A partnership is an accounting entity separate and apart from its owners.
Under the partnership form of business, it may be difficult to raise large amounts of
capital.
Profitability is the ability to pay bills when due and to meet unexpected needs for cash.
The total overhead cost variance is the difference between what actual overhead cost is
and what it should have cost according to the flexible budget for the good units
produced.
The budgeting function begins with the preparation of a production budget.
An effective system of internal control centralizes functions in a single, capable
individual.
The par value of stock is an arbitrary amount assigned to each share of stock.
Sunk costs arise when the choice of one course of action eliminates the possibility of
another course of action.
Outsourcing is the use of suppliers outside the organization to perform services or
produce goods that could be performed or produced internally.
The average costing method in process costing disregards the ending inventory
assuming that direct material costs and conversion costs are pertaining to the immediate
next period.
Management accountants working in purchasing department must decline gifts from
company vendors; because this might influence, or be perceived as influencing their
performance or decision analyses.
Sales Discounts and Sales Returns and Allowances are contra-revenue accounts.
The standard costing method uses estimated costs to find product unit cost.
Contributed capital by owners is one source of long-term funds and is considered a type
of long-term liability.
The sale of treasury stock at an amount less than cost results in a loss to be reported on
the income statement.
The purchase of land with cash would be disclosed on the statement of cash flows.
A job order costing system is used by companies that manufacture large amounts of
similar products.
Nexus Star Inc. produces various kinds of oils. One of its product, Product X, is made
from castor oil, beeswax, aloe vera, and a base compound.
For the next 12 months, the company’s purchasing agent believes that the cost of
ingredients will be as follows:
The direct labor time standard is 3.50 hours per unit at a standard direct labor rate of
$12.00 per hour. The standard overhead rates are $15.00 per direct labor hour for the
standard variable overhead rate and $13.00 per direct labor hour for the standard fixed
overhead rate.
a. Using these production standards, compute the standard unit cost of direct materials
per unit if it takes 0.50 gallon of castor oil, 1 pound of beeswax, 0.25 gallon of aloe
vera, and 1 gallon of base compound to produce one unit of product X. Round values to
two decimal places.
b. Using the standard unit cost of direct materials per case determined in (a) and the
production standards given for direct labor and overhead, compute the standard unit
cost of one unit of product X.
Scuilli Company purchased $5,000 worth of merchandise, terms n/30, from Zupcic
Company on June 4. The cost of the merchandise to Zupcic was $3,600. On June 10,
Scuilli returned $700 worth of goods to Zupcic for full credit. The goods had a cost of
$450 to Zupcic. On June 12, the account was paid in full. Prepare entries in journal
form without explanations to record these transactions in (a) Scuilli’s records and (b)
Zupcic’s records. Assume use of the perpetual inventory system by both companies.
a. Scuilli’s records:
b. Zupcic’s records:
How many units must BAC Company sell to break even if the selling price per unit is
$8.50, variable costs are $4.00 per unit, and fixed costs are $9,000?
A.1,000 units
B.1,059 units
C.2,000 units
D.2,250 units
Use this information to answer the following question.
Northbrook Corporation is preparing a statement of cash flows. The following
transactions occurred during the year:
1> Sold machinery for $9,000 cash.
2> Purchased a building for $80,000 cash.
3> Issued $70,000 worth of stock to acquire an airplane.
4> Converted long-term bonds by issuing $100,000 worth of stock.
5> Declared and paid a $10,000 cash dividend.
Transaction 3 would be found on the statement of cash flows in the
A.cash flows from operating activities section.
B.cash flows from financing activities section.
C.noncash investing and financing transactions section.
D.cash flows from investing activities section.
Use the following information to calculate the liquidity and profitability ratios listed
below. Round to two decimal places.
a. Current ratio
b. Working capital
c. Return on equity
d. Profit margin
e. Debt to equity ratio
f. Return on assets
g. Asset turnover
Liabilities that might arise from which of the following probably would be disclosed
only in the notes to the financial statements?
A.Possible warranty claims
B.Guarantees of the debt of other companies
C.Possible bankruptcy of an important customer whose account is current
D.Estimated income taxes for the current year
If the direct method is used to prepare a statement of cash flows, the cost of goods sold
from the income statement will be adjusted
A.for changes in inventory to arrive at net purchases.
B.for changes in accounts payable to arrive at cash payments for purchases.
C.Both of these choices.
The total overhead cost variance is equal to the difference between
A.fixed overhead costs and variable overhead costs.
B.estimated overhead rate and applied overhead rate.
C.actual overhead costs and variable overhead costs.
D.actual overhead costs and standard overhead costs.
Assume the direct method is used to compute net cash flows from operating activities.
For this item extracted from the financial statements’”Decrease in Accounts
Receivable’”indicate the effect on cash receipts from sales by choosing one of the
following:
A.Add to Sales to arrive at cash receipts from sales.
B.Subtract from Sales to arrive at cash receipts from sales.
C.Not used to adjust Sales to arrive at cash receipts from sales.
Compute the July 2014 cost of capital (rounded to nearest percent) for an investment
center with the following information:
A.5 percent
B.53 percent
C.10 percent
D.61 percent
If the difference between overhead applied and actual overhead is insignificant, it is
usually written off to
A.Cost of Goods Sold.
B.Work in Process Inventory.
C.Finished Goods Inventory.
D.Materials Inventory.
Which of the following is one of the conditions for recognition of an expense?
A.There is a reasonable expectation that cash will be received.
B.The expense can be recognized only when cash is paid.
C.The goods will be delivered or the services will be provided within the accounting
cycle.
D.The goods or services are used to produce revenue.
In terms of cost behavior, supervisory salaries and direct labor are classified as
A.fixed and variable, respectively.
B.variable.
C.fixed.
D.mixed and fixed, respectively.
The depletion calculation is similar to which of the following depreciation methods?
A.Double-declining-balance
B.Straight-line
C.Group
D.Production
The type of product costing system used by a company is dictated by the
A.project manager.
B.production process.
C.company president.
D.plant supervisor.
Overestimating the number of tons of a mineral that can be mined over a mineral
deposit’s life will result in
A.understated total assets each year.
B.understated net income each year.
C.understated depletion expense each year.
D.no effect on total assets each year.
Equipment is purchased for $60,000. It has a five-year useful life and a $10,000
residual value. Under the double-declining-balance method, what is the depreciation
expense for year 3?
A.$6,400
B.$7,200
C.$7,680
D.$8,640
On January 2, 20×5, Preston Corporation issued 20-year bonds payable with a face
value of $300,000 and a face interest rate of 8 percent. The bonds were issued to yield a
market interest rate of 9 percent. Interest is payable semi-annually on January 1 and
July 1. In calculating the present value of the bond issue of January 2, 20×5, the
periodic interest payments to be used are
A.$24,000
B.$12,000
C.$27,000
D.$13,500
A merchandiser will earn an operating income of exactly $0 when
A.gross margin equals operating expenses.
B.net sales equals cost of goods sold.
C.cost of goods sold equals gross margin.
D.operating expenses equal net sales
Kristen Roper oversees her company’s largest and most profitable investment center.
She has asked you, as her staff accountant, to compute the center’s ROI, residual
income, and EVA for the month of August 2014, using the following information
(rounded to two decimal places):
Lee Sisters reports income before income taxes of $20,000 during 2014. If beginning
inventory was understated by $6,000 and ending inventory was overstated by $2,400,
calculate corrected income before income taxes for the year. (Show your work.)
The entry for establishing a $300 petty cash fund would be:
Indicate on the blanks below the letter of the type of activity (O = operating activity, F
= financing activity, I = investing activity, N = noncash transaction) each of the
following transactions represents.
_____ 1> Firm sold 8,000 shares of its own common stock for cash.
_____ 2> Sold $200,000 worth of products for cash.
_____ 3> Paid $120,000 dividend.
_____ 4> Received $1,500 in interest income.
_____ 5> Exchanged 6,000 shares of stock for 15-year bonds.
_____ 6> Paid $121,000 to the U.S. Treasury for income taxes.
Chelsea, Harold, and Ryan are liquidating their business. They share income and losses
in a 1:2:3 ratio, respectively, and currently have capital balances of $30,000, $26,000,
and $24,000, respectively. In addition, the partnership has $10,000 in cash, $30,000 in
accounts payable, and $100,000 in noncash assets. Chelsea and Harold are personally
solvent, but Ryan is not. Assuming that the noncash assets are sold for $40,000, prepare
all liquidation entries in the journal provided without explanation.
Riley Company has a credit balance of $44,000 in its Allowance to Adjust Long-Term
Investments to Market account at the end of the year, before adjustment. Its investment
portfolio has a total cost of $300,000 and a market value of $264,000 at December 31, a
balance sheet date. The year-end adjustment entry that would be recorded in the books
of Riley Company is:
Use this information to answer the following question. These facts concern the
long-term stock investments of DeBord Corporation:
The entry to record the purchase of the Vanhook Corporation common stock is:
Give two explanations for why the amount of cash outflow for equipment for the year
might not equal the increase in the Equipment account balance from one balance sheet
date to the next.
The following amounts are taken from the balance sheets of Candy Cane Enterprises:
During 20×5, expenses related to prepaid expenses were $206,000, and expenses related
to accrued liabilities were $394,000. Determine the amount of cash payments related to
prepaid expenses and to accrued liabilities for 20×5.
