Which of the following accounts will not be found in the Cost of Goods Sold section on
the income statement?
a. Purchases
b. Transportation In
c. Customer Refunds and Allowances
d. Merchandise Inventory
For an automobile company, the total overhead applied was $48,000,000 at the end of
the year. Actual overhead was $52,850,000. Closing over/under applied overhead into
cost of goods sold would cause net income to:
a. increase by $4,850,000.
b. decrease by $4,850,000.
c. stay the same.
d. decrease by $400,000.
Unearned interest is categorized as:
a. a fixed asset.
b. stockholders’ equity.
c. an intangible asset.
d. a liability.
The following data are taken from the financial statements:
CurrentPreceding
YearYear
Net sales$3,592,000$4,056,000
Cost of goods sold2,092,0002,656,000
Average monthly inventory332,000328,000
Inventory, end of year372,000347,000
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(a)Determine for each year (1) the inventory turnover and (2) the days’ sales in
inventory.
(b)Comment on the favorable and unfavorable trends revealed by the data.
ANSWER: HTMLENTITY#8203HTMLENTITY
(a)
CurrentPreceding
YearYear
(1) Inventory Turnover (Cost of goods sold / average monthly inventory)6.38.1
(2) Number of days’ sales in inventory (Average monthly inventory / average daily cost
of goods sold)57.9345.08
Average daily cost of good sold (COGS 365 days)$5,731.51$7,276.71
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(b)Net sales decreased while gross profit increased. The cost of goods sold as a
percentage of sales decreased from 65% to 58%. The inventory turnover declined and
the number of days’ sales in inventory increased, which are unfavorable trends.
HTMLENTITY#8203HTMLENTITY
An equipment was purchased for $30,000. It has a useful life of 5 years, and a residual
value of $4,000. Compute the depreciation expense for the second year using the
doubledecliningbalance method.
a. $5,200
b. $6,000
c. $6,240
d. $7,200
When common stock is issued by a corporation for cash, both the income statement and
the balance sheet are affected.
a. True
b. False
Use the correct number to designate each item below:
1) direct materials
2) selling and administrative expenses
3) factory overhead
4) direct labor
a)rent expense on factory building
b)sales supplies used
c)factory supplies used
d)indirect materials used
e)wages of assembly line personnel
f)depreciation on office equipment
g)rent on office facilities
h)insurance expired on factory equipment
i)cost of primary material used to assemble product
For the perpetual inventory system, which of the following effects does not occur upon
the return from a customer of merchandise sold on account?
a. Increases Customer Refunds and Allowances and decreases Accounts Receivable
b. Decreases Cost of Merchandise Sold and increases Merchandise Inventory
c. Increases Purchase Returns and Allowances and decreases Merchandise Inventory
d. All of these occur.
Calculate operating leverage if sales are $342,000, variable costs are 58% of sales, and
operating income is $42,000.
a. 6.24
b. 4.27
c. 5.25
d. 3.42
Treasury stock is reported in the _____ section of the balance sheet.
a. stockholders’ equity
b. investment
c. contingent liabilities
d. current liabilities
Use the following data to calculate the cost of ending inventory under average cost
method.
September 1Beginning Inventory20 units at $10 each
September 10Purchase25 units at $20 each
September 20Purchase40 units at $25 each
September 30Ending Inventory35 units
a. $992
b. $400
c. $875
d. $700
A responsibility center in which the department manager has responsibility for and
authority over costs and revenues is called a(n):
a. profit center.
b. investment center.
c. volume center.
d. cost center.
The SarbanesOxley Act requires management to prepare a report on internal control.
a. True
b. False
The theory of constraints is a manufacturing strategy that focuses on reducing the
influence of bottlenecks on production processes.
a. True
b. False
Ideal standards are developed under conditions that assume no idle time, no machine
breakdowns, and no materials spoilage.
a. True
b. False
On April 1, Tenity, Inc. paid $3,300 for an insurance premium on a threeyear insurance
policy. At the end of December, Tenity’s fiscal yearend, what should be the balance in
the prepaid insurance account?
a. $1,100
b. $2,475
c. $3,300
d. $2,200
A corporation is an entity _____.
a. that is organized according to state or federal statutes and in which ownership is
divided into shares of stock
b. that is known for its ease of formation
c. that terminates its existence with the death of the owner
d. that pays tax on the owner’s tax returns
The balance sheets at the end of each of the first two years of operations indicate the
following:
20172016
Total current assets$600,000$560,000
Total investments60,00040,000
Total property, plant, and equipment900,000700,000
Total current liabilities125,00080,000
Total longterm liabilities350,000250,000
Preferred 9% stock, $100 par100,000100,000
Common stock, $10 par600,000600,000
Paidin capital in excess of parcommon stock60,00060,000
Retained earnings325,000210,000
Based on the above information, if net income is $130,000 and interest expense is
$40,000 for 2017, what is the return on common stockholders’ equity for 2017 (round to
one decimal place)?
a. 12.3%
b. 17.4%
c. 13.0%
d. 14.0%
Which of the following is considered a part of factory overhead cost?
a. Sales commissions
b. Depreciation of factory buildings
c. Depreciation of office equipment
d. Direct materials used
HTMLENTITY#8203HTMLENTITYJade Inc. paid rent of $25,000 for the current
month. This transaction:
a. HTMLENTITY#8203HTMLENTITYdecreases the profitability of the company.
b. HTMLENTITY#8203HTMLENTITYhas no effect on the profitability of the
company.
c. HTMLENTITY#8203HTMLENTITYincreases the liquidity of the company.
d. HTMLENTITY#8203HTMLENTITYhas no effect on the liquidity of the company.
Allowance for Doubtful Accounts has an unadjusted balance of $1,100 at the end of the
year, and an analysis of customers’ accounts indicates doubtful accounts of $12,900.
Which of the following records the proper provision for doubtful accounts?
a. Increase Uncollectible Accounts Expense, $14,000; increase Allowance for Doubtful
Accounts, $14,000
b. Decrease Allowance for Doubtful Accounts, $14,000; decrease Uncollectible
Accounts Expense, $14,000
c. Decrease Allowance for Doubtful Accounts, $11,800; decrease Uncollectible
Accounts Expense, $11,800
d. Increase Uncollectible Accounts Expense, $11,800; increase Allowance for Doubtful
Accounts, $11,800
If direct materials cost per unit decreases, the amount of sales necessary to earn a
desired amount of profit will decrease.
a. True
b. False
The management of Retz Corporation is considering the purchase of a new machine
costing $500,000. The company’s desired rate of return is 10%. The present value
factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826,
0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the
following data in determining the acceptability in this situation:
YearIncome from OperationsNet Cash Flow
1$100,000$200,000
2 80,000 170,000
3 50,000 130,000
4 10,000 80,000
5 10,000 80,000
The net present value for this investment is:
a. positive $150,000.
b. negative $24,170.
c. positive $24,170.
d. negative $150,000.
PDT Co. has two divisions, East and West. Invested assets and condensed income
statement data for each division for the past year ended December 31 are as follows:
East DivisionWest Division
Revenues$1,200,000 $800,000
Operating expenses950,000 640,000
Service department charges145,000 72,000
Invested assets800,000 500,000
(a)Prepare condensed income statements for the past year for each division.
(b)Using the expanded expression, determine the profit margin, investment turnover,
and rate of return on investment for each division. Round to one decimal place.
The document authorizing the issuance of materials from the storeroom for use in
manufacturing is called:
a. materials requisition.
b. purchase requisition.
c. receiving report.
d. purchase order.
Variable costs are costs that vary in total in direct proportion to changes in the activity
level.
a. True
b. False
Based on the following data for the current year, compute the inventory turnover.
Net sales on account during the year$ 585,000
Cost of merchandise sold during the year380,000
Accounts receivable, beginning of year47,000
Accounts receivable, end of year36,000
Inventory, beginning of year92,000
Inventory, end of year113,000
a. 1.1
b. 1.9
c. 3.7
d. 2.9
Sunlight, Inc. had the following assets and liabilities as of September 30, 2016
Assets$60,600
Liabilities$27,500
If assets increased by $4,350 and equity increased by $2,900 during October, what is
the increase or decrease in liabilities of Sunlight as of October 31, 2016?
a. ($1,450)
b. $1,450
c. $7,250
d. ($7,250)
Goodwill refers to the excess of purchase price of a business over the fair value of its
net assets.
a. True
b. False
Transic Corporation has the following financial data for 2016 and 2017.
20172016
ASSETS
Current Assets:
Cash$ 48,000$ 14,000
Marketable Securities9,00013,000
Accounts Receivable35,00024,000
Other Current Assets15,00018,000
Total Current Assets107,00069,000
Fixed Assets (net)140,000130,000
Total Assets$247,000$199,000
LIABILITIES
Current Liabilities$ 72,000$ 52,000
Longterm Liabilities50,00037,000
Total Liabilities$122,000$ 89,000
Total Stockholders’ Equity$125,000$110,000
Total Liabilities And Stockholders’ Equity$247,000$199,000
What is Transic’s working capital for 2017?
a. $35,000
b. $125,000
c. $90,000
d. $18,000
Orange Inc. had 300,000 shares of $150 par value common stock outstanding at the
beginning of the year. During the year, the company issued a 3for1 stock split. What is
the number of shares outstanding after the split?
a. 900,000 shares
b. 300,000 shares
c. 600,000 shares
d. 1,200,000 shares