The accounting rate of return shows the effect of the investment on the company’s
accrual-based income.
Journal entries are required if the bank reconciliation includes outstanding checks.
Electronic funds transfer moves cash by electronic communications.
The journal entry to record the employer’s payroll tax expense will include a debit to
Employee Income Taxes Payable.
If preferred stock is noncumulative, the company is required to pay dividends that were
passed in previous years.
Under the last-in, first-out (LIFO) method, the cost of goods sold is based on the oldest
purchases.
When using the effective-interest amortization method, the amount of the interest
expense is calculated using the face value of the bonds and the stated interest rate.
CVP analysis assumes that the sales price per unit does not change as volume changes.
Unfavorable variances are subtracted from each other to arrive at a favorable variance.
An asset is considered to be obsolete when a newer asset can perform the job more
efficiently.
The declaration date is the date the corporation records that stockholders will receive
dividend checks.
Interest on a $100,000 note at 4% for 45 days is $493. (Use a 360 day year. Round your
answer to the nearest dollar.)
For a merchandising company, the budgeted total sales equals the expected number of
units sold multiplied by the budgeted selling price per unit.
Manufacturing Overhead is a temporary account used to accumulate indirect production
costs during the accounting period.
A cost-based transfer price considers the cost of producing the goods when determining
the price.
If both favorable and unfavorable variances exist, the variances are subtracted from
each other. The variance is determined to be favorable or unfavorable based on which
one is the larger amount.
A 3-for-1 stock split of a $3 par value share will result in three shares of $1 par value
being issued for each share of $3 par value stock.
The trial balance verifies the equality of debits and credits at a point in time.
The income statement for Sweet Dreams Company is divided by its two product lines,
blankets and pillows, as follows:
If Sweet Dreams can eliminate total fixed costs of $28,000 by dropping the pillows line,
operating income will increase by $16,000.
At the end of an accounting period, the costs assigned to a production department can
be split into the cost of units fully completed and transferred out, and the cost of units
partially completed and remaining in the Work-in-Process Inventory of that department.
Since quality improvement programs are always needed, there is no reason to compare
the costs of undertaking a quality improvement program to the costs of continuing
without the quality improvement program.
The flexible budget variance is the difference between the actual results and the
expected results in the flexible budget for the actual units sold.
Thomas Maid Service provides maid service to residential clients. Following are data
for a recent week:
Service Revenue $2,700
Variable Costs 1,900
The contribution margin ratio is 70.37% (rounded to two decimal places).
Ratio analysis is used most effectively to measure a company against other companies
in different industries.
In a bank reconciliation, a deposit in transit will be shown on the bank side of the
reconciliation.
Prepaid Insurance is an asset account that appears on the balance sheet.
For every unit that is produced but not sold, absorption costing “hides” some of the
fixed manufacturing overhead in ending Finished Goods Inventory.
The Purely Pizza Company sells pizzas in two different sizes—medium and large. The
two products sell in equal numbers. The contribution margin of a medium pizza is $16,
and the contribution margin of a large pizza is $18. The weighted average contribution
margin is $17.
Corporations may not retire preferred stock in order to avoid paying the preferred
dividends.
If a debt security is purchased at a discount, the discount must be amortized when the
interest revenue is earned.
An exchange of plant assets has commercial substance if the future cash flows change
as a result of the transaction.
Assets are economic resources that have no future benefits for the business.
Which of the following is not a flexible budget variance?
A) total fixed overhead variance
B) total variable overhead variance
C) total direct materials variance
D) total direct labor variance
Which of the following describes a debenture?
A) a bond that matures in installments at regular intervals
B) a bond that gives the bondholder a claim for specific assets
C) a bond that matures at one specified time
D) a bond that is not backed by specific assets
Westland, Inc. owns a delivery truck. Which of the following costs, associated with the
truck, will be treated as a revenue expenditure?
A) oil change and lubrication
B) major engine overhaul
C) modification for new use
D) addition to storage capacity
Lobel Machines Company is evaluating an investment of $1,100,000 which will yield
net cash inflows of $197,062 per year for 7 years with no residual value. What is the
internal rate of return?
Present value of ordinary annuity of $1:
A) 5%
B) 6%
C) 7%
D) 8%
A company purchased a computer on July 1, 2017 for $50,000. Estimated useful life of
the computer was five years, and it has no residual value. Which of the following
methods should be used to best match its expense against the revenue it produces?
A) the units-of-production method
B) the straight-line method
C) the double-declining-balance method
D) the first-in, first-out method
Which of the following is an objective of internal control?
A) to encourage employees to follow company policies
B) to ensure timely payment of accounts payable
C) to ensure timely collection of accounts receivable
D) to guarantee that a business makes a profit
In a statement of retained earnings, decreases in retained earnings result from
________.
A) issuance of stock
B) net losses
C) net income
D) revenues earned
The accounts that are used in a worksheet are taken from and listed in the same order as
the ________.
A) balance sheet
B) audit report
C) journal
D) chart of accounts
Managerial accounting information for a company is primarily used by ________.
A) its customers to understand the pricing of the product
B) its creditors to understand the credibility of the business
C) its employees to plan and control operations
D) its investors to make their investment decisions
The liability created when a business collects cash from its customers before
completing a service or delivering a product is called ________.
A) accrued revenue
B) accrued expense
C) deferred revenue
D) deferred expense
Which of the following is true of the Fair Value Adjustment account for trading
investments?
A) It will always have a credit balance.
B) It will always have a debit balance.
C) It is considered as an adjunct account if it has a credit balance.
D) It is considered as an adjunct account if it has a debit balance.
Katie Pereira and Ferro Schwartz are employees of Free Star, Inc. In February 2017,
Katie’s gross pay was $6,000, and Ferro’s gross pay was $7,400. All earnings are subject
to FICA—OASDI Tax of 6.2% and FICA—Medicare Tax of 1.45%. Which of the
following would be included in the entry to record the salaries expense for February?
A) a debit to Salaries Payable to employees for $830.80
B) a debit to FICA—Medicare Taxes Payable for $830.80
C) a credit to FICA—OASDI Taxes Payable for $830.80
D) a credit to Salaries Expense for $830.80
Sanella Corporation reported the following equity section on its current balance sheet.
The common stock is currently selling for $18.25 per share.
What would be the balance in the Common Stock account after the issuance of a 10%
stock dividend?
A) $334,000
B) $604,800
C) $739,200
D) $672,000
Which of the following deductions is paid by both the employer and employee?
A) federal income taxes
B) federal unemployment taxes
C) FICA taxes
D) SUTA taxes
When the total fixed costs increase, the breakeven point ________.
A) increases
B) decreases
C) decreases proportionately
D) remains the same
Based on the following, what is the total production cost flexible budget variance?
A) $925 F
B) $450 U
C) $725 F
D) $725 U
The field of accounting that focuses on providing information for external decision
makers is ________.
A) managerial accounting
B) financial accounting
C) cost accounting
D) nonmonetary accounting
Which of the following may pay dividends?
A) futures contracts
B) real estate securities
C) debt securities
D) equity securities
Long-term investments ________.
A) include all debt securities that are trading investments or held-to-maturity
investments
B) are investments in debt and equity securities that are highly liquid and that the
investor intends to sell in one year or less
C) include debt and equity securities that the investor expects to hold longer than one
year or debt or equity securities that are not readily marketable
D) are investments in debt securities or equity securities in which the investor holds less
than 20 percent of the voting stock and that the investor plans to sell in the very near
future
Which of the following describes a serial bond?
A) a bond that matures in installments at regular intervals
B) a bond that gives the bondholder a claim for specific assets
C) a bond that matures at one specified time
D) a bond that is not backed by specific assets
Lerner had net income for 2016 of $104,000. Lerner had 32,000 shares of common
stock outstanding at the beginning of the year and 48,000 shares of common stock
outstanding at the end of the year. There were 5,000 shares of preferred stock
outstanding all year. During 2016, Lerner declared and paid preferred dividends of
$30,000. On December 31, 2106, the market price of Lerner’s common stock is $30 per
share and the market price of its preferred stock is $57 per share. What is Lerner’s
price/earnings ratio? (Round the answer to two decimal places.)
A) 30.81
B) 11.54
C) 13.85
D) 16.22
If there is no cash involved in a business transaction, the transaction should be recorded
in ________.
A) either the cash receipts journal or general journal
B) either the sales journal or purchases journal
C) the general journal only
D) sales journal, purchases journal, or general journal
The worksheet helps accountants to ________.
A) make the trial balance
B) prepare the financial statements
C) prepare the unadjusted trial balance
D) maintain books of accounts without a journal
Projected manufacturing cost per unit of product sold does not include ________ cost
per unit.
A) sales commission
B) direct materials
C) variable manufacturing overhead
D) direct labor
A company receives payment from one of its customers on August 5 for services
performed on July 21. Which of the following entries would be recorded if the company
uses accrual basis accounting?
A)
B)
C)
D)
Which of the following statements about franchises is correct?
A) Franchises are privileges granted by a government to use public property in
performing services.
B) The acquisition cost of a franchise is always amortized over its legal life.
C) Franchises are privileges granted by a business to sell goods or services under
qualified conditions.
D) The acquisition cost of a franchise cannot be amortized because its useful life cannot
be determined.
Which of the following is true about ERP systems?
A) Because ERP systems are software based, they have given way to a more
service-based economy.
B) Because ERP systems track costs more efficiently, the benefit from the cost
information outweighs the cost of obtaining the information.
C) Because ERP systems track costs more efficiently, process costing systems are
becoming more prevalent.
D) Because ERP systems have the ability to trace all production costs to individual
units, all product costs can now be classified as either direct materials or direct labor.
The following information is from the records of Pangolin Camera Shop:
Bad expense is estimated by the aging-of-receivables method. Management estimates that
$3,050 of accounts receivable will be uncollectible. Calculate the amount of net accounts
receivable after the adjustment for bad debts.
A) $21,450
B) $20,950
C) $20,450
D) $20,100
A plant asset is fully depreciated when the book value is ________.
A) greater than the residual value
B) greater than the market value
C) equal to the residual value
D) equal to the market value
Which of the following correctly describes the accounting for indirect labor costs?
A) Indirect labor costs are product costs and are expensed as incurred.
B) Indirect labor costs are period costs and are expensed as incurred.
C) Indirect labor costs are product costs and are expensed when the manufactured
product is sold.
D) Indirect labor costs are period costs and are expensed when the manufactured
product is sold.
Which of the following inventory costing methods yields the lowest net income during
a period of rising inventory costs?
A) specific identification
B) weighted-average
C) last-in, first-out
D) first-in, first-out
A company has two different products that are sold in different markets. Financial data
are as follows:
Assume that fixed costs are all unavoidable and that dropping one product would not
impact sales of the other. If Product B is dropped, what would be the impact on total
operating income of the company?
A) increases by $2,100
B) increases by $500
C) decreases by $2,100
D) decreases by $500
Under the just-in-time management system, ________.
A) a company’s storage costs increase
B) a company’s inventory insurance costs increase
C) the floor space available for production increases
D) the risk of the inventory becoming obsolete increases
