When using the periodic inventory system, the process of recording the ending
Merchandise Inventory is completed by making an adjusting entry.
If the debt ratio is too high, the company may be unable to pay its debts.
Under process costing, the unit cost of the completed units is less than the unit cost of
the incomplete units.
The primary objective of financial reporting is to provide information useful for making
investment and lending decisions.
The post-closing trial balance shows the net income for the period just ended.
Production cost reports prepared using first-in, first-out (FIFO) method determine the
average cost of equivalent units of production by combining beginning inventory costs
with current period costs.
Responsibility accounting can help managers identify the causes of variances, thereby
allowing them to determine what was controllable.
The collection period of accounts receivable is usually long: therefore, it is classified as
a long-term asset on the balance sheet.
The traditional income statement format calculates operating income as gross profit
minus selling and administrative expenses.
Goodwill is the excess cost of an acquired company over the market value of its net
assets.
A unique factor of responsibility accounting performance reports is the focus on
responsibility and controllability.
An accounting information system has three basic components: source documents and
input devices, processing and storage, and internal controls.
The statement of stockholders’ equity has more information than the statement of
retained earnings because it reports the changes in all stockholders’ equity accounts.
If an asset is disposed of during the year, there is no need to calculate depreciation from
the beginning of the year of disposal to the date of disposal.
In a corporation, the board of directors is elected by the chairperson of the company.
Revenues and contributions of the stockholders in the business increase equity.
Production cost reports prepared using the first-in, first-out (FIFO) method determine
the cost of equivalent units of production by accounting for beginning inventory costs
separately from current period costs.
When using a computerized accounting information system, transactions do not need to
be recorded in a debit and credit format.
At the end of each accounting period, trading securities must be adjusted and reported
at fair value.
When using a periodic inventory system, the Merchandise Inventory DR column, in the
purchases journal, is replaced with a column titled Cost of Goods Sold DR.
For exchanges of plant assets with commercial substance, the new asset received will
be recorded at its market value.
The level of forecasted sales has little effect on other elements of the master budget.
The net income calculated using either the single-step or multi-step income statement
formats is always the same.
The just-in-time management system results in an increase in the costs to buy, store,
insure, and move inventory.
A static budget is prepared for only one level of sales volume.
A favorable direct materials cost variance occurs when the actual direct materials cost
incurred is less than the standard direct materials cost.
Violators of the Sarbanes-Oxley Act may be sentenced to prison for making false sworn
statements.
While preparing a statement of cash flows using the indirect method, an increase in
current assets is added to net income to arrive at net cash flow from operating activities.
The Dividends account is a permanent account.
When evaluating a potential investment, managers should use only one measure for
making a sound investment decision.
A common-size statement reports the same percentages that appear in a vertical
analysis.
Managers do not consider sales mix for making decisions because it does not affect the
overall profitability of the company.
The Common Stock account is increased by a debit.
If a business is considering buying a new vehicle, the cost of the insurance premium is
relevant to the business decision.
In a bank reconciliation, a NSF check will be shown on the book side of the
reconciliation.
The production cost report for Department 2 shows that $454,000 was assigned to the
50,000 units transferred to Finished Goods Inventory. Cost of goods manufactured
equals $454,000.
Which of the following is an example of a period cost for a manufacturing company?
A) advertising expense
B) depreciation on factory equipment
C) indirect materials
D) property taxes for the factory
Peacock, Inc. sells 2,000 kayaks per year at a sales price of $460 per unit. It sells in a
highly competitive market and uses target pricing. The company has calculated its
target full product cost at $810,000 per year. Fixed costs are $340,000 per year and
cannot be reduced. What is the target variable cost per unit assuming units sold are
equal to units produced?
A) $235
B) $405
C) $575
D) $170
For the month of September, Countrywide Sales, Inc. recorded gross pay of $74,500.
The net pay for the month amounted to $59,500. The salaries are paid on October 5.
Which of the following is the journal entry for the payment of salaries?
A)
B)
C)
D)
The costs incurred in the inspection of final products or services is an example of a(n)
________.
A) prevention cost
B) appraisal cost
C) internal failure cost
D) external failure cost
A journal entry for a $290 payment to purchase office supplies was erroneously
recorded as a debit to Office Supplies for $600 and a credit to Cash for $290. Which of
the following statements correctly states the effect of the error on the trial balance?
A) The sum of the credits will exceed the sum of the debits by $310.
B) The sum of the debits will exceed the sum of the credits by $290.
C) The sum of the debits will exceed the sum of the credits by $310.
D) The sum of the debits will exceed the sum of the credits by $600.
Gitis, Inc. uses the direct method to prepare its statement of cash flows. Use the
following information reported for 2017:
Sales Revenue, $43,000
Interest Revenue, $600
Accounts Receivable, beginning balance, $13,400
Accounts Receivable, ending balance, $26,000
There were no amounts reported for Interest Receivable.
Compute the total cash receipts.
A) $26,000
B) $56,400
C) $31,000
D) $13,400
Left Hand, Inc. has fixed costs of $400,000. Total costs, both fixed and variable, are
$550,000 when 40,000 units are produced. Calculate the total costs if the volume
increases to 64,000 units. (Round any intermediate calculations to the nearest cent, and
your final answer to the nearest dollar.)
A) $950,000
B) $150,000
C) $640,000
D) $550,000
Tokyo Corp. has prepared a preliminary cash budget for the third quarter as shown
below:
Subsequently, the marketing department revised its figures for cash collections. New data
are as follows: $53,000 in July, $55,000 in August, and $46,000 in September. Based on
the new data, calculate the new projected cash balance at the end of August.
A) $20,500
B) $18,500
C) $12,000
D) $17,800
Inventory turnover measures ________.
A) the days’ sales in inventory ratio
B) how rapidly merchandise inventory is purchased
C) how rapidly merchandise inventory is sold
D) the time period for inventory to become obsolete
Which of the following best describes the appropriation of retained earnings?
A) restricting part of retained earnings for expansion or contingencies
B) setting cash aside for expansion
C) designating certain amounts of retained earnings for cash dividends that are required
to be paid to shareholders
D) limiting company transactions in order to boost earnings
What is the term used for the difference between the Equipment account and the
Accumulated Depreciation account?
A) contra asset
B) market value
C) historical cost
D) book value
Which of the following accounts will have an ending balance after the closing process
is completed?
A) Dividends
B) Rent Expense
C) Accumulated Depreciation
D) Service Revenue
Which of the following is an advantage of the corporate form of business?
A) less degree of government regulation
B) limited liability of stockholders
C) separation of ownership and management
D) low start-up costs
Dean Computer Services provides services to corporate and individual customers.
During the month of June, the corporate business segment provided services to 300
customers and earned $80,000 in revenue. The individual business segment provided
services to 200 customers and earned $45,000 in revenue. The variable costs for the
corporate and individual business segments amounted to $32,000 and $25,000,
respectively. In addition, the fixed costs of the company amounted to $8,500. The
contribution margin ratios of the corporate segment and individual segment are
________, respectively. (Round your answers two decimal places.)
A) 106.67% and 25.00%
B) 40.00% and 44.44%
C) 40.00% and 55.56%
D) 60.00% and 44.44%
A company sold merchandise for $1,000 on account with terms of 2/15, n/30. The
company uses a perpetual inventory system. Defective merchandise of $200 was
returned two days later. If the payment was received after 30 days, the journal entry to
record the cash receipt will include ________.
A) a debit to Cash for $980 and a credit to Accounts Receivable for $980
B) a debit to Cash for $800 and a credit to Accounts Receivable for $800
C) a credit to Sales Revenue for $800 and a debit to Cash for $800
D) a credit to Cost of Goods Sold for $1,000 and a debit to Sales Revenue for $1,000
Techno Technical Services is working on a six-month job for a client, starting on
February 1. It will collect $24,000 from its customer when the job is finished but the
revenue is earned evenly over the six months. On March 31, before adjusting entries are
made, Techno’s Accounts Receivable account had a debit balance of $3,000. After the
March 31 monthly adjusting entry has been made, what will be the balance in Accounts
Receivable?
A) Debit balance of $4,000
B) Credit balance of $20,000
C) Debit balance of $7,000
D) Debit balance of $24,000
A business’s cash receipts and cash payments for a specific period are reported on a(n)
________.
A) income statement
B) balance sheet
C) statement of cash flows
D) cash reconciliation statement
Johnson Repair Service had net income for the year of $125,000. In addition, the
balance sheet reports the following balances:
Calculate the return on assets (ROA) for Johnson Repair Service for the year ending
December 31, 2016.
Swan Song’s adjusted trial balance as of December 31, 2016 is given below:
Compute the current ratio. (Round your answer to two decimals.)
A) 7.01
B) 2.07
C) 1.80
D) 2.73
The balances of select accounts of Stephanie, Inc. as of December 31, 2016 are given
below.
What amount of total long-term assets would be shown on the balance sheet?
A) $100,000
B) $130,300
C) $133,000
D) $139,000
VB Specialty Foods, a grocery merchandiser, purchased goods and paid transportation
to bring them to the company warehouse. The transportation cost is known as
________.
A) freight out
B) selling expense
C) freight in
D) cost of goods sold
Caliber Lawnmowers is considering the purchase of a new machine costing $814,000.
The company’s management is estimating that the new machine will generate additional
cash flows of $194,000 a year for ten years and have a residual value of $52,000 at the
end of ten years. What is the machine’s payback period? (Round your answer to two
decimal places.)
A) 4.20 years
B) 6.37 years
C) 3.33 years
D) 5.22 years
A company sells two products with information as follows:
The products are machine made. Four units of product A can be made with one machine
hour and two units of product B can be made with one machine hour. The company has a
maximum of 6,000 machine hours available per month. The company can sell up to 18,000
units of product A per month, and up to 3,000 units of product B for the month. What is the
optimum product mix to maximize company’s operating income?
A) 1,500 units of A and 72,000 units of B
B) 18,000 units of A and 3,000 units of B
C) zero units of A and 3,000 units of B
D) 36,000 units of A and zero units of B
Wainwright Computer Services provides services to corporate and individual
customers. During the month of June, the corporate business segment provided services
to 300 customers and earned $80,000 in revenue. The individual business segment
provided services to 400 customers and earned $45,000 in revenue. The variable costs
for the corporate and individual business segments amounted to $32,500 and $25,300,
respectively. In addition, the fixed costs of the company amounted to $7,500. Calculate
the contribution margin from each customer of the individual business segment. (Round
your answer to the nearest cent.)
A) $158.33
B) $49.25
C) $133.33
D) $30.50
An effective accounting information system that provides relevant information
________.
A) increases the likelihood of fraud and errors
B) reduces the cost of employing an accounting information system
C) improves decision making and reduces uncertainty
D) improves the accuracy of data entry when manual
Which of the following accounts decreases with a debit?
A) Accounts Receivable
B) Notes Payable
C) Cash
D) Rent Expense
Given the following information, determine the cost of goods manufactured.
A) $390,000
B) $503,000
C) $282,000
D) $188,000
An income statement includes ________.
A) Land and Salaries Payable
B) Common Stock, Retained Earnings, and Dividends
C) Furniture and Cash
D) Service Revenue and Utilities Expense
When recording the sale of merchandise inventory, using a periodic inventory system,
________.
A) a running record of merchandise inventory is maintained during the accounting
period
B) the Sales Revenue account is credited only as an adjusting entry because sales
information is not needed during the accounting period
C) sales discounts and sales returns and allowances are not recorded
D) there is no need to record an entry to the Merchandise Inventory and the Cost of
Goods Sold accounts
Which of the following is used to see how a company’s operating expenses, as a
percentage of net sales, have changed from one year to the next?
A) vertical analysis
B) horizontal analysis
C) ratio analysis
D) analysis of internal control system
Under the perpetual inventory system, the journal entry to record the freight paid by the
seller on goods sold is:
A)
B)
C)
D)
Gross profit is calculated as the difference between net sales revenue and ________.
A) purchases
B) cost of goods sold
C) cost of merchandise inventory
D) selling and administrative expenses
Quality Jewelers uses the perpetual inventory system. On April 2, Quality sold
merchandise for $60,000 to a customer on account with terms of 2/15, n/30. The
allowances and returns on this sale amounted to $2,000 and $8,000, respectively. The
cost of goods sold was $23,000. On April 20, Quality received payment from the
customer. Calculate the amount of gross profit.
A) $50,000
B) $23,000
C) $27,000
D) $25,800
Following is an extract of account balances of Wilson Mowing Services as of December
31 of the first year of operation.
What is the amount of total assets at the end of the year?
A) $12,000
B) $27,300
C) $16,000
D) $23,300
Which of the following is considered a period cost under variable costing but not under
absorption costing?
A) fixed selling and administrative costs
B) variable manufacturing costs
C) fixed manufacturing overhead
D) variable selling and administrative costs
Superior Containers produces restaurant storage containers . The company makes two
sizes of containers: regular (55 gallon) and large (100 gallon). Demand for the products
is so high that Superior can sell as many of each size as it can produce. The company
uses the same machinery to produce both sizes. The machinery can be run for only
2,500 hours per period. Superior can produce 20 regular containers every hour, whereas
it can produce 8 large containers in the same amount of time. Fixed costs amount to
$250,000 per period. Sales prices and variable costs are as follows:
To maximize profits, how many of each size container should Superior produce?
Given this product mix, what will the company’s operating income be?
The following extract was taken from the worksheet of Dutch, Inc. for the year 2016.
Dutch, Inc.
Worksheet
December 31, 2016
From the above information, determine the amount of the Rent Expense adjustment.
On January 1, 2016, Amethyst 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 schedule of usage of the machine is below.
Prepare the depreciation schedule using the units-of-production method of depreciation.
Define a process costing system and list two types of businesses that would use a
process costing system.
Define direct cost.
Zot-Ice Corp. has provided the following data for the current year.
Calculate the unit product cost using absorption costing and variable costing.
Use the following cash receipts journal to record the preceding transactions.
Cash Receipts Journal Page 3
For decisions that affect controlling costs, consider the following decision focus. State
the appropriate costing method and the reason for your answer.
Campbell, Inc. has net income of $500,000 and 200,000 shares of common stock. The
company is considering a project that requires $800,000 and is considering two options:
• Option 1 is to borrow $800,000 at 12%.
• Option 2 is to issue 100,000 shares of common stock for $800,000.
Considering all relevant facts and figures, Campbell’s management is of the opinion that
the funds raised can be used to increase income before interest and taxes by $300,000
each year. The company estimates income tax expense to be 40%. Analyze the
Campbell situation to determine which plan will result in higher earnings per share.
(Round your answers to two decimal points.)
The Family Dental Corporation prepays the rent on its dental office. On July 1, the
corporation paid $18,000 for 6 months of rent. How much Rent Expense should Family
Dental Corporation record the three months ended September 30 under the cash basis?
Why?
Safari Corporation has acquired a property that included both land and a building for
$500,000. The corporation paid cash. The corporation hired an appraiser who has
determined that the market value of the land is $300,000 and that of the building is
$400,000. Journalize the lump-sum purchase.
Colorful Cat Company uses the direct method to prepare its statement of cash flows.
Refer to the following financial statement information for the year ending December
31, 2017:
Colorful Cat Company
Comparative Balance Sheet
December 31, 2017 and 2016
Colorful Cat Company
Income Statement
Year Ended December 31, 2017
Colorful Cat Company
Statement of Retained Earnings
Year Ended December 31, 2017
Prepare the operating activities section of the statement of cash flows, using the direct
method.
List the steps of the accounting cycle that take place at the end of the period.
The following data has been provided by Zimtex, Inc. for the year.
There are no beginning inventories. Prepare an income statement using the contribution
margin format.
For the following situation, state whether it represents a strength or weakness in internal
control and give the reason for your answer.
The movie theater has the following policy. Tickets are sold by the cashier. The ticket
stubs are collected by the ticket taker. The ticket stubs are stored in a locked box, and
the accounting personnel match the number of ticket stubs to the number of tickets sold.
On December 31, 2016, Axle Services, Inc. prepared the following accrual adjustment:
Axle uses reversing entries. Prepare the reversing entry that would be prepared on January
1, 2017.
What is a prior-period adjustment? How and when is a prior-period adjustment
recorded?
List five ways in which managers use a production cost report to make decisions for
their companies.
List the direct labor variances and briefly describe each.