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The direct write-off method for uncollectible accounts violates the matching principle.
Discontinued operations and extraordinary items are reported without consideration of
the income tax effects.
The units-of-production method is used to compute depletion expense.
Because it is a volume variance, the fixed overhead volume variance explains why
fixed overhead is underallocated or overallocated.
Distribution of dividends represents increases in retained earnings.
In a process costing system, a department's total production costs incurred in a
particular period must equal the total costs transferred out of the department.
Investment income may come from interest earned from debt investments, dividends
earned from stock investments, and/or increases in the market value of the security.
In the first step in developing an activity-based costing system for a manufacturing
company, the management team must determine the activities that incur the majority of
the manufacturing overhead costs.
The amount of taxes and insurance incurred and paid for the plant of a manufacturing
company should be debited to the Manufacturing Overhead account.
When a company uses a perpetual inventory system, all merchandise transactions are
updated as and when they occur. However, the inventory account may not show the
current balance at all times.
Electronic funds transfer is a system that transfers cash by using paper documents.
Investors and management use the statement of cash flows to evaluate a firm's
profitability.
The Dividends account is increased by a debit.
A standard cost system helps management set performance standards.
Amounts owed for products or services purchased on account are accounts receivable.
Fixed costs are relevant to a special pricing decision if they are subject to change as a
result of the special order.
The times-interest-earned ratio measures the number of times earnings before interest
and taxes can cover interest expense.
Just-in-time costing does not track the cost of products from Raw Materials Inventory
to Work-in-Process Inventory to Finished Goods Inventory.
A post-audit in capital budgeting is a comparison of the actual results of capital
investments with the projected results.
Cash purchases are recorded in the purchases journal.
Federal Unemployment Taxes Payable is typically shown on the balance sheet under the
long-term liabilities section.
As proof of the deposit transaction, a customer receives a cancelled check from the
bank.
The fact that invested cash earns income over time is called the time value of money.
Hector Production Company uses the indirect method to prepare its statement of cash
flows. The Treasury Stock account had a debit balance of $8,000 at the beginning of the
year and a debit balance of $16,000 at the end of the year. No Treasury Stock was sold
during the year. The financing section of the statement of cash flows will show a
positive cash flow of $8,000 for the buy back of Treasury Stock.
Service companies do not have fixed costs; all costs incurred by service companies are
variable costs.
The collection of time records is an accounting information system activity that is
classified as a business transaction involving the sale of merchandise inventory.
The cash flow from investing activities section appears exactly the same, whether the
company uses the direct or the indirect method to prepare the statement of cash flows.
Properly recording inventory when sold and removing the units sold from the inventory
count will prevent a company from running out of inventory.
The capital expenditures budget is completed before the preparation of the cash budget.
The acid-test ratio measures a company's ability to pay all its current liabilities if they
came due immediately.
Treasury stock is a contra equity account.
Budgeting requires managers to develop overall business goals and budget for specific
actions to achieve the goals.
Using the LIFO method of inventory valuation will always produce the same results
whether a company uses perpetual or periodic inventory costing methods.
Repair and maintenance costs of vehicles used to deliver products to the customers are
included in manufacturing overhead.
Accountants assume that the dollar's purchasing power is stable.
A small increase in the gross profit percentage may indicate an important rise in
income.
The accounts payable subsidiary ledger lists each vendor along with amounts paid to
the vendors and the remaining amounts owed to them.
Evans Tiles Company has estimated the following amounts for its next fiscal year:
What will happen to the breakeven point (in units) if Evans can reduce fixed costs by
$22,000? (Round your answer up to the nearest whole unit.)
A) The breakeven point will decrease by 917 units.
B) The breakeven point will decrease by 1,100 units.
C) The breakeven point will increase by 1,100 units.
D) The breakeven point will increase by 500 units.
The following information was obtained from MCB Manufacturing, Inc.:
Calculate MCB Manufacturing's total product costs.
A) $170,560
B) $654,900
C) $105,000
D) $165,500
Which of the following occurs when the board of directors declares a 3-for-1 stock split
on 20,000 outstanding shares of $25 par common stock?
A) The par value of the stock remains the same.
B) The par value of the stock increases to $50 per share.
C) The number of outstanding shares remains at 20,000.
D) The number of outstanding shares increases to 60,000.
Mei Company uses the direct method to prepare its statement of cash flows. Refer to
the following information reported for 2017:
Cost of Goods Sold, $150,000
Merchandise Inventory, beginning balance, $26,000
Merchandise Inventory, ending balance, $64,000
Accounts Payable, beginning balance, $8,100
Accounts Payable, ending balance, $5,000
Operating expenses, $31,000
Accrued Liabilities, beginning balance, $2,500
Accrued Liabilities, ending balance, $6,400
Use the direct method to compute the cash paid to suppliers. (Accrued Liabilities relate
to operating expenses.)
A) $162,800
B) $164,000
C) $191,100
D) $218,200
Nimtrans, Inc. reports the following information for August:
Calculate the gross profit for August using absorption costing.
A) $845,000
B) $740,000
C) $700,000
D) $655,000
Significant interest investments must be accounted for using the ________.
A) equity method
B) consolidation method
C) discounted cash flow method
D) acquisition method
The trend analysis report of Marshall, Inc. is given below (in millions):
Which of the following is a correct conclusion from the above analysis?
A) Net income for 2016 has increased by 115% over that for 2014.
B) Net income for 2016 has decreased by 15% over that for 2014.
C) Net income for 2016 has decreased by 115% over that for 2014.
D) Net income for 2016 has increased by 15% over that for 2014.
A business pays cash for dividends. Which of the following accounts is debited?
A) Cash
B) Dividends
C) Accounts Payable
D) Common Stock
Which of the following account's balance is carried forward to the next accounting
period?
A) Accumulated Depreciation
B) Depreciation Expense
C) Dividends
D) Service Revenue
In an accounting cycle, which of the following steps takes place only at the end of the
accounting period?
A) start with the beginning account balances
B) journalize transactions that occur
C) analyze transactions as they occur
D) journalize adjusting entries
Janus, Inc. invests excess cash of $100,000 in corporate bonds on March 30, 2017. The
bonds mature 20 years from the date of purchase. Janus plans to hold the bonds until
maturity. How does the March 30, 2017 transaction affect the accounting equation?
A) liabilities will increase
B) equity will decrease
C) long-term assets will decrease
D) total assets will remain unchanged
Which of the following inventory costing methods results in the highest 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
________ are costs incurred after the company delivers poor-quality goods or services
to customers and then has to make things right with the customer.
A) Prevention costs
B) Appraisal costs
C) Internal failure costs
D) External failure costs
Farmerlands, Inc. has budgeted sales for the months of September and October at
$303,000 and $289,000, respectively. Monthly sales are 80% credit and 20% cash. Of
the credit sales, 50% are collected in the month of sale, and 50% are collected in the
following month. Calculate cash collections for the month of October.
A) $173,400
B) $297,400
C) $294,600
D) $181,800
Savannah Company sells glass vases at a wholesale price of $5 per unit. The variable
cost of manufacture is $2.50 per unit. The fixed costs are $6,200 per month. It sold
5,700 units during this month. Calculate Savannah's operating income (loss) for this
month.
A) $22,300
B) $8,050
C) ($8,050)
D) ($6,200)
Grabbe Enterprises uses the allowance method to account for uncollectible receivables.
When an uncollectible account is written off, ________.
A) the Bad Debt Expense account is debited
B) no entry is required because bad debt expense is estimated at the end of the
accounting period
C) the write off has no effect on net income
D) the Allowance for Bad Debts account is credited
Which of the following is a cash outflow for a financing activity on the statement of
cash flows?
A) purchase of long-term investments, such as the stock of another company
B) loans made to another party
C) purchase of treasury stock
D) purchase of land
Thomas Manufacturing produces a chemical pesticide and uses process costing. There
are three processing departments—Mixing, Refining, and Packaging. On January 1, the
Refining Department had 2,000 gallons of partially processed product in production.
During January, 36,000 gallons were transferred in from the Mixing Department, and
31,000 gallons were completed and transferred out. At the end of the month, there were
7,000 gallons of partially processed product remaining in the Refining Department. See
additional details below.
Refining Department, beginning balance at January 1
Quantity: 2,000 units (partially processed)
Cost: $15,600 of costs transferred in
$1,600 of materials cost
$4,500 of conversion cost
$21,700 total account balance
Costs added during January
Cost of units transferred in $222,400
Direct materials cost $46,000
Conversion cost $93,750
Refining Department, ending balance at January 31
Quantity: 7,000 units (partially processed)
Percent complete for materials cost: 85%
Percent complete for conversion cost: 70%
What was the cost per equivalent unit with respect to direct materials costs for the
Refining Department in the month of January? Use the weighted-average method.
(Round your calculations to the nearest cent.)
A) $1.29
B) $2.74
C) $1.25
D) $6.80
Which of the following statements is true?
A) Appropriations of retained earnings require journal entries, but restrictions on
retained earnings are usually reported in notes to the financial statements.
B) No journal entries are needed to appropriate or restrict retained earnings.
C) Both appropriations and restrictions of retained earnings require journal entries.
D) Restrictions on retained earnings must be journalized, but appropriations are usually
reported in notes to the financial statements.
Classic Car Parts, Inc. uses a periodic inventory system. From the following details,
calculate net purchases.
A) $23,300
B) $18,700
C) $20,700
D) $20,000
Glades Thread Company is evaluating an investment that will cost $720,000 and will
yield cash flows of $230,000 in the first year, $370,000 in the second year, and
$360,000 in the third and the final year. Use the table below and determine the internal
rate of return.
Present value of $1:
The IRR of the project will be ________.
A) between 11% and 12%
B) less than 10%
C) less than 11%, more than 10%
D) more than 12%
A customer's promise to pay in the future for services or goods sold is called a(n)
________.
A) Accounts Receivable
B) Accounts Payable
C) Unearned Revenue
D) Notes Payable
Centric Sail Makers manufactures sails for sailboats. The company has the capacity to
produce 36,000 sails per year and is currently producing and selling 30,000 sails per
year. The following information relates to current production:
If a special pricing order is accepted for 5,500 sails at a sales price of $160 per unit, and
fixed costs remain unchanged, what is the change in operating income? (Assume the
special pricing order will require variable manufacturing costs and variable selling and
administrative costs.)
A) Operating income decreases by $880,000.
B) Operating income increases by $880,000.
C) Operating income decreases by $440,000.
D) Operating income increases by $440,000.
A check of $300,000, deposited by a company, was returned to the bank for
nonsufficient funds. How would this information be included on the bank
reconciliation?
A) a deduction on the bank side
B) an addition on the bank side
C) an addition on the book side
D) a deduction on the book side
Patents, copyrights, and trademarks are examples of ________.
A) short-term investments
B) fixed assets
C) long-term investments
D) intangible assets
Which of the following correctly describes the accounting for factory depreciation?
A) Factory depreciation is a product cost and is expensed as incurred.
B) Factory depreciation is a period cost and is expensed as incurred.
C) Factory depreciation is a product cost and is expensed when the manufactured
product is sold.
D) Factory depreciation is a period cost and is expensed when the manufactured
product is sold.
Kim Sunshades Company's western territory's forecasted income statement for the
upcoming year is as follows:
The company's management is considering dropping the western territory and has
determined that 80% of the fixed costs are avoidable. What is the change in the forecasted
operating loss for the upcoming year if the western territory is dropped? Assume the
company predicts an operating loss across the entire company.
A) The loss will be reduced by $74,000.
B) The loss will be increased by $74,000.
C) The loss will be reduced by $384,000.
D) The loss will be increased by $384,000.
The equity of Autumn Company is $160,000 and the total liabilities are $50,000. The
total assets are ________.
A) $320,000
B) $100,000
C) $110,000
D) $210,000
A company that uses the periodic inventory provides the following information:
1. Beginning Inventory $15,000
2. Net Purchases $94,000
At the end of the period, the company does an inventory count and finds $12,000 of
inventory on hand.
What is the amount of cost of goods sold?
A) $94,000
B) $121,000
C) $97,000
D) $82,000
Which of the following requires businesses to record depreciation?
A) revenue recognition principle
B) matching principle
C) cost principle
D) going concern principle
Available-for-sale (AFS) investments that are expected to be held longer than a year are
reported as ________.
A) equity
B) current assets
C) long-term assets
D) either current assets or long-term assets
Geary, Inc. provides the following historical data:
2016 2015 2014 2013 2012 2011
Net sales $4,970 $4,500 $3,980 $3,270 $4,750 $4,400
Prepare the trend analysis report. Use 2011 as the base year, and round answers to the
nearest percent.
What is cost of goods manufactured? Describe the flow of this cost through the job
order costing system. Your answer should include the accounts involved and whether
the flow involves a debit or credit.
Howard Consumer Products has a small car division that operates as a profit center.
Below is a partially completed responsibility report for the first quarter. Complete the
responsibility report. (Round percentages to one decimal place.)
Howard Consumer Products
Responsibility Report
What are conversion costs? In determining equivalent units of production, why are
conversion costs calculated separately from direct materials?
Portian Merchandisers has purchased merchandise on account and paid $450 for freight
in. Give the journal entry for freight paid. (Assume a perpetual inventory system.)
Excellent, Inc. sells accounting textbooks. The following information summarizes
Excellent's operating activities for the year:
Required: Prepare Excellent, Inc.'s income statement for the year ended December 31.
Cambridge Sales, Inc. has gross salaries and wages for March of $45,000. Provide the
journal entry to record salaries and wages expense and payroll withholdings. (Assume a
FICA—OASDI Tax of 6.2% and FICA—Medicare Tax of 1.45%.) Salaries and wages
to date are under the OASDI limit. Assume no federal or state income taxes are due.
Budget Auto Parts Company uses the indirect method to prepare the statement of cash
flows. Refer to the following income statement:
Budget Company
Income Statement
Year Ended December 31, 2017
Sales Revenue $360,000
Interest Revenue 1,500
Gain on Sale of Plant Assets 6,000
Total Revenues and Gains $367,500
Cost of Goods Sold 165,000
Salary Expense 67,500
Depreciation Expense 18,000
Other Operating Expenses 34,500
Interest Expense 1,500
Income Tax Expense 7,500
Total Expenses 294,000
Net Income (Loss) $73,500
Additional information provided by the company includes the following:
Current assets other than cash increase by $36,000.
Current liabilities decrease by $1,500.
Prepare the operating activities section of the statement of cash flows.
For the following situation, state whether it represents a strength or weakness in internal
control and give the reason for your answer.
Second National Bank requires mandatory vacations and job rotation.
The periodic inventory records of Zucker Sales indicate the following for the month of
April:
As of April 30, Zucker Sales counts 8 units of merchandise inventory on hand.
Compute ending merchandise inventory and cost of goods sold for Zucker using the LIFO
inventory method.
Ellis Service Company had the following unadjusted balances at December 31, 2016:
Salaries Payable, $0; Salaries Expense, $12,000. The following transactions took place
on December 31, 2016:
Accrued Salaries Expense, $5,000
Closed the Salaries Expense account.
The following transaction took place on January 4, 2017:
Paid salaries of $6,000. This payment included $5,000 that was accrued on December
31, 2016 and $1,000 for the first few days in January 2017.
Prepare the journal entry for January 4, 2017, assuming that reversing entries were not
made.
Briyanne, Inc. purchased a computer for $5,000. During 2016 and 2017, the company
recorded total depreciation of $4,000 on the computer. On January 1, 2018, the
company exchanges the computer for a new one, paying $4,000 cash. The market value
of the new computer is $6,000. Prepare the journal entry to record this transaction.
Assume the exchange has commercial substance.
McClain Designs Furniture began June with merchandise inventory of 45 sofas that
cost a total of $31,500. During the month, McClain Designs purchased and sold
merchandise on account as follows:
Prepare a perpetual inventory record, using the weighted-average inventory costing
method, and determine the company's cost of goods sold, ending merchandise inventory,
and gross profit. (Round weighted-average cost per unit to the nearest cent and all other
amounts to the nearest dollar.)
List and briefly discuss three measures that can be taken to maintain good controls over
merchandise inventory.
Main Street Restaurant incurred salaries expense of $60,000 for 2016. The payroll
expense includes employer FICA tax, in addition to state unemployment tax and federal
unemployment tax. Of the total salaries, $17,000 is subject to unemployment tax. Also,
the company provides the following benefits for employees: health insurance (cost to
the company, $2,500), life insurance (cost to the company, $700), and retirement
benefits (cost to the company, 10% of salaries expense). Journalize Main Street's
expenses for employee benefits and for payroll taxes. Explanations are not required.
What is a common method of accessing short-term financing?
Journalize the following sales transactions for Outdoor Equipment using the periodic
inventory system. Explanations are not required.
An adjusted trial balance of Woods Company as of December 31, 2017 is given below.
Prepare a multi-step income statement for the year for the company.
