A company received a $1,000, 90-day, 10% note receivable. The journal entry to record
receipt of the note would include a debit to Notes Receivable.
Answer:
The days’ sales uncollected ratio reflects the liquidity of accounts receivable.
Answer:
If damaged and obsolete goods cannot be sold, they are not included in inventory.
Answer:
The most frequently used method of depreciation is the straight-line method.
Answer:
A break-even point can be calculated either in units or in dollars.
Answer:
Accounting rate of return is the simplest capital budgeting method. It gives managers an
estimate of how soon they will recover their initial investment.
Answer:
By definition, costs classified as overhead are consumed in basically the same manner
regardless of the process involved.
Answer:
The Lean Business Model should have no effect on cost in a modern manufacturing
environment.
Answer:
Another name for relevant cost is unavoidable cost.
Answer:
The responsibility for coordinating the preparation of a master budget should be
assigned to the chief executive officer.
Answer:
Consolidated financial statements show the financial position, results of operations,
and cash flows of all entities under the parent’s control.
Answer:
A company produces heating elements that go through two operations, casting and
assembling, before they are complete. Expected costs and activities for the two
departments are shown below. Given this information, the departmental overhead rate
for the assembling department based on direct labor hours is $5 per direct labor hour.
Answer:
A controlling investor is referred to as the parent and the investee company is referred
to as the subsidiary.
Answer:
Unrealized gains and losses on trading securities are reported as part of net income.
Answer:
Installment accounts receivable is another name for aging of accounts receivable.
Answer:
When merchandise is needed, a department manager must inform the purchasing
department of this need by preparing and signing a purchase requisition, which lists the
merchandise needed and requests that it be purchased.
Answer:
A company using the periodic inventory system does not record the increase in cost of
goods sold and decrease in inventory at the time of each sale in the sales journal.
Answer:
Cost-volume-profit analysis is a precise tool for perfectly predicting the profit
consequences of cost changes, price changes, and volume changes.
Answer:
Computer networks are links among computers giving different users and different
computers access to common databases and programs.
Answer:
Because departmental overhead costs are allocated based on measures closely related to
production volume, they accurately assign overhead, such as utility costs.
Answer:
The percent of accounts receivable method for bad debts estimation uses only income
statement account balances to estimate bad debts.
Answer:
Monthly or quarterly statements are called interim statements because they are
prepared between the traditional annual statement dates.
Answer:
A cost-volume-profit (CVP) chart is a graph that plots volume on the horizontal axis
and costs and sales on the vertical axis.
Answer:
A basic present value concept is that cash received in the future is worth more value
than the same amount of cash received today.
Answer:
When using the allowance method of accounting for uncollectible accounts, the entry
to write off Harold’s uncollectible account is a debit to Allowance for Doubtful
Accounts and a credit to Accounts Receivable Harold.
Answer:
Beginning merchandise inventory plus the net cost of purchases is equal to the
merchandise available for sale.
Answer:
Land and buildings are generally recorded in the same ledger account.
Answer:
Accountants use the term “process cost accounting system” because these systems use a
number of trained individuals and computers to process the collected cost information.
Answer:
If cash was incorrectly debited for $100 instead of correctly credited for $100, the cash
account is out of balance by $100.
Answer:
A company purchased equipment for $150,000 by paying $50,000 and signing a
$100,000 note payable. The entire transaction is disclosed to users on the statement of
cash flows and/or in its notes.
Answer:
Investments in held-to-maturity debt securities are always current assets.
Answer:
The Inventory account is a controlling account for the inventory subsidiary ledger that
contains a separate record for each individual product.
Answer:
When considering whether a business segment should be eliminated, unavoidable
expenses are amounts that will continue even if a given segment is eliminated.
Answer:
The materiality constraint permits the use of the direct write-off method of accounting
for uncollectible accounts when bad debts are very large in comparison to the
company’s other financial statement items such as sales and net income.
Answer:
Each transaction recorded in the sales journal yields a debit to Accounts Receivable
and a credit to Sales.
Answer:
If a company pays cash to purchase land, the journal entry to record this transaction
will include a debit to Cash.
Answer:
Decision makers and other users of financial statements are especially interested in
evaluating a company’s ability to use its assets in generating sales.
Answer:
The ability to provide financial rewards sufficient to attract and retain financing is
called:
A. Liquidity and efficiency.
B. Solvency.
C. Profitability.
D. Market prospects.
E. Creditworthiness.
Answer:
Conner Company borrows $185,600 cash on November 1, 2013, by signing a 120-day,
8% note. What is the total amount of interest expense that Conner will recognize for
this note?
A. $4,949.
B. $14,848.
C. $2,467.
D. $0, no interest expense is recognized.
E. $1485.
Answer:
The direct method for the preparation of the operating activities section of the
statement of cash flows:
A. Separately lists each major item of operating cash receipts and cash payments.
B. Reports adjustments to reconcile net income to net cash provided or used by
operating activities in the statement.
C. Reports an amount of cash flows from operations different from the amound
determined using the indirect method.
D. Is required if the company is a merchandiser.
E. Is required by the FASB.
Answer:
Which of the following accounts would not be impacted by adjusting journal entries?
A. Accounts Receivable
B. Consulting Fee Earned
C. Unearned Consulting Fees
D. Cash
E. Wages Payable
Answer:
If accrued salaries were recorded on December 31 with a credit to Salaries Payable, the
entry to record payment of these wages on the following January 5 would include:
A. A debit to Cash and a credit to Salaries Payable.
B. A debit to Cash and a credit to Prepaid Salaries.
C. A debit to Salaries Payable and a credit to Cash.
D. A debit to Salaries Payable and a credit to Salaries Expense.
E. No entry would be necessary on January 5.
Answer:
A method that estimates cost behavior by connecting the costs linked to the highest and
lowest volume levels on a scatter diagram with a straight line is called the:
A. Scatter method.
B. High-low method.
C. Least-squares method.
D. Break-even method.
E. Step-wise method.
Answer:
Groh and Jackson are partners. Groh’s capital balance in the partnership is $64,000 and
Jackson’s capital balance is $61,000. Groh and Jackson have agreed to share equally in
income or loss. Groh and Jackson agree to accept Block with a 20% interest. Block will
invest $35,000 in the partnership. The bonus that is granted to Groh and Jackson
equals:
A. $1,500 each.
B. $1,875 each.
C. $3,750 each.
D. $1,920 to Groh; $1,830 to Jackson.
E. $0, because Groh and Jackson actually grant a bonus to Block.
Answer:
Which of the following items is reported on the statement of cash flows under
financing activities?
A. Declaration of a cash dividend.
B. Payment of a cash dividend.
C. Declaration of a stock dividend.
D. Payment of a stock dividend.
E. Stock split.
Answer:
A company received cash proceeds of $206,948 on a bond issue with a par value of
$200,000. The difference between par value and issue price for this bond is recorded as
a:
A. Credit to Interest Income.
B. Credit to Premium on Bonds Payable.
C. Credit to Discount on Bonds Payable.
D. Debit to Premium on Bonds Payable.
E. Debit to Discount on Bonds Payable.
Answer:
Net income:
A. Occurs when revenues exceed expenses.
B. Is the same as revenue.
C. Equals resources owned or controlled by a company.
D. Occurs when expenses exceed assets.
E. Represents assets taken from a company for an owner’s personal use.
Answer:
Buyer Company asks to extend its past due $600 account payable to Seller Company.
Seller Company agrees to accept $100 cash and a 60-day, 12%, $500 note payable to
replace the account payable. How does Buyer Company record this event in the general
journal?
A.
00 Notes Payableompany record this event in the general journal?
00000000000000000000000000000000000000000000000000000000000000
B.
C.
D.
E. Buyer Company has no entry to record for this transaction.
Answer:
The measurement of key relations among financial statement items is known as:
A. Financial reporting.
B. Horizontal analysis.
C. Investment analysis.
D. Ratio analysis.
E. Risk analysis.
Answer:
Triple Companys accountant made an entry that included the following items: debit
postage expense $12.42, debit office supplies expense $27.33, debit cash over/short
$2.19. If the original amount in petty cash is $320, how much was the credit to cash for
the reimbursement?
A. $320.00
B. $202.44
C. $37.56
D. $39.75
E. $41.94
Answer:
Creditors’ claims on the assets of a company are called:
A. Net losses
B. Expenses
C. Revenues
D. Equity
E. Liabilities
Answer:
Monitor Company uses the LIFO method for valuing its ending inventory. The
following financial statement information is available for their first year of operation:
Monitor’s ending inventory using the LIFO method was $8,200. Monitor’s accountant
determined that had they used FIFO, the ending inventory would have been $8,500.
a. Determine what the income before taxes would have been had Monitor used the
FIFO method of inventory valuation instead of LIFO
b. What would be the difference in income taxes between LIFO and FIFO, assuming a
30% tax rate?
Answer:
A responsibility accounting system:
A. Is designed to measure the performance of managers in terms of uncontrollable
costs.
B. Assigns responsibility for costs to the top managerial level.
C. Is designed to hold a manager responsible for costs over which the manager has no
influence.
D. Can be applied at any level of an organization.
E. Is well suited to work in an environment without clear lines of responsibility and
authority.
Answer:
An expense that does not require allocation between departments is a(n):
A. Common expense.
B. Indirect expense.
C. Direct expense.
D. Administrative expense.
E. Overhead expense.
Answer:
Reference: 17_05
Assume that a pet food manufacturer is considering adding two types of pet food to its
existing product line. Research had determined that good demand exists for dog food in
40-pound bags and cat food in 1/2pound cans.
The company identified the following partial list of activities, costs, and activity drivers
expected for the next year:
Refer to the data above. How much overhead cost will be assigned to each unit of
product using activity-based costing (ABC)?
A. Dog food: $4.62; cat food: $4.62.
B. Dog food: $2.64; cat food: $2.64.
C. Dog food: $8.60; cat food: $0.33.
D. Dog food: $0.26; cat food: $8.60.
E. Dog food: $0.12; cat food: $3.85.
Answer:
Assume that this company’s bad debts are estimated and recorded as 1.5% of credit
sales.
On December 31, of the current year, a company’s unadjusted trial balance revealed the
following: accounts receivable of $185,600; sales revenue of $1,280,000; (75% were on
credit) and allowance for doubtful accounts of $1,600 (credit balance).
a. Show how accounts receivable and the allowance for doubtful accounts would appear
on the balance sheet after adjustment.
b. Prepare the entry to write off a $1,500 account receivable on January 1 of the next
year.
c. Show how accounts receivable and the allowance for doubtful accounts would appear
on the balance sheet immediately after writing off the account in part 2.
Answer:
Lukin Corporation reports the following first year production cost information.
a. Compute production cost per unit under variable costing.
b. Compute production cost per unit under absorption costing.
c. Determine the cost of ending inventory using variable costing.
d. Determine the cost of ending inventory using absorption costing.
Answer:
Which of the following statements is true regarding the documents in a voucher
system?
A. All voucher systems are the same.
B. Recording a purchase is initiated by an invoice approval.
C. A well-designed voucher system will allow department managers to place orders
directly with suppliers for control purposes.
D. A voucher system is most commonly used in very small companies to make up for
the lack of other internal controls.
E. A well designed voucher system will eliminate all fraud and error.
Answer:
Match each of the following items with the financial statement in which each item
would most likely appear. An item may appear on more than one statement.
A) Balance sheet
B) Statement of retained earnings
C) Income statement
D) Statement of cash flows
E) Income statement
F) Balance sheet
G) Statement of cash flows
H) Balance sheet
Answer:
A check:
A. Involves the writer, the signers, the cashier, and the bank.
B. Involves the maker, the payee and the bank.
C. Involves the maker and the payee.
D. Involves the bookkeeper, the payee, and the bank.
E. Involves the signer, the cashier, and the company.
Answer:
A stock dividend transfers:
A. Contributed capital to retained earnings.
B. Retained earnings to contributed capital.
C. Retained earnings to assets.
D. Contributed capital to assets.
E. Assets to contributed capital.
Answer:
A company’s board of directors votes to declare a total cash dividend of $25,000. The
company has 2,500 shares of $1 par common stock and 400 shares of 4%, $200 par
preferred stock outstanding. What is the total amount that will be paid to preferred
shareholders?
A. $1,000
B. $22,500
C. $400
D. $3,200
E. $25,000
Answer:
Subsidiary ledgers provide all the following benefits except:
A. Remove excessive detail from the general ledger.
B. Provide up-to-date information on customer or other specific account balances.
C. Aid in error identification for individual accounts.
D. Help with division of labor (recordkeeping tasks).
E. Allow users to record any transactions.
Answer:
A company expects to produce and sell a single product. Management desires a 13%
return on assets of $2,100,000. The following additional company information is
available:
Required:
Compute selling price per unit given that markup percentage equals desired profit
divided by total costs under the following independent assumptions:
a. The company produced and sold 19,200 units
b. The company produced and sold 114,888 units
Answer:
A company’s warehouse was destroyed by a tornado on March 15. The following
information was salvaged from the ruins:
Inventory, beginning: $28,000
Purchases for the period: $17,000
Sales for the period: $55,000
Sales returns for the period: $700
The company’s average gross profit ratio is 35%. What is the estimated cost of the lost
inventory?
A. $9,705
B. $25,995
C. $29,250
D. $44,000
E. $45,000
Answer:
For the year ended December 31, 2013, Mason Company has implemented an
employee bonus program equal to 7% of Mason’s net income, which employees will
share equally. Mason’s net income (pre-bonus) is expected to be $3,500,000, and bonus
expense is deducted in computing net income. What is the amount that needs to be
recorded for estimated bonus liability for 2013?
A. $245,000
B. $144,118
C. $228,972
D. $50,000
E. $125,000
Answer:
A companys Latin American segment had revenues of $2,089 million, operating
income of $1,033 million, and average total assets of $1,443 million. The Latin
American segment return on assets is:
A. 49.4%
B. 69.0%
C. 71.6%
D. 139.7%
E. 144.8%
Answer:
A product sells for $30 per unit and has variable costs of $18 per unit. The fixed costs
are $720,000. If the variable costs per unit were to decrease to $15 per unit and fixed
costs increase to $900,000, and the selling price does not change, break-even point in
units would:
A. Increase by 20,000
B. Equal 6,000
C. Increase by 6,000
D. Decrease by 20,000
E. Not change
Answer:
Patrick Corporation inadvertently produced 10,000 defective personal radios. The
radios cost $8 each to produce. A salvage company will purchase the defective units as
they are for $3 each. Patrick’s production manager reports that the defects can be
corrected for $5 per unit, enabling them to be sold at their regular market price of
$12.50. Patrick should:
A. Sell the radios for $3 per unit.
B. Correct the defects and sell the radios at the regular price.
C. Sell the radios as they are because repairing them will cause their total cost to exceed
their selling price.
D. Sell 5,000 radios to the salvage company and repair the remainder.
E. Throw the radios away.
Answer:
A corporation is responsible for its own acts and debts as the corporation is considered
a ____________________________________.
Answer:
Holders of ______________________________ have a right to be paid both current
and all prior periods’ unpaid dividends before any dividend is paid to common
shareholders.
Answer:
The second step in the analyzing and recording process is to record the transactions and
events in the _____________________________.
Answer:
Describe the types of entries required in later periods that result from accruals.
Answer:
Costs already incurred in manufacturing the units of a product that do not meet quality
standards are _________________________ costs.
Answer:
Leonard Matson completed these transactions during December of the current year:
Prepare general journal entries to record these transactions.
Answer:
______________________ are nonoperating activities that include interest expense,
losses from asset disposals, and casualty losses.
Answer:
A company made the following merchandise purchases and sales during the month of
May:
There was no beginning inventory. If the company uses the LIFO periodic inventory
method, what would be the cost of the ending inventory?
Answer:
A corporation began the current year with $250,000 of unappropriated retained
earnings. During the current year it earned $120,000 of net (after-tax) income, declared
$75,000 of cash dividends, paid $50,000 of the cash dividends and purchased treasury
stock costing $40,000. Calculate the current year-end balance in retained earnings.
Answer:
The balances for the accounts of Lances Consulting Firm, Inc. for the year ended
December 31 are shown below. Each account shown had a normal balance.
Calculate net income.
Answer:
An investing company that owns _________ of another (investee) company’s voting
stock (but not more than 50%) is presumed to have a significant influence over the
investee.
Answer:
After preparing a bank reconciliation, a company must prepare journal entries to adjust
the book balance to the correct balance. Only the items reconciling the _____________
balance require adjustment.
Answer:
Explain cost flows for the plantwide overhead rate method.
Answer:
A corporation plans to invest $1 million in oil exploration. The corporation is
considering two plans to raise the money. Under Plan 1, bonds with a contract rate of
interest of 6% would be issued. Under Plan 2, additional shares of common stock would
be issued at $20 per share. The corporation currently has 300,000 shares of stock
outstanding and it expects to earn $700,000 per year before bond interest and income
taxes. The net income and return on investment for both plans is shown below:
Comment on the relative effects of each alternative, including when one form of
financing is preferred to another.
Answer:
How is the profit margin calculated? Discuss its use in analyzing a company’s
performance.
Answer: