate the operating income for August using variable costing.
A) $380,000
B) $577,000
C) $307,000
D) $650,000
"All debits are increases and all credits are decreases." Is this a correct statement?
Explain your answer.
Caprice, Inc. has adopted a JIT management system and has the following transactions
in December:
Dec 3 Purchased raw materials on account, $80,000
Dec 8 Incurred labor and overhead costs, $105,000
Dec 15 Completed 750 units with standard costs of $106 for direct materials and $165
for conversion costs
Dec 23 Sold 650 units for $395 each
Record the journal entries for Caprice, Inc. for December.
List the two categories of liabilities reported on the balance sheet and provide an
example of each.
When units produced is less than units sold, how does operating income differ between
variable costing and absorption costing? Explain your answer.
Reading Corporation is considering an investment opportunity with the following
expected net cash inflows: Year 1, $250,000; Year 2, $350,000; Year 3, $395,000. At the
end of Year 3, the residual value of the investment would be $50,000. The company
uses a discount rate of 12%, and the initial investment is $400,000. Calculate the NPV
of the investment.
Present value of $1:
Complete the statement, using the following terms: increase, decrease, or have no
effect on.
Decreases in variable cost per unit ________ contribution margin per unit and
________ the breakeven point.
Extracts from the balance sheet of Michigan, Inc. are as follows:
2017
Assets
Current Assets:
Cash and Cash Equivalents $30,000
Accounts Receivable, Net 65,000
Merchandise Inventory 50,000
Total Current Assets 145,000
Long-term Investments 150,000
Property, Plant, and Equipment, Net 250,000
Total Assets $545,000
Total Current Liabilities $150,000
Compute the acid-test ratio.
MacLean Corp. purchased a mine on January 1, 2016, for $500,000 .The mine is
estimated to contain 30,000 tons of iron ore. There is no residual value. The business
has extracted and sold 2,500 tons of ore in 2016. Prepare the journal entry to record
depletion expense for 2016. (Round your intermediate calculations to the nearest cent.)
Prepare the journal entries for the following petty cash transactions of Morrison Dental
Supplies.
If the likelihood of a future event is remote, how should the company report the
contingency?
Amber Corporation has provided the following information of its operating activities
for the year:
Required: Prepare Amber's income statement for the year ended December 31. Use the
format provided below:
On December 31, 2016, interest of $1,500 has accrued on a bank note. This interest
payment is due on January 20, 2017. If no adjusting entry is made on December 31,
2016, indicate the effect on assets, liabilities, equity, and net income.
On January 2, 2017, Mahoney Sales issues $10,000 in bonds for $9,400. The bonds are
five-year bonds with a stated rate of 4% and pay semiannual interest on June 30 and
December 31. Mahoney Sales uses the straight-line method to amortize bond discount.
Prepare the journal entry for the first interest payment on June 30, 2017.
Carpenter Schools, Inc. is authorized to issue 500,000 shares of $2 par common stock.
The company issued 106,000 shares at $6 per share. When the market price of common
stock was $10 per share, Carpenter declared and distributed a 10% stock dividend.
Later, Carpenter declared and paid a $0.10 per share cash dividend.
Prepare the journal entries to record these transactions. Explanations are not required.
The periodic inventory records of Lucas Dental Supply indicate the following for the
month of April:
As of April 30, Lucas counts 8 units of merchandise inventory on hand.
Compute ending merchandise inventory and cost of goods sold for Lucas using the FIFO
inventory method.
Melinda, Inc. estimates manufacturing overhead costs for the coming year at $225,000,
which will be allocated based on direct labor hours. Melinda estimates 9,000 direct
labor hours for the coming year. In January, Job A33 was completed, which required 8
direct labor hours and 34 machine hours. Provide the journal entry to allocate
manufacturing overhead to the job.
