Given the following information, determine the cost of ending inventory at December
31 using the LIFO perpetual inventory method.
December 2: 5 units were purchased at $7 per unit.
December 9: 10 units were purchased at $9.40 per unit.
December 11: 12 units were sold at $35 per unit.
December 15: 20 units were purchased at $10.15 per unit.
December 22: 18 units were sold at $35 per unit.
A. $51.75
B. $83.22
C. $41.30
D. $94.00
E. $50.75
Answer:
Match the following terms with the appropriate definition.
__________ (1) Sunk costs
__________ (2) Indirect costs
__________ (3) Product costs
__________ (4) Prime costs
__________ (5) Fixed costs
__________ (6) Opportunity costs
__________ (7) Period costs
__________ (8) Conversion costs
__________ (9) Factory overhead
__________ (10) Variable costs
(a) Costs that flow directly to the current income statement as expenses.
(b) Costs that change in proportion to changes in volume of activity.
(c) The potential benefit lost by choosing a specific action from two or more
alternatives.
(d) Manufacturing expenditures that cannot be separately or readily traced to finished
goods.
(e) Expenditures necessary and integral to finished products.
(f) Expenditures incurred in the process of converting raw materials to finished
products; include direct labor and factory overhead.
(g) Costs that have already been incurred and cannot be avoided or changed.
(h) Expenditures directly associated with the manufacture of finished products; include
direct materials and direct labor.
(i) Costs that do not change with changes in the volume of activity.
(j) Costs that are incurred for the benefit of more than one cost object.
Answer:
The rate established prior to the beginning of a period that relates estimated overhead to
an allocation factor such as estimated direct labor and that is used to assign overhead
cost to jobs is the:
A. Predetermined overhead allocation rate.
B. Overhead variance rate.
C. Estimated labor cost rate.
D. Chargeable overhead rate.
E. Miscellaneous overhead rate.
Answer:
Based on the following information, what would be the ending balance in the Retained
Earnings account, assuming all accounts have a normal balance?
A. $15,847
B. $13,718
C. $13,155
D. $13,284
E. $13,847
Answer:
Overhead cost variance is:
A. The difference between the overhead costs actually incurred and the overhead
budgeted at the actual operating level.
B. The difference between the actual overhead incurred during a period and the
standard overhead applied.
C. The difference between actual and budgeted cost caused by the difference between
the actual price per unit and the budgeted price per unit.
D. The costs that should be incurred under normal conditions to produce a specific
product (or component) or to perform a specific service.
E. The difference between the total overhead cost that would have been expected if the
actual operating volume had been accurately predicted and the amount of overhead cost
that was allocated to products using the standard overhead rate.
Answer:
Reference: 18_04
A firm sells two products, A and B. For every unit of A the firm sells, two units of B are
sold. The firm’s total fixed costs are $1,612,000. Selling prices and cost information for
both products follow:
The contribution margin per composite unit is:
A. $12
B. $20
C. $32
D. $44
E. $52
Answer:
Internal control procedures do not include:
A. Procedures to ensure reliable financial reports.
B. Safeguards to protect company assets.
C. Methods to achieve compliance with laws and regulation.
D. Procedures to guarantee against fraud.
E. Policies to direct operations toward common goals.
Answer:
The practice of preparing budgets for each of several future periods and revising those
budgets as each period is completed, adding a new budget each period so that the
budgets always cover the same number of future periods, is called:
A. Participatory budgeting
B. Capital budgeting
C. Balanced budgeting
D. Continuous budgeting
E. Primary budgeting
Answer:
An accounting system that provides information that management can use to evaluate
the profitability and/or cost effectiveness of a department’s activities is a:
A. Departmental accounting system.
B. Cost accounting system.
C. Service accounting system.
D. Revenue accounting system.
E. Standard accounting system.
Answer:
A company issued 8%, 15-year bonds with a par value of $550,000. The current market
rate is 8%. The journal entry to record each semiannual interest payment is:
A.
B.
C.
D.
E. No entry is needed, since no interest is paid until the bond is due
Answer:
According to generally accepted accounting principles, a company’s balance sheet
should show the company’s assets at:
A. The cash equivalent value of what was given up.
B. The current market value of the assets at the balance sheet date.
C. The cash paid to acquire them, even if something other than cash was given in the
exchange.
D. The best estimate from a certified internal auditor.
E. The objective value to external users.
Answer:
A company receives a 10%, 90-day note for $1,500. The total interest due upon the
maturity date is:
A. $37.50
B. $150.00
C. $75.00
D. $50.00
E. $87.50
Answer:
A business segment:
A. Requires only internal reporting.
B. Is a part of a company that is separately identified by its products, services, or
geographic market.
C. Requires special journals.
D. Requires subsidiary ledgers.
E. Cannot report its results separately.
Answer:
A company purchased a machine for $970,000. The machine has a useful life of 12
years and a residual value of $4,500. It is estimated that the machine could produce
1,000,000 units over its useful life. In the first year, 200,000 units were produced. In the
second year, production increased to 300,000 units. Using the units-of-production
method, what is the book value of this asset at the end of the second year of
operations?
A. $482,750
B. $487,250
C. $485,000
D. $291,000
E. $289,650
Answer:
A company estimates that overhead costs for the next year will be $9,234,000 for
indirect labor and $156,800 for factory utilities. The company uses machine hours as its
overhead allocation base. If 500,000 machine hours are planned for this next year, what
is the companys plantwide overhead rate? (Round to two decimal places)
A. $0.05 per machine hour.
B. $18.47 per machine hour.
C. $18.78 per machine hour.
D. $0.31 per machine hour.
E. $3.19 per machine hour.
Answer:
The following selected company information was reported:
Calculate the following company ratios:
(a) Accounts receivable turnover
(b) Inventory turnover
(c) Days’ sales uncollected
Answer:
A company’s payroll for the week ended May 15 included earned salaries of $20,000.
All of that week’s pay is subject to FICA Social Security taxes of 6.2% and Medicare
taxes of 1.45%. In addition, the company withholds the following amounts for this
weekly pay period: $900 for medical insurance; $3,400 for federal income taxes; and
$180 for union dues.
a. Prepare the general journal entry to accrue the payroll.
b. The company is subject to state unemployment taxes at the rate of 2% and federal
unemployment taxes at the rate of 0.8%. By May 15, some employees had earned over
$7,000, so only $9,000 of the $20,000 weekly gross pay was subject to unemployment
tax. Prepare the general journal entry to accrue the employer’s payroll tax expense.
Answer:
Which of the following elements are found on the income statement?
A. Cash
B. Accounts receivable
C. Common stock
D. Retained earnings
E. Salaries expense
Answer:
Input devices include:
A. Bar-code readers
B. Printers
C. Software
D. Ledgers
E. Database files
Answer:
Source documents:
A. Are input devices.
B. Provide the basic information processed by an accounting system.
C. Cannot be electronic files.
D. Store processed information for future use.
E. Provide systems that interpret, transform and summarize data.
Answer:
Acme Company has a total asset turnover of 1.25 for the current period. What are net
sales given that average total assets are $40,000?
A. Net sales cannot be computed from the given information
B. $50,000
C. $32,000
D. $1.25 million
E. $90,000
Answer:
Reference: 17_02
Aztec Industries produces bread which goes through two operations, mixing and
baking, before it is ready to be packaged. Next years expected costs and activities are
shown below.
Compute Aztecs departmental overhead rate for the mixing department based on
machine hours.
A. $1.50 per MH.
B. $5.00 per MH.
C. $0.75 per MH.
D. $0.50 per MH.
E. $2.08 per MH.
Answer:
Use the cash flow on total assets ratio to determine which of these three companies is
using its assets most efficiently.
A. Company A.
B. Company B.
C. Company C.
D. As all the companies have the same net increase in cash, they are all equally efficient
in the use of their assets.
E. Cannot be determined from the given information.
Answer:
Identify the inventory valuation method that is being described for each situation
below. In all cases, assume a period of rising prices. Use the following to identify the
inventory valuation method:
a. The method that can only be used if each inventory item can be matched with a
specific purchase and its invoice.
b. The method that will cause the company to have the lowest income taxes.
c. The method that will cause the company to have the lowest cost of goods sold.
d. The method that will assign a value to inventory that approximates its current cost.
e. The method that will tend to smooth out erratic changes in costs.
Answer:
Boston Co. is considering the production and sale of a new product with the following
sales and cost data: unit sales price, $300; unit variable costs, $180; total fixed costs,
$270,000; and projected sales, $900,000. What is the margin of safety:
a. In dollar sales?
b. As a percentage of sales?
Answer:
Electron borrowed $75,000 cash from TechCom by signing a promissory note.
TechCom’s entry to record the transaction should include a:
A. Debit to Notes Receivable for $75,000.
B. Debit to Accounts Receivable for $75,000.
C. Credit to Notes Receivable for $75,000.
D. Debit Notes Payable for $75,000.
E. Credit to Sales for $75,000.
Answer:
On January 1, 2013, Jacob issues $800,000 of 9%, 13-year bonds at a price of 96½. Six
years later, on January 1, 2019, Jacob retires 20% of these bonds by buying them on the
open market at 105½. All interest is accounted for and paid through December 31,
2018, the day before the purchase. The straight-line method is used to amortize any
bond discount or premium. What is the carrying value of the bond on January 1, 2019?
A. $772,000
B. $831,076
C. $784,924
D. $277,000
E. $800,000
Answer:
Which of the following statements is true?
A. A per unit cost that is constant at all production levels is a variable cost per unit.
B. Reported income under variable costing is affected by production level changes.
C. A per unit cost that is constant at all production levels is a fixed cost per unit.
D. Reported income under absorption costing is not affected by production level
changes.
E. A cost that is constant over all levels of production is a variable cost.
Answer:
Which of the following statements is correct?
A. The left side of a T-account is the credit side.
B. Debits decrease asset and expense accounts and increase liability, equity, and
revenue accounts.
C. The left side of a T-account is the debit side.
D. Credits increase asset and expense accounts and decrease liability, equity, and
revenue accounts.
E. In certain circumstances the total amount debited need not equal the total amount
credited for a particular transaction.
Answer:
Classified balance sheets commonly include the following categories.
Indicate the typical classification of each item listed below by placing the correct
balance sheet category in the blank space next to the item.
A) Plant assets
B) Equity
C) Investments
D) Long-term liabilities
E) Current assets
F) Equity
G) Current liabilities
H) Current liabilities
I) Intangible assets
J) Current liabilities
K) Current assets
L) Current assets
Answer:
Reference: 19_01
Advanced Company reports the following information for the current year. All
beginning inventory amounts equaled $0 this year.
Given Advanced Companys data, compute cost of finished goods in inventory under
absorption costing.
A. $285,000
B. $712,500
C. $427,500
D. $230,000
E. $345,000
Answer:
A manufacturing company uses an overhead allocation rate based on direct labor cost.
The company’s Goods in Process Inventory account has a $15,000 debit balance after
all posting is completed, and the cost sheet of the one job still in process shows direct
material costs of $6,600 and direct labor costs of $3,000. What is the company’s
overhead application rate?
Answer:
A company has already incurred a $93,000 cost in partially producing its three products.
Their selling prices when partially and fully processed are shown in the following table
with the additional costs necessary to finish their processing. Based on this information,
should any products be processed further?
Answer:
____________________ refer to merchandise that customers return to the seller after a
sale.
Answer:
Khalid, Dina, and James are partners with beginning-year capital balances of $400,000,
$320,000, and $160,000, respectively. The partners agreed to share income and loss as
follows: salary of $30,000 to Khalid; $50,000 to Dina; and $55,000 to James and an
interest allowance of 10% on beginning-of-year capital balances. Any remaining
balance is to be divided equally. If partnership net income for the year is $190,000,
determine each partner’s share and make the appropriate journal entry to close the
Income Summary to the capital accounts.
Answer:
Golden Age Co. exports Native American artwork to Japan. Prepare journal entries for
the following transactions.
Answer:
The ______________________ method of assigning costs to inventory and cost of
goods sold is usually only practical for companies with expensive, custom-made
inventory.
Answer:
Armstrong plans to leave the FAP Partnership. The recorded value of her capital
account is $48,000. The remaining partners, Floyd and Peters, agree to pay Armstrong
$40,000 cash. The partners have agreed to share income and loss equally. Prepare the
general journal entry to record the withdrawal from the partnership.
Answer:
A company reported the following information for the month of November:
Required: Calculate this company’s gross margin ratio.
Answer:
A company inadvertently produced 6,000 defective portable CD players. The CD
players cost $20 each to be manufactured. A salvage company will purchase the
defective units as they are for $16 each. The production manager reports that the defects
can be corrected for $9 per unit, enabling the company to sell them at the regular price
of $30. The repair operations would not affect other production operations. Prepare an
analysis that shows which action should be taken.
Answer:
Provide at least one cause of direct labor rate and efficiency variances and provide an
example of how this might occur.
Answer:
Noncash financing and investing activities are disclosed in the ____________ or in a
separate ______________________________.
Answer:
Companies with many employees often use a special ____________________ account
to pay employees.
Answer:
Explain how the operating activities section of the statement of cash flows is prepared
when using the indirect method.
Answer:
Briefly explain the conditions under which job order cost accounting systems and
process cost accounting systems are commonly applied.
Answer:
Maia’s Bike Shop uses the periodic inventory system and had the following
transactions during the month of May:
Prepare the required journal entries that Maia’s Bike Shop must make to record these
transactions.
Answer:
Identify the two main groups involved in establishing generally accepted accounting
principles in the United States.
Answer:
The BlueFin Partnership agrees to dissolve. The cash balance after selling all assets
and paying all liabilities is $60,000. The final capital account balances are: Smith,
$35,000; Nagy, $29,000; and Russ, ($4,000). Russ is unable to pay the capital
deficiency. Prepare the journal entries to record the transactions required to dissolve this
partnership.
Answer:
Each December 31, Davis Company ages its accounts receivable to determine the
amount of its adjustment for bad debts. At the end of the current year, management
estimated that $16,900 of the accounts receivable balances would be uncollectible. The
Allowance for Doubtful Accounts account had a debit balance of $3,200 before any
year-end adjustment for bad debts. Prepare the adjusting journal entry that Davis
Company should make on December 31 of the current year to estimate bad debts
expense.
Answer:
If partners agree on how to share income, but say nothing about losses, then losses are
shared ___________________.
Answer: