If a company sells merchandise with credit terms 2/10, n/60, the credit period is 10
days and the discount period is 60 days.
Answer:
Dividends are a type of business expense.
Answer:
Internal controls include policies to direct operations toward common goals,
procedures to ensure reliable financial reports, safeguards to protect company assets,
and methods to achieve compliance with laws and regulations.
Answer:
Cycle time is a financial measure commonly used to evaluate a companys production
processes.
Answer:
The profit margin ratio is gross margin divided by total assets.
Answer:
A special journal is used to record and post transactions of a similar type.
Answer:
Partners’ withdrawals are credited to their separate withdrawals accounts.
Answer:
Cash flow amounts and their timing should be examined when planning and analyzing
operating activities.
Answer:
When a process cost accounting system records the purchase of raw materials, the Raw
Materials Inventory account is debited.
Answer:
Income under absorption costing will always be different than income under variable
costing.
Answer:
The income statement shows the financial position of a business on a specific date.
Answer:
A time ticket is a source document an employee uses to record the number of hours at
work and that is used each pay period to determine the total labor cost.
Answer:
When the value of plant assets decline after acquisition, but before disposition, both
GAAP and IFRS require companies to record those decreases as impairment losses.
Answer:
Coors reported net sales of $2,463 million and average total assets of $1,546 million.
Its total asset turnover is equal to 59.
Answer:
Most companies use accelerated depreciation for tax purposes as it reduces taxable
income due to higher depreciation expense in the early years of an asset’s life.
Answer:
Both financial and managerial accounting affect people’s decisions and actions.
Answer:
Overhead costs are often affected by many issues and are frequently too complex to be
explained by any one factor.
Answer:
Neither the payback period nor the accounting rate of return methods of evaluating
investments considers the time value of money.
Answer:
It is not possible to convert reports prepared using variable costing to absorption costing
reports.
Answer:
When there is little uncertainty surrounding current liabilities, both GAAP and IFRS
require companies to record them in a similar manner.
Answer:
When materials are used as indirect materials, their cost is debited to the Factory
Overhead account.
Answer:
Plant assets and intangible assets are usually long-term assets that are used to produce
or sell products and services.
Answer:
Hybrid systems contain aspects of both process and job order operations.
Answer:
If partners devote their time and services to their partnership, their salaries are
expenses on the income statement.
Answer:
A job order cost accounting system would be appropriate for a manufacturer of
automobile tires.
Answer:
Fixed budget performance reports compare actual results with the expected amounts in
the fixed budget.
Answer:
If a partner is unable to cover a deficiency and the other partners absorb the deficiency,
then the partner with the deficiency is thus relieved of all liability.
Answer:
Operating activities include long-term borrowing and repaying cash from lenders and
cash investments by owners or dividends to the owner.
Answer:
The high-low method can be used to derive an estimated line of cost behavior.
Answer:
The purchase of stock in another company is considered to be a financing activity.
Answer:
Federal depository banks are authorized to accept deposits of amounts payable to the
federal government.
Answer:
A journal gives a complete record of each transaction in one place and shows the debits
and credits for each transaction.
Answer:
A manufacturing budget should include a list of equipment to be scrapped and
additional equipment to be purchased if the proposed production budget is carried out.
Answer:
One of the most important decisions in accounting for inventory is determining the unit
costs assigned to each inventory item.
Answer:
Raw materials that become part of a product and are identified with specific units or
batches of a product are called direct materials.
Answer:
Goods in transit are automatically included in a companys inventory account.
Answer:
In process cost accounting, materials are always classified as indirect if they are not
physically incorporated into the final product.
Answer:
The Income Summary account is used to close the permanent accounts at the end of an
accounting period.
Answer:
Daniels Corporation is considering the purchase of new equipment costing $30,000.
The projected annual after-tax net income from the equipment is $1,200, after deducting
$10,000 for depreciation. The revenue is to be received at the end of each year. The
machine has a useful life of three years and no salvage value. Daniels requires a 12%
return on its investments. The factors for the present value of $1 for different periods
follow:
What is the net present value of the machine?
A. $24,018
B. $(3,100)
C. $30,000
D. $26,900
E. $(29,520)
Answer:
The contribution margin per unit expressed as a percentage of the product’s selling price
is the:
A. Volume variance.
B. Margin of safety.
C. Contribution margin ratio.
D. Break-even point.
E. Rate of return on sales.
Answer:
The entry necessary to establish a petty cash fund should include:
A. A debit to Cash and a credit to Petty Cash.
B. A debit to Cash and a credit to Cash Over and Short.
C. A debit to Petty Cash and a credit to Cash.
D. A debit to Petty Cash and a credit to Accounts Receivable.
E. A debit to Cash and a credit to Petty Cash Over and Short.
Answer:
The usual starting point for preparing a master budget is forecasting or estimating:
A. Expenditures
B. Sales
C. Production
D. Income
E. Cash payments
Answer:
The Haskins Company manufactures and sells radios. Each radio sells for $23.75 and
the variable cost per unit is $16.25. Haskin’s total fixed costs are $25,000, and budgeted
sales are 8,000 units. What is the contribution margin per unit?
A. $7.50
B. $16.25
C. $23.75
D. $60,000
E. $1.25
Answer:
Match the following definitions and terms by placing the number that identifies the
best definition in the blank space next to the term:
A) An increase in an asset, dividend, and expense account and a decrease in a liability,
common stock, and revenue account; recorded on the left side of a T-account.
B) A written promise to pay a definite sum of money on a specified future date.
C) A file containing all accounts of a company and their balances.
D) A complete record of all transactions in one place that shows debits and credits for
each transaction.
E) The ratio of total liabilities to total assets; used to reflect the risk associated with the
company’s debts.
F) A list of all accounts used by a company and the identification number assigned to
each account.
G) A list of accounts and their balances at a point in time; the total debt balances should
equal the total credit balances.
H) A decrease in an asset, dividend, and expense account and an increase in a liability,
common stock, and revenue account; recorded on the right side of a T-account.
I) The difference between total debits and total credits for an account including the
beginning balance.
J) An account with debit and credit columns for recording entries and a third column for
showing the balance of the account after each entry.
Answer:
A company identified the following partial list of activities, costs, and activity drivers
expected for the next year:
How much overhead in total will be assigned to the Product A line using activity based
costing?
A. $42,500.
B. $132,900.
C. $90,400.
D. $66,000.
E. $66,450.
Answer:
Common-size statements:
A. Reveal changes in the relative magnitude of each financial statement item.
B. Do not emphasize the relative magnitude of each item.
C. Compare financial statements over time.
D. Show the dollar amount of change for financial statement items.
E. Consist of two or more balance sheets arranged side-by-side.
Answer:
The accounting process begins with:
A. Analysis of business transactions and events.
B. Preparation of financial statements and other reports.
C. Summarizing the recorded effects of business transactions.
D. Presentation of financial information to decision-makers.
E. Preparation of the trial balance.
Answer:
Midwest Rocks receives and produces an order. What is the companys value-added
time assuming the following times were measured during production of this order?
Process time: .7 days Inspection time: .25 days Move time: 1.05 days Wait time: .5 days
A. 1.8 days
B. .7 days
C. .95 days
D. 2 days
E. 2.5 days
Answer:
A company’s sales in 2013 were $250,000 and in 2014 were $287,500. Using 2013 as
the base year, the sales trend percent for 2013 is:
A. 87%
B. 100%
C. 115%
D. 15%
E. 13%
Answer:
Xtreme Sports has $100,000 par, 8% noncumulative, nonparticipating, preferred stock
outstanding. Xtreme Sports also has $500,000 par common stock outstanding. In the
company’s first year of operation, no dividends were paid. During the second year,
Xtreme Sports paid cash dividends of $30,000. This dividend should be distributed as
follows:
A. $8,000 preferred; $22,000 common.
B. $16,000 preferred; $14,000 common.
C. $7,500 preferred; $22,500 common.
D. $15,000 preferred; $15,000 common.
E. $0 preferred; $30,000 common.
Answer:
Reference: 24_02
A company is planning to purchase a machine that will cost $35,000, have a seven-year
life, and be depreciated using the straight-line method with no salvage value. The
company expects to sell the machine’s output of 4,000 units evenly throughout each
year. A projected income statement for each year of the asset’s life appears below:
What is the accounting rate of return for this machine?
A. 14.28%
B. 17.14%
C. 60.0%
D. 8.57%
E. 7%
Answer:
The ability to generate positive market expectations is called:
A. Liquidity and efficiency.
B. Liquidity and solvency.
C. Profitability.
D. Market prospects.
E. Creditworthiness.
Answer:
A plan that shows the expected cash inflows and cash outflows during the budget
period, including receipts from loans needed to maintain a minimum cash balance and
repayments of such loans, is called a(n):
A. Capital expenditures budget.
B. Operating budget.
C. Rolling budget.
D. Cash budget.
E. Income statement.
Answer:
When analyzing the changes on a spreadsheet used to prepare a statement of cash
flows, the cash flows from financing activities generally affect:
A. Net income, current assets, and current liabilities.
B. Noncurrent assets.
C. Noncurrent liabilities and equity accounts.
D. Both noncurrent assets and noncurrent liabilities.
E. Equity accounts only.
Answer:
Reference: 18_05
Thomas Company has total fixed costs of $360,000 and variable costs of $14 per unit.
If the unit sales price is reduced from $24 to $20 and advertising is increased by
$10,000, sales will increase from 40,000 to 65,000 units.
What are the contribution margin and net income under the current conditions?
A. $650,000 and $280,000 respectively.
B. $400,000 and $40,000 respectively.
C. $280,000 and $40,000 respectively.
D. $390,000 and $20,000 respectively.
E. $400,000 and $20,000 respectively.
Answer:
Goods on consignment:
A. Are goods shipped by the owner to the consignee who sells the goods for the owner.
B. Are reported in the consignee’s books as inventory.
C. Are goods shipped to the consignor who sells the goods for the owner.
D. Are not reported in the consignor’s inventory since they do not have possession of
the inventory.
E. Are always paid for by the consignee when they take possession of the goods.
Answer:
Reference: 17_03
Heritage Industries produces miniature models of farm equipment. These collectibles
are in great demand. It takes two operations, molding and finishing, to complete the
miniatures. Next years expected activities are shown in the following table:
Heritage Industries uses departmental overhead rates and is planning on a $1.60 per
direct labor hour overhead rate for the finishing department. Compute the estimated
manufacturing overhead cost for the finishing department given the information shown
in the table.
A. $104,000
B. $156,000
C. $260,000
D. $130,000
E. $286,000
Answer:
The withdrawals account of each partner is:
A. Closed to that partner’s capital account with a credit.
B. Closed to that partner’s capital account with a debit.
C. A permanent account that is not closed.
D. Credited with that partner’s share of net income.
E. Debited with that partner’s share of net loss.
Answer:
Selected information from the budget of the Khalid Corp. at the beginning of the year
follows:
Calculate the predetermined overhead allocation rate if the company uses the following
as a basis:
(A. Direct labor hours.
(B. Direct labor cost.
(C. Machine hours.
Answer:
The main principles of internal control include which of the following:
A. Establish responsibilities.
B. Maintain minimal records.
C. Use only computerized systems.
D. Bond all employees.
E. Require automated sales systems.
Answer:
A company had a market price of $83.12 per share, dividends per share of $5.40, and
earnings per share of $4.87. Its price-earnings ratio is equal to:
A. .056
B. .065
C. 8.09
D. 15.39
E. 17.07
Answer:
A company expects its three departments to yield the following income for next year:
Required: Compute the following independent calculations:
a. The effect on total company income if Dept. O is eliminated.
b. The effect on total company income if Dept. K is eliminated.
c. The effect on total company income if Dept. W is eliminated.
Answer:
The total cost of an asset less its accumulated depreciation is called:
A. Historical cost
B. Book value
C. Present value
D. Current (market) value
E. Replacement cost
Answer:
If the Debit and Credit column totals of a trial balance are equal, then:
A. All transactions have been recorded correctly.
B. All entries from the journal have been posted to the ledger correctly.
C. All ledger account balances are correct.
D. The total debit entries and total credit entries are equal.
E. The balance sheet would be correct.
Answer:
Beta Corporation purchased $100,000 worth of land by paying 10,000 cash and signing
a $90,000 mortgage. Immediately prior to this transaction the corporation had assets,
liabilities, and owners’ equity in the amounts of $150,000, $30,000, and $120,000
respectively. What is the total amount of Beta Corporation’s assets after this transaction
has been recorded?
A. $240,000
B. $250,000
C. $160,000
D. $40,000
E. $260,000
Answer:
Barrett’s Fashions forecasts sales of $125,000 for the quarter ended December 31. Its
gross profit rate is 20% of sales, and its September 30 inventory is $32,500. If the
December 31 inventory is targeted at $41,500, budgeted purchases for the fourth quarter
should be:
A. $134,000
B. $109,000
C. $91,500
D. $25,000
E. $91,000
Answer:
Match the following definitions with the terms. Place the number that identifies the
best definition in the blank space next to the term.
A) A financial statement that lists cash inflows (receipts) and cash outflows (payments);
the cash flows are arranged by operating, investing, and financing activities.
B) An exchange of value between two parties.
C) The principle that assumes transactions and events can be expressed in money units.
D) The principle that requires a business to be accounted for separately from its
owners.
E) The principle that revenue is recognized when earned.
F) The relation between a company’s assets, liabilities and equity.
G) A financial statement that reports the changes in retained earnings over the reporting
period; adjusted for increases from net income and for decreases such as dividends or
net loss.
H) The cost of assets or services used to earn revenue.
I) Creditor’s claims on assets.
Answer:
A company has long-term notes payable of $175,625, taxes of $9,500, ending
merchandise inventory of $450,290, interest expense of $14,050, net sales of $720,000
a gross profit ratio of 35%, a times interest earned ratio of 4.23, and total assets of
$1,300,417. What is the companys earnings before interest and taxes?
A. $252,000
B. $65,814
C. $269,710
D. 106,696
E. $59,432
Answer:
Manatee Corp. has developed standard costs based on a predicted operating level of
352,000 units of production, which is 80% of capacity. Variable overhead is $281,600 at
this level of activity, or $0.80 per unit. Fixed overhead is $440,000. The standard costs
per unit are:
Manatee actually produced 330,000 units at 75% of capacity and actual costs for the
period were:
Calculate the following variances and indicate whether each variance is favorable or
unfavorable:
(1) Direct labor efficiency variance:
$__________________
(2) Direct materials price variance:
$__________________
(3) Controllable overhead variance:
$__________________
Answer:
_____________________________ requires that the impact of each transaction be
recorded in at least two accounts. It also means that total amounts debited must equal
total amounts credited for each transaction.
Answer:
Identify and describe the two main components of stockholders’ equity.
Answer:
When the bond contract rate of interest is above the market rate of interest for that
bond, the bond sells at a _____________.
Answer:
What is a merchandise purchases budget? How is the merchandise purchases budget
constructed?
Answer:
Highbank Company is operating at 80% of its manufacturing capacity of 62,000
product units per year. A customer has offered to buy an additional 10,000 units at $17
each and sell them outside the country so as not to compete with Highbank. The
following data are available:
In producing 10,000 additional units fixed overhead costs would remain at their current
level but incremental variable overhead costs of $0.75 per unit would be incurred. What
is the effect on total income if Highbank accepts this order?
Answer:
A company issued 10-year, 9% bonds, with a par value of $500,000 when the market
rate was 9.5%. The issuer received $484,087 in cash proceeds. Prepare the issuer’s
journal entry to record the issuance of the bonds.
Answer:
For each of the capital budgeting methods listed below, place an X in the correct
column, indicating the measurement basis of each, the ability to make comparison
among projects, and whether each method reflects or ignores the time value of money.
Answer:
Given the following information about a corporation’s current year activities, answer
the questions below:
Compute the amounts that should be reported on the income statement as:
(1) Income from continuing operations.
(2) Income before extraordinary items and cumulative effect of changes in accounting
principles.
(3) Net income.
Answer:
A company’s income before interest expense and income taxes was $225,000 in 2013
and $200,000 in 2014. Its interest expense was $45,000 for both years. Calculate the
company’s times interest earned ratio and comment on its level of risk.
Answer:
What-if analysis of cost, revenue, and volume changes is called
_______________________. Further analysis of this nature may be achieved by
measuring the degree of ______________________.
Answer:
Identify the three types of classifications for noninfluential investments in securities.
Answer:
Evaluate each inventory error separately and determine whether it overstates or
understates cost of goods sold and net income.
Answer:
How does job order cost accounting affect the company Astor and Black?
Answer:
The following data are available for the Cleaning Services Department of Amitol Co.
Required: Calculate departmental contribution to overhead for the Cleaning Services
Department, including the department’s contribution as a percentage of revenues.
Answer:
On a process cost summary, the total costs to account for (the processing costs for the
period plus the goods in process at the beginning of the period) should equal
___________________ (____________________ plus _____________________).
Answer:
A company made the following merchandise purchases and sales during the month of
May:
There was no beginning inventory. If the company uses the weighted-average perpetual
inventory method, what would be the cost of its ending inventory?
Answer:
______________________ capture information from source documents and enable its
transfer to the system’s information processing component.
Answer:
A per unit cost that is constant at all production levels is a
________________________ cost per unit.
Answer: