Product level costs do not vary with the number of units or batches produced.
Answer:
When LIFO is used with the periodic inventory system, cost of goods sold is assigned
costs from the most recent purchases at the point of each sale, rather than from the most
recent purchases for the period.
Answer:
Under the perpetual inventory system, the cost of merchandise purchased is recorded in
the Purchases account.
Answer:
The acid-test ratio is also called the quick ratio.
Answer:
J.C. Penney had net sales of $24,750 million, cost of goods sold of $16,150 million,
and net income of $837 million. Its gross margin ratio equals 3.4%.
Answer:
The present value of $5,000 per year for three years at 12% compounded annually is
$12,009.
Answer:
One section of the process cost summary describes the equivalent units of production
for the department during the reporting period and presents the calculations of the costs
per equivalent unit.
Answer:
A trial balance that is in balance is proof that no errors were made in journalizing the
transactions, posting to the ledger, and preparing the trial balance.
Answer:
Job cost sheets are used to track all of the costs assigned to a job, including direct
materials, direct labor, overhead, and all selling and administrative costs.
Answer:
Management’s intent determines whether an available-for-sale security is classified as
long term or short term.
Answer:
High financial leverage is always bad for a company’s owners.
Answer:
Bookkeeping is the sole purpose of accounting.
Answer:
The orientation of just-in-time manufacturing is that products are “pulled” through the
manufacturing process by the orders received from customers.
Answer:
Not many companies take a physical count of inventory each year as they rely
primarily on inventory records alone to determine the inventory value.
Answer:
There is no simple rule for inventory turnover, except that a high ratio is preferable
provided inventory is adequate to meet demand.
Answer:
In a process costing system, factory labor costs incurred in a reporting period are
presented on the income statement as Factory Labor Expense.
Answer:
Long-term investments are usually held as an investment of cash for the use of current
operations.
Answer:
The process of using accounts receivable as security for a loan is known as factoring
accounts receivable.
Answer:
Adjustments must be entered in the journal and posted to the ledger after the work
sheet is prepared.
Answer:
An expense account is normally closed by debiting Income Summary and crediting the
expense account.
Answer:
The aging method of determining bad debts expense is based on the knowledge that the
longer a receivable is past due, the lower the likelihood of collection.
Answer:
A pension plan is a contractual agreement between an employer and its employees in
which the employer provides benefits to employees after they retire.
Answer:
Foreign exchange rates fluctuate due to many factors including changing political and
economic conditions.
Answer:
Business activities that either generate or use cash are classified as operating, investing,
or financing activities on the statement of cash flows.
Answer:
Hamilton Industries has total liabilities of $105 million and total assets of $350 million.
Its debt ratio is 333.3%.
Answer:
A bond listed at 103 on a stock exchange is selling at 103% of its par value.
Answer:
Unearned revenues are listed on the balance sheet under liabilities.
Answer:
The last four steps in the accounting cycle include preparing the adjusted trial balance,
preparing financial statements, and recording closing and adjusting entries.
Answer:
A process cost summary for a production department accounts for all costs assigned to
that department during the period plus costs that were in the department’s Goods in
Process Inventory account at the beginning of the period.
Answer:
Equipment, inventory, and investments can each have its own subsidiary ledger.
Answer:
The consistency concept requires a company to use the same accounting methods
period after period, so that financial statements are comparable across periods.
Answer:
The carrying value of a long-term note is computed as the present value of all
remaining future payments, discounted using the market rate at the time of issuance.
Answer:
A properly designed internal control system is a key part of accounting information
systems design, analysis, and performance.
Answer:
The departmental overhead rate method traces costs to each department and then
determines an allocation base for each department.
Answer:
Canceled checks are a way to confirm what the bank has paid and deducted from the
customer’s account during the period.
Answer:
Absorption costing is useful because it reflects the full costs that sales must exceed for
the company to be profitable.
Answer:
The matching principle requires that expenses get recorded in the same accounting
period as the revenues that are earned as a result of the expenses, not when cash is
paid.
Answer:
When using the plantwide overhead rate method, total budgeted overhead costs are
combined into one overhead cost pool.
Answer:
In process costing, indirect materials are charged directly to Goods in Process
Inventory.
Answer:
Viscount Company collected $42,000 cash on its accounts receivable. How does this
transaction affect the company’s accounting equation?
A. Assets decrease and equity increases
B. Both assets and liabilities decrease
C. Assets, liabilities, and equity are unchanged
D. Both assets and equity are unchanged and liabilities increase
E. Assets increase and equity decreases
Answer:
Thompson Company had the following results of operations for the past year:
A foreign company (whose sales will not affect Thompson’s market) offers to buy 4,000
units at $7.50 per unit. In addition to variable manufacturing costs, selling these units
would increase fixed overhead by $600 and selling and administrative costs by $300. If
Thompson accepts the offer, its profits will:
A. Increase by $30,000
B. Increase by $ 6,000
C. Decrease by $ 6,000
D. Increase by $ 5,200
E. Increase by $ 4,300
Answer:
An estimate of an asset’s value to the company, calculated by discounting the future
cash flows from the investment at an appropriate rate and then subtracting the initial
cost of the investment, is known as:
A. Annual net cash flows.
B. Rate of return on investment.
C. Net present value.
D. Payback period.
E. Unamortized carrying value.
Answer:
Rodriguez, Sate, and Melton are dissolving their partnership. Their partnership
agreement allocates income and losses equally among the partners. The current period’s
ending capital account balances are Rodriguez, $30,000; Sate, $30,000; and Melton,
$(4,000). After all the assets are sold and liabilities are paid, but before any
contributions are considered to cover any deficiencies, there is $56,000 in cash to be
distributed. Melton pays $4,000 to cover the deficiency in her account. The general
journal entry to record the final distribution would be:
A.
B.
C.
D.
E.
Answer:
A company is considering the purchase of a new machine for $128,000. Management
predicts that the machine can produce sales of $32,000 each year for the next eight
years. Expenses are expected to include direct materials, direct labor, and factory
overhead totaling $7,500 per year plus depreciation of $10,800 per year. The company’s
tax rate is 38%. What is the payback period for the new machine?
A. 00 years
B. 6.63 years
C. 9.34 years
D. 15.06 years
E. 5.22 years
Answer:
Chung owns 40% of Lu’s common stock. Lu pays $97,000 in total cash dividends to its
shareholders. Chung’s entry to record this transaction should include a:
A. Debit to Dividends for $97,000.
B. Debit to Dividends for $38,800.
C. Debit to Long-Term investments for $97,000.
D. Credit to Long-Term Investments for $38,800.
E. Credit to Cash for $97,000.
Answer:
On January 1, 2013, Lane issues $700,000 of 7%, 15-year bonds at a price of 106 3/4.
The interest payments are made on June 30 and December 31. The straight-line method
is used to amortize any bond discount or premium. Lane elects a fiscal year ending
September 30. What is the appropriate adjusting journal entry required for September
30, 2013?
A.
B.
C.
D.
E.
Answer:
What are the total assets shown on the trial balance below?
A. $291,340
B. $106,962
C. $198,730
D. $218,730
E. $221,580
Answer:
The main difference in the sales journal under the perpetual and periodic inventory
system is:
A. The column to record cost of goods sold and inventory amounts sold that is used
under the perpetual system but not the periodic.
B. The sales tax receivable column that is used under the perpetual system but not the
periodic.
C. The sales tax payable column that is used under the perpetual system but not the
periodic.
D. The accounts receivable column that is used under the perpetual system but not the
periodic.
E. The column for recording cash that is used under the perpetual system but not the
periodic.
Answer:
The Footwear Department of Lee’s Department Store had sales of $188,000, cost of
goods sold of $132,500, indirect expenses of $13,250, and direct expenses of $27,500
for the current period. The Footwear Department’s contribution to overhead as a percent
of sales is:
A. 7.8%
B. 14.9%
C. 29.5%
D. 66.7%
E. 85.4%
Answer:
Under the alternative method for accounting for unearned revenues, which of the
following pairs of journal entry formats is correct?
A.
B.
C.
D.
E.
A. Option A
B. Option B
C. Option C
D. Option D
E. Option E
Answer:
A company allocates overhead to production on the basis of direct labor cost. If the
companys total estimated overhead is $870,000 and estimated direct labor cost is
$1,160,000, determine the amount of overhead to be allocated to finished goods
inventory. There is $791,000 of total direct labor cost in the jobs in the finished goods
inventory.
A. $1,054,667
B. $593,250
C. $1,275,853
D. $1,079,482
E. $79,000
Answer:
Chen and Wright are forming a partnership. Chen will invest a building that currently
is being used by another business owned by Chen. The building has a market value of
$90,000. Also, the partnership will assume responsibility for a $30,000 note secured by
a mortgage on that building. Wright will invest $50,000 cash. For the partnership, the
amounts to be recorded for the building and for Chen’s Capital account are:
A. Building, $90,000 and Chen, Capital, $90,000.
B. Building, $60,000 and Chen, Capital, $60,000.
C. Building, $60,000 and Chen, Capital, $50,000.
D. Building, $90,000 and Chen, Capital, $60,000.
E. Building, $60,000 and Chen, Capital, $90,000.
Answer:
Which of the following is a true statement regarding debits and credits?
A. If a company earned a profit, debits will not equal credits.
B. For a business, debits are better than credits.
C. A company’s books are not in balance if they have a current period loss.
D. Assets and expenses are both increased with a debit.
E. Liabilities and equity are both increased with a debit.
Answer:
The Goods in Process Inventory account of a manufacturing company that uses an
overhead rate based on direct labor cost has a $7,750 debit balance after all posting is
completed. The cost sheet of the one job still in process shows direct material cost of
$6,000 and direct labor cost of $1,000. Therefore, the company’s overhead application
rate is:
A. 7%
B. 0%
C. 0%
D. 3%
E. 0%
Answer:
The purchases journal is used for recording:
A. Credit purchases
B. Credit sales
C. Cash sales
D. Cash purchases
E. Cash disbursements
Answer:
Home Base, Inc. reports the following production cost information:
a. Compute production cost per unit under variable costing.
b. Compute production cost per unit under absorption costing.
c. Determine the cost of ending inventory using variable costing.
d. Determine the cost of ending inventory using absorption costing.
Answer:
The acid-test ratio:
A. Is also called the quick ratio.
B. Measures profitability.
C. Measures inventory turnover.
D. Is generally greater than the current ratio.
E. Is not used by merchandise companies.
Answer:
RC Corp. uses a job order cost accounting system. During the month of April, the
following events occurred:
A. Purchased raw materials on credit, $32,000.
B. Raw materials requisitioned: $25,800 as direct materials and $10,500 indirect
materials.
C. Paid factory payroll for the month totaling $37,700 which includes $8,200 indirect
labor.
D. Assigned the factory payroll to jobs and overhead.
Make the necessary journal entries to record the above transactions and events.
Answer:
A disadvantage of using the payback period to compare investment alternatives is that:
A. It ignores cash flows beyond the payback period.
B. It includes the time value of money.
C. It cannot be used when cash flows are not uniform.
D. It cannot be used if a company records depreciation.
E. It cannot be used to compare investments with different initial investments.
Answer:
Home Base, Inc. reports the following production cost information:
Assume that productions costs have remained the same since the previous period and all
units are sold for $137.00 per unit.
a. Compute production cost per unit under variable costing.
b. Compute production cost per unit under absorption costing.
c. Determine net income using variable costing.
d. Determine net income using absorption costing.
Answer:
Answer:
Match the definitions 1 through 9 with the term or phrase (a) through (i).
(a) Master budget
(b) General and administrative expense budget
(c) Budget
(d) Safety stock
(e) Budgeted income statement
(f) Budgeted balance sheet
(g) Sales budget
(h) Cash budget
(i) Merchandise purchases budget
______(1) A plan that shows the units or costs of merchandise to be purchased by a
merchandising company during the budget period.
______(2) An accounting report that presents predicted amounts of the company’s
assets, liabilities, and equity balances at the end of the budget period.
______(3) A plan showing the units of goods to be sold and the sales to be derived; the
usual starting point in the budgeting process.
______(4) An accounting report that presents predicted amounts of the company’s
revenues and expenses for the budgeting period.
______(5) A quantity of inventory or materials over the minimum to reduce the risk of
running short.
______(6) A comprehensive business plan that includes specific plans for expected
sales, the units of product to be produced, the merchandise or materials to be purchased,
the expenses to be incurred, the long-term assets to be purchased, and the amounts of
cash to be borrowed or loans to be repaid, as well as a budgeted income statement and
balance sheet.
______(7) A formal statement of a company’s future plans, usually expressed in
monetary terms.
______(8) A plan that shows predicted operating expenses not included in the selling
expenses budget.
______(9) A plan that shows the expected cash inflows and cash outflows during the
budget period, including receipts from any loans needed to maintain a minimum cash
balance and repayments of such loans.
Answer:
On January 1, 2013, Leyden Corporation leased a truck, agreeing to pay $15,252 every
December 31 for the entire six years of the lease. The present value of the lease
payments, at 6% interest is $75,000. The lease is considered a capital lease.
(a) Prepare the general journal entry to record the acquisition of the truck based on a
capital lease.
(b) Prepare the general journal entry to record the first lease payment on December 31,
2010.
(c) Record straight-line depreciation on the truck on 12/31/13, assuming a 6-year life
and no salvage value.
Answer:
A major limitation of the internal rate of return method is:
A. Failure to measure time value of money.
B. Failure to measure results as a percent.
C. Failure to consider the payback period.
D. Failure to reflect varying risk levels over project life.
E. Failure to compare dissimilar projects.
Answer:
A company has two products: A1 and B2. It uses activity-based costing and has
prepared the following analysis showing budgeted cost and activity for each of its three
activity cost pools:
Annual production and sales level of Product A1 is 8,480 units, and the annual
production and sales level of Product B2 is 22,310 units. What is the approximate
overhead cost per unit of Product B2 under activity-based costing?
A. $8.00
B. $9.00
C. $10.00
D. $12.00
E. $4.00
Answer:
Match the following terms with the appropriate definition:
A) Prepaid expenses
B) Revenue recognition principle
C) Time period assumption
D) Matching principle
E) Accrual basis accounting
F) Depreciation
G) Accrued revenues
H) Cash basis accounting
I) Profit margin
Answer:
According to GAAP, the amount of bad debt expense can be estimated by:
A. Only the percent of sales method.
B. Only the percent of accounts receivable method.
C. Only by the aging of accounts receivable method.
D. Only by the percent of sales method or the percent of accounts receivable method.
E. Bad debt expense can be estimated by the percent of sales method, the percent of
accounts receivable method, or by the aging of accounts receivable method.
Answer:
On January 1, Able Company purchased equipment costing $135,000 with an estimated
salvage value of $10,500, and an estimated useful life of five years. Using the
straight-line method, what is the amount that should be recorded as depreciation on
December 31?
A. $27,000
B. $24,900
C. $29,100
D. $135,000
E. $10,500
Answer:
Peapod Company, a manufacturer of slippers, began operations on May 1 of the current
year. During this time, the company produced 200,000 units and sold 180,000 units at a
sales price of $36 per unit. Cost information for this period is shown in the following
table:
a. Prepare Peapods December 31 income statement for the current year under
absorption costing.
b. Prepare Peapods December 31 income statement for the current year under variable
costing.
Answer:
Gross pay is:
A. Take-home pay.
B. Total compensation earned by an employee before any deductions.
C. Salaries after taxes are deducted.
D. Deductions withheld by an employer.
E. The amount of the paycheck.
Answer:
When a partner is unable to pay a capital deficiency:
A. The partner must take out a loan to cover the deficient balance.
B. The deficiency is absorbed by the remaining partners.
C. The partnership ends.
D. The deficient partner has no personal liability to pay the deficiency.
E. The partnership must be liquidated.
Answer:
Assume Martin Guitar Company has a standard of 3 hours of direct labor per unit
produced and $20 per hour for the labor rate. During last period, the company used
24,000 hours of direct labor at a $456,000 total cost to produce 6,000 units. Compute
the direct labor rate and efficiency variances.
A. Rate variance: $24,000 unfavorable; Efficiency variance: $120,000 favorable.
B. Rate variance: $24,000 favorable; Efficiency variance: $120,000 unfavorable.
C. Rate variance: $96,000 favorable; Efficiency variance: $96,000 unfavorable.
D. Rate variance: $120,000 favorable; Efficiency variance: $24,000 unfavorable.
E. Rate variance: $120,000 unfavorable; Efficiency variance: $24,000 unfavorable.
Answer:
Amortizing a bond discount:
A. Allocates a part of the total discount to each interest period.
B. Increases the market value of the Bonds Payable.
C. Decreases the Bonds Payable account.
D. Decreases interest expense each period.
E. Increases cash flows from the bond.
Answer:
The ________________ method of accounting for bad debts records the loss from an
uncollectible account receivable at the time it is determined to be uncollectible (and not
before).
Answer:
A company has a goal of earning $100,000 in after-tax income. The company must pay
$28,000 in income tax if it achieves the goal. The contribution margin ratio is 30%.
What dollar amount of sales must be achieved to reach the goal if fixed costs are
$64,000?
Answer:
The legal document identifying the rights and obligations of both the bondholders and
the issuer is called the ____________________________________.
Answer:
Explain how the inventory turnover ratio and the days’ sales in inventory ratio are used
to evaluate inventory management.
Answer:
On February 5, Textron Stores purchased a van that had a cost of $35,000. The firm
made a down payment of $5,000 cash and signed a long-term note payable for the
balance. Show the general journal entry to record this transaction.
Answer:
Discuss the options for the allocation of income and loss among partners, including
with and without a partnership agreement.
Answer:
If a 90-day note receivable is dated June 12, what is the maturity date of the note?
Answer:
A company uses activity-based costing to determine the costs of its three products: A,
B, and C. The budgeted cost and activity for each of the companys three activity cost
pools are shown below.
Compute the companys activity rates under activity-based costing for each of the three
activities.
Answer:
A company is currently operating at 70% capacity producing 8,000 units. Cost
information relating to this current production is shown in the following table:
The company has been approached by a customer with a request for a special order for
1,500 units. The sales price per unit for this special order is $10. Should the company
accept the special order?
Answer:
What are controlling accounts and subsidiary ledgers? What is the relationship between
them?
Answer:
Tappet Corporation is preparing its master budget for the quarter ending March 31. It
sells a single product for $25 a unit. Budget sales are 40% cash and 60% on credit. All
credit sales are collected in the month following the sales. Budgeted sales for the next
four months follow:
At December 31, the balance in Accounts Receivable is $10,000, which represents the
uncollected portion of December sales. The company desires merchandise inventory
equal to 30% of the next month’s sales in units. The December 31 balance of
merchandise inventory is 340 units, and inventory cost is $10 per unit. Forty percent of
the purchases are paid in the month of purchase and 60% are paid in the following
month. At December 31, the balance of Accounts Payable is $8,000, which represents
the unpaid portion of December’s purchases. Operating expenses are paid in the month
incurred and consist of:
Sales commissions (10% of sales)
Freight (2% of sales)
Office salaries ($2,400 per month)
Rent ($4,800 per month)
Depreciation expense is $4,000 per month.
The income tax rate is 40%, and income taxes will be paid on April 1. A minimum cash
balance of $10,000 is required, and the cash balance at December 31 is $10,200. Loans
are obtained at the end of a month in which a cash shortage occurs. Interest is 1% per
month, based on the beginning of the month loan balance, and must be paid each
month. If an excess of cash exists, loan repayments are made at the end of the month.
At December 31, the loan balance is $0.
Prepare a master budget (round all dollar amounts to the nearest whole dollar) for each
of the months of January, February, and March that includes the:
Sales budget
Table of cash receipts
Merchandise purchases budget
Table of cash disbursements for merchandise purchases
Table of cash disbursements for selling and administrative expenses
Cash budget, including information on the loan balance
Budgeted income statement
Answer:
The par value of a bond is also known as its ________________________.
Answer:
The ______________________ is the sales level at which a company neither earns a
profit nor incurs a loss.
Answer:
How is residual income calculated and how do managers use it?
Answer:
When preferred stock is cumulative and the directors either do not declare a dividend
to preferred stockholders or declare one that does not cover the total amount of
cumulative dividends, the unpaid amount is called ____________________________.
Answer:
_____________________ is the amount at which a stock is bought and sold.
Answer:
Identify the treatment of each of the following costs under variable costing and
absorption costing:
Answer:
Express the following balance sheets for Alberts Company in common-size percents.
Answer:
