The concept of incremental cost is the same as the concept of differential cost.
Answer:
An advantage of the break-even time (BET) method over the payback period method is
that it recognizes the time value of money.
Answer:
Earnings per share is calculated by dividing the total number of common shares
outstanding by net income.
Answer:
In a perpetual inventory system, the merchandise inventory account must be closed at
the end of the accounting period.
Answer:
Profitability is the ability to generate positive market expectations.
Answer:
A company factored $35,000 of its accounts receivable and was charged a 2% factoring
fee. The journal entry to record this transaction would include a debit to Cash of
$35,000, a debit to Factoring Fee Expense of $700, and a credit to Accounts Receivable
of $35,700.
Answer:
Basic bank services such as bank accounts, bank deposits, and checking contribute to
the control and safeguarding of cash.
Answer:
The price of one currency stated in terms of another currency is called a foreign
exchange rate.
Answer:
Allocated overhead costs vary depending upon the allocation methods used.
Answer:
Curvilinear costs are also known as nonlinear costs.
Answer:
In a job order cost accounting system, the total balances of all of the job cost sheets for
unfinished jobs equal the balance in the Goods in Process Inventory account.
Answer:
A spreadsheet can help organize the information needed to prepare a statement of cash
flows.
Answer:
Liquidity refers to a company’s ability to pay its short-term obligations.
Answer:
FUTA is the abbreviation for social security taxes.
Answer:
Indirect expenses should be allocated to departments based on the benefits received by
each department.
Answer:
The break-even point is the sales level at which a company neither earns a profit nor
incurs a loss.
Answer:
Managements pricing and cost decisions for a product are influenced by that products
cost assignments.
Answer:
When preparing the unadjusted trial balance in a periodic inventory system, the amount
that appears as Merchandise Inventory is the ending inventory amount.
Answer:
An overstatement of ending inventory will cause an overstatement of assets and an
understatement of equity on the balance sheet.
Answer:
When evaluating the days’ sales uncollected ratio, generally the less time that money is
tied up in receivables often translates into increased profitability.
Answer:
When units are purchased at different costs over time, it is simple to determine the cost
per unit assigned to inventory.
Answer:
Variable costing treats fixed overhead cost as a period cost.
Answer:
The use of an allowance for bad debts is required under the materiality constraint.
Answer:
Budgeting is an informal plan for future business activities.
Answer:
When a company provides services for which cash will not be received until some
future date, the company should record unearned revenue for the amount charged to the
customer.
Answer:
Vouchers should be used only for purchases. Other expenditures do not need to go
through the voucher system.
Answer:
The time value of money is considered when calculating the payback period of an
investment.
Answer:
Evaluation of the performance of managers of profit centers assumes that the managers
can control or influence both costs and revenue generation.
Answer:
Payroll taxes are considered to be contingent liabilities.
Answer:
Financial statement analysis can be used for personal investment decisions.
Answer:
Reebok’s net income of $119 million and average assets of $1,400 million results in a
return on assets of 8.5%.
Answer:
Accounting standards require that the statement of cash flows be included in a
complete set of financial statements.
Answer:
In some circumstances, a process cost accounting system can classify wages paid to
maintenance workers as direct labor costs instead of factory overhead.
Answer:
Market prospects are the ability to provide financial rewards sufficient to attract and
retain financing.
Answer:
A cash-based measure that is used to help business decision makers estimate the
amount and timing of cash flows is the cash flow on total assets ratio.
Answer:
A cash budget is a plan that includes the expected cash receipts and cash expenditures
during each of the periods that it covers.
Answer:
Prior to recording adjusting entries at the end of an accounting period, some accounts
may not show proper financial statement amounts even though all transactions were
correctly recorded.
Answer:
The compatibility principle requires that an accounting system report useful,
understandable, timely, and pertinent information for effective decision making.
Answer:
The use of process costing is of little benefit to a service type of operation.
Answer:
Gage Company reports the following information for its first year of operations:
If the companys cost per unit of finished goods using variable costing is $63, what is
total variable overhead?
A. $21,000
B. $71,500
C. $77,000
D. $19,500
E. $16,590
Answer:
On October 1, Robertson Company sold merchandise in the amount of $5,800 to
Alberts, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Robertson
uses the periodic inventory system. Alberts pays the invoice on October 8 and takes the
appropriate discount. The journal entry that Robertson makes on October 8 is:
A.
B.
C.
D.
E.
Answer:
A companys balance sheet and income statement accounts follow:
What is the companys gross margin ratio for 2013?
A. 65%
B. 35%
C. 67%
D. 33%
E. 39%
Answer:
Welles Company uses the direct write-off method of accounting for uncollectible
accounts receivable. On December 6, 2013, Welles sold $6,300 of merchandise to the
Fleming Company. On August 8, 2014, after numerous attempts to collect the account,
Welles determined that the $6,300 account of the Fleming Company was uncollectible.
a. Prepare the general journal entries required to record the transactions on August 8,
2014.
b. Assuming that the $6,300 is material, explain how the direct write-off method
violates the matching principle in this case.
Answer:
To provide security to creditors and to reduce interest costs, bonds and notes payable
can be secured by:
A. Safe deposit boxes
B. Mortgages
C. Equity
D. The FASB
E. Debentures
Answer:
Lake Prairie Company uses a plantwide overhead rate with machine hours as the
allocation base. Next year, 500,000 units are expected to be produced taking .75
machine hours each. How much overhead will be assigned to each unit produced given
the following estimated amounts?
A. $12.34 per unit
B. $7.77 per unit
C. $9.25 per unit
D. $15.20 per unit
E. $10.36 per unit
Answer:
Pact Company had net income of $972,000 based on variable costing. Beginning and
ending inventories were 7,800 units and 5,200 units, respectively. Assume the fixed
overhead per unit was $3.61 for both the beginning and ending inventory. What is net
income under absorption costing?
A. $962,614
B. $1,018,923
C. $925,077
D. $969,400
E. $981,379
Answer:
The three major cost components of a manufactured product are:
A. Marketing, selling, and administrative costs.
B. Indirect labor, indirect materials, and miscellaneous factory expenses.
C. Direct materials, direct labor, and factory overhead.
D. Differential costs, opportunity costs, and sunk costs.
E. General, selling, and administrative costs.
Answer:
If a partnership contract provides for interest at 10% annually on each partner’s
investment, the interest:
A. Is ignored when earnings are not sufficient to pay interest.
B. Is an allowance that can make up for unequal capital contribution.
C. Is an expense of the business.
D. Must be paid because the partnership contract has unlimited life.
E. Legally becomes a liability of the general partner.
Answer:
If one unit of Product X used $2.50 of direct materials and $3.00 of direct labor, sold
for $8.00, and was assigned overhead at the rate of 30% of direct labor costs, how much
gross profit was realized from this sale?
A. $8.00
B. $5.50
C. $2.50
D. $1.60
E. $0.90
Answer:
Which of the following accounts would be closed at the end of the accounting period?
A. Accounts Receivable
B. Unearned Consulting Fees
C. Fees Earned
D. Retained Earnings
E. Land
Answer:
A company had an accounts receivable turnover ratio of 12 and net sales of $744,000
for a given period. What was the average amount of accounts receivables for this
period?
A. $8,928,000
B. $62,000
C. $4,380
D. $169.86
E. Average accounts receivable cannot be determined from this information
Answer:
The following information is from Omega Corporation’s balance sheets as of
December 31, 2013 and 2014 and its income statement for 2014:
From the above information, calculate the following ratios for 2014:
(a) Inventory turnover.
(b) Accounts receivable turnover.
(c) Return on total assets.
(d) Times interest earned.
(e) Total asset turnover.
Answer:
Dent Corporation had net income of $182,000 based on variable costing. Beginning and
ending inventories were 5,000 units and 8,000 units, respectively. Assume the fixed
overhead per unit was $3 for both the beginning and ending inventory. What is net
income under absorption costing?
A. $173,000
B. $221,000
C. $191,000
D. $143,000
E. $185,000
Answer:
Continuous improvement:
A. Is a measure of profits.
B. Is a measure of costs.
C. Rejects the notion of “good enough.”
D. Is not applicable to most businesses.
E. Is possible only in service businesses.
Answer:
A company has net income of $850,000. It also has 125,000 weighted-average
common shares outstanding and a market value per share of $115. The company’s
price-earnings ratio is equal to:
A. 16.9
B. 14.7
C. 92.0
D. 13.5
E. 8.0
Answer:
Given the following information:
What is the amount that needs to be reimbursed?
A. $365.27
B. $289.06
C. $373.79
D. $289.00
E. $450.00
Answer:
Which of the following is not true?
A. The departmental overhead method assigns overhead on the basis of volume-related
measures.
B. The departmental overhead rate method is more refined than the plantwide overhead
rate method.
C. Overhead costing accuracy is improved by the use of multiple departmental rates
rather than a single overhead rate.
D. The departmental overhead rate method does not assign overhead on the basis of
volume-related measures.
E. The departmental overhead rate method is more costly to implement than the
traditional overhead rate method.
Answer:
Cairo Co. uses the allowance method of accounting for uncollectible accounts. Cairo
Co. accepted a $5,000, 12%, 90-day note dated May 16, from Alexandria Co. in
exchange for its past-due account receivable. Make the necessary general journal
entries for Cairo Co. on May 16 and the August 14 maturity date, assuming that the:
a. Note is held until maturity and collected in full at that time.
b. Note is dishonored; the amount of the note and its interest are written off as
uncollectible.
Answer:
Which of the following is the appropriate journal entry if a company performs a service
and then bills the customer?
A. Debit to Cash, debit to Service Revenue.
B. Debit to Cash, credit to Service Revenue.
C. Debit to Accounts Receivable, credit to Cash.
D. Debit to Service Revenue, credit to Accounts Receivable.
E. Debit to Accounts Receivable, credit to Service Revenue.
Answer:
An approach that enters and processes data as soon as source documents are available
is called:
A. Date storage
B. Batch processing
C. Online processing
D. Computer programming
E. Web communication
Answer:
The following information is available to reconcile Sleepy Time Bedding’s book
balance of cash with its bank statement cash balance as of July 31:
a. On July 31, the company’s Cash account has a $25,862 debit balance, but its July
bank statement shows a $28,177 cash balance.
b. Check No. 1531 for $1,520 and Check No. 1540 for $752 were outstanding on the
June 30 bank reconciliation. Check No. 1540 is listed with the July canceled checks, but
Check No. 1531 is not. Also, Check No. 1565 for $536 and Check No. 1569 for $2,288,
both written in July, are not among the canceled checks on the July 31 statement.
c. In comparing the canceled checks on the bank statement with the entries in the
accounting records, it is found that Check No. 1556 for July rent was correctly written
and drawn for $1,240 but was erroneously entered in the accounting records as $1,230.
d. A credit memorandum enclosed with the July bank statement indicates the bank
collected $9,500 cash on a noninterest-bearing note for Sleepy Time Bedding, deducted
a $48 collection fee, and credited the remainder to its account. Sleepy Time Bedding
had not recorded this event before receiving the statement.
e. A debit memorandum for $805 lists a $795 NSF check plus a $10 NSF charge. The
check had been received from a customer, Evan Shaw. Sleepy Time Bedding has not yet
recorded this check as NSF.
f. Enclosed with the July statement is a $14 debit memorandum for bank services. It has
not yet been recorded because no previous notification had been received.
g. Sleepy Time Bedding July 31 daily cash receipts of $10,652 were placed in the
bank’s night depository on that date, but do not appear on the July 31 bank statement.
What is the adjusted book balance?
A. $34,485
B. $34,994
C. $28,150
D. $27,025
E. $31,617
Answer:
Businesses can take all of the following forms except:
A. Sole proprietorship
B. Common stock
C. Partnership
D. Corporation
E. Limited liability corporation
Answer:
The reporting of net cash provided or used by operating activities that lists the major
items of operating cash receipts, such as receipts from customers, and subtracts the
major items of operating cash disbursements, such as cash paid for merchandise, is
referred to as the:
A. Direct method of reporting net cash provided or used by operating activities.
B. Cash basis of accounting.
C. Classified statement of cash flows.
D. Indirect method of reporting net cash provided or used by operating activities.
E. Net method of reporting cash flows from operating activities.
Answer:
A company has the choice of either selling 750 defective units as scrap or rebuilding
them. They have already spent $14 per unit making these items. The company could
sell the defective units as they are for $8 per unit. Alternatively, it could rebuild them
with incremental costs of $3 per unit for materials, $3per unit for labor, and $1per unit
for overhead, and then sell the rebuilt units for $15.00 each. What should the company
do?
A. Sell the units as scrap.
B. Rebuild the units.
C. It does not matter because both alternatives have the same result.
D. Neither sell nor rebuild because both alternatives produce a loss. Instead, the
company should store the units permanently.
E. Throw the units away.
Answer:
Reference: 22_04
Ice House Industries, Inc. has three operating departments: Cooking, Churning, and
Freezing. Indirect factory costs for the current period were Administrative $560,000 and
Maintenance $98,000. Administrative costs are allocated to operating departments
based on the number of workers and maintenance costs are allocated to operating
departments based on square footage occupied.
Based on the above data, determine the administrative cost allocated to each operating
department of Ice House Industries, Inc.
A. Cooking: $168,000 Churning: $280,000 Freezing: $112,000
B. Cooking: $186,666 Churning: $186,666 Freezing: $186,666
C. Cooking: $112,000 Churning: $280,000 Freezing: $168,000
D. Cooking: $280,000 Churning: $112,000 Freezing: $168,000
E. Cooking: $219,333 Churning: $219,333 Freezing: $219,333
Answer:
A company has a standard of 2 hours of direct labor per unit produced and $18 per hour
for the labor rate. During last period, the company used 9,500 hours of direct labor at a
$152,000 total cost to produce 4,000 units. Compute the direct labor rate and efficiency
variances.
A. Rate variance: $19,000 unfavorable; Efficiency variance: $27,000 favorable.
B. Rate variance: $63,829 unfavorable; Efficiency variance: $99,000 unfavorable.
C. Rate variance: $152,000 favorable; Efficiency variance: $99,000 unfavorable.
D. Rate variance: $19,000 favorable; Efficiency variance: $27,000 unfavorable.
E. Rate variance: $152,000 unfavorable; Efficiency variance: $99,000 favorable.
Answer:
In a typical cash receipts journal, you would expect to see the following columns:
A. Sales dr.
B. Sales discounts cr.
C. Accounts receivable dr.
D. Inventory dr. (if perpetual method used).
E. Cost of Goods Sold dr. (if perpetual method used).
Answer:
Sweeny Co. is preparing a cash budget for the second quarter of the coming year. The
following data have been forecasted:
Additional data:
(1) Sales are 40% cash and 60% credit. The collection pattern for credit sales is 50% in
the month following the sale and 50% in the month thereafter. Total sales in March
were $125,000.
(2) Purchases are all on credit, with 40% paid in the month of purchase and the balance
paid in the following month.
(3) Operating expenses are paid in the month they are incurred.
(4) A minimum cash balance of $40,000 is required at the end of each month.
(5) Loans are used to maintain the minimum cash balance. At the end of each month,
interest of 1% per month is paid on the outstanding loan balance as of the beginning of
the month. Repayments are made whenever excess cash is available.
Required: Calculate the following items for May
a. Cash collections from customers.
b. Cash payments made for merchandise purchases.
c. Cash paid for other operating expenses, including interest.
d. What is the preliminary cash balance for May 31?
e. What loan activity will take place at the end of May?
f. What is the ending cash balance?
Answer:
A patent:
A. Gives its owner the exclusive right to publish and sell a musical or literary work
during the life of the creator plus 70 years.
B. Is an exclusive right granted to its owner to manufacture and sell a device or to use a
process for 20 years.
C. Is an exclusive right granted to its owner to manufacture and sell a device or to use a
process for 50 years.
D. Is the amount by which the value of a company exceeds the fair market value of a
company’s net assets if purchased separately.
E. Gives its owner the exclusive right to publish and sell a musical or literary work
during the life of the creator plus 17 years.
Answer:
The FICA tax for Social Security is 6.2% and the FICA tax for Medicare is 1.45%. An
employee’s share of both FICA taxes was $3,901.50. Given that this employee did not
exceed the FICA earnings limitation, compute gross pay.
A. $269,068.96.
B. $62,927.42.
C. $29,846.48.
D. $51,000.
E. Zero, since the employee’s pay did not exceed the FICA limit.
Answer:
A company failed to post a $50 debit to the Office Supplies account. The effect of this
error will be that:
A. The Office Supplies account balance will be overstated.
B. The trial balance will not balance.
C. The error will overstate the debits listed in the journal.
D. The total debits in the trial balance will be larger than the total credits.
E. The trial balance will be in balance.
Answer:
Liquidity problems are likely to exist when a company’s acid-test ratio:
A. Is less than the current ratio,
B. Is 1 to 1,
C. Is higher than 1 to 1,
D. Is substantially lower than 1 to 1,
E. Is higher than the current ratio,
Answer:
Reference: 22_05
Bookman Company has three operating departments: Department A, Department B, and
Department C. Administrative costs are allocated to operating departments based on the
number of workers and maintenance costs are allocated to operating departments based
on square footage occupied.
Assume that Bookman allocated $29,800 maintenance costs to Department C. Based on
the above data, determine maintenance costs allocated to Department A.
A. $29,800
B. $149,000
C. $52,150
D. $67,050
E. $425,714
Answer:
What is the general procedure for converting variable costing net income to absorption
costing net income?
Answer:
Conley and Liu allow Lepley to purchase a 25% interest in their partnership for
$50,000 cash. Conley and Liu both have capital balances of $55,000 each and have
agreed to share income and loss equally. Prepare the journal entry to record the
admission of Lepley to the partnership.
Answer:
Steve’s Skateboards uses the periodic inventory system and had the following sales
transactions during April:
Prepare the journal entries that Steve’s Skateboards must make to record these
transactions.
Answer:
The third step in accounting for production activity in a period is to compute the
______________________.
Answer:
What is a capital expenditures budget?
Answer:
Sweeny Co. is preparing a cash budget for the second quarter of the coming year. The
following data have been forecasted:
Additional data:
(1) Sales are 40% cash and 60% credit. The collection pattern for credit sales is 50% in
the month following the sale and 50% in the month thereafter. Total sales in March
were $125,000.
(2) Purchases are all on credit, with 40% paid in the month of purchase and the balance
paid in the following month.
(3) Operating expenses are paid in the month they are incurred.
(4) A minimum cash balance of $40,000 is required at the end of each month.
(5) Loans are used to maintain the minimum cash balance. At the end of each month,
interest of 1% per month is paid on the outstanding loan balance as of the beginning of
the month. Repayments are made whenever excess cash is available.
Prepare the company’s cash budget for May. Show the ending loan balance at May 31.
Answer:
Lower-risk investments require a _________________ rate of return compared with
higher-risk investments.
Answer:
Revenues and expenses are two categories of ____________________ accounts.
Answer:
Match each of the following terms with the appropriate definitions.
Answer:
____________________ leases are long-term or noncancelable leases by which the
lessor transfers substantially all risks and rewards of ownership to the lessee.
Answer:
A company’s sales in 2012 were $280,000 and its sales in 2013 were $341,600. Using
2012 as the base year, what is the sales trend percent for 2013?
Answer:
Eleanor Reed, the manager of the Marinette Plant of the Wisconsin Company is
responsible for all of the plant’s costs except her own salary. There are two operating
departments within the plant, Departments A and B, that each has their own managers.
There is also a maintenance department that provides services equally to the two
operating departments. The following information is available:
Each department manager is responsible the wages and supplies in their department.
They are not responsible for their own salary. Building rent, utilities, and maintenance
are allocated to each department based on square footage.
Complete the responsibility accounting performance reports below that list costs
controllable by the manager of Department A, the manager of Department B, and the
manager of the Marinette plant.
Answer:
Alberts and Bartel are partners. On October 1, Alberts’ capital balance is $75,000 and
Bartel’s capital balance is $125,000. With the partnership’s approval, Bartel sells
one-half of his partnership interest to Camero for $70,000. Prepare the journal entry to
record this transaction in the partnership records.
Answer:
Assume that a company has a loan agreement that provides it with cash today and that
the company must pay $25,000 one year from today, $15,000 two years from today, and
$5,000 three years from today. The company agrees to pay 10% interest. The following
factors are from the present value of $1 table:
What is the amount of cash the company receives today?
Answer:
Explain how the cash flows from operating activities section of the statement of cash
flows is prepared when using the direct method.
Answer:
July 31, 2013, the end of the quarter is on a Wednesday. Employees get paid each
Friday for the week worked. Abel Co. has five employees who earn $100 per day each.
Make the necessary adjusting journal entry for June 30.
Answer: