Generally Accepted Accounting Principles (GAAP) require every organization to
prepare reversing entries.
The accounting rate of return also is known as the average rate of return or annual rate
of return.
Debentures are backed only by the goodwill of the bond issuer.
Income taxes are withheld from the employee’s paycheck.
The main reason companies retire bonds prior to their maturity date is to relieve the
pressure of paying interest payments.
On a multi-step income statement, merchandisers report operating expenses in two
categories—selling expenses and administrative expenses.
On October 1, 2016, Lee’s Electronic sold merchandise in exchange for a 4 month,
$10,000 note receivable, with 6% interest. Interest revenue of $200 is earned in 2017.
Reversing entries are special journal entries that ease the burden of accounting for
transactions in a later period.
Factory rent, as well as factory property taxes and insurance, are included in
manufacturing overhead.
The days’ sales in inventory ratio is calculated by dividing cost of goods sold by the
average merchandise inventory.
The operating cycle is the process by which companies produce their financial
statements for a specific period.
The following format represents the flow of costs for all three manufacturing inventory
accounts:
Beginning balance + Additions – Ending balance = Amount used, manufactured, or sold
If the sales price of Product X is $24.00 per unit and unit fixed cost is $7.50, its
contribution margin per unit is $16.50.
The Financial Accounting Standards Board is a U.S. governmental agency that oversees
the creation and governance of accounting standards.
Actual manufacturing overhead costs are credited to the Manufacturing Overhead
account.
When investigating overhead variances, management needs to determine whether cost
increases were controllable or if the cost standard needs to be updated.
If the debit side of the Manufacturing Overhead account totals more than the credit side
of the account, the manufacturing overhead is overallocated.
The direct materials cost and efficiency variances make up the total direct materials
variance.
The Allowance for Bad Debts is a contra account to Accounts Receivable.
U. S. Generally Accepted Accounting Principles permits the presentation of plant assets
at their fair market value.
A budget represents the plans that a company has in place to achieve its goals.
Companies use a ledger to show all of the increases and decreases in each account
along with their balances.
The purchases journal is a special journal used to record all purchases of merchandise
inventory, office supplies, and other assets on account.
When preparing the statement of cash flows using the indirect method, depreciation
expense is subtracted from net income under operating activities.
The operating cycle of a merchandiser begins when the company purchases inventory
from a vendor and ends when the company collects cash from customers.
Companies with diverse products can obtain better costing information by using a
single plantwide rate for allocating manufacturing costs.
Jefferson Enterprises estimates that it will pay a 5% bonus on annual net income. If
Jefferson reports net income of $480,000 before the calculation of the bonus, the
amount of the bonus is $24,000.
An invoice is a request by the seller for payment from the purchaser.
In a sole proprietorship, the owner is personally liable for the debts of the business.
The Special Sauce Pizza Company sells pizzas in two different sizes—medium and
large. The number of medium pizzas sold is twice the number of large pizzas sold. The
contribution margin of a medium pizza is $10, and the contribution margin of a large
pizza is $20. The weighted average contribution margin is $15.
The beginning balance in the Common Stock account of Cedar Technologies, Inc. was
$76,000. The revenues and expenses amounted to $55,000 and $37,000, respectively.
During the year, the company did not declare any dividends or issue common stock.
The Common Stock account will have $131,000 at the end of the year.
When a company has issued both preferred and common stock, the common
stockholders receive their dividends first.
Small stock dividends increase the Paid-In Capital in Excess of Par account.
A business that has a vacant building that is not currently being used would classify the
building as a plant asset.
Credit terms of a merchandising company are 1/15, net 40. This means that the buyer
can receive a discount of 1% if the invoice is paid within 40 days of the invoice date.
Franchises are privileges granted by a business to sell goods and services under
specified conditions.
Banks must return physical copies of the maker’s canceled checks.
The relative proportion of economic resources and obligations would be shown by the
balance sheet.
The cost accountant works with the office and sales managers to develop the selling and
administrative expense budget.
The management of Drum Lawnmowers has calculated the following variances:
When determining the total production cost flexible budget variance, what is the total fixed
overhead variance of the company?
A) $6,500 F
B) $4,000 F
C) $10,500 F
D) $5,500 F
Which of the following is the correct formula for calculating total mixed cost?
A) Total mixed cost = (Variable cost per unit / Number of units) + Total fixed cost
B) Total mixed cost = (Variable cost per unit × Number of units) – Total fixed cost
C) Total mixed cost = (Variable cost per unit × Number of units) + Total fixed cost
D) Total mixed cost = (Variable cost per unit / Number of units) – Total fixed cost
Powers, 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 $25,750. Additional
estimated information is given below.
Calculate the amount of overhead to be allocated to Satchels, if the actual units produced
and direct labor costs equal the estimated amounts. (Round any percentages to two decimal
places and your final answer to the nearest dollar.)
A) $495
B) $13,733
C) $12,017
D) $22,750
Which of the following is the final step in the journalizing and posting process?
A) Posting the accounts to the ledger.
B) Identifying each account affected and its type.
C) Determining whether the accounting equation is in balance.
D) Determining whether each account has increased or decreased.
A petty cash fund was established with a $575 balance. It currently has cash of $45 and
petty cash tickets as shown below:
Which of the following would be included in the journal entry to replenish the Petty Cash
fund?
A) debit to Cash Short & Over for $20
B) credit to Cash Short & Over for $20
C) debit to Petty Cash for $20
D) credit to Petty Cash for $20
Which of the following is true of trading investments?
A) They are held for more than two years.
B) They are generally recorded as long-term investments.
C) They must be adjusted and reported at fair value at the end of each accounting
period.
D) They are always reported on the balance sheet at their historical cost.
Uniox, Inc. intends to increase its profits by 50% in the next fiscal year. Which of the
following is most likely to be a lag indicator in Uniox’s performance report?
A) return on investment
B) number of repeat customers
C) rate of on-time deliveries
D) defect rate
Which of the following will result in an unfavorable direct labor cost variance?
A) when actual direct labor hours exceed standard direct labor hours
B) when actual direct labor hours are less than standard direct labor hours
C) when the actual direct labor cost per hour exceeds the standard direct labor cost per
hour
D) when the actual direct labor cost per hour is less than the standard direct labor cost
per hour
Cash borrowed on a mortgage note is a(n) ________ activity on the statement of cash
flows.
A) operating
B) investing
C) financing
D) non-cash investing and financing
Prior period adjustments ________.
A) always increase the beginning balance of retained earnings
B) are shown on the statement of retained earnings as corrections to the beginning
balance
C) can be ignored because the financial statements have already been issued
D) must be recorded in the period in which the error occurred
Which of the following statements is true of the direct and indirect methods of
preparing the statement of cash flows?
A) The indirect method and the direct method will produce the same amount of net cash
flow from operating activities.
B) The investing activities section is the only section that differs between the direct and
indirect methods.
C) The indirect method shows three types of cash flows, but the direct method does not.
D) There is no difference in the way the operating activities section is presented.
A business purchased equipment for $140,000 on January 1, 2017. The equipment will
be depreciated over the five years of its estimated useful life using the straight-line
depreciation method. The business records depreciation once a year on December 31.
Which of the following is the adjusting entry required to record depreciation on
equipment for the year 2017? (Assume the residual value of the acquired equipment to
be zero.)
A) Debit $140,000 to Equipment, and credit $140,000 to Cash.
B) Debit $28,000 to Depreciation Expense—Equipment, and credit $140,000 to
Accumulated Depreciation—Equipment.
C) Debit $28,000 to Depreciation Expense—Equipment, and credit $28,000 to
Accumulated Depreciation—Equipment.
D) Debit $28,000 to Depreciation Expense, and credit $28,000 to Equipment.
Which of the following is a capital budgeting method that ignores the time value of
money?
A) payback
B) internal rate of return
C) return on assets
D) net present value
Which of the following accounts will be closed by debiting the Income Summary
account?
A) Retained Earnings
B) Service Revenue
C) Accounts Receivable
D) Salaries Expense
Which of the following businesses is most likely to use a process costing system?
A) an accounting firm
B) a law firm
C) a soda manufacturer
D) a construction company
Accrued revenue is revenue that ________.
A) has been collected and earned
B) the business has collected in cash, but not yet earned
C) the business has earned, but not yet collected in cash
D) will be collected and earned in the future
Every transaction recorded in the cash receipts journal includes a ________.
A) credit to Cash
B) debit to Accounts Receivable
C) credit to Accounts Receivable
D) debit to Cash
Goods that are produced by a manufacturing company and are ready to sell are recorded
in the _______ account.
A) Raw Materials Inventory
B) Work-in-Process Inventory
C) Manufacturing Overhead
D) Finished Goods Inventory
Coleman, Inc. provides the following data from its income statement for 2017:
Calculate the gross profit percentage. (Round your answer to two decimal places.)
A) 150.00%
B) 60.00%
C) 100.00%
D) 40.00%
Which of the following organizations requires publicly owned companies to be audited
by independent accountants (CPAs)?
A) Securities and Exchange Commission (SEC)
B) Public Company Accounting Oversight Board (PCAOB)
C) Financial Accounting Standards Board (FASB)
D) American Institute of Certified Public Accountants (AICPA)
The Carolina Rubber Products Company completed the flexible budget analysis for the
second quarter, which is given below.
Which of the following would be a correct analysis of the sales volume variance for sales
revenue?
A) increase in sales price per unit
B) increase in sales volume
C) increase in variable cost per unit
D) increase in fixed costs
Acton Company is a price-taker and uses target pricing. Refer to the following
information:
With the current cost structure, Acton cannot achieve its profit goals. It will have to reduce
either the fixed costs or the variable costs. Assuming that variable costs cannot be reduced,
what are the target fixed costs per year? Assume all units produced are sold.
A) $5,497,000
B) $5,500,000
C) $12,560,000
D) $10,234,000
Phoenix, Inc. manufactures widgets. The target sales price is $440 per unit. The
company desires a 40% net profit margin on its products. What is the company’s target
full-product cost per unit using target pricing?
A) $176
B) $616
C) $704
D) $264
Which of the following statements is true of absorption costing?
A) It considers variable selling and administrative costs as product costs.
B) It considers fixed selling and administrative costs as product costs.
C) It considers fixed manufacturing overhead cost as product costs.
D) It considers variable manufacturing overhead cost as period costs.
The accountant of Delta, Inc. failed to make an adjusting entry to record $6,000 of
unearned service revenue that has now been earned. Assume the deferred revenue was
initially recorded as a liability. Which of the following statements is true?
A) The total revenue will be overstated.
B) The total revenue will be understated.
C) The total expenses will be overstated.
D) The total expenses will be understated.
Brad Turret, one of the managers of a multi-national company, is responsible for
generating revenues and controlling costs in order to increase the operating income of
his division. However, he is not concerned about investment-related decisions. Brad is
most likely to be the manager of a(n) ________.
A) cost center
B) investment center
C) profit center
D) revenue center
Anything for which managers want a separate measurement of cost is called a
________.
A) responsibility center
B) cost object
C) profit object
D) conversion cost
On January 1, 2017, Zade Manufacturing Corporation purchased a machine for
$41,000,000. Zade’s management expects to use the machine for 33,000 hours over the
next six years. The estimated residual value of the machine at the end of the sixth year
is $44,000. The machine was used for 3,700 hours in 2017 and 5,900 hours in 2018.
What is the depreciation expense for 2017 if the corporation uses the
units-of-production method of depreciation? (Round any intermediate calculations to
two decimal places, and your final answer to the nearest dollar.)
A) $4,592,033
B) $13,666,667
C) $7,322,431
D) $4,596,954
The accountant for Noble Jewelry Repair Services, Inc. forgot to make an adjusting
entry for Depreciation Expense for the current year. Which of the following is an effect
of this error?
A) Revenues are understated.
B) Total assets are understated.
C) Net income is overstated.
D) Total liabilities are understated.
A company purchased 400 units for $20 each on January 31. It purchased 200 units for
$30 each on February 28. It sold a total of 270 units for $90 each from March 1 through
December 31. If the company uses the last-in, first-out inventory costing method,
calculate the amount of ending inventory on December 31. (Assume that the company
uses a perpetual inventory system.)
A) $9,900
B) $23,100
C) $6,600
D) $330
Which of the following is an input device in an accounting information system?
A) keyboard
B) internet protocol
C) printer
D) router