For an accounting equation to balance, a transaction must affect both sides of the
equation.
A compound journal entry has more than two accounts, but the total dollar value of the
debits still must equal total dollar value of the credits.
If a bank reconciliation includes interest revenue, a journal entry is required which
credits Cash and debits Interest Revenue.
The Salaries Expense account is a temporary account.
Holland, Inc. purchased manufacturing equipment for $12,600. It has an estimated
useful life of seven years and no residual value. The company should record
depreciation expense of $100 per month. (Assume that the company uses the
straight-line method.)
Recreation Equipment Company has several divisions that are investment centers. Data
for the Boat Division and the Trailer Division are shown here:
With regard to the efficient use of assets, the Boat Division has a higher return on
investment (ROI) because it has the highest operating income.
The net realizable value of Accounts Receivable is calculated by subtracting Bad Debts
Expense from Accounts Receivable.
Petty cash is a fund containing a small amount of cash that is used to pay for minor
expenditures.
The spreadsheet starts with the beginning statement of cash flows and concludes with
the ending statement of cash flows.
The percent-of-sales method, used to compute bad debt expense, is also known as the
balance sheet approach.
Indirect materials costs are included in manufacturing overhead.
The costs that are transferred out from one process to another process become
transferred in costs for the receiving process.
The loss of inventory that occurs because of theft, damage, and errors is referred to as
inventory shrinkage.
The higher the debt ratio, the lower the risk.
Managerial accounting is used in manufacturing and merchandising companies, but not
in service companies.
When preparing the statement of cash flows, the amount of net cash flow from
operating activities differs between the direct and indirect methods.
For short-term pricing decisions, variable costing is an appropriate costing method to
use.
If a merchandiser uses the periodic inventory system, it is necessary to conduct a
physical count of inventory to determine the quantity of inventory on hand.
The direct method starts with net income and adjusts it to net cash provided by
operating activities.
Net cash inflows from a capital investment arise from an increase in revenues, a
decrease in expenses, or both.
If variable costs decrease, and all other factors remain the same, the margin of safety
will become larger.
A company that reports a discontinued operation or an extraordinary item must also
report earnings per share for each of these line items.
The financing activities section of the statement of cash flows includes paying
dividends and making payments on long-term liabilities.
The worksheet is a useful step in preparing adjusting entries and the unadjusted trial
balance.
The Common Stock account is a temporary account.
The calculation of contribution margin ratio for service companies is significantly
different from that of manufacturing companies.
Merchandising companies, like service companies, do not have a Cost of Goods Sold
account.
The cost of land does not include the cost of fencing and paving.
The consistency principle states that businesses should report the same amount of
ending merchandise inventory from period to period.
After posting entries in a sales journal to the general ledger, the Accounts Receivable
balance in the general ledger should equal the sum of the individual customer balances
in the accounts receivable subsidiary ledger.
In a periodic inventory system, the Cost of Goods Sold account is continuously updated
as and when sales occur.
Components of the master budget are the operating budget, the capital expenditures
budget, and the financial budget.
Manufacturing overhead is allocated by debiting the Finished Goods Inventory account.
The creation of a corporation begins when its incorporators obtain a charter from the
state.
Plant assets are reported at book value on the balance sheet.
A chart of accounts is a list of all of a company’s accounts with their account numbers.
The income statement of a manufacturing company separates the product costs from the
period costs.
A purchase discount is the amount offered to the purchaser for delaying the payment to
the seller.
To explain why two business segments have different contribution margin ratios, take
the total amounts and expand them into their two components—units and amount per
unit—by dividing the totals by the number of units.
Which of the following will be included in manufacturing overhead costs?
A) indirect labor and indirect materials used
B) salaries of salesmen
C) direct materials and direct labor
D) delivery costs to ship goods to customers
Which of the following serves as the “journal of last resort?”
A) purchases journal
B) sales journal
C) general journal
D) cash payments journal
The information related to interest expense of Stereo Music, Inc. is given below:
Based on the above data, which of the following is the times-interest-earned ratio?
A) 4.08 times
B) 4 times
C) 6.62 times
D) 5 times
Which of the following amounts would be reported as Merchandise Inventory on the
balance sheet of a company if the cost of an item is $110 and the current replacement
cost is $90?
A) $200
B) The average of $90 and $110
C) $110
D) $90
One of the purposes of the statement of cash flows is to ________.
A) determine the operating income of a business
B) to calculate inventory turnover
C) evaluate the level of debt and leverage of a company
D) predict the ability of a company to pay debts and dividends
The goal of reporting realistic figures and never overstating assets or net income applies
to the ________.
A) conservatism principle
B) materiality concept
C) disclosure principle
D) consistency principle
Davie, Inc. used estimated direct labor hours of 250,000 and estimated manufacturing
overhead costs of $1,150,000 in establishing its predetermined overhead allocation rate
for the year. Actual results showed the following:
What was the number of direct labor hours worked during the year? (Round any
intermediate calculations to two decimal places, and your final answer to the nearest whole
number.)
A) 173,913 hours
B) 265,625 hours
C) 250,000 hours
D) 184,783 hours
Which one of the following companies is most likely to use job order costing?
A) a gold refinery
B) a law firm
C) a surfboard manufacturer
D) a soft drink company
Manning Tint, Inc. uses the indirect method to prepare its statement of cash flows.
Refer to the following portion of the comparative balance sheet:
Manning Tint, Inc.
Comparative Balance Sheet
December 31, 2017 and 2016
Additional information provided by the company includes the following:
1. Equipment was purchased for $66,000.
2. Equipment with a cost of $37,000 and accumulated depreciation of 7,200 was sold for
$49,000.
What was the amount of net cash provided by (used for) investing activities?
A) $256,000
B) $17,000
C) $(256,000)
D) $(17,000)
Which of the following businesses is most likely to use a process costing system?
A) a baker producing cakes to order
B) a legal service provider
C) an audit service provider
D) a candy manufacturer
Lakefront Equipment Company has several divisions that are investment centers. Data
for the Boat Division and the Trailer Division are shown here:
Which of the following statements would be the most meaningful interpretation of this
data?
A) The Boat Division’s performance is better than that of the Trailer Division because it
has higher assets.
B) The Boat Division uses its assets less efficiently than the Trailer Division does because
it has a lower return on investment.
C) The Boat Division shows a more efficient use of assets than the Trailer Division
because it has a higher operating income.
D) The Boat Division is financially more successful than the Trailer Division because it
shows an increase in assets.
Which of the following is an example of direct labor cost in a factory?
A) wages of assembly line personnel
B) salary of vice president of production
C) wages of factory security guard
D) salary of production manager
Accumulated Depreciation is a(n) ________ account and carries a normal ________
balance.
A) revenue; debit
B) expense; debit
C) contra asset; credit
D) liability; credit
Eric’s gross pay for the week is $2,150. His deduction for federal income tax is based
on a rate of 25%. He has no voluntary deductions. His yearly pay is under the limit for
OASDI. What is the amount of FICA tax that will be withheld from Eric’s pay?
(Assume a FICA—OASDI Tax of 6.2% and FICA—Medicare Tax of 1.45%.)
A) $537.50
B) $164.48
C) $701.98
D) $136.50
Refer to the following information for Tangent Corporation:
• Common Stock, $1.00 par, 108,000 shares issued, 99,000 shares outstanding
• Paid-In Capital in Excess of Par—Common: $2,330,000
• Retained Earnings: $910,000
• Treasury Stock: 11,000 shares purchased at $33 per share
If Tangent resold 1,300 shares of treasury stock for $23.00 per share, which of the
following statements would be true?
A) The Treasury Stock account would decrease by $21,450.
B) The Paid-In Capital in Excess of Par—Common account would increase by $1,300.
C) The Treasury Stock account would decrease by $42,900.
D) The Retained Earnings account would increase by $29,900.
Which of the following transactions will affect the balance of Retained Earnings?
A) issued common stock for cash
B) paid rent expense for the month
C) purchased land for cash
D) collection on account
When preparing the direct labor budget, ________.
A) the production manager projects the average direct labor costs
B) direct labor hours needed for production are multiplied by the direct labor cost per
hour
C) the actual direct labor cost per hour must be known
D) budgeted units to be produced are multiplied by direct labor cost per hour to
determine budgeted direct labor cost
Rodriguez Tint, Inc. uses the indirect method to prepare the statement of cash flows.
Refer to the following income statement:
Rodriguez, Inc.
Income Statement
Year Ended December 31, 2017
Additional information provided by the company includes the following:
Current assets, other than cash, decreased by $5,100.
Current liabilities increased by $2,300.
Compute the net cash provided by (used for) operating activities.
A) $(18,000)
B) $(45,600)
C) $10,500
D) $23,400
Which of the following is not an advantage of decentralization?
A) provides training
B) frees top management time
C) works to achieve goal congruence
D) supports the use of expert knowledge
The following extract was taken from the worksheet of Kelly Bakers for the year 2016.
Kelly Bakers
Worksheet
December 31, 2016
For the above information, determine the amount of Depreciation Expense for the
equipment used in the business.
A) $9,200
B) $2,300
C) $6,800
D) $1,000
On December 2, 2017, Ewell, Inc. purchases land. In payment for the land, Ewell, Inc.
issues 6,000 shares of common stock with $6 par value. The land has been appraised at
a market value of $430,000. Which of the following is included in the journal entry to
record this transaction?
A) debit Common Stock—$6 Par Value for $36,000 and debit Paid-In Capital in Excess
of Par
—Common $394,000
B) credit Common Stock—$6 Par Value for $36,000 and credit Paid-In Capital in
Excess of Par—Common $394,000
C) credit Common Stock—$6 Par Value for $430,000
D) debit Cash $430,000
Aaron, Inc. estimates direct labor costs and manufacturing overhead costs for the
coming year to be $750,000 and $550,000, respectively. Aaron allocates overhead costs
based on machine hours. The estimated total labor hours and machine hours for the
coming year are 18,000 hours and 7,000 hours, respectively. What is the predetermined
overhead allocation rate? (Round your answer to the nearest cent.)
A) $107.14 per machine hour
B) $30.56 per labor hour
C) $1.36 per labor hour
D) $78.57 per machine hour
Which of the following statements is true for leverage?
A) asset turnover ratio measures financial leverage
B) leverage always increases profitability
C) leverage is shown in proportion of total assets relative to total equity
D) the higher the debt to equity ratio, the higher the leverage
Under a just-in-time costing system, the journal entry that is recorded when the goods
are completed and moved to Finished Goods Inventory is ________.
A)
B)
C)
D)
Acer, Inc. plans to develop a shopping center. In the first quarter, the following amounts
were spent:
What amount should be recorded as the cost of the land in the corporation’s books?
A) $23,400
B) $18,400
C) $19,960
D) $22,800
Held-to-maturity investments are normally reported at ________.
A) current market value
B) average cost
C) amortized cost
D) historical cost
Which of the following occurs when a cash dividend is declared?
A) liabilities remain unchanged
B) stockholders’ equity decreases
C) liabilities decrease
D) assets increase
Samson, Inc. had the following balances and transactions during 2017:
What is the amount of the company’s Merchandise Inventory, as disclosed in the December
31, 2017 balance sheet as per the periodic FIFO inventory costing method?
A) $552
B) $588
C) $9,016
D) $882
Which of the following is true of Finished Goods Inventory?
A) Finished Goods Inventory is an account used by a manufacturer and includes
completed goods that have not yet been sold.
B) Finished Goods Inventory is an account used by a merchandiser and includes
completed goods that have not yet been sold.
C) Finished Goods Inventory is an account used by service companies in lieu of raw
materials inventory.
D) Finished Goods Inventory is an account used by a manufacturer in lieu of raw
materials inventory.
Neptune Fabrication Plant has provided you with the following information:
The company bases its manufacturing overhead allocation on direct labor hours. What was
the unadjusted ending balance in the Manufacturing Overhead account?
A) $27,390 credit balance
B) $27,390 debit balance
C) $1,000 credit balance
D) $1,000 debit balance
Which of the following is an example of the planning function of the budgeting
process?
A) A budget demands integrated input from different business units and functions.
B) Employees are motivated to achieve the goals set by the budget.
C) Budget figures are used to evaluate the performance of managers.
D) The budget outlines a specific course of action for the coming period.
On April 1, 2017, Nurix Manufacturers purchases equipment for $100,000, paying
$30,000 in cash and signing a 10-year mortgage for $70,000 at 8% annual interest.
Prepare the journal entry to record the acquisition of the equipment.
List the four basic rights of stockholders.
On January 1, 2017, Gaskin Cabinetry Company purchases $300,000 of equipment by
paying $50,000 in cash and signing a 10-year mortgage note at 13% for the balance.
Gaskin will make yearly payments of $46,072. The amortization schedule for the first
five payments is provided.
Prepare the journal entry for the purchase of the equipment and for the January 1, 2018
mortgage payment.
Define a job order costing system and list two types of businesses that would us a job
order costing system.
Define market-based transfer price. When should market-based transfer pricing be
used? Explain your answer.
Richardson Auto Supplies reported the following income statement for the year ended
December 31,2017.
Richardson Auto Supplies
Income Statement
Year Ended December 31, 2017
Compute inventory turnover rate for the year. (Round to two decimal places.)
Compute days’ sales in inventory for the year. (Round to two decimal places.)
On March 21, 2017, the bond accounts of Pugh Sales showed the following balances.
Pugh Sales retires the bonds for $66,150. Prepare the journal entry to record the
retirement of the bonds.
On December 31, 2016, Circle, Inc. borrowed $500,000 by signing a five-year, 8% note
payable. The note is payable in five yearly installments of $100,000 plus interest, due at
the end of every year beginning on December 31, 2017. Which portion is classified as
the long-term portion of Notes Payable at December 31, 2016?
The following is the adjusted trial balance as of December 31, 2017 of Peri Brothers,
Inc.:
Provide the closing entry for expenses.
The following is the adjusted trial balance as of December 31, 2017 of Current Times
Watch Inc.:
Provide the closing entry for the Income Summary account.
Fleetwood Corp. purchased a mine in 2016 for $500,000 and estimated that 30,000 tons
of iron ore could be extracted from it. There was no residual value. The business
extracted and sold 2,500 tons of ore in 2016. How will the mine be reported on the
balance sheet at the end of year 2016? (Round all intermediate calculations to the
nearest cent.)
For decisions that affect production planning, consider the following decision focus.
State the appropriate costing method and the reason for your answer.
An adjusted trial balance a merchandiser is given below.
Provide journal entries to close the Income Summary account and the Dividends account.
Wash N’ Set Corp. purchased equipment for $45,000. Total depreciation of $36,000 was
recorded. On January 1, 2017, Wash N’ Set exchanges the equipment for new
equipment, paying $54,000 cash. The market value of the new equipment is $65,000.
Prepare the journal entry to record this transaction. Assume the exchange has
commercial substance.
On January 1, 2017, a corporation acquired a truck for $600,000. The residual value
was estimated to be $20,000. The truck can be driven for 50,000 miles over the next
three years. The actual usage of the truck was 8,640 miles for the first year. Calculate
the rate of depreciation to be applied and depreciation for the first year using the
units-of-production method. (Do not round your intermediate calculations.)
Prepare a vertical analysis for the balance sheet data given below. (Round to two
decimal places.)
Flowers, Inc.
Balance Sheet
December 31, 2017
Assets
Current Assets:
Cash and Cash Equivalents $10,000
Accounts Receivable, Net 15,600
Merchandise Inventory 38,000
Total Current Assets 63,600
Long-term Investments 15,000
Property, Plant, and Equipment, Net 195,000
Total Assets $273,600
Liabilities
Current Liabilities:
Accounts Payable $8,500
Notes Payable 1,400
Total Current Liabilities 9,900
Long-term Liabilities 54,000
Total Liabilities 63,900
Stockholders’ Equity
Common Stock 161,000
Retained Earnings 48,700
Total Stockholders’ Equity 209,700
Total Liabilities and Stockholders’ Equity $273,600
