Liabilities represent creditors’ claims on the business’s assets.
Debits in the journal are always posted as debits in the ledger.
A predetermined overhead allocation rate is used to allocate direct materials costs to
various processes or departments.
The use of MACRS is acceptable for financial reporting under GAAP.
Freight costs paid to ship raw materials to a company warehouse are considered product
costs.
Operating income is gross profit minus operating expenses.
Quality management systems use many nonfinancial measures, such as the number of
customer complaints and the volume of incoming customer-service phone calls, as a
means to measure success or failure.
The difference between mortgages payable and notes payable is that notes payable are
always secured by specific assets.
In a manual accounting information system, reports and financial statements must be
created using Word documents, Excel spreadsheets, or PowerPoint.
Manufacturing overhead is allocated by debiting the Work-in-Process Inventory account
and crediting the Manufacturing Overhead account.
When a business uses the straight-line method of depreciation, the amount of
depreciation is reduced from year to year.
To calculate budgeted direct labor costs, multiply the number of units to be produced by
the number of projected direct labor hours. Next, multiply that total by the average
direct cost per hour.
The fixed overhead cost variance measures the difference between actual fixed
overhead and budgeted fixed overhead to determine the controllable portion of total
fixed overhead variance.
Reversing entries are dated on the first day of the new accounting period.
An efficiency variance measures how well a company keeps unit costs of material and
labor inputs within standards.
Repair and maintenance costs for manufacturing equipment are product costs.
A stock split decreases par value per share, whereas stock dividends do not affect par
value per share.
In a process costing system, costs can be controlled with the aid of a production cost
report.
The primary objective in setting transfer prices is to achieve goal congruence by
selecting a price that will maximize the overall company profits.
The rate of return on total assets is calculated by first subtracting interest expense from
net income and then dividing the result by average total assets.
FICA tax is paid by the employee only.
Managers can use CVP relationships to conduct sensitivity analysis.
A vertical analysis of a financial statement reveals the relationship of each statement
item to its base amount, which is 100%.
An information system is one of the five components by which a company can achieve
its internal control objectives.
Tosh Company fabricates automobiles. Each auto includes one wiring harness, which is
currently made in-house. Details of the harness fabrication are as follows:
A factory in Indonesia has offered to supply Tosh with ready-made units for a cost of $10
each. Assume that Tosh’s fixed costs are unavoidable, but the company could use the
vacated production facilities to earn an additional $5,500 of profit per month. In order to
maximize operating income, Tosh should outsource.
Stock issued at amounts in excess of par value results in a gain that is reported on the
income statement.
Freight in is recorded in the Merchandise Inventory account if the purchaser uses the
perpetual inventory system.
The Cost of Goods Sold account is credited to write down the inventory as per the
lower-of-cost-or-market rule.
In a balance sheet, assets are classified as either current or long term, depending on
their liquidity.
Dividends and expenses increase equity.
When a company acquires a long-term bond investment, by paying cash, total assets
remain unchanged.
A liability account is increased by a debit.
The fundamental assumption of cost-volume-profit (CVP) analysis is that, in the long
run, fixed costs become variable costs.
Under process costing, direct materials and direct labor are assigned to Work-in-Process
Inventory for each process that uses them.
Target pricing starts with the full product cost, and it then adds the desired profit to
arrive at the sales price.
A contingency was evaluated at year-end. Management felt it was probable that this
would become an actual liability and the amount could be reasonably estimated. If this
is reported on the balance sheet, it could be considered a violation of generally accepted
accounting principles.
Defective, damaged, or otherwise unsuitable merchandise that is returned to the seller is
referred to as purchase allowances by the purchaser.
During the current year, Simpson, Inc. incurred $9,000 in fixed costs and $13,000 in
variable costs. If the number of units produced is halved next year, the company will
incur $4,500 as fixed costs and $6,500 as variable costs.
Which of the following accounting information system activities is completed when
merchandise inventory is sold?
A) preparation and payment of payroll
B) receipt of customer payment
C) receipt of goods or services
D) payment for goods or services
When using the allowance method, the write-off of a receivable ________.
A) involves a contra-revenue account
B) reduces the amount of the Allowance for Bad Debts account
C) decreases net income
D) affects the net realizable value
The balances of select accounts of Janet, Inc. as of December 31, 2016 are given below:
The Unearned Revenue is the amount of cash received for services to be rendered in
January, 2017. The Interest Payable is due on February 15, 2017. What are the total current
liabilities shown on the balance sheet?
A) $5,400
B) $11,400
C) $13,600
D) $12,400
An accounting information system is said to have good flexibility, if it ________.
A) works smoothly with the business’s employees and organizational structure
B) safeguards a business’s assets and reduces the likelihood of fraud and errors
C) provides information that will improve decision making and reduce uncertainty
D) accommodates changes in the business over time
A small business produces a single product and reports the following data:
The company believes that the volume will go up to 12,000 units if the company reduces
its sales price to $7.50. How would this change affect operating income?
A) It will increase by $5,500.
B) It will increase by $10,500.
C) It will decrease by $5,500.
D) It will decrease by $10,500.
Better Buy, Inc. has 8 units in inventory on December 31. The units were purchased in
November for $160 each. The price lists from the suppliers indicate that the same items
would now cost the company a total of $1,320. What would be the amount reported as
Ending Merchandise Inventory on the balance sheet?
A) $2,600
B) $325
C) $1,280
D) $1,320
A company originally issued 14,000 shares of $5 par value common stock at $12 per
share. The board of directors declares an 14% stock dividend when the market price of
the stock is $25 a share. Which of the following is included in the entry to record the
declaration of a stock dividend?
A) Stock Dividends is debited for $24,500.
B) Common Stock—$5 Par Value is credited for $47,040.
C) Common Stock is credited for $49,000.
D) Stock Dividends is debited for $49,000.
Unearned revenue is recorded when ________.
A) revenue will be both collected and earned in the future
B) the business has collected cash, but not yet earned the revenue
C) revenue has been collected and earned during the same accounting period
D) the business has earned, but not collected, cash for the revenue
A company’s “climate for action” is a corporate culture ________.
A) that encourages communication, change, and growth
B) that is focused on strong, top-down command and control
C) that is aimed exclusively at period earnings
D) that discourages physical activity, sports, and recreation to improve employee health
and morale
A merchandiser uses a perpetual inventory system. The beginning Retained Earnings
balance of the merchandiser was $99,000. During the year, Sales Revenue amounted to
$73,000, Sales Returns and Allowances were $1,400, Sales Discounts were $3,100,
Cost of Goods Sold was $30,000, and all other expenses totaled $16,000. The company
declared and paid $25,000 as dividends. The last step in the closing process would
include ________.
A) a debit to Income Summary for $50,500
B) a credit to Income Summary for $73,000
C) a debit to the Retained Earnings account for $20,500
D) a debit to the Retained Earnings account for $25,000
Which of the following would use a process costing system rather than a job order
costing system?
A) a health-care service provider
B) a music production studio
C) a paint manufacturer
D) a home remodeling contracting company
Mealer, Inc. has prepared its third quarter budget and provided the following data:
The cash balance on June 30 is projected to be $4,500. The company has to maintain a
minimum cash balance of $5,000 and is authorized to borrow at the end of each month to
make up any shortfalls. It may borrow in increments of $5,000 and has to pay interest
every month at an annual rate of 4%. All financing transactions are assumed to take place
at the end of the month. The loan balance should be repaid in increments of $5,000
whenever there is surplus cash. Calculate the final projected cash balance at the end of
September.
A) $21,584
B) $6,584
C) $8,367
D) $54,967
Irene Manufacturing uses a predetermined overhead allocation rate based on a
percentage of direct labor cost. At the beginning of the year, the company estimated
total manufacturing overhead costs at $1,000,000 and total direct labor costs at
$830,000. In June, Job 711 was completed. The details of Job 711 are shown below.
How much was the cost per unit of finished product? (Round any percentages to two
decimal places and your final answer to the nearest cent.)
A) $80.00
B) $101.58
C) $85.20
D) $111.20
Which of the following is the correct formula to calculate average merchandise
inventory?
A) Average merchandise inventory = (Beginning merchandise inventory – Ending
merchandise inventory) / 2
B) Average merchandise inventory = (Beginning merchandise inventory × Ending
merchandise inventory) / 2
C) Average merchandise inventory = (Beginning merchandise inventory / Ending
merchandise inventory) / 2
D) Average merchandise inventory = (Beginning merchandise inventory + Ending
merchandise inventory) / 2
GAAP requires companies to use the ________ method to record bad debts expense.
A) direct write-off
B) allowance
C) amortization
D) 360-day
At the beginning of 2017, Brady, Inc. has the following account balances:
Accounts Receivable $43,000 (Debit)
Allowance for Bad Debts $8,000 (Credit)
Bad Debts Expense $0
During the year, credit sales amounted to $840,000. Cash collected on credit sales
amounted to $790,000, and $17,000 has been written off. At the end of the year, the
company adjusted for bad debts expense using the percent-of-sales method and applied
a rate, based on past history, of 2.5%. The amount of bad debts expense for 2017 is
________.
A) $21,000
B) $41,825
C) $17,000
D) $12,000
The purchasing manager was able to bring down the cost of direct materials by
purchasing direct materials of a slightly lower grade quality than the company had used
previously. The lower grade of direct materials, however, meant a higher defect rate on
the assembly line and higher wastage of direct materials during production, which in
turn lowered operating income. This situation would lead to a(n) ________.
A) favorable direct materials cost variance
B) unfavorable direct labor cost variance
C) favorable direct labor efficiency variance
D) favorable direct materials efficiency variance
The relevant production range for Orleans Trailers, Inc. is between 130,000 units and
180,000 units per month. If the company produces beyond 180,000 units per month,
________.
A) the fixed costs will remain the same, but the variable cost per unit may change
B) the fixed costs may change, but the variable cost per unit will remain the same
C) the fixed costs and the variable cost per unit will not change
D) both the fixed costs and the variable cost per unit may change
Which of the following amounts of a flexible budget remains constant, within the
specified relevant range, when the sales volume changes?
A) total contribution margin
B) total fixed costs
C) total variable costs
D) total sales revenue
A business makes a cash payment to a supplier for office supplies that were purchased
earlier on account. Which of the following accounts is debited?
A) Cash
B) Accounts Payable
C) Office Supplies
D) Utilities Expense
Which of the following activities is handled by selecting the “Make payment” action of
QuickBooks?
A) entering sales receipts
B) selecting bills to be paid
C) recording a bill that has been received
D) recording customer payments
On June 30, Alpha Company’s cash balance is $4,000. Alpha is now preparing their
cash budget for the third quarter of the year. The following data is provided:
The amount of cash that should be shown in the budgeted balance sheet as of September
30 would be ________.
A) $6,958
B) $55,958
C) $7,754
D) $22,754
A six-month note receivable for $8,000 at 12%, dated September 1, 2017, has accrued
interest revenue of ________ as of December 31, 2017. (Round your answer to the
nearest dollar.)
A) $960
B) $480
C) $320
D) $160
Which of the following is shown on the balance sheet as well as the statement of cash
flows?
A) Stockholders’ equity (ending balance)
B) Net income
C) Total assets (ending balance)
D) Cash (ending balance)
When a company receives a dividend payment on available-for-sale investments, the
________.
A) total assets will remain unaffected
B) long-term assets will decrease
C) total equity will increase
D) total liabilities will decrease
Which of the following correctly describes the accounting for advertising costs?
A) Advertising costs are product costs and are expensed as incurred.
B) Advertising costs are period costs and are expensed as incurred.
C) Advertising costs are product costs and are expensed when the manufactured product
is sold.
D) Advertising costs are period costs and are expensed when the manufactured product
is sold.
Which of the following actions will increase the Common Stock account?
A) cash dividend
B) stock split
C) stock dividend declared and distributed
D) purchase of treasury stock
Use the following to calculate the acid-test ratio. (Round your answer to two decimal
places.)
A) 0.79
B) 5.88
C) 0.92
D) 0.48
A business maintains subsidiary accounts for each of its customers. On May 15, the
business sells services on account: $2,100 to customer J. Simmons; $4,000 to customer
A. Jones; and $1,500 to customer J. Williams. Which journal entry is needed to record
this sales transaction?
A)
B)
C)
D)
Which of the following is not included in the purchases journal?
A) purchases of merchandise inventory for cash
B) purchase of merchandise inventory on account
C) purchase of office supplies on credit
D) purchase of equipment on account
What causes manufacturing overhead to be underallocated? When manufacturing
overhead is underallocated, will the Manufacturing Overhead account have a debit or a
credit balance?
On January 1, 2017, Shea Landscaping borrowed $100,000 on a 15%, 10-year note with
annual installment payments of $10,000 plus interest due on December 31 of each year.
Prepare the journal entry for the first installment payment made on December 31, 2017.
Safe Driving School is considering purchasing new autos costing $235,000. The
company’s management has estimated that the autos will generate cash flows as
follows:
Considering the residual value is zero, calculate the payback period. Round to one decimal
place
Connors, Inc. provides the following information for 2017:
Net income $180,000
Market price per share of common stock $20.00/share
Common stockholders’ equity at Jan. 1, 2017 $1,100,000
Common stockholders’ equity at Dec. 31, 2017 $1,500,000
12% preferred stock outstanding $100,000
Calculate return on common stockholders’ equity. (Round to two decimals.)
How does a manufacturing company calculate unit product cost? Why do managers
need to know the unit product cost?
Brevard Manufacturer produces flooring material. The monthly fixed costs are $10,000
per month. The unit sales price is $75, and variable cost per unit is $35. How many
units should Brevard sell in order to earn $10,000 as operating income?
South Meadows, Inc. sold 500 units of inventory at $25 per unit on account. The
company uses the perpetual inventory system. The cost of the units sold was $10 per
unit. Provide the journal entries to record the sale.
List two types of service companies that would benefit from using activity-based
management. For each company listed, state the type of cost information management
needs to know.
For each of the following amounts paid by a purchaser, determine whether the amount
is debited to Land, Land Improvements, or Building.
Vincent Jardine, a CPA, has a firm in the state of New York. Vincent uses ABC to
allocate overhead costs and has computed the following predetermined overhead
allocation rates:
Activity Allocation Base Allocation Rate
Photocopy expenses Number of pages $0.75 per page
Cost of maintenance Number of labor hours $10.00 per hour
Vincent has important contacts in the northeastern parts of New York. During the past
month, Vincent completed a job for Nurix, Inc. The job required 135 labor hours and
4,000 photocopies. Determine the amount of indirect costs to be allocated to the job.
Define planning. List and briefly discuss a planning tool that managers can use.
Shanti, Inc. has two products—waffles and nachos. Financial data for both the products
follows:
Shanti has two sales representatives—Angela and Rose. Each sales representative sold a
total of 1,500 units during the month of March. Angela had a sales mix of 70% waffles and
30% nachos. Rose had a sales mix of 60% waffles and 40% nachos. Which sales
representative has the highest contribution ratio? Explain the reason for your answer.
(Round your percent answers to two decimal places.)
Complete the statement, using the following terms: increase, decrease, or have no
effect on.
Increases in total fixed cost ________ contribution margin per unit and ________ the
breakeven point.
Barkin Corporation’s accounting records include the following items for the year ending
December 31, 2017:
Gain on Sale of Equipment $12,000 Gain on Discontinued Operations $75,000
Loss on Disposal of Equipment 5,000 Extraordinary Loss 15,000
Net Sales 650,000 Cost of Goods Sold 285,000
Operating Expenses 120,000
The income tax rate for the company is 25%. Prepare Barkin’s income statement for the
year ended December 31, 2017. Omit earnings per share.
The Allowance for Bad Debts account has a credit balance of $2,000 before the
adjusting entry for bad debts expense. The company’s management estimates that 2% of
net credit sales will be uncollectible for the year 2017. Net credit sales for the year were
$250,000. Prepare the journal entry to record the bad debts expense on December 31,
2017.
Answer the following variable costing questions:
Ken Jones has just won the state lottery. The state offers the following three payout
options for after-tax prize money:
1. $50,000 per year at the end of each of the next six years
2. $300,000 (lump sum) now
3. $400,000 (lump sum) six years from now
Calculate the present value of each scenario using an 8% annual discount rate. Round to
nearest whole dollar.
Present value of an ordinary annuity of $1:
Present value of $1:
You have just won the lottery and have three payout options:
1. $1,000,000 now
2. $150,000 at the end of each year for the next ten years
3. $2,000,000 at the end of ten years.
What is a common basis for comparison that you can use to decide which option to
choose? Explain your answer.
At the start of June, the Polishing Department of John’s Counters, Inc. had 15,000 units
in beginning inventory that were 100% complete with respect to direct materials and
conversion costs. During the month, it received 25,000 units from the Machining
Department. It started and completed 17,000 units and transferred 32,000 units to the
Packaging Department. It had 8,000 units in ending Work-in-Process Inventory. Direct
materials are added at the beginning of the process. Units in beginning Work-in-Process
Inventory were 50% complete in respect to conversion costs. Units in ending
Work-in-Process Inventory were 40% complete with respect to conversion costs.
Prepare the production cost report for the Polishing Department for the equivalent units
of production for the month of June. Use the FIFO method.
