When a business records the earning of service revenue, the Service Revenue account is
credited.
In order to keep accurate records about the collection of cash for a previously written
off account, collection of cash for a previously written off account, a business should
re-establish the Accounts Receivable by crediting the receivable account.
In the case of deferred revenue, the adjusting entry at the end of the period includes a
credit to Service Revenue. Assume the deferred revenue is initially recorded as a
liability.
Because of the risk of fraud, electronic invoices and electronic receiving reports are
seldom used in accounting information systems.
Selling property, plant, and equipment for $10,000 cash is considered a cash inflow
from investing activities on the statement of cash flows.
The fixed overhead volume variance always reveals underallocated fixed overhead
costs.
When considering whether to replace the building roof, the total amount paid for
previous roof repairs is relevant to the business decision.
Interest is generally stated as a monthly rate.
To develop the cost of goods sold budget, it is necessary to start by calculating the
projected cost to produce each unit.
The cost accountant works directly with the corporate president to develop the selling
and administrative expense budget.
An accounts receivable turnover that is too high may indicate that credit is too tight,
causing the loss of sales to good customers.
An increase in sales price per unit decreases the contribution margin per unit.
Given the same purchase and sales data, and assuming the cost of inventory is rising,
the costing methods for inventory will result in different amounts for net income.
A note payable can either be classified as a long-term liability or a short-term liability,
depending on the discretion of the accountant.
A strategic budget is a long-term financial plan used to coordinate the activities needed
to achieve the long-term goals of the company.
The T-account is a summary device that is shaped like a capital T with debits posted on
the right side of the vertical line and credits posted on the left side of the vertical line.
When finished products are sold, Cost of Goods Sold is debited and Finished Goods
Inventory is credited.
A deficit occurs when a company has reoccurring losses and/or declares dividends in
excess of retained earnings.
Trend analysis is a form of horizontal analysis.
The lower-of-cost-or-market rule demonstrates accounting conservatism in action.
The price/earnings ratio shows the market price of $1 of earnings.
The production budget is the first component of the operating budget.
If managers are measured on short-term financial performance only, they may not
introduce new products.
Estimated residual value is not depreciated because the company will receive this
amount when the asset is sold.
Preferred stockholders receive a dividend preference over common stockholders.
The net present value and internal rate of return methods are appropriate for
longer-term investments because they ignore the time value of money.
Keeping merchandise inventory at the maximum level that meets the needs of providing
goods to customers, with turning over the merchandise inventory efficiently, helps
reduce inventory storage costs, insurance costs, and warehousing costs.
A cellular phone manufacturer is more likely to use a process costing system rather than
job order costing.
During the year, a company incurred $520,000 of manufacturing overhead costs and
allocated $480,000 of manufacturing overhead costs. At year-end, the adjustment entry
needed to adjust the Manufacturing Overhead account balance to zero will include a
debit to Cost of Goods Sold.
In a periodic inventory system, there is no need to record an entry to Merchandise
Inventory and Cost of Goods Sold.
Argyle Designs, Inc. has entered into a contract to design 40 new dresses for a
customer. It will collect a total of $40,000 after the design services are complete. Argyle
started design work on June 1. As of June 30, it finished 8 of the 40 designs. The
company will make an adjusting entry at the end of June to accrue $10,000 of service
revenue.
Tyler Corporation has provided you with the following budgeted income statement for
one of its products:
Tyler Corporation believes that 70% of the fixed costs would be avoidable if the product
line was dropped. Based on the impact on the company’s operating income or loss, Tyler
should keep the product line.
Unit cost per service is calculated by dividing total costs by the total number of services
provided.
The acid-test ratio is also known as the quick ratio.
In a manufacturing company, the salary of the sales staff is an example of period cost.
Accountants can prepare the statement of cash flows directly from the lower part of the
spreadsheet.
In an accounting information system, outputs are the reports used for decision making,
which include the financial statements.
Variable costing is used for external reporting purposes, and absorption costing is used
for internal decision-making purposes.
The cost of goods manufactured includes selling expenses, administrative expenses, and
manufacturing overhead.
When using a four-column account, the posting reference column allows the user of the
financial data to trace the amounts in the journal back to the ledger.
Rocco earns $14.50 per hour for straight time (40 hours), and the company pays him
time-and-a-half for overtime. He worked 46 hours at his job during the first week of
March 2017. What was Rocco’s gross pay for the week?
A) $667.00
B) $671.50
C) $710.50
D) $1,000.50
A business makes a payment in cash for advertising expense. Which of the following
accounts is credited?
A) Notes Payable
B) Accounts Receivable
C) Cash
D) Advertising Expense
The following are the current month’s balances for Toys Galore, Inc. before preparing
the trial balance.
What amount should be shown for Common Stock on the trial balance?
A) $39,000
B) $18,000
C) $13,500
D) $23,000
Manufacturing overhead is also referred to as ________.
A) indirect manufacturing costs
B) direct manufacturing costs
C) prime costs
D) period costs
Joshua was a professional classical guitarist until a motorcycle accident left him
disabled. After long months of therapy, he hired an experienced luthier and started a
small shop to make and sell Spanish guitars. The guitars sell for $800, and the fixed
monthly operating costs are as follows:
Joshua’s accountant told him about contribution margin ratios, and Joshua understood
clearly that for every dollar of sales, $0.60 went to cover his fixed costs, and anything
above that point was profit.
How many guitars does Joshua need to sell each month to break even? (Round your
answer up to the nearest whole guitar.)
A) 5 guitars
B) 3 guitars
C) 7 guitars
D) 8 guitars
Atlace Manufacturing uses a standard cost system. Standards for direct materials are as
follows:
The company plans to produce 3,000 units and has purchased 12,000 pounds of direct
materials at a net cost of $43,200. What is the journal entry to record this transaction?
A)
B)
C)
D)
On the maturity date of a bond investment, the journal entry includes ________.
A) a debit to Cash and a credit to Long-term Investments — Held-to-Maturity
B) a debit to Long-term Investments — Held-to-Maturity and a credit to Cash
C) a debit to the Interest Revenue and a credit to Cash
D) a debit to Cash and a credit to Interest Revenue
On October 1, 2017, Miller, Inc. made a loan to one of its customers. The customer
signed a 4-month note for $130,000 at 12%. How much interest revenue did the
company record in 2018 for this note? (Round your answer to the nearest dollar.)
A) $2,600
B) $3,900
C) $1,300
D) $5,200
Jelly Bean Company uses the indirect method to prepare its statement of cash flows.
Refer to the following portion of the comparative balance sheet:
Jelly Bean Company
Comparative Balance Sheet
December 31, 2017 and 2016
Note:
1. There were no stock retirements during the year.
2. There were no sales of treasury stock during the year.
Compute the cash flow from transactions involving treasury stock.
A) zero net cash flow
B) $4,500 of positive cash flow
C) $4,500 negative cash flow
D) $13,000 negative cash flow
Refer to the following list of liability balances at December 31, 2017.
What is the total amount of long-term liabilities?
A) $55,000
B) $109,000
C) $94,000
D) $40,000
Roggers Corp.’s beginning and ending total assets in the year 2017 were $18,000,000
and $22,000,000, respectively. Its asset turnover ratio for the year was calculated to be
1.75 times. Calculate the amount of net sales for the year 2017.
A) $27,000,000
B) $42,000,000
C) $35,000,000
D) $48,000,000
The following information relates to Carried Away Hot Air Balloons, Inc.:
How much was Carried Away’s manufacturing overhead?
A) $19,900
B) $20,720
C) $23,720
D) $62,970
Blue Company has four customers: A, B, C, and D. The accounts receivable balance in
the general ledger is $8,583 and the accounts receivable subsidiary ledger of customers
A, C, and D have $1,446, $3,596, and $3,340, respectively. Calculate the amount in the
accounts receivable subsidiary ledger account of customer B.
A) $8,382
B) $1,647
C) $791
D) $201
The disclosure principle states that a company should disclose all major accounting
methods and procedures in the ________.
A) balance sheet
B) income statement
C) footnotes to the financial statements
D) internal accounting documents
On January 1, 2017, Carter Sales issued $38,000 in bonds for $16,700. These are
six-year bonds with a stated interest rate of 11%, and pay semiannual interest. Carter
Sales uses the straight-line method to amortize the Bond Discount. What amount is
debited to Interest Expense on June 30, 2017?
A) $2,090
B) $3,865
C) $1,775
D) $43,297
Which of the following statements is true if a bond is issued at an amount less than its
face value?
A) The bond’s stated rate is lower than the prevailing market rate at the time of sale.
B) The bond’s stated rate is the same as the prevailing market rate at the time of sale.
C) The bond’s stated rate is higher than the prevailing market rate at the time of sale.
D) The bond is not secured by specific assets of the issuer.
Diemans 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
April.
A) $95,800
B) $54,000
C) $37,300
D) $65,300
Which of the following formulas is the right formula for calculating contribution
margin ratio?
A) Contribution margin ratio = Contribution margin + Net sales revenue
B) Contribution margin ratio = Contribution margin / Net sales revenue
C) Contribution margin ratio = Contribution margin × Net sales revenue
D) Contribution margin ratio = Contribution margin – Net sales revenue
A company may prefer to use residual income over return on investment for
performance evaluation because ________.
A) residual income is a ratio but return on investment is an absolute figure
B) residual income is more likely to lead to goal congruence than return on investment
is
C) residual income is easier to calculate than return on investment
D) residual income considers three elements but return on investment considers only
two elements
Changing from the LIFO (Last-In, First-Out) to the specific identification method of
valuing inventory ignores the principle of ________.
A) conservatism
B) consistency
C) disclosure
D) materiality
Macaulay Roller Skates has three product lines—D, E, and F. The following
information is available:
The company is deciding whether to drop product line F because it has an operating loss.
Assuming fixed costs are unavoidable, if Macaulay drops product line F and does not
replace it, what effect will this have on operating income?
A) Operating income will increase $5,000.
B) Operating income will increase $19,000.
C) Operating income will increase $24,000.
D) Operating income will decrease $19,000.
Which of the following is a product cost for a manufacturing company?
A) salary of administrative staff
B) wages paid to factory janitor
C) commissions paid to sales staff
D) depreciation on corporate building
A company is most likely to use value engineering ________.
A) to allocate manufacturing overhead to departments
B) to reduce costs in order to achieve target costs
C) to determine accurate product costs for pricing
D) to make product mix decisions
The economic resources of a business such as furniture, building, and land are its
________.
A) liabilities
B) revenues
C) assets
D) dividends
A subsidiary company is a company that ________.
A) is controlled by another corporation
B) owns a controlling interest in another company
C) is the first to begin operations in an industry
D) has a trading investment in another company
In a multi-step income statement, which of the following items is excluded from the
calculation of operating income?
A) sales revenue
B) interest expense
C) selling expense
D) administrative expense
Which of the following is included in the category of other receivables?
A) interest receivable
B) accounts receivable
C) notes receivable
D) investments
Which of the following is the least desirable business reason for a company to invest in
debt or equity securities?
A) to generate investment income
B) to invest short-term, excess cash
C) to pursue certain business strategies
D) to weaken the investing company’s supply chain
The following information is needed to reconcile the cash balance for Johnson Catering
Services.
• A deposit of $5,800 is in transit.
• Outstanding checks total $1,100.
• The book balance is $6,000 at February 28, 2017.
• The bookkeeper recorded a $1,700 check as $17,300 in payment of the current
month’s rent.
• The bank balance at February 28, 2017 was $17,230.
• A deposit of $400 was credited by the bank for $4,000.
• A customer’s check for $3,200 was returned for nonsufficient funds.
• The bank service charge is $70.
What was the adjusted book balance?
A) $18,400
B) $18,330
C) $18,470
D) $17,300
Exchange Corporation collected $8,000 from one of its customers, the amount owed
from the previous month. How does this affect the accounting equation for Exchange?
A) assets increase by $8,000; liabilities decrease by $8,000
B) assets increase by $8,000; assets decrease by $8,000
C) assets increase by $8,000; liabilities increase by $8,000
D) assets increase by $8,000; equity increases by $8,000
When preparing the worksheet for a merchandising business using the perpetual
inventory system, which of the following statements is incorrect?
A) The merchandiser’s worksheet carries the account Cost of Goods Sold.
B) The main new account is the Merchandise Inventory account.
C) The worksheet procedures are not similar to the worksheet procedures for a service
company.
D) The Merchandise Inventory account must be adjusted based on a physical count due
to inventory shrinkage.
Kentucky, Inc. purchases and sells widgets. The following information summarizes the
company’s operating activities for the year:
If the company sold 7,900 units of widgets during the year, how much is the cost for one
widget? (Round your answer to the nearest cent.)
A) $19.87
B) $15.32
C) $20.17
D) $5.15
The payment of interest on a loan is considered a ________ on a statement of cash
flows prepared using the direct method.
A) cash outflow for operating activities
B) cash outflow for investing activities
C) cash outflow for financing activities
D) non-cash activity
Which of the following sections of the statement of cash flows includes purchases and
sales of long-term assets?
A) the financing activities section
B) the operating activities section
C) the investing activities section
D) the non-cash investing and financing section
Thomas Business Supply reported a negative amount in Retained Earnings. What term
describes this negative amount? What can cause this to happen?
A company purchased inventory for $2,200 on account, and recorded the following
journal entry:
The vendor’s invoice showed terms of 3/10, n/30. Give the journal entry for the payment of
the invoice 17 days after the invoice date.
The following information is needed to reconcile the cash balance for Jackson Lawn
Services.
• A deposit of $5,800 is in transit.
• Outstanding checks total $1,500.
• The book balance is $6,800 at February 28, 2017.
• The bookkeeper recorded a $1,740 check as $17,400 in payment of the current
month’s rent.
• The bank balance at February 28, 2017 was $18,000.
• A deposit of $400 was credited by the bank for $4,000.
• A customer’s check for $3,700 was returned for nonsufficient funds.
• The bank service charge is $60.
Based on this information, prepare a bank reconciliation for Jackson Lawn Services as
of February 28, 2017.
Star Health, Inc. is a fitness center in Oklahoma City. In October, the company earned
$550,000 in revenues and incurred the following operating costs from 340 customers:
Required: Prepare Star Health’s income statement for the month of October.
For each of the following statements, indicate whether the statement applies to Job
Order Costing Systems (JO) or Process Costing Systems (PC).
Mathews Construction Materials Company has a sales office that sells concrete culvert
pipes to property developers. The sales office is a revenue center and prepares a
monthly responsibility report. The following information is provided. Complete the
responsibility report.
Mathews Construction Materials Company
Revenue Center Responsibility Report
On March 21, 2017, the bond accounts of Urban Sales showed the following balances.
Urban Sales retires the bonds for $66,150. Prepare the journal entry to record the
retirement of the bonds.
Houlihan, Inc. purchased a van on January 1, 2016, for $800,000. Estimated life of the
van was five years, and its estimated residual value was $90,000. Houlihan uses the
straight-line method of depreciation. Give the journal entry to record the depreciation
expense for 2016 on the van.
The following is the adjusted trial balance from the worksheet for Tuttle Photography.
Tuttle Photography
Adjusted Trial Balance
For the Year Ended December 31, 2016
Accounts Debit Credit
Cash $ 15,000
Accounts Receivable 30,000
Prepaid Insurance 7,500
Office Supplies 3,200
Building 160,000
Accumulated Depreciation—Building $ 12,000
Equipment 75,000
Accumulated Depreciation—Equipment 8,500
Land 40,000
Accounts Payable 12,000
Salaries Payable 2,000
Unearned Revenue 25,000
Mortgage Payable 100,000
Common Stock 21,290
Dividends 23,000
Service Revenue 289,000
Salaries Expense 61,000
Depreciation Expense—Building and Equipment 6,150
Office Supplies Expense 14,040
Insurance Expense 14,000
Utilities Expense 20,900
Total $469,790 $469,790
Using the information provided in the worksheet above, prepare an income statement
for Tuttle Photography.
Management of Bluebird Manufacturing is considering whether to drop a product line.
So far, management has determined that the product has a negative contribution margin
and that lost revenues are less than the total cost savings. In making the final decision,
what are other questions that the management of Bluebird should consider?
The following information relates to Leonard Manufacturing’s overhead costs for the
month:
Leonard allocates manufacturing overhead to production based on standard direct labor
hours.
Leonard reported the following actual results for last month: actual variable overhead,
$14,500; actual fixed overhead, $5,400; actual production of 4,700 units at 0.22 direct
labor hours per unit. The standard direct labor time is 0.20 direct labor hours per unit.
Compute the fixed overhead cost variance.
The following is divisional information for EVQ Enterprises:
The target rate of return is 12% for the East Division and is 10% for the West Division.
Compute the return on investment for each division. (Round to one decimal place.)
On October 1, 2016, Smith Service Company paid $5,000 in rent for the next five
months, beginning with October 2016. On that date, Smith debited Prepaid Rent and
credited Cash. If Smith fails to make an adjusting entry on December 31, 2016, indicate
the effect on assets, liabilities, equity, and net income.
Kapow, Inc. provides the following:
Kapow, Inc.
Comparative Balance Sheet
December 31, 2017 and 2016
2017 2016
Assets
Total Current Assets $200,000 $100,000
Property, Plant, and Equipment, Net 550,000 500,000
Other Assets 50,000 50,000
Total Assets $800,000 $650,000
Liabilities
Total Current Liabilities $150,000 $100,000
Long-term Liabilities 350,000 250,000
Total Liabilities 500,000 350,000
Stockholders’ Equity
Total Stockholders’ Equity 300,000 300,000
Total Liabilities and Stockholders’ Equity $800,000 $650,000
Perform a vertical analysis of Kapow’s balance sheet for each year. (Round to one
decimal place.)
Martin Production Co. is considering investing in specialized equipment costing
$975,000. The equipment has a useful life of five years and a residual value of $75,000.
Depreciation is calculated using the straight-line method. The expected net cash inflows
from the investment are given below:
Compute the accounting rate of return on the investment, Show your calculations and
round to two decimal places.
A business purchased land for $250,000 cash. Record the transaction in the journal.