Dillani, Inc. is a consulting firm that offers optimal legal solutions. It allocates indirect
costs using a single predetermined overhead allocation rate with direct labor hours as
the allocation base. The estimated indirect costs for this year amount to $200,000. The
company is expected to work 8,000 direct labor hours during the year. The direct labor
rate is $300 per hour. Clients are billed at 120% of direct labor cost. Last month,
Dillani’s consultants spent 170 hours on Davenport, Inc. Calculate the operating income
from Davenport.
A) $51,195
B) $51,000
C) $164,333
D) $5,950
A company decides to ignore a very small error in its inventory balance. This is an
example of the application of the ________.
A) conservatism
B) materiality concept
C) disclosure principle
D) consistency principle
Which of the following statements describes an invoice from a supplier?
A) It is an order to purchase goods from a supplier.
B) It is a statement from the supplier showing the goods purchased and the amount due.
C) It is a report showing that the goods have been received in good condition, as
ordered.
D) It is a document authorizing a payment to a supplier.
Seria, Inc. has received a bulk order from an overseas client. As a result, the reported
earnings of this year are expected to be significantly higher than the estimates of
financial analysts. Joshua, an accountant at Seria, tells this to one of his friends. Which
of the IMA standards has Joshua violated?
A) objectivity
B) competence
C) confidentiality
D) technicality
Which of the following statements is true of financial accounting?
A) It provides information to investors needed for their investment decisions.
B) It provides forward-looking information needed for managing and delegating
operations.
C) It focuses on detailed reports for parts of the company rather than the whole
company.
D) It focuses on planning and controlling day-to-day operations.
David, an employee of Cecil, Inc., has gross salary for March of $5,900. The entire
amount is under the OASDI limit of $117,000, and thus subject to FICA. He is also
subject to federal income tax at a rate of 30%. His year-to-date pay has already
exceeded the $7,000 cap for FUTA and SUTA. The journal entry to record the
employer’s payroll tax expense includes a credit to FICA—OASDI Taxes Payable for
$365.80. (Assume a FICA—OASDI Tax of 6.2% and FICA—Medicare Tax of 1.45%.)
An invoice of $600 for merchandise purchased is showing 3/15, n/30 as terms of credit.
If the invoice is paid on or before the fifteenth day, the amount to be paid is ________.
A) $582
B) $600
C) $618
D) $621
Anthony Chemicals, Inc. has fixed costs of $34,000 per month. The highest production
volume during the year was in January when 120,000 units were produced, 72,000 units
were sold, and total costs of $610,000 were incurred. In June, the company produced
only 54,000 units. What was the total cost incurred in June? (Round any intermediate
calculations to the nearest cent and your final answer to the nearest dollar.)
A) $259,200
B) $293,200
C) $610,000
D) $644,000
Isabelle’s gross pay for the week is $920.00. Her deduction for federal income tax is
based on a rate of 22%. She has voluntary deductions of $190.00. Her yearly pay is
under the limit for OASDI. What is her net pay? (Assume a FICA—OASDI Tax of
6.2% and FICA—Medicare Tax of 1.45%.)
A) $527.60
B) $717.60
C) $647.22
D) $457.22
As per the ________, the entity will remain in operation for the foreseeable future.
A) economic entity concept
B) monetary unit assumption
C) going concern assumption
D) cost principle
Which of the following is the major difference between the accounting for equity
securities and debt securities?
A) Debt securities are classified as liabilities, while equity securities are classified as
assets.
B) Debt securities are classified as trading investments, while equity securities are
classified as held-to-maturity investments.
C) Debt securities earn interest revenue, while equity securities earn dividend revenue.
D) Debt securities of all types have a maturity date, while only a few equity securities
have a maturity date.
Residual income indicates how ________.
A) efficiently a division uses its average assets to generate sales and thereby profits
B) much operating income the division earns on every dollar of sales
C) much return a division generates on average assets
D) much extra operating income a division generates above the minimum acceptable
level
Closing entries are journalized and posted ________.
A) throughout the accounting period
B) before posting the adjusting entries
C) after preparing the post-closing trial balance
D) after preparing the financial statements
Which of the following triggers manufacturing under the just-in-time management
system?
A) increased purchases
B) consumer demand
C) government pressure
D) budgeted profit
Which of the following statements is true of expenses?
A) Expenses increase equity, so an expense account’s normal balance is a credit
balance.
B) Expenses decrease equity, so an expense account’s normal balance is a credit
balance.
C) Expenses increase equity, so an expense account’s normal balance is a debit balance.
D) Expenses decrease equity, so an expense account’s normal balance is a debit balance.
Which of the following statements is true?
A) Both a stock dividend and a stock split increase the balance in the common stock
account.
B) Both a stock dividend and a stock split reduce retained earnings.
C) Neither a stock dividend nor a stock split will result in net gains or losses.
D) A stock split increases the par value per share of the stock.
Donnelley Products sells 2,500 kayaks per year at a sales price of $470 per unit.
Donnelley sells in a highly competitive market and uses target pricing. The company
has $1,000,000 of assets, and the shareholders wish to make a profit of 16% on assets.
Variable cost is $180 per unit and cannot be reduced. Assume all products produced are
sold. What are the target fixed costs?
A) $1,175,000
B) $1,015,000
C) $160,000
D) $565,000
Hurst Company sells hand-sewn shirts for $40 per shirt. It incurs monthly fixed costs of
$7,000. The contribution margin ratio is calculated to be 50%. What is the breakeven
point in units? (Round your answer up to the nearest whole unit.)
A) 175 units
B) 3,500 units
C) 80 units
D) 350 units
Which of the following is a key performance indicator of the financial perspective in a
balanced scorecard?
A) hours of employee training
B) number of warranty claims
C) percentage of market share
D) return on investment
Alex, an employee of Super Sunday, Inc., has gross salary for March of $5,500. The
entire amount is under the OASDI limit of $117,000 and thus subject to FICA. The total
amount of employee FICA tax is $841.50. (Assume a FICA—OASDI Tax of 6.2% and
FICA—Medicare Tax of 1.45%.)
Analyze each of the following transactions in terms of their effects on the accounting
equation of Hawkins Delivery Service. Enter the correct amounts in the columns of the
spreadsheet.
a) James Hawkins contributes $75,000 to the business. The business issues common
stock to James.
b) The business purchases $750 of office supplies on account.
c) The business pays cash to purchase a delivery van for $25,000.
d) Services are performed for clients and $5,000 cash is received.
e) Cash is paid for office rent expense, $800 and utilities expense, $400.
f) Cash dividends of $1,000 are paid to stockholders.
Blake Sodas, Inc. has budgeted direct materials inventory purchases as follows:
October: $300,000
November: $360,000
December: $460,000
Blake Sodas, Inc. pays for 20% of their purchases during the month of purchase, 70%
during the month following the purchase, and the remaining 10% two months after the
month of purchase. What is the budgeted accounts payable balance on December 31?
A) $368,000
B) $404,000
C) $460,000
D) $440,000
A company is planning to replace an old machine with a new one. Which of the
following is a sunk cost?
A) cost of the new machine
B) sales price of the old machine
C) future maintenance costs of the old machine
D) original cost of the old machine
The 2017 balance for Mason Electronics reported the following items — with 2016
figures given for comparison:
Net income for 2016 was $25,000. Compute the rate of return on common stockholders’
equity for 2016. (Round to two decimal places. Show your computations.)
A) 4.38%
B) 10.37%
C) 11.09%
D) 4.69%
On August 31, 2016, Peter Services received $3,500 in advance of performing the
service. Which journal entry is needed to record the receipt of cash?
A) Debit Unearned Revenue $3,500, and credit Cash $3,500.
B) Debit Cash $3,500, and credit Service Revenue $3,500.
C) Debit Unearned Revenue $3,500, and credit Service Revenue $3,500.
D) Debit Cash $3,500, and credit Unearned Revenue $3,500.
Unearned Revenue is classified as a(n) ________ account.
A) liability
B) asset
C) revenue
D) equity
Under the perpetual inventory system, when a wholesaler returns the goods purchased
on account, the ________ account is credited.
A) Accounts Receivable
B) Merchandise Inventory
C) Cost of Goods Sold
D) Accounts Payable
The responsibility report of Keith Parker, the manager of one of the divisions of an auto
parts manufacturing company, includes profits as well as return on investment and
residual income. Keith is most likely the manager of a(n) ________.
A) investment center
B) profit center
C) cost center
D) revenue center
Which of the following statements is true of an activity-based costing system?
A) It uses separate predetermined overhead allocation rates for each activity.
B) It is not as accurate or precise as traditional costing systems.
C) It accumulates overhead costs by processing departments.
D) It is not as complex or as costly as traditional systems.
If $30,000 is invested for one year at an annual interest rate of 13%, it will grow in
value to ________.
A) $33,900
B) $36,208
C) $3,900
D) $32,308
Glendale Corporation had the following transactions in August:
Earned $5,000 of revenues on account; collected $5,000 from a customer for services
provided last month; incurred $500 of repair expense and paid cash; paid $600 for rent
that it owed from the previous month.
What is the net income in August?
A) $500
B) $5,000
C) $9,500
D) $4,500
Which of the following accounting principles requires that warranty expense must be
estimated and recognized in the same period when the related sales revenue is
recognized?
A) the matching principle
B) the disclosure principle
C) the revenue principle
D) the consistency principle
Based on the following, what is the total fixed overhead variance for the total
production cost flexible budget variance?
A) $650 F
B) $425 F
C) $350 U
D) $725 U
Distinguish the following costs as prevention, appraisal, internal failure, or external
failure:
a) Rework substandard products
b) Technical support provided to suppliers
c) Warranty repairs and replacements
d) Inspection of test equipment
e) Liability arising from defective products
f) Field testing and appraisal at customer site
g) Disposal of defective products