One of the weaknesses of the direct writeoff method is that it:
a. understates accounts receivable on the balance sheet.
b. violates the matching principle.
c. adjusts allowance account the end of the year.
d. is based on estimates.
Determine the amount to be added to Allowance for Doubtful Accounts in each of the
following cases:
(a)Balance of $3,000 in the allowance account just prior to adjustment. Analysis of
accounts receivable indicates doubtful accounts of $25,000.
(b)Balance of $500 in the allowance account just prior to adjustment. Uncollectibles are
estimated at 2% of sales, which totaled $800,000 for the year.
The first budget to be prepared is usually the sales budget.
a. True
b. False
In using the product cost concept of applying the costplus approach to product pricing,
selling expenses, administrative expenses, and profit are covered in the markup.
a. True
b. False
Which one of the following is not a characteristic generally evaluated in ratio analysis?
a. Profitability
b. Liquidity
c. Solvency
d. Marketability
Glover Inc. manufactures Product B, incurring variable costs of $15.00 per unit and
fixed costs of $70,000. Glover desires a profit equal to a 12% rate of return on assets.
Assets of $785,000 are devoted to producing Product B, and 100,000 units are expected
to be produced and sold.
(a)Compute the markup percentage using the total cost concept.
(b)Compute the selling price of Product B.
Identify the formula for the rate of return on investment.
a. Invested Assets/Operating Income
b. Sales/Invested Assets
c. Operating Income/Sales
d. Operating Income/Invested Assets
Which term indicates that merchandise is free of transportation charges to the buyer?
a. FOB destination
b. Transportation out
c. FOB shipping point
d. Transportation in
Reporting the financial condition of a business at a point in time and reporting the
changes in the financial condition of a business over a period of time are the two major
objectives of:
a. fund accounting.
b. forensic accounting.
c. notforprofit accounting.
d. financial accounting.
Preferred stockholders must receive their currentyear dividends before the common
stockholders can receive any dividends.
a. True
b. False
A business is operating at 90% of capacity and is currently purchasing a part used in its
manufacturing operations for $15 per unit. The unit cost for the business to make the
part is $20, including fixed costs, and $12, not including fixed costs. If 30,000 units of
the part are normally purchased during the year but could be manufactured using
unused capacity, what would be the amount of differential cost increase or decrease
from making the part rather than purchasing it?
a. $150,000 increase
b. $ 90,000 decrease
c. $150,000 decrease
d. $ 90,000 increase
Land improvements include:
a. freight.
b. surveying fees.
c. sales tax.
d. outdoor lighting.
When evaluating whether to lease or sell equipment, the book value of the equipment is
considered to be a sunk cost and not a differential cost.
a. True
b. False
Which of the following is an effect of payment of cash dividends on a company’s
financial statements?
a. A decrease in cash and stockholders’ equity
b. A decrease in cash and liability
c. An increase in stockholders’ equity and liability
d. A decrease in cash and an increase in liability
The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and
a $40,000 residual value, is expected to yield total net income of $500,000 for 5 years.
The expected average rate of return is 50%.
a. True
b. False
Since merchandise inventory is normally sold within a year, how is it reported on the
balance sheet?
a. As a revenue
b. As the cost of merchandise sold
c. It does not appear on the Balance Sheet
d. As a current asset
When a product or segment of a business is determined to be generating a loss, the total
income from operations for the company will always increase if management eliminates
the product or segment.
a. True
b. False
The process by which management allocates available investment funds among
competing capital investment proposals is termed capital rationing.
a. True
b. False
Two major budgets comprising the budgeted balance sheet are:
a. the cash budget and the capital expenditures budget.
b. the sales budget and the production budget.
c. the cost of goods sold budget and the selling and administrative expenses budget.
d. the static budget and the flexible budget.
_____ is the increase in assets from selling products or services.
a. Revenue
b. Interest income
c. Equity
d. Cost of goods sold
The cost of wages paid to employees directly involved in the manufacturing process of
converting materials into finished product is classified as:
a. factory overhead cost.
b. direct labor cost.
c. wages expense.
d. direct materials cost.
The product cost concept includes all manufacturing costs in the cost amount to which
the markup is added to determine product price.
a. True
b. False
A pressurized spray painter was purchased on April 1 of the fiscal year for $3,900. It
has a useful life of 4 years and a residual value of $300. Determine depreciation
expense for the first two years, assuming a fiscal year end of December 31 and using (a)
the straightline method and (b) the doubledecliningbalance method.
Soap Company manufactures Soap X and Soap Y and can sell all it can make of either.
Hours available to produce the products is the constrained resources. Based on the
following data, if Soap could reduce the processing time for X by 10%, which of the
following statements is true?
XY
Sales Price$20$25
Variable Cost1415
Hours needed to process35
a. It would take 162 minutes to process one unit of X.
b. There would be no difference in the contribution margin per hour as compared to it
before the processing time reduction.
c. The contribution margin per hour for X would be $2.
d. Soap Y would still be the most profitable.
A voucher system is an example of an internal control procedure over cash payments.
a. True
b. False
Cape Corporation sells a single product. Budgeted sales for the year are anticipated to
be 640,000 units, estimated beginning inventory is 98,000 units, and desired ending
inventory is 80,000 units. The quantities of direct materials expected to be used for each
unit of finished product are given below.
Material A .50 lb. per unit@ $0.60 per pound
Material B1.00 lb. per unit@ $1.70 per pound
Material C1.20 lb. per unit@ $1.00 per pound
The amount of direct material C purchased during the year is:
a. $789,600.
b. $768,000.
c. $746,400.
d. $650,400.
If Division Inc. expects to sell 300,000 units in 2016, desires ending inventory of
22,000 units, and has 24,000 units on hand as of the beginning of the year, the budgeted
volume of production for 2016 is 298,000 units.
a. True
b. False
If assets have a balance of $80,000 and stockholders’ equity has a balance of $60,000,
then liabilities must have a balance of:
a. $140,000.
b. $60,000.
c. $80,000.
d. $20,000.
The budget procedure that requires all levels of management to start from zero in
estimating sales, production, and other operating data is called zerobased budgeting.
a. True
b. False
If direct materials cost per unit decreases, the breakeven point will increase.
a. True
b. False