A quarterly report filed with the Securities and Exchange Commission is called a Form
10-K.
Performance evaluation systems provide top management with a framework for
maintaining control over the entire organization.
A master budget is a financial plan for a specific segment of an organization.
Decentralization may cause the company to duplicate certain costs or activities.
Accounting starts with economic activities that accountants review and evaluate using
critical thinking and judgment to create useful information that helps individuals make
good decisions.
In an audit report in the annual report, a qualified opinion states that the financial
statements are presented fairly in all material respects.
Decentralized companies rarely struggle to achieve goal congruence.
When setting sales prices in the long run, the sales price must cover the full cost—
including fixed costs.
Manufacturing companies produce their own products, but merchandising companies
do not.
Stock dividends are distributed to stockholders in proportion to the number of shares
that stockholders already own.
The limitations of financial performance measures reinforce the importance of the
balanced scorecard.
The process by which businesses allocate a natural resource’s cost over its usage is
known as depreciation.
Deferred revenues are assets because the business has collected the cash before earning
the revenue.
The asset turnover ratio measures the amount of net sales generated for each average
dollar of total assets invested.
Deferred expenses are also called prepaid expenses.
Cash dividends and stock splits decrease the Retained Earnings account.
In absorption costing, the manufacturing costs expensed are greater than the amount
expensed in variable costing when units produced are less than sold because the units in
beginning inventory under absorption costing were assigned a greater cost in the
previous accounting period.
In a manufacturing company, wages and benefits of factory managers are considered as
product costs.
A company sells two products with information as follows:
Products are made by machine. Four units of product A can be made with three machine
hours and five units of product B can be made with 0.7 machine hour. If there are no
constraints on production or sales of either product, then the company should emphasize
sales of product B.
The income statement for Eagle, Inc. is divided by its two product lines, blankets and
pillows, as follows:
If total fixed costs remain unchanged and Eagle, Inc. drops the pillows line, operating
income will decrease by $470,000.
Cost center responsibility reports generally focus on the static budget variance.
The use of the allowance method to record bad debts expense violates the matching
principle.
FICA—OASDI Taxes Payable would normally be shown on the balance sheet under
long-term liabilities.
Discount on Bonds Payable is additional Interest Expense of the company that issues
the bond.
A higher price/earnings ratio signifies a higher return on investment.
For external reporting purposes, GAAP requires companies to treat period costs as
assets.
The market rate is the rate used to calculate the actual cash payments made to
bondholders.
Production cost reports prepared using the first-in, first-out (FIFO) method assume that
the first units started in the production process are the last units completed and sold.
Secured bonds give bondholders the right to take specified assets of the issuer if the
issuer fails to pay principal or interest.
The environment is the culture of a business, and it starts with the CEO or CFO and the
top managers.
G-mart, a small-scale grocer, wants to introduce an inventory system to track its
inventory. G-mart does not currently use optical scanning registers and computer
systems. The perpetual inventory system is most suitable for its operations.
The level of inventory on hand at the end of the year does not affect the amount of
operating income calculated under variable costing and absorption costing.
A high rate of inventory turnover indicates difficulty in selling inventory.
Babson Sugar, Inc. has six processing departments for refining sugar—Affination,
Carbonation, Decolorization, Boiling, Recovery, and Packaging. Conversion costs are
added evenly throughout each process. Data from August for the Decolorization
Department are as follows:
The ending Work-in-Process Inventory is 100% and 75% complete with respect to direct
materials and conversion costs, respectively. The weighted-average method is used.
Compute the cost per equivalent unit for the units transferred to the Boiling process.
(Round any intermediate calculations and your final answer to two decimal places.)
A) $200.00 per metric ton
B) $96.00 per metric ton
C) $150.00 per metric ton
D) $360.44 per metric ton
Which of the following is a disadvantage of enterprise resource planning (ERP)
systems?
A) It is not beneficial to large corporations.
B) It is not supported by cloud computing.
C) Its implementation requires a large commitment of time and people.
D) It uses separate software systems, such as sales and payroll.
On September 1, Capitol Maintenance Company contracted to provide monthly
maintenance services for the next nine months at a rate of $2,400 per month. The client
paid Capitol $21,600 on September 1. The maintenance services began on that date.
Assuming Capitol records deferred revenues using the alternative treatment, what
would be the adjusting entry recorded on December 31?
A) No entry is needed since revenue was recorded on September 1.
B) Debit Service Revenue and credit Unearned Revenue for $12,000
C) Debit Service Revenue and credit Unearned Revenue for $9,600
D) Debit Unearned Revenue and credit Service Revenue for $9,600
A company sells two products with information as follows:
The products are machine made. Four units of product A can be made with one machine
hour, and two units of product B can be made with one machine hour. The company has a
maximum of 6,000 machine hours available per month. The company can sell up to 7,000
units of product A per month and up to 3,000 units of product B for the month. What is the
maximum amount of contribution margin that the company could earn in a month given
the stated constraints?
A) $7,000
B) $48,000
C) $18,000
D) $30,000
Welcome Services, Inc. provides catering services. The company has three segments:
Standard, Deluxe, and Premium. The company provides the following data for its three
segments for the month of July:
The total fixed costs for the month amounts to $2,500.
Requirements:
a) Calculate the contribution margin ratio for each business segment.
b) Compute the service revenue per customer, variable cost per customer, and contribution
margin per customer for each business segment.
The Polishing Department of Generation Fixtures, Inc. had 20,000 units in process on
June 1 and received 23,000 units from the Machining Department. During the month, it
completed 31,000 units and transferred them to the Packaging Department and had
12,000 units in ending Work-in-Process Inventory. Calculate the number of units
accounted for by the Polishing Department for June.
A) 11,000 units
B) 20,000 units
C) 12,000 units
D) 43,000 units
Sean’s gross pay for this month is $9,150. His gross year-to-date pay, prior to this
month, totaled $112,500. Sean’s rate for federal income tax is 28%. His voluntary
deductions total $1,050. What is Sean’s net pay? (Assume an OASDI rate of 6.2%,
applicable on the first $117,000 earnings, and a Medicare rate of 1.45%, applicable on
all earnings.)
A) $6,176.32
B) $5,538.00
C) $6,588.00
D) $5,126.32
Given the following information, determine the cost of goods sold.
A) $500,000
B) $608,000
C) $401,500
D) $296,500
An invoice, with payment terms of 2/10, n/30, was issued on April 28 for $235.00. If
the payment was made on May 12, the amount of payment will be ________. (Round
your answer to the nearest cent.)
A) $235.00
B) $211.50
C) $230.30
D) $233.00
The static budget, at the beginning of the month, for Helloise Dcor Company follows:
Static budget:
Sales volume: 2,000 units: Sales price: $58.00 per unit
Variable cost: $14.00 per unit: Fixed costs: $26,000 per month
Operating income: $62,000
Actual results, at the end of the month, follows:
Actual results:
Sales volume: 1,850 units: Sales price: $59.00 per unit
Variable cost: $18.00 per unit: Fixed costs $38,000 per month
Operating income: $37,850
Calculate the sales volume variance for variable costs.
A) $6,600 U
B) $2,100 F
C) $150 U
D) $6,600 F
Compute the present value of $46,000, invested for six years at 8%.
Present value of $1:
A) $36,647
B) $25,300
C) $32,660
D) $28,980
Which of the following is an attribute of the internal control component—monitoring of
controls?
A) Internal auditors monitor company controls to safeguard assets, and external
auditors evaluate the controls to ensure that the accounting records are accurate.
B) Monitoring of controls is the “tone at the top” of the business.
C) Monitoring of controls is designed to ensure that the business’s goals are achieved.
D) Monitoring of controls deals with identification and assessment of business risks.
On January 1, 2016, Brubeck Company purchased equipment and signed a six-year
mortgage note for $160,000 at 15%. The note will be paid in equal annual installments
of $42,278, beginning January 1, 2017. Calculate the balance of Mortgage Payable after
the payment of the first installment. (Round your answer to the nearest whole number.)
A) $24,000
B) $117,722
C) $141,722
D) $120,702
For Office Supplies, the category of account and its normal balance is ________.
A) liabilities and a debit balance
B) assets and a debit balance
C) liabilities and a credit balance
D) assets and a credit balance
Which is the most liquid form of asset?
A) cash
B) accounts receivable
C) inventory
D) supplies
Under the perpetual inventory system, discounts taken on an invoice by the buyer
would be ________.
A) debited to Merchandise Inventory
B) credited to Merchandise Inventory
C) debited to Cost of Goods Sold
D) credited to Cost of Goods Sold
Which of the following is an example of hardware?
A) monitor
B) malware
C) firewall
D) operating system
In a perpetual inventory system, the credit columns of a typical cash payments journal
are ________.
A) Merchandise Inventory column and Cash column
B) Other Accounts column and Accounts Payable column
C) Merchandise Inventory column and Accounts Payable column
D) Other Accounts column and Cash column
Jose Foster, a manager of Prettiest Pooch, Inc., was reviewing the water bills of a dog
daycare and spa. He determined that its highest and lowest bills of $3,800 and $2,000
were incurred in the months of May and November, respectively. If 600 dogs were
washed in May and 200 dogs were washed in November, what was the fixed cost
associated with the company’s water bill? (Round any intermediate calculations to the
nearest cent and your final answer to the nearest dollar.)
A) $2,000
B) $3,800
C) $1,100
D) $1,800
Best Plumbing Corporation provides plumbing services. Selected transactions of Best
Plumbing Corporation are described as follows:
a) Received $9,000 cash and issued common stock to Sharon.
b) Paid $5,000 cash for equipment to be used for plumbing repairs.
c) Borrowed $10,000 from a local bank and deposited the money in the checking
account.
d) Paid $900 rent for the year.
e) Paid $400 cash for plumbing supplies to be used next year.
f) Completed a plumbing repair project for a local lawyer and received $4,000 cash.
Calculate the net income. Assume plumbing supplies of $400 are left.
A) $500
B) $3,600
C) $4,000
D) $3,100
Which of the following best describes the internal rate of return?
A) interest rate that makes the net present value of the investment equal to zero
B) discount rate that is used to evaluate funds borrowed from a lender for profitability
C) the ratio of average annual income to average amount invested
D) the rate at which the profitability of an investment increases
Synergy Appliances sells dishwashers with a four-year warranty. In 2017, sales revenue
for dishwashers is $97,000. The company estimates warranty expense at 4.5% of
revenues. What is the total estimated warranty payable of Synergy Appliances in 2017?
A) $4,365.00
B) $1,091.25
C) $1,597.59
D) $3,423.53
Journal entries are required for the reconciling items on the book side because
________.
A) those transactions have not yet been recorded by the bank
B) the adjusted balances on both sides are the same amounts
C) the amounts are immaterial
D) those transactions have not yet been recorded on the company’s books
High-Tech Computer Services provides services to corporate and individual customers.
During the month of June, the corporate business segment provided services to 300
customers and earned $60,000 in revenue. The individual business segment provided
services to 400 customers and earned $35,000 in revenue. The variable costs for the
corporate and individual business segments amounted to $33,000 and $25,000,
respectively. In addition, the fixed costs of the company amounted to $8,000. Calculate
the contribution margin from each corporate customer. (Round your answer to the
nearest cent.)
A) $25.00
B) $63.33
C) $5.00
D) $90.00
A business purchases $3,500 of office supplies for cash. Which of the following sets of
ledger accounts reflects the posting of this transaction?
A)
B)
C)
D)
Held-to-maturity investments applies only to debt securities because ________.
A) these securities earn periodic interest
B) equity securities do not mature on a specific date
C) these are long-term investments
D) equity securities are held for a short period of time
Equity of a corporation is broken out into two components. Which of the following are
the two components of the equity of a corporation?
A) current assets and fixed assets
B) common stock and liabilities
C) revenues and expenses
D) contributed capital and retained earnings
Best Value, Inc. started its operations on January 1, 2017. It engages in buying and
selling different types of electronic gadgets. The first step in its operating cycle would
be to ________.
A) collect cash from customers
B) sell goods to customers
C) purchase inventory from vendors
D) record the sales in accounts
When the total fixed costs increase, the contribution margin per unit ________.
A) increases
B) decreases
C) increases proportionately
D) remains the same
Which of the following statements describes a purchase order?
A) It is an order to purchase goods from a supplier.
B) It is a statement from the supplier showing the goods purchased and the amount due.
C) It is a report showing that the goods have been received in good condition, as
ordered.
D) It is a document authorizing a payment to a supplier.
Nelson Products is a price-setter that uses the cost-plus pricing approach. The products
are specialty vacuum tubes used in sound equipment. The CEO is certain that the
company can produce and sell 310,000 units per year, due to the high demand for the
product. Variable costs are $2.40 per unit. Total fixed costs are $960,000 per year. The
CEO will receive stock options if $200,000 of operating income for the year is reported.
What sales price would allow the CEO to achieve the target if the cost-plus pricing
method is used? (Round your answer to the nearest cent.)
A) $2.40 per unit
B) $6.14 per unit
C) $3.74 per unit
D) $4.85 per unit
On a balance sheet for a merchandiser, Merchandise Inventory is listed as a(n)
________.
A) current asset
B) current liability
C) expense
D) revenue
Which of the following correctly describes Just-in-Time (JIT) Management?
A) It is a production approach that maintains surplus goods at each stage of
manufacture.
B) It is an inventory purchase approach that seeks purchase discounts on buying large
quantities.
C) It is a cost management approach that focuses on maintaining lean inventory levels.
D) It is an inventory approach that stockpiles raw materials to protect against supply
interruptions.
For each of the following business transactions, list two examples of related accounting
information system (AIS) activities:
On January 16, Whole Circle, Inc. sold $5,000 merchandise to Smith, on account.
Whole Circle could not collect cash from Smith and wrote off the account. Prepare a
journal entry to record the write-off, assuming Whole Circle uses the allowance
method.
Dyer Service Company had the following unadjusted balances at December 31, 2016:
Salaries Payable, $0; Salaries Expense, $12,000. The following transactions took place
on December 31, 2016:
Accrued Salaries Expense, $5,000
Closed the Salaries Expense account.
The following transaction took place on January 4, 2017:
Paid salaries of $6,000. This payment included $5,000 that was accrued on December
31, 2016 and $1,000 for the first few days in January 2017.
Prepare the journal entries for January 1, 2017 and January 4, 2017, assuming that
reversing entries were made.
Robinson Manufacturing uses a standard cost system. The direct labor cost standard is
$18.00 per direct labor hour. The direct labor efficiency standard is 0.5 direct labor hour
per unit. Actual direct labor for the month is 1,200 hours for a total cost of $24,000.
Production for the month is 3,000 units. Give the journal entry to record direct labor.
Use the following cash payments journal to record the preceding transactions.
Cash Payments Journal Page 8
The gross profit percentage for Smith Clothing Retailer was 37.7% for the year ended
December 31, 2016 and 42.5% for the year ended December 31, 2017. The industry
average gross profit percentage, for both years, is 45.7%. Briefly discuss these findings.
A business hired a repair service to overhaul its plumbing system. The repair service
began work on September 15 and intends to complete it on October 15. The business
will pay the repair service $4,000 when the work is completed. As of September 30, the
work was 50% complete. Provide the adjusting entry to accrue repair expense by the
end of September. (Ignore explanation).
Haverhill Products completed Job 440 and several other jobs during the year. In
addition to direct labor and direct materials cost, Haverhill allocated $450 of
manufacturing overhead to the job. Provide the journal entry for the allocation of
manufacturing overhead.
Office Supplies, Inc. uses a perpetual inventory system. Journalize the following sales
transactions for this company. Explanations are not required.
Use the Adjusted Trial Balance for Anderson Service Company to prepare the classified
balance sheet at September 30, 2016. Use the report form. You must compute the
ending balance of Retained Earnings.
Anderson Service Company
Adjusted Trial Balance
September 30, 2016
Balance
Complete the following table:
Dark Room Corp. purchased equipment for $45,000. Total depreciation of $36,000 was
recorded. On January 1, 2017, Dark Room exchanged the equipment for new
equipment, paying $65,000 cash. The market value of the new equipment is $65,000.
Prepare the journal entry to record this transaction. Assume the exchange had
commercial substance.
On June 30, 2017, Adilide, Inc. discarded equipment costing $40,000. Accumulated
Depreciation as of December 31, 2016, was $25,000. Assume annual depreciation on
the equipment is $2,500. Prepare the journal entries for the 2017 depreciation expense
and for the disposal of the equipment.
The following information relates to Regency Manufacturing’s overhead costs for the
month:
Regency allocates manufacturing overhead to production based on standard direct labor
hours.
Regency reported the following actual results for last month: actual variable overhead,
$14,500; actual fixed overhead, $5,400; actual production of 4,700 units at 0.22 direct
labor hours per unit. The standard direct labor time is 0.20 direct labor hours per unit.
Compute the variable overhead cost variance. (Round the answer to the nearest dollar.)
Iggy Sales, Inc. offers warranties on all its electronic goods. Warranty expense is
estimated at 3.5% of sales revenue. In 2017, Iggy had sales of $333,000. In the same
year, Iggy replaced defective goods with merchandise inventory costing $8,750. Prepare
the journal entry to record the replacement of defective goods.
The accounting for the allocation of overhead costs is a three-step process and occurs at
three different points in the accounting cycle. List each of the three steps. For each step
indicate when the step occurs and why the step is needed.