The difference that arises between the balance on the bank statement and the balance on
the company’s books because of a time lag in recording transactions is known as a
timing difference.
Critical thinking and judgment skills are not necessary for accountants because
technology has made the activities routine.
Sales on account are recorded in a cash receipts journal.
The residual value is discounted as a single lump sum because it will be received only
once, when the asset is sold.
A reduction in the amount of cash received from a customer for early payment is known
as a sales discount.
A point-of-sale terminal provides control over cash receipts over the counter.
The production budget determines the number of units to be produced during the
period.
The perpetual inventory system keeps a running record of inventory and cost of goods
sold.
A subsidiary ledger is a record of accounts that provides supporting details on
individual balances, the total of which appears in a general ledger account.
Variable costing prepares the income statement using the traditional format.
Favorable and unfavorable variances are subtracted from each other to arrive at a net
favorable or unfavorable variance.
Unit product costs can be used to measure operating income and determine the cost of
Finished Goods Inventory.
An increase in the current ratio implies that the profitability of the company has
increased from the previous period.
The entry to close Sales Discounts will include a debit to Income Summary.
Callable bonds are bonds that the issuer may call and pay off at a specified price
whenever the issuer wants.
The sales journal is used for all sales of merchandise inventory.
Contra asset accounts, such as Accumulated Depreciation, always have normal debit
balances.
The beginning balance in the Common Stock account of a company was $14,000. The
revenues and expenses were $240,000 and $100,000, respectively. During the year, the
company declared and paid dividends of $7,000. The ending balance in the Retained
Earnings was $133,000. (Assume that the opening balance of Retained Earnings was
zero.)
The left side of the accounting equation measures the amount that the business owes to
creditors and to the stockholders.
Under accrual basis accounting, an expense is recorded only when cash is paid.
In a manufacturing company, advertising and marketing costs are included in
manufacturing overhead.
Mary Williams contributed $50,000 cash to BCD Corporation in exchange for stock. As
a result of this transaction, assets and revenues will increase.
A fully depreciated asset that is still in service is not reported as an asset on the balance
sheet.
Financing activities on the statement of cash flows affect the long-term liability and
equity accounts.
Favorable variances are contra expenses and therefore decrease Cost of Goods Sold.
The degree of operating leverage is the ratio that measures the effects that variable costs
have on changes in operating income when sales volume changes.
If a company uses the contra account, Accumulated Amortization, this account is
typically shown on the balance sheet.
When preparing the budgeted balance sheet, the balance of the Accounts Payable
account is taken from the cash budget.
The major difference between a cash basis accounting system and an accrual basis
accounting system is the timing of recording revenues and assets.
A corporation is a separate legal entity that is organized independently of its owners.
The cost of direct materials cannot easily be traced to the manufactured product, and
therefore, it is a component of manufacturing overhead.
For short-term pricing decisions, fixed costs are usually not relevant because they do
not change.
Conversion costs include the costs of purchasing and converting raw materials into
finished products.
Legal capital refers to the portion of stockholders’ equity that cannot be used for
dividends.
Companies that follow GAAP are required to use the direct write-off method for
uncollectible accounts receivable.
Marion Company provides cleaning services to commercial and residential customers.
The commercial business segment provided services to 280 customers and the
residential business segment provided services to 595 customers.
What is the contribution margin ratio for Marion Company? (Round you answer to two
decimal places.)
A) 0.55%
B) 0.82%
C) 0.62%
D) 0.18%
A company purchased inventory for $4,000 from a vendor on account, FOB shipping
point, with terms of 3/15, n/30. The company paid $100 cash for freight in. The entry to
record payment of invoice within 3 days by the purchaser would include ________.
(Assume a perpetual inventory system.)
A) a debit to Accounts Payable for $3,880 and a credit to Cash for $3,880
B) a debit to Accounts Payable for $4,000, a debit to Merchandise Inventory for $100,
and a credit to Cash for $3,880
C) a debit to Accounts Payable for $4,000, a credit to Merchandise Inventory for $120,
and a credit to Cash for $3,880
D) a debit to Accounts Payable for $3,880, a debit to Merchandise Inventory for $120,
and a credit to Cash for $4,000
The following information is provided by Glinda Systems:
What is the profitability index for Project B? (Round your answer to two decimal places.)
A) 1.92
B) 1.36
C) 1.25
D) 1.87
Which of the following is useful to combine the data of different segments using
different software for the purpose of creating companywide budgets?
A) accounting development manual
B) budgeting software
C) financial analysis software
D) budget creation manual
Jumbo Sales Corporation offers warranties on all their electronic goods. Warranty
expense is estimated at 3% of sales revenue. In 2017, the company had $602,000 of
sales. In the same year, it paid out $12,000 of warranty payments. Which of the
following is the entry needed to record the estimated warranty expense?
A)
B)
C)
D)
The accounts receivable turnover ratio for a merchandiser is 10 times. Calculate the
days’ sales in receivables for the merchandiser. (Round your answer to the nearest day.)
A) 33 days
B) 37 days
C) 28 days
D) 40 days
Under the direct write-off method, which of the following is included in the entry to
write off an uncollectible account?
A) a credit to the Allowance for Bad Debts
B) a credit to the customer’s Account Receivable
C) a debit to Allowance for Uncollectible Accounts
D) No entry is made to write off uncollectible accounts.
A company’s production department was experiencing a high defect rate on the
assembly line, which was slowing down production and causing wastage of valuable
direct materials. The production manager decided to purchase a higher grade of
materials that would be more reliable, but he was worried that the cost of the new
materials might negatively affect operating income. This would produce a(n) ________.
A) favorable direct materials cost variance
B) unfavorable direct labor cost variance
C) unfavorable direct labor efficiency variance
D) favorable direct materials efficiency variance
Harvard Financial Services, Inc. purchased computers that are to be used in its
consultancy services. Based on the matching principle, what account, other than
Computers, should appear on the balance sheet as of December 31, 2016?
A) Depreciation Expense
B) Service Revenue
C) Accumulated Depreciation
D) Equipment Expense
Which of the following accounts increases with a debit?
A) Cash
B) Interest Payable
C) Accounts Payable
D) Common Stock
The gain or loss on the sale of a plant asset is determined by comparing market value of
assets received with ________.
A) book value
B) residual value
C) original cost
D) salvage value
If a business uses the periodic inventory system, the sales journal will ________.
A) record both the cash and credit sales
B) include a Purchase DR and Account Receivable CR column
C) exclude the Accounts Receivable DR and Sales Revenue CR column
D) exclude the Cost of Goods Sold DR and Merchandise Inventory CR column
Jordan Manufacturing uses a predetermined overhead allocation rate based on a
percentage of direct labor cost. At the beginning of the year, it estimated the
manufacturing overhead rate to be 30% times the direct labor cost. In the month of
June, Jordan completed Job 13C, and its details are as follows:
What is the cost per unit of finished product of Job 13C? (Round your answer to the
nearest cent.)
A) $168.50
B) $146.60
C) $137.05
D) $136.50
Which of the following statements is incorrect?
A) The life cycle of a plant asset includes: acquisition, usage, and disposal.
B) Depreciation is recorded on all plant assets.
C) Plant assets not currently being used in business operations are classified as
long-term investments.
D) Plant assets are long-lived tangible assets used in the operations of a business.
Jenkins Realty, Inc. issued 7,000 shares of $9 stated value common stock for $16 per
share. The journal entry to record this transaction includes a credit to ________.
A) Common Stock for $112,000
B) Paid-In Capital in Excess of Stated — Common for $63,000
C) Common Stock — $9 Stated Value for $49,000
D) Paid-In Capital in Excess of Stated — Common for $49,000
Golden Marine Stores Company manufactures special metallic materials and decorative
fittings for luxury yachts that require highly skilled labor. Golden uses standard costs to
prepare its flexible budget. For the first quarter of the year, direct materials and direct
labor standards for one of their popular products were as follows:
Direct materials: 2 pounds per unit; $3 per pound
Labor: 4 hours per unit; $20 per hour
During the first quarter, Golden produced 5,000 units of this product. At the end of the
quarter, an examination of the direct materials records showed that the company used
9,500 pounds of direct materials and the direct materials cost variance was $3,750 U.
Which of the following is a logical explanation for this variance?
A) The company used more labor hours than allowed by the standards.
B) The company paid a higher cost per hour for labor than allowed by the standards.
C) The company used a greater quantity of direct materials than allowed by the
standards.
D) The company paid a higher cost for the direct materials than allowed by the
standards.
Following is a list of account balances of Morris Mowing Services as of December 31
of the first year of operations.
Calculate the net income.
A) $1,000
B) $31,300
C) $2,800
D) $34,100
Unearned Revenue is a(n) ________ account and carries a normal ________ balance.
A) liability; credit
B) asset; credit
C) revenue; debit
D) asset; debit
Altima, Inc. finished Job A40 on the last working day of the year. It utilized $370 of
direct materials and $3,420 of direct labor. Altima uses a predetermined overhead
allocation rate based on a percentage of direct labor costs, which has been fixed at 40%.
The entry to record the completion of the job should involve a ________.
A) debit to Finished Goods Inventory $5,158 and a credit to Materials Inventory $5,158
B) debit to Cost of Goods Sold $5,158 and a credit to Finished Goods Inventory $5,158
C) debit to Finished Goods Inventory $5,158 and a credit to Work-in-Process Inventory
$5,158
D) debit to Work-in-Process Inventory $5,158 and a credit to Finished Goods Inventory
$5,158
Cash is a(n) ________ account and has a normal ________ balance.
A) asset; debit
B) liability; credit
C) liability; debit
D) asset; credit
Which of the following appears on both the income statement and statement of retained
earnings?
A) Ending stockholders’ equity
B) Total revenues
C) Net income
D) Dividends
During the month, New Products Manufacturing incurred $47,000 in direct labor costs
in Department 1, $26,000 direct labor costs in Department 2, and $3,500 of indirect
labor costs. The summary journal entry to record these transactions includes a
________.
A) credit to Manufacturing Overhead for $3,500
B) debit to Work-in-Process Inventory for $73,000
C) credit to Wages Payable for $73,000
D) debit to Work-in-Process Inventory—Department 2 for $26,000
The trend analysis report of Doppler, Inc. is given below (in millions):
Which of the following is a correct conclusion from the above analysis?
A) Net income for 2018 is 175% of that for 2014.
B) Net income for 2017 is 151% of the previous year.
C) Net income for 2017 decreased by 151% from 2016.
D) Net income for 2018 increased by 175% from 2017.
Which of the following best describes the manager of a profit center?
A) The manager is only responsible for controlling costs.
B) The manager is responsible for generating profits and efficiently managing the
center’s invested capital.
C) The manager is only responsible for generating revenues.
D) The manager is responsible for generating revenues and controlling costs.
A business collects cash from a customer for services that were performed one month
earlier. Which of the following accounts is debited?
A) Cash
B) Accounts Receivable
C) Service Revenue
D) Accounts Payable
A restaurant is being sued because a customer claims to have found a bug in her chili.
The company’s lawyers believe there is only a remote possibility that the lawsuit will
result in an actual liability. Which of the following actions should be taken by the
company’s management?
A) The situation should be described in a note to the financial statements.
B) The possible liability should not be shown in the financial statements.
C) The liability should be estimated and accrued as an expense.
D) An expense must be matched to the period in which the incident occurred.
Tortilla Corp. has provided a part of its budget for the second quarter:
The cash balance on April 1 is $14,000. Assume that there will be no financing
transactions or costs during the quarter. Calculate the projected cash balance at the end of
May.
A) $62,400
B) $83,000
C) $56,000
D) $20,600
Which of the following would be included in the entry to record the replenishment of a
petty cash fund?
A) a credit to Petty Cash
B) a debit to Accounts Receivable
C) a credit to Cash
D) a credit to Miscellaneous Expense
Which of the following is used to calculate the number of units accounted for under
first-in, first-out (FIFO) method of inventory valuation of process costing?
A) Accounted for = Beginning balance + Started and completed + In process
B) Accounted for = Beginning balance + Started and completed
C) Accounted for = Beginning balance + In process
D) Accounted for = Beginning balance + Amount transferred in
The entity that signs the promissory note and promises to pay the required amount is the
________.
A) maker of the note
B) banker of the note
C) holder of the note
D) payee of the note
Which is a true statement regarding the accounting equation?
A) The equation can be stated as assets minus liabilities equals equity.
B) The equation consists of three parts: assets, liabilities, and net income.
C) The equation is an optional tool for accountants to use.
D) The equation does not need to balance during a specific period.
List the primary goals of performance evaluation systems.
Stephens, Inc. had 140,000 shares of $5 par value common stock issued and
outstanding as of December 15, 2016. The company is authorized to issue 1,000,000
common shares. On December 15, 2016, Stephens declared a 40% stock dividend when
the market value for its common stock was $9 per share. The stock was issued on Dec.
30.
Prepare the journal entries to record the declaration and distribution of the stock
dividend. Explanations are not required. Compute the total shares after the dividend.
Felix Company has just completed operations for the year ended December 31, 2016.
This is the second year of operations for the company. The following data have been
assembled for the business.
Prepare the balance sheet. Use a proper heading.
Provide a definition of each of the following types of bonds.
On October 1, 2017, Nurix, Inc. purchased a patent for $100,000 cash. Although the
patent gives legal protection for 20 years, it is expected to be used for only eight years.
Journalize the purchase of the patent.
Ivade, Inc. uses a predetermined overhead allocation rate of $75 per direct labor hour.
In January, Ivade completed Job B23, which utilized 20 direct labor hours. Provide the
journal entry to allocate overhead to the job.
Prepare an income statement and a statement of retained earnings for the month of June.
Also, prepare a balance sheet at June 30. The transactions of Magna Designer
Corporation for the first month of their operations are as follows:
• On June 1, 2017, Magna Designer Corporation received $25,000 cash from its
stockholders and gave common stock to the stockholders.
• The company rendered services to three clients on account with total revenues earned
of $9,000.
• It then incurred an advertising expense on four different websites and promised to pay
a total of $1,200 at a later date.
• On June 13, Magna Designers purchased $1,000 worth of office supplies for cash.
(The supplies are not used by June 30.)
• On June 22, it received $2,000 on account from a client and deposited it into the
business account.
• On June 23, it incurred $1,300 for a legal expense and paid cash.
• On June 30, Magna Designers made a payment of $500 to one of the websites that it
owed for advertising provided earlier in the month.
• No dividends were paid during the month.
Use the following information to calculate the free cash flow of Harris, Inc.
Net cash provided by operating activities, $25,000
Net cash provided by financing activities, $35,000
Net cash used for planned investment in long-term assets, $12,000
Net cash used for investing activities, $20,000
Cash dividends paid, $10,000.
During December 2016, Carroll Service Company performed $1,500 of services, but as
of December 31, 2016, Carroll has not yet billed the clients. If Carroll fails to make an
adjusting entry on December 31, 2016, indicate the effect on assets, liabilities, equity,
and net income.
Star Moving Systems, Inc. has provided the following details for direct materials
purchased on account in different months.
Jan $35,000
Feb 28,000
March 34,000
April 39,000
May 32,000
June 29,000
The terms of payment offered by the suppliers are to pay 70% in the month of purchase
and 30% in the following month. Calculate the payments on account made during the
first six months.
Cardec, Inc., a leading manufacturer of car spare parts, divided its manufacturing
process into two
Departments – Production and Packing. The estimated overhead costs for the Production
and Packing
departments amounted to $14,000,000 and $20,000,000, respectively. The company
produces two types of parts – Part 1 and Part 2. The total estimated labor hours for the
year were 40,000, and estimated machine hours were 35,000. The Production
department is mechanized, whereas the Packing department is labor oriented. Calculate
departmental predetermined overhead allocation rates.
If a business operates in an industry that experiences significant cost changes, should
the business prepare its production cost report using the FIFO method or the
weighted-average method? Explain your answer.
The following information is available for Ashland Company for the month ending June
30, 2017.
• Balance as per the bank statement is $11,240.
• Balance as per books is $10,200.
• Check #506 for $1,200 and check #510 for $900 were not shown on the June 30 bank
statement.
• A deposit in transit of $3,110 had not been received by the bank when the bank
statement was generated.
• A bank debit memo indicated an NSF check for $85 written by Maddie Wolfe to
Ashland Company on June 13.
• A bank credit memo indicated a note collected by the bank of $2,100 and interest
revenue of $55 on June 20.
• The bank statement indicated service charges of $20.
Prepare bank reconciliation for Ashland Company for June 30, 2017.
When units produced exceeds units sold, how does operating income differ between
variable costing and absorption costing? Explain your answer.
Top managers of Boardwalk Manufacturing are alarmed by their operating losses. They
are considering dropping the desktop product line. The company accountants have
prepared the following analysis to help make this decision.
Boardwalk Manufacturing
Income Statement
For the Year Ended December 31, 20XX
If the company stops selling the desktop product line, the company will be able to avoid
80% of the fixed manufacturing costs and 100% of the fixed selling and administrative
costs.
Prepare a differential analysis to show whether Boardwalk Manufacturing should drop the
desktop product line. Should the desktop product line be dropped? Explain your answer.
Rimsone, Inc. purchases 8,500 shares of the company’s own $6 par common stock for
$8 per share. Journalize the transaction.
A petty cash fund was established with a $300 balance. It currently has cash of $73 and
petty cash tickets totaling $222 for travel expense. Provide the journal entry to record
the replenishment of the fund.
List the three kinds of inventory accounts that are used by manufacturing companies.
Briefly discuss what each account includes.
Bright Lights Electrical, Inc. performed services of $8,000 on January 24 and invoiced
the customer. Bright Lights received the $8,000 on January 31. Provide the journal
entry on January 31 when the cash was received. (Ignore explanation.)