When no-par common stock with a stated value is issued for cash, the common stock
account is credited for an amount equal to the cash proceeds.
Answer:
If a promissory note is dishonored, the payee should still record interest revenue.
Answer:
Activity-based costing is a method of accumulating and allocating costs by department.
Answer:
Cash dividends become a liability to a corporation on the date of record.
Answer:
The acquisition of land in exchange for common stock is an example of noncash
investing and financing activity.
Answer:
A trial balance determines the accuracy of the numbers.
Answer:
The presence of a subsidiary ledger requires the presence of a summarizing controlling
account.
Answer:
The average cost method will always yield results between FIFO and LIFO.
Answer:
Activity-based costing is determined by charging products for only the services
(activities) they used during production.
Answer:
A capital lease is accounted for as if the asset has been purchased.
Answer:
Allowance for Doubtful Accounts is a liability account.
Answer:
Three measures of investment center performance are income from operations, rate of
return on investment, and residual income.
Answer:
If employees accept a wage contract that decreases the unit contribution margin, the
break-even point will decrease.
Answer:
Most companies who have several bank accounts, petty cash, and cash on hand, would
list each separately on the balance sheet.
Answer:
A check outstanding for two consecutive months will appear only on the first month’s
bank reconciliation.
Answer:
If a department that applies FIFO process costing starts the reporting period with
50,000 physical units that were 25% complete with respect to direct materials and 40%
complete with respect to conversion, it must add 12,500 equivalent units of direct
materials and 20,000 equivalent units to direct labor to complete them.
Answer:
The cost of merchandise inventory is limited to the purchase price less any purchase
discounts.
Answer:
If Division Inc. expects to sell 200,000 units in 2012, desires ending inventory of
24,000 units, and has 22,000 units on hand as of the beginning of the year, the budgeted
volume of production for 2012 is 202,000 units.
Answer:
The materials requisition serves as the source document for debiting the accounts in the
materials ledger.
Answer:
A financial statement showing each item on the statement as a percentage of one key
item on the statement is called common-sized financial statements.
Answer:
When exchanging equipment, if the trade-in allowance is greater than the book value a
loss results.
Answer:
The ratio that indicates the percentage of each sales dollar available to cover the fixed
costs and to provide operating income is termed the contribution margin ratio.
Answer:
The special fund that is set aside to provide for the payment of bonds at maturity is
called a sinking fund.
Answer:
Cash flows from financing activities, as part of the statement of cash flows, include
payments for dividends.
Answer:
Proprietorships are owned by one owner and provide only services to their customers.
Answer:
A backlog in recording transactions is an example of a warning sign from the
accounting system.
Answer:
The normal balance of an expense account is a credit.
Answer:
Most employers are required to withhold federal unemployment taxes from employee
earnings.
Answer:
If the standard to produce a given amount of product is 1,000 units of direct materials at
$11 and the actual was 800 units at $12, the direct materials price variance was $800
unfavorable.
Answer:
Average rate of return equals estimated average annual income divided by average
investment.
Answer:
When there are material differences between the results of using the straight-line
method and using the effective interest method of amortization, the effective interest
method should be used.
Answer:
The present value of an annuity is the sum of the present values of each cash flow.
Answer:
If nothing is stated, partnership income is divided in proportion to the individual
partner’s capital balance.
Answer:
Taxes deducted from an employee’s earnings to finance social security and Medicare
benefits are called FICA taxes.
Answer:
Planning is the process of developing the company’s objectives or goals and translating
these objectives into courses of action.
Answer:
There are only four legal structures to form and operate a business.
Answer:
If bonds payable are not callable, the issuing corporation
A.can exchange it for common stock
B.can repurchase them in the open market
C.must get special permission from the SEC to repurchase them
D.is more likely to repurchase them if the interest rates increase
Answer:
With the aid of computer software, managers can vary assumptions regarding selling
prices, costs, and volume and can immediately see the effects of each change on the
break-even point and profit. This is called:
A.”What if” or sensitivity analysis
B.vary the data analysis
C.computer aided analysis
D.data gathering
Answer:
Preferred stock issued in exchange for land would be reported in the statement of cash
flows in
A.the cash flows from financing activities section
B.the cash flows from investing activities section
C.a separate schedule
D.the cash flows from operating activities section
Answer:
Which of the following is included in the cost of constructing a building?
A.insurance costs during construction
B.cost of paving parking lot
C.cost of repairing vandalism damage during construction
D.cost of removing the demolished building existing on the land when it was purchased
Answer:
Carla and Eliza share income equally. During the current year the partnership net
income was $40,000. Carla made withdrawals of $12,000 and Eliza made withdrawals
of $17,000. At the beginning of the year, the capital account balances were: Carla
capital, $42,000; Eliza capital, $55,000. Eliza’s capital account balance at the end of the
year is
A.$52,000
B.$58,000
C.$82,000
D.$75,000
Answer:
Sinking Fund Cash would be classified on the balance sheet as
A.a current asset
B.a fixed asset
C.an intangible asset
D.an investment
Answer:
Mocha Company manufactures a single product by a continuous process, involving
three production departments. The records indicate that direct materials, direct labor,
and applied factory overhead for Department 1 were $100,000, $125,000, and
$150,000, respectively. The records further indicate that direct materials, direct labor,
and applied factory overhead for Department 2 were $55,000, $65,000, and $80,000,
respectively. In addition, work in process at the beginning of the period for Department
1 totaled $75,000, and work in process at the end of the period totaled $60,000.
The journal entry to record the flow of costs into Department 2 during the period for
direct materials is:
A.Work in Process–Department 2100,000
Materials100,000
B.Work in Process–Department 255,000
Materials55,000
C.Work in Process–Department 2150,000
Materials150,000
D.Materials55,000
Work in Process–Department 255,000
Answer:
When merchandise sold is assumed to be in the order in which the purchases were
made, the company is using
A.first-in, last-out
B.last-in, first-out
C.first-in, first-out
D.average cost
Answer:
Calculate the Direct Labor Rate Variance using the above information
A.$4,488.75 Unfavorable
B.$6,851.25 Favorable
C.$4,488.75 Favorable
D.$6,851.25 Unfavorable
Answer:
Which of the following account groups are all considered nominal accounts?
A.Cash, Owner’s Equity, Wages Payable
B.Prepaid Insurance, Property, Plant & Equipment, Fees Earned
C.Capital Account, Dividend Account, Income Summary
D.Rent Revenue, Fees Earned, Miscellaneous Expense
Answer:
Which of the following is not an advantage of a computerized system over a manual
system?
A.transactions are recorded and posted at the same time
B.accuracy is usually better with a computerized system
C.current balances are always available
D.internal controls are optional to the computerized system
Answer:
Indicate whether each of the following would be added to or deducted from net income
in determining net cash flow from operating activities by the indirect method:
(a) Increase in prepaid expenses
(b) Amortization of patents
(c) Increase in salaries payable
(d) Gain on sale of fixed assets
(e) Decrease in accounts receivable
(f) Increase in notes receivable due in 60 days
(g) Amortization of discount on bonds payable
(h) Decrease in merchandise inventory
(i) Depreciation of fixed assets
(j) Loss on retirement of long-term debt
(k) Decrease in accounts payable
(l) Increase in notes payable due in 30 days
(m) Increase in income taxes payable
Answer:
On August 1, Clayton Co. issued $1,300,000 of 20-year, 9% bonds, dated August 1, for
$1,225,000. Interest is payable semiannually on February 1 and August 1. Present the
entries to record the following transactions for the current year:
Answer:
Which of the following is true?
A.If using the double-declining-balance the total amount of depreciation expense during
the life of the asset will be the highest.
B.If using the units-of-production method, it is possible to depreciate more than the
depreciable cost.
C.If using the straight line method, the amount of depreciation expense during the first
year is higher than that of the double-declining-balance.
D.Regardless of the depreciation method, the amount of total depreciation expense
during the life of the asset will be the same.
Answer:
In process cost accounting, the costs of direct materials and direct labor are charged
directly to:
A.service departments
B.processing departments
C.customer accounts receivable
D.job orders
Answer:
The Reagan Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1,
2014, at 92. The journal entry to record the issuance will show a
A.credit to Discount on Bonds Payable for $80,000.
B.debit to Cash of $1,000,000.
C.credit to Bonds Payable for $1,000,000.
D.credit to Cash for $920,000.
Answer:
Below is a table for the present value of $1 at Compound interest.
Below is a table for the present value of an annuity of $1 at compound interest.
Using the tables above, what would be the present value of $15,000 (rounded to the
nearest dollar) to be received four years from today, assuming an earnings rate of 10%?
A.$11,250
B.$10,245
C.$3,750
D.$47,550
Answer:
The standard costs and actual costs for factory overhead for the manufacture of 2,500
units of actual production are as follows:
The amount of the total factory overhead cost variance is:
A.$2,000 favorable
B.$5,000 unfavorable
C.$2,500 unfavorable
D.$0
Answer:
Which of the following would not lend itself to applying direct labor variances?
A.Help desk
B.Research and development scientist
C.Customer service personnel
D.Telemarketer
Answer:
Use the following information to answer the following questions.
The following totals for the month of April were taken from the payroll register of
Magnum Company.
The entry to record accrual of employer’s payroll taxes would include a
A.debit to Payroll Tax Expense for $248
B.debit to FICA Taxes Payable for $1,800
C.credit to Payroll Tax Expense for $248
D.debit to Payroll Tax Expense for $1,148
Answer:
The unearned rent account has a balance of $72,000. If $18,000 of the $72,000 is
unearned at the end of the accounting period, the amount of the adjusting entry is
A.$18,000
B.$90,000
C.$54,000
D.$36,000
Answer:
The following data are taken from the balance sheet at the end of the current year.
Determine the (a) working capital, (b) current ratio, and (c) quick ratio. Present figures
used in your computations. Round ratios to the nearest tenth.
Answer:
At the beginning of 2011, the Gilbert Company’s work in process inventory account had
a balance of $30,000. During 2011, $68,000 of direct materials were used in production,
and $66,000 of direct labor costs were incurred. Factory overhead in 2011 amounted to
$90,000. Cost of goods manufactured is $230,000 in 2011. The balance in work in
process inventory on December 31, 2011, is:
A.$24,000
B.$44,000
C.$66,000
D.$36,000
Answer:
The management of Nebraska Corporation is considering the purchase of a new
machine costing $490,000. The company’s desired rate of return is 10%. The present
value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826,
0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the
following data in determining the acceptability in this situation:
The cash payback period for this investment is:
A.5 years
B.4 years
C.2 years
D.3 years
Answer:
Companies may report comprehensive income on each of the statements below except
A.income statement
B.separate statement of comprehensive income
C.statement of cash flows
D.retained earnings statement
Answer:
If total liabilities decreased by $46,000 during a period of time and owner’s equity
increased by $60,000 during the same period, the amount and direction (increase or
decrease) of the period’s change in total assets is
A.$106,000 increase
B.$14,000 increase
C.$14,000 decrease
D.$106,000 decrease
Answer:
The process of transferring the journal entries to the accounts is known as
A.posting
B.updating
C.journalizing
D.summarizing
Answer:
Which of the following entries records the acquisition of office supplies on account?
A.Office Supplies, debit; Cash, credit
B.Cash, debit; Office Supplies, credit
C.Office Supplies, debit; Accounts Payable, credit
D.Accounts Receivable, debit; Office Supplies, credit
Answer:
Numbers of times interest charges earned is computed as
A.Income before income taxes plus Interest Expense divided by Interest Expense
B.Income before income taxes less Interest Expense divided by Interest Expense
C.Income before income taxes divided by Interest Expense
D.Income before income taxes plus Interest Expense divided by Interest Revenue
Answer:
Which of the following is used to analyze the efficiency and effectiveness of inventory
management?
A.inventory turnover only
B.number of days’ sales in inventory only
C.both inventory turnover and number of days’ sales in inventory
D.neither inventory turnover or number of days’ sales in inventory
Answer:
A business received an offer from an exporter for 10,000 units of product at $17.50 per
unit. The acceptance of the offer will not affect normal production or domestic sales
prices. The following data is available:
What is the differential revenue from the acceptance of the offer?
A.$200,000
B.$175,000
C.$130,000
D.$140,000
Answer:
Cumberland Co. sells $2,000 of inventory to Hancock Co. for cash. Cumberland paid
$1,250 for the merchandise. Under a perpetual inventory system, which of the
following journal entry(ies) would be recorded?
A.Cash $2,000 Dr, Merchandise Inventory $1,250 Cr
B.Cash $2,000 Dr, Sales $2,000 Cr, and Cost of Merchandise Sold $1,250 Dr,
Merchandise Inventory $1,250 Cr.
C.Cash $1,250 Dr, Sales $1,250 Cr
D.Accounts Receivable $2,000 Dr, Sales $2,000 Cr, and Cost of Merchandise Sold
$1,250 Dr, Merchandise Inventory $1,250 Cr.
Answer:
Barker invested $128,000 in the Granger and Monroe partnership for ownership equity
of $128,000. Prior to the investment, equipment was revalued to a market value of
$90,000 from a book value of $66,000. Granger and Monroe share net income in a 2:1
ratio.
a. Provide the journal entry for the revaluation of equipment.
b. Provide the journal entry to admit Barker.
Answer:
Doran Technologies produces a single product. Expected manufacturing costs are as
follows:
Variable costs
Direct materials $4.00 per unit
Direct labor $1.20 per unit
Manufacturing overhead $0.95 per unit
Fixed costs per month
Depreciation $6,000
Supervisory salaries $13,500
Other fixed costs $3,850
Answer:
You evaluate loan requests as part of your job at Beach Front National Bank. One loan
request you received is from Surfer Dude Supplies, a small proprietorship. Tracy
Roberts, the owner, is requesting $75,000 and brings you a trial balance (or Statement
of Accounts) for his first year of operations ended December 31,
REQUIRED: While you are willing to work with Tracy, how would you explain to him
that a complete set of financial statements from his accountant would be more useful
for evaluating the loan request?
Answer:
Bob Evans owns a business, Beachside Realty, that rents condominiums and
furnishings. Below is the adjusted trial balance at December 31, 2010.
Prepare the entry required to close the revenue accounts at the end of the period.
Answer:
The following revenue and expense account balances were taken from the Income
Statement columns of the work sheet for Fraser Services Co. for December 31, 2010:
Prepare an income statement.
Answer:
Assume that three identical units of merchandise are purchased during October, as
follows:
Assume one unit is sold on October 31 for $28. Determine Cost of Merchandise Sold,
Gross profit, and Ending Inventory under the FIFO method.
Answer:
Douglas Company has a contribution margin ratio of 30%. If Douglas has $336,420 in
fixed costs, what amount of sales will need to be generated in order for the company to
break even?
Answer:
Watson purchased one-half of Dalton’s interest in the Patton and Dalton partnership for
$45,000. Prior to the investment, land was revalued to a market value of $135,000 from
a book value of $93,000. Patton and Dalton share net income equally. Dalton had a
capital balance of $35,000 prior to these transactions.
a. Provide the journal entry for the revaluation of land.
b. Provide the journal entry to admit Watson.
Answer:
Describe a master budget and the sequence in which the individual budgets within the
master budget are prepared.
Answer:
Define operating leverage. Explain the relationship between a company’s operating
leverage and how a change in sales is expected to impact profits.
Answer:
Journalize the following transactions for Dulcimer Inc. using both the periodic
inventory system and the perpetual inventory system, presented in a side-by-side format
shown at the end of this exercise.
Oct. 9 Merchandise sold on October 7 accepted back from Rondo Co. for full credit and
returned to merchandise inventory, $300; the cost of the merchandise was $180.
Nov. 5 Received payment in full of $900 from Pine Co. for sale of merchandise on Oct.
25.
Answer:
The following data is given for the Taylor Company:
Overhead is applied on standard labor hours.
Compute the direct labor rate and time variances for Taylor Company.
Answer:
A $550,000 capital investment proposal has an estimated life of four years and no
residual value. The estimated net cash flows are as follows:
The minimum desired rate of return for net present value analysis is 12%. The present
value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is .893, .797, .712,
and .636, respectively. Determine the net present value.
Answer:
A portion of the divisional income statement for the year just ended is presented below
in condensed form.
The operating expenses of Department B include $50,000 for direct expenses.
It is estimated that the discontinuance of Department B would not have affected the
sales of the other departments nor have reduced the indirect expenses of the business.
Assuming the accuracy of these estimates, determine the effect (increase or decrease
and amount) on the income from operations of the business if Department B had been
discontinued.
Answer:
(1) Discuss factors contributing to the trend to fair value accounting.
(2) What are some of the disadvantages associated with using fair value?
Answer: