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Investments accounted for by the equity method are recorded at cost at the time of
purchase.
Absorption costing is more appropriate when determining the product costs for
long-term planning.
The Accumulated Depreciation account is a permanent account.
The permanent accounts—assets, liabilities, and stockholders' equity—are closed to the
Common Stock account.
An objective of the budgeting process is to communicate a single, unified,
comprehensive plan for the business.
Value engineering means reevaluating activities to reduce costs while still satisfying
customer needs.
Although the direct method is easier to use, the Financial Accounting Standards Board
(FASB) prefers the indirect method of reporting cash flows from operating activities.
In a process costing system, each process or department has its own Work-in-Process
Inventory account.
A favorable direct materials cost variance occurs when the actual direct materials cost
incurred is greater than the standard direct materials cost.
Dividends are the expenses of a business.
In a vertical analysis of the income statement, each line item is shown as a percentage
of net income.
A lag indicator is a performance measure that forecasts future performance.
Fixed costs divided by contribution margin per unit equals the breakeven point in unit
sales.
The Supplies Expense account is a temporary account.
A process costing system is used when a company produces identical units through a
series of production steps.
A CVP graph shows how changes in the level of sales will affect profits.
The Salaries Payable account is a permanent account.
If the bank reconciliation includes a bank service charge, a journal entry is required,
which debits Bank Expense and credits Cash.
Accounting firms, building contractors, and healthcare providers use process costing.
A company has two different products that sell to separate markets. Financial data are
as follows:
Assume that fixed costs are all unavoidable and that dropping one product would not
impact sales of the other. Because the contribution margin of Product B is negative, it
should be dropped.
When preparing financial statements under the periodic inventory system, a calculation
of cost of goods sold must be made.
A horizontal analysis would be used if an analyst wants to see how the assets of a
company have changed from one year to the next.
The statement of stockholders' equity reports the number of shares and any changes
during the year in preferred, common, and treasury stock.
Companies are required to report plant assets as a single amount, with a note to the
financial statements that provides detailed information.
When a manufacturer changes from using a single plantwide predetermined overhead
rate to multiple predetermined overhead allocation rates, the product unit cost may be
more accurate.
When using the effective-interest amortization method, the discount amortization is the
excess of the calculated interest payment over the interest payment.
Direct costs and indirect costs can be easily traced directly to a cost object.
If a business is considering whether to replace old equipment with newer equipment,
the cost of operating the old equipment, compared to the cost of operating the new
equipment, is relevant to the business decision.
A payable involves a future receipt of cash.
The personnel manager projects direct labor costs.
Qtopia Electric Company uses the direct method to prepare its statement of cash flows.
Qtopia has reported cost of goods sold of $85,000 on its income statement for 2017. If
the balance in Accounts Payable, for merchandise inventory suppliers only, has
decreased by $8,000 during the year, then $8,000 needs to be subtracted from $85,000
to calculate payments to suppliers for merchandise inventory purchases.
Timothy's gross pay for this month is $8,950. His gross year-to-date pay, prior to this
month, totaled $112,000. What is the amount of FICA tax withheld from Timothy's pay
for this month? (Assume an OASDI rate of 6.2%, applicable on the first $117,000
earnings, and a Medicare rate of 1.45%, applicable on all earnings.)
A) $310.00
B) $129.78
C) $439.78
D) $554.90
A petty cash fund was established with a $600 balance. It currently has cash of $19 and
petty cash tickets as shown below:
Which of the following would be included in the journal entry to replenish the Petty Cash
fund?
A) debit to Cash Short & Over for $115
B) credit to Cash Short & Over for $115
C) debit to Petty Cash for $115
D) credit to Petty Cash for $115
Which of the following factors is assessed using the debt ratio?
A) expenses
B) revenues
C) risk
D) income
The last step in the capital budgeting process is control, which compares the actual
results with the projected results. These comparisons are known as ________.
A) net cash inflows
B) post-audits
C) rankings
D) variance analysis
Which of the following statements is true if a bond's stated interest rate is higher than
the market rate?
A) The bond will be issued at a premium.
B) The bond will be issued at par.
C) The bond will be issued at a discount.
D) The bond will be issued for an amount lower than the maturity value.
Under which of the following categories would Accounts Payable appear?
A) Long-term assets
B) Current assets
C) Long-term liabilities
D) Current liabilities
Which of the following is a capital budgeting method?
A) return on assets
B) net present value
C) inventory turnover
D) return on equity
Brad was a professional classical guitar player until a motorcycle accident at left him
disabled. After long months of therapy, he hired an experienced luthier and started a
small shop to make and sell Spanish guitars. The guitars sell for $700 each, and the
fixed monthly operating costs are as follows:
Brad's accountant told him about contribution margin ratios, and Brad understood clearly
that for every dollar of sales, $0.60 went to cover his fixed costs, and anything above that
point was profit.
Brad is planning to increase the sales price to $820. What impact will the increase in sales
price have on the breakeven point in units? (Round your answer up to the nearest whole
guitar.)
A) It will stay the same.
B) It will go down from 12 to 8 units.
C) It will go up from 8 to 12 units.
D) It will go down from 10 to 8 units.
In a typical computerized accounting information system, ________.
A) transactions must be recorded in debit and credit format
B) the software automatically knows to record a debit or a credit
C) transactions are posted manually
D) spreadsheets must be used to produce financial statements
A manufacturing company's budgeted income statement includes the following data:
The budget assumes that 60% of commission expenses are paid in the month they were
incurred, and the remaining 40% are paid one month later. In addition, 50% of salaries
expenses are paid in the month incurred and the remaining 50% are paid one month later.
Miscellaneous expenses, rent expense, and utilities expenses are assumed to be paid in the
same month in which they are incurred. Insurance was prepaid for the year on January 1.
How much is the total of the budgeted cash payments for selling and administrative
expenses for the month of May?
A) $50,900
B) $56,600
C) $54,600
D) $45,200
Which of the following statements is true of the behavior of total fixed costs, within the
relevant range?
A) They will remain the same as production levels change.
B) They will increase as production decreases.
C) They will decrease as production decreases.
D) They will decrease as production increases.
Which of the following financial statements would be most useful if an analyst wants to
know the profitability of a company?
A) income statement
B) balance sheet
C) statement of retained earnings
D) statement of cash flows
McFadden, Inc. has collected the following data. (There are no beginning inventories.)
What is the ending balance in Finished Goods Inventory using variable costing if 600 units
are sold?
A) $4,000
B) $5,000
C) $2,000
D) $3,000
Ridley Corporation manufactures two styles of lamps—a Bedford Lamp and a Lowell
Lamp. The following per unit data are available:
Total fixed costs are $40,000. Marketing data indicate that the company can sell up to
6,000 units of the Bedford Lamp and up to 6,000 units of the Lowell Lamp. Machine hour
capacity is 25,000 hours per year. Which product mix will deliver the optimum operating
income?
A) 6,000 Bedford Lamps and 6,000 Lowell Lamps
B) 3,000 Bedford Lamps and zero Lowell Lamps
C) 6,000 Bedford Lamps and 3,250 Lowell Lamps
D) 3,000 Bedford Lamps and 1,500 Lowell Lamps
The Refining Department of Sweet Sugar, Inc. had 79,000 tons of sugar to account for
in July. Of the 79,000 tons, 49,000 tons were completed and transferred to the Boiling
Department, and the remaining 30,000 tons were 50% complete. The materials required
for production are added at the beginning of the process. Conversion costs are added
equally throughout the refining process. Calculate the total equivalent units of
production for direct materials.
A) 64,000 units
B) 49,000 units
C) 15,000 units
D) 79,000 units
A stream of equal cash payments made at equal time intervals is called a(n) ________.
A) present value
B) annuity
C) compound interest
D) future value
Joe's Tires, Inc. reports the following information for the year ended December 31:
The operating income calculated using variable costing and absorption costing amounted
to $9,100 and $11,200, respectively. There were no beginning inventories. Determine the
total fixed manufacturing overhead that will be expensed under absorption costing for the
year.
A) $11,850
B) $9,750
C) $26,000
D) $31,200
Mist Beverages Company sells two products, A and B. Mist predicts that it will sell
2,500 units of A and 2,000 units of B during the next period. The unit contribution
margins are $4.00 and $4.80 for products A and B, respectively. What is the
weighted-average unit contribution margin? (Round your answer to the nearest cent.)
A) $4.36
B) $4.40
C) $4.44
D) $8.80
Which of the following is true of the sales budget?
A) It provides sales data that is used to prepare financial statements for external
reporting purposes.
B) It captures the variable and fixed expenses of the business.
C) It is used in the production budget.
D) It shows the cost of expected production in a period.
Jade Investments, Inc. purchased 45% of the common stock of Ivory Corporation on
March 1, 2017. Ivory Corporation reports a net income of $720,000 for the 2017 year.
Which of the following is the correct journal entry?
A)
B)
C)
D)
Pierce Marine Stores Company manufactures special metallic materials and decorative
fittings for luxury yachts that require highly skilled labor. Pierce uses standard costs to
prepare its flexible budget. For the first quarter of the year, direct materials and direct
labor standards for one of their popular products were as follows:
Direct materials: 3 pounds per unit; $4 per pound
Direct labor: 5 hours per unit; $16 per hour
Pierce produced 5,000 units during the quarter. At the end of the quarter, an
examination of the labor costs records showed that the company used 30,000 direct
labor hours and actual total direct labor costs were $372,000. What is the direct labor
efficiency variance?
A) $80,000 U
B) $80,000 F
C) $28,000 F
D) $28,000 U
Regarding gross and net pay, which of the following statements is correct?
A) Gross pay minus all deductions such as income tax withheld equals net pay.
B) Net pay represents the total salaries and wages expense to the employer.
C) For most businesses, gross pay equals net pay.
D) Employers are required to deposit net pay into the employee's bank account.
Allen Company manufactures staplers. The budgeted sales price is $14.00 per stapler,
the variable costs are $3.00 per stapler, and budgeted fixed costs are $10,000. What is
the budgeted operating income for 4,300 staplers?
A) $47,300
B) $37,300
C) $60,200
D) $12,900
When the total fixed costs decrease, the contribution margin per unit ________.
A) increases
B) decreases
C) remains the same
D) decreases proportionately
A company that uses the perpetual inventory system purchases inventory for $63,000 on
account, with terms of 2/10, n/30. Which of the following is the journal entry to record
the payment made within 10 days?
A) a debit to Accounts Payable for $63,000, a credit to Cash for $61,740, and a debit to
Merchandise Inventory for $1,260
B) a debit to Accounts Payable for $63,000, a credit to Merchandise Inventory for
$1,260, and a credit to Cash for $61,740
C) a debit to Merchandise Inventory for $1,260, a debit to Accounts Payable for
$63,000, and a credit to Cash for $64,260
D) a debit to Accounts Payable for $61,740, a debit to Merchandise Inventory for
$1,260, and a credit to Cash for $63,000
Norton Manufacturing is considering the following two investment proposals:
Compute the present value of the future cash inflows from Proposal Y.
Present value of an ordinary annuity of $1:
A) $271,018
B) $324,000
C) $294,640
D) $254,000
A company purchased 100 units for $30 each on January 31. It purchased 170 units for
$25 each on February 28. It sold 170 units for $70 each from March 1 through
December 31. If the company uses the first-in, first-out inventory costing method, what
is the amount of Cost of Goods Sold on the income statement for the year ending
December 31? (Assume that the company uses a perpetual inventory system.)
A) $3,000
B) $4,250
C) $4,750
D) $7,250
Rubio, Inc., a law consulting firm, has been using a single predetermined overhead
allocation rate with direct labor hours as the allocation base to allocate overhead costs.
The direct labor rate is $300 per hour. Clients are billed at 160% of direct labor cost.
Chandler Massey, the president of Rubio, decided to develop an ABC system to more
accurately allocate the indirect costs. He identified two activities related to the total
indirect costs—travel and information technology (IT) support. The other relevant
details are given below:
The predetermined overhead allocation rate for travel will be ________. (Round your
answer to the nearest cent.)
A) $47.20 per mile
B) $56.67 per mile
C) $68.00 per mile
D) $96.00 per mile
A company produces 100 microwave ovens per month, each of which includes one
electrical circuit. The company currently manufactures the circuits in-house but is
considering outsourcing the circuits at a contract cost of $30 each. Currently, the cost of
producing circuits in-house includes variable costs of $24 per circuit and fixed costs of
$6,000 per month. Assume the company could eliminate all fixed costs by outsourcing
and that there is no alternative use for the facilities presently being used to make
circuits. If the company outsources, operating income will ________.
A) increase by $600
B) decrease by $3,000
C) decrease by $600
D) increase by $5,400
The following details are provided by Doppler Company:
Present Value of $1:
Calculate the NPV of the project.
A) $(959,500)
B) $(825,370)
C) $1,015,050
D) $252,500
The entry to record depreciation includes a debit to the ________.
A) Equipment account
B) Cash account
C) Accumulated Depreciation account
D) Depreciation Expense account
Internal failure costs are costs incurred ________.
A) to detect poor-quality materials, goods, or services
B) when the company corrects poor-quality goods or services before delivery to
customers
C) after the company delivers poor-quality goods or services to customers and then has
to make things right with the customer
D) to avoid poor-quality goods or services
________ refers to the benefit given up by choosing an alternative course of action.
A) Opportunity cost
B) Sunk cost
C) Relevant cost
D) Irrelevant cost
Which of the following accounting terms assumes that a business's activities can be
divided into small segments and that financial statements can be prepared for specific
periods, such as a month, quarter, or year?
A) adjusting entry concept
B) economic entity concept
C) matching principle
D) time period concept
