The beginning balance in the Retained Earnings account of a company was $11,000.
The revenues and expenses were $220,000 and $170,000, respectively. During the year,
the company paid dividends of $4,000. The ending balance in Retained Earnings was
$61,000.
On the income statement, a merchandising company reports the cost of merchandise
inventory that has been sold to customers.
The operating cycle is the time span required for a business to repay its long-term
liabilities.
Debentures are bonds that mature in installments at regular intervals.
Warranty Expense is shown on the income statement at the estimated amount.
An intangible asset is an asset with no physical form that is valuable because of the
special rights it carries.
The investing activities section of the statement of cash flows reports cash receipts and
payments that increase or decrease long-term liabilities.
Regardless of the type of responsibility center, responsibility reports should focus on
information, not blame.
The Merchandise Inventory account is an expense account that is used only for goods
purchased that the business owns and intends to resell to customers.
To calculate budgeted direct labor costs, multiply the number of units to be produced by
the number of projected direct labor hours. Next, multiply that total by the actual direct
labor cost per hour.
In a trial balance, total debits must always equal total credits.
The breakeven point is the point where the sales revenues are equal to the fixed costs.
Process costing rather than job order costing is more appropriate for service companies.
The predetermined overhead allocation rate is an estimated overhead cost per unit of the
allocation base and is calculated at the beginning of the accounting period.
The double-declining-balance method is an accelerated method of depreciation.
Arturo Company sells two generators—Model A and Model B—for $454 and $396,
respectively. The variable cost of Model A is $408 and of Model B is $314. If Arturo
Company’s sales incentives reward sales of the goods with the highest contribution
margin, the sales force will be motivated to push sales of Model A more aggressively
than Model B.
A company should decide to process its product further if the additional processing
generates higher sales revenues.
While calculating the budgeted cash payments for selling and administrative expenses,
noncash expenses like depreciation are also considered.
In the worksheet, the adjusted balance of the Service Revenue account appears in the
credit column of the income statement.
Financial leverage occurs when a company earns less income on borrowed money than
the related interest expense.
Under the Sarbanes-Oxley Act, accounting firms are allowed to audit a public company
and provide certain consulting services for the same client.
Liabilities are economic resources that are expected to benefit the business in the future.
Under both the allowance method and the direct-write off method of accounting for
uncollectible accounts, the amount of bad debts expense is to be estimated at the end of
each accounting period.
Using the FIFO method of inventory valuation will always produce the same results
whether a company uses perpetual or periodic inventory costing methods.
Inventory turnover measures the number of times a company sells its average level of
merchandise inventory during a period.
A company produces 300 microwave ovens per month, each of which includes one
electrical circuit. The company currently manufactures the circuit in-house but is
considering outsourcing the circuits at a contract cost of $34 each. Currently, the cost of
producing circuits in-house includes variable costs of $28 per circuit and fixed costs of
$5,000 per month. The controller says that they could outsource production of the
circuit, if it reduces fixed cost more than $1,800 per month. Is this statement true or
false?
For a manufacturer, rent paid for an office building is an example of a period cost.
A payment of an expense in advance is called a prepaid expense.
In a standard cost system, the manufacturing overhead allocated to production equals
the standard overhead allocation rate multiplied by the standard quantity of the
allocation base allowed for expected output.
Compound interest assumes that all interest earned will remain invested and earn
additional interest at the same interest rate.
The fair value method is used to account for available-for-sale investments because they
are normally sold in the near future at their current market value.
Transnational Company plans to purchase a property to build its corporate headquarters.
An investor is willing to exchange land worth $500,000 for common stock. This
transaction would be shown in the financing activities section of the statement of cash
flows.
Target full product cost equals the revenue at the market price minus the desired profit.
Which of the following statements is true if a bond’s stated interest rate is the same as
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.
Which of the following can increase a company’s return on investment?
A) decrease in operating income
B) decrease in total assets
C) decrease in asset turnover ratio
D) decrease in residual income
Which of the following sections of the statement of cash flows includes the issuance of
stock and the payment of cash dividends?
A) the investing activities section
B) the financing activities section
C) the operating activities section
D) the non-cash investing and financing section
Which of the following is not a method of estimating the amount of bad debt expense at
the end of the accounting period?
A) percent-of-receivables method
B) percent-of-sales method
C) direct write-off method
D) aging-of-receivables method
Restrictions on retained earnings are ________.
A) reported on the statement of cash flows
B) usually reported in the notes to the financial statements
C) reported on the income statement
D) designed to maximize dividends paid to shareholders
Bradley Corporation received cash from issuing 17,000 shares of common stock at par
on January 1, 2017. The stock has a par value of $0.05 per share. Which is the correct
journal entry to record this transaction?
A) Cash is debited for $850, and Common Stock—$0.05 Par Value is credited for $850.
B) Cash is credited for $17,000 and Common Stock—$0.05 Par Value is debited for
$17,000.
C) Paid-In Capital in Excess of Par—Common is debited for $16,150, and Common
Stock—$0.05 Par Value is credited for $16,150.
D) Cash is debited for $17,000, Common Stock—$0.05 Par Value is credited for $850,
and Paid-In Capital in Excess of Par-Common credited for $16,150.
The entire sequence of activities that add value to a company’s products and services is
called ________.
A) the value chain
B) the planning process
C) TQM production chain
D) Enterprise Resource Planning
Jennings Company manufactures ceiling fans and uses an activity-based costing system.
Each ceiling fan has 20 separate parts. The direct materials cost is $85 and each ceiling
fan requires 2.50 hours of machine time to manufacture. Additional information is as
follows:
What is the total manufacturing cost per ceiling fan? (Round any intermediate calculations
and your final answer to the nearest cent.)
A) $97.70
B) $104.80
C) $112.80
D) $116.70
State unemployment compensation tax (SUTA) is not withheld from employees’ gross
earnings.
The static budget, at the beginning of the month, for Bob’s Deep Sea Fishing Company
follows:
Static budget:
Sales volume: 2,000 units; Sales price: $50.00 per unit
Variable costs: $14.00 per unit; Fixed costs: $25,200 per month
Operating income: $46,800
Actual results, at the end of the month, follows:
Actual results:
Sales volume: 1,900 units; Sales price: $59.00 per unit
Variable costs: $16 per unit; Fixed costs: $34,300 per month
Operating income: $47,400
Calculate the flexible budget variance for operating income.
A) $3,600 U
B) $3,600 F
C) $4,200 F
D) $17,100 F
Which of the following items are reconciling items on the book side of the
reconciliation?
A) outstanding checks and correction of book error
B) deposit in transit and NSF check
C) bank service charge and outstanding checks
D) bank service charge and correction of book error
Angelo Services, Inc. reported the following balance sheet information for the year
2017. Based on the following information, calculate the rate of return on total assets for
Angelo Services, Inc.
A) 11.28%
B) 7.93%
C) 17.07%
D) 7.17%
Western Outfitters projected sales of 79,000 units for the year at a unit sales price of
$12.00. Actual sales for the year were 73,000 units at $14.00 per unit. Variable costs
were budgeted at $4.00 per unit, and the actual variable cost was $5.00 per unit.
Budgeted fixed costs totaled $375,000 while actual fixed costs amounted to $415,000.
What is the flexible budget variance for operating income?
A) $209,000 unfavorable
B) $33,000 favorable
C) $33,000 unfavorable
D) $73,000 favorable
Adjusting entries are recorded in the ________.
A) cash payments journal
B) purchases journal
C) cash receipts journal
D) general journal
Mermaid Outfitters projected sales of 78,000 units for the year at a unit sales price of
$15.00. Actual sales for the year were 70,000 units at $15.00 per unit. Variable costs
were budgeted at $4.50 per unit, and the actual variable cost was $4.80 per unit.
Budgeted fixed costs totaled $376,000, while actual fixed costs amounted to $400,000.
What is the sales volume variance for operating income?
A) $39,000 unfavorable
B) $84,000 unfavorable
C) $84,000 favorable
D) $45,000 unfavorable
Depreciation expense is recorded in a ________.
A) cash payments journal
B) sales journal
C) cash receipts journal
D) general journal
Property, plant, and equipment are categorized as ________.
A) current assets
B) plant assets
C) long-term investments
D) short-term investments
The degree of operating leverage can be measured by ________.
A) dividing the contribution margin by operating income
B) dividing the fixed costs by the sales price per unit
C) multiplying the contribution margin by sales revenue
D) dividing the fixed costs by contribution margin
Gainesville Company has provided the following information:
Calculate the contribution margin ratio. (Round your answer to two decimal places.)
A) 21.43%
B) 82.35%
C) 64.71%
D) 78.57%
A shortened form of the ledger is called a ________.
A) trial balance
B) balance sheet
C) chart of accounts
D) T-account
Jason’s gross pay for the week is $1,900. His yearly pay is under the limit for OASDI.
Assume that the rate for state and federal unemployment compensation taxes is 6% and
that Jason’s year-to-date pay has not yet exceeded the $7,000 cap. His yearly pay is
under the limit for OASDI. What is the total amount of payroll taxes that his 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) $107.35
B) $117.80
C) $259.35
D) $233.74
In considering whether a company should invest in debt or equity securities of another
company, which of the following statements is incorrect?
A) The company wants to make the best use of its excess cash to generate investment
income.
B) Investment income consists of interest earned from equity securities and dividends
earned from debt investments.
C) Investment income includes increases in the market value of debit or equity
securities.
D) The excess cash that can be invested could be the result of temporary or seasonal
business fluctuations.
Regarding controllable costs, which of the following statements is incorrect?
A) The production manager cannot make the decision to replace older equipment.
B) All costs are ultimately controllable at the upper levels of management.
C) The production manager is not responsible for avoiding waste of direct materials.
D) The production manager must be able to control all costs of his or her department.
Which of the following is an asset that represents distinctive identifications of a product
or service?
A) license
B) copyright
C) franchise
D) trademark
Which of the following represents the combined sum of direct labor and manufacturing
overhead?
A) conversion costs
B) period costs
C) prime costs
D) fixed costs
Viva, Inc. bought machine X for $18,000 two years ago. The machine had no residual
value and had an estimated useful life of 10 years. If the company uses the straight-line
depreciation method, calculate the current book value of the machine.
A) $14,400
B) $3,600
C) $19,800
D) $18,000
Which of the following financial statements reports that total assets are equal to total
liabilities plus total stockholders’ equity?
A) Statement of retained earnings
B) Statement of cash flows
C) Income statement
D) Balance sheet
Osbourne, Inc. issued 60,000 shares of common stock in exchange for manufacturing
equipment. The equipment has a fair value of $1,420,000. The stock has a par value of
$0.05 per share. The journal entry to record this transaction includes a ________.
A) debit to Cash for $14,170,000
B) credit to Gain on Sale of Common Stock for $1,480,000
C) credit to Paid-In Capital in Excess of Par—Common for $1,417,000
D) credit to Common Stock—$0.05 Par Value for $1,420,000
Willow Golf Course is planning for the coming golfing season. Investors would like to
earn a 10% return on the company’s $60,000,000 of assets. The company primarily
incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be
$32,000,000 for the season. About 600,000 rounds of golf are expected to be played
each year. Variable costs are about $15 per round of golf. Willow golf course is a
price-taker and will not be able to charge more than its competitors, who charge $78 per
round of golf. Compute the operating profit that will be earned.
A) $5,800,000
B) $6,000,000
C) $87,800,000
D) $46,800,000
Under the perpetual inventory system, what is the difference between a sales return and
a sales allowance?
A) A sales return reduces the amount receivable from the customer, but a sales
allowance does not.
B) A sales return involves an adjustment to Merchandise Inventory, but a sales
allowance does not.
C) A sales return requires a debit to Sales Returns and Allowances, but a sales
allowance does not.
D) A sales return is not deducted from sales revenue to calculate net sales, but a sales
allowance is deducted from sales revenue.
Which of the following is true of a purchases journal?
A) For a periodic inventory system, the Merchandise Inventory DR column is replaced
with a column titled Cost of Goods Sold DR.
B) Cash purchases are recorded in the purchases journal.
C) For a perpetual inventory system, a column titled Purchases DR is needed.
D) The Other Accounts DR column is used for purchases on account of items other than
merchandise inventory and office supplies.
Josiah, Inc. provides the following information for 2017:
The company has no preferred stock outstanding. Calculate the earnings per share for
2017. (Round your answer to two decimal places.)
A) $0.83 per share
B) $2.19 per share
C) $1.71 per share
D) $1.40 per share
Which of the following is a requirement of the Sarbanes-Oxley Act?
A) An outside auditor must evaluate the client’s internal controls and report on the
internal controls as part of the audit report.
B) The Public Company Oversight Board must conduct audits of public companies.
C) The accounting firm that audits a public client must also provide consulting services
for the same client.
D) The Public Company Oversight Board must create new accounting standards.
Doug, an employee of Cayman Travels, Inc., has gross salary for March of $4,000. The
entire amount is under the OASDI limit of $117,000, and thus subject to FICA. His
year-to-date pay has already exceeded the $7,000 cap for FUTA and SUTA. Provide the
journal entry to record the employer’s payroll taxes. (Assume a FICA—OASDI Tax of
6.2% and FICA—Medicare Tax of 1.45%.)
The accounts of Delphinia Dreams, Inc. showed the following balances at the beginning
of October:
During the month, direct materials amounting to $21,000 and indirect materials amounting
to $6,000 were issued to production. What is the ending balance in the Work-in-Process
Inventory account following these two transactions?
A) $44,000
B) $65,000
C) $10,000
D) $26,000