Regardless of the number of special journals used, every business needs a general
journal.
The range over which output may be expected to vary is called the relevant range.
An increase in an activity base must cause an increase in actual overhead costs incurred
for that base to be considered a cost driver.
The number of equivalent units of production during a period may be greater than,
equal to, or smaller than the actual number of units completed and transferred to the
finished goods warehouse.
The practice of showing assets on the balance sheet at their cost, rather than at their
current market value is explained, in part, by the fact that cost is supported by objective
evidence that can be verified by independent experts.
All three inventory accounts (raw materials, work in process, and finished goods) are
considered current assets.
The present value of an ordinary annuity is the amount that equal payments made at the
end of successive equal periods is worth today.
A wholly owned international subsidiary exists when a company owns 100% equity
control of a foreign subsidiary.
Sum-of-the-years’ digits is a decelerated method of depreciation which produces less
depreciation expense in the early years of the asset’s life and more expense in the later
years.
A bond with a $100,000 face value that is issued at a premium will have a higher
maturity value than a bond with a $100,000 face value that is issued at a discount.
Sunk costs are relevant to decisions about replacing plant assets.
Assets are shown in the balance sheet at their book value.
Because of the consistency principle, inventory should never be written down below
cost.
If the number of debit entries in an account is greater than the number of credit entries,
the account will have a debit balance.
Revenue, less variable costs, less traceable fixed costs, is called the contribution
margin.
Industries with relatively high accounts receivable turnover rates include restaurants
and hotels.
Adjusting entries are usually made on a daily basis.
In a job order cost system, the costs of direct materials, direct labor, and manufacturing
overhead are accumulated separately for each department for a given period of time.
In the target costing process, target price is computed by adding the desired profit
margin to the target product cost.
Executive salaries are typically considered variable costs.
In order to receive a dividend, a stockholder must have owned the stock as of the
declaration date.
Deferred income taxes may be classified as assets.
A cost driver is an activity base that is highly correlated with manufacturing overhead
costs.
In a periodic inventory system, cost of goods sold is the cost of goods available for sale
less ending inventory.
The tailoring of an accounting report to meet the needs of a specific decision maker is
more characteristic of financial accounting reports than of management accounting
reports.
At year-end, all equity accounts must be closed.
A common means of performance evaluation occurs by comparing budgeted amounts
with actual amounts.
In setting standard costs, management’s expectations are that the standard costs will
always be met.
Return on investment indicates the profitability that can be expected from one dollar of
sales.
Since the Accumulated Depreciation account has a credit balance, it is reported on the
liability side of the balance sheet along with other accounts that have a credit balance.
Managerial accounting refers to the preparation and use of accounting information
designed to meet the needs of decision makers inside and outside the business
organization.
The cost transferred to Cost of Goods Sold is equal to the total manufacturing costs
incurred for the units sold.
The direct write-off method is more conservative than the allowance method for
valuation of receivables.
In a process costing system that uses equivalent units of production, the per-unit cost of
direct materials equals the total cost of materials used in the current month divided by
the number of units completed and transferred during the current month.
The yield rate on stock is measured by dividing dividends per share by market price per
share.
Mutual agency refers to the ability of each partner to withdraw cash and other assets at
will.
A basic characteristic of all marketable securities is that they can be purchased or sold
quickly and easily at quoted market prices.
Which of the following does not describe accounting?
A. It is commonly referred to as the language of business.
B. It is an end rather than a means to an end.
C. It is useful for decision-making.
D. It is used by businesses, governments, non-profit organizations, and individuals.
All of the following statements are true of double-entry accounting except:
A. There is a need for both debit and credit entries for each and every transaction.
B. Double-entry accounting can only be used with computer-based accounting systems.
C. The total dollar amount of debit entries posted to the general ledger is equal to the
dollar amount of the credit entries.
D. Double-entry accounting allows us to measure net income at the same time we
record the effect of transactions on the balance sheet accounts.
An adjusting entry to convert an asset to expense consists of:
A. A debit to a liability and a credit to cash.
B. A debit to an expense and a credit to cash.
C. A debit to an expense and a credit to an asset account.
D. A debit to an asset account and a credit to an expense account.
Before making month-end adjustments, net income of Bobwhite Company was
$232,000 for March. Adjusting entries are necessary for the following items:
-Depreciation for the month of March: $4,300.
-Rental income accrued during March, tenant to pay in April: $900.
-Supplies used in March: $300.
-Fees earned in March that had been collected in advance: $3,600.
After recording these adjustments, net income for March is:
A. $222,900.
B. $227,700.
C. $231,900.
D. $235,600.
Midwest Office Products uses the retail method to estimate ending inventory in its
monthly financial statements. The following information is available for the month
ended May 31:
Refer to the information above. Estimate the cost of goods sold for May using the retail
method. (Round your final answer to the nearest dollar value.)
A. $116,964.
B. $150,400.
C. $205,236.
D. $319,600.
Which of the following is not recognized as a source of generally accepted accounting
principles?
A. Widespread and long-term use of a particular practice.
B. The Financial Accounting Standards Board (FASB).
C. The Securities and Exchange Commission (SEC).
D. Statements of the Committee of Sponsoring Organizations (COSO).
Disneyland charges visitors for admission to the park but not for individual rides or
attractions. “Splash Mountain” is one of the rides in Disneyland. The Walt Disney
Company should evaluate “Splash Mountain” as:
A. A revenue center.
B. A cost center.
C. An investment center.
D. A profit center (other than an investment center).
The payment of wages to factory employees who work directly on the goods being
manufactured is recorded by an entry crediting:
A. Wages Expense.
B. Direct Labor.
C. Work in Process Inventory.
D. Cash.
Which of the following is not a basic function of an accounting system?
A. To interpret and record the effects of business transactions.
B. To classify the effects of similar transactions in a manner that permits determination
of various totals and subtotals useful to management.
C. To ensure that a business organization will be managed profitably.
D. To summarize and communicate information to decision makers.
The purpose of developing the subtotals “Income before Extraordinary Items” and
“Income from Continuing Operations” in an income statement is to:
A. Assist investors in forecasting future operating results.
B. Increase the amount of reported net income.
C. Decrease the amount of income subject to income taxes.
D. Provide investors with the information necessary to compute earnings per share.
If the trial balance has a smaller debit balance than credit balance, it signifies:
A. Assets are more than liabilities.
B. A profit.
C. A loss.
D. An error has been made.
Gordy’s Corp. has seven employees. Each earns $800 per week for a five day work
week ending on Friday. This month, the last day of the month falls on a Thursday. The
company should make an adjusting entry:
A. Debiting Wage Expense for $4,480 and crediting Wages Payable for $4,480.
B. Debiting Wage Expense for $640 and crediting Wages Payable for $640.
C. Crediting Wage Expense for $4,480 and debiting Wages Payable for $4,480.
D. Crediting Wage Expense for $640 and debiting Wages Payable for $640.
In February 2015, Brilliant Industries purchased the Topaz Mine at a cost of
$10,000,000. The mine is estimated to contain 500,000 carats of stone and to have a
residual value of $500,000 after mining operations are completed. During 2015, 50,000
carats of stone were removed from the mine and sold. In this situation:
A. The book value of the mine is $9,000,000 at the end of 2015.
B. The amount of depletion deducted from revenue during 2015 is $950,000.
C. The amount of depletion deducted from revenue during 2015 is $1,000,000.
D. The mine is classified as an intangible asset and amortized over a period not to
exceed 40 years.
Sinking funds usually appear on the balance sheet as:
A. Current asset.
B. Long-term investment.
C. Current liability.
D. Appropriation of retained earnings.
Which of the following is not a valid reason for developing responsibility center
information?
A. Responsibility center information is useful in deciding how to allocate resources
among segments of the business.
B. Separately measuring the revenue and expenses of each responsibility center is a
necessary step in developing financial statements for the business entity viewed as a
whole.
C. Responsibility center information is useful in evaluating the performance of segment
managers.
D. Responsibility center information helps management to quickly identify sections of
the business that are performing poorly.
When a job is completed:
A. Cost of goods sold is debited.
B. Work-in-process inventory is debited.
C. Materials inventory is credited.
D. Finished goods inventory is debited.
The overhead spending variance:
A. Occurs automatically whenever actual production levels differ from the “normal”
production level used to compute the standard overhead cost per unit.
B. Is the difference between amounts spent for actual manufacturing overhead costs and
the amount applied to production.
C. Is computed as the difference between variable overhead per the flexible budget and
actual variable overhead costs incurred.
D. Is the portion of the total overhead variance that is considered “controllable” by the
production manager.
Indirect Oil Co. reports these account balances at December 31, 2014
On January 2, 2015, Indirect Oil collected $25,000 of its accounts receivable and paid
$20,000 of its accounts payable. On January 3, 2015, total liabilities are:
A. $185,000.
B. $165,000.
C. $150,000.
D. $70,000.
If during the current year, liabilities of Hayden Travel decreased by $50,000 and
owners’ equity increased by $75,000, then:
A. Assets at the end of the year total $125,000.
B. Assets at the end of the year total $25,000.
C. Assets increased during the year by $25,000.
D. Assets decreased during the year by $125,000.
Flexible budgeting may be used for profit centers by applying cost-volume-profit
relationships to the actual level of:
A. Units produced.
B. Resources consumed.
C. Costs incurred.
D. Sales achieved.
Which philosophy in setting budgeted amounts assumes both the complete elimination
of inefficiencies and a level of absolute efficiency?
A. The behavioral approach.
B. The total quality management approach.
C. The strategic approach.
D. The master budget approach.
A comparative financial statement:
A. Places the balance sheet, the income statement, and the statement of cash flows
side-by-side in order to compare the results.
B. Places two or more years of a financial statement side-by-side in order to compare
results.
C. Places the financial statements of two or more companies side-by-side in order to
compare results.
D. Places the dollar amounts next to the percentage amounts of a given year for the
income statement.
Which of the following payroll costs are shared equally by the employer and the
employee?
A. State unemployment taxes.
B. Workers’ compensation.
C. Social security.
D. Federal unemployment taxes.
The credit term 2/10, n/30 means:
A. That after 10 days 2% interest is charged.
B. That there is a 10% discount if payment is received within 30 days.
C. That there is a 2% discount if payment is received within 10 days, otherwise, full
payment is due within 30 days.
D. There is a 10% discount if paid immediately and 2% if paid within 30 days.
Manufacturing overhead is:
A. A direct cost that can traced to a specific job.
B. An indirect cost that can be traced to a specific job.
C. A direct cost that cannot be traced to a specific job.
D. An indirect cost that cannot be traced to a specific job.
Ceramic Products, Inc. reports these account balances at January 1, 2015 (shown in
alphabetical order):
On January 5, Ceramic Products collected $12,000 of its accounts receivable and paid
$11,000 on its note payable.
Refer to the information above. In a trial balance prepared for Ceramic Products on
January 1, 2015, the total of the credit column is:
A. $182,000.
B. $196000.
C. $166,000.
D. $286,000.
Which of the following should not be treated as a revenue expenditure?
A. Delivery costs on newly purchased equipment.
B. Annual fire insurance premiums on plant and equipment.
C. Repair to an elevator of a five year old building.
D. The purchase of a pencil sharpener for $10 used in an office.
Refer to the information above. What are total assets of Quality Galleries at the end of
March?
A. $283,000.
B. $162,000.
C. $445,000.
D. $480,000.
High-low method
The following information is available regarding the total manufacturing overhead costs
of Paymore, Inc., for five months in 2015:
(a) Using the high-low method, compute the following (round all answers):
(1) The variable element of overhead cost per machine-hour.
(2) The fixed element of monthly overhead cost.
(b) Use the cost relationship determined in part (a) to estimate the total manufacturing
overhead costs for July 2015, given that 7,250 machine-hours are scheduled.
Using different accounting methods on financial statements and tax returns will create:
A. No effect upon the balance sheet, only the income statement.
B. No effect upon the balance sheet nor the income statement.
C. A deferred tax liability.
D. An illegal situation.
Decreases in owners’ equity are caused by:
A. Purchases of assets and payment of liabilities.
B. Purchases of assets and incurrence of liabilities.
C. Payment of liabilities and unprofitable operations.
D. Distributions of assets to the owners and unprofitable operations.
Dividends will have what effect upon retained earnings?
A. Increase.
B. Decrease.
C. No effect.
D. Depends upon if there is income or loss.
General Chemical Company (GCC) manufactures two products as part of a joint
process: A1 and B1. Joint costs up to the split-off point total $22,000. The joint costs
are allocated to A1 and B1 in proportion to their relative sales values. At the split-off
point, product A1 can be sold for $42,000, whereas product B1 can be sold for $63,000.
Product A1 can be processed further to make product A2, at an incremental cost of
$38,000. A2 can be sold for $85,000. Product B1 can be processed further to make
product B2, at an incremental cost of $48,000. B2 can be sold for $95,000.
Refer to the information above. Joint costs allocated to product A1 total:
A. $8,800.
B. $13,500.
C. $13,200.
D. $22,000.
Process costing with equivalent units and beginning inventory
The records of Westminster Manufacturing Company for the month of May show the
following costs in Department A:
The beginning inventory for May consisted of 10,000 units which were 80% complete
as to direct materials and 60% complete as to labor and overhead. A total of 100,000
units were completed and transferred out during May, and 20,000 units remained in the
work in process inventory. The ending inventory was 80% complete as to direct
materials and 40% complete as to labor and overhead. Compute the following:
(a) Direct materials cost per equivalent unit: $_______________
(b) Equivalent units of production for direct labor and overhead: ________________
(c) Total cost of 100,000 units completed: $________________
(d) Total cost of 20,000 units in process at the end of the month: $________________
A manufacturing company produced the following report:
Required:
(1) How many units would have to be sold to break-even?
(2) If fixed overhead were to increase by $1,800 what would the break-even point in
units be?
(3) What is operating income if sales increase by 25%?
Research and development-financial reporting
Alert Industries has spent $5 billion over the last three years in developing a new drug
labeled BJ13. FDA approval is expected by the end of the month, at which time the
drug will be available for sale. None of Alert’s competitors has a product similar to
BJ13, and the medical community is anxiously awaiting availability of this drug.
Although BJ13 promises to be a “wonder drug” with huge financial success, Alert’s
income statements for the last few years have shown substantial losses and Alert’s
balance sheet does not include product BJ13 among the assets of the business.
Explain why one of Alert’s seemingly most valuable assets apparently has been omitted
from the balance sheet, and why Alert’s income statements for the past few years
reported substantial losses.
Using gross profit rates
Explain how the gross profit rate for a particular product is determined. How would you
expect the manager of a large department store to use these gross profit rates in
deciding which products to feature in the store’s window displays and in determining
the location of various types of merchandise within the store? Explain.
On Saturday, June 30, BD Pool Supplies sold merchandise to E. Luang on account. The
sales price was $6,400, and the cost of goods sold was $5,300. The sales revenue was
recorded immediately, but the entry recording the cost of goods sold was dated Monday,
July 2. As a result, net income for June was:
Determining cost of plant assets
New equipment was purchased by Hunter Corporation at a list price of $94,000, with
credit terms of 2/10, n/30. Payment was made within the discount period and included
$7,800 sales tax in addition to the net purchase price. The company also paid delivery
charges of $940 and labor costs of $1,380 for installing the new equipment at the
appropriate location. During installation, an inexperienced employee punctured several
containers with a forklift, causing damage to the equipment. Cost to repair the damage
was $1,960. What is the total cost of Hunter’s equipment?
Monfort Company had the following information
(1.) What are equivalent units of production for materials?
(2.) What was the cost per equivalent unit of production for materials during the period?
(Round your final answer to two decimal places.)
(3.) What were the equivalent units of production for conversion cost?
(4.) What was the cost per equivalent unit of production for conversion costs? (Round
your final answer to two decimal places.)
Volume variances
Consider the following statement: “No manager should be held responsible for a
volume variance.” Briefly explain why a volume variance should not be investigated
and viewed as the responsibility of some manager in an organization.
Computation of operating cash flows
The financial statements of Packard Corporation provide the following information for
the current year:
Using this information, compute for the current year:
ROI: What and why?
In general terms, what do all “ROI” ratios measure? Why are such computations useful?
Grey, Dailey, and Sanders have formed a partnership. Net income for the first year
amounted to $50,400. The partnership agreement states that Grey will receive a salary
of $10,000, Dailey will receive $15,000, and Sanders will receive $20,000. They each
have capital accounts of $30,000, $40,000, and $50,000 respectively. The contract calls
for interest of 12% of their beginning capital balances for each partner. Any profit or
loss will be split equally. How much income will each partner receive?
Accounting changes and prior period adjustment
Prior period adjustments affect the income of past accounting periods. Explain how
prior period adjustments are shown in the financial statements.
Computation of cash flows
An analysis of changes in selected balance sheet accounts of Taurus Corporation shows
the following for the current year:
The income statement for the current year included the following items relating to the
transactions summarized above:
All payments and proceeds relating to these transactions were in cash. Using this
information, compute the following cash flows for the current year: