Sand Corporation manufactures two styles of lamps—a Bedford Lamp and a Lowell
Lamp. The following per unit data are available:
Total fixed costs are $42,000, and the machine hour capacity is 32,000 hours per year. The
Lowell Lamp has the highest contribution margin per unit and also has the highest
contribution margin per machine hour, so the company should focus sales on the Lowell
Lamp.
In variable costing, the balance of ending Finished Goods Inventory includes fixed
manufacturing overhead.
An overstatement of ending merchandise inventory in the current period results in an
understatement of net income in the current period.
Earnings per share is calculated as net income plus preferred dividends divided by the
average number of common shares outstanding.
Managerial accounting focuses on providing information for internal planning and
control.
The cash receipts journal is a special journal used to record business transactions of all
cash receipts and credit sales.
Estimated Warranty Payable is included in the liability section of the balance sheet.
Hardware is electronic equipment that includes computers, monitors, printers, and the
network that connects them.
The Work-in-Process Inventory account of a department is credited when overallocation
of manufacturing overhead occurs in that department.
Discarding plant assets involves disposing of the asset for no cash.
A production cost report shows only the calculations for the physical flow of products.
A process costing system is generally used by companies that produce homogeneous
products.
The payback and accounting rate of return (ARR) methods are suitable for investments
with a relatively short time span.
Production cost reports prepared using the first-in, first-out (FIFO) method assume that
the first units started in the production process are the first units completed and
transferred out.
The main computer where data are stored, which can be accessed from many different
computers, is known as software.
Brookline Furniture manufactures a small table and a large table. The small table sells
for $900, has variable costs of $750 per table, and takes 7.50 labor hours to
manufacture. The large table sells for $1,700, has variable costs of $900, and takes 10
direct labor hours to manufacture. The small table has a lower contribution margin per
unit, but a higher contribution margin per direct labor hour.
When a manufacturing company uses a standard cost system, an unfavorable variance is
a contra expense.
When more units are sold than produced, operating income is higher under absorption
costing.
Businesses are required to use Modified Accelerated Cost Recovery System (MACRS)
for tax purposes.
Verdant Avionics makes aircraft instrumentation. Their basic navigation radio requires
$140 in variable costs and requires $3,000 per month in fixed costs. If it processes the
radio further to enhance its functionality, it will require an additional $30 per unit of
variable costs and $300 per month in fixed costs. The marketing manager believes the
sales price of the radio can be increased from $250 to $280. In making this decision, the
amount of additional fixed costs per month is a relevant cost.
Paid-in capital is externally generated capital and results from transactions with
outsiders.
Purchases on account are recorded in the purchases journal.
The effective-interest amortization method allocates an amount of bond discount or
premium, based on the stated rate of interest, to each interest period over the life of the
bond.
The number of equivalent units for direct materials and conversion costs must always
be equal.
A modification of the overhead allocation method which uses a single plantwide rate, is
to use multiple predetermined overhead allocation rates that have a single allocation
base.
Bergan Corp. has gross pay for March of $50,000. The journal entry to record salaries
expense would include a debit to Salaries and Wages Payable for $50,000.
The inventory of a merchandising company consists of Raw Materials Inventory,
Work-in-Process Inventory, and Finished Goods Inventory.
In a manufacturing company, administrative costs are included in period costs.
Gross pay is the total amount of compensation earned by an employee after the
deductions are made.
The unrealized holding gains and losses on available-for-sale investments are reported
on the income statement.
To safeguard a business’s assets and reduce the likelihood of fraud and errors, its
accounting information system ________.
A) should be manual
B) must be flexible to accommodate changes in a business over time
C) should work smoothly with the business’s employees
D) must provide adequate controls of a business’s assets and data
A corporation has 14,000 shares of 13%, $104 par noncumulative preferred stock
outstanding and 22,000 shares of no-par common stock outstanding. At the end of the
current year, the corporation declares a dividend of $220,000. What is the dividend per
share for preferred stock and for common stock? (Round your answer to the nearest
cent.)
A) The dividend per share is $13.52 to preferred stock and $1.40 to common stock.
B) The dividend per share is $8.26 to preferred stock and $1.40 to common stock.
C) The dividend per share is $13.52 to preferred stock and $13.52 to common stock.
D) The dividend per share is $13.52 to preferred stock and $27.50 to common stock.
Indicate the effects on the accounting equation of the following business transactions of
Smith Service Corporation for b) to d) below. Use proper account titles. Transaction a)
is answered as a guide.
a) Received cash from Don Jones; issued common stock to him.
Which of the following financial statements is used to analyze the economic resources,
debt, and overall financial position of a company?
A) income statement
B) balance sheet
C) statement of cash flows
D) statement of retained earnings
Fantabulous Products sells 2,200 kayaks per year at a price of $470 per unit.
Fantabulous sells in a highly competitive market and uses target pricing. The company
has $1,000,000 of assets, and the shareholders wish to make a profit of 18% on assets.
Assume all products produced are sold. What is the target full product cost?
A) $18,000,000
B) $854,000
C) $1,220,120
D) $1,034,000
Cash received from the issuance of notes payable is a(n) ________ activity on the
statement of cash flows.
A) non-cash investing and financing
B) financing
C) operating
D) investing
The static budget, at the beginning of the month, for Steak Frites Company follows:
Static budget:
Sales volume: 1,100 units; Sales price: $70.00 per unit
Variable costs: $33.00 per unit; Fixed costs: $39,800 per month
Operating income: $900
Actual results, at the end of the month, follows:
Actual results:
Sales volume: 995 units; Sales price: $74.00 per unit
Variable costs: $35.00 per unit; Fixed costs: $35,000 per month
Operating income: $3,805
Calculate the sales volume variance for revenue.
A) $4,800 U
B) $7,350 U
C) $3,885 U
D) $3,980 F
The account title used for recording the payment of rent in advance for an office
building is ________.
A) Prepaid Rent
B) Rent Payable
C) Rent Revenue
D) Rent Expense
Carlos Naturals manufactures bulk quantities of cleaning fluids. The company currently
sells 700 containers a month at a sales price of $22 per unit. The addition of a new
disinfectant will result in a sales price of $25 per unit for the improved product. It
would cost a total of $3,800 per month to make the alteration. Operating income would
________.
A) decline by $15,400
B) increase by $3,800
C) increase by $1,700
D) decline by $1,700
Mountain Sports Equipment Company projected sales of 81,000 units at a unit sales
price of $14 for the year. Actual sales for the year were 75,000 units at $13.00 per unit.
Variable costs were budgeted at $2 per unit, and the actual amount was $4 per unit.
Budgeted fixed costs totaled $375,000, while actual fixed costs amounted to $425,000.
What is the sales volume variance for total revenue?
A) $159,000 favorable
B) $159,000 unfavorable
C) $84,000 unfavorable
D) $84,000 favorable
A radial tire manufacturer produces products in two departments—Divisions A and B.
The company uses separate predetermined overhead allocation rates for each
department to allocate its overhead. Divisions A and B have estimated manufacturing
overhead costs of $160,000 and $340,000, respectively. Division A uses machine hours
as the allocation base, and Division B uses direct labor hours as the allocation base. The
total estimated machine hours were 31,000, and direct labor hours were 22,000 for the
year. Calculate the departmental predetermined overhead allocation rates. (Round your
answer to the nearest cent.)
A) Division A—$5.16, Division B—$15.45
B) Division A—$15.45, Division B—$5.16
C) Division A—$7.27, Division B—$10.97
D) Division A—$10.97, Division B—$7.27
A corporation has been sued for product failures allegedly resulting in injuries to the
individuals bringing the lawsuit. The company’s lawyers believe it is more than remote,
but less than probable, that the lawsuit will result in an actual liability. Which of the
following actions should be taken by the company’s management?
A) The liability should be estimated and recorded as an expense.
B) The situation should be described in a note to the financial statements.
C) The possible liability should be ignored.
D) Management should consider resigning.
A $43,000, two-month, 10% note payable was issued on December 1, 2016. What is the
amount of interest expense recorded in the year 2017?
A) $494
B) $358
C) $717
D) $42,994
A company produces 400 microwave ovens per month, each of which includes one
electrical circuit. The company currently manufactures the circuits in-house but is
considering outsourcing the circuits at a contract cost of $28 each. Currently, the cost of
producing circuits in-house includes variable costs of $26 per circuit and fixed costs of
$5,000 per month. Assume the fixed costs are unavoidable but that company could
employ the vacated premises to earn rental income of $2,400 per month. If the company
outsources, monthly operating income will ________.
A) increase by $1,600
B) decrease by $11,200
C) decrease by $800
D) increase by $21,600
A company using the perpetual inventory system purchased inventory worth $550,000
on account with credit terms of 2/15, n/45. Defective inventory of $70,000 was returned
3 days later, and the accounts were appropriately adjusted. If the company paid the
invoice 25 days later, the journal entry to record the payment would be ________.
A) $550,000 debit to Accounts Payable and $550,000 credit to Cash
B) $480,000 debit to Accounts Payable and $480,000 credit to Cash
C) $550,000 debit to Accounts Payable, $540,400 credit to Cash, and $9,600 credit to
Merchandise Inventory
D) $540,400 debit to Accounts Payable, $9,600 credit to Merchandise Inventory, and
$480,000 credit to Cash
Lopez Corp. uses the indirect method to prepare its statement of cash flows. Refer to
the following information for 2017:
1. Long-Term Notes Payable, beginning balance, $85,000
2. Long-Term Notes Payable, ending balance, $71,000
3. Common Stock, beginning balance, $3,100
4. Common Stock, ending balance, $27,000
5. Retained Earnings, beginning balance, $76,000
6. Retained Earnings, ending balance, $120,000
7. Treasury Stock, beginning balance, $5,200
8. Treasury Stock, ending balance, $10,100
9. No stock was retired.
10. No treasury stock was sold.
11. During 2016, the company repaid $37,000 of long-term notes payable.
12. During 2016, the company borrowed $51,000 on a new note payable.
13. Net income for the year was $54,000.
14. Assume all dividends declared during the year were paid.
What is the net cash flow from financing activities?
A) $19,000
B) $9,000
C) ($14,000)
D) $23,000
Which of the following is a key performance indicator of the customer perspective in a
balanced scorecard?
A) defect rate
B) employee satisfaction
C) gross margin growth
D) number of repeat customers
Badlands, Inc. reports the following information for the year ended December 31:
The operating income calculated using variable costing and absorption costing amounted
to $9,400 and $11,200, respectively. There were no beginning inventories. Determine the
total number of units produced during the year.
A) 640 units
B) 790 units
C) 15 units
D) 150 units
The costs that were incurred in a previous process and brought into a later process as
part of the product’s cost are called ________ costs.
A) transferred in
B) transferred out
C) accounted for
D) to account for
Hastings Corporation has purchased a group of assets for $25,000. The assets and their
relative market values are listed below.
Which of the following amounts would be debited to the Land account? (Round any
intermediate calculations to two decimal places, and your final answer to the nearest
dollar.)
A) $4,500
B) $12,500
C) $5,250
D) $7,000
Southwest 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 the month of August for the Recovery
Department are as follows:
The ending Work-in-Process Inventory is 100% and 85% complete with respect to direct
materials and conversion costs, respectively. The weighted-average method is used. How
many metric tons of sugar were refined and transferred to the Packaging Department in
August?
A) 22,000 metric tons
B) 6,000 metric tons
C) 16,000 metric tons
D) 28,000 metric tons
Todd Corporation produces two products, P and Q. P sells for $7.50 per unit; Q sells for
$6.50 per unit. Variable costs for P and Q are $4.00 and $6.00, respectively. There are
7,300 direct labor hours per month available for producing the two products. Product P
requires 5.00 direct labor hours per unit, and product Q requires 5.00 direct labor hours
per unit. The company can sell as many of either product as it can produce. What is the
maximum monthly contribution margin that Todd can generate under the
circumstances? (Round to nearest whole dollar.)
A) $5,110
B) $730
C) $25,550
D) $3,650
Which of the following is an output device in an accounting information system?
A) keyboard
B) internet protocol
C) printer
D) mouse
Which of the following is a step in the preparation of a production cost report?
A) assignment of costs to units completed and units in process
B) summarization of the flow of physical units to the suppliers
C) computation of expected units of production
D) computation of amount of materials required for production
Barn Owl, Inc. reported the following data:
The horizontal analysis shows that the amount of total liabilities has ________.
A) increased by $23,200
B) increased by $2,300
C) decreased by $2,300
D) increased by $24,300
Kittery Services, Inc. purchased computers that are to be used in its consultancy
services. Based on the matching principle, the related account that should appear on the
income statement for the year ended December 31, 2016 is ________.
A) Depreciation Expense
B) Service Revenue
C) Accumulated Depreciation
D) Equipment Expense
Which of the following principles states that a business should not report anticipated
gains?
A) conservatism
B) materiality concept
C) disclosure
D) consistency
Which of the following is the correct formula to calculate the target cost?
A) Target Cost = Target Sales Price + Desired Profit
B) Target Cost = Target Sales Price – Desired Profit
C) Target Cost = Target Sales Price
D) Target Cost = Desired Profit + Research and Development Expenses
Which of the following is included in the entry to record the employer’s payroll taxes?
A) a debit to State Unemployment Tax Payable
B) a credit to Payroll Tax Expense
C) a credit to FICA—OASDI Tax Payable
D) a credit to Salaries Payable
Which of the following qualifies as an extraordinary item?
A) losses due to employee labor strikes
B) losses due to hurricanes in Florida
C) taking of company assets by an foreign government
D) gain on sale of plant assets
Wellington, Inc. uses the direct method to prepare its statement of cash flows. Refer to
the following financial statement information for the year ended December 31, 2017:
Wellington, Inc.
Comparative Balance Sheet
December 31, 2017 and 2016
Wellington, Inc.
Income Statement
December 31, 2017
A) $287,400
B) $294,500
C) $260,300
D) $296,100
Which of following statements is true of short-term decision making?
A) Fixed costs and variable costs must be analyzed separately.
B) All costs behave in the same way.
C) Unit manufacturing costs are variable costs.
D) All costs involved in a decision are considered relevant.
DeLito Tax Planning Service bought production equipment for $10,200 on January 1,
2017. It has an estimated useful life of five years and zero residual value. DeLito uses
the straight-line method to calculate depreciation and records depreciation expense in
the books at the end of every month. As of June 30, 2017, the book value of this
equipment shown on its balance sheet will be ________.
A) $9,180
B) $10,200
C) $11,220
D) $10,370
A company reports net accounts receivable of $152,000 on its December 31, 2017
balance sheet. The Allowance for Bad Debts has a credit balance of $16,000. What is
the balance of Accounts Receivable?
A) $157,000
B) $152,000
C) $168,000
D) $136,000
Which of the following is a period cost?
A) manufacturing overhead
B) direct labor cost
C) direct materials cost
D) administrative cost
Calculate the debt ratio using the following trial balance of Harmony Instruments, Inc.
as of December 31, 2017.
Harmony Instruments, Inc.
Trial Balance
December 31, 2017
Account Title Debit Credit
Cash $88,800
Accounts Receivable 5,000
Office Supplies 3,400
Equipment 2,000
Building 16,500
Land 70,000
Accounts Payable $ 15,000
Notes Payable 60,000
Common Stock 50,000
Dividends 1,200
Service Revenue 72,000
Utilities Expense 4,100
Salaries Expense 4,000
Advertising Expense 2,000 _______
Total $197,000 $197,000
Data for Martin Corp. and Tante, Inc. follow:
Martin Tante
Net Sales $25,000 $32,500
Cost of Goods Sold 18,500 22,360
Other Expenses 2,150 5,000
Net Income $4,350 $5,140
Prepare a comparative common-size income statement for each company for the year
ending December 31, 2017. Round to two decimal places. Use a multi-step format for
the income statement.
On January 1, 2017, Real Planes Manufacturing Corporation purchased a machine for
$40,000,000. The corporation expects to use the machine for 24,000 hours over the next
six years. The estimated residual value of the machine at the end of the sixth year is
$40,000. The corporation used the machine for 3,600 hours in 2017 and 5,000 hours in
2018. What is the book value of the machine at the end of year 2018 if the corporation
uses double-declining-balance method of depreciation? (Round your intermediate
calculations.)
What is operating leverage? The degree of operating leverage is 2.75. What does this
mean?
Fred Condiments Company manufactures jam and ketchup. Sales price and cost data for
both products follow:
Jam Ketchup
Sales price $20.00 $42.00
Variable manufacturing costs 12.00 20.00
Sales commission (10%) 2.00 4.20
The company has three sales representatives:
Units Sold
Jam Ketchup
John Carter 2,000 750
Gina Robb 2,520 650
Robin Gould 2,300 900
Calculate the total contribution margin and the contribution margin ratio for each sales
representative. Round dollar amounts to nearest dollar and ratio to two decimal places.
A merchandiser, following the perpetual inventory system, has the following
transactions during August, 2017:
Date Transaction Amount
Aug. 5 Purchased inventory on account $ 300,000
Aug. 9 Paid for transportation of goods purchased 25,000
Aug. 10 Returned defective merchandise to the seller 20,000
Aug. 15 Paid for goods purchased on August 5 ?
Credit terms of invoice are 2/15, n/45. Give journal entries for the above transactions.
Why is using multiple predetermined overhead allocation rates more accurate than
using a single plantwide allocation rate?
The income statement and a partial balance sheet of Hart Alloy Company for the year
ended December 31, 2017 is presented below. Prepare the operating activities section of
the statement of cash flows using the direct method. Accrued Liabilities relate to
miscellaneous operating expenses.
Hart Alloy Company
Income Statement
For the Year Ended December 31, 2017
Sales Revenues $1,500,000
Cost of Goods Sold 1,170,000
Gross Profit $330,000
Operating Expenses:
Salaries Expense $210,000
Depreciation Expense 60,000
Miscellaneous Expenses 30,000 300,000
Net Income $30,000
Hart Alloy Company
Partial Balance Sheet
2017 2016
Cash $240,000 $195,000
Accounts Receivable (net) 150,000 150,000
Inventories 306,000 258,000
Accrued Liabilities 13,500 15,000
Accounts Payable Merchandise Inventory) 174,000 153,000
Salaries Payable 22,500 18,000
Define product cost. How does a merchandising company treat these costs?
You have started working for a company that manufactures lawn mowers. These
mowers carry a warranty that will replace defective parts for one year. The corporate
president feels that an expense should be recorded when the defective parts are
replaced. Explain the proper accounting treatment to the corporate president.
The following is the adjusted trial balance as of December 31, 2017 of Martin Watch,
Inc.:
Provide the closing entry for revenues.
Jupiter Services sells service plans for commercial computer maintenance. The price for
each service plan is $1,650 per year, paid in advance. On October 1, 2017, a service
plan was sold to a new customer for cash. Prepare the journal entry to record this
transaction.
Hernandez Carpets Company buys a building for $115,000, paying $30,000 cash and
signing a 30-year mortgage note for $85,000 at 11%. Prepare the journal entry for the
purchase.
What is the formula used to determine the amount of merchandise inventory to be
purchased?
On January 1, 2017, Partridge Advertising Company issued $50,000 of six-year, 3%
bonds when the market interest rate was 4%. The bonds were issued for $47,356.
Partridge uses the effective-interest method of amortization for bond discount.
Semiannual interest payments are made on June 30 and December 31 of each year.
Prepare the amortization table for the first four interest payments. (Round your answers
to the nearest dollar number.)
Coney Island Corp. discards a truck that was originally purchased for $50,000 and had
accumulated depreciation of $30,000. Prepare the journal entry for the disposal.
When using the accounting rate of return, what is the basis for making the decision to
make the investment?
Corrections Services sells service plans for commercial computer maintenance. The
price for each plan is $1,350 per year, paid in advance. On October 1, 2016, a service
plan was sold to a new customer for cash, and the plan covers the period October 1,
2016 to September 30, 2017. Adjusting entries are made on December 31 of each year.
Prepare the journal entry for September 30, 2017.