A good financial statement analysis report often includes the following sections:
Executive summary, analysis overview, evidential matter, assumptions, key factors, and
inferences.
Answer:
The “cumulative effect of a change in accounting principles” is shown below the
extraordinary items section on the income statement.
Answer:
A company’s cost of goods sold was $15,500 and its average merchandise inventory
was $4,500. Its inventory turnover equals 3.4.
Answer:
The periodic inventory system uses a temporary account called Purchases.
Answer:
In competitive markets, the price of a given product is established through the forces of
supply and demand.
Answer:
An annuity is a series of equal payments made at equal time intervals.
Answer:
Sales mix refers to the combination of products sold by a company.
Answer:
A company has net income of $130,500. Its net sales were $1,740,000 and its total
assets were $2,750,000. Its profit margin equals 7.5%.
Answer:
Intangible assets are certain nonphysical assets used in operations that confer on their
owners long-term rights, privileges, or competitive advantage.
Answer:
Equity securities reflect a creditor relationship such as investments in notes, bonds, and
certificates of deposit.
Answer:
When preparing the operating section of the statement of cash flows using the indirect
method, a decrease in accounts receivable is subtracted from net income.
Answer:
A company has sales of $350,000 and estimates that 0.5% of its sales are uncollectible.
The company’s reported amount of bad debts expense is $1,750.
Answer:
Vertical analysis is the comparison of a company’s financial condition and performance
through time.
Answer:
The statement of partners’ equity shows the beginning balance in retained earnings,
plus investments, less withdrawals, the income or loss, and the ending balance in
retained earnings.
Answer:
A company produces paint that goes through two operations, operation A and operation
B, before it is complete. Expected costs and activities for the two departments are
shown below. Given this information, the departmental overhead rate for Department B
based on machine hours is $4 per machine hour.
Answer:
The data needed for cost-volume-profit analysis is readily available if the income
statement is prepared under absorption costing.
Answer:
Overapplied overhead is the amount by which overhead applied to jobs using the
predetermined overhead allocation rate exceeds the overhead incurred during a period.
Answer:
The Goods in Process Inventory account is found only in the ledgers of merchandising
companies.
Answer:
Extraordinary items are reported in the operating section of the income statement.
Answer:
Generally accepted accounting principles require companies to use a specific format
for the financial statements.
Answer:
IFRS requires that companies report four financial statements with explanatory notes:
balance sheet; income statement; statement of changes in equity, and statement of cash
flows.
Answer:
During a given year, if a company sells more units than it produces, then ending
inventory units will be less than beginning inventory units.
Answer:
Contribution margin ratio is the percent of each sales dollar used to cover variable
costs.
Answer:
A materials requisition is a source document used by production managers to request
materials for manufacturing and also used to assign materials costs to specific jobs or to
overhead.
Answer:
The cost to heat a manufacturing facility can be directly linked to the number of units
produced.
Answer:
A variable costing income statement focuses attention on the relationship between costs
and sales that is not evident from the absorption costing format.
Answer:
Financing activities include receiving cash dividends from investments in other
companies’ stocks.
Answer:
Retained earnings are increased when cash is received from customers in payment of
previously recorded accounts receivable.
Answer:
Standard costs provide a basis for assessing the reasonableness of actual costs incurred
for producing a product or service.
Answer:
Segment information is often useful to investors for evaluating a company’s
profitability, risk, and growth.
Answer:
A variable cost changes in proportion to changes in the volume in activity.
Answer:
The margin of safety is the amount that sales can drop before the company incurs a loss.
Answer:
A partnership that has two classes of partners, general and limited, where the limited
partners have no personal liability beyond the amounts they invest in the partnership
and no active role in the partnership except as specified in the partnership agreement, is
a:
A. Mutual agency partnership
B. Limited partnership
C. Limited liability partnership
D. General partnership
E. Limited liability corporation
Answer:
Lee Company manufactures and sells widgets for $2 per unit. Its variable cost per unit
is $1.70. Lee’s total fixed costs are $10,500. How many widgets must Lee Company sell
to break even?
A. 5,250
B. 6,176
C. 35,000
D. 52,500
E. 61,760
Answer:
A company’s overhead rate is 60% of direct labor cost. Using the following incomplete
accounts, determine the cost of direct materials used:
A. $106,400
B. $113,120
C. $30,240
D. $211,680
E. $324,800
Answer:
Match the following types of accounts with each of the following transactions.
A) Accrued expense
B) Accrued revenue
C) Prepaid expense
D) Unearned revenue
Answer:
What would be the account balance in the Service Revenue account after the following
transactions, assuming a zero beginning balance?
A. $17,400
B. $10,900
C. $14,400
D. $ 9,000
E. $15,900
Answer:
Wave-Zone Company has 10,000 units of its sole product that it produced last year at a
cost of $50 each. This years model is superior to last years and the 10,000 units cannot
be sold for their regular selling price of $75 each. Wave-Zone has two alternatives for
these items: (1) they can be sold to a wholesaler for $5 each, or (2) they can be
reworked at a total cost of $190,000 and then sold for $22.50 each. The company has
enough idle capacity to rework these items without affecting any new production.
Which choice would increase the companys profits the most?
A. Reworking, because profit will increase by $35,000 more than scrapping.
B. Scrapping, because profit will increase by $50,000 more than reworking.
C. Reworking, because profit will increase by $15,000 more than scrapping.
D. Scrapping, because profit will increase by $15,000 more than reworking.
E. Reworking because profit will increase by $50,000 more than scrapping.
Answer:
According to IFRS, comparative information on financial statements is:
A. Not required.
B. Required for publicly traded companies only.
C. Required for the preceding period only.
D. Required for the last five years.
E. Not required, but considered a hallmark for companies of excellence.
Answer:
Price Company’s flexible budget shows $10,710 of overhead at 75% of capacity, which
was the operating level achieved during May. However, the company applied overhead
to production during May at a rate of $2 per direct labor hour based on a budgeted
operating level of 6,120 direct labor hours (90% of capacity). If overhead actually
incurred was $11,183 during May, the controllable variance for the month was:
A. $473 unfavorable
B. $473 favorable
C. $1,530 favorable
D. $1,530 unfavorable
E. $1,057 favorable
Answer:
A company issues 9%, 20-year bonds with a par value of $750,000. The current market
rate is 9%. The amount of interest owed to the bondholders for each semiannual interest
payment is.
A. $0
B. $33,750
C. $67,500
D. $750,000
E. $1,550,000
Answer:
Bartels Corp. produces woodcarvings. It takes two hours of direct labor to produce a
carving. Bartels’ standard labor cost is $12 per hour. During August, Bartels produced
10,000 carvings and used 21,040 hours of direct labor at a total cost of $250,376. What
is Bartels’ labor rate variance for August?
A. $10,376 unfavorable
B. $2,104 unfavorable
C. $2,104 favorable
D. $12,480 unfavorable
E. $ 12,480 favorable
Answer:
A department that incurs costs without directly generating revenues is a:
A. Service center
B. Production center
C. Profit center
D. Cost center
E. Performance center
Answer:
Hartman Co. has fixed costs of $36,000 and a contribution margin ratio of 24%. If
expected sales are $200,000, what is the margin of safety as a percentage of sales?
A. 6%
B. 25%
C. 33%
D. 50%
E. 75%
Answer:
Another name for equity is:
A. Net income
B. Expenses
C. Net assets
D. Revenue
E. Net loss
Answer:
Inadequacy refers to:
A. The insufficient capacity of a company’s plant assets to meet the company’s growing
production demands.
B. An asset that is worn out.
C. An asset that is no longer useful in producing goods and services.
D. The condition where the salvage value is too small to replace the asset.
E. The condition where the asset’s salvage value is less than its cost.
Answer:
Under which of the following conditions is a market-based transfer price likely to be
used?
A. There is no excess capacity.
B. No market price exists.
C. Excess capacity exists.
D. Excess capacity exists and the market price covers fixed costs.
E. There is only an internal market for the item in question.
Answer:
Karen Cooper, the founder of SmartIT Staffing, realized that effectively managing
payroll was crucial to the success of her business. If an employee of the company earns
$50,500 per year, SmartIT Staffings total FICA payroll tax for this employee is:
A. $3,863.25.
B. $3,131.00.
C. $732.25.
D. $3,535.
E. Zero because the employee has not earned more that the FICA earnings limitation.
Answer:
The dollar change for a financial statement item is calculated by:
A. Subtracting the analysis period amount from the base period amount.
B. Subtracting the base period amount from the analysis period amount.
C. Subtracting the analysis period amount from the base period amount, dividing the
result by the base period amount, then multiplying that amount by
D. Subtracting the base period amount from the analysis period amount, dividing the
result by the base period amount, then multiplying that amount by 100.
E. Subtracting the base period amount from the analysis amount, then dividing the
result by the base amount.
Answer:
A company has sales of $5,417,000, a gross profit ratio of 35%, ending merchandise
inventory of $201,425, and total current assets of $1,539,600. What is the days sales in
inventory ratio for the year?
A. 6.10
B. 20.88
C. 26.15
D. 22.67
E. 15.77
Answer:
Given the following items and costs as of the balance sheet date, determine the value of
Light Company’s merchandise inventory.
– $2,000 goods sold by Light to another company. The goods are in transit and shipping
terms are FOB shipping point.
– $3,000 goods sold by another company to Light. The goods are in transit and shipping
terms are FOB shipping point.
– $4,000 owned by Light but in the possession of another company, the consignee.
– Damaged goods owned by Light that originally cost $5,000 but now have an $800 net
realizable value.
A. $7,000
B. $7,800
C. $9,800
D. $9,000
E. $6,800
Answer:
A corporation was formed on January 1. The corporate charter authorized 100,000
shares of $10 par value common stock. During the first month of operation, the
corporation issued 300 shares to its attorneys in payment of a $5,000 charge for
drawing up the articles of incorporation. The entry to record this transaction would
include:
A. A debit to Organization Expenses for $3,000.
B. A debit to Organization Expenses for $5,000.
C. A credit to Common Stock for $5,000.
D. A credit to Contributed Capital in Excess of Par Value, Common Stock, for $5,000.
E. A debit to Contributed Capital in Excess of Par Value, Common Stock, for $2,000.
Answer:
Selected information from Jet Companys 2013 financial statements is shown below
(in millions):
Inventory decreased $6.0 Accounts payable increased by $7.0
Cost of goods sold $36.50 Salaries expense $24.0
Salaries payable decreased $6.0 Accounts receivable increased by $10.0
Sales $56.4
What is the amount of cash paid for purchases by Jet during 2013?
A. $36.5
B. $47.5
C. $37.5
D. $35.5
E. $23.5
Answer:
Use the following information as of December 31 to determine equity.
A. $1,000
B. $3,000
C. $5,000
D. $10,000
E. $11,000
Answer:
Unearned revenue is initially recognized with a:
A. Credit to unearned revenue.
B. Credit to revenue.
C. Debit to revenue payable.
D. Debit to revenue.
E. Debit to unearned revenue.
Answer:
Based on the data given below, which of the following statements are true?
A. The percent change for case C is 100%.
B. A percent change either cannot be computed or is not meaningful for cases A, B, C,
and D.
C. A percent change either cannot be computed or is not meaningful for case C.
D. A percent change either cannot be computed or is not meaningful for cases B and C.
E. A percent change either cannot be computed or is not meaningful for cases A, B, and
C.
Answer:
A dividend preference for preferred stock means that:
A. Preferred stockholders receive their dividends before common shareholders.
B. Preferred shareholders are guaranteed dividends.
C. Dividends are paid quarterly.
D. Preferred stockholders prefer dividends more than common stockholders.
E. Dividends must be declared on preferred stock.
Answer:
Financial reporting refers to:
A. The application of analytical tools to general-purpose financial statements.
B. The communication of relevant financial information to decision makers.
C. Financial statements only.
D. Ratio analysis.
E. Profitability.
Answer:
A company’s cash flow on total assets ratio equals 16%. If average total assets equal
$2,937,500 and total cash flows equal $600,000, what is the amount of cash flows from
operations?
A. $18,359,375
B. $600,000
C. $470,000
D. $96,000
E. $566,000
Answer:
Reference: 16_03
Medina Corp. had the following information available for the year:
The number of units transferred to finished goods during the year is:
A. 3,200 units.
B. 3,000 units.
C. 3,400 units.
D. 3,160 units.
E. 3,500 units.
Answer:
Use the cash flow on total assets ratio to determine which of these three companies is
most efficiently using its assets.
A. Company A.
B. Company B.
C. Company C.
D. As all the companies have the same cash from operations, they are all equally
efficient in the use of their assets.
E. Cannot be determined from the given information.
Answer:
Reference: 17_02
Aztec Industries produces bread which goes through two operations, mixing and
baking, before it is ready to be packaged. Next years expected costs and activities are
shown below.
Compute Aztecs departmental overhead rate for the mixing department based on direct
labor hours.
A. $1.50 per DLH.
B. $5.00 per DLH.
C. $0.75 per DLH.
D. $0.50 per DLH.
E. $2.08 per DLH.
Answer:
A company needs to have $200,000 in four years, and will create a fund to ensure that
the $200,000 will be available. If they can earn a 7% return, how much must the
company invest in the fund today to equal the $200,000 at the end of four years?
Answer:
To calculate present value of an amount, two factors are required:
__________________ and ___________________.
Answer:
A company issued 10-year, 9% bonds with a par value of $500,000 when the market
rate was 9.5%. The company received $484,087 in cash proceeds. Using the
straight-line method, prepare the issuer’s journal entry to record the first semiannual
interest payment and the amortization of any bond discount or premium.
Answer:
On May 1, Chuck Taylor formed FastForward, a shoe consulting business as a
corporation. To start the business he invested $750,000 in cash. Enter the appropriate
amounts for this transaction into the accounting equation format shown below:
Answer:
Planet Corporation sold 21,000 units of its product at a price of $250 per unit. Total
variable cost per unit is $187, consisting of $104 in variable production cost and $83 in
variable selling and administrative cost. Compute the manufacturing margin for the
company under variable costing.
Answer:
A company purchased equipment valued at $825,000 on January The equipment has an
estimated useful life of seven years or 6 million units. The equipment is estimated to
have a salvage value of $35,000. Assuming the straight-line method of depreciation,
what is the book value at the end of the second year?
Answer:
If a prepaid expense account were not adjusted for the amount used, on the balance
sheet assets would be _______________ and equity would be __________.
Answer:
On December 31, 2013, Stable Company sold a piece of equipment that was purchased
on January 1, 2009. The equipment originally cost $820,000 and has an estimated
useful life of eight years. Stable uses the doubledeclining-balance method of
depreciation. What is the gain/loss on the sale of equipment that Stable will recognize if
the equipment was sold for $230,000?
A $35,409.50 gain
B. $25,000.00 loss
C. $25,000.00 gain
D. $35,408.00 loss
E. $0; no gain or loss
Answer:
A __________________ journal is used to record and post transactions of similar type.
Answer:
Explain the recording and posting processes.
Answer:
Miles Company is preparing a cash budget for February. The company has $30,000
cash at the beginning of February and anticipates $75,000 in cash receipts and $96,250
in cash disbursements during February. Miles Company has an agreement with its bank
to maintain a cash balance of $10,000. What amount, if any, must the company borrow
during February to maintain a $10,000 cash balance?
Answer:
A company manufactures two products. Each unit of product X requires 10 machine
hours and each unit of product Y requires 4 machine hours. The company’s productive
capacity is limited to 180,000 machine hours. Each unit of product X sells for $15 and
has variable costs of $7. Each unit of product Y sells for $8 and has variable costs of $3.
If the company can sell all that it produces of both products, what should the sales mix
be?
Answer:
The total cost of goods completed during the accounting period for a manufacturer is
called:
A, Ending finished goods inventory.
B, Total manufacturing costs.
C, Ending goods in process inventory.
D, Cost of goods manufactured.
E, Cost of goods sold.
Answer:
The following costs are incurred by a manufacturing company. Classify each cost item
as either a period cost or a product cost. If the cost is a product cost, identify it as a
prime and/or conversion cost.
Answer:
Calculate the gross margin ratio for each of the following separate cases A through D:
Answer:
The ________________________________ is sales less direct expenses for a
department.
Answer: