Uncontrollable costs are the costs that can be influenced by the decisions of a manager.
The current ratio is calculated using the values from the income statement.
The operating cycle of a merchandiser begins when the company purchases inventory
from a vendor and ends when the company then sells the inventory to a customer.
All asset accounts and equity accounts increase with a debit.
Using the effective-interest amortization method, the amount of premium amortization
remains the same over the life of the bond.
Job order costing is well suited for the service industry.
There are three parties to a check: the depositor, the maker, and the bank.
Lit Furniture manufactures a small table and a large table. The small table sells for
$900, has variable costs of $770 per table, and takes 7.50 labor hours to manufacture.
The large table sells for $1,500, has variable costs of $900, and takes 15 direct labor
hours to manufacture. If the company has no sales limitations on either product, it
should make and sell as many of the large tables as possible to maximize operating
income.
The credit department must have access to cash in order to exercise effective internal
control over receivables.
Total fixed costs can change from one relevant range to another.
Common stock represents the basic ownership of every corporation.
Unlike manufacturing companies, service companies use an allocation base for
allocating both direct and indirect costs.
A favorable variance reflects a decrease in operating income.
In a period of rising costs, the first-in, first-out (FIFO) method results in higher cost of
goods sold and lower gross profit than the last-in, first-out (LIFO) method.
Compound interest means that interest is calculated only on the principal amount.
The rate of return on total assets measures a company’s success in using its assets to
earn a profit.
A variance is the difference between an actual amount and the budgeted amount.
Simple interest means that interest is calculated on the principal and on all previously
earned interest.
An imprest system is a way to account for petty cash by maintaining a constant balance
in the petty cash account. Cash plus petty cash tickets total the amount allocated to the
petty cash fund.
Sales through credit cards and debit cards are journalized in the same way as sales on
account.
The accounting rate of return method focuses on operating income instead of net cash
inflow generated by an asset.
A contra account’s normal balance (debit or credit) is the opposite of the normal balance
of the related account.
Companies using just-in-time management systems are far more vulnerable to
production shutdowns if they receive poor-quality or defective raw materials.
When a company receives interest revenue on a bond, total stockholders’ equity remains
unchanged.
Companies can use the contribution margin ratio approach to compute required sales in
terms of units rather than in sales dollars.
Marlow Company makes bulk quantities of cleaning fluids. They currently sell 1,200
containers a month at a sales price of $23.75 per unit. If they add a new scent, they
could charge $25 per unit for the improved product. It would cost them a total of $800
per month to make that alteration. If they decide to process further, it will improve their
operating income.
Nelson Corp. uses the indirect method to prepare the statement of cash flows. Refer to
the following section of the comparative balance sheet:
Nelson Corp.
Comparative Balance Sheet
December 31, 2017 and 2016
The change in Accounts Payable is as a negative cash flow in the adjustments to net
income.
The rate of return on common stockholders’ equity shows the relationship between net
income available to common stockholders and their average common equity invested in
the company.
Truesdell Brewery Company uses the direct method for its statement of cash flow.
Assume Accrued Liabilities relate to Operating Expenses. It reports the following
information regarding the year ending December 31, 2017:
Truesdell Brewery Company
Income Statement
For the Year Ended December 31, 2017
Sales Revenue $312,000
Cost of Goods Sold 247,000
Operating expenses 32,500
Net Income $32,500
Truesdell Brewery Company
Partial Balance Sheet
2017 2016
Accounts Receivable (net) $19,500 $15,600
Merchandise Inventory 23,400 28,600
Accrued Liabilities 1,560 3,900
Accounts Payable (Merchandise Inventory) 15,600 9,100
Assume that there were no sales of long-term assets, no interest revenue, and no
expenses other than the expenses shown above. Also, assume that Accounts Payable is
for purchases of merchandise inventory only. Prepare the operating activities section of
the statement of cash flows.
Notes receivable represents a written promise that a party will pay a fixed amount of
principal plus interest on a stated maturity date.
Securities are represented by a certificate and are commonly traded on an exchange.
Bonds are short-term debt issued to multiple lenders called bondholders, usually in
increments of $1,000 per bond.
Cost center responsibility reports typically focus on the flexible budget variance.
The accountant for Myra Lido deliberately recorded operating expenses as operating
assets in order to record a higher net income for the company. As long as the amount of
the misstatement was not material, this would not be considered unethical behavior.
Jetz, Inc. manufactures water bottles for children. Similar water bottles are available in
the market for $8.00. Jetz desires a 24% net profit margin. Jetz’s target cost is
________. (Round your answer to the nearest cent.)
A) $6.08
B) $9.92
C) $8.00
D) $1.92
Valentine Corp. uses the indirect method to prepare the statement of cash flows. Refer
to the following section of the comparative balance sheet:
Valentine Corp.
Comparative Balance Sheet
December 31, 2017 and 2016
How will the change in Merchandise Inventory be shown on the statement of cash flows?
A) addition to net income under the operating activities section
B) subtraction from net income under the operating activities section
C) positive cash flow under the financing activities section
D) negative cash flow under the investing activities section
Halo, Inc. is a consulting firm that offers optimal legal solutions. It allocates indirect
costs using a single predetermined overhead allocation rate with direct labor hours as
the allocation base. The estimated indirect costs for this year amount to $120,000. The
company is expected to work 6,000 direct labor hours during the year. The direct labor
rate is $200 per hour. Clients are billed at 120% of direct labor cost. Last month, Halo’s
consultants spent 180 hours on Bloomington, Inc. Calculate the total costs assigned to
Bloomington.
A) $39,600
B) $36,000
C) $144,000
D) $3,600
The financial statements are prepared from the ________.
A) adjusted trial balance
B) chart of accounts
C) statement of retained earnings
D) unadjusted trial balance
Jezebel, Inc. completed Job 12 and several other jobs in the last week. The cost details
of Job 12 are shown below.
What is the cost per unit of finished product produced under Job 12? (Round your answer
to the nearest cent.)
A) $42.73
B) $65.91
C) $85.29
D) $108.41
Which of the following accounts would be debited in the journal entry to record the
issuance of direct materials?
A) Cost of Goods Sold
B) Work-in-Process Inventory
C) Finished Goods Inventory
D) Raw Materials Inventory
The debt to equity ratio of four companies is given below.
Which of the following companies has the greatest financial risk?
A) Lewis, Inc.
B) Jackson, Inc.
C) Jones Corp.
D) Roberts Corp.
Fuchsia, Inc. provides automobile repair services in the local community. The company
provides the following information for the month of March:
Fuchsia provided services to 1,600 clients in the month of March and generated $23,500 as
revenue.
How much is the cost per service? (Round your answer to the nearest cent.)
A) $10.72
B) $3.25
C) $10.00
D) $5.72
Chatelain Company is preparing its budget for the third quarter. The cash balance on
June 30 was $32,000. Additional budgeted data are provided here:
What amount should be shown in the cash budget for the cash balance at the end of July?
A) -$25,000
B) $28,000
C) -$4,000
D) $85,000
In deciding whether to drop its electronics product line, a company’s manager should
ignore ________.
A) the variable and fixed costs it could save by dropping the product line
B) the revenues it would lose from dropping the product line
C) the effect of dropping the electronics product line on the sales of its other products
D) the amount of unavoidable fixed costs
The profit margin ratio ________.
A) focuses on the liquidity of the business
B) is computed by dividing net sales by net income
C) shows how much gross profit a business earns on every $1.00 of sales
D) is often compared to the industry average
A business borrows cash by signing a note payable. Which of the following accounts is
credited?
A) Notes Payable
B) Accounts Payable
C) Notes Receivable
D) Cash
Under the direct write-off method, the entry to write off an uncollectible account will
include ________.
A) a debit to Bad Debts Expense account
B) a debit to the customer’s Account Receivable
C) a credit to the Allowance for Bad Debts
D) No entry is made to write off uncollectible accounts.
Which of the following costs does not change in total despite changes in volume within
the relevant range?
A) fixed costs
B) variable costs
C) mixed costs
D) total production costs
Myers Landscaping Corporation performs lawn mowing services for its customers.
Payments for the current month’s services are expected to be received next month. How
does this transaction affect the accounting equation of Myers Landscaping?
A) liabilities increase and equity decreases
B) assets and equity increase
C) assets and equity decrease
D) liabilities and equity increase
Ace, Inc. had the following transactions during June:
Performed services for $5,000 on account; received cash on account, $7,000; paid $600
for repair expense; paid $2,000 to a supplier that it owed from the previous month.
What is the combined effect on Cash of the June transactions?
A) $4,400 increase
B) $4,400 decrease
C) $7,000 increase
D) $2,600 decrease
Net income is used in the numerator of the return on investment formula.
On January 1, 2016, Demarest Company purchased equipment and signed a six-year
mortgage note for$80,000 at 15%. The note will be paid in equal annual installments of
$21,139, beginning January 1, 2017. Calculate the portion of principal amount paid on
the third installment. (Round your answer to the nearest whole number.)
A) $12,086
B) $12,000
C) $21,139
D) $9,053
The income statement is also known as the ________.
A) statement of operations
B) statement of cash flows
C) statement of stockholders’ equity
D) statement of financial position
Summit Financial Advisors provides accounting and finance assistance to customers in
the retail business. Summit has four professionals on staff and an office with six clerical
staff. Total compensation, including benefits, for the professional staff run about
$731,000 per year, and it normally has about 8,500 billable hours per year. The
professional staff keep detailed time sheets organized by client number. The total office
and administrative costs for the year are $561,000.
Summit allocates office and administrative costs to clients monthly, using a
predetermined overhead allocation rate based on billable hours. During July, Summit’s
professionals spent 41 hours on their client. What is the total amount of cost that
Summit will record for the client for the month? (Round any intermediate calculations
to the nearest cent, and your final answer to the nearest dollar.)
A) $3,526
B) $2,706
C) $1,292,000
D) $6,232
An adjusting entry is completed ________.
A) at the beginning of the accounting period
B) at the end of the accounting period
C) when the balance sheet is prepared
D) when accounts need to be balanced in the ledger
Which of the following is used by both internal and external users?
A) Chart of Accounts
B) Trial Balance
C) Balance Sheet
D) Costing Reports
Which financial statement includes a specific date in its heading?
A) Statement of retained earnings
B) Statement of cash flows
C) Income statement
D) Balance sheet
Which of the following affects the company’s ability to make on-time deliveries?
A) return on investment
B) product’s price
C) warranty claims
D) production cycle time
Jenna Manufacturers produces flooring material. The monthly fixed costs are $16,000
per month. The sales price per unit is $95 and variable cost per unit is $35. If Jenna’s
managers create a CVP graph from volume levels of zero to 800 units, at what sales
level (in units) will the revenue and total cost lines intersect? (Round your answer up to
the nearest whole unit.)
A) 267 units
B) 169 units
C) 458 units
D) 124 units
Kurtz Logistics provides the following information:
What is the company’s profit margin ratio?
A) 13.7%
B) 11.9%
C) 86.5%
D) 1.1%
Which of the following correctly describes the accounting treatment for interest
payable?
A) It is shown on the balance sheet as a current liability.
B) It is shown on the income statement as an operating expense.
C) It is shown on the balance sheet as a current asset.
D) It is shown on the balance sheet as a long-term liability.
The journal entry to issue indirect materials to production should include a debit to the
________.
A) Finished Goods Inventory account
B) Raw Materials Inventory account
C) Manufacturing Overhead account
D) Work-in-Process Inventory account
If bonds with a face value of $204,000 are issued at par, the amount of cash proceeds is
________.
A) $203,890
B) $204,000
C) $224,400
D) $244,800
Managerial accounting provides information to ________.
A) internal decision makers
B) outside investors and lenders
C) creditors
D) taxing authorities
What is the calculation for return on assets (ROA)? What does ROA measure?
When all of the units produced are sold, the operating income is the same under both
the absorption and variable costing methods. Assume no beginning and ending
inventories. Which of the following gives the correct reason for the above statement?
A) All costs incurred have been recorded as expenses.
B) A portion of the fixed manufacturing overhead is still in the Finished Goods
Inventory account.
C) All selling and administrative expenses have been recorded as period costs.
D) Fixed manufacturing costs have not been considered when calculating the operating
incomes.
Which of the following is not a part of a corporation’s annual report?
A) report of independent registered public accounting firm
B) MD&A
C) notes to financial statements
D) horizontal and vertical analysis
Universal, Inc. purchased 500 units of inventory at $25 per unit by payment of cash.
Provide the journal entry to record the purchase of inventory. (Assume a perpetual
inventory system.)
On December 31, 2016, $2,500 of salaries have been earned but not yet paid to
employees. If the business failed to make an adjusting entry on December 31, 2016,
indicate the effect on assets, liabilities, equity, and net income.
For each transaction, identify which account is debited and which account is credited.
Use proper account titles.
Why are extra journal entries required in a process costing system?
For each of the following accounts, indicate what event causes the account to increase
and to decrease. The answer is not debit or credit.
List and discuss two common reasons why companies invest in debt or equity
securities.
Fashion Fiesta Company uses the indirect method to prepare its statement of cash
flows. Refer to the following portion of the comparative balance sheet:
Fashion Fiesta Company
Comparative Balance Sheet
December 31, 2016 and 2015
2016 2015 Increase (Decrease)
Accounts Payable $6,000 $9,000 $(3,000)
Accrued Liabilities 3,000 1,500 1,500
Long-term Notes Payable 126,000 135,000 (9,000)
Total liabilities $135,000 $145,500 $(10,500)
Additional information provided by the company includes the following:
During 2015, the company repaid $60,000 of long-term notes payable.
During 2015, the company borrowed $51,000 on a new long-term note payable.
Use the T-account format to evaluate the transactions affecting the long-term notes
payable account.
Refer to the following bank reconciliation.
Bank Book
Balance, June 30, 2017 $11,240 Balance, June 30, 2017 $10,200
Add: Add:
Deposit in transit 3,110 Note collected by bank 2,100
Interest revenue 55
Less: Less:
Outstanding checks #506 1,200 NSF check 85
Outstanding checks #510 900 Bank service charge 20
________ ________
Adjusted balance, Adjusted balance,
June 30, 2017 $12,250 June 30, 2017 $12,250
Journalize the adjusting entry for the fourth reconciling item: Bank service charge.
If the likelihood of a future event is reasonably possible, how should the company
report the contingency?
Melody Instruments, Inc. sells musical instruments. On December 31, 2017, after its
first month of business, Melody Instruments, Inc. had the following balances in its
accounts, listed alphabetically.
Determine the balance in the cash account and prepare the trial balance.
The Polishing Department of Conversations, Inc. had 15,000 units in process on June 1
and received 25,000 units from the Machining Department. During the month, it
completed 32,000 units and transferred them to the Packaging Department. Prepare the
production cost report for the Polishing Department for the whole units for the month of
June. (Use the first-in, first-out method.)
For each of the following activities, indicate an appropriate allocation base:
For each of the following cost standards, indicate which manager is responsible for the
standard, and list one factor that should be used in setting the standard.
On January 1, 2017, Sullivan Cabinetry Company purchases $300,000 of property by
paying $50,000 in cash and signing a 10-year mortgage note at 13% for the balance.
Sullivan will make yearly payments of $46,072. Prepare the amortization schedule for
the first five payments. (Round your answers to the nearest dollar.)
Madison Company earned net income of $75,000 during the year ended December 31,
2016. On December 20, Madison declared the annual cash dividend on its 8% preferred
stock (par value, $150,000) and a $0.50 per share cash dividend on its common stock
(45,000 shares). Madison then paid the dividends on January 10, 2017.
Prepare the journal entries to record the declaration and the distribution of the
dividends. Explanations are not required.
On November 1, 2017, Kelemen Jewelers accepted a 3-month, 15% note for $6,000 in
settlement of an overdue account receivable. The accounting period ends in December.
Give the journal entry to record the accrued interest at the year end.
Luminous Electrical, Inc. performed services of $8,000 on January 24 and invoiced the
customer. Luminous received the $8,000 on January 31. Provide the journal entry on
January 24 when services were performed. (Ignore explanation.)