Budgeting software is often designed as a component of the company’s Enterprise
Resource Planning (ERP) system.
According to Generally Accepted Accounting Principles, if the fair value of goodwill
decreases below its book value, an impairment loss must be recorded.
Plant assets are long-lived, tangible assets used in the operation of a business.
When there are no units in the beginning Finished Goods Inventory and the units
produced are more than the units sold, the operating income will be higher under
absorption costing than variable costing.
Quality management systems emphasize external failure costs.
If a contingency that is probable can be reasonably estimated, a liability is recorded and
an expense is accrued.
The dividend yield provides information for both common and preferred stockholders.
The balance in the Bonds Payable account is a credit of $67,000. The balance in the
Discount on Bonds Payable account is a debit of $2,650. The bond’s carrying amount is
$64,350.
When a bond is issued at a premium, the interest expense calculation using the
effective-interest amortization method uses the carrying amount of the bonds and the
market rate of interest.
When using the allowance method, Allowance for Bad Debts is debited when an
account receivable is written off.
The higher the acid-test ratio, the less able the business is to pay its current liabilities.
The disposal of a business segment is reported as discontinued operations.
A debtor of Adams Company owes $500,000 but does not have enough cash to repay
the debt. Following lengthy negotiations, the parties agreed that the debtor will issue
200,000 shares of common stock to settle the debt. This transaction will be reported in
the investing activities section of the statement of cash flows for Adams Company.
A flexible budget is prepared to represent various levels of sales volume.
Interest expense paid on a note payable is included in the operating activities section of
the statement of cash flows.
Activity-based costing refines the cost allocation process even more than traditional
allocation costing systems.
In a manufacturing company, wages and benefits of assembly line workers are period
costs.
Indirect costs allocated to products using activity-based costing are more accurate than
traditional allocation systems.
Since a computerized system uses software to process transactions, employees are no
longer required to manually journalize and post transactions to the accounts.
The standard cost income statement doesn’t alter the actual operating income—it simply
emphasizes the variances from standard.
Only permanent accounts appear on the post-closing trial balance.
The first step in developing an activity-based costing system is to identify the activities
that will be used to allocate the manufacturing overhead costs.
An equity security does not represent an ownership interest in a corporation, although it
pays dividends.
When indirect materials are issued to production, the Manufacturing Overhead account
is credited.
The account Paid-In Capital from Treasury Stock Transactions has a credit balance of
$2,000. The corporation resells 450 shares of its treasury stock. These shares were
acquired for $10 per share and sold for $3 per share. The entry to record the sale of
treasury stock includes a debit to Retained Earnings of $3,150.
A cost management system in which a company produces just in time to satisfy
customer needs is known as just-in-time management.
The budgeted income statements of both manufacturing and merchandising companies
include the calculation of gross profit.
Consolidation accounting is the way to combine the financial statements of two or more
companies that have the same owners.
Exchanges of plant assets that have commercial substance require any gain or loss on
the transaction to be recognized.
If treasury shares are sold for less than their cost, the difference is recorded as a loss.
Companies usually report their retained earnings restrictions on the balance sheet.
Impairment of an intangible asset occurs when the book value of an asset is less than
the fair value.
Entries in the sales journal are posted to both the accounts receivable subsidiary ledger
and the general ledger.
Mutual agency of the owners is not present in a corporation as it is in a partnership.
The main difference between activity-based costing and traditional costing systems is
that activity-based costing uses a separate allocation base for each activity.
An acid-test ratio of 1.0 is considered safer than a ratio of 0.50.
The return on investment of a company can be improved by either increasing average
total assets or decreasing operating income.
Examples of source documents in an accounting information system include the
statement of cash flows and sales journal.
Ending inventory is calculated by multiplying the number of units on hand by the unit
cost.
A company that uses the perpetual inventory system purchased 500 pallets of industrial
soap for $12,000 and paid $770 for the freight-in. The company sold the whole lot to a
supermarket chain for $13,000 on account. The company uses the specific-identification
method of inventory costing. Which of the following entries correctly records the cost
of goods sold?
A)
B)
C)
D)
When a check is issued, the party who is paying the cash is referred to as the ________.
A) payee
B) maker
C) bank signatory
D) depositor
Joanne, Inc. is evaluating two possible investments in depreciable plant assets. The
company uses the straight-line method of depreciation. The following information is
available:
Calculate the payback period for Investment B. (Round your answer to two decimal
places.)
A) 3.46 years
B) 1.94 years
C) 2.89 years
D) 3.82 years
Dalton Delivery Service is hired on October 31, 2016 to perform services, beginning on
November 1, 2016. The delivery services will be performed for six months at a rate of
$3,000 per month. Dalton’s fiscal year ends on December 31. What amount of service
revenue should be recorded as an adjusting entry on December 31, 2016?
A) $3,000
B) 0
C) $6,000
D) $9,000
Eide Company, a manufacturer of small appliances, had the following activities,
allocated costs, and allocation bases:
The above activities are carried out at two of its regional offices.
What is the cost per account for the account verification activity? (Round your answer to
the nearest cent.)
A) $27.50
B) $3.88
C) $10.00
D) $0.67
Which of the following formulas represents cost of goods sold for a merchandising
business?
A) Beginning Merchandise Inventory – Ending Merchandise Inventory = Cost of Goods
Sold
B) Purchases and Freight In – Ending Merchandise Inventory = Cost of Goods Sold
C) Ending Merchandise Inventory + Purchases and Freight In – Beginning Merchandise
Inventory = Cost of Goods Sold
D) Beginning Merchandise Inventory + Purchases and Freight In – Ending Merchandise
Inventory = Cost of Goods Sold
Which of the following statements is true of a corporation?
A) Shareholders can be required to pay debts of the corporation.
B) Shares of stock cannot be readily purchased and sold by investors on an organized
stock exchange.
C) Shareholders are authorized to sign contracts or make business commitments on
behalf of the corporation.
D) Corporations pay income tax on corporate earnings, and shareholders pay income
tax on corporate dividends.
The expected value of a depreciable asset at the end of its useful life is called
________.
A) book value
B) residual value
C) accrued revenue
D) accrued expense
Which of the following is a disadvantage of a just-in-time management system?
A) It results in a decrease in production space.
B) It increases the inventory cost.
C) The risk of the inventory becoming obsolete is very high.
D) The users of this system sometimes lose sales because of little or no inventory
buffers.
Companies are price-takers when ________.
A) their products are unique
B) there is very little competition
C) pricing approach emphasizes cost-plus pricing
D) they have little or no control over the prices of their products or services
Hillsborough Glassware Company issues $1,042,000 of its 14%, 10-year bonds at 97 on
February 28, 2017. The bonds pay interest on February 28 and August 31. Assume that
Hillsborough uses the straight-line method for amortization. What net amount will be
reported for the bonds on the August 31, 2017 balance sheet?
A) $1,012,303
B) $1,042,000
C) $1,009,177
D) $1,010,740
Adjusting entries are needed to correctly measure the ________.
A) ending balance in the Cash account
B) net income (loss) on the balance sheet
C) net income (loss) on the income statement
D) beginning balance in the Cash account
A business pays $500 cash for office supplies. Which of the following accounts is
debited?
A) Cash
B) Accounts Payable
C) Office Supplies
D) Utilities Expense
Which of the following would be included in the journal to record an NSF check?
A) a debit to Accounts Payable and a credit to Cash
B) a debit to Accounts Receivable and a credit to Cash
C) a debit to Cash and a credit to Accounts Receivable
D) a debit to Bank Expense and a credit to Cash
When the sales price per unit decreases, the breakeven point ________.
A) increases
B) decreases
C) remains the same
D) decreases proportionately
The following contains information from the records of the Balfor Architecture Firm
Balfor Architecture Firm
Selected Financial Information
December 31, 2017
Which of the following statements is an accurate interpretation of the current ratio of
Balfor Architecture Firm? (Round your answer to two decimals.)
A) The company has $2.42 of current assets for every $1.00 of liabilities.
B) The company has $1.90 of current assets for every $1.00 of current liabilities.
C) The company has $1.58 of current assets for every $1.00 of liabilities.
D) The company has $0.62 of current assets for every $1.00 of current liabilities.
Which of the following sections of the statement of cash flows includes activities that
create revenue and expenses of the business?
A) the investing activities section
B) the financing activities section
C) the operating activities section
D) the non-cash investing and financing section
Which of the following inventory costing methods is based on the actual cost of each
particular unit of inventory?
A) specific identification
B) weighted-average
C) last-in, first-out
D) first-in, first-out
A company purchased 400 units for $30 each on January 31. It purchased 95 units for
$40 each on February 28. It sold 150 units for $55 each from March 1 through
December 31. If the company uses the last-in, first-out inventory costing method, what
is the amount of Cost of Goods Sold on the income statement for the year ending
December 31? (Assume that the company uses a perpetual inventory system.)
A) $5,450
B) $3,800
C) $12,000
D) $15,800
On November 1, 2016, EZ Products borrowed $64,000 on a 5%, 5-year note with
annual installment payments of $12,800 plus interest due on November 1 of each
succeeding year. On November 1, 2018, what is the balance of the Long-Term Notes
Payable account? (Round your answer to nearest whole number.)
A) $38,400
B) $64,000
C) $51,200
D) $12,800
Organic Sugar, Inc. in Ohio has six processing departments for refining sugar—
Affination, Carbonatation, Decolorization, Boiling, Recovery, and Packaging.
Conversion costs are added evenly throughout each process. Data from the month of
August for the Decolorization Department are as follows:
The ending Work-in-Process Inventory is 100% and 70% complete with respect to direct
materials and conversion costs, respectively. Compute the equivalent units of production
(EUP) for direct materials and for conversion costs for the month of August.
A) 10,700 EUP for direct materials and 3,500 EUP for conversion costs
B) 12,200 EUP for direct materials and 10,700 EUP for conversion costs
C) 3,500 EUP for direct materials and 10,700 EUP for conversion costs
D) 12,200 EUP for direct materials and 3,500 EUP for conversion costs
At the end of the current year, the accountant for Colorful Graphics, Inc. forgot to make
an adjusting entry to accrue Wages Payable to the company’s employees for the last
week in December. The wages will be paid to the employees in January. Which of the
following is an effect of this error?
A) Net income is overstated.
B) Liabilities are overstated.
C) Net income is understated.
D) Expenses are overstated.
Equipment was acquired for $258,000 and has accumulated depreciation of $194,000.
The business exchanges this equipment for new equipment. The new equipment has a
market value of $202,000 and the business pays $153,000 cash. Assume the exchange
has commercial substance. The exchange results in ________.
A) loss $15,000
B) gain $15,000
C) gain $138,000
D) loss $138,000
On July 10, a hardware retailer purchased merchandise inventory on account for
$1,700. The company plans to pay $900 the following week and the remaining amount
the week after. Which of the following is the correct entry to record this transaction in a
purchases journal? Assume a perpetual inventory system is used.
A) $850 will be recorded in the Accounts Payable CR and Merchandise Inventory CR
column.
B) $2,600 will be recorded in the Accounts Payable DR and Merchandise Inventory DR
column.
C) $1,700 will be recorded in the Merchandise Inventory CR and Accounts Payable DR
column.
D) $1,700 will be recorded in the Accounts Payable CR and Merchandise Inventory DR
column.
Which of the following describes the selling and administrative expenses budget?
A) It aids in planning to ensure the company has adequate inventory on hand.
B) It captures the variable and fixed components of selling and administrative expenses
of the business.
C) It depicts the breakdown of sales based on terms of collection.
D) It shows the cash flows related to the selling and administrative expenses and helps
in planning to ensure the business has adequate cash.
The cost of an asset is $1,000,000, and its residual value is $290,000. Estimated useful
life of the asset is five years. Calculate depreciation for the first year using the
double-declining-balance method of depreciation.
A) $284,000
B) $400,000
C) $200,000
D) $142,000
Which of the following items must be examined by the controller or treasurer before
signing a check?
A) the ledger
B) the purchase order
C) the confirmation report
D) the journal entry
The phone bill for a company consists of both fixed and variable costs. Refer to the
four-month data below and apply the high-low method to answer the question. (Round
any intermediate calculations to the nearest cent, and your final answer to the nearest
dollar.)
What is the fixed portion of the total cost?
A) $607
B) $370
C) $2,393
D) $2,630
Zetom Company receives a bill from one of its suppliers for services received and will
pay the supplier next month. How does the receipt of the bill from the supplier affect
the accounting equation of Zetom?
A) assets and equity decrease
B) liabilities increase and equity decreases
C) assets and liabilities increase
D) liabilities and equity increase
Which one of the following items requires an adjustment on the bank side of the bank
reconciliation?
A) interest earned
B) a bank service charge
C) a note collected by the bank
D) deposits in transit
Cash flows used in net present value and internal rate of return analyses ignore
________.
A) future increased sales
B) future cost savings
C) depreciation expense
D) residual value
Dalmatian Corporation’s annual report is as follows.
If the current market price is $23 on March 31, 2016, compute the price/earnings ratio on
March 31, 2017. (Round any intermediate calculations and your final answer to the nearest
cent.)
A) 13.07
B) 2.18
C) 1.76
D) 10.55
Income from continuing operations includes ________.
A) extraordinary losses but not extraordinary gains
B) gains and losses from discontinued operations
C) the taking of company assets by a foreign government
D) losses due to labor strikes
A pharmaceutical company testing drugs to determine possible side effects is a part of
________.
A) monitoring controls
B) information systems
C) control procedures
D) risk assessment
Voltice Services provides event management services. The company has three
employees, each assigned to specific customers. The company considers each
employee’s territory as a business segment. The following data relate to its three
segments for the month of June:
The business segments had the following number of customers: Barney, 24; Margaret, 28;
and Owen, 33. The total fixed costs for the month amounts to $3,400. What is the
operating income of Voltice Services for the month of June?
A) $7,250
B) $3,850
C) $32,150
D) $2,300
Define enterprise resource planning (ERP) systems and state one advantage and one
disadvantage of ERP systems.
For decisions that affect setting sales prices, consider the following decision focus.
State the appropriate costing method and the reason for your answer.
Tanglewood Clothing Store reported the following selected items at June 30, 2017 (last
year – 2016 – amounts are also given as needed):
Compute Tanglewood’s days’ sales in receivables for 2017. Show your computations.
“The amounts obtained for cost of goods sold and ending merchandise inventory are
always the same for FIFO perpetual and FIFO periodic.” Is this statement true? Why or
why not?
List the two factors that the financial evaluation of investment centers must measure.
What is net realizable value? How is net realizable value affected when a receivable is
written off under the allowance method?
Larsen Corporation issued a $400,000, 5.5%, 10-year bonds payable at 101 on January
1, 2007. The bonds are retired on 1/1/2017. Prepare the journal entries on the date
issuance and at the date of retirement.
Answer the following questions regarding the current ratio:
On January 1, 2017, Damron Services issued $20,000 of 8% bonds that mature in five
years. The bonds were issued for $19,000. Prepare the journal entry to issue bonds.
On July 31, 2017, Archer, Inc. reported the following information in the equity section
of their balance sheet:
Assume that Archer splits its common stock 3-for-1. Prepare an equity section of the
balance sheet that shows the effects of the stock split. (Please round all numbers to the
nearest cent.)
Blue Sky, Inc. sold 500 units of inventory at $25 per unit for cash. The company uses
the perpetual inventory system. The cost of the units sold was $10 per unit. Provide the
journal entries to record the sale.
On January 2, 2017, Chabot Sales issues $10,000 in bonds for $10,900. These are
5-year bonds with a stated rate of 4%, and pay semiannual interest. Chabot Sales uses
the straight-line method to amortize bond premium. Prepare the journal entry for the
first interest payment on June 30, 2017.
Define indirect labor and give two examples of indirect labor for a manufacturing
company.
Starfire Telescopes Company uses the indirect method to prepare the statement of cash
flows. Refer to the following income statement:
Starfire Telescopes Company
Income Statement
Year Ended December 31, 2017
Sales Revenue $275,000
Interest Revenue 2,600
Total Revenues $277,600
Cost of Goods Sold 135,000
Salary Expense 66,500
Depreciation Expense 32,000
Other Operating Expenses 35,900
Interest Expense 2,400
Income Tax Expense 6,500
Loss on Sale of Plant Assets 2,000
Total Expenses 280,300
Net Loss ($2,700)
Additional information provided by the company includes the following:
Current assets other than cash decreased by $25,000.
Current liabilities increased by $3,000.
Prepare the operating activities section of the statement of cash flows.
Brisbane, Inc., a leading manufacturer of car spare parts, divided its manufacturing
process into two
Departments – Production and Packing. The estimated overhead costs for the Production
and Packing
departments amounted to $14,000,000 and $20,000,000, respectively. The company
produces two types of parts – Part 1 and Part 2. The total estimated labor hours for the
year were 40,000, and estimated machine hours were 35,000. The Production
department is mechanized, whereas the Packing department is labor oriented. Calculate
the amount of manufacturing overhead costs allocated to Part 1.
Ten Hills Manufacturing has two processing departments, Department I and
Department II. During the year, direct materials were assigned to the two production
departments: $280,000 to Department I and $300,000 to Department II. During the
period, $8,000 of indirect materials were used in production. Provide the journal entry
to record this transaction.
Use the balance sheet of Detroit, Inc. to calculate working capital for 2018 and 2017.
Detroit, Inc.
Comparative Balance Sheet
December 31, 2018 and 2017
2018 2017
Assets
Total Current Assets $200,000 $100,000
Property, Plant, and Equipment, Net 550,000 500,000
Other Assets 50,000 50,000
Total Assets $800,000 $650,000
Liabilities
Total Current Liabilities $150,000 $100,000
Long-term Debt 350,000 250,000
Total Liabilities 500,000 350,000
Stockholders’ Equity
Total Stockholders’ Equity 300,000 300,000
Total Liabilities and Stockholders’ Equity $800,000 $650,000
Clear Cleaning Services pays out wages every week on Friday. Payroll expense totals
$4,000 per week, based on a five-day week. The month of June ended on a Thursday.
On Thursday, June 30, Clear made the following accrual adjustment:
At the same time, they prepared the following reversing entry to be booked on July 1:
On Friday afternoon, when wages were paid, what journal entry was made?
Why is the forecast of sales revenue considered to be the cornerstone of the master
budget?
On July 1, 2017, Ferrero, Inc. purchased merchandise inventory for $350,000 by
signing a note payable. The note is for 6 months and bears interest at a rate of 8%.
Prepare the journal entry for this transaction, using a perpetual inventory system.