Net income was $51,000 for the year. The accumulated depreciation balance increased
by $14,000 over the year. There were no sales of fixed assets or changes in noncash
current assets or liabilities. Under the indirect method, the cash flow from operations is
$37,000.
Answer:
Payroll taxes levied against employers become an employer liability at the time the
employee wages are incurred.
Answer:
When the effective interest method of amortization is used, the amount of interest
expense for a given period is calculated by multiplying the face rate of interest by the
bond’s carrying value at the beginning of the given period.
Answer:
Accumulated Depreciation accounts are liability accounts.
Answer:
A new partner contributes accounts receivable to a partnership which appear in the
ledger of his sole proprietorship at $20,500 and there was an allowance for doubtful
accounts of $750. If $600 of the accounts receivables are completely worthless, the
partnership accounts receivable should be debited for $19,900.
Answer:
The difference between deferred revenue and accrued revenue is that accrued revenue
has been recorded and needs adjusting and deferred revenue has never been recorded.
Answer:
To determine the balance in an account, always subtract credits from debits.
Answer:
When a bottleneck occurs between two products, the company must determine the
contribution margin for each product and manufacture the product that has the highest
contribution margin per bottleneck hour.
Answer:
Computerized systems can be used to capture accounting information such as accounts
receivable, inventory items, accounts payable, and sales.
Answer:
If net income for a proprietorship was $50,000, the owner withdrew $20,000 in cash
and the owner invested $10,000 in cash, the capital of the owner increased by $40,000.
Answer:
An example of good internal controls over cash payments is the taking of all cash
discounts offered.
Answer:
The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and
no residual value, is expected to yield total net income of $200,000 for the 5 years. The
expected average rate of return on investment is 25.0%.
Answer:
Separation of businesses into more manageable operating units is termed
decentralization.
Answer:
Conversion costs are generally added evenly throughout the process.
Answer:
If the bonds are purchased between interest dates, the purchase price includes accrued
interest since the last interest payment.
Answer:
An example of deferred revenue is Unearned Rent.
Answer:
If the debit portion of an adjusting entry is to an asset account, then the credit portion
must be to a liability account.
Answer:
Bondholders are creditors of the issuing corporation.
Answer:
If the perpetual inventory system is used, an account entitled Cost of Merchandise Sold
is included in the general ledger.
Answer:
Bonds payable would be listed at their carrying value on the balance sheet.
Answer:
Reporting unusual items separately on the income statement allows investors to isolate
the effects of these items on income and cash flows.
Answer:
Only the value of the inventory that is sold will appear in the income statement.
Answer:
A subsidiary inventory ledger can be an aid in maintaining inventory levels at their
proper levels.
Answer:
Though a piece of equipment is still being used, the equipment should be removed from
the accounts if it has been fully depreciated.
Answer:
The closer a company moves towards Just in Time production, the differences in unit
costs between average costing and FIFO will be reduced.
Answer:
The direct materials costs and direct labor costs incurred by a production department
are referred to as conversion costs.
Answer:
A defined contribution plan promises employees a fixed annual pension benefit.
Answer:
The plant manager’s salary in a manufacturing business would be considered an indirect
cost.
Answer:
Internal control is enhanced by separating the control of a transaction from the
record-keeping function.
Answer:
Federal unemployment compensation tax becomes an employer’s liability at the time
the employee is paid.
Answer:
To determine cash payments for income tax for the cash flow statement using the direct
method, an increase in income taxes payable is added to the income tax expense.
Answer:
Purchasing supplies on account increases liabilities and decreases equity.
Answer:
The total interest expense over the entire life of a bond is equal to the sum of the
interest payments plus the total discount or minus the total premium related to the bond.
Answer:
The lowest contribution margin per scarce resource is the most profitable.
Answer:
If a business sells two products, it is not possible to estimate the break-even point.
Answer:
When an owner invests assets in the business, the capital account increases due to
revenue being earned.
Answer:
The amount of the net income for a period appears on both the income statement and
the balance sheet for that period.
Answer:
When compared to a corporation, one of the major advantages of a partnerships is its
relative ease of formation.
Answer:
Once a static budget has been determined, it is changed regularly as the underlying
activity changes.
Answer:
When using the worksheet method to analyzing noncash accounts , no order of analysis
is required, but it is more efficient to start with Retained Earnings and proceed upward
in the account listing.
Answer:
On January 1, 2011, Zero Company obtained a $52,000, four-year, 6.5% installment
note from Regional Bank. The note requires annual payments consisting of principal
and interest of $15,179, beginning on December 31, 2011. The December 31, 2011
carrying amount in the amortization table for this installment note will be equal to:
A.$27,635
B.$40,201
C.$36,821
D.$48,620
Answer:
ABC Corporation has three service departments with the following costs and activity
base:
ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and
activity information are as follows:
How much service department cost will be allocated to the Micro Division?
A.$200,000
B.$145,000
C.$60,000
D.$345,000
Answer:
If fixed costs are $350,000, the unit selling price is $29, and the unit variable costs are
$20, what is the break-even sales (units) if the variable costs are decreased by $4?
A.26,924 units
B.12,069 units
C.21,875 units
D.38,889 units
Answer:
The management of Idaho Corporation is considering the purchase of a new machine
costing $430,000. 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 net present value for this investment is:
A.positive $16,400
B.positive $25,200
C.Negative $99,600
D.Negative $126,800
Answer:
The Statement of Owner’s Equity should be prepared
A.before the income statement and after the balance sheet
B.before the income statement and balance sheet
C.after the income statement and balance sheet
D.after the income statement and before the balance sheet
Answer:
Which of the following is an example of accrued revenue?
A.Swimming pool cleaning that has been paid for three months in advance.
B.Swimming pool cleaning that has been provided but has not been billed or paid.
C.An agreement has been signed for swimming pool cleaning for the next three months.
D.Swimming pool cleaning that has been provided and paid on the same day.
Answer:
Merchandise inventory at the end of the year is overstated. Which of the following
statements correctly states the effect of the error?
A.owner’s equity is overstated
B.cost of merchandise sold is overstated
C.gross profit is understated
D.net income is understated
Answer:
Production and sales estimates for May for the Robin Co. are as follows:
The number of units expected to be sold in May is:
A.22,000
B. 2,700
C.21,800
D.19,300
Answer:
Ramon Ramos has withdrawn $750 from Ramos Repair Company’s cash account to
deposit in his personal account. How does this transaction affect Ramos Repair
Company’s accounting equation?
A.Increase Assets (Accounts Receivable) and decrease Assets (Cash)
B.Decrease Assets (Cash) and decrease Owner’s Equity (Owner’s Withdrawal)
C.Decrease Assets (Cash) and decrease Liabilities (Accounts Payable)
D.Increase Assets (Cash) and decrease Owner’s Equity (Owner’s Withdrawal)
Answer:
The Bacon Company acquired new machinery with a price of $15,200 by trading in
similar old machinery and paying $12,700. The old machinery originally cost $9,000
and had accumulated depreciation of $5,000. In recording this transaction, Bacon
Company should record
A.the new machinery at $16,700
B.the new machinery at $12,700
C.a gain of $1,500
D.a loss of $1,500
Answer:
Which of the following should be added to net income in calculating net cash flow from
operating activities using the indirect method?
A.an increase in inventory
B.a decrease in accounts payable
C.preferred dividends declared and paid
D.a decrease in accounts receivable
Answer:
Which of the following entries would probably not be found on the books of a service
provider?
A.Debit Work in Process; credit Materials
B.Debit Work in Process; credit Wages Payable
C.Debit Work in Process; credit Overhead
D.Debit Cost of Services; credit Work in Process
Answer:
Sinking Fund Investments would be classified on the balance sheet as
A.a current asset
B.a fixed asset
C.an investment
D.a deferred debit
Answer:
All of the following are general-purpose financial statements except:
A.balance sheet
B.income statement
C.statement of owner’s equity
D.cash budget
Answer:
The profit margin for Division B is 8% and the investment turnover is 1.20. What is the
rate of return on investment for Division B?
A.8%
B.6.7%
C.7.3%
D.9.6%
Answer:
The debits to Work in Process–Assembly Department for April, together with data
concerning production, are as follows:
All direct materials are placed in process at the beginning of the process and the first-in,
first-out method is used to cost inventories. The materials cost per equivalent unit for
April is:
A.$2.48
B.$2.08
C.$2.50
D.$5.25
Answer:
Under which of the following cases may a percentage change be computed?
A.There is no amount in the base year.
B.There is a negative amount in the base year and a negative amount in the subsequent
year.
C.The trend of the amounts is decreasing but all amounts are positive.
D.There is a negative amount in the base year and a positive amount in the subsequent
year.
Answer:
Which of the following accounts will be found on the income statement?
A.inventory
B.work in process
C.finished goods
D.cost of goods sold
Answer:
Paint Company manufactures Paint X and Paint Y and can sell all it can make of either.
Based on the following data, assuming the number of hours is a constraint, which
statement is true,?
A.X is more profitable than Y
B.Y is more profitable than X
C.Neither X nor Y is profitable.
D.X and Y are equally profitable.
Answer:
Which of the following is not a short-cut in finding errors on the trial balance?
A.Determine the difference between debits and credits and look for the amount.
B.Determine the amount and change any account to make the trial balance correct.
C.Determine the difference between debits and credits, divide the amount by 2, look for
the amount.
D.Determine the difference between debits and credits, divide the amount by 9, if it
divides evenly, look for a transposition or slide error.
Answer:
As production increases, what would you expect to happen to fixed cost per unit?
A.Increase
B.Decrease
C.Remain the same
D.Either increase or decrease, depending on the variable costs
Answer:
Machinery is purchased on July 1 of the current fiscal year for $240,000. It is expected
to have a useful life of 4 years, or 25,000 operating hours, and a residual value of
$15,000. Compute the depreciation for the last six months of the current fiscal year
ending December 31 by each of the following methods:
(a) straight-line
(b) declining-balance at twice the straight-line rate
(c) units-of-production (used for 1,600 hours during the current year)
(Round the answer to the nearest dollar.)
Answer:
Which of the following is not a characteristic of useful managerial accounting reports?
A.Accuracy
B.GAAP
C.historical and estimated data
D.reports prepared as needed
Answer:
Journalize the entries to record the following selected transactions:
Answer:
The first budget customarily prepared as part of an entity’s master budget is the:
A.production budget
B.cash budget
C.sales budget
D.direct materials purchases
Answer:
Financing activities include
A.lending money.
B.acquiring investments.
C.issuing debt.
D.acquiring long-lived assets.
Answer:
The ____ is where a transaction can first be found on the accounting records.
A.chart of accounts
B.income statement
C.balance sheet
D.journal
Answer:
Which of the following costs incurred by a paper manufacturer would NOT be included
in the group of costs referred to as conversion costs?
A.Factory supervisor’s salary
B.Machine operator’s wages (direct labor)
C.Raw lumber (direct materials)
D.Factory maintenance personnel supplies
Answer:
Based on the above data, what is the amount of working capital?
A.$213,000
B.$113,000
C.$153,000
D.$39,000
Answer:
Two divisions of Central Company (Divisions X and Y) have the same profit margins.
Division X’s investment turnover is larger than that of Division Y (1.2 to 1.0). Income
from operations for Division X is $55,000, and income from operations for Division Y
is $43,000. Division X has a higher return on investment than Division Y by:
A.using income from operations as a performance measure
B.comparing the profit margins
C.applying a negotiated price measure
D.using its assets more efficiently in generating sales
Answer:
In a job order cost accounting system used by a service business, which of the
following items would normally not be included as part of overhead?
A.Materials
B.Direct labor
C.Rent
D.Supplies
Answer:
On January 1, 2010, Cary Parsons established a catering service. Listed below are
accounts to use for transactions (a) through (d), each identified by a number. Following
this list are the transactions that occurred during the first month of operations. You are
to indicate for each transaction the accounts that should be debited and credited by
placing the account number(s) in the appropriate box.
Transactions Account(s) Debited Account(s) Credited
a. Cary transferred cash from a personal bank account to an account to be used for the
business.
b. Paid rent for the period of January 3 to the end of the month.
c. Purchased truck for $30,000 with a cash down payment of $5,000 and the remainder
on a note.
d. Purchased equipment on account.
Answer:
In which of the following types of accounts are decreases recorded by debits?
A.assets
B.revenues
C.expenses
D.drawing
Answer:
Tippi Company produces lamps that require 2.25 standard hours per unit at an hourly
rate of $15.00 per hour. If 7,700 units required 17,550 hours at an hourly rate of $15.20
per hour, what is the direct labor (a) rate variance, (b) time variance, and (c) cost
variance?
Answer:
During its first year of operations, a company granted employees vacation privileges
and pension rights estimated at a cost of $21,500 and $15,000. The vacations are
expected to be taken in the next year and the pension rights are expected to be paid in
the future 5-30 years. What is the total cost of vacation pay and pension rights to be
recognized in the first year?
A.$15,000
B.$36,500
C.$6,500
D.$21,500
Answer:
The following data were taken from the Balance Sheet columns of the work sheet for
April 30, 2010 for Mackenzie Company:
Prepare a classified balance sheet.
Answer:
If a company records inventory purchases at standard cost and also records purchase
price variances, prepare the journal entry for a purchase of 6,000 widgets that were
bought at $8.00 and have a standard cost of $8.15.
Answer:
On February 1, Marine Company reacquired 7,500 shares of its common stock at $30
per share. On March 15, Marine sold 4,500 of the reacquired shares at $34 per share.
On June 2, Marine sold the remaining shares at $28 per share.
Answer:
Match each of the following terms with the phrase that most closely describes it. Each
answer may be used only once.
Answer:
Complete the chart using the LIFO and FIFO costing methods, assuming a period of
increasing costs:
Answer:
Discuss the similarities and differences in reporting trading securities, available-for-sale
securities and held-to-maturity securities.
Answer:
Income statement information for Lucy Company is provided below:
Prepare a vertical analysis of the income statement for Lucy Company.
Answer:
A company reports the following:
Determine the ratio of net sales to total assets. Round your answer to one decimal place.
Answer:
During the month of April, Cavy Company incurred factory overhead as follows:
Journalize the entry to record the factory overhead incurred during April.
Answer:
On December 31, the balance in the Office Supplies account is $1,385. A count shows
$435 worth of supplies on hand. Prepare the adjusting entry for supplies.
Answer:
On January 1, 2010 Orange Retail Co. issued a $300,000, 3 year, 6% installment note
payable with payments of $100,000 principal and interest due on January 1st for each of
the next 3 years.
1) Prepare the adjusting journal entry to accrue interest at the end of the 2nd year –
12/31/11.
2) Show the account(s) and amount (s) and where the account(s) will appear on a
multi-step income statement prepared on December 31,
3) Show the account(s) and amount(s) and where the account(s) will appear on a
classified balance sheet prepared on December 31, 2011.
Answer:
Mobile Service Corp. has the following debits and credits from two transactions
presented in the a customer account:
NAME: Gen-X Products, Inc.
Address: 123 My Way
Describe each transaction and the source of each posting.
Answer:
What is a business segment? How can business segments be analyzed?
Answer:
List the five steps in the process by which accounting provides information to users.
Answer:
At the beginning of the period, the Cutting Department budgeted direct labor of
$30,000 and supervisor salaries of $20,000 for 3,000 hours of production. The
department actually completed 5,000 hours of production. Determine the budget for the
department assuming that it uses flexible budgeting?
Answer:
On May 10, a company issued for cash 1,500 shares of no-par common stock (with a
stated value of $2) at $14, and on May 15, it issued for cash 2,000 shares of $15 par
preferred stock at $58.
Journalize the entries for May 10 and 15, assuming that the common stock is to be
credited with the stated value.
Answer: