The margin of safety is the amount that sales can drop before the company incurs a loss.
All disbursements from petty cash should be documented by a petty cash receipt.
Land and buildings are generally recorded in the same ledger account.
A proxy is a document that gives a designated agent the right to vote a shareholder’s
stock.
Deposits in transit are deposits made and recorded by the depositor but not yet recorded
on the bank statement.
Job order production systems would be appropriate for companies that produce compact
disks or disposable cameras.
The predetermined overhead allocation rate is used to apply overhead cost to products.
Cash equivalents are investments that are readily converted to known amounts of cash
and mature within three months.
Net profit margin reflects the percent of net income in each dollar of net sales.
The aim of a post-closing trial balance is to verify that (1) total debits equal total credits
for temporary accounts, and (2) all temporary accounts have zero balances.
A 10-year bond issue with a $100,000 par value, 8% annual contract rate, with interest
payable semiannually means that the issuer must repay $100,000 at the end of 10 years
and make 20 semiannual interest payments of $4,000 each.
An advantage of LIFO is that it assigns the most recent costs to cost of goods sold, and
does a better job of matching current costs with revenues on the income statement.
Asset turnover is computed by dividing average total assets by cost of sales.
A premium on bonds occurs when bonds carry a contract rate greater than the market
rate at issuance.
A materials requisition is a source document used by materials managers of a
manufacturing company to order raw materials from suppliers; it serves the same
purpose as a purchase order in a merchandising company.
Long-term investments in available-for-sale securities are reported at market value on
the balance sheet.
In the retail inventory method of inventory valuation, the retail amount of inventory
refers to its dollar amount measured using selling prices of inventory items.
Depreciation should be recorded on the date an asset is purchased.
Cash paid for merchandise is an operating activity.
Ratios, like other analytical tools, are only historically oriented.
An advantage of the weighted average inventory method is that it tends to smooth out
erratic changes in costs.
A stock dividend is a distribution of corporate assets that returns part of the original
investment to shareholders.
In a double-entry accounting system, the total amount debited must always equal the
total amount credited.
A sunk cost has already been incurred and cannot be avoided or changed, so it is
irrelevant to decision making.
As prepaid expenses are used, the expired costs of the assets become expenses.
Departmental contribution to overhead is the amount of revenues for that department
less its direct expenses.
Depreciation measures the actual decline in market value of an asset.
Both financial and managerial accounting report monetary information; managerial
accounting also reports considerable nonmonetary information.
There is no simple rule for inventory turnover, except that a high ratio is preferable
provided inventory is adequate to meet demand.
When preparing the operating section of the statement of cash flows using the indirect
method, an increase in income taxes payable is added to net income.
The time period principle assumes that an organization’s activities can be divided into
specific time periods including:
A.Months.
B.Quarters.
C.Fiscal years.
D.Calendar years.
E.All of these.
Dina Kader withdrew a total of $35,000 from her business during the current year. The
entry needed to close the withdrawals account is:
A.Debit Income Summary and credit Cash for $35,000.
B.Debit Dina Kader, Withdrawals and credit Cash for $35,000.
C.Debit Income Summary and credit Dina Kader, Withdrawals for $35,000.
D.Debit Dina Kader, Capital and credit Dina Kader, Withdrawals for $35,000.
E.Debit Dina Kader, Withdrawals and credit Dina Kader, Capital for $35,000.
The board of directors of a corporation:
A.Are elected by the corporate registrar.
B.Are responsible for day-to-day operations of the business.
C.Do not have the power to bind the corporation to contracts, due to lack of mutual
agency.
D.May not also be executive officers of the corporation, due to the separate entity
principle.
E.Are responsible for and have final authority for managing corporate activities.
Sales returns:
A.Refer to merchandise that customers return to the seller after the sale.
B.Refer to reductions in the selling price of merchandise sold to customers.
C.Represent cash discounts.
D.Represent trade discounts.
E.Are not recorded under the perpetual inventory system until the end of each
accounting period.
Operating activities:
A.Are the means organizations use to pay for resources like land, buildings and
equipment.
B.Involve using resources to research, develop, purchase, produce, distribute and
market products and services.
C.Involve acquiring and disposing of resources that a business uses to acquire and sell
its products or services.
D.Are also called asset management.
E.Are also called strategic management.
Bentels Co. desires a December 31 ending inventory of 2,840 units. Budgeted sales for
December are 4,000 units. The November 30 inventory was 1,800 units. Budgeted
purchases are:
A.5,040 units.
B.1,240 units.
C.6,840 units.
D.4,000 units.
E.5,800 units.
The controlling investor is called the:
A.Owner.
B.Subsidiary.
C.Parent.
D.Investee.
E.Senior entity.
Calculating return on total assets for an investment center is defined by the following
formula for an investment center:
A.Contribution margin/Ending assets.
B.Gross profit/Ending assets.
C.Net income/Ending assets.
D.Net income/Average invested assets.
E.Contribution margin/Average invested assets.
The carrying value of bonds at maturity is always equal to:
A.the amount of cash originally received in exchange for the bonds.
B.face value.
C.the amount of discount or premium.
D.the amount of cash originally received in exchange for the bonds plus any discount or
less any premium.
E.$0.
Standards for comparisons in financial statement analysis include:
A.Intracompany standards.
B.Competitors.
C.Industry standards.
D.Guidelines (Rules-of-Thumb).
E.All of these.
The amount recorded for merchandise inventory includes:
A.Any purchase discounts.
B.Any returns and allowances.
C.Any necessary freight costs.
D.Any trade discounts.
E.All of these.
FastForward has net income of $18,955, and assets at the beginning of the year of
$200,000. Assets at the end of the year total $246,000. Compute its return on assets.
A.7.7%.
B.8.5%.
C.9.5%.
D.11.8%.
E.13.0%.
Revenues are:
A.The same as net income.
B.The excess of expenses over assets.
C.Resources owned or controlled by a company
D.The gross increase in equity from a company’s earning activities.
E.The costs of assets or services used.
A company’s beginning work in process inventory consisted of 20,000 units that were
1/5 complete with respect to direct labor. These beginning units were completed and
another 90,000 units were started during the current period. Of those started, 60,000
were finished and the remaining 30,000 were 1/3 complete at the end of the period.
Using the weighted-average method, the equivalent units of production with regard to
direct labor were:
A.60,000.
B.74,000.
C.76,000.
D.90,000.
E.96,000.
When the maker of a note honors a note this indicates that the note is:
A.Signed.
B.Paid in full.
C.Guaranteed.
D.Notarized.
E.Cosigned.
A company has net sales and cost of goods sold of $752,000 and $543,000,
respectively. Its net income is $17,530. The company’s gross margin and operating
expenses are ________ and ____________, respectively.
A.$209,000; $191,470
B.$191,470; $209,000
C.$525,470; $227,000
D.$227,000; $525,470
E.$734,000; $191,470
A dividend preference for preferred stock means that:
A.Preferred stockholders are allocated their dividends before dividends are allocated to
common shareholders.
B.Preferred shareholders are guaranteed dividends.
C.Dividends are paid quarterly.
D.Preferred stockholders prefer dividends more than common stockholders.
E.Dividends must be declared on preferred stock.
The accounting process begins with:
A.Analysis of business transactions and source documents.
B.Preparing financial statements and other reports.
C.Summarizing the recorded effect of business transactions.
D.Presentation of financial information to decision-makers.
E.Preparation of the trial balance.
Estimated overhead and direct labor costs for the year were $112,500 and $125,000,
respectively. During the year, actual overhead was $107,400 and actual direct labor cost
was $120,000. The entry to close the over- or underapplied overhead at year-end,
assuming an immaterial amount, would include:
A.A debit to Cost of Goods Sold for $600.
B.A credit to Factory Overhead for $600.
C.A credit to Finished Goods Inventory for $600.
D.A debit to Goods in Process Inventory for $600.
E.A credit to Cost of Goods Sold for $600.
NSC Corporation has invested in 10% of the outstanding stock of VC Corporation.
NSC intends to actively manage this investment. This investment is classified as:
A.a long-term equity investment
B.a long-term debt investment
C.a short-term equity investment
D.a short-term debt investment
E.a consolidated investment
In a responsibility accounting system:
A.Controllable costs are assigned to managers who are responsible for them.
B.Each accounting report contains all items allocated to a responsibility center.
C.Organized and clear lines of authority and responsibility are only incidental.
D.All managers at a given level have equal authority and responsibility.
E.All of these.
While in the process of posting from the journal to the ledger a company failed to post a
$50 debit to the Office Supplies account. The effect of this error will be that:
A.The Office Supplies account balance will be overstated.
B.The trial balance will not balance.
C.The error will overstate the debits listed in the journal.
D.The total debits in the trial balance will be larger than the total credits.
E.All of these effects will be caused by the error.
A partner can withdraw from a partnership by:
A.Selling his/her interest to another person for cash.
B.Selling his/her interest to another person in exchange for assets.
C.Receiving cash from the partnership in the amount of his/her interest.
D.Receiving assets from the partnership in the amount of his/her interest.
E.All of these.
Northern Company is preparing a cash budget for June. The company has $12,000 cash
at the beginning of June and anticipates $30,000 in cash receipts and $34,500 in cash
disbursements during June. Northern Company has an agreement with its bank to
maintain a cash balance of at least $10,000. As of May 31, the company owes $15,000
to the bank. To maintain the $10,000 required balance, during June the company must:
A.Borrow $ 4,500.
B.Borrow $ 2,500.
C.Borrow $10,000.
D.Repay $ 7,500.
E.Repay $ 2,500.
A company has determined that its standard costs to produce a single unit of output is as
follows:
During the latest month, the company purchased and used 58,000 pounds of direct
materials at a price of $1.00 per pound to produce 10,000 units of output. Direct labor
costs for the month totaled $56,350 based on 4,900 direct labor hours worked. Variable
manufacturing overhead costs incurred totaled $15,000 and fixed manufacturing
overhead incurred was $10,400.
Based on this information, the direct labor quantity variance for the month was:
A.$3,650 favorable
B.$2,450 favorable
C.$1,200 unfavorable
D.$1,200 favorable
E.$2,450 unfavorable
At the current year-end, Hardly Company found that its overhead was underapplied by
$2,500, and this amount was not deemed to be a material amount. Based on this
information, Hardly should
A.Close the $2,500 to Cost of Goods Sold.
B.Close the $2,500 to Finished Goods Inventory.
C.Do nothing about the $2,500, since it is not material, and it is likely that overhead
will be overapplied by the same amount next year.
D.Carry the $2,500 to the income statement as “Other Expense”
E.Carry the $2,500 to the next period.
A company has inventory of 15 units at a cost of $12 each on August 1. On August 5, it
purchased 10 units at $13 per unit. On August 12 it purchased 20 units at $14 per unit.
On August 15, it sold 30 units. Using the FIFO perpetual inventory method, what is the
value of the inventory at August 12 after the sale?
A.$140.
B.$160.
C.$210.
D.$380.
E.$590.
Mace Department store allocates its service department expenses to its various
operating (sales) departments. The following data is available:
The following information is available for its three operating (sales) departments:
What is the total expense allocated to Department B?
A.$29,375.
B.$30,462.
C.$30,500.
D.$30,775.
E.$32,160.
Products that are in the process of being manufactured but are not yet complete are
called:
A.Raw materials inventory.
B.Conversion costs.
C.Cost of goods sold.
D.Goods in process inventory.
E.Finished goods inventory.
The number of days’ sales uncollected is calculated by:
A.Dividing accounts receivable by net sales.
B.Dividing accounts receivable by net sales and multiplying by 365.
C.Dividing net sales by accounts receivable.
D.Dividing net sales by accounts receivable and multiplying by 365.
E.Multiplying net sales by accounts receivable and dividing by 365.
The following information is available for Hardy Co. for the current year:
The total of Hardy Co.’s manufacturing costs added during the current year is:
A.$12,000.
B.$16,100.
C.$17,100.
D.$18,100.
E.$13,600
The cumulative net income and loss retained by a corporation is called
_____________________.
The ________________ method of accounting for bad debts records the loss from an
uncollectible account receivable at the time it is determined to be uncollectible (and not
before).
What is gross margin ratio? How is it used as an indicator of profitability?
Stride Rite had total liabilities of $130 million and total assets of $375 million. Its debt
ratio was _______________.
Explain the purpose of adjusting entries at the end of a period.
__________________________ is the recording of transactions or events, and is just
one part of accounting.
The _______________ principle requires that financial information is supported by
independent, unbiased evidence.
If Madiera Company paid $42,000 of its accounts payable in cash, what would be the
effect of this transaction on assets, liabilities, and equity?
Identify and describe the four basic financial statements:
The founders of Sambazon understand that managing plant assets is important to their
company’s success. What are some of the plant asset issues that the founders identify as
important to them?
_____________________ preferred stock gives the issuing corporation the right to
purchase or retire the stock from its holders at specified future prices and dates.
In process costing, factory overhead incurred does not usually equal that applied, which
yields either ____________________ or ___________________ overhead.
A company has total fixed costs of $360,000. Its product sells for $40 per unit and
variable costs amount to $25 per unit. What is the break-even point in dollar sales?
A _____________________________ fund is used for the control of small amounts of
cash disbursements.
FastForward purchased $25,000 of equipment for cash. The Equipment asset account is
_______________ for $25,000 and the cash account is _______________ for $25,000.
Given the following information about a corporation’s current year activities, answer
the question below:
(1) Compute the retained earnings for the current year:
