Production and sales estimates for June are as follows:
Estimated inventory (units), June 18,000
Desired inventory (units), June 309,000
Expected sales volume (units):
Area X3,000
Area Y4,000
Area Z5,500
Unit sales price$25
The budgeted total sales for June is:
a. $300,000.
b. $337,500.
c. $312,500.
d. $287,500.
A machine with a useful life of 6 years and a residual value of $3,000 was purchased at
the beginning of year 1 for $30,000. The machine was sold for $15,000 on April 1 in
year 4.
(a)What was the book value of the machine at the end of year 3 assuming the
straightline method of depreciation is used?
(b)Illustrate the effects on the accounts and financial statements of the depreciation
from January 1 to April 1 of year 4.
(c)Illustrate the effects on the accounts and financial statements of the sale of the
machine on April 1.
If divisional operating income is $75,000, invested assets are $637,500, and the
minimum rate of return on the invested assets is 6%, the residual income calculated
would be $36,750.
a. True
b. False
A credit memorandum from the bank :
a. decreases a bank customer’s account.
b. is used to show a bank service charge.
c. shows that a company has deposited a customer’s NSF check.
d. shows the bank has collected a note receivable for the customer.
Using accrual accounting, expenses are recorded and reported only:
a. when they are incurred, whether or not cash is paid.
b. when they are incurred and paid at the same time.
c. if they are paid before they are incurred.
d. if they are paid after they are incurred.
Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units
of Arks and 18,000 units of Bins. Related data are:
Unit SellingUnit VariableUnit Contribution
ProductPriceCostMargin
Arks$ 80 $20 $60
Bins 120 40 80
What was Kennedy’s overall product’s unit variable cost?
a. $32.00
b. $30.00
c. $28.80
d. $27.20
The cash budget summarizes future plans for acquisition of fixed assets.
a. True
b. False
A job order cost system accumulates costs for each of the departments or processes
within the factory.
a. True
b. False
7920.6830.636
a. $16,520
b. $15,940
c. $14,240
d. $17,860
When preparing a bank reconciliation statement, outstanding checks would:
a. increase the cash balance according to the bank statement.
b. deduct the cash balance according to the bank statement.
c. increase the cash balance according to the company statement.
d. deduct the cash balance according to the company statement.
Activitybased costing is a method of accumulating and allocating costs by department.
a. True
b. False
The debt created by a business when it borrows from a vendor or supplier is called a(n):
a. account payable.
b. contingent liability.
c. intangible asset.
d. account receivable.
Microgen Company static budget for 12,000 units of production includes $48,000 for
direct materials, $36,000 for direct labor, utilities of $6,000, and supervisor salaries of
$18,000. A flexible budget for 14,000 units of production would show:
a. the same cost structure in total.
b. direct materials of $56,000, direct labor of $42,000, utilities of $7,000, and
supervisor salaries of $18,000.
c. total variable costs of $126,800.
d. direct materials of $50,000, direct labor of $37,500, utilities of $6,250, and
supervisor salaries of $21,000.
Net sales is equal to sales plus cost of merchandise sold.
a. True
b. False
The percentage analysis of increases and decreases in related items in comparative
financial statements is called:
a. profitability analysis.
b. vertical analysis.
c. horizontal analysis.
d. solvency analysis.
An acceleration in the collection of receivables will tend to cause the accounts
receivable turnover to:
a. decrease.
b. neither increase nor decrease.
c. increase.
d. remain the same.
Calculate the markup percent if sales is $95,500 and cost of goods sold is $55,150.
a. 17.3%
b. 42.3%
c. 73.2%
d. 57.7%
If the price paid per unit differs from the standard price per unit for direct materials, the
variance is termed:
a. variable variance.
b. controllable variance.
c. price variance.
d. volume variance.
The bank statement for Marley Co. indicates a cash balance of $10,000.50 on June 30,
2016. The cash account in Marley’s records had a balance of $4,677.10. Illustrate the
adjustments to the accounts and their effect on Marley’s financial statements, based on
the following reconciling items:
(a)Cash sales of $342 had been erroneously recorded in the cash receipts journal as
$324.
(b)Deposits in transit not recorded by bank, $700.
(c)Bank debit memorandum for service charges, $30.
(d)Bank credit memorandum for note collected by bank, $2,050, including $50 interest.
(e)Bank debit memorandum for $207.40 NSF (not sufficient funds) check from Alice
Martin, a customer.
(f)Checks outstanding, $4,192.80.
Assets =Liabilities + Stockholders’ Equity
CashAccounts ReceivableNotes ReceivableAccounts PayableCapital
StockRetained Earnings
Upon completing a job, direct materials totaled $4,500; direct labor, $2,500; and factory
overhead, $3,500. Units produced totaled 2,100. What is the per unit cost?
a. $2
b. $1
c. $3
d. $5
A variant of fiscalyear budgeting whereby a twelvemonth projection into the future is
maintained at all times is termed:
a. flexible budgeting.
b. master budgeting.
c. zerobased budgeting.
d. continuous budgeting.
For most profitable companies, the return on total assets will be less than:
a. the rate earned on sales.
b. cannot be determined without more information.
c. the rate earned on total liabilities and stockholders’ equity.
d. the return on stockholders’ equity.
Production and sales estimates for May for the Hudson Co. are as follows:
Estimated inventory (units), May 117,500
Desired inventory (unit), May 3119,300
Expected sales volume (units):
Area W4,200
Area X7,000
Area Y9,000
Unit sales price$15
The number of units expected to be sold in May is:
a. 22,000.
b. 18,400.
c. 23,800.
d. 20,200.
A responsibility center in which the authority and responsibility for costs and revenues
is vested on the department manager is termed an investment center.
a. True
b. False
The inventory costing method that considers the ending inventory to be composed of
units of the merchandise acquired earliest is called:
a. firstin, firstout.
b. highestin, firstout.
c. lowestin, firstout.
d. lastin, firstout.
Division A has generated sales revenue of $22,700,000 and achieved operating income
of $265,000 using $1,500,000 of invested assets. If the management desires a minimum
rate of return of 12% on the invested assets, Division A’s residual income would be:
a. $85,000.
b. $52,500.
c. $81,500.
d. $38,000.
During the first year of operations, a company granted warranties on its products. The
estimated cost of the product warranty liability at the end of the year is $12,750. The
product warranty expense of $12,750 should be recorded in the year the related product
sale is made.
a. True
b. False
If merchandise costing $2,500, terms FOB destination, 2/10, n/30, with prepaid
transportation costs of $100, is paid within 10 days, the amount of the purchases
discount is $48.
a. True
b. False
Glow Co. reacquired 60,000 shares of its common stock at $25 per share. The balance
of the treasury stock account is reported on the balance sheet as a(n):
a. increase in longterm liabilities.
b. reduction of stockholders’ equity.
c. reduction of fixed assets.
d. increase in current liabilities.
If merchandise sold on account is returned to the seller, the seller may inform the
customer of the details by issuing a:
a. sales invoice.
b. purchase invoice.
c. credit memorandum.
d. debit memorandum.
Cash paid to purchase longterm investments would be reported in the statement of cash
flows in:
a. the cash flows from operating activities section.
b. the cash flows from financing activities section.
c. the cash flows from investing activities section.
d. a separate schedule.
The SarbanesOxley Act of 2002 requires companies and their independent accountants
to:
a. report on the effectiveness of the company’s internal controls.
b. report on any fraud and theft detected in the company.
c. report on the state of the economy and likelihood of fraud.
d. report on the financial activities of the company.
Letty’s Laundry and Dry Cleaning incorporated and started business on January 1,
2016.
1Letty’s Laundry and Dry Cleaning began business by depositing $30,000 in a checking
account in the name of Letty’s Laundry and Dry Cleaning, Inc. for which common stock
is issued.
2 Borrowed $6,000 from City Bank.
3 Purchased equipment from Washers Wholesale, $16,200.
4 Purchased supplies costing $3,000 from Suds ‘n Stuff for cash.
5 Paid one month’s rent for business space in Pine Plaza, $1,000.
6 Services provided to customers during January totaled $13,400. All services were
paid for in cash.
7 Paid employees for January, $2,240.
8 Received and paid the utility bill, $500.
9 Received and paid the telephone bill, $250.
10 Paid dividends to the stockholders, $2,140.
Indicate the effect of each transaction on the accounting equation by listing the numbers
identifying the transactions, (1) through (10) in a vertical column, and inserting at the
right of each number the appropriate letter from the following list:
a.Increase in an asset, decrease in another asset.
b.Increase in an asset, increase in a liability.
c.Increase in an asset, increase in stockholders’ equity.
d.Decrease in an asset, decrease in a liability.
e.Decrease in an asset, decrease in stockholders’ equity
In addition to the differential costs in an equipment replacement decision, the difference
between the remaining useful life of the old equipment and the estimated life of the new
equipment is an important consideration.
a. True
b. False