A revenue account normally has a debit balance.
Answer:
A service company earns net income by buying and selling merchandise.
Answer:
Partners can invest both assets and liabilities into a partnership.
Answer:
A business segment is a part of a company that is separately identified by its products
or services or by the geographic market it serves.
Answer:
The statement of cash flows reports on cash flows separated into operating, investing,
and financing activities over a period of time.
Answer:
Total variable costs change proportionately with changes in output activity.
Answer:
When a partnership is liquidated, its business is ended.
Answer:
Benson is a partner in B&D Company. Benson’s share of the partnership income is
$18,600 and her average partnership equity is $155,000. Her partner return on equity
equals 8.33.
Answer:
When the attitude of continuous improvement exists throughout an organization, every
manager and employee seeks to continuously experiment with new and improved
business practices.
Answer:
A procedure called direct posting of sales invoices can substitute for the special sales
journal.
Answer:
The full disclosure principle requires that the notes to the financial statements report a
change in accounting method for inventory costing.
Answer:
The clerk who has access to the cash in the cash register should not have access to the
cash register tape or file.
Answer:
The heading on each financial statement lists the three W’s – Who (the name of the
organization), What (the name of the statement), and Where (the organization’s
address)
Answer:
Sandra has a savings account that is now $50,000. She started with $28,225 and earned
interest at 10% compounded annually. It took five years to accumulate the $50,000.
Answer:
Recording a purchase is initiated by an invoice approval, not an invoice.
Answer:
Bonds may only be issued on an interest payment date.
Answer:
There are two methods of accounting for uncollectible accounts: the direct write-off
method and the allowance method.
Answer:
Variable budget is another name for a flexible budget.
Answer:
Any cash dividends received from equity securities are recorded as Dividend Expense.
Answer:
A premium on bonds payable occurs when bonds have a contract rate greater than the
market rate at issuance.
Answer:
An advantage of the weighted-average inventory method is that it tends to smooth out
the effects of price changes.
Answer:
If the indirect materials cost for a reporting period was $37,500, the following journal
entry would be recorded by the process cost accounting system:
Answer:
The Securities and Exchange Commission (SEC) is an agency of the federal
government that establishes reporting requirements for companies that issue stock to the
public.
Answer:
The reporting of financing activities is identical under either the direct and indirect
methods for preparing the statement of cash flows.
Answer:
Each employee records the number of withholding allowances claimed on form W-4,
the withholding allowance certificate that is filed with the employer.
Answer:
Incremental costs are also called out-of-pocket costs.
Answer:
The general journal is used for transactions not covered by special journals and for
regular, adjusting, closing, and correcting entries.
Answer:
Natural resources are assets that include standing timber, mineral deposits, oil wells,
and gas fields.
Answer:
A merchandising company’s operating cycle begins with the sale of merchandise and
ends with the collection of cash from the sale.
Answer:
In the same time period, it is possible that a production department can produce 1,000
equivalent finished units with respect to direct materials and 1,200 equivalent finished
units with respect to direct labor.
Answer:
For good internal controls over cash, all payments should be made from the petty cash,
except for very large payments.
Answer:
A voucher is an internal document or file used to accumulate information to control
cash disbursements and to ensure that a transaction is properly recorded.
Answer:
The statement of cash flows explains the difference between the beginning and ending
balances of cash and cash equivalents.
Answer:
If the predetermined overhead allocation rate is 225% of direct labor cost and the
Mixing Department’s direct labor cost for the reporting period is $10,000, the following
entry would be made to record the allocation of overhead to the products processed in
this department:
Answer:
After all process cost accounting journal entries are recorded and posted for a reporting
period, the Factory Payroll account should have a zero balance.
Answer:
Costs may be classified by many different cost classifications.
Answer:
A company has 200,000 shares of $1 par value common stock and 20,000 shares of
7%, $100 par, cumulative preferred stock outstanding. The balance in Retained
Earnings account at the beginning of the year was $1,500,000 and one year’s dividends
were in arrears. Net income for the current year was $2,000,000. If the company paid a
dividend of $3 per share on its common stock, what is the balance in Retained Earnings
account at the end of the year?
A. $3,500,000
B. $2,900,000
C. $2,760,000
D. $2,620,000
E. $620,000
Answer:
A company issued 7% preferred stock with a $100 par value. This means that:
A. Preferred shareholders have a guaranteed dividend.
B. The amount of the potential dividend is $7 per year per preferred share.
C. Preferred shareholders are entitled to 7% of the annual income.
D. The market price per share will approximate $100 per share.
E. Only 7% of the total contributed capital can be preferred stock.
Answer:
A depreciation method that produces larger depreciation expense during the early years
of an asset’s life and smaller expense in the later years is a(n):
A. Accelerated depreciation method
B. Book value depreciation method
C. Straight-line depreciation method
D. Units-of-production depreciation method
E. Unrealized depreciation method
Answer:
The organization that attempts to create more harmony among the accounting practices
of different countries by identifying preferred practices and encouraging their
worldwide acceptance is the:
A. AICPA
B. FASB
C. CAP
D. SEC
E. IASB
Answer:
A 10-column spreadsheet used to draft a company’s unadjusted trial balance, adjusting
entries, adjusted trial balance, and financial statements and which is an optional tool in
the accounting process is a(n):
A. Adjusted trial balance
B. Work sheet
C. Post-closing trial balance
D. Unadjusted trial balance
E. General ledger
Answer:
Prepaid expenses are:
A. Payments made for products and services that do not ever expire.
B. Classified as liabilities on the balance sheet.
C. Decreases in retained earnings.
D. Assets that represent prepayments of future expenses.
E. Promises of payments by customers.
Answer:
A company wrote a check on September 30 that did not appear on the bank statement
dated September 30. In preparing the September 30 bank reconciliation, the company
should:
A. Deduct the check from the bank statement balance.
B. Send the bank a credit memorandum.
C. Deduct the check from the September 30 book balance and add it to the October 1
book balance.
D. Add the check to the book balance of cash.
E. Add the check to the bank statement balance.
Answer:
Which of the following are risks of e-commerce?
A. Firewalls, fraud, and computer viruses.
B. Encryption, stolen credit card numbers, and fraud.
C. Stolen credit card numbers, computer viruses, and impersonation.
D. Computer viruses, encryption, and stolen credit card numbers.
E. Impersonation, encryption, and firewalls.
Answer:
A company is considering investing in a project that is expected to return $350,000 four
years from now. How much is the company willing to pay for this investment if the
company requires a 12% return?
A. $ 55,606
B. $137,681
C. $222,425
D. $265,764
E. $350,000
Answer:
Interest is:
A. Time.
B. A borrower’s payment to the owner of an asset for its use.
C. The same as a savings account.
D. Always a liability.
E. Always an asset.
Answer:
Given the following information, determine the cost of goods sold for December 31
using the FIFO periodic inventory method:
December 2: 5 units were purchased at $7 per unit.
December 9: 10 units were purchased at $9.40 per unit.
December 11: 12 units were sold at $35 per unit.
December 15: 20 units were purchased at $10.15 per unit.
December 22: 18 units were sold at $35 per unit.
A. $282.15
B. $332.10
C. $281.25
D. $297.00
E. $284.70
Answer:
On December 31 of the current year, a company’s unadjusted trial balance included the
following: Accounts Receivable, debit balance of $88,790; Allowance for Doubtful
Accounts, credit balance of $1,245. What amount should be debited to Bad Debts
Expense, assuming 4% of outstanding accounts receivable at the end of the current year
are considered uncollectible?
A. $1,245.00
B. $3,551.60
C. $4,796.60
D. $2,306.60
E. $87,545.00
Answer:
A company declared a $0.50 per share cash dividend. The company has 20,000 shares
authorized, 9,000 shares issued, and 8,000 shares of common stock outstanding. The
journal entry to record the dividend declaration is:
A.
B.
C.
D.
E.
Answer:
A company has the following accounts. What is the acid test ratio?
A. 3.58%
B. 3.17%
C. 1.80%
D. 4.00%
E. 2.68%
Answer:
Due to an oversight, a company made no adjusting entry for accrued and unpaid
employee wages of $24,000 on December 31. This oversight would:
A. Understate net income by $24,000.
B. Overstate net income by $24,000.
C. Have no effect on net income.
D. Overstate assets by $24,000.
E. Understate assets by $24,000.
Answer:
Annual cash dividends per share divided by market price per share is equal to the:
A. Price-earnings ratio
B. Price-dividends ratio
C. Profit margin
D. Dividend yield ratio
E. Earnings per share
Answer:
A company entered into the following transactions concerning its computer system:
On January 1, 2012 purchased a computer system that cost $1,480,000. The estimated
useful life of the computer is 3 years and salvage value is $40,000. Straight-line
depreciation is to be used. On January 1, 2013 the company determined that the
estimated useful life of the computer would be 4 years instead of 3 years. The estimated
salvage value will only be $10,000.
a. Prepare the journal entry to record depreciation expense for 2012.
b. Prepare the journal entry to record depreciation expense for 2013.
Answer:
Prior period adjustments to financial statements can result from:
A. Changes in estimates.
B. Using unacceptable accounting principles.
C. Discontinued operations.
D. Changes in tax law.
E. Extraordinary items.
Answer:
A management concept that applies quality improvement to all aspects of business
activities is called:
A. Continuous operations.
B. Customer orientation.
C. Just-in-time.
D. Managerial accounting.
E. Total quality management.
Answer:
Stanton Co. produces and sells two lines of t-shirts, Deluxe and Mega. Stanton provides
the following data:
Required:
Compute the sales price and the sales volume variances for each product.
Answer:
A company’s Office Supplies account shows a beginning balance of $600 and an
ending balance of $400. If office supplies expense for the year is $3,100, what amount
of office supplies was purchased during the period?
A. $2,700
B. $2,900
C. $3,300
D. $3,500
E. $3,700
Answer:
A company issued financial statements for the year ended December 31 but failed to
include the following adjusting entries:
A. Accrued service fees earned of $2,200.
B. Depreciation expense of $8,000.
C. Portion of office supplies (an asset) used, $3,100.
D. Accrued salaries of $5,200.
E. Revenues of $7,200, originally recorded as unearned, have been earned by the end of
the year.
Determine the correct amounts for the December 31 financial statements by completing
the following table:
Answer:
A company is considering purchasing a machine for $21,000. The machine will
generate an after-tax net income of $2,000 per year. Annual depreciation expense would
be $1,500. What is the payback period for the new machine?
A. 4 years.
B. 6 years.
C. 5 years.
D. 14 years.
E. 42 years.
Answer:
Use the following information to compute the cost of goods sold for the period:
A. $36,650
B. $30,950
C. $30,650
D. $30,350
E. $31,650
Answer:
A company plans to decrease a $200 petty cash fund to $75. The current balance in the
account includes $45 in receipts and $165 in currency. The entry to reduce the fund will
include a:
A. Debit to Cash Short and Over for $10.
B. Debit to Cash for $90.
C. Debit to Miscellaneous Expenses for $35.
D. Credit to Petty Cash for $165.
E. Credit to Cash for $90.
Answer:
Installment notes payable that require periodic payments of accrued interest plus equal
amounts of principal result in:
A. Periodic total payments that gradually decrease in amount.
B. Periodic total payments that are equal.
C. Periodic total payments that gradually increase in amount.
D. Increasing amounts of interest each period.
E. Increasing amounts of principal each period.
Answer:
When using the indirect method to calculate and report net cash provided or used by
operating activities, which of the following is subtracted from net income?
A. Decrease in income taxes payable.
B. Depreciation expense.
C. Amortization of intangible assets.
D. Bad debts expense.
E. Decrease in merchandise inventory.
Answer:
Shamrock Company had net income of $30,000. On January 1, there were 8,000 shares
of common stock outstanding. On April 1, the company issued an additional 2,000
shares of common stock. There were no other stock transactions. The company has
earnings per share of:
A. $3.75
B. $3.00
C. $3.33
D. $15.00
E. $3.16
Answer:
Which of the following is most likely to be considered a profit center?
A. An individual retail store in a large chain.
B. The grocery department of a Walmart Supercenter or Target Superstore.
C. The maintenance department of a large retail operation.
D. The personnel office of a business.
E. A stand-alone eye clinic.
Answer:
PRO, Inc. had the following activities during its most recent period of operations:
(a) Purchased raw materials on account for $140,000 (both direct and indirect materials
are recorded in the Raw Materials Inventory account).
(b) Issued raw materials to production of $130,000 (80% direct and 20% indirect).
(c) Incurred and paid labor costs of $250,000 cash (70% direct and 30% indirect).
(d) Incurred factory utilities costs of $20,000; this amount is still payable.
(e) Applied overhead at 80% of direct labor costs.
(f) Recorded factory depreciation, $22,000.
Prepare journal entries to record the above transactions.
Answer:
A company reports the following information regarding its production cost:
Required: Perform the following independent calculations.
a. Compute total variable overhead cost if the production cost per unit under variable
costing is $73.
b. Compute total variable overhead cost if the production cost per unit under absorption
costing is $73.
Answer:
A company is considering the purchase of a new machine for $72,000. Management
predicts that the machine can produce sales of $21,000 each year for the next eight
years. Expenses are expected to include direct materials, direct labor, and factory
overhead totaling $5,000 per year plus depreciation of $9,000 per year. The company’s
tax rate is 40%. What is the payback period for the new machine?
A. 5.45 years
B. 17.14 years
C. 10.29 years
D. 4.50 years
E. 00 years
Answer:
The principle that (A) requires revenue to be recognized at the time it is earned, (B)
allows the inflow of assets associated with revenue to be in a form other than cash, and
(C) measures the amount of revenue as the cash plus the cash equivalent value of any
noncash assets received from customers in exchange for goods or services is called the:
A. Going-concern principle
B. Cost principle
C. Revenue recognition principle
D. Objectivity principle
E. Business entity principle
Answer:
Kathleen Reilly and Ann Wolf decide to form a partnership on August 1. Reilly
invested the following assets and liabilities in the new partnership:
The note payable is associated with the building and the partnership will assume the
responsibility for the loan. Wolf invested $60,000 in cash and $105,000 in new
equipment in the new partnership. Prepare the journal entries to record the two partners
original investments in the new partnership.
Answer:
Explain the preparation of journal entries to record the issuance of par value, stated
value, and no-par value common stock.
Answer:
Maslow’s Consulting Inc. had retained earnings of $172,500 at December 31, 2010.
Net income for 2011 amounted to $56,400. Dividends during 2009 were $48,000.
Prepare the statement of retained earnings for 2011.
Answer:
Identify and describe the three major activities of a business organization.
Answer:
The agreement regarding the amounts and timing of payment from a buyer to a seller
are the ____________________.
Answer:
Gross pay less all deductions is called ____________________.
Answer:
Explain cost flows for the departmental overhead rate method.
Answer:
The ______________________________ shows the budgeted costs for direct
materials, direct labor, and overhead based on the budgeted production volume from the
production budget.
Answer:
Outdoors Unlimited uses special journals to record its daily transactions. They use the
perpetual inventory system. Shown below is its cash receipts journal and selected ledger
accounts. Post the cash receipts journal to the appropriate ledger accounts.
Answer:
Presented below is selected financial information for Stanley’s Bike Shop. Using the
appropriate information, prepare the income statement for 2014.
Answer:
A company purchased equipment valued at $825,000 on January The equipment has an
estimated useful life of seven years or 6 million units. The equipment is estimated to
have a salvage value of $35,000. Assuming the straight-line method of depreciation,
what is depreciation for the second year?
Answer:
What is comprehensive income and how is it usually reported in the financial
statements?
Answer:
At the end of the current period, a company reported $475,000 in net credit sales and
$75,000 in ending accounts receivable. Calculate this company’s days’ sales uncollected
at the end of the current period.
Answer:
Explain variance analysis. Describe how variance analysis assists managers.
Answer:
______________________ provide the basic information processed by an accounting
system and can include bank statements, billings to customers, and employee earnings
records.
Answer:
A company has 33,000 units of its sole product that it produced last year at a cost of $71
each. This years model is superior to last years and the 33,000 units cannot be sold for
their regular selling price of $127 each. The company has two alternatives for these
items: (1) they can be sold to a wholesaler for $45 each, or (2) they can be reworked at
a total cost of $700,000 and then sold for $53 each. The company has enough idle
capacity to rework these items without affecting any new production. Which choice
would increase the companys profits the most?
Answer:
To convert variable costing net income to absorption costing net income,
____________________ the fixed production cost in ending inventory and
_______________________ the fixed production cost in beginning inventory.
Answer: