If a physical count of inventory indicates that the Merchandise Inventory account is
overstated, an adjusting entry is required to record the difference.
Long Company owns a 2% investment in the common stock of Smith Company. The
receipt of a cash dividend from Smith will have no effect on Long’s total equity.
When using management by exception, managers investigate only those variances that
are unfavorable.
A strategic budget will be as detailed as an operational budget.
When using the FIFO inventory costing method, ending merchandise inventory will be
the highest, as compared to LIFO and weighted-average inventory costing methods,
when costs are decreasing.
If a long-term debt is paid in installments, the business will report the current portion of
the note payable as a current liability.
A law firm provides legal services for clients who do not pay immediately. As a result
of this transaction, assets and revenues increase.
Gross profit is the extra amount the company receives from the customer for
merchandise sold over what the company paid to the vendor.
The fixed manufacturing overhead is considered a product cost in variable costing and a
period cost in absorption costing.
An amount that a merchandiser earns by selling its inventory is known as sales revenue
or sales.
Enterprise resource planning systems are software systems that can integrate all of a
company’s functions, departments, and data into a single system.
Under the periodic inventory system, purchases, purchase discounts, and purchase
returns and allowances are recorded in the Merchandise Inventory account as and when
they occur.
Dividends received from available-for-sale investments are recorded with a debit to the
Dividend Revenue account.
As a part of the closing process, revenues and expenses may be closed to a temporary
account called the Net Income (Loss) account.
In a decentralized company, segment managers may not fully understand the big picture
when making decisions.
The gross profit percentage measures the profitability of each sales dollar above the
cost of goods sold.
The primary activity of manufacturing companies is to purchase goods from a
wholesaler and resell them.
The fact that invested cash earns interest over time is called the time value of money.
The three categories of period costs are direct materials, direct labor, and manufacturing
overhead.
When stock is issued for assets other than cash, the transaction is recorded at the market
value of the stock issued or the market value of the assets received, whichever is more
clearly determinable.
The income statement shows whether or not a business can generate enough cash to pay
its liabilities.
A corporation purchased office supplies on account. As a result of this transaction,
expenses and liabilities will increase.
The payback method uses discounted cash flows to make investment decisions.
International Financial Reporting Standards (IFRS) is the main U.S. accounting rule
book and is currently created and governed by the Financial Accounting Standards
Board.
The balance in the Bonds Payable account is a credit of $77,000. The balance in the
Discount on Bonds Payable is a debit of $3,600. The balance sheet will report the bond
balance as $80,600.
Financial reporting is typically much more detailed than managerial accounting.
Weighted average cost per unit is determined by dividing the cost of goods available for
sale by the number of units available.
The operating activities section of the statement of cash flows reflects the cash flows
that affect current assets and current liabilities.
In a manufacturing company, accounting, legal, and administrative costs are typical
examples of product costs.
Managerial accounting can be used to calculate costs for service and merchandising
companies.
Manufacturing overhead includes all manufacturing costs, such as direct labor and
direct materials.
In making product mix decisions under constraining factors, which of the following is
the key to choosing the product type to be maximized?
A) revenue per unit
B) contribution margin per unit of product
C) contribution margin per unit of the constraint
D) gross profit per unit using traditional costing
AAA Metal Bearings produces two sizes of metal bearings (sold by the crate)—
standard and heavy. The standard bearings require $200 of direct materials per unit (per
crate), and the heavy bearings require $245 of direct materials per unit. The operation is
mechanized, and there is no direct labor. Previously AAA used a single plantwide
allocation rate for manufacturing overhead, which was $1.55 per machine hour. Based
on the single rate, gross profit was as follows:
Per unit Standard Heavy
Direct materials cost $200.00 $245.00
Manufacturing overhead cost 124.00 93.00
Total manufacturing cost $324.00 $338.00
Sales price per unit 350.00 370.00
Gross profit per unit $26.00 $32.00
Although the data showed that the heavy bearings were more profitable than the
standard bearings, the plant manager knew that the heavy bearings required much more
processing in the metal fabrication phase than the standard bearings, and that this factor
was not adequately reflected in the single plantwide allocation rate. He suspected that it
was distorting the profit data. He suggested adopting an activity-based costing
approach.
Working together, the engineers and accountants identified the following three
manufacturing activities and broke down the annual overhead costs as shown below:
Activities: Estimated Cost
Metal fabrication $420,000
Machine processing 152,000
Packaging 17,000
Total overhead cost $589,000
Engineers believed that metal fabrication costs should be allocated by weight and
estimated that the plant processed 12,000 kilos of metal per year. Machine processing
costs were correlated to machine hours, and the engineers estimated a total of 380,000
machine hours for the year. Packaging costs were the same for both types of products,
and so they could be allocated simply by the number of units produced. The production
plan provided for 4,000 units of standard and 1,000 units of heavy bearings to be
produced during the year. Additional data on a per unit basis was as given below:
Standard Heavy
Kilos per unit 2.00 4.00
Machine hours per unit 80.00 60.00
Using the data above, calculate the predetermined overhead allocation rates using
activity-based costing. Then, following the ABC methodology, calculate the production
cost and gross profit for one unit of standard bearings. (Round your intermediate
calculations to two decimal places.)
Which of the following is true of source documents in an accounting information
system?
A) All journal entries can be considered as source documents in an accounting
information system.
B) Source documents provide control and reliability in an accounting information
system.
C) A manual document cannot be considered as a source document in an accounting
information system.
D) In a manual accounting information system, source documents refer to financial
statements.
McLeod Fries, Inc. has budgeted sales for June and July at $680,000 and $750,000,
respectively. Sales are 90% credit, of which 70% is collected in the month of sale and
30% is collected in the following month. What is the budgeted Accounts Receivable
balance on July 31?
A) $225,000
B) $202,500
C) $183,600
D) $675,000
Which of the following describes the financing activities section of the statement of
cash flows?
A) It includes increases and decreases in long-term assets.
B) It includes cash inflows and outflows involved in long-term liabilities and equity.
C) It includes interest and dividend income and cash payments for interest expense.
D) It reports on activities that create revenue or expenses for the entity’s business.
Which of the following inventory costing methods results in the lowest value of ending
inventory during a period of rising inventory costs?
A) specific identification
B) weighted-average
C) last-in, first-out
D) first-in, first-out
Bloomington, Inc. is a merchandiser of stone ornaments. The company sold 7,000 units
during the year. The company has provided the following information:
What is the cost of goods sold for the year?
A) $362,000
B) $320,000
C) $318,000
D) $305,000
The ending Merchandise Inventory for the current accounting period is understated by
$2,700. What effect will this error have on Cost of Goods Sold and Net Income for the
current accounting period?
A)
B)
C)
D)
Prepaid Rent in the worksheet’s unadjusted trial balance column is $5,000. Prepaid Rent
in the balance sheet column is $2,000. Which of the following entries would have
caused this difference?
A) a $3,000 debit entry to Prepaid Rent in the worksheet’s adjustments column
B) a $3,000 credit entry to Rent Expense in the worksheet’s adjustments column
C) a $3,000 credit entry to Prepaid Rent in the worksheet’s adjustments column
D) a $3,000 credit entry to Rental Revenue in the worksheet’s adjustments column
A bond is issued at discount when a bond’s stated interest rate is ________.
A) equal to the market interest rate
B) more than the effective interest rate
C) less than the market interest rate
D) more than the market interest rate
Which of the following is true of an effective accounting information system?
A) It has little influence in improving a company’s internal control activities.
B) The cost of using an accounting information system is the same for both small and
large businesses.
C) A compatible accounting information system works smoothly with the business’s
employees and organizational structure.
D) Large private companies prefer a manual accounting information system since their
financial statements are not audited.
The following contains information from the records of the Wellborn Engineers and
Architects.
Wellborn Engineers and Architects
Selected Financial Information
December 31, 2017
Calculate the current ratio. (Round your answer to two decimals.)
A) 1.46
B) 2.28
C) 0.64
D) 3.00
Madison, Inc. had the following balances and transactions during 2017.
The company maintains its records of inventory on a perpetual basis using the last-in,
first-out inventory costing method. Calculate the amount of ending Merchandise Inventory
at December 31, 2017 using the lower-of-cost-or-market rule. (Round any intermediate
calculations two decimal places, and your final answer to the nearest dollar.)
A) $2,880
B) $3,412
C) $3,713
D) $3,572
Which of the following is a plant asset?
A) Equipment
B) Patents
C) Trademark
D) Accounts Receivable
Under the first-in, first-out (FIFO) method, the current period equivalent units of
production for transferred in units in beginning inventory are zero because ________.
A) these units are transferred back to the previous department for further processing in
the current period
B) these units are expected to be sold by the receiving department without subjecting
them to further processing
C) no additional costs for these units were transferred in the current period
D) costs involved in inter-departmental transfers are accounted for only once when
sales are made to customers
On January 1, Alistair Manufacturing had a beginning balance in Work-in-Process
Inventory of $164,000 and a beginning balance in Finished Goods Inventory of
$25,000. During the year, Alistair incurred manufacturing costs of $202,000.
During the year, the following transactions occurred:
Job C-62 was completed for a total cost of $140,000 and was sold for $157,000.
Job C-63 was completed for a total cost of $181,000 and was sold for $212,000.
Job C-64 was completed for a total cost $82,000 but was not sold as of year-end.
The Manufacturing Overhead account had an unadjusted credit balance of $24,000 and
was adjusted to zero at year-end.
What was the amount of gross profit reported by Alistair at the end of the year?
A) $48,000
B) $72,000
C) $17,000
D) $31,000
The tracking of inventory shrinkage due to theft, damage, or errors is done with the help
of a (n) ________ of inventory.
A) authorization
B) sale
C) physical count
D) delivery
Which of the following is not a decision tool based on working capital?
A) cash ratio
B) acid-test ratio
C) current ratio
D) dividend payout ratio
A favorable sales volume variance in variable costs suggests a(n) ________.
A) increase in number of actual units sold when compared to the expected number of
units sold
B) decrease in number of actual units sold when compared to the expected number of
units sold
C) increase in variable cost per unit
D) decrease in fixed costs
A customer’s check for $1,270 was returned for nonsufficient funds. Which of the
following journal entries is needed to adjust for the NSF check?
A)
B)
C)
D)
Paramount Carpets is considering purchasing new equipment costing $730,000. The
company’s management has estimated that the equipment will generate cash flows as
follows:
Considering the residual value is zero, calculate the payback period. (Round your answer
to two decimal places.)
A) 4.61 years
B) 3.21 years
C) 3.42 years
D) 3.70 years
The journal entry to record indirect labor costs incurred involves a debit to the
________.
A) Manufacturing Overhead account
B) Wages Payable account
C) Finished Goods Inventory account
D) Work-in-Process Inventory account
Mickey Tire Company makes a special kind of racing tire. Variable costs are $225 per
unit, and fixed costs are $30,000 per month. Mickey sells 500 units per month at a sales
price of $310. If the quality of the tire is upgraded, the company believes it can increase
the sales price to $349. If so, the variable cost will increase to $234 per unit, and the
fixed costs will rise by 50%. If Mickey decides to upgrade, how will operating income
be affected?
A) Operating income will decrease by $15,000.
B) Operating income will decrease by $4,500.
C) Operating income will increase by $4,500.
D) Operating income will remain the same.
The ________ method allows managers to increase operating income through
production by producing more products than needed.
A) absorption costing
B) variable costing
C) direct costing
D) marginal costing
Salaries are $6,500 per week for five working days and are paid weekly at the end of
the day Fridays. The end of the month falls on a Thursday. The accountant for Dayton,
Inc. made the appropriate accrual adjustment and posted it to the ledger. The balance of
Salaries Payable, as shown on the adjusted trial balance, will be a ________. (Assume
that there was no beginning balance in the Salaries Payable account.)
A) credit balance of $5,200
B) debit balance of $1,300
C) debit balance of $5,200
D) credit balance of $1,300
Which of the following line items will appear on the income statement of a
merchandiser but not of a service company?
A) Salaries Expense
B) Depreciation Expense
C) Cost of Goods Sold
D) Supplies Inventory
The purchases journal is a special journal that ________.
A) has special columns for credits to merchandise inventory
B) is used to record all purchases of merchandise inventory
C) has a special column for debits to accounts payable
D) is used to record merchandise inventory, office supplies, and other assets purchased
on account
Which of the following is included in the entry to record estimated warranty payable?
A) a credit to Estimated Warranty Payable
B) a credit to Merchandise Inventory
C) a credit to Warranty Expense
D) a debit to Estimated Warranty Payable
The ending merchandise inventory for the current year is overstated by $28,000. What
effect will this error have on the following year’s net income?
A) The net income will be overstated by $56,000.
B) The net income will be overstated by $28,000.
C) The net income will be understated by $28,000.
D) The net income will be understated by $56,000.
Which of the following is affected as a result of an error in performing the physical
count of inventory at the end of the accounting period?
A) sales revenue
B) operating expenses
C) net income
D) net cost of purchases
Common-size statements ________.
A) allow the users to compare numbers in relative terms rather than absolute amounts
B) report dollar amounts and percentages
C) create a dollar value bias
D) show the same percentages that appear in a horizontal analysis
Which of the following internal business perspective key performance indicators (KPIs)
is commonly used to assess the innovation process?
A) number of new products developed
B) number of warranty claims
C) employee turnover rate
D) rate of on-time deliveries
When production is greater than sales, the operating income will be higher under
absorption costing than variable costing. Assume zero beginning and ending
inventories. Which of the following gives the correct reason for the above statement?
A) All costs incurred have been recorded as expenses.
B) A portion of the fixed manufacturing overhead is still in the ending Finished Goods
Inventory account.
C) All selling and administrative expenses have been recorded as period costs.
D) Fixed manufacturing costs have not been considered when calculating the operating
profits.
The current ratio measures a company’s ________.
A) overall ability to pay liabilities
B) ability to pay current liabilities with current assets
C) proportion of assets that are financed by debt
D) rate of cash flow
Which of the following best describes the term capital rationing?
A) a method of determining the period within which the cash invested is recouped
B) a process of ranking and choosing among alternative capital investments based on
the availability of funds
C) a method which shows the effect of an investment on a company’s accrual-based
income
D) a process of controlling operating costs when adequate funds are not available
Explain the difference between a controllable and a noncontrollable cost.
The following information is provided by Dinovo Systems:
Calculate the profitability index for Project B. Show your calculations and round to two
decimal places.
Under what circumstances is the investment with the shortest payback the best choice?
How should managers use the payback method?
Redribbon Gallery reported the following assets on its December 31, 2017 balance
sheet:
Dec. 31, 2017 Dec. 31, 2016
Cash $35,000 $28,000
Accounts Receivable 97,000 85,000
Merchandise Inventory 80,000 62,000
Prepaid Expenses 29,000 20,000
Property, plant, and equipment, net 30,000 18,000
If the net sales for the year amounted to $850,000, what is the asset turnover ratio for
2017?
Define joint cost. Should joint costs be considered in the decision to sell or further
process the product? Explain your answer.
On October 1, 2017, Carlos, Inc. borrowed $225,000 by signing a nine-month, 8% note
payable. Interest was accrued on December 31, 2017. Prepare the journal entry July, 1,
2017, the date the note was paid.
For each transaction, identify which account is debited and which account is credited.
Use proper account titles.
On January 1, 2017, Blizzard Manufacturing Corporation purchased a machine for
$40,000,000. The corporation expects to use the machine for 24,000 hours over the next
six years. The estimated residual value of the machine at the end of the sixth year is
$40,000. The corporation used the machine for 3,600 hours in 2017 and 5,000 hours in
2018. What is the depreciation expense for 2017 and 2018 if the corporation uses the
double-declining-balance method of depreciation?
On December 31, 2016, Thompson Hardware Company purchases $300,000 of
property by paying $50,000 in cash and signing a 10-year mortgage note at 13% for the
balance. The amortization schedule shows that the company will pay $46,072 per year.
Journalize the first yearly payment on December 31, 2017.
Provide the formula for (1) To account for and (2) Accounted for.
What is activity-based management? How is it different from activity-based costing?
For each of the following types of business, indicate why the manager needs to know
the unit cost information.
Discuss the difference between a centralized company and a decentralized company.
Egerton, Inc. has two processes—Coloring Department and Mixing Department.
Egerton sold 350 gallons on account at $110 per gallon. The total cost of processing
was $385,000 for 5,500 gallons of paint. Throughout the year, the company used a
predetermined overhead allocation rate to allocate $75,000 and $65,000 of indirect
costs to the Coloring Department and Mixing Department, respectively. The actual
overhead cost incurred amounted to $150,000 at the end of the year. Record the
necessary journal entries for the sale of goods and for adjustment of over- or
underallocated manufacturing overhead at the end of the year.
Define treasury stock and provide two reasons why a corporation would purchase
treasury stock.
When computing a bond’s cash flow for interest, which interest rate is used? Why?
Dolby, Inc. issued a $5,000 face value, 10%, five-year bond at 98. What will be the
journal entries at the maturity of the bond? The bonds have semiannual interest, and the
company uses the straight-line method of discount amortization.
List three questions managers should consider when deciding whether to drop a product
or a business segment.