A retailer is an intermediary that buys products from manufacturers and sells them to
wholesalers.
Answer:
Under the cash basis of accounting, no adjustments are made for prepaid, unearned,
and accrued items.
Answer:
Process and job order manufacturing operations both combine materials, labor, and
overhead items in the process of producing products.
Answer:
The present value of an annuity factor for six years at 10% is 4.3553. This means that
the present value of an annuity of six annual $2,000 payments at 10% would equal
$8,711.
Answer:
Cash receipts by mail require only two people: one to open the mail and a second
person to deposit the cash in the bank and record the cash receipt in the accounting
records.
Answer:
Gain or loss on the disposal of an asset is determined by comparing “value given”
(book value) to “value received.”
Answer:
On May 15, Briar Company purchased 10,000 shares of Broder Corp. for $80,000. On
September 30, the stock had a market value of $85,000. The $5,000 difference must be
reported on the income statement as a $5,000 gain.
Answer:
Ratios can be expressed as a percent, rate, or proportion.
Answer:
Examples of volume-related measures include direct labor hours, direct labor cost
dollars, and machine hours.
Answer:
The Financial Accounting Standards Board is a private group that sets both broad and
specific accounting principles.
Answer:
An opportunity cost is the potential benefit that is lost by taking a specific action when
two or more alternative choices are available.
Answer:
GAAP and IFRS differ on the rules regarding LIFO as GAAP allows LIFO to assign
costs to inventory and IFRS does not.
Answer:
The total depreciation expense over an asset’s useful life will be identical across all
methods of depreciation.
Answer:
The percent of sales method of estimating bad debts is focused more on realizable
value of accounts receivable than matching.
Answer:
In the absence of a partnership agreement, the law says that income of a partnership
will be shared equally by the partners.
Answer:
It is not necessary for businesses to reconcile their checking accounts since banks keep
accurate records and provide internal control support for cash.
Answer:
In a perpetual inventory system, the merchandise inventory account reflects the cost of
goods available for sale.
Answer:
The matching principle requires use of the direct write-off method of accounting for
bad debts.
Answer:
Technologically advanced accounting systems do not need monitoring for errors
because computers always process transactions correctly.
Answer:
Direct costs in process cost accounting include only those costs that can be readily
identified with particular product units.
Answer:
The usual first step in preparing the statement of cash flows is computing the net
increase or net decrease in cash.
Answer:
A common rule of thumb is that a company’s acid-test ratio should be at least 2 or a
company may face financial problems in the near future.
Answer:
Degree of operating leverage (DOL) is defined as total contribution margin in dollars
divided by pretax income.
Answer:
Measures taken from a selected competitor or a group of competitors are often
excellent standards of comparison for analysis.
Answer:
The departmental overhead rate method uses a different overhead rate for each
production department.
Answer:
Employers are required to pay state and federal payroll taxes.
Answer:
A manufacturing firm that produces large numbers of standardized units would
normally use a job order cost accounting system.
Answer:
Accounting information systems are so accurate that decision makers in practice do not
need a basic knowledge of how the systems work.
Answer:
Assume that a buyer receives a shipment of MODEL SD010 with an invoice amount of
$780, although $870 worth of goods were received. The purchase order was for $870.
Since the difference was in the buyer’s favor, the buyer’s purchasing department should
authorize payment of $780.
Answer:
If the seller regularly offers customers such terms, installment accounts receivable are
classified as current assets, even though the installment period is more than one year.
Answer:
The purchase of supplies must appear on the statement of cash flows as an investing
activity because it involves the purchase of assets.
Answer:
Accurate source documents are crucial to accounting systems to limit the possibility of
entering faulty data into the system.
Answer:
Revenue expenditures are additional costs of plant assets that materially increase the
assets’ life or productive capabilities.
Answer:
The units-of-production method of depreciation charges a varying amount of expense
for each period of an asset’s useful life depending on its usage.
Answer:
Trend analysis is a form of horizontal analysis that can reveal patterns in data across
successive periods.
Answer:
The SAP enterprise resource planning software is already being used to help direct the
operations of many of the world’s largest companies.
Answer:
Gross pay is also called take-home pay.
Answer:
Scatter diagrams plot volume on the vertical axis and cost on the horizontal axis.
Answer:
Reference: 19_03
Scavenger Company, a manufacturer of recycling bins, began operations on January 1
of the current year. During this time, the company produced 60,000 units and sold
55,000 units at a sales price of $15 per unit. Cost information for this year is shown in
the following table:
Given the Scavenger Company data, what is net income using variable costing?
A. $201,250
B. $181,250
C. $150,000
D. $177,600
E. $276,250
Answer:
A company has 500 shares of $50 par value preferred stock outstanding and the call
price of its preferred stock is $60 per share. It also has 20,000 shares of common stock
outstanding and the total value of its stockholders’ equity is $680,000. The company’s
book value per common share equals:
A. $31.71
B. $32.50
C. $32.75
D. $33.17
E. $60.00
Answer:
Reference: 20_04
Kyoto, Inc. predicts the following sales in units for the coming four months:
Although each month’s ending inventory of finished units should be 60% of the next
month’s sales, the March 31 finished goods inventory is only 100 units. A finished unit
requires five pounds of raw material B. The March 31 raw materials inventory has 200
pounds of B. Each month’s ending inventory of raw materials should be 30% of the
following month’s production needs.
The budgeted purchases of pounds of raw material B during May should be:
A. 1,418 pounds
B. 1,460 pounds
C. 1,502 pounds
D. 264 pounds
E. 283 pounds
Answer:
Sandlewood Company has 15,000 units of its sole product that it produced last year at a
cost of $43 each. This years model is superior to last years and the 15,000 units cannot
be sold for their regular selling price of $80 each. Sandlewood has two alternatives for
these items: (1) they can be sold to a wholesaler for $30 each, or (2) they can be
reworked at a total cost of $400,000 and then sold for $60 each. The company has
enough idle capacity to rework these items without affecting any new production.
Which choice would increase the companys profits the most?
A. Reworking, because profit will increase by $500,000 more than scrapping. B.
Scrapping, because profit will increase by $450,000 more than reworking. C.
Reworking, because profit will increase by $50,000 more than scrapping. D. Scrapping,
because profit will increase by $50,000 more than reworking.
E. Reworking because profit will increase by $450,000 more than scrapping.
Answer:
McCartney, Harris, and Hussin are dissolving their partnership. Their partnership
agreement allocates each partner 1/3 of all income and losses. The current period’s
ending capital account balances are McCartney, $13,000; Harris, $13,000; and Hussin,
$(2,000). After all assets are sold and liabilities are paid, there is $24,000 in cash to be
distributed. Hussin is unable to pay the deficiency. The journal entry to record the
distribution should be:
A.
B.
C.
D.
E.
Answer:
Nano Company uses a process cost system and the weighted-average inventory
valuation method. The Nano Assembly Department’s beginning inventory consisted of
40,000 units that were three-fifths complete with respect to direct labor and overhead.
The department started and finished 149,000 units with respect to direct labor and
overhead. The ending inventory consists of 60,000 units that are three-fourths complete
with respect to direct labor and overhead. All direct materials are added at the beginning
of the process. The department Goods in Process account included direct labor costs of
$292,500 and overhead costs of $140,400.
(a) What is the direct labor cost per equivalent unit?
(b) What is the overhead cost per equivalent unit?
Answer:
A debit is used to record:
A. A decrease in an asset account.
B. A decrease in an expense account.
C. An increase in a revenue account.
D. An increase in the balance of common stock.
E. A decrease in the balance of retained earnings.
Answer:
What are the main advantages of traditional volume-based allocation methods
compared to activity-based costing?
A. Traditional volume-based methods are easier to use and less costly to implement and
maintain.
B. Traditional volume-based methods are more accurate and allowed by GAAP.
C. Traditional volume-based methods are less accurate and easier to use.
D. Traditional volume-based methods are harder to use and more costly to implement
and maintain.
E. There are no advantages to using traditional volume-based methods.
Answer:
An unincorporated association of two or more persons to carry on a business for profit
as co-owners is a(n):
A. Partnership
B. Proprietorship
C. Contractual company
D. Mutual agency
E. Voluntary organization
Answer:
The use of an Accounts Payable controlling account:
A. Reduces the number of accounts in the subsidiary ledger.
B. Reduces the total number of accounts maintained.
C. Reduces the number of entries in the general journals.
D. Reduces the number of accounts in the general ledger.
E. Increases the number of columns in the journals.
Answer:
The financial statement that reports whether the business earned a profit and also lists
the types and amounts of the revenues and expenses is called a(n):
A. Balance sheet.
B. Statement of retained earnings.
C. Statement of cash flows.
D. Income statement.
E. Statement of financial position.
Answer:
On June 30 a company needed to estimate its ending inventory to prepare its second
quarter financial statements. The following information is available:
Beginning inventory, April 1: $6,000
Net sales: $70,000
Net purchases: $36,000
The company’s gross margin ratio is 12%. Using the gross profit method, the cost of
goods sold would be:
A. $8,400
B. $34,000
C. $61,600
D. $40,000
E. $35,200
Answer:
The Goods in Process Inventory account of a manufacturing company that uses an
overhead rate based on direct labor cost has a $4,400 debit balance after all posting is
completed. The cost sheet of the one job still in process shows direct material cost of
$2,000 and direct labor cost of $800. Therefore, the company’s overhead application
rate is:
A. 40%
B. 50%
C. 80%
D. 200%
E. 220%
Answer:
A company’s ledger accounts and their end-of-period balances before closing entries
are posted are shown below. What amount will be posted to Retained Earnings in the
process of closing the Income Summary account? (Assume all accounts have normal
balances.)
A. $16,780 debit
B. $7,180 credit
C. $16,780 credit
D. $18,280 credit
E. $23,780 credit
Answer:
An account balance is:
A. The total of the credit side of the account.
B. The total of the debit side of the account.
C. The difference between the total debits and total credits for an account including the
beginning balance.
D. Assets = Liabilities + Equity
E. Always a credit.
Answer:
Corona Company’s balance sheet accounts follow:
What is Corona Companys accounts receivable turnover ratio for 2013, assuming net
sales for the period were $1,236,783?
A. 27.21
B. 25.99
C. 22.91
D. 30.05
E. 15.85
Answer:
On January 4, 2011, Larsen Company purchased 5,000 shares of Warner Company for
$59,500 plus a broker’s fee of $1,000. Warner Company has a total of 25,000 shares of
common stock outstanding and it is presumed the Larsen Company will have a
significant influence over Warner. During each of the next two years, Warner declared
and paid cash dividends of $0.85 per share. Its net income was $72,000 and $67,000 for
2011 and 2012, respectively. The January 12, 2013, entry to record the sale of 3,000
shares of Warner Company stock for $39,000 cash should be:
A.
B.
C.
D.
E.
Answer:
Web Services is organized as a limited partnership, with David White as one of its
partners. David’s capital account began the year with a balance of $45,000. During the
year, David’s share of the partnership income was $7,500 and David received $4,000 in
distributions from the partnership. What is David’s partner return on equity?
A. 7.8%
B. 8.9%
C. 15.4%
D. 16.0%
E. 16.7%
Answer:
Which of the following journal entries correctly records the current months activity
where $60,000 of direct material and $17,000 of indirect materials were used in the
production process?
A.. Raw Materials Inventory 77,000
Goods in Process Inventory
60,000
Factory Overhead
17,000
B. Goods in Process 77,000
Raw Materials Inventory
77,000
C. Goods in Process 17,000
Factory Overhead 60,000
Cash
77,000
D. Goods in Process 60,000
Factory Overhead 17,000
Raw Materials Inventory
77,000
E. Raw Materials Inventory 77,000
Cash
77,000
Answer:
The costs of bringing a corporation into existence, including legal fees, promoter fees,
and amounts paid to obtain a charter, are called:
A. Minimum legal capital
B. Stock subscriptions
C. Organization costs
D. Cumulative costs
E. Prepaid fees
Answer:
Reference: 22_06
Mach Co. operates three manufacturing departments as profit centers. The following
information is available for its most recent year:
Department 1’s contribution to overhead as a percent of sales is:
A. 8%
B. 40%
C. 20%
D. 30%
E. 12%
Answer:
On January 1, 2013, Jacob issues $600,000 of 11%, 15-year bonds at a price of 102½.
The straight-line method is used to amortize any bond discount or premium. What is
the journal entry to record the first interest semi-annual interest payment on June 30,
2013?
A.
B.
C.
D.
E.
Answer:
A company had investments in long-term available-for-sale securities. At the end of the
current year, the company’s portfolio had a $731,000 cost and $730,000 market value.
What is the current year’s adjustment to market value given the following account
balances at the end of the prior year?
A.
B.
C.
D.
E.
Answer:
Mission Company has three employees:
What is the amount that Mission Company will withhold from Clarks August gross
pay?
A. $ 946.35
B. $1,002.15
C. $1,814.35
D. $6,234.75
E. $812.20
Answer:
Consider the following activities that take place in a veterinary clinic.
(a.) Cleaning cages.
(b.) Heating and air conditioning the clinic.
(c.) Sending blood work to a lab.
(d.) Dispensing medicine.
Which of the following statements is true?
A. Service entities cannot use ABC for overhead allocation.
B. Cleaning cages is a facility level activity.
C. Dispensing medicine is a facility level activity.
D. Heating and air conditioning the clinic is a facility level activity.
E. Sending blood work to a lab is a facility level activity.
Answer:
The following schedule reflects the first month’s transactions of the Blue Real Estate
Company:
Provide descriptions for each transaction.
Answer:
On November 30, a company had an Accounts Receivable balance of $5,100. During
the month of December, total credits to Accounts Receivable were $76,000 from
customer payments. The December 31 Accounts Receivable balance was $43,000.
What was the amount of credit sales during December?
A. $8,100
B. $27,900
C. $70,900
D. $76,000
E. $113,900
Answer:
Maria Sanchez began business as Sanchez Law Firm on November 1. Record the
following November transactions by making entries directly to the T-accounts provided.
Then, prepare a trial balance, as of November 30.
a. Sanchez invested $15,000 cash and a law library valued at $6,000 in exchange for
common stock.
b. Purchased $7,500 of office equipment from Johnson Bros. on credit.
c. Completed legal work for a client and received $1,500 cash in full payment.
d. Paid Johnson Bros. $3,500 cash in partial settlement of the amount owed.
e. Completed $4,000 of legal work for a client on credit.
f. Paid a $2,000 cash dividend.
g. Received $2,500 cash as partial payment for the legal work completed for the client
in (e).
h. Paid $2,500 cash for the legal secretary’s salary.
Answer:
A corporation issued 8% bonds with a par value of $1,000,000, receiving a $20,000
premium. On the interest date five years later, after the bond interest was paid and after
40% of the premium had been written off, the corporation purchased the entire issue on
the open market at 99 and retired it. The gain or loss on this retirement is:
A. $0
B. $10,000 gain
C. $10,000 loss
D. $22,000 gain
E. $22,000 loss
Answer:
The Consumer Products segment of a company had a segment return on assets of 53%.
If the revenues and operating income of this segment were $872,630 million and
$517,916 million, respectively, what is the segment’s average total assets amount?
A. $462,493 million
B. $977,200 million
C. $695,273 million
D. $274,495 million
E. $736,989 million
Answer:
The following information is from the annual financial statements of Nancy Company.
What is the accounts receivable turnover ratio for 2013?
A. 6.41
B. 4.97
C. 6.72
D. 5.40
E. 6.56
Answer:
A company ages its accounts receivables to determine its end of period adjustment for
bad debts. At the end of the current year, management estimated that $15,750 of the
accounts receivable balance would be uncollectible. Prior to any year-end adjustments,
the Allowance for Doubtful Accounts had a debit balance of $175. What adjusting entry
should the company make at the end of the current year to record its estimated bad
debts expense?
A.
B.
C.
D.
E.
Answer:
Rich Company’s experience shows that 20% of its sales are for cash and 80% are on
credit. An analysis of credit sales shows that 50% are collected in the month following
the sale, 45% are collected in the second month, and 5% prove to be uncollectible.
Calculate items (1) through (10) below:
Answer:
___________________ are costs incurred to produce or purchase two or more products
at the same time.
Answer:
Halley Burton began Web Consulting as a corporation and completed these
transactions during September of the current year:.
Show the effects of the above transactions on the accounting equation of Web
Consulting. Use the following format for your answers. The first item is shown as an
example.
Increase = I Decrease = D No effect = N
Answer:
What are the basic assumptions of CVP analysis with regard to variable cost, fixed cost,
and selling price per unit. (Assume a single product).
Answer:
What are the accounting basics for equity securities, including acquisition, dividends
earned, and disposition?
Answer:
A company’s stock is selling for $35 per share at year-end. This current year it paid
shareholders a $2.45 per share cash dividend, reported earnings per share of $12.00, and
had 750,000 common shares outstanding at year-end. Calculate the company’s dividend
yield.
Answer:
List the steps in the accounting cycle.
Answer:
Durango and Verde formed a partnership with capital contributions of $150,000 and
$190,000, respectively. Their partnership agreement called for Durango to receive a
$50,000 annual salary allowance. They also agreed to allow each partner a share of
income equal to 10% of their initial capital investments. The remaining income or loss
is to be divided equally. If the net income for the current year is $120,000, what are
Durango’s and Verde’s respective shares?
Answer:
Sierra and Jenson formed a partnership. Sierra contributed $25,000 cash and accounts
receivable worth $11,000. Jenson’s investment included cash, $5,000; inventory,
$18,000; and supplies, $1,000. Prepare the journal entries to record each partner’s
investment in the new partnership.
Answer:
What is the purpose of return on assets as an analytical tool?
Answer:
A company had net income of $450,000 in 2012 and $620,000 in 2013. The company
had average total assets of $2,500,000 in 2012 and $3,000,000 in 2013. Calculate the
return on total assets for 2012 and 2013. Comment on the results.
Answer:
The following calendar year information about the Tahoma Corporation is available on
December 31:
The company applies overhead on the basis of 125% of direct labor costs. Calculate the
amount of over- or underapplied overhead.
Answer:
To what does Andrew Mason, the founder of Groupon, attribute his success?
Answer:
Prepare general journal entries for the following transactions of Viking Company,
assuming they use the allowance method to account for uncollectible accounts.
Answer:
When factory payroll for indirect labor is assigned, __________________ is debited.
Answer: