Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Regardless of the type of plant asset disposal, the first step is to bring the depreciation
up to date.
The income statement also is called the statement of financial position.
Manufacturing costs flow from Work-in-Process Inventory to Cost of Goods Sold to
Finished Goods Inventory.
Variable costing can also be used in service companies, especially in making short-term
decisions.
When preparing the selling and administrative expense budget, there is no need to
separate mixed costs into the fixed and variable components.
Metro Auto Parts recently traded in store fixtures. The exchange had commercial
substance. The old fixtures had a cost of $47,000 and accumulated depreciation of
$15,000. Metro paid $102,000 for the new store fixtures. These new fixtures had a
market value of $120,000. There is a loss of $14,000 on this exchange.
If a bond is issued at a premium, the issue price is greater than face value.
In a computerized environment, the posting process is completed automatically when
the user enters the journal entry.
The practice of comparing a company's achievements against the best practices in the
industry is known as goal congruence.
According to Generally Accepted Accounting Principles, goodwill must be amortized.
Maintaining good controls over merchandise inventory ensures that inventory purchases
are properly authorized and accounted for by the accounting system.
The balance sheet section of the worksheet includes the asset and liability accounts and
all equity accounts except revenues and expenses.
The cash ratio helps to determine a company's ability to meet its short-term obligations
using cash and cash equivalents.
Residual income compares the division's actual operating income with the minimum
operating income expected by top management for the given size of the division's
average total assets.
If the current replacement cost of inventory is less than its historical cost, the business
must adjust the inventory value.
As a part of the internal control over cash receipts by mail, the mailroom sends both the
customer checks and the remittance advices to the accounting department.
The lump-sum amount paid for a group of assets is divided among the acquired assets
based on their relative market values. This method is known as the
relative-market-value method.
The Depreciation Expense account is a temporary account.
The income statement for Nighty Night, Inc. is divided into two product lines, blankets
and pillows, as follows:
Nighty Night, Inc. should eliminate the pillows product line only, if by doing so, they can
eliminate more than $70,000 of fixed costs.
A high interest-coverage ratio indicates a company's difficulty in paying interest
expense.
Only temporary accounts appear on the post-closing trial balance.
Depending on the maturity date, held-to-maturity investments are categorized as current
assets or long-term assets on the balance sheet.
When a plant asset is sold for less than its book value, a gain is recorded.
When using the effective-interest amortization method, the amount of the interest
payment is calculated using the face value of the bonds and the stated interest rate.
Permanent accounts are not closed at the end of the accounting period.
Traditional costing systems employ multiple allocation rates for manufacturing
overhead costs, but an activity-based costing system uses only one rate for allocating
manufacturing overhead costs.
An overstatement of ending merchandise inventory in the current period results in an
overstatement of cost of goods sold in the current period.
The revenue recognition principle is the basis for recording revenues-both when to
record revenue and the amount of revenue to record.
Companies calculate the predetermined overhead rate at the beginning of an accounting
period using the actual values of overhead costs.
When using the effective-interest amortization method, the discount amortization is the
excess of the calculated interest expense over the interest payment.
The accounts receivable turnover ratio indicates whether a company could pay all its
current liabilities if they were to become due immediately.
Cost of Goods Sold appears on a multi-step income statement but not on a single-step
income statement.
Both the payback and the accounting rate of return methods focus on cash flows that an
asset generates.
Because it is a cost variance, the fixed overhead volume variance explains why fixed
overhead is underallocated or overallocated.
The budgeted income statement shows operating income and net income.
A-Z Auto Parts Company uses the indirect method to prepare the statement of cash
flows. Refer to the following section of the comparative balance sheet:
A-Z Company
Comparative Balance Sheet
December 31, 2017 and 2016
How will the change in Accrued Liabilities be shown on the statement of cash flows?
A) as an addition to Net Income
B) as a deduction from Net Income
C) as a deduction from operating cash flows
D) as an addition to operating cash flows
A merchandiser sold merchandise inventory on account. The journal entry to record
sales allowances in the books of the merchandiser, using the perpetual inventory system
would be:
A)
B)
C)
D)
The Allowance for Bad Debts account has a credit balance of $4,000 before the
adjusting entry for bad debts expense. The company's management estimates that 4% of
net credit sales will be uncollectible for the year 2017. Net credit sales for the year
amounted to $250,000. What will be the balance of Allowance for Bad Debts on the
December 31, 2017 balance sheet?
A) $10,000
B) $4,000
C) $14,000
D) $9,840
Which of the following entries will be necessary to close the Insurance Expense
account at the end of the year?
A) debit Insurance Expense and credit Income Summary
B) debit Insurance Expense and credit Common Stock
C) debit Retained Earnings and credit Insurance Expense
D) debit Income Summary and credit Insurance Expense
The efficiency variance measures ________.
A) the difference between the quantity used by the company and the quantity used by
its competitors
B) the change in quantities used over time
C) how well the business uses its materials or human resources
D) how quickly direct materials are processed into finished goods
Underwater Sports Equipment Company projected sales of 79,000 units at a unit sales
price of $12 for the year. Actual sales for the year were 75,000 units at $14 per unit.
Variable costs were budgeted at $3 per unit, and the actual amount was $5 per unit.
Budgeted fixed costs totaled $387,000, while actual fixed costs amounted to $450,000.
What is the flexible budget variance for variable costs?
A) $158,000 unfavorable
B) $150,000 unfavorable
C) $150,000 favorable
D) $158,000 favorable
Productions costs are transferred from one Work-in-Process Inventory account to the
next and eventually to ________.
A) Manufacturing Overhead
B) Sales Revenue
C) Finished Goods Inventory
D) Accounts Payable
An adjusting entry that credits Salaries Payable is an example of a(n) ________.
A) accrued expense
B) deferred revenue
C) accrued revenue
D) deferred expense
When a company pays cash for a long-term investment in bonds, ________.
A) equity remains unchanged
B) current assets increase
C) liabilities increase
D) total assets increase
Baker, Inc. had reported the following details for the year ended December 31, 2017:
The company's beginning total assets and liabilities were $14,400,000 and $9,200,000,
respectively. Calculate the asset turnover ratio for 2017.
A) 2.10 times
B) 1.20 times
C) 1.56 times
D) 1.59 times
A $54,000, four-month, 12% note payable was issued on October 1, 2017. Which of the
following would be included in the journal entry required on the note's maturity date by
the borrower? (Round your answer to the nearest whole number.)
A) a credit to Note payable for $56,160
B) a credit to Cash for $54,000
C) a debit to Interest expense for $540
D) a debit to Interest payable for $540
Reichert Company manufactures ceiling fans and uses an activity-based costing system.
Each ceiling fan has 20 separate parts. The direct materials cost is $95, and each ceiling
fan requires 3.00 hours of machine time to manufacture. Additional information is as
follows:
What is the cost of machining per ceiling fan? (Round any intermediate calculations and
your final answer to the nearest cent.)
A) $18.00
B) $95.00
C) $120.00
D) $199.50
On October 1, 2017, Parkin, Inc. made a loan to one of its customers. The customer
signed a 9-month note for $150,000 at 14%. Calculate the maturity value of the note.
(Round your answer to the nearest dollar.)
A) $165,750
B) $171,000
C) $129,000
D) $134,250
Regarding the four-step closing process under the periodic inventory system, ________.
A) purchase Returns and Allowances and Purchase Discount accounts are closed with a
credit via the Income Summary account
B) Sales Revenue is closed with a credit via the Income Summary account
C) the beginning Merchandise Inventory, Purchases, and Freight In are closed with a
debit via the Income Summary account
D) the ending merchandise inventory balance must be recorded as a debit via the
Income Summary account
A company has prepared the operating budget, the cash budget, and the budgeted
income statement and is now preparing the budgeted balance sheet. The balance of
Retained Earnings can be taken from the ________.
A) inventory, purchases, and cost of goods sold budget
B) operating budget
C) cash budget
D) budgeted income statement and the balance sheet of the previous year
Which of the following is a financial statement that presents a business's accounting
equation?
A) Chart of Accounts
B) Trial Balance
C) Income Statement
D) Balance Sheet
The controller at Horizon, Inc. needs new computers for the accounting department.
However, there are no guidelines specifying whether the controller can approve
purchases of office equipment.
In the above situation, which internal control procedure needs strengthening?
A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents
Littleton Promotional Services uses a job order system for costing and billing
promotional services for dance and ballet performances. Littleton has four public
relations specialists and office staff. At the beginning of 2016, Littleton estimated the
total cost of salaries and benefits for the public relations specialists at $684,000 and a
total of 7,200 billable hours for the year. The office and administrative costs were
estimated at $432,000. The allocation base for office and administrative costs is billable
hours. A new client is contracting with Littleton to promote a ballet tour in the United
States Littleton estimates that the job will require 38 billable hours of specialist time. If
Littleton wishes to have a 20% mark up on cost on the job, what price should Littleton
quote to the client?
A) $3,610
B) $2,280
C) $8,128
D) $2,238
Murphy Construction Materials Company has a sales office that sells concrete culvert
pipes to property developers. The sales office is a revenue center and prepares a
monthly responsibility report. The partially completed responsibility report is provided.
Revenue Center Responsibility Report
The company uses management by exception to address flexible budget variances. On
which product type would the company first focus?
A) 40 inch
B) 36 inch long
C) 36 inch short
D) 32 inch
In variable costing, fixed manufacturing overhead is considered a period cost because
________.
A) these costs are indirectly related to production
B) these are not incurred in the period in which the units are produced
C) these costs are incurred whether or not the company manufactures any goods
D) these costs are direct costs incurred for production
Cycle Haven, Inc. offers warranties on all their bikes. They estimate warranty expense
at 3.5% of sales. At the beginning of 2017, the Estimated Warranty Payable account had
a credit balance of $1,400. During the year, Cycle Haven had $299,000 in sales and had
to pay out $5,900 in warranty payments. How much Warranty Expense will be reported
on the 2017 income statement?
A) $5,965
B) $7,300
C) $9,065
D) $10,465
Anthony Delivery Service has a weekly payroll of $32,000. December 31 falls on
Tuesday and Anthony will pay its employees the following Monday (January 6) for the
previous full week. Assume that Anthony has a five-day workweek and has an
unadjusted balance in Salaries Expense of $925,000. What is the December 31 balance
of Salaries Expense after adjusting entries are recorded and posted?
A) $925,000
B) $957,000
C) $944,200
D) $937,800
Martin Ceramics Company sold equipment for cash. The income statement shows a
gain on the sale of $1,020. The net book value of the asset was $3,810. Which of the
following statements describes the cash effect of the transaction?
A) negative cash flow of $4,830 for financing activities
B) negative cash flow of $2,790 for operating activities
C) positive cash flow of $4,830 from investing activities
D) positive cash flow of $2,790 from investing activities
A chemical company spent $532,000 to produce150,000 gallons of a chemical that can
be sold for $4.80 per gallon. This chemical can be further processed into a weed killer
that can be sold for $9.20 per gallon. It will cost $270,000 to process the chemical into
the weed killer. Which of the following is true?
A) To maximize operating income, the company should continue to sell the chemical as
is.
B) If the company decides to process further, it will increase operating income by
$578,000.
C) If the company decides to process further, it will increase operating income by
$390,000.
D) If the company decides to process further, it will decrease operating income by
$1,380,000.
Metro Computer, Inc. had the following balances and transactions during 2017:
What would the company's ending merchandise inventory amount be on December 31,
2017 if the perpetual inventory system and the last-in, first-out inventory costing method
are used?
A) $15,180
B) $71,760
C) $56,580
D) $54,720
The time span during which cash is paid for goods and services, which are then sold to
customers from whom the business collects cash, is called the ________.
A) production time
B) operating cycle
C) accounting cycle
D) sales time
Norton Manufacturing expects to produce 2,900 units in January and 3,600 units in
February. Norton budgets $20 per unit for direct materials. Indirect materials are
insignificant and not considered for budgeting purposes. The balance in the Raw
Materials Inventory account (all direct materials) on January 1 is $38,650. Norton
desires the ending balance in Raw Materials Inventory to be 10% of the next month's
direct materials needed for production. Desired ending balance for February is $51,100.
What is the cost of budgeted purchases of direct materials needed for January?
A) $58,000
B) $65,200
C) $26,550
D) $25,150
Fire Cat, Inc. selected cost data for the year are shown below:
What is the total of manufacturing costs incurred by Fire Cat, Inc. during the year?
A) $148,000
B) $143,000
C) $22,900
D) $38,100
Iowa Supply, Inc. provides the following data taken from its third quarter budget:
The cash balance on June 30 is projected to be $11,000. Based on the above data, calculate
the cash balance the company is projected to have at the end of September.
A) $16,000
B) $19,000
C) $75,000
D) $59,000
The production manager of a company, in an effort to gain a promotion, negotiated a
new labor contract with the factory employees that required them to bear a greater
percentage of benefit costs than before, thus bringing down the cost of direct labor to
the company. Shortly afterward, several experienced and highly skilled workers
resigned and were replaced by new employees whose work was very slow during their
training period. At the end of the quarter, the company's profits fell 10%. This would
produce a(n) ________.
A) favorable direct materials cost variance
B) unfavorable direct labor cost variance
C) unfavorable direct labor efficiency variance
D) favorable direct materials efficiency variance
A company has two different products that are sold in different markets. Financial data
are as follows:
Assume that fixed costs of $4,000 could be eliminated if Product B was dropped. Assume
furthermore that dropping one product would not impact sales of the other. If Product B is
dropped, what would be the impact on total operating income of the company?
A) increases by $4,000
B) increases by $4,200
C) increases by $200
D) increases by $2,000
Engelhardt, Inc., a law consulting firm, has been using a single predetermined overhead
allocation rate with direct labor hours as the allocation base to allocate overhead costs.
The direct labor rate is $40 per hour. Ted Heath, the president of Engelhardt, decided to
develop an ABC system to accurately allocate the indirect costs. He identified two
activities related to the total indirect costs—travel and information technology (IT)
support. The other relevant details are given below:
During the current month, Engelhardt's consultants spent 150 labor hours for Cunningham,
Inc. The job required the professionals to travel 400 miles in total. Determine the total cost
of the consulting job using the ABC system. (Round any intermediate calculations to the
nearest cent and your final answer to the nearest dollar.)
A) $6,000
B) $1,760
C) $6,600
D) $21,400
Salt Lake Glassware Company issues $1,121,000 of its 12%, 10-year bonds at 99 on
February 28, 2017. The bonds pay interest on February 28 and August 31. Assume that
Salt Lake uses the straight-line method for amortization. The journal entry to record the
first interest payment on August 31, 2017 includes a ________.
A) debit to Cash for $67,260
B) debit to Interest Expense for $67,821
C) debit to Interest Expense for $66,699
D) debit to Discount on Bonds Payable for $561
Johnson Tires Company uses the indirect method to prepare the statement of cash
flows. Refer to the following comparative balance sheet for Johnson Tires Company
and complete the third column to show the increases or decreases.
Johnson Tires Company
Comparative Balance Sheet
December 31, 2017 and 2016
Increase/
2016 2015 (Decrease)
Cash $39,600 $19,800
Accounts Receivable 26,400 38,500
Merchandise Inventory 204,000 126,500
Total Assets 270,000 184,800
Accounts Payable 4,800 6,600
Accrued Liabilities 2,400 1,100
Long-term Notes Payable 100,800 99,000
Total Liabilities 108,000 106,700
Common Stock 36,000 2,200
Retained Earnings 135,600 81,400
Treasury Stock (9,600) (5,500)
Total Stockholders' Equity 162,000 78,100
Total Liabilities and Stockholders' Equity $270,000 $184,800
The cost of an asset is $10,000,000, and its residual value is $100,000. Estimated useful
life of the asset is four years. Prepare the schedule of depreciation using the
double-declining-balance method of accounting.
Prairie Outfitters, Inc., a retailer, accepts payment through credit cards. During August,
credit card sales amounted to $12,000. The processor charges a 3% fee. Assuming that
the credit card processor uses the gross method, prepare the journal entries, on the
books of Prairie Outfitters, for the credit card sales and the payment of fees. (Ignore
cost of goods sold.)
Leonard Manufacturing Systems uses job order costing and a perpetual inventory
system. When recording the sale of a job, which account(s) is(are) debited?
What causes manufacturing overhead to be overallocated? When manufacturing
overhead is overallocated, will the Manufacturing Overhead account have a debit or a
credit balance?
List the four budgeting objectives. Why is this process a loop?
Applied Foods Corp. had cash sales of $598,000 during the month of August. Sales
taxes of 6.5% were collected on the sales. Prepare the journal entry to record the sales
revenue and sales tax for the month.
Top managers of Marshall Industries predicted annual sales of 23,600 units of its
Product at a unit price of $5.00. Actual sales for the year were 22,800 units at $5.50
each. Variable costs were budgeted at $2.45 per unit, and actual variable costs were
$2.40 per unit. Actual fixed costs of $45,000 exceeded budgeted fixed costs by $2,000.
Prepare Marshall's flexible budget performance report.
A company using the perpetual inventory system purchased merchandise on account for
$5,000. Give the journal entry to record this transaction.
An adjusted trial balance of Woods Company as of December 31, 2017 is given below.
Prepare a single-step income statement for the year for the company.
Which accounts are closed at the end of the accounting period? Why is it necessary to
close these accounts?
Answer the following absorption costing questions:
List the cost-volume-profit (CVP) assumptions.
Henderson Sales purchased $6,000 of inventory on account. Provide the journal entry.
(Assume a perpetual inventory system.)
What is a common-size statement? Why are these statements useful?
Mason Cabinet Company sells standard kitchen cabinets. The following information
summarizes Mason's operating activities for the year:
Mason sold 950 cabinets during the year.
Calculate the operating income for the year.
Compute the unit cost for one cabinet (Round to two decimal places.)
The following transactions of Windsor Enterprises occurred in 2016 and 2017:
Journalize the transactions in Windsor's general journal. Explanations are not required.
Round to the nearest dollar.
Alfeo Corporations has adopted a JIT management system and has the following
transactions in February:
Feb 2 Incurred labor and overhead costs, $89,000
Feb 18 Completed 750 units with standard costs of $93 for direct materials and $146 for
conversion costs
Open a T-account for Conversion Costs. Post appropriate entries to determine the
amount of underallocated or overallocated overhead. Record the adjusting entry.
