The financing section of the statement of cash flows involves transactions relating to
the equity accounts and the long-term liability accounts.
Differential analysis is a common approach to making long-term business decisions.
A source document provides the evidence and data for accounting transactions.
For inventories, market value generally means the current replacement cost.
A business must only invest in an accounting information system in which the benefits
received outweigh the cost of the system.
The Raw Materials Inventory account is must be considered when calculating the
amount of materials to be purchased.
In a bank reconciliation, outstanding checks will be shown on the bank side of the
reconciliation.
Absorption costing considers direct materials, direct labor, variable manufacturing
overhead, and fixed manufacturing overhead as product costs.
By looking at a statement of retained earnings, the effect of dividends on the ending
balance of retained earnings can be determined.
The sum of all the depreciation expenses recorded to date for a depreciable asset is
called residual value.
Purchases equals cost of goods sold plus beginning merchandise inventory minus
ending merchandise inventory.
Businesses should invest up front in internal and external failure costs to reduce
prevention and appraisal costs.
If the cost of indirect materials needed for production is insignificant, it should not be
included in the budgeting process.
The manufacturing overhead budget calculates the budgeted overhead cost for the year,
but not the predetermined overhead allocation rate for the year.
The current ratio may indicate that the company is using its assets effectively.
The cash payments journal is a special journal used to record cash payments by
currency but not by check.
Worksheet procedures for a merchandising business using the perpetual inventory
system are different from the worksheet procedures for a service business.
Horizontal analysis compares each item in the income statement to the net sales
amount.
Dollar value bias is the bias one sees from comparing number in relative (dollars) rather
than absolute (percentage) terms.
Sierra Event Planning Services, Inc. records deferred expenses and deferred revenues
using alternative treatments. It makes adjusting entries as needed to bring its books to
the full accrual basis once a year at the end of the year. On December 15, it collected
$1,000 from a customer in advance for a series of events that will start late December
and end in March. At the end of the year, it had performed approximately 10% of the
services for its customer. The adjusting entry on December 31 will include a debit to
Service Revenue for $900.
Days’ sales in inventory measures how quickly a company can collect its receivables.
Establishing controls for efficiency of the payroll process is one of the two key controls
for payroll.
Short-term notes payable represent a written promise by the business to pay a debt,
without the addition of interest, within one year or less.
A company uses a balanced scorecard and has established a key performance indicator
for product quality. If the actual warranty claims are higher than expected, there is an
indication that the quality standards have been met.
The total amount of manufacturing overhead costs incurred during the period is
recorded on the credit side of the Manufacturing Overhead account.
The manager of a revenue center is responsible for generating profits.
In a periodic inventory system, a sale of inventory involves two entries, one to record
Sales Revenue and one to record Cost of Goods Sold.
Under a process costing system, direct labor costs are assigned to the Work-in-Process
Inventory account of the department for which they are incurred.
The adjusting process zeroes out all revenue accounts and all expense accounts.
In the closing process, the Dividends account is closed to the Retained Earnings
account.
If the expected accounting rate of return meets or exceeds the required rate of return,
the decision rule is to not make the investment.
In reviewing the T-account for Accounts Payable, you find that the beginning balance is
zero, the total increases are $7,200 and the total decreases are $4,000. This means that
the ending balance of the account is a credit balance of $3,200.
Gordon Manufacturing is considering following two investment proposals:
Compute the present value of the future cash inflows from Proposal X.
Present value of an ordinary annuity of $1:
Present value of $1:
A) $762,136
B) $668,128
C) $583,814
D) $624,800
On a multi-step income statement, the operating expenses are subtracted from
________ to arrive at operating income.
A) net sales
B) cost of goods sold
C) net profit
D) gross profit
The following are the current month’s balances for Adams Marketing Company.
What is the net income for Adams Marketing for the current month?
A) $11,000
B) $9,500
C) $12,500
D) $14,000
Owen’s Furniture manufactures a small table and a large table. The small table sells for
$900, has variable costs of $550 per table, and takes 10 direct labor hours to
manufacture. The large table sells for $1,600, has variable costs of $970, and takes eight
direct labor hours to manufacture. The company has a maximum of 5,000 direct labor
hours per month when operating at full capacity. If there are no constraints on sales of
either of the products and the company could choose any proportions of product mix
that they wanted, the maximum contribution margin that the company could earn will
be ________.
A) $1,000,000
B) $606,250
C) $1,606,250
D) $393,750
Tidy House, Inc. provides housekeeping services. The following financial data have
been provided.
Calculate the operating income for the company.
A) $38,150
B) $32,800
C) $32,050
D) $52,400
Highland, Inc., an engineering firm, uses a job order costing system to accumulate
client-related costs. The predetermined overhead allocation rate is 40% of staff labor
cost. The work by engineers is charged to jobs at a rate of $32 per staff labor hour. A
recent job for a client used 70 staff labor hours. How much was the total job cost?
A) $896
B) $2,240
C) $3,136
D) $28
Melita Sailboats Company manufactures 100 luxury yachts per month. A compact
media center is included in each yacht. Melita Sailboats manufactures the media center
in-house but is considering the possibility of outsourcing this function. At present, the
variable cost per unit is $280, and the fixed costs are $40,000 per month. If it
outsources the media centers, fixed costs could be reduced by half, and the vacant
facilities could be rented out to earn $4,000 per month of rental income. At what
contract cost would outsourcing pay off for Melita?
A) $520 per unit
B) $480 per unit
C) $280 per unit
D) $400 per unit
Gene’s gross pay for the week is $1,400. His yearly pay is under the limit for OASDI.
Assume that the rate for state and federal unemployment compensation taxes is 6% and
that Gene’s year-to-date pay has previously exceeded the $7,000 cap. His yearly pay is
under the limit for OASDI. What is the total amount of payroll taxes that Gene’s
employer must record as payroll tax expenses? (Do not round your intermediate
calculations. Assume a FICA—OASDI Tax of 6.2% and FICA—Medicare Tax of
1.45%.)
A) $86.80
B) $58.80
C) $20.30
D) $107.10
A business pays cash for dividends. Which of the following accounts is credited?
A) Common Stock
B) Dividends
C) Cash
D) Accounts Payable
Opportunity cost is the benefit ________.
A) received by selling goods on behalf of another division
B) received by selling goods to one of the other divisions within the company
C) given up by purchasing goods at a price lower than its total manufacturing cost
D) given up by choosing an alternate course of action
Madsen, Inc. intends to increase its profits by 50% in the next fiscal year. Which of the
following is most likely to be a lead indicator in Madsen’s performance report?
A) return on investment
B) number of repeat customers
C) net profit margin
D) sales revenue growth
Ashbrook Services, Inc. acquired 128,000 shares of Gamma Metals, Inc. on January 1,
2017. Gamma declares a cash dividend of $2.00 per share on February 15, 2017 and
pays the cash dividend on March 2, 2017. With the current investment, Ashbrook
Services, Inc. holds 11% of Gamma’s voting stock. Which of the following will be the
correct journal entry for the day when the dividend payment is made (March 2, 2017)?
A)
B)
C) No Entry
D)
Salaries Payable, Interest Payable, and Unearned Revenue are examples of ________.
A) short-term investments
B) fixed assets
C) current liabilities
D) long-term liabilities
The financing activities section of a statement prepared using the direct method
includes changes in ________.
A) Accounts Payable
B) Accounts Receivable
C) Merchandise Inventory
D) Long-term Notes Payable
If 34,000 units are 80% complete with respect to direct materials, then the equivalent
units of production for direct materials are ________.
A) 34,000 units
B) 27,200 units
C) 6,800 units
D) 40,800 units
Which of the following statements is true?
A) Indirect costs must be allocated based on a single plant wide rate.
B) Manufacturing overhead costs are accumulated in cost pools and then assigned to
products.
C) Managers cannot wait until the end of the accounting period for product cost
information.
D) Managers can choose to wait until the end of the accounting period to allocate
manufacturing overhead costs.
The highest value of total cost was $800,000 in June for Mantilla Beverages, Inc. Its
lowest value of total cost was $510,000 in December. The company makes a single
product. The production volume in June and December were 13,000 and 8,000 units,
respectively. What is the fixed cost per month? (Round any intermediate calculations to
the nearest cent, and your final answer to the nearest dollar.)
A) $510,000
B) $290,000
C) $46,000
D) $8,000
Which of the following would be included as indirect manufacturing costs for a
manufacturing company?
A) sales commissions
B) fuel and maintenance for delivery vehicles
C) wages of the assembly line workers
D) wages of the factory manager
Browning Company sells two products—X and Y. Product X is sold for $30 per unit
and has a variable cost per unit of $15. Product Y is sold for $30 per unit and has a
variable cost of $10 per unit. Total fixed costs for the company are $20,000. Browning
Company typically sells three units of Product X for every unit of Product Y. What is
the breakeven point in total units? (Round any intermediate calculations to two decimal
places, and your answer to the nearest unit.)
A) 1,231 units
B) 923 units
C) 308 units
D) 1,333 units
Which of the following is a major consideration when analyzing a special pricing
decision?
A) The sales price must be high enough to cover any differential costs to fill the order.
B) The company must have a good stock turnover ratio.
C) The profit margin of the special sale must be higher than the regular sales.
D) The sunk costs of the decision must not exceed the irrelevant costs.
Bernaise, Inc. sells cosmetic products in the United States. Which one of the following
is most likely to be a revenue center for Bernaise?
A) a Bernaise retail store in Dallas
B) the Bernaise human resource department
C) a Bernaise kiosk at a mall for selling its products
D) the Bernaise product lines
U.S. government securities are ________.
A) real estate investments
B) equity securities
C) debt securities
D) forward contracts
On a statement of cash flows prepared using the direct method, cash received from
selling merchandise is considered a ________.
A) cash inflow from investing activities
B) cash inflow from operating activities
C) cash outflow from financing activities
D) cash outflow for financing activities
Bright Eyes Paints Company uses the direct method for preparing its statement of cash
flow. Bright Eyes reports the following information regarding 2017:
From the income statement:
Sales Revenues, $266,000
Cost of Goods Sold, $212,000
Operating Expenses, $37,000
Net Income $17,000
From the balance sheet:
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 are for
purchases of merchandise inventory only. What amount will be shown for the net cash
flow from operating activities?
A) $64,300
B) $24,300
C) $17,000
D) $9,300
Which of the following appears as a line item in a contribution margin income
statement?
A) Gross profit
B) Total cost of goods sold
C) Operating income
D) Total selling and administrative expenses
The ability of a company to repay its liabilities can be determined from its ________.
A) bankers
B) creditors
C) debt ratio
D) journal
When a bond is issued at a price higher than the face value, the difference is known as a
________.
A) premium
B) discount
C) maturity value
D) face value
A company has prepared the operating budget and the cash budget and is now preparing
the budgeted balance sheet. The balance of Accounts Payable can be taken from the
________.
A) inventory, purchases, and cost of goods sold budget
B) schedule of cash payments
C) direct materials budget
D) selling and administrative expenses budget
When a company receives interest revenue on a long-term investment in bonds,
________.
A) long-term assets decrease
B) long-term assets increase
C) equity increases
D) current assets decrease
Which of the following is the correct formula to calculate days’ sales in inventory?
A) Days’ sales in inventory = 365 days × Inventory turnover
B) Days’ sales in inventory = 365 days + Inventory turnover
C) Days’ sales in inventory = 365 days / Inventory turnover
D) Days’ sales in inventory = 365 days – Inventory turnover
Regarding net pay, which of the following statements is incorrect?
A) The net pay amount is not important for accounting purposes.
B) The amount of compensation that the employee actually takes home is net pay.
C) The employer either writes a paycheck to each employee for his or her net pay or
directly deposits the employee’s net pay into the employee’s bank account.
D) Net pay equals gross pay minus all deductions.
Crusoe Waterworks Corporation provides plumbing services. Transactions of Crusoe
Waterworks during the first year of operations are given below.
a) Received $4,000 cash and issued common stock to Robinson.
b) Paid $3,000 cash for equipment to be used for plumbing repairs.
c) Borrowed $27,000 from a local bank and deposited the money in the checking
account.
d) Paid $900 rent for the year.
e) Purchased $1,000 of office supplies on account.
f) Completed a plumbing repair project for a local lawyer and received $3,200 cash.
Calculate the amount of total stockholders’ equity after recording the transactions.
Assume office supplies of $1,000 are left at the end of the year.
A) $6,300
B) $3,200
C) $4,000
D) $27,000
For a company with significant uncollectible receivables, the direct write-off method is
unsuitable because ________.
A) it overstates liabilities on the balance sheet
B) it violates the matching principle
C) it uses estimates for determining the bad debt expense
D) companies are not able to track customer payment histories