Auditors rely on accounting system databases when they audit financial statements and
a company’s controls.
Answer:
Earned but uncollected revenues that are recorded during the adjusting process with a
credit to a revenue account and a debit to an expense account are referred to as accrued
expenses.
Answer:
Contribution margin is another way to refer to gross margin.
Answer:
Posting is the transfer of the information from each journal entry to the ledger.
Answer:
Compared to the departmental overhead rate method, the plantwide overhead rate
method usually results in more accurate overhead allocations.
Answer:
The accounts receivable turnover is calculated by dividing net sales by average
accounts receivable.
Answer:
Comprehensive income refers to all changes in equity during a period except those due
to investments and distributions to income.
Answer:
Callable bonds have an option exercisable by the issuer to retire them at a stated dollar
amount prior to maturity.
Answer:
When a company constructs a building, the cost of the building includes materials and
labor, design fees, building permits, and insurance during construction.
Answer:
The process cost summary is an important managerial accounting report produced by a
process cost accounting system.
Answer:
When products differ in batch size and complexity, they usually consume different
amounts of overhead resources.
Answer:
Current liabilities include accounts receivable, unearned revenues, and salaries
payable.
Answer:
The direct method for preparing and reporting the statement of cash flows reports net
income and then adjusts the necessary items to calculate net cash provided or used by
operating activities.
Answer:
Budgets are normally more effective when all levels of management are involved in the
budgeting process.
Answer:
Two important limitations of internal control systems are (1) human error or human
fraud and (2) cost-benefit.
Answer:
Account balances in the general ledger and the subsidiary ledgers should be proved for
accuracy after posting is complete.
Answer:
The going-concern principle supports the reporting of plant assets at book value rather
than market value.
Answer:
Investment center managers are responsible only for revenues and the costs of
investment.
Answer:
The plantwide overhead rate is determined by using volume-related measures.
Answer:
IFRS requires uniform accounting policies to be used throughout the group
of consolidated subsidiaries.
Answer:
When units produced equal units sold, reported income is identical under absorption
costing and variable costing.
Answer:
The journal entry for petty cash reimbursement involves a debit to the appropriate
expenses and a credit to Petty Cash.
Answer:
A department’s direct expenses can be entirely avoided if the department manager
carefully controls and monitors operations.
Answer:
Assume that at the end of the day, the cash register tape shows a balance of $635.
However, the cash drawer has a balance of $650, this difference should be debited to
Miscellaneous Expense.
Answer:
A promissory note is a written promise to pay a specified amount of money either on
demand or at a definite future date.
Answer:
Trading securities are securities that are purchased by trading other securities rather
than by paying cash.
Answer:
Once equivalent units are calculated for materials, this number will also be used for
direct labor and factory overhead.
Answer:
Return on investment for a given investment center can be split into two components:
profit margin and investment turnover.
Answer:
Sales variances may be computed in a manner similar to cost variancesthat is,
computing both price and volume variances.
Answer:
Process cost accounting systems consider overhead costs to include those costs that
cannot be readily identified with any specific process.
Answer:
Current assets and current liabilities are expected to be used up or come due within one
year or the company’s operating cycle whichever is longer.
Answer:
The three major activities of a business are operating, investing, and financing.
Answer:
A rolling budget is a specific budget application relevant only to a merchandising
company.
Answer:
Total asset cost plus depreciation expense equals book value.
Answer:
Credit sales are recorded by crediting an account receivable for the specific customer
who is making the purchase.
Answer:
The choice of an inventory valuation method can have a major impact on gross profit
and cost of sales.
Answer:
The weighted-average method of process costing computes the cost per equivalent unit
based solely on the current periods EUPs and costs.
Answer:
Six months ago, a company purchased an investment in stock for $65,000. This
investment is considered available-for-sale. The current market value of the stock is
$68,500. The company should record a:
A. Debit to Unrealized Loss-Equity for $3,500.
B. Credit to Unrealized Gain-Equity for $3,500.
C. Debit to Investment Revenue for $3,500.
D. Credit to Market Adjustment – Available-for-Sale for $3,500.
E. Credit to Investment Revenue for $3,500.
Answer:
Return on total assets measures a company’s ability to:
A. Produce net income from net sales.
B. Produce sales from net assets.
C. Produce net income from net assets.
D. Increase its asset base from sales.
E. Increase its asset base from net income.
Answer:
Which of the following items would appear on the balance sheet?
A. Common stock, service revenue, retained earnings, accounts payable, and unearned
revenue.
B. Cash, supplies, prepaid rent, accounts receivable, office equipment, utilities expense,
and shaving equipment.
C. Common stock, cash, supplies, prepaid rent, retained earnings, accounts payable,
accounts receivable, office equipment, unearned revenue, and shaving equipment.
D. Service revenue and utilities expense.
E. Service revenue, unearned revenue, and utilities expense.
Answer:
Horizontal analysis:
A. Is a method used to evaluate changes in financial data across time.
B. Is also called vertical analysis.
C. Is the presentation of financial ratios.
D. Is a tool used to evaluate financial statement items relative to industry statistics.
E. Evaluates financial data across industries.
Answer:
Brown and Rubix are partners. Brown’s capital balance in the partnership is $73,000
and
Rubix’s capital balance is $62,000. Brown and Rubix have agreed to share equally in
income or loss. Brown and Rubix agree to accept Cabela with a 20% interest. Cabela
will invest $41,500 in the partnership. The bonus that is granted to Brown and Rubix
equals:
A. $3,100 each.
B. $6,200 each.
C. $35,300 in total.
D. $41,500 in total.
E. $0, because Brown and Rubix actually grant a bonus to Cabela.
Answer:
Which of the following items is not likely to be considered an extraordinary item?
A. Loss from an unexpected union strike.
B. Condemnation of property by the city government.
C. Loss of use of property due to a new and unexpected environmental regulation.
D. Loss due to an earthquake in Florida.
E. Expropriation of property by a foreign government.
Answer:
Match each of the following terms with the appropriate definitions:
A) Merit rating
B) FICA taxes
C) Estimated liability
D) Long-term liability
E) Net pay
F) Wage bracket withholding table
G) Contingent liability
H) Warranty
I) Withholding allowance
J) FUTA taxes
Answer:
For each of the following transactions, identify the effects on the accounting equation.
Use “+” to indicate an increase and “-” to indicate a decrease. Use “A”, “L” and “E” to
indicate assets, liabilities, and equity, respectively. Part (a) has been completed as an
example.
a. L. Berryman invested $100,000 in the new corporation in exchange for stock. +A +E
b. Land was purchased for $50,000. A down payment of $15,000 cash was made and a
note was signed for the balance.
c. Services were rendered to customers for cash.
d. A building was purchased for cash.
e. Supplies were purchased for cash.
f. Paid the office secretarys salary.
g. The amount owed on the land from part (b) was paid.
Answer:
Reference: 14_02
The following information is available for Talking Toys, Inc. for the current year:
The total cost of goods manufactured for the year was:
A. $13,000
B. $44,500
C. $57,500
D. $94,500.
E. $52,000
Answer:
To determine a product selling price based on the total cost method, management
should include:
A. Total production and nonproduction costs plus a markup.
B. Total production and nonproduction costs only.
C. Total production costs plus a markup.
D. Total nonproduction costs plus a markup.
E. Only a markup.
Answer:
The following data concerns a proposed equipment purchase:
Assuming that net cash flows are received evenly throughout the year, the accounting
rate of return is:
A. 34.09%
B. 32.64%
C. 35%
D. 8.70%
E. 16.67%
Answer:
Match each of the following terms with the appropriate definitions.
A) Salvage value
B) Extraordinary repairs
C) Amortization
D) Copyright
E) Obsolescence
F) Book value
G) Depletion
H) Patent
I) Inadequacy
J) Land improvements
Answer:
A company has 1,000 shares of $50 par value, 4.5% cumulative and nonparticipating
preferred stock and 10,000 shares of $10 par value common stock outstanding. The
company paid total cash dividends of $1,000 in its first year of operation. The cash
dividend that must be paid to preferred stockholders in the second year before any
dividend is paid to common stockholders is:
A. $1,000
B. $1,250
C. $2,250
D. $3,500
E. $4,500
Answer:
A local learning center is considering replacing the computers in its facility with thin
client technology, thereby eliminating the need for individual computers at each station
in the lab. The cost to purchase and install this new technology is $450,000 and it is
projected to last for six years. The existing computers have a book value of $70,000 and
a market value of $18,000 if they were to be sold. They expect to save a fair amount of
money in maintenance costs and software upgrades if they go to the new technology.
Required:
a. What would the annual savings have to be in order to warrant the replacement of the
existing computers with the thin client technology?
b. What would the annual savings have to be in order to warrant the replacement of the
existing computers with the thin client technology if the existing computers have no
current market value?
Answer:
Peng Corporation is considering the purchase of new equipment costing $30,000. The
projected annual after-tax net income from the equipment is $1,200, after deducting
$10,000 for depreciation. The revenue is to be received at the end of each year. The
machine has a useful life of four years and no salvage value. Peng requires a 12% return
on its investments. The factors for the present value of $1 for different periods follow:
Calculate the break-even time for this equipment.
A. Break-even time is longer than four years.
B. Break-even time is between three and four years.
C. Break-even time is between two and three years.
D. Break-even time is between one and two years.
E. This project will never break even.
Answer:
A company sells computers for $1,800 each. Each computer has a two-year warranty
that covers replacement of defective parts. It is estimated that 2% of all computers sold
will be returned under the warranty with an average cost of $150 each. During
November, the company sold 30,000 computers;. 400 computers were serviced under
the warranty during November at a total cost of $55,000. The balance in the Estimated
Warranty Liability account at November 1 was $29,000. What is the company’s
warranty expense for the month of November?
A. $26,000
B. $45,000
C. $55,000
D. $60,000
E. $90,000
Answer:
A company reported total equity of $145,000 on its December 31, 2013, balance sheet.
The following information is available for the year ended December 31, 2014:
What are the total assets of the company at December 31, 2014?
A. $45,000
B. $92,000
C. $190,000
D. $210,000
E. $282,000
Answer:
A company’s flexible budget for 48,000 units of production showed variable overhead
costs of $72,000 and fixed overhead costs of $64,000. The company incurred overhead
costs of $122,800 while operating at a volume of 40,000 units. The total controllable
cost variance is:
A. $1,200 favorable
B. $1,200 unfavorable
C. $13,200 favorable
D. $13,200 unfavorable
E. $15,200 favorable
Answer:
Match the following definitions and terms by placing the number that identifies the
best definition in the blank space next to the term.
1) Unearned revenues
2) Chart of accounts
3) Note receivable
4) Posting reference column
5) Posting
6) Trial Balance
7) Compound journal entry
8) Account
9) T-account
A) The most flexible type of journal, it can be used to record any kind of transaction.
B) A list of all accounts used by a company and the identification number assigned to
each account.
C) A written promise from a customer to pay a definite sum of money on a specified
future date.
D) A simple form used as a helpful tool in understanding the effect of transactions and
events on specific accounts.
E) Liabilities created when customers pay in advance for products or services; satisfied
by delivering the products or services in the future.
F) A journal entry that affects at least three accounts.
G) A column in journals where individual account numbers are entered when entries are
posted to ledger accounts.
H) The process of transferring journal entry information to the ledger.
I) A record of the increases and decreases in a specific asset, liability, equity, revenue,
or expense account.
J) A list of accounts and their balances at a point in time; the total debt balances should
equal the total credit balances.
Answer:
A trade discount is:
A. A term used by a purchaser to describe a cash discount given to customers for
prompt payment,
B. A reduction in price below the list price,
C. A term used by a seller to describe a cash discount granted to customers for prompt
payment,
D. A reduction in price for prompt payment,
E. Also called a rebate,
Answer:
A company had an accounts receivable turnover ratio of 8 and net sales of $600,000 for
a given period. What was the average accounts receivable amount for this period?
A. $4,800,000.
B. $2,919.99.
C. $205.48.
D. $75,000.
E. Average accounts receivable cannot be determined from this information.
Answer:
The understatement of the beginning inventory balance causes:
A. Cost of goods sold to be understated and net income to be understated.
B. Cost of goods sold to be understated and net income to be overstated.
C. Cost of goods sold to be overstated and net income to be overstated.
D. Cost of goods sold to be overstated and net income to be understated.
E. Cost of goods sold to be overstated and net income to be correct.
Answer:
Actual fixed overhead for a company during March was $77,612. The flexible budget
for fixed overhead this period is $78,000 based on a production level of 4,875 units. If
the company actually produced 4,300 units, what is the fixed overhead volume variance
for March?
A. $388 favorable
B. $9,200 unfavorable
C. $8,812 unfavorable
D. $388 unfavorable
E. $9,200 favorable
Answer:
Cash investments by owners in exchange for stock are listed on which of the following
statements?
A. Balance sheet.
B. Income statement.
C. Statement of retained earnings.
D. Statement of cash flows.
E. Statement of cash received
Answer:
Which of the following would not be considered a cost center?
A. Accounting department.
B. Purchasing department.
C. Research department.
D. Advertising department.
E. Pharmacy in a grocery store.
Answer:
A company sells a climbing kit and uses the periodic inventory system to account for
its merchandise. The beginning balance of the inventory and its transactions during
January were as follows:
If the ending inventory is reported at $357, what inventory method was used?
A. LIFO
B. FIFO
C. Weighted average
D. Specific identification
E. Retail inventory method
Answer:
The Johnson Manufacturing Company has the following job cost sheets on file. They
represent jobs that have been worked on during March of the current year. This table
summarizes information provided on each sheet:
A. What is the cost of goods sold for the month of March?
B. What is the cost of the goods in process inventory on March 31?
C. What is the cost of the finished goods inventory on March 31?
Answer:
What would be the account balance in the Service Revenue account after the following
transactions, assuming a zero beginning balance??
A. $17,400 credit
B. $14,400 credit
C. $14,400 debit
D. $15,900 credit
E. $15,900 debit
Answer:
Rocky Industries received its telephone bill in the amount of $300 and immediately
paid it. Rocky’s journal entry to record this transaction will include a
A. Debit to Telephone Expense for $300.
B. Credit to Accounts Payable for $300.
C. Debit to Cash for $300.
D. Credit to Telephone Expense for $300.
E. Debit to Accounts Payable for $300.
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. The journal entry or entries that Robertson will
make on October 1 is:
A.
B.
C.
D.
E.
Answer:
When the operating activities section of the statement of cash flows is reported using
the direct method, the FASB requires:
A. A reconciliation to the statement of cash flows under the indirect method.
B. A reconciliation of net income to net cash provided or used by operating activities.
C. Footnotes to the financial statements disclosing the difference between net income
and the cash provided or used by financing activities.
D. The income statement to be prepared under the cash basis of accounting.
E. Noncash investing and financing activities must be included in the statement of cash
flows.
Answer:
Reference: 24_02
A company is planning to purchase a machine that will cost $35,000, have a seven-year
life, and be depreciated using the straight-line method with no salvage value. The
company expects to sell the machine’s output of 4,000 units evenly throughout each
year. A projected income statement for each year of the asset’s life appears below:
What is the payback period for this machine?
A. 17.50 years
B. 67 years
C. 5.00 years
D. 4.375 years
E. 1 year
Answer:
Reference: 17_04
Wall Nuts, Inc. produces paneling that requires two processes, A and B, to complete.
Oak is the best-selling of all the many types of paneling produced. Information related
to the 40,000 units of oak paneling produced annually is shown in the following table:
Wall Nuts total expected overhead costs and related overhead data are shown below.
Use the data for Wall Nuts, Inc. to compute the dollar amount of overhead applied to
each unit of oak paneling, assuming the company uses departmental overhead rates
based on machine hours in Department A and machine hours in Department B.
A. $8.70
B. $1.40
C. $14.40
D. $26.25
E. $41.00
Answer:
Risk is:
A. Net income divided by average total assets.
B. The reward for investment.
C. The uncertainty about the expected return that will be earned from an investment.
D. Unrelated to expected return.
E. Derived from the idea of getting something back from an investment.
Answer:
Which of the following statements regarding financial statement preparation is false?
A. Financial statements can be prepared from information in the adjusted trial balance.
B. The Sarbanes-Oxley Act requires that financial statements filed with the Securities
and Exchange Commission include declarations by the CEO and CFO of the company.
C. It makes sense to prepare the balance sheet first because it contains information
needed on the income statement.
D. When preparing financial statements an adjusted trial balance is easier to work with
than the entire ledger.
E. The income statement is prepared first.
Answer:
Assume a company sells a given product for $18 per unit. Variable selling costs are
$0.70 per unit and variable production costs are $5.30 per unit. If the company breaks
even when selling 4,000,000 units, what are total fixed costs?
Answer:
Define the return on total assets and explain how it is used to measure a company’s
financial performance.
Answer:
Explain how to record the issuance and sale of a bond between interest payment dates.
Answer:
A sporting goods store budgeted August purchases of ski jackets at $140,000. The store
had ski jackets costing $12,000 in its inventory at the beginning of August; and to cover
part of anticipated September sales, they expect to have $25,000 of ski jackets in
inventory at the end of the month of August. What is the budgeted cost of goods sold
for August?
Answer:
_____________ activities include the cash effects of transactions and events that
determine net income.
Answer:
_____________ is a borrower’s payment to the owner of an asset for its use.
Answer:
A company has $200,000 par value, 10% bonds outstanding. Prepare the company’s
journal entry to retire the bonds at the date of maturity.
Answer:
Discuss how accrual accounting enhances the usefulness of financial statements.
Answer:
Describe the format of the statement of cash flows, including the reporting of
significant noncash investing and financing activities.
Answer:
Given the following information, determine the cost of goods sold at November 30
using the weighted-average perpetual inventory method.
November 3: 15 units were purchased at $8 per unit.
November 11: 18 units were purchased at $9.50 per unit.
November 15: 15 units were sold at $45 per unit.
November 18: 30 units were purchased at $10.75 per unit.
November 30: 20 units were sold at $55 per.
Answer:
Explain where the following item should appear in the financial statements of a
corporation:
One of the company’s plants was destroyed by an earthquake. The area has never
reported an earthquake. The amount of the loss, net of tax, was $850,000.
Answer:
Cool Tours had beginning equity of $72,000, net income of $25,000, and dividends of
$9,000. Calculate the ending equity.
Answer:
The 2014 income statement for Golden Company is shown below:
Calculate the times interest earned ratio for 2014.
Answer:
A ______________________________ accumulates and reports costs and expenses
that a manager is responsible for, including budgeted amounts.
Answer:
A company reports the following results in its financial statements:
Calculate this company’s accounts receivable turnover for year 2 and year 3. Compare
these two results and give a possible explanation for any significant change.
Answer:
How is the cost principle applied to plant asset acquisitions, including lump-sum
purchases?
Answer:
The three general categories of accounts in a general ledger are __________________,
_________________ and __________________________.
Answer:
Reference: 16_04
Refer to the following information about the Painting Department in the Richardson
Factory for the month of June:
If FIFO is used, what was the materials cost per equivalent unit produced during June?
What was the labor and overhead cost per equivalent unit produced during June?
Answer:
