If a business changes the estimated useful life, or estimated residual value, of a plant
asset, depreciation expense must be recalculated.
Under the perpetual inventory system, two journal entries are used to record the sales of
merchandise. One entry records the Sales Revenue and another entry records the Cost
of Goods Sold.
A company with different segments using different software configurations can easily
combine budget data of different segments to create the master budget.
If a contingency is remote, the company does not need to record a liability and does not
need to disclose it in the notes to the financial statements.
Total manufacturing costs to account for during the year minus the ending
Work-in-Process Inventory equals the cost of goods manufactured.
The cost of a building depends on whether the company is constructing the building or
is acquiring an existing one.
Managerial accounting reporting by a public firm is required to follow the rules of
GAAP and guidelines of the Securities and Exchange Commission.
In a vertical analysis of the income statement, each line item is shown as a percentage
of net sales.
The budgeted income statement is a cash-based income statement.
In preparing the master budget, the manufacturing overhead is the last period cost to
consider.
After posting the journal entries from the journal to the ledger, the accounting equation
should be in balance.
The Employee Bonus Payable would normally be shown on the balance sheet under
long-term liabilities.
Ordinary repairs to plant assets are referred to as revenue expenditures.
The traditional income statement format is prepared under absorption costing.
Under the perpetual inventory system, purchase returns or allowances are debited to the
Merchandise Inventory account by the purchaser.
If inventory turnover is too slow, a company may be unable to sell goods or it may be
understating merchandise inventory.
In order to keep accurate records about the collection of cash for a previously written
off account, collection of cash for a previously written off account, a business should
re-establish the Accounts Receivable by debiting the receivable account.
The sales level at which operating income is zero is called the breakeven point.
Any person or business to whom a business owes money is called the business’s
creditor.
The adjusting entry for overallocated or underallocated manufacturing overhead is
usually prepared at the beginning of the accounting period.
The balance sheet section of the worksheet includes the asset and liability accounts and
all equity accounts.
The entry to close Cost of Goods Sold includes a debit to Income Summary.
The interest period extends from the original date of the note to the maturity date.
Entries in the cash payments journal are posted daily to the accounts payable subsidiary
ledger and monthly to the general ledger.
The fixed overhead volume variance is a cost variance that explains why fixed overhead
is overallocated or underallocated.
Only contingencies that are probable and can be estimated are recorded as a liability
and an accrued expense.
Companies that are price-takers have considerable flexibility in setting the prices of
their products.
The production manager projects direct labor costs.
Many companies use free cash flow to estimate the amount of cash that would be
available for unexpected opportunities.
Benchmarking often compares a company against a key competitor or the industry
average.
Most corporations set par value low and issue common stock at a premium.
A company cannot report a gain or loss when buying or selling its own stock.
The production cost report for Department 2 shows that $452,000 was assigned to the
59,000 units transferred to Finished Goods Inventory. This cost assigned to Finished
Goods Inventory is recorded with a debit to Work-in-Process—Department 2.
Stockholders of a corporation are not personally liable for the corporation’s debt.
Both common and preferred stock carry the same degree of investment risk for the
stockholder.
A trademark should not be amortized over its useful life.
A balance sheet prepared in the report form lists the assets on the left and the liabilities
and stockholders’ equity on the right.
The current period earnings column of the payroll register only includes regular and
overtime earnings.
The current portion of notes payable is reported on the balance sheet under current
liabilities.
The production cost report for Department 1 shows that $159,000 was assigned to the
38,000 units transferred to Department 2. This transfer cost assigned to units transferred
to Department 2 is recorded with a debit to Work-in-Process—Department 1.
Which of the following is the amount the borrower must pay back to the bondholders at
maturity?
A) market value
B) present value
C) stated interest value
D) principal amount
Which of the following items are included as an operating activity on the statement of
cash flows, using the direct method?
A) purchase of treasury stock
B) payment of dividends
C) issuance of stock
D) payment of interest expense
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 $3,350. What is the bond’s carrying
amount?
A) $3,350
B) $70,350
C) $67,000
D) $63,650
Jupiter, Inc. signed a one-year $44,000 note payable at 8% interest on May 1, 2016. If
Jupiter, Inc. only adjusts its accounts once a year at year-end, how much interest
expense was accrued on December 31, 2016?
A) $1,173
B) $3,520
C) $2,347
D) $2,933
Which of the following is a not a decision that management must make before
calculating ROI and RI?
A) Should nonproductive assets be included in the average total asset calculation?
B) Should gross book value or net book value of assets be used?
C) Should a simple average of the beginning and ending total liabilities be used?
D) Should a short term focus be used?
The following is the adjusted trial balance for Becker Photography.
After the closing entries, what will the final balance in Retained Earnings be?
A) $25,000
B) $216,800
C) $27,500
D) $175,800
The following information relates to Washington, Inc.:
How much were Washington’s product costs?
A) $604,650
B) $252,000
C) $510,600
D) $86,620
Which of the following is most likely to be categorized as an external failure cost?
A) the cost of testing a product before shipment
B) the cost of machinery maintenance to avoid breakdowns during production
C) the cost of lost future sales after a customer finds a defect in a product
D) the cost of inspection of materials to be used in production
Which of the following is a characteristic of a current liability?
A) It creates a present obligation for future payment of cash or services.
B) It cannot be settled with services.
C) It is an avoidable obligation.
D) It occurs because of a future transaction or event.
The cash budget and the budgeted financial statements are collectively known as the
________.
A) operating budget
B) master budget
C) financial budget
D) production budget
A company purchased inventory for $73,000 from a vendor on account, FOB shipping
point, with terms of 4/10, n/30. The company paid the shipper $1,500 cash for freight
in. The company paid the vendor nine days after the sale. If there was no beginning
inventory, the cost of inventory would be ________. (Assume a perpetual inventory
system.)
A) $71,580
B) $74,500
C) $68,580
D) $71,500
Which of the following will be recorded in the general journal when using a manual
accounting information system?
A) adjusting and closing entries
B) payment of accounts payable
C) purchase of merchandise inventory on account
D) sale of merchandise inventory on account
A petty cash fund was established with a $390 balance. It currently has cash of $45 and
petty cash tickets totaling $345. Which of the following would be included in the entry
to replenish the fund?
A) a credit to Petty Cash for $345
B) a debit to Petty Cash for $45
C) a credit to Cash for $45
D) a debit to various expenses for $345
At the time the transaction occurred, which of the following would result in an increase
in net income under the accrual basis of accounting, but would not result in an increase
in net income under cash basis accounting?
A) purchase of supplies for cash
B) performance of services on account
C) use of supplies purchased earlier
D) receipt of cash for services that were performed earlier on account
To match expenses against revenues means to ________.
A) add expenses incurred during one period from revenues earned during that same
period
B) subtract expenses incurred during one period from revenues earned during the
previous period
C) add expenses incurred during one period from revenues earned during the previous
period
D) subtract expenses incurred during one period from revenues earned during that same
period
Which of the following statements is true of target pricing?
A) It starts with the price that customers are willing to pay.
B) It uses the full product cost that a company estimates to arrive at the sales price.
C) It does not consider the nonmanufacturing costs when calculating the target cost.
D) It is the same as cost-based pricing.
________ is pay stated as a percentage of a sale amount.
A) Salary
B) Wage
C) Commission
D) Bonus
Which of the following statements is true of a trial balance?
A) A trial balance has the same format as a balance sheet.
B) A trial balance presents data in debit and credit format.
C) A trial balance shows the total amounts of assets and liabilities, but not equity.
D) A trial balance is prepared after the balance sheet.
Kelly Financial Services, Inc. invested $27,000 to acquire 3,750 shares of Mitt
Investments, Inc. on March 15, 2013. This investment represents less than 20% of the
investee’s voting stock. On May 7, 2017, Kelly Financial Services, Inc. sells 2,250
shares for $15,250. In the accounting equation on May 7, 2017, ________.
A) total assets will remain unchanged
B) total assets will decrease
C) total liabilities will decrease
D) total equity will decrease
Bentz Fashions uses standard costs for its manufacturing division. From the following
data, calculate the total fixed overhead variance.
A) $13,000 U
B) $13,000 F
C) $13,500 U
D) $13,500 F
Fitch Supply Services received $1,000 cash from a customer; the amount was owed to
the business from the previous month. What is the effect of this transaction on the
accounting equation?
A) Accounts Receivable increases and Service Revenue increases
B) Cash increases and Accounts Receivable decreases
C) Cash increases and Service Revenue increases
D) Cash increases and Accounts Payable decreases
Pitt Jones 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 line for the account billing activity? (Round your answer to the nearest
cent.)
A) $1.78
B) $23.46
C) $3.39
D) $12.31
Debra Technologies invests $68,000 to acquire $68,000 face value, 10%, five-year
corporate bonds on December 31, 2010. The bonds will mature on December 31, 2015.
The bonds pay interest semiannually on December 31 and June 30 every year until
maturity. Assume Debra Technologies uses a calendar year. Based on the information
provided, which of the following will be included in the journal entry for the transaction
on December 31, 2014?
A) a credit to Interest Revenue for $6,800
B) a debit to Interest Revenue for $6,800
C) a credit to Interest Revenue for $3,400
D) a debit to Interest Revenue for $3,400
Which of the following is the correct description of dividends in arrears?
A) the cumulative amount of dividends that were not paid in previous years
B) the cumulative amount of dividends that were paid in previous years
C) the amount of dividends that were paid after the payment date
D) the amount of dividends that will be paid in the next year
Indicate the effects on the accounting equation of the following business transactions of
Mayflower Service Corporation for b) to d) below. Use proper account titles.
Transaction a) is answered as a guide.
a) Received cash from Don Jones; issued common stock to him.
The expected cash value of an asset at the end of its useful life is known as ________.
A) book value
B) residual value
C) carrying value
D) market value
Which of the following statements is true of a good merchandise inventory control
system?
A) It eliminates the need for authorization of merchandise purchases.
B) It ensures that a physical count of inventory is not required.
C) It often prevents the company from a stockout.
D) It eliminates the need to examine inventory purchases for damage.
Aaron earns $24.00 per hour with time-and-a-half for hours in excess of 40 per week.
He worked 50 hours at his job during the first week of March 2017. Aaron pays income
taxes at 15% and 7.65% for OASDI and Medicare. All of his income is taxable under
FICA. Determine Aaron’s net pay for the week.
A) $1,122.00
B) $1,021.02
C) $835.80
D) $799.80
Fulkron, Inc. provides the following data taken from its third quarter budget:
The cash balance on June 30 is projected to be $11,000. Based on the above data, calculate
the shortfall the company is projected to have at the end of August.
A) $35,000
B) $(59,000)
C) $(48,000)
D) $14,000
Under process costing, the total production costs incurred in each process must be split
between the units that have been completed in that process and transferred to the next
process and the ________.
A) Finished Goods Inventory if it is the first process
B) units not completed and remaining in Work-in-Process Inventory for that department
C) Cost of Goods Sold when the units are sold
D) Work-in-Process Inventory of the previous department when there are no sales
Reliable Waterworks Corporation provides plumbing services. Transactions of Reliable
Waterworks during the first year of operations are given below.
a) Received $11,000 cash and issued common stock to Sharon.
b) Paid $2,000 for equipment to be used for plumbing repairs.
c) Borrowed $10,000 from a local bank and deposited the money in the checking
account.
d) Paid $300 in rent for the year.
e) Paid $200 for plumbing supplies to be used on various jobs next year.
f) Completed a plumbing repair for a law firm and received $3,000.
Calculate the amount of total assets at the end of the first year. Assume the plumbing
supplies of $3,000 are left at the end of the year.
A) $2,200
B) $2,000
C) $21,000
D) $23,700
Green Apron, Inc. had the following transactions in 2017, its first year of operations:
• Issued 33,000 shares of common stock. Stock has par value of $1.00 per share and
was issued at $24.00 per share.
• Earned net income of $73,000.
• Paid no dividends.
At the end of 2017, what is the total amount of paid-in capital?
A) $33,000
B) $865,000
C) $792,000
D) $73,000
Which of the following statements accurately describes the statement of cash flows?
A) It shows the relative proportion of debt and assets.
B) It is the link between the accrual-based income statement and the cash reported on
the balance sheet.
C) It indicates when long-term debt will mature.
D) It is the link between net income and earnings per share.
What does “2/10” mean, with respect to “credit terms of 2/10, n/30”?
A) A discount of 2 percent will be allowed if the invoice is paid within 10 days of the
invoice date.
B) Interest of 2 percent will be charged if the invoice is paid after 10 days from the date
on the invoice.
C) A discount of 10 percent will be allowed if the invoice is paid within two days of the
invoice date.
D) Interest of 10 percent will be charged if invoice is paid after two days.
Mitchell Florists & Co. reported assets of $1,000 and equity of $450. What is its debt
ratio? (Round your percentage answer to two decimal places.)
A) 55.00%
B) 45.00%
C) 100.00%
D) 60.00%
Sinclair Manufacturing uses a standard cost system. The T-account for manufacturing
overhead is shown below:
Manufacturing overhead
In addition to the above, Sinclair calculated the following overhead variances:
Variable overhead cost variance: $5,000 F
Variable overhead efficiency variance: $4,850 U
Fixed overhead cost variance: $1,200 F
Fixed overhead volume variance: $3,350 U
Prepare the journal entry to close the manufacturing overhead account and record the
overhead variances.
On December 31, 2016, Jerry’s, Inc. borrowed $500,000 by signing a five-year, 8% note
payable. The note is payable in five yearly installments of $100,000 plus interest, due at
the end of every year beginning on December 31, 2017. What amount represents the
current portion of Long-term Notes Payable at December 31, 2016?
List the four steps, in the order of occurrence, that are used in preparing a production
cost report.
Prepare the journal entry to record the acquisition of a plant asset for $5,000 cash.
List the four types of responsibility centers. For each center, state the responsibility of
the manager.
Caldwell, Inc. has two processes—Coloring Department and Mixing Department. The
company sold 450 gallons on account at $110 per gallon. The total cost of processing
was $385,000 for 5,500 gallons of paint. Throughout the year, the company used a
predetermined overhead allocation rate to allocate $80,000 and $90,000 of indirect
costs to the Coloring Department and Mixing Department, respectively. The actual
overhead costs incurred amounted to $150,000 at the end of the year. What are the
journal entries to record the sale of goods and the adjustment for over/underallocated
manufacturing overhead at the end of the year if the company follows a process costing
system?
On December 2, 2017, St. Augustine, Inc. purchases land. In exchange for the land, St.
Augustine, Inc. issues 8,000 shares of common stock with $1.00 par value. The land has
been appraised at a market value of $400,000. Prepare the journal entry for this
transaction.
A company purchased inventory for $100,000 on account and recorded it as follows:
The vendor’s invoice showed terms of 3/10, net 30. Give the journal entry for the payment
of the invoice seven days after the invoice date, assuming that the vendor uses the
perpetual inventory system.
In order to expand its business, the management of Carroll, Inc. issued a long-term
notes payable for $50,000 on January 1, 2016. The note will be paid over a 10-year
period with equal annual principal payments, December 31 of each year. The annual
interest rate is 12%. Prepare the journal entry for the first installment payment.
What are Generally Accepted Accounting Principles (GAAP)? Which entity is currently
responsible for determining GAAP?
For each of the following efficiency standards, indicate which parties are responsible
for the standard and list one factor that should be used in setting the standard.
Describe the flow of product costs for a manufacturer.
On October 1, 2017, Mulcahy, Inc. purchased a patent for $100,000 cash. Although the
patent gives legal protection for 20 years, it is expected to be used for only eight years.
Journalize the amortization expense for 2017. Assume straight-line amortization.
On January 1, 2017, Anderson Tools Company purchases machinery with a fair value of
$300,000 by paying $50,000 in cash and signing a 10-year mortgage note at 13% for
the balance. Prepare the journal entry for January 1, 2017.
How does a service company calculate unit cost per service? Why do managers need to
know the unit cost per service?
The information related to Outloud Music, Inc. is given below:
Year ended December Year ended December
31, 2016 31, 2017
Net Income $81,510 $210,570
Income Tax Expense 55,910 103,505
Interest Expense 6,595 59,505
Calculate the times-interest-earned ratio for each year and also state the percentage
change in the ratio.
Cardinal Company uses the indirect method to prepare its statement of cash flows.
Using the following information, complete the worksheet for the year ended December
31, 2016.
– Net Income for the year ended December 31,2016 was $49,000
– Depreciation expense for 2016 was $12,000
– During 2016, plant assets with a book value of $10,000 (cost $10,000 and
accumulated depreciation $0) were sold for $14,000
– Plant assets were acquired for $52,000 cash
– Issued common stock for $28,000
– Issued long-term notes payable for $34,000
– Repaid long-term notes payable for $40,000
– Purchased treasury stock for 3,000
– Paid dividends of $10,000
Cardinal Company
Spreadsheet for Statement of Cash Flows
Year Ended December 31, 2016
Complete the following table to show how FOB terms apply to merchandise inventory
purchased by a merchandiser.