When a process cost accounting system records the purchase of materials, the Materials
account is credited.
Answer:
One of the two internal control procedures over inventory is to properly report
inventory on the financial statements.
Answer:
Cost behavior refers to the manner in which a cost changes as the related activity
changes.
Answer:
The equity reporting for a Limited Liability Company is similar to that of a partnership
but the changes in capital are shown on a statement of members’ equity.
Answer:
The inventory accounts generally maintained by a manufacturing firm are only finished
goods and materials.
Answer:
When the market rate of interest is less than the contract rate for a bond, the bond will
sell for a premium.
Answer:
When a corporation issues bonds, it executes a contract with the bondholders, known as
a bond debenture.
Answer:
If the profit margin for a division is 11% and the investment turnover is 1.5, the rate of
return on investment is 7.3%.
Answer:
If in evaluating a proposal by use of the net present value method there is a deficiency
of the present value of future cash inflows over the amount to be invested, the proposal
should be accepted.
Answer:
Liabilities are debts owed by the business entity.
Answer:
The budgeting process is used to effectively communicate planned expectations
regarding profits and expenses to the entire organization.
Answer:
The cash payback method of capital investment analysis is one of the methods referred
to as a present value method.
Answer:
Factory overhead is applied to production using a predetermined overhead rate.
Answer:
Both the initial cost of the asset and the accumulated depreciation will be taken off the
books with the disposal of the asset.
Answer:
Some of the major fraudulent acts by senior executives started as what they considered
to be small ethical lapses which grew out of control.
Answer:
One of the most important differences between a service business and a retail business
is in what is sold.
Answer:
The sales budget is the starting point for preparation of the direct labor cost budget.
Answer:
Analysis of user needs is the final phase in the creation or revision of an accounting
system.
Answer:
If factory overhead applied exceeds the actual costs, the factory overhead account will
have a credit balance.
Answer:
Service businesses provide services for income, while a merchandising business sells
merchandise.
Answer:
FIFO is the inventory costing method that follows the physical flow of the goods.
Answer:
The distribution of cash, as the final process in winding up the affairs of a partnership,
is based on the income-sharing ratio.
Answer:
The difference between the standard cost of a product and its actual cost is called a
variance.
Answer:
A company is considering purchasing a machine for $21,000. The machine will
generate income from operations of $2,000; annual cash flows from the machine will be
$3,500. The payback period for the new machine is 10.5 years.
Answer:
Consulting the persons affected by a budget when it is prepared can provide an effective
means of motivation and cooperation.
Answer:
When companies sell their receivables to other companies, the transaction is called
factoring.
Answer:
Adjusting journal entries are dated on the last day of the period.
Answer:
The effective interest method produces a constant dollar amount of interest expense to
be reported each interest period.
Answer:
Earnings per share amounts are only required to be presented for income from
continuing operations and net income on the face of the statement.
Answer:
Payroll taxes are based on the employee’s net pay.
Answer:
When bonds held as long-term investments are purchased at a price other than the face
value, the premium or discount should be amortized over the remaining life of the
bonds.
Answer:
If the volume of sales is $6,000,000 and sales at the break-even point amount to
$4,800,000, the margin of safety is 25%.
Answer:
The discount on a note payable is charged to an account that has a normal credit
balance.
Answer:
When the seller offers a sales discount, even if borrowing has to be done, it is generally
advantageous for the buyer to pay within the discount period.
Answer:
If fixed costs are $250,000, the unit selling price is $125, and the unit variable costs are
$73, what is the break-even sales (units)?
A.3,425 units
B.2,381 units
C.2,000 units
D.4,808 units
Answer:
Assume that Division J has achieved income from operations of $165,000 using
$900,000 of invested assets. If management desires a minimum rate of return of 11%,
the residual income is:
A.$99,000
B.$18,150
C.$264,000
D.$66,000
Answer:
Which of the following is a disadvantage of decentralization?
A.Decisions made by one manager may negatively affect the profitability of the entire
company.
B.Helps retain quality managers.
C.Decision making by managers closest to the operations.
D.Managers are able to acquire expertise in their areas of responsibility.
Answer:
Beginning work in process is equal to:
A.cost of goods manufactured plus ending work in process minus manufacturing costs
incurred during the current period
B.cost of goods manufactured minus ending work in process plus manufacturing costs
incurred during the current period
C.ending work in process plus manufacturing costs incurred during the current period
D.manufacturing costs incurred during the current period minus ending work in process
Answer:
Isaac Co. sells merchandise on credit to Sonar Co in the amount of $9,600. The invoice
is dated on April 15 with terms of 1/15, net 45. If Sonar Co. chooses not to take the
discount, by when should the payment be made?
A.April 30
B.May 30
C.May 15
D.April 25
Answer:
What cost concept used in applying the cost-plus approach to product pricing includes
only total manufacturing costs in the “cost” amount to which the markup is added?
A.Variable cost concept
B.Total cost concept
C.Product cost concept
D.Opportunity cost concept
Answer:
On January 1, the Newman Company estimated its property tax to be $5,100 for the
year.
(a) How much should the company accrue each month for property taxes?
(b) Calculate the balance in the Property Tax Payable account as of August 31.
(c) Prepare the adjusting journal entry for the month of September.
Answer:
When a company changes from one acceptable accounting method to another, the
change is reported
A.in the statement of retained earnings, as a correction to the beginning balance.
B.in the income statement, below income from continuing operations.
C.in the income statement, above income from continuing operations
D.through a retroactive restatement of prior period earnings.
Answer:
Which of the following reasons would cause a company to reject an offer to accept
business at a special price?
A.The additional sale will not conflict with regular sales.
B.The additional sales will increase differential income.
C.The additional sales will not increase fixed expenses.
D.The additional sales will increase fixed expenses.
Answer:
In which of the following types of accounts are decreases recorded by credits?
A.liabilities
B.owner’s capital
C.drawing
D.revenues
Answer:
Accounts
A.do not reflect money amounts
B.are not used by entities that manufacture products
C.are records of increases and decreases in individual financial statement items
D.are only used by large entities with many transactions
Answer:
The equity method of accounting for investments
A.requires a year-end adjustment to revalue the stock to lower of cost or market
B.requires the investment to be reported at its original cost
C.requires the investment be increased by the reported net income of the investee
D.requires the investment be increased by the dividends paid by the investee
Answer:
What term is used to refer to the cost of changing direct materials into a finished
manufactured product?
A.Factory overhead cost
B.Period cost
C.Conversion cost
D.Direct labor cost
Answer:
Under a periodic inventory system
A.accounting records continuously disclose the amount ofinventory
B.a separate account for each type of merchandise is maintained in a subsidiary ledger
C.a physical inventory is taken at the end of the period
D.merchandise inventory is debited when goods are returned to vendors
Answer:
In an investment center, the manager has responsibility and authority for making
decisions that affect:
A.costs
B.revenues
C.assets
D.costs, revenues, and assets
Answer:
Which of the accounts below would appear in the Balance Sheet columns of the work
sheet?
A.Service Revenue
B.Prepaid Rent
C.Supplies Expense
D.None are correct
Answer:
Mobile Co. issued a $45,000, 60-day, discounted note to Guarantee Bank. The discount
rate is 6%. At maturity, assuming a 360-day year, the borrower will pay:
A.$45,450
B.$42,300
C.$45,000
D.$44,550
Answer:
When the effective-interest method is used, the amortization of the bond premium
A.increases interest expense each period
B.decreases interest expense each period
C.increases interest expense in some periods and decreases interest expense in other
periods
D.has no effect on the interest expense in any period
Answer:
Classify the following costs as direct, indirect, or neither:
a) indirect labor incurred
b) factory equipment depreciation
c) indirect materials used
d) office equipment depreciation
e) direct materials used
f) insurance expired on administrative facilities
g) direct labor incurred
h) administrative office salaries
i) salespersons’ salaries
j) utilities on factory building
k) utilities on administrative facilities
Answer:
A company reports the following:
Determine the (a) accounts receivable turnover, and (b) number of days’ sales in
receivables. Round your answer to one decimal place.
Answer:
Revenues are reported when
A.a contract is signed
B.cash is received from the customer
C.work is begun on the job
D.work is completed on the job
Answer:
The accumulated depletion account is
A.an expense account
B.an intangible asset account
C.reported on the income statement as other expense
D.reported on the balance sheet as a deduction from the cost of the mineral deposit
Answer:
Using accrual accounting, revenue is recorded and reported only
A.when cash is received without regard to when the services are rendered
B.when the services are rendered without regard to when cash is received
C.when cash is received at the time services are rendered
D.if cash is received after the services are rendered
Answer:
A work sheet includes columns for
A.adjusting entries
B.closing entries
C.reversing entries
D.adjusting and closing entries
Answer:
On the statement of cash flows prepared by the indirect method, the cash flows from
operating activities section would include
A.receipts from the sale of investments
B.amortization of premium on bonds payable
C.payments for cash dividends
D.receipts from the issuance of capital stock
Answer:
The balance in Discount on Bonds Payable
A.should be reported on the balance sheet as an asset because it has a debit balance
B.should be allocated to the remaining periods for the life of the bonds by the
straight-line method, if the results obtained by that method materially differ from the
results that would be obtained by the interest method
C.would be added to the related bonds payable to determine the carrying amount of the
bonds
D.would be subtracted from the related bonds payable on the balance sheet
Answer:
Prepaid advertising, representing payment for the next quarter, would be reported on the
balance sheet as a(n)
A.asset
B.liability
C.contra asset
D.capital
Answer:
Which of the following is required by the Sarbanes-Oxley Act of 2002?
A.A price-earnings ratio.
B.A report on internal control.
C.A vertical analysis.
D.A common-sized statement.
Answer:
Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, income
from operations amounting to $302,500, and a desired minimum rate of return of 15%.
The residual income for Chicks is:
A.$165,000
B.$302,500
C.$137,500
D.$191,500
Answer:
The following data are taken from the management accounting reports of Dulcimer Co.:
If an incentive bonus is paid to the manager who achieved the highest income from
operations before service department charges, it follows that:
A.Division A’s manager is given the bonus
B.Division B’s manager is given the bonus
C.Division C’s manager is given the bonus
D.The managers of Divisions B and C divide the bonus
Answer:
The direct labor and overhead costs of providing services to clients are accumulated in:
A.finished services expense
B.work in process
C.administrative salaries expense
D.overhead
Answer:
Budgeting supports the planning process by encouraging all of the following activities
except:
A.requiring all organizational units to establish their goals for the upcoming period
B.increasing the motivation of managers and employees by providing agreed-upon
expectations
C.directing and coordinating operations during the period
D.improving overall decision making by considering all viewpoints, options, and cost
reduction possibilities
Answer:
The Crafter Company had the following assets and liabilities as of December 31, 2012:
Determine the quick ratio for the end of the year (rounded to one decimal point).
A.5.3
B.3.6
C.3.3
D.2.3
Answer:
Division A of Mocha Company has sales of $155,000, cost of goods sold of $83,000,
operating expenses of $43,000, and invested assets of $150,000.
What is the profit margin for Division A?
A.19.3%
B.48.0%
C.18.7%
D.5.47%
Answer:
Proposals M and N each cost $600,000, have 6-year lives, and have expected total cash
flows of $750,000. Proposal M is expected to provide equal annual net cash flows of
$125,000, while the net cash flows for Proposal N are as follows:
Determine the cash payback period for each proposal.
Answer:
Damien Lawson invests $45,000 to initiate the operation of his business, JumpStart, on
January 7th. Journalize this transaction.
Answer:
Laramie Technologies had the following data:
Cost of Materials Used $50,000
Direct Labor costs $56,000
Factory Overhead $28,000
Work in Process, beg. $45,000
Work in Process, end. $32,000
Show your calculations to determine the Cost of Goods Manufactured.
Answer:
For each of the following notes receivables held by Rogers Company determine the
interest revenue to be reported on the income statements for 2011 and 2012. Round
answers to nearest whole dollar.
Answer:
The net income reported on an income statement for the current year was $58,000.
Depreciation recorded on fixed assets for the year was $24,000. In addition, equipment
with an original cost of $130,000 and accumulated depreciation of $115,000 on the date
of the sale, was sold for $20,000. Balances of the current asset and current liability
accounts at the end and beginning of the year are listed below. Prepare the cash flows
from operating activities section of a statement of cash flows using the indirect method.
Answer:
Sunrise Inc. is considering a capital investment proposal that costs $227,500 and has an
estimated life of four years and no residual value. The estimated net cash flows are as
follows:
The minimum desired rate of return for net present value analysis is 10%. The present
value of $1 at compound interest rates of 10% for 1, 2, 3, and 4 years is .909, .826, .
751, and .683, respectively. Determine the net present value.
Answer:
The following units of a particular item were available for sale during the year:
The firm uses the perpetual inventory system and there are 240 units of the item on
hand at the end of the year. What is the total cost of ending inventory according to
FIFO?
Answer:
During the current year, merchandise is sold for $86,000 cash and for $93,950 on
account. The cost of the merchandise sold is $76,240. What is the amount of the gross
profit?
Answer:
Ralston Company has income from operations of $75,000, invested assets of $360,000,
and sales of $790,000.
Use the DuPont formula to calculate the rate of return on investment, and show (a) the
profit margin, (b) the investment turnover, and (c) rate of return on investment.
Round profit margin percentage to two decimal places and investment turnover to three
decimal places.
Answer:
Define ideal and currently attainable standards. Which type of standard should be used
and why?
Answer:
Lamar Corporation purchased land for $150,000. Later in the year the company sold
land with a book value of $190,000 for $200,000. Show how the effects of these
transactions are reported on the statement of cash flows using the indirect method.
Adjustments to reconcile net income to net cash from operating activities:
Gain on sale of land ($10,000)
Answer:
Journalize the following transactions for Solley Company that occurred during 2011
and 2012.
November 14, 2011 Received a $4,800.00, 90-day, 9% note from Alan Hibbetts in
payment of his account.
December 31, 2011 Accrued interest on the Hibbetts note.
February 12, 2012 Received the amount due from Hibbetts on his note.
Answer:
Macon Co. acquired drilling rights for $7,500,000. The oil deposit is estimated at
37,500,000 gallons. During the current year, 3,000,000 gallons were drilled. Journalize
the adjusting entry at December 31, 2011 to recognize the depletion expense.
Journal
*Depletion rate = cost / estimated size
Depletion rate = $7,500,000/37,500,000
Depletion rate = $0.20
Depletion expense = depletion rate x quantity extracted
Depletion expense = $0.20 x $3,000,000
Depletion expense = $600,000
Answer:
Big Wheel, Inc. collects 25% of its sales on account in the month of the sale and 75% in
the month following the sale. If sales on account are budgeted to be $225,000 for March
and $250,000 for April, what are the budgeted cash receipts from sales on account for
April?
Answer:
Purple Inc. production budget for Product X for the year ended December 31 is as
follows:
In Purple’s production operations, Materials A, B, and C are required to make Product
X. The quantities of direct materials expected to be used for each unit of product are as
follows:
Prepare a direct materials purchases budget for Product X, assuming that there are no
beginning or ending inventories for direct materials (all units purchased are used in
production).
Answer:
Schultz Tax Services, a tax preparation business had the following transactions during
the month of June:
1) Received cash for providing accounting services, $3,000.
2) Billed customers on account for providing services, $7,000.
3) Paid advertising expense, $800.
4) Received cash from customers on account, $3,800.
5) Owner made a withdrawal, $1,500.
6) Received telephone bill, $220.
7) Paid telephone bill, $220
Based on the information given above, calculate the balance of Cash at June 30. (Hint:
Use the following reconcilitation.)
Answer:
The following are all the steps in the accounting cycle. List them in the order in which
they should be done.
– Closing entries are journalized and posted to the ledger.
– An unadjusted trial balance is prepared.
– An optional end-of-period spreadsheet (work sheet) is prepared.
– A post-closing trial balance is prepared.
– Adjusting entries are journalized and posted to the ledger.
– Transactions are analyzed and recorded in the journal.
– Adjustment data are assembled and analyzed.
– Financial statements are prepared.
– An adjusted trial balance is prepared.
– Transactions are posted to the ledger.
Answer:
On the basis of the details of the common stock account presented below, calculate the
total amount to be recorded in financing section of the statement of cash flows. Indicate
whether the amount results in an increase or decrease in cash.
Answer:
What is the major difference between the objective of financial accounting and the
objective of managerial accounting?
Answer: