The cost of an inventory item includes its invoice cost and any added or incidental
costs necessary to make it saleable less any discount.
Answer:
The focus of financial accounting is on an organization’s projects, processes, and
subdivisions, and the focus of managerial accounting is on the whole organization.
Answer:
Contribution margin is the excess of sales over total variable costs.
Answer:
Management by exception allows managers to focus on the most significant variances
in performance.
Answer:
Activities causing overhead cost in an organization are typically separated into four
levels: (1) direct activities, (2) indirect activities, (3) batch level activities, and (4)
facility level activities.
Answer:
A master budget refers to a company’s sales budget that includes all of its segments or
departments.
Answer:
The aging of accounts receivable involves classifying each account receivable by how
long it is past its due date and estimating the amount that is uncollectible.
Answer:
Cost variances are ignored under management by exception.
Answer:
A production department is an organizational unit of a factory that has the responsibility
for at least partially manufacturing or producing a product or service.
Answer:
Unlimited liability is an advantage of all sole proprietorships.
Answer:
Process cost accounting systems are commonly used by companies that manufacture
standardized products by passing them through a series of manufacturing steps.
Answer:
When a partner leaves a partnership, the present partnership ends.
Answer:
Total quality management and just-in-time manufacturing are two modern systems
designed to improve the quality of management and the products and services offered.
Answer:
Investing activities are the acquiring and selling of resources that an organization uses
in its everyday operations.
Answer:
A company performed warranty repair work for a customer that cost $1,000. The
journal entry to record the work should be a debit of $1,000 to Warranty Expense and a
credit of $1,000 to Estimated Warranty Liability.
Answer:
All incidental costs of inventory acquisition and handling, whether necessary or not,
are assigned to inventory.
Answer:
A cash equivalent must be readily convertible to a known amount of cash and must be
sufficiently close to its maturity so its market value is unaffected by interest rate
changes.
Answer:
The amounts in a flexible budget are based on one expected level of sales or
production.
Answer:
A company with liabilities of $2,816,000 and equity of $826,000 has a debt to equity
ratio equal to 29.33%
Answer:
Long-term investments in available-for-sale securities are reported at market value on
the balance sheet.
Answer:
Standard costs can serve as a basis for evaluating actual performance.
Answer:
In a period of rising prices, FIFO usually gives a lower taxable income, which leads to
an advantage when it comes to paying income tax.
Answer:
The accounts receivable turnover ratio indicates how often accounts receivable are
received and collected during the period.
Answer:
Equivalent units of production are always the same as the total number of physical units
finished during the period.
Answer:
A hurdle rate is the minimum acceptable rate of return for an investment.
Answer:
In closing the accounts at the end of a period, the partners’ capital accounts are credited
for their share of the partnership loss or debited for their share of the partnership net
income.
Answer:
A company had $12,000 in accounts receivable and $320,000 in net sales for the
current period. Its days’ sales uncollected is equal to 13.7 days.
Answer:
The statement of cash flows shows the net effect of revenues and expenses for a
reporting period.
Answer:
A payee of a note will always honor a note and pay it in full.
Answer:
Multiple cost pools are used when allocating overhead using the plantwide overhead
rate method.
Answer:
Every business transaction should leave the accounting equation in balance.
Answer:
Before an adjusting entry is made to recognize expired insurance, Prepaid Insurance
and Insurance Expense are both overstated.
Answer:
The cost of partially completed products is included in the balance of the Goods in
Process Inventory account.
Answer:
Long-term investments can include funds set aside for special purposes such as bond
sinking funds.
Answer:
The accounting equation implies that: Assets + Liabilities = Equity.
Answer:
A check involves three parties: the maker who signs the check, the payee who is the
recipient, and the bank on which the check is drawn.
Answer:
Ownership of a corporation is divided into units called shares or stock.
Answer:
Sea Company reports the following information regarding its production cost.
Compute production cost per unit under variable costing.
A. $28.00
B. $82.50
C. $80.00
D. $63.00
E. $35.00
Answer:
A broad principle that requires identifying the activities of a business with specific time
periods such as months, quarters, or years is the:
A. Operating cycle of a business.
B. Time period assumption.
C. Going-concern principle.
D. Matching principle.
E. Accrual basis of accounting.
Answer:
Internal users of accounting information always include:
A. Shareholders
B. Managers
C. Lenders
D. Suppliers
E. Customers
Answer:
A bond traded at 102½ means that:
A. The bond pays 2.5% interest.
B. The bond traded at $1,025 per $1,000 bond.
C. The market rate of interest is 2.5%.
D. The bonds were retired at $1,025 each.
E. The market rate of interest is 2½% above the contract rate.
Answer:
Prior period adjustments are reported in the:
A. Income statement.
B. Balance sheet.
C. Statement of retained earnings.
D. Statement of cash flows.
E. Notes to the financial statements.
Answer:
Assume that sales are predicted to be $3,750, the expected contribution margin is
$1,500, and a net loss of $250 is anticipated. The break-even point in sales dollars is:
A. $1,750
B. $2,500
C. $4,000
D. $4,250
E. $4,375
Answer:
A document in a job order cost accounting system that is used to record the costs of
producing a job is a(n):
A. Job cost sheet.
B. Job lot.
C. Finished goods summary.
D. Process cost system.
E. Units-of-production sheet.
Answer:
In a typical sales journal, you would expect to see the following columns:
A. Sales dr.
B. Sales cr.
C. Purchases dr. (if periodic method used).
D. Inventory dr. (if perpetual method used).
E. Cost of Goods Sold cr. (if perpetual used).
Answer:
Which of the following statements is true?
A. Assets and revenues are the same thing.
B. If employees have not yet been paid for their work, the company has wages payable.
C. Retained earnings equal cash that the company has earned and kept
D. Revenue is another term for profit.
E. Revenue minus expense equals retained earnings.
Answer:
A company had sales of $695,000 and cost of goods sold of $278,000. Its gross profit
equals:
A. $(417,000)
B. $695,000
C. $278,000
D. $417,000
E. $973,000
Answer:
The five fundamental principles of accounting information systems are:
A. Control, accountability, relevance, compatibility, and flexibility.
B. Control, relevance, compatibility, flexibility, and cost-benefit.
C. Control, relevance, compatibility, flexibility, and safety.
D. Control, relevance, compatibility, timeliness, and cost-benefit.
E. Historical cost, relevance, compatibility, flexibility, and cost-benefit.
Answer:
Given the following events, what is the per-unit value of ending inventory on
November 30 if this company uses a weighted-average perpetual inventory system?
November 1: 5 units were purchased at $6 per unit.
November 12: 10 units were purchased at $7.50 per unit.
November 14: 7 units were sold for $14 per unit.
November 24: 12 units were purchased at $10 per unit.
A. $6.00
B. $7.00
C. $8.80
D. $13.00
E. $21.80
Answer:
Reference: 21_03
Bradford Company budgeted 4,000 pounds of material costing $5 per pound to produce
2,000 units. The company actually used 4,500 pounds that cost $5.10 per pound to
produce 2,000 units.
What is the direct materials price variance?
A. $400 unfavorable
B. $450 unfavorable
C. $2,500 unfavorable
D. $2,550 unfavorable
E. $2,950 unfavorable
Answer:
A company is currently operating at 75% capacity and producing 3,000 units. Current
cost information relating to this production is shown in the table below:
The company has been approached by a customer with a request for a 200-unit special.
What is the minimum per unit sales price that management would accept for this order
if the company wishes to increase current profits?
A. Any amount over $43 per unit.
B. Any amount over $17 per unit.
C. Any amount over $21 per unit.
D. Any amount over $13 per unit.
E. Any amount over $22 per unit.
Answer:
Castaway Company reports the following first year production cost information:
a. Determine the net income using variable costing.
b. Determine the net income using absorption costing.
Answer:
A company expects to invest $5,000 today at 12% annual interest and plans to receive
$15,529 at the end of the investment period. How many years will elapse before the
company accumulates the $15,529?
A. 322 years
B. 1058 years
C. 5 years
D. 8 years
E. 10 years
Answer:
A change in inventory reporting from LIFO to FIFO is:
A. An extraordinary item.
B. A discontinued item.
C. Not allowed once lower of cost or market is applied.
D. Allowed, if it improves the usefulness of information in the financial statements.
E. Not reported, as it is considered a change in accounting estimate.
Answer:
Shore Company reports the following information regarding its production cost.
Compute production cost per unit under absorption costing.
A. $57.00
B. $60.39
C. $47.00
D. $23.00
E. $24.00
Answer:
Below is Adventure Travel’s adjusted trial balance as of the end of its annual
accounting period:
a. Prepare the necessary closing entries.
b. Prepare a post-closing trial balance.
Answer:
Bark Mode, Incorporated produces and distributes two types of security systems,
Standard and Deluxe. Budgeted cost and activity for each of its three activity cost pools
are shown below.
The company plans to produce and sell 120,000 standard units and 80,000 deluxe units.
a. Compute the approximate overhead cost per unit of standard under activity-based
costing.
b. Compute the approximate overhead cost per unit of deluxe under activity-based
costing.
Answer:
Expenses that are easily traced and assigned to a specific department because they are
incurred for the sole benefit of that department are called:
A. Direct expenses
B. Indirect expenses
C. Controllable expenses
D. Uncontrollable expenses
E. Fixed expenses
Answer:
A company has already incurred a $55,000 cost in partially producing its three products.
Their selling prices when partially and fully processed are shown in the following table
with the additional costs necessary to finish their processing. Based on this information,
should any products be processed further?
A. All of these products should be processed further.
B. None of these products should be processed further.
C. Products A and B should be processed further.
D. Products B and C should be processed further.
E. Products A and C should be processed further.
Answer:
What amount can you borrow if you make six quarterly payments of $4,000 at a 12 %
annual rate of interest?
A. $24,838.00
B. $21,668.80
C. $31,049.00
D. $40,000.00
E. $44,800,00
Answer:
Ending liabilities are 67,000, beginning equity was $87,000, common stock issued
during year totaled $31,000, expenses for the year were $22,000, dividends declared
totaled $13,000, ending equity for the year is $181,000, and beginning assets for the
year were $222,000.
What was net income for the year?
A. $ 41,000
B. $ 76,000
C. $ 53,000
D. $ 98,000
E. $ 35,000
Answer:
A company’s return on total assets equals 30%. If net income and net sales are
$900,000 and $8,900,000 respectively, what is the amount of total assets?
A. $2,670,000
B. $270,000
C. $29,666,667
D. $3,000,000
E. $2,940,000
Answer:
A company estimates that warranty expense will be 4% of sales. The company’s sales
for the current period are $185,000. The current period’s entry to record the warranty
expense is:
A.
B.
C.
D.
E. No entry is recorded until the items are returned for warranty repairs.
Answer:
Wilson Co. is preparing next period’s forecasts. Total fixed costs are expected to be
$300,000 and the contribution margin ratio is expected to be 30%. The applicable
income tax rate is 25%.
a. Calculate the company’s break-even point in dollar sales.
b. If sales are $1,800,000 above the break-even point, what will income be pretax
income and after-tax income?
Answer:
A corporation’s minimum legal capital is often defined to be the total par value of the
shares:
A. Issued
B. Authorized
C. Subscribed
D. Outstanding
E. In treasury
Answer:
Extraordinary items:
A. Are not reported on a corporate income statement.
B. Are included in income from operations.
C. Are unusual and infrequent.
D. Include changes in accounting principle.
E. Are disclosed before discontinued operations on the income statement.
Answer:
The special account used only in the closing process to temporarily hold the amounts
of revenues and expenses before the net difference is added to (or subtracted from) the
retained earnings account is the:
A. Income Summary account
B. Closing account
C. Balance column account
D. Contra account
E. Nominal account
Answer:
Fomtech, Inc. had net income of $750,000 based on variable costing. Beginning and
ending inventories were 50,000 units and 48,000 units, respectively. Assume the fixed
overhead per unit was $.75 for both the beginning and ending inventory. What is net
income under absorption costing?
A. $751,500
B. $676,500
C. $823,500
D. $748,500
E. $750,000
Answer:
The price-earnings ratio is calculated by dividing:
A. Market value per share by earnings per share.
B. Earnings per share by market value per share.
C. Dividends per share by earnings per share.
D. Dividends per share by market value per share.
E. Market value per share by dividends per share.
Answer:
Days’ sales in inventory:
A. Is also called days’ stock on hand.
B. Focuses on average inventory rather than ending inventory.
C. Is used to measure solvency.
D. Is calculated by dividing cost of goods sold by ending inventory.
E. Is a substitute for the acid-test ratio.
Answer:
Which of the following accounting principles would prescribe that all goods and
services purchased are recorded at cost?
A. Going-concern principle
B. Continuing-concern principle
C. Cost principle
D. Business entity principle
E. Consideration principle
Answer:
A company entered into the following transactions. Match each transaction with the
appropriate journal. The journals can be used one time, zero times, or more than one
time if necessary.
A. Cash receipts journal
B. Cash disbursements journal
C. Sales journal
D. Purchases journal
E. General journal
Answer:
Prepare a December 31 balance sheet in proper form for Surety Insurance from the
following items and amounts:
Answer:
Partially completed production is measured for an account at two points in time for
each accounting period. These measurement points and the account are
________________ and ____________.
Answer:
A company estimates that overhead costs for the next year will be $7,200,000 for
indirect labor, $400,000 for factory utilities, and $43,000 for depreciation on factory
machinery. The company uses direct labor hours as its overhead allocation base. If
955,375 direct labor hours are planned for this next year, what is the companys
plantwide overhead rate?
Answer:
________________________ refers to all changes in equity for a period except for
those due to investments and distributions to owners.
Answer:
List the steps of the operating cycle for a merchandiser with credit sales.
Answer:
Explain how accounting adjustments affect financial statements.
Answer:
A company that uses a perpetual inventory system made the following cash purchases
and sales. There was no beginning inventory.
Prepare the general journal entry to record the March 16 sale, assuming the
weighted-average method is used.
Answer:
The _______________________________ is computed by dividing a project’s after-tax
net income by the average amount invested in it.
Answer:
What is one advantage and one disadvantage of using the accounting rate of return to
evaluate investment alternatives?
Answer:
What methods can a company use to retire its bonds?
Answer:
The first step in accounting for production activity in a period, ________________, is a
reconciliation of the physical units started in a period with the physical units completed
in that period.
Answer:
A company enters into an agreement to make five annual year-end payments of $3,000
each, which will begin one year from now. The annual interest rate is 6%. The present
value of an annuity factor for five periods, 6%, is 4.2 What is the present value of these
five payments?
Answer:
______________________ basis accounting means that revenues are recognized when
cash is received and that expenses are recorded when cash is paid.
______________________ basis accounting means that the financial effects of
revenues and expenses are recorded when earned or incurred.
Answer:
A ______________________ is a separate record maintained for each job.
Answer:
A company purchased $8,750 worth of merchandise, with terms of 2/10, n/30. The
invoice was paid within the cash discount period. Accordingly, the company received a
cash discount of _______________.
Answer:
A person who controls or has access to an asset must not keep that asset’s accounting
records. This refers to the internal control principle of ________________________.
Answer:
Define the partner return on equity ratio and explain how a specific partner would use
this ratio.
Answer:
The standards for comparisons in financial statement analysis include (1)
_______________, (2) ________________, (3) _________________ and (4)
_______________.
Answer: