Higher fixed costs increase the total number of units required to break even.
Dezire Travel Services provided the following information:
Direct labor rate: $80 per hour
Predetermined overhead allocation rate for indirect costs: $18 per direct labor hour
If Dezire earns $1,600 for a job requiring 10 hours of direct labor, then Dezire will
make a profit of $800.
If a company reduces its fixed costs, the operating income will increase by the same
amount as the cost reduction.
A creditor is any person who has an ownership interest in a business.
Generally Accepted Accounting Principles (GAAP) require the use of accrual basis of
accounting.
Under cash basis accounting, an expense is recorded only when cash is paid.
In a computerized accounting information system, all data are contained in paper
documents that are often stored in filing cabinets and off-site document warehouses.
A general ledger is an accounting journal designed to record one specific type of
transaction.
An external auditor is responsible for assessing the effectiveness of a company’s
internal controls.
For no-par stock there can be paid-in capital in excess of par.
The Current Portion of Long-Term Notes Payable would normally be shown on the
balance sheet under current liabilities.
A T-account is a summary device with credits posted on the left side of the vertical line.
The discounted cash flow methods of evaluating capital investments are superior
because they consider both the time value of money and the profitability of the
investment.
Members of a limited-liability company (LLC) are not personally liable for the debts of
the business.
Budgetary slack occurs when managers intentionally overstate expected revenues or
understate expected expenses.
Prepaid Rent is an expense account that appears on the income statement.
Given the same purchase and sales data, and assuming the cost of inventory is rising,
the costing methods for inventory will result in different amounts for cost of goods sold.
A depreciable asset’s original cost is relevant when considering whether to replace the
asset.
A disadvantage of a typical enterprise resource planning system is that it cannot be
offered through cloud computing.
Under process costing, a single Work-in-Process Inventory account is maintained for all
processes, with a subsidiary ledger containing individual production cost reports for
each process.
A production cost report can help managers identify the most profitable products.
The inventory turnover ratio measures the average number of days that inventory is
held by a company.
The rate of return on common stockholders’ equity shows how much income is earned
for each $1 of total stockholders’ equity.
All intangible assets must be amortized each year.
Financial accounting focuses on information for decision makers outside of the
business, such as creditors and taxing authorities.
The journal entry to open a new petty cash fund includes a debit to the Petty Cash
account and a credit to the Cash account.
As per the economic entity assumption, an organization and its owners should be seen
as the same entity.
Warranties pose an accounting challenge because a company does not know which or
how many products will have to be repaired.
Under cash basis accounting, revenue is recorded when it is earned, regardless of when
cash is received.
When preparing the worksheet for a merchandising business using the perpetual
inventory system, the main new account is the Merchandise Inventory account.
When raw materials are requisitioned for a job, the Raw Materials Inventory account is
debited.
The journal entry to replenish a petty cash fund includes a debit to the Petty Cash
account and a credit to the Expense account.
A production cost report cannot be used for the pricing of products because it depicts
only the ways to control product costs.
To create goal congruence, some firms prefer calculating ROI based on the gross book
value of asset.
Variable cost per unit is constant throughout various relevant ranges.
A report prepared by a processing department for equivalent units of production,
production costs, and the assignment of those costs to the completed and in-process
units is called a(n) ________.
A) organizational report
B) equivalent units report
C) job costing report
D) production cost report
A company that uses the perpetual inventory system purchased inventory for $900,000
on account with terms of 4/7, n/20. Which of the following correctly records the
payment made 15 days after the date of invoice?
A)
B)
C)
D)
Entry-level accounting software ________.
A) can handle advanced processes and transactions
B) is an affordable system that is difficult to use
C) allows businesses to enter sales of services and merchandise inventory, record
expenses, and produce financial statements
D) integrates all of a company’s functions, departments, and data into a single system
Ratio analysis ________.
A) provides a year-to year comparison of a company’s performance in different periods
B) is used most effectively to measure a company against other companies in the same
industry and to denote trends within the company
C) cannot be used to measure a company against other companies in the same industry
because the necessary information is not available
D) provides a way to compare different companies
Which of the following is a disadvantage of decentralization?
A) It results in increased customer response time.
B) It allows only the top management to make decisions.
C) It does not motivate employees because the decision-making powers are not
delegated.
D) It results in problems with achieving goal congruence.
Melissa Antiques Company has collected the following data for one of its products:
What is the direct materials efficiency variance?
A) $18,000 U
B) $47,000 F
C) $47,000 U
D) $18,000 F
Which of the following best describes the term “sensitivity analysis”?
A) It is a testing technique to determine how results would differ if key assumptions are
changed.
B) It is an analysis of the emotional sensitivity of a company’s employees.
C) It is an evaluation of the accuracy of the assumptions.
D) It evaluates a company’s financial condition by doing financial statement analysis.
Following is a list of account balances of Surburban Lawn Services as of December 31
of the first year of operation.
What is the amount of total liabilities at the end of the year?
A) $14,600
B) $26,800
C) $23,700
D) $14,300
A furniture manufacturer has decided that its use of a single plantwide predetermined
overhead allocation rate is no longer accurate. In making the transition to using multiple
predetermined overhead allocation rates, which of the following statements is incorrect?
A) In selecting machine usage as the primary cost driver for the Production
Department, management feels that there is a direct relationship between the number of
machine hours used and the amount of overhead costs incurred.
B) Management must analyze the expected overhead costs and separate them into a cost
pool for each department.
C) The allocation process changes because there are now multiple cost pools and
multiple allocation bases.
D) The use of multiple predetermined overhead allocation rates is more complex, but it
may be more accurate.
When a 5% stock dividend is declared, which account is debited?
A) Common Stock—Par Value
B) Common Stock Dividend Distributable
C) Retained Earnings
D) Paid-In Capital in Excess of Par—Common
A control account ________.
A) does not appear on the balance sheet
B) has a balance that equals the sum of the balances in a group of related accounts in a
subsidiary ledger
C) is equivalent to a contra account and represents the offsetting nature of debits and
credits on a firm’s financial statements
D) holds individual accounts that support a general ledger account
Joshua Thomas Corporation manufactures and retails computer hardware. The president
of the corporation bought a new car as a gift for his daughter and paid for it using cash
from the business. Since the corporation paid for the car, it was recorded in its books as
an asset. Which of the following concepts or principles of accounting did the
corporation violate?
A) monetary unit assumption
B) economic entity assumption
C) cost principle
D) going concern assumption
Divine Foods produces a gourmet condiment that sells for $24 per unit. Variable cost is
$6 per unit, and fixed costs are $8,000 per month. If Divine expects to sell 1,500 units,
compute the margin of safety in units. (Round any intermediate calculations and your
final answer to the nearest whole unit.)
A) 444 units
B) 1,056 units
C) 1,500 units
D) 19 units
If the maker of a note does not pay at maturity, ________.
A) the debtor no longer owes the payee
B) interest revenue cannot be accrued on the note
C) the note is no longer in force because it has expired
D) the principal is recorded as a debit to the Accounts Receivable account
For decision-making purposes, ________ costs are often divided into prime costs and
conversion costs.
A) fixed costs
B) product costs
C) period costs
D) sunk costs
Happy Holidays, Inc. has 110,000 shares of common stock issued and outstanding, with
a par value of $0.03 per share. It declared a 17% common stock dividend; market value
is $14 per share. Which of the following is the correct journal entry to record the
transaction? (Round your answers to the nearest whole dollar.)
A) debit Stock Dividends $261,800 and credit Paid-In Capital in Excess of Par—
Common $261,800
B) debit Stock Dividends $261,800, credit Common Stock Dividend Distributable
$561, and credit Paid-In Capital in Excess of Par—Common $261,239
C) debit Stock Dividends $261,800 and credit Cash $261,800
D) debit Common Stock Dividend Distributable $561, debit Paid-In Capital in Excess
of Par—Common $261,239, and credit Retained Earnings $261,800
The balances of select accounts of Sandra, Inc. as of December 31, 2016 are given
below:
The insurance has been prepaid until June 30, 2017. Determine the amount of total current
assets reported on the balance sheet.
A) $15,300
B) $9,100
C) $11,850
D) $9,550
The normal balances of Sales, Sales Discounts, and Sales Returns and Allowances are
________.
A) debit, credit, and credit, respectively
B) debit, debit, and credit, respectively
C) credit, debit, and debit, respectively
D) credit, credit, and debit, respectively
Sinopia Corporation reported trading investments at fair value of $49,000 on December
31, 2016. There is a decrease of $3,800 in the fair value of the trading investments by
the end of the year 2017. Which of the following is the correct journal entry?
A)
B)
C)
D)
At the internal rate of return, the present value of net cash inflows will equal the
________.
A) initial cost of the investment
B) residual value
C) average operating income
D) profit from the project
Which of the following are debit columns in a typical cash payments journal?
A) Merchandise Inventory column and Cash column
B) Other Accounts column and Accounts Payable column
C) Merchandise Inventory column and Accounts Payable column
D) Other Accounts column and Cash column
Charms, Inc. has determined that an account receivable of $125 is uncollectible. The
company uses the direct write-off method. Which of the following entries is required to
record the write-off?
A)
B)
C)
D)
Gamma Corporation is considering an investment of $518,000 in a land development
project. The investment will yield cash inflows of $220,000 per year for five years. The
company uses a discount rate of 9%. What is the net present value of the investment?
Present value of an ordinary annuity of $1:
A) $238,280
B) $337,800
C) $341,880
D) $220,000
A business purchases equipment for $8,000 cash. Which of the following accounts is
debited?
A) Cash
B) Accounts Payable
C) Common Stock
D) Equipment
Which of the following categories of accounts are temporary accounts that are closed at
the end of the year?
A) assets, liabilities, and dividends
B) revenues, expenses, and dividends
C) assets, liabilities, and stockholders’ equity
D) revenues, expenses, and stockholders’ equity
What is the effect of the adjusting entry for Depreciation Expense?
A) It increases total liabilities and increases total expenses.
B) It increases total assets and increases total expenses.
C) It decreases total assets and increases total expenses.
D) It decreases total liabilities and increases total expenses.
Petro Fertilizers Company sells two products, Quo-Eco and Quo-Pre, with a sales mix
of 65% and 35%, respectively. Quo-Eco has a contribution margin per unit of $10, and
Quo-Pre has a contribution margin per unit of $15. The company sold 1,000 total units
in March.
Requirements:
a) Calculate the total contribution margin for the company.
b) Assume the sales mix shifted to 50% for each product, and calculate the total
contribution margin for the company.
Leyden Company, a manufacturer of small appliances, had the following activities,
allocated costs, and allocation bases:
The above activities are carried out at two of its regional offices.
How much of the correspondence cost will be assigned to the Northeast Office? (Round
any intermediate calculations to the nearest cent and your final answer to the nearest
dollar.)
A) $429
B) $12,000
C) $1,200
D) $5,143
The data of Franklin Brothers Corp. for two years are given below.
Based on the above information, which of the following statements is true?
A) Cash ratio has increased from 0.02 in 2016 to 0.03 in 2017.
B) Cash ratio has increased from 0.05 in 2016 to 0.08 in 2017.
C) Cash ratio has increased from 0.351 in 2016 to 0.221 in 2017.
D) Cash ratio has increased from0.221 in 2016 to 0.351 in 2017.
Odin Avionics makes aircraft instrumentation. Its basic navigation radio requires $90 in
variable costs and $2,000 per month in fixed costs. Odin sells 30 radios per month. If
the company further processes the radio, to enhance its functionality, it will require an
additional $25 per unit of variable costs, plus an increase in fixed costs of $800 per
month. The current sales price of the radio is $260. The marketing manager is sure that
Odin can charge a higher sales price for the improved version. At what sales price level
would the new, improved radio begin to improve operating earnings? (Round to the
nearest whole dollar.)
A) at a sales price higher than $312
B) at a sales price of $260
C) at a sales price lower than $260
D) at a sales price of $375
Russin Tax Planning Service bought computer equipment for $22,000 on January 1,
2016. It has an estimated useful life of four years and zero residual value. Russin uses
the straight-line method to calculate depreciation and records depreciation expense in
the books at the end of every month. Calculate the amount of Depreciation Expense for
the period, January 1, 2016 through September 30, 2016, for this equipment. (Round
any intermediate calculations to two decimal places, and your final answer to the
nearest dollar.)
A) $5,500
B) $4,125
C) $5,958
D) $4,583
Under a standard cost system, the journal entry to record direct labor includes
________.
A) a debit for standard direct labor quantity for actual production times standard direct
labor cost per hour
B) a credit for standard quantity usage for actual production times actual cost per hour
C) a debit for actual quantity times standard cost per hour
D) a credit for standard quantity for actual production times standard cost per hour
In a good internal control system, which of the following sets of documents is required
for proper approval of a payment to a supplier?
A) a journal entry, a supplier invoice, and a description of the goods being purchased
B) a receiving report, an invoice, and a purchase order
C) a purchase order, a journal entry, and a price catalog
D) a supplier invoice, a bill of lading, and the supplier’s financial statements
A company that uses the perpetual inventory system sold goods for $3,500 to a
customer on account. The company had purchased the inventory for $900. Which of the
following journal entries correctly records the cost of goods sold?
A)
B)
C)
D)
Which of the following statements, regarding International Financial Reporting
Standards (IFRS), is correct?
A) International Financial Reporting Standards are issued by the Financial Accounting
Standards Board.
B) The Securities and Exchange Commission is the private organization that oversees
the creation and governance of International Financial Reporting Standards.
C) International Financial Reporting Standards represent a set of global accounting
standards that are generally more specific and based less on principle than U.S.
Generally Accepted Accounting Principles.
D) Companies who are incorporated in or do significant business in another country
might be required to publish financial statements using International Financial
Reporting Standards.
Grace Company manufactures candles. The standard direct materials quantity required
to produce one large candle is one pound at a cost of $5 per pound. During November,
7,200 large candles were produced using 7,500 pounds of direct materials that cost
$45,000.
Using the format below, prepare an analysis of the direct materials variances.
The ending inventory of a company was $450,000 as per the perpetual inventory
records. The current replacement cost for the ending inventory is $410,000. Prepare the
journal entry to adjust inventory.
On January 16, 2017, Eliot Brothers Oil, Inc. sold $5,000 of merchandise to Bryce, on
account. Eliot Brothers could not collect cash from Bryce and wrote off the account on
December 31, 2017. On November 4, 2018, Bryce unexpectedly paid $5,000.
Journalize the transactions on December 31, 2017 and November 4, 2018. (Eliot
Brothers uses the allowance method.)
During July 2017, Bridgeport Enterprises recorded the following:
Sales of $86,400 ($64,500 on account, $21,900 for cash)
Collections on account, $58,950
Write-offs of uncollectible receivables, $2,560
Recovery of receivable previously written off, $1,000
Journalize Bridgeport’s transactions during July, assuming Bridgeport uses the
allowance method.
Tobin Sugar, Inc. has six processing departments for refining sugar—Affination,
Carbonation, Decolorization, Boiling, Recovery, and Packaging. Conversion costs are
added evenly throughout each process, and materials are added at the beginning of each
process. Data from August for the Recovery Department are as follows:
In August, 15,000 metric tons were completed and sent to the Packaging Department. The
ending Work-in-Process Inventory was 50% complete with respect to conversion costs.
Prepare a production cost report for the Recovery Department to show the equivalent units
for direct materials and conversion costs. The weighted-average method is used.
Use the following purchases journal to record the preceding transactions.
Broxsie Fabrication, Inc. issued $60,000 of direct materials and $15,500 of indirect
materials to production. Prepare the journal entry to record the transaction.
When recording direct materials purchased, what does an unfavorable direct materials
cost variance represent? Will this variance have a debit or credit balance?
On June 30, Greenville, Inc. finished Job 70 with total job costs of $40,000 and
transferred the costs to Finished Goods Inventory. On July 6, Greenville completed the
sale of the goods to a customer for $55,000 on account. Provide the entry to record the
cost of goods sold.
Smith Electronics reported the following figures in its 2017 and 2016 financial
statements.
Compute the cash ratio for 2017 and 2016. What does the cash ratio measure? Use this
information to discuss the business performance of Smith Electronics.
Joywell, Inc. has four processing departments and follows a process costing system. It
incurred $150,000 in machinery depreciation and $60,000 in indirect costs that were
paid in cash. Provide the journal entries to record these transactions.
What does the fixed overhead cost variance measure?
Achibald, Inc. completed the production of 500 units with standard costs of $520 for
direct materials and $75 for conversion costs. During the current year, it incurred
$260,000 for direct materials and $44,000 for conversion costs. Record the adjusting
entry for the amount of underallocated or overallocated conversion costs.
When using the periodic inventory system and weighted-average inventory costing
method, when is the weighted average cost per unit computed?
A business paid salaries of $6,000 in cash. Record the transaction in the journal.
On January 1, 2016, Belden, Inc. issued long-term notes payable for $50,000. The note
will be paid over 10 years with payments of $5,000 plus 12% interest due each January
1, beginning January 1, 2017. The amortization schedule for the first three payments is
provided. Prepare the journal entry for the issuance of the note and for the January 1,
2018 note payment.
List and briefly describe the four types of quality-related costs.
Oxford Manufacturing Company completed jobs that cost $48,000 to produce. In the
same period,
the company sold jobs for $102,000 that cost $53,000 to produce. Prepare the journal
entries for the completion and sales of the jobs. All sales are on account. Omit
explanations.
