The return on investment formula focuses on the amount of operating income earned
before considering other revenue and expense items, such as interest expense.
The accounting rate of return is calculated by dividing the average annual operating
income by the average amount invested.
Usually a company does not know the amount of the year-end bonus at year-end.
A receiving report should be matched with the supplier invoice before a payment to the
supplier is approved.
Investment center managers are responsible for generating profits and making use of
the investment center’s assets.
When computing the present value, the interest rate will vary depending on the amount
of risk. Riskier investments, such as FDIC-insured bank deposits, command higher
interest rates.
When the variable cost per unit decreases, the contribution margin on each unit sold
also decreases.
Days’ sales in receivables is also called the collection period.
Different users of accounting information focus on the information they need to make
the best choices.
When bonds are retired at maturity, assuming the last interest payment has already been
recorded, the journal entry includes a debit to the Bonds Payable account and a credit to
the Cash account.
A high times-interest-earned ratio indicates difficulty in paying interest expense.
The statement of cash flows explains why net income as reported on the income
statement does not equal the change in the cash balance.
Product costs, such as factory overhead, should be treated as an asset until the product
is sold.
In a period of rising costs, the last-in, first-out (LIFO) method results in higher cost of
goods sold and lower net income than the first-in, first-out (FIFO) method.
A cash equivalent is a highly liquid investment that can be converted into cash in three
years or less.
Long-term liabilities can be structured with equal principal payments or with an equal
total payment amount.
Key performance indicators (KPIs) are summary performance measures that help
managers assess whether the company is achieving its goals.
The wages of manufacturing plant janitors are considered to be non-manufacturing
overhead costs as these costs are not directly related to the manufacturing process.
An asset account is increased by a debit.
If the historical cost of inventory is less than its current replacement cost, the business
must write down the inventory cost.
In general, calculating ROI based on the gross book value of assets gives managers an
incentive to continue using old, outdated equipment.
A standard is a sales price, cost, or quantity that is expected under normal conditions.
When operating at capacity, a market-based transfer price should be used.
Land and land improvements are one and the same and therefore must be recorded in
single account.
When using the LIFO inventory costing method, ending merchandise inventory will be
the lowest, as compared to FIFO and weighted-average inventory costing methods,
when costs are increasing.
Sensitivity analysis is a what-if technique.
Declaring and paying dividends causes an increase in both assets and stockholders’
equity of the corporation.
When goods are transferred from the Finished Goods Inventory account to the Cost of
Goods Sold account, the product costs move from the balance sheet to the income
statement.
Overallocated manufacturing overhead occurs when the manufacturing overhead
allocated to Work-in-Process Inventory is less than the amount actually incurred.
The fixed overhead volume variance is a volume variance, not a cost variance.
The main computer where data is stored, which can be accessed from many different
computers is known as a(n) ________.
A) internet protocol
B) RAM
C) server
D) router
The following information is from the December 31, 2017 balance sheet of Jackson
Corporation.
What is the average issue price of the preferred stock shares? (Round answers to the
nearest dollar.)
A) $108
B) $100
C) $167
D) $106
Securities are ________.
A) commonly traded on an exchange
B) assets traded between companies working in the same industry
C) intangible assets traded in the stock exchange
D) always considered to be long-term investments
Bag Ladies, Inc. manufactures two kinds of bags—totes and satchels. The company
allocates manufacturing overhead using a single plantwide rate with direct labor cost as
the allocation base. Estimated overhead costs for the year are $25,500. Additional
estimated information is given below.
Calculate the amount of overhead to be allocated to Totes. (Round any percentages to two
decimal places and your final answer to the nearest dollar.)
A) $472
B) $347
C) $11,878
D) $13,620
Vista Camera Services started the year with total assets of $110,000 and total liabilities
of $45,000. The revenues and the expenses for the year amounted to $120,000 and
$90,000, respectively. During the year, the company did not issue any common stock,
but it distributed dividends of $50,000. What is the amount of stockholders’ equity at
the end of the year?
A) $90,000
B) $120,000
C) $45,000
D) $50,000
Discount Sales Company uses a standard cost system. Variable overhead costs are
allocated based on direct labor hours. In the first quarter, Discount Sales had a favorable
cost variance for variable overhead costs. Which of the following scenarios is a
reasonable explanation for this variance?
A) The actual number of direct labor hours was lower than the budgeted hours.
B) The actual variable overhead costs were higher than the budgeted costs.
C) The actual variable overhead costs were lower than the budgeted costs.
D) The actual number of direct labor hours was higher than the budgeted hours.
A company purchased 300 units for $60 each on January 31. It purchased 150 units for
$25 each on February 28. It sold a total of 250 units for $70 each from March 1 through
December 31. If the company uses the weighted-average inventory costing method,
calculate the amount of ending inventory on December 31. (Assume that the company
uses a perpetual inventory system. Round any intermediate calculations two decimal
places, and your final answer to the nearest dollar.)
A) $21,750
B) $9,666
C) $12,084
D) $8,500
WSP Manufacturing produces a pesticide chemical and uses process costing. There are
three processing departments—Mixing, Refining, and Packaging. On January 1, the
first department—Mixing—had no beginning inventory. During January, 40,000 fl. oz.
of chemicals were started in production. Of these, 31,000 fl. oz. were completed and
9,000 fl. oz. remained in process. In the Mixing Department, all direct materials are
added at the beginning of the production process, and conversion costs are applied
evenly through the process.
At the end of the month, WSP calculated equivalent units. The ending inventory in the
Mixing Department was 60% complete with respect to conversion costs. With respect to
conversion costs, how many equivalent units were calculated for the product that was
completed and for ending inventory?
A) Product completed: 31,000 equivalent units; Products in ending inventory: 5,400
equivalent units
B) Product completed: 31,000 equivalent units; Products in ending inventory: 9,000
equivalent units
C) Product completed: 40,000 equivalent units; Products in ending inventory: 5,400
equivalent units
D) Product completed: 40,000 equivalent units; Products in ending inventory: 9,000
equivalent units
Sierra Semiconductors produces 100,000 high-tech computer chips per month. Each
chip uses a component that Sierra makes in-house. The variable costs to make the
component are $1.30 per unit, and the fixed costs are $1,100,000 per month. The
company has been approached by a foreign producer who can supply the component,
within acceptable quality standards, for $1.20 each. If the company chooses to
outsource, fixed costs can be reduced by 40%. There are no other uses for the facilities
currently employed in making the component. What would be the effect on operating
income, if the company decides to outsource?
A) There would be no effect on operating income.
B) Operating income would increase by $450,000.
C) Operating income would increase by $120,000.
D) Operating income would decrease by $10,000.
Which of the following is a liability account?
A) Accounts Payable
B) Prepaid Expense
C) Salaries Expense
D) Service Revenue
Kevin, an employee of Sunbeam, Inc., has gross salary for May of $7,000. The entire
amount is under the OASDI limit of $117,000 and thus subject to FICA. He is also
subject to federal income tax at a rate of 20%. Which of the following is a part of the
journal entry to record the disbursement of his net pay? (Assume a FICA—OASDI Tax
of 6.2% and FICA—Medicare Tax of 1.45%.)
A) debit to Cash for $5,064.50
B) credit to Cash for $5,064.50
C) debit to Employee Income Tax Payable of $5,064.50
D) debit to FICA Tax Payable of $5,064.50
Johnson Construction Materials Company has a sales office that sells concrete culvert
pipes to property developers. The sales office is a revenue center and prepares a
monthly responsibility report. The following information is provided.
Revenue Center Responsibility Report
What is the flexible budget variance for the 40-inch pipe?
A) $1,700 U
B) $10,800 F
C) $10,800 U
D) $1,700 F
The adjusted trial balance shows ________.
A) account balances after adjustments
B) revenue and expense accounts only
C) account balances before adjustments
D) balance sheet accounts only
Investors and creditors can evaluate a company by examining only one year’s data.
Bryan Consultants had the following balances before preparing adjusting entries in the
books on December 31, 2017.
Prepare the adjusted trial balance after considering these adjustments:
a. Office Supplies used, $800. Assume the office supplies were initially recorded as an
asset.
b. Accrued salaries on December 31, $600.
c. Revenue earned but not recorded, $200.
In reconciling a bank statement, the bank balance is $2,100, and the checkbook balance
is $2,001. Which of the following is the most probable reason for the bank balance
being larger than the book balance?
A) There are outstanding checks.
B) The bank has deducted certain amounts for bank service charges.
C) A deposit in transit was made at the end of the month.
D) The company erroneously recorded a check for an amount less than the actual
amount.
For Retained Earnings, the category of account and its normal balance is ________.
A) equity and a credit balance
B) assets and a debit balance
C) equity and a debit balance
D) assets and a credit balance
Home Bakery Company manufactures two products—toaster ovens and bread
machines. The following data are available:
Home Bakery Living can manufacture six toaster ovens per machine hour and four bread
machines per machine hour. Home Bakery’s production capacity is 2,000 machine hours
per month. What is the contribution margin per machine hour for toaster ovens? (Round
machine hour per unit to two decimal places and your final answer to the nearest whole
dollar.)
A) $120
B) $20
C) $14
D) $320
Which of the following is a control procedure to prevent a dishonest employee from
cashing a paycheck that was written to a fictitious person?
A) having employees clock in and out of work
B) keeping computerized records of payroll data
C) serial numbering of paychecks
D) requiring photo IDs for employees picking up their paychecks
Two methods of estimating uncollectible receivables are ________.
A) the allowance method and the amortization method
B) the aging-of-accounts-receivable method and the percent-of-sales method
C) the gross-up method and the direct write-off method
D) the direct write-off method and the percent-of-completion method
Allentown Aqua, Inc. has provided the following information for the year.
What is the unit product cost using variable costing?
A) $55
B) $105
C) $125
D) $168
A business pays $500 cash for office supplies. Which of the following accounts is
credited?
A) Cash
B) Accounts Payable
C) Office Supplies
D) Utilities Expense
Five Seasons is a merchandiser of packed foods. The company provides the following
information for the year:
How much was the unit cost per item of product sold? (Round your answer to the nearest
cent.)
A) $4.52
B) $5.00
C) $2.21
D) $100.48
Which of the following is the correct formula for calculating rate of return on total
assets?
A) (Net income + Interest expense) / Average total assets
B) (Net income – Interest expense) / Average total asset
C) (Net income – Interest expense) / Total assets
D) Total equity / Total assets
The difference between cost variances and efficiency variances pertains to ________.
A) the difference between the static budget and actual results
B) the difference between the flexible budget and actual results
C) the difference between the flexible budget and the static budget
D) the difference between the static budget and the previous year’s actual results
Larry, an employee of Ramsay’s, Inc., has gross salary for March of $4,000. The entire
amount is under the OASDI limit of $117,000 and thus subject to FICA. He is also
subject to federal income tax at a rate of 18%. Larry has a deduction of $320 for health
insurance and $80 for United Way. Which of the following is included in the entry to
record the liability of payroll withholding deductions?
A) debit to Salaries Payable
B) credit to United Way Payable
C) debit to FICA Taxes Payable
D) debit to Cash
When inventory costs are declining, which of the following inventory costing method
will result in the lowest ending merchandise inventory?
A) first-in, first-out
B) last-in, first-out
C) weighted-average
D) specific identification
Which of the following is not typically shown as a separate column in a cash receipts
journal that uses the perpetual inventory system?
A) Interest Revenue CR column
B) Cost of Goods Sold DR, Merchandise Inventory CR column
C) Sales Revenue CR column
D) Other Accounts CR column
A newly created design business, Rhodes Art, is finishing its first year of operations.
During the year, credit sales were $45,000 and collections of credit sales were $33,000.
One account for $675 was written off. Smart Art uses the aging-of-receivables method
to account for bad debts expense. It has estimated $200 as uncollectible at year-end.
What is the amount of the Bad Debts Expense for the first year of operations?
A) $11,125
B) $675
C) $200
D) $875
Fashion Jewelers uses the perpetual inventory system. On April 2, Fashion sold goods
with a cost of $5,000 for $10,000 with terms of 4/15, n/30. On April 4, the customer
reported damaged goods and Fashion granted a $2,000 sales allowance. On April 10,
Fashion received the payment for the sale. Give the journal entry that will be recorded
on April 10 by Fashion.
A)
B)
C)
D)
Under which of the following categories would Accounts Receivable appear?
A) Current assets
B) Current liabilities
C) Long-term assets
D) Long-term liabilities
In the event of a corporate liquidation, preferred stockholders ________.
A) are guaranteed to receive a full refund of the stock purchase price
B) have first claim on remaining corporate assets after debts are paid
C) are guaranteed to receive the par value of the preferred stock
D) may retain their proportionate share of voting rights
Corel Sales sold its old office furniture for $6,500. The original cost was $15,000, and
at the time of sale, accumulated depreciation was $14,000. What is the effect of this
transaction?
A) gain of $6,500
B) gain of $5,500
C) loss of $5,500
D) loss of $6,500
Cilia Corporation specializes in the production of door knobs, which are mostly sold
within its territory. The selling price for each door knob is $15. Using the traditional
allocation method to allocate manufacturing overhead, the full-product cost is
determined to be $10. The company recently introduced the activity-based costing
method to allocate its overhead. The refinement of costs shows that the full-product cost
is $2.50 lower with activity-based costing than with traditional costing.
Requirement:
1. Calculate the change in net profit percentage as a result of the introduction of
activity-based costing.
2. The desired net profit margin of the company is 60%. If the production costs cannot
be reduced, by how much should the selling price be increased in order to achieve the
desired profit? (Use the cost estimates under activity-based costing.)
The adjusted trial balance of Shutterbug Photography at December 31, 2017 is as
follows:
Accounts Debit Credit
Cash $ 15,000
Accounts Receivable 30,000
Prepaid Insurance 7,500
Supplies 3,200
Building 160,000
Accumulated Depreciation—Building $ 12,000
Equipment 75,000
Accumulated Depreciation—Equipment 8,500
Land 40,000
Accounts Payable 12,000
Salaries Payable 2,000
Unearned Revenue 25,000
Mortgage Payable 100,000
Common Stock 21,290
Dividends 23,000
Service Revenue 289,000
Salaries Expense 61,000
Depreciation Expense—Building and Equipment 6,150
Supplies Expense 14,040
Insurance Expense 14,000
Utilities Expense 20,900 _______
Total $469,790 $469,790
Using the information above, prepare a post-closing trial balance for Shutterbug
Photography (dated December 31, 2017).
List the steps of the accounting cycle that take place during the period.
Clark Sales sold 450 units of product to a customer on account. The company uses the
perpetual inventory system. The selling price was $28 per unit, and the cost, according
to the company’s inventory records, was $12 per unit. Provide the journal entries to
record the sale.
What is the accounting equation? Briefly explain each of the three parts.
Turcotte Corp. reported the following revenues and net income amounts.
2017 2016 2015 2014 2013
Revenue $728 $675 $500 $485 $452
Cost of goods sold 650 602 456 403 398
Calculate Turcotte’s trend analysis for revenues and cost of goods sold. Use 2013 as the
base year, and round to the nearest percent.
On April 1, 2017, Ardos Gardening Products borrowed $100,000 on a 15%, 10-year
note with annual installment payments of $10,000 plus interest due on April 1 of each
subsequent year. Prepare the journal entry for the issuance of the note.
Describe the calculation of cost of goods sold when using the periodic inventory
system.
On July 1, Omega, Inc. paid rent of $15,000 for a small equipment storage area from
July 1 until December 31. Provide the adjusting journal entry on July 31. (Ignore
explanation). Assume the deferred expense is initially recorded as an asset.
Journalize the following purchase transactions for ABC Swimming Pool Supply
Company using the periodic inventory system. Explanations are not required.
On May 1, 2016, Butler Services issued a long-term note payable for $35,000. The note
will be paid over five-years with annual principal payments of $7,000, plus interest, on
May 1 of each year beginning on May 1, 2017. Prepare the journal entry for the
issuance of the note.
List and describe the three types of budgets that are included in the master budget.
Jones Corp. purchased equipment for $45,000. Total depreciation of $36,000 was
recorded. On January 1, 2017, Jones exchanged the equipment for new equipment,
paying $56,000 cash. The market value of the new equipment is $65,000. Prepare the
journal entry to record this transaction. Assume the exchange has commercial
substance.
Define indirect materials and give two examples of indirect materials for a
manufacturing company.
Caterlebe Productions uses a standard cost system. On December 31, the account
balances include the following:
Sales Revenues: $750,000
Cost of Goods Sold (standard costing): $400,500
Selling & Admin expenses: $150,000
Variances:
Prepare a standard cost income statement.
On June 30, Cleopatra, Inc. finished Job 70 with total job costs of $40,000 and
transferred the costs to Finished Goods Inventory. On July 6, Cleopatra completed the
sale of the goods to a customer for $55,000 on account. Provide the journal entry to
record the sales revenue.
List and briefly discuss the two limitations of financial performance measures.
Daytona Manufacturer produces flooring material. The monthly fixed costs are $10,000
per month. The unit sales price is $75, and variable cost per unit is $35. Daytona wishes
to earn an operating income of $25,000. Using the contribution margin ratio, calculate
the total sales revenue that is needed. (Round intermediate calculations to five decimal
places.)