A company paid $200,000 10 years ago for a specialized machine that has no salvage
value and is being depreciated at the rate of $10,000 per year. The company is
considering using the machine in a new project that will have incremental revenues of
$28,000 per year and annual cash expenses of $20,000. In analyzing the new project,
the $10,000 depreciation on the machine is an example of a(n):
C. Variable cost
D. Sunk cost
A. Incremental cost
B. Opportunity cost
E. Out-of-pocket cost
Answer:
A company issued 10-year, 8% bonds with a par value of $200,000. The company
received $190,000 for the bonds. Using the straight-line method, the amount of interest
expense for the first semiannual interest period is:
A. $8,000.00
B. $8,500.00
C. $16,000.00
D. $7,500.00
E. $18,000.00
Answer:
Long-term investments are reported in the:
A. Current asset section of the balance sheet.
B. Intangible asset section of the balance sheet.
C. Noncurrent asset section of the balance sheet.
D. Liability section of the balance sheet.
E. Equity section of the balance sheet.
Answer:
Partners’ withdrawals of assets are:
A. Credited to their withdrawals accounts.
B. Debited to their withdrawals accounts.
C. Credited to their retained earnings.
D. Debited to their retained earnings.
E. Debited to their asset accounts.
Answer:
A company sells leaf blowers for $170 each. Each unit has a three-year warranty that
covers replacement of defective parts. It is estimated that 4% of all leaf blowers sold
will be returned under the warranty at an average cost of $30 each. During October, the
company sold 400,000 leaf blowers; 800 leaf blowers were serviced under the warranty
during October at a total cost of $25,000. The balance in the Estimated Warranty
Liability account on October 1 was $12,500. What is the company’s warranty expense
for the month of October?
A. $24,000
B. $25,000
C. $37,500
D. $467,500
E. $480,000
Answer:
Wessen Company reports net income of $200,000 for the year ended December 31,
2013. It also reports $40,000 depreciation expense, $22,500 amortization expense, and
a $15,000 loss on the sale of machinery. Its comparative balance sheets reveal a
$225,700 increase in accounts receivable, $31,600 decrease in accounts payable,
$15,000 decrease in prepaid expenses, and $48,100 decrease in wages payable. What
net cash flows are provided (used) by operating activities using the indirect method?
A. ($12,900)
B. $57,900
C. $50,400
D. ($57,900)
E. ($50,400)
Answer:
The three most common tools of financial analysis are:
A. Financial reporting, ratio analysis, vertical analysis.
B. Ratio analysis, horizontal analysis, financial reporting.
C. Horizontal analysis, vertical analysis, ratio analysis.
D. Trend analysis, financial reporting, ratio analysis.
E. Vertical analysis, political analysis, horizontal analysis.
Answer:
Pecan Company had March sales and purchases of $63,000 and $47,000 respectively.
The company expects April sales to increase 12% above March sales and purchases to
stay consistent with March amounts. Twenty percent of the companys sales are for cash.
Credit sales are collected 20% in the month of the sale and 80% in the following month.
All purchases are paid for in the month following the purchase. The beginning cash
balance on April 1 is $42,000. What is Pecan Companys expected cash balance on April
30?
A. $46,609.60
B. $105,880.00
C. $70,801.60
D. $60,721.60
E. $49,432.00.
Answer:
A sporting goods store purchased $7,000 worth of ski boots in October. The store had
$3,000 of ski boots in inventory at the beginning of October and expects to have $2,000
of ski boots in inventory at the end of October to cover part of anticipated November
sales. What is the budgeted cost of goods sold for October?
A. $5,000
B. $7,000
C. $8,000
D. $9,000
E. $10,000
Answer:
During last period, a company’s overhead rate was 150% of direct labor cost. This
caused factory overhead to be $10,000 overapplied. Use the following incomplete
accounts to determine the cost of goods sold:
A. $130,000
B. $170,000
C. $ 40,000
D. $ 60,000
E. $ 90,000
Answer:
Lara Company has budgeted the following credit sales during the current year:
September, $25,000; October, $36,000; November, $30,000; December, $32,000.
Experience has shown that payment for the credit sales is received as follows: 15% in
the month of sale, 60% in the first month after sale, 20% in the second month after sale,
and 5% is uncollectible. How much cash can Lara Company expect to collect in
November as a result of current and past credit sales?
A. $19,700
B. $28,500
C. $30,000
D. $31,100
E. $33,900
Answer:
Selected comparative income statement amounts for a company are shown below.
Using 2013 as the base year for a horizontal analysis, compute the account with the
most significant change.
A. Sales.
B. General and administrative expenses.
C. Interest expense.
D. Miscellaneous expense.
E. Cannot be determined from the given data.
Answer:
The broad principle that requires expenses to be reported in the same period as the
revenues that were earned as a result of those expenses is the:
A. Recognition principle
B. Cost principle
C. Cash basis of accounting
D. Matching principle
E. Time period principle
Answer:
Given the following information, determine the cost of ending inventory at December
31 using the FIFO perpetual inventory method.
December 2: 5 units were purchased at $7 per unit.
December 9: 10 units were purchased at $9.40 per unit.
December 11: 12 units were sold at $35 per unit.
December 15: 20 units were purchased at $10.15 per unit.
December 22: 18 units were sold at $35 per unit.
A. $51.75
B. $83.22
C. $41.30
D. $94.00
E. $50.75
Answer:
Reference: 18_01
Willco Inc. manufactures electronic parts. They are analyzing their monthly
maintenance costs to determine the best way to budget these costs in the future. They
have collected the following data for the last six months:
Using the high-low method and the Willco data above, what is the approximate fixed
cost component of the monthly maintenance costs?
A. $33,860
B. $24,500
C. $32,755
D. $32,715
E. $30,686
Answer:
A debit is:
A. An increase in an account.
B. The right-hand side of a T-account.
C. A decrease in an account.
D. The left-hand side of a T-account.
E. An increase to a liability account.
Answer:
Each letter below contains three of the steps found in the accounting cycle. Which
presents the given steps in the proper sequence, first to last?
A. Adjust, analyze transactions, close.
B. Analyze transactions, adjust, close.
C. Prepare post-closing trial balance, prepare statements, close.
D. Prepare statements, post, close.
E. Prepare adjusted trial balance, journalize, close.
Answer:
A cost-volume-profit chart is also known as a(n)
A. Operating profit chart.
B. Operating leverage chart.
C. Break-even chart.
D. Margin of safety chart.
E. Sales chart.
Answer:
The time expected to pass before the net cash flows from an investment would return its
initial cost is called the:
A. Amortization period.
B. Payback period.
C. Interest period.
D. Budgeting period.
E. Discounted cash flow period.
Answer:
Which of the following is the appropriate journal entry if a company purchases
equipment costing $100,000 by paying cash of $10,000?
A. Debit to Cash, debit to Equipment, credit to Notes Payable.
B. No entry should be made.
C. Debit to Equipment, credit to Notes Payable, credit to Cash.
D. Debit to Cash, debit to Notes Payable, credit to Equipment.
E. Debit to Equipment, debit to Notes Payable, credit to Cash.
Answer:
Net income divided by net sales is equal to the:
A. Return on total assets
B. Profit margin
C. Current ratio
D. Total asset turnover
E. Days’ sales in inventory
Answer:
The appropriate section in the statement of cash flows for reporting the purchase of
land in exchange for common stock is:
A. Operating activities.
B. Financing activities.
C. Investing activities.
D. Schedule of noncash investing or financing activity.
E. None of these as this is not reported on the statement of cash flows.
Answer:
Medlar Corp. maintains a Web-based general ledger. Overhead is applied on the basis of
direct labor costs. Its bookkeeper accidentally deleted most of the entries that had been
recorded for January. A printout of the general ledger (in T-account form) showed the
following:
Raw Materials Inventory
Goods in Process Inventory
Bal.1/1 10,000
Bal 1/1 4,000
f)
(a)
(b)
(c)
(d)
(e)
17,500
(g)
A review of the prior year’s financial statements, the current year’s budget, and
January’s source documents produced the following information:
(1) Accounts Payable are used for raw material purchases only. January purchases were
$49,000.
(2) Factory overhead costs for January were $17,000 none of which is indirect
materials.
(3) The January 1 balance for finished goods inventory was $10,000.
(4) There was a single job in process at January 31 with a cost of $2,000 for direct
materials and $1,500 for direct labor.
(5) Total cost of goods manufactured for January was $90,000.
(6) All direct laborers earn the same rate ($13/hour). During January, 2,500 direct labor
hours were worked.
(7) The predetermined overhead allocation rate is based on direct labor costs. Budgeted
(expected) overhead for the year is $195,000 and budgeted (expected) direct labor is
$390,000.
Write in the missing amounts (a) through (o) in the T-accounts above.
Answer:
Mix Recording Studios purchased $7,800 in electronic components from TechCom.
Mix Recording Studios signed a 60-day, 10% promissory note for $7,800. TechCom’s
journal entry to record the sales portion of the transaction is:
A.
B.
C.
D.
E.
Answer:
On January 1, 2011, Posten Company purchased 10,000 shares of Toma Company for
$78,000 plus a broker’s fee of $2,000. Toma Company has a total of 40,000 shares of
common stock outstanding and it is presumed the Posten Company will have a
significant influence over Toma. Toma declared and paid cash dividends of $0.93 per
share in 2011 and 2012. Toma’s net income was $190,000 and $270,000 for 2011 and
2012 respectively. The January 1, 2013, entry on the books of Posten Company to
record the sale of 4,500 shares of Toma Company stock for $85,000 cash should be: A)
B)
C)
D)
E)
Answer:
Reference: 17_06
Assume that the Oregon Ice Cream Company is considering the costs of two of their
product linesice cream sandwiches and dessert bars. The company identified the
following partial list of activities, costs, and activity drivers expected for the next year.
Refer to the data above. How much overhead cost will be assigned to the dessert bar
product line using activity-based costing (ABC)?
A. 340,750
B. $247,818
C. $16,000
D. $297,500
E. $313,500
Answer:
The major activities of a business include:
A. Operating, investing, making a profit
B. Investing, making a profit, operating
C. Making a profit, operating, borrowing
D. Operating, investing, financing
E. Investing, making a profit, financing
Answer:
Reference: 21_01
Five Rings, Inc, has collected the following data on one of its products:
The actual cost of the direct materials used is:
A. $133,750
B. $150,000
C. $106,250
D. $158,750
E. $120,000
Answer:
A Company sold $10,000 of its accounts receivable and was charged a 2% factoring
fee. How should the company record this transaction in the journal? A.
B.
C.
D.
E.
Answer:
Prepare journal entries to record the following transactions and events for April using a
job order cost accounting system.
(a) Purchased raw materials on credit, $69,000.
(b) Raw materials requisitioned: $26,000 direct and $5,400 indirect.
(c) Factory payroll totaled $46,000 (paid in cash), including $9,500 indirect labor.
(d) Paid other actual overhead costs totaling $14,500 cash.
(e) Applied overhead totaling $28,200.
(f) Finished and transferred jobs totaling $77,500.
(g) Jobs costing $58,800 were sold on credit for $103,000.
Answer:
On August 1, 2013, a company issues bonds with a par value of $600,000. The bonds
mature in 10 years and pay 6% annual interest, payable each February 1 and August 1.
The bonds sold at $592,000. The company uses the straight-line method of amortizing
bond discounts and premiums. The company’s year-end is December 31. Prepare the
general journal entry to record the interest accrued at December 31,
Answer:
A company previously issued $2,000,000, 10% bonds, receiving a $120,000 premium.
On the current year’s interest date, after the bond interest was paid and after 40% of the
total premium had been amortized, the company purchased the entire bond issue on the
open market at 98 and retired it. Prepare the journal entry to record the retirement of
these bonds.
Answer:
A company purchased $7,000 of supplies and testing equipment on credit. Enter the
appropriate amounts for this transaction into the accounting equation format shown
below:
Answer:
Explain how a service firm, such as an advertising agency, might use job order costing.
Answer:
Falcon Company’s output for a period was assigned the standard direct labor cost of
$17,160. If the company had a favorable direct labor rate variance of $1,000 and an
unfavorable direct labor efficiency variance of $275, what was the total actual cost of
direct labor incurred during the period?
Answer:
A parcel of land offered for sale at $600,000 is assessed for tax purposes at $500,000,
is recognized by its purchasers as easily being worth $575,000, and is purchased for
$570,000. At what amount should the land be recorded in the purchaser’s books? What
accounting principle supports your answer?
Answer:
For each of the independent cases below, identify the principle of internal control that
is violated and recommend what should be done to remedy the violation.
1) In order to save money, Regal Company has decided to drop its property insurance
on assets and to stop bonding the cashiers who handle about $10,000 in cash each day.
2) Halton Company records each sale on a preprinted invoice. On certain occasions
invoices are spoiled when they are prepared, which is why the invoices are not
prenumbered, but the sales clerk writes the next number onto each invoice.
3) Marion Company is a very small business. Bob Lepley, one of the two office clerks,
opens the mail each day and removes the cash receipts that come in the mail. Bob then
records the receipts in the cash records and the customer’s account and deposits the cash
in the bank.
4) Gerald McNichols, the owner of McNichols Company prides himself on hiring only
the most competent employees. McNichols believes that since these employees are
highly competent, he trusts them completely and feels there is no need for anyone to
check up on the employees’ performance.
5) Service Products is a small business with only three accounting employees. Each
employee is well-trained and so can perform any of the accounting tasks, including
handling cash receipts and cash disbursements and preparing the bank reconciliation.
Answer:
A ________________________ is a continuously revised budget that adds future
months or quarters to replace months or quarters that have lapsed.
Answer:
Return on total assets is computed by dividing ___________ by __________.
Answer:
A relatively new form of business organization that protects partners with limited
liability, allows limited partners to assume an active management role, and is taxed as a
partnership is a ______________________________.
Answer:
A company was organized in January 2012 and has 2,000 shares of $100 par value,
10%, nonparticipating preferred stock outstanding and 30,000 shares of $10 par value
common stock outstanding. It has declared and paid cash dividends each year as shown
below. Calculate the total dividends distributed to each class of stockholder under each
of the assumptions given.
Answer:
If Madeira Company paid $42,000 of its accounts payable in cash, what would be the
effect of this transaction on assets, liabilities, and equity?
Answer:
On January 1, a company issues bonds with a par value of $300,000. The bonds mature
in five years and pay 8% annual interest, payable each June 30 and December 31. On
the issue date, the market rate of interest for the bonds is 10%. Compute the price of the
bonds on their issue date. The following information is taken from present value tables:
Answer:
Based on the following information provided about a company’s operations, calculate
its cost of goods purchased and its cash paid for merchandise.
Answer:
A company issued 9.2%, 10-year bonds with a par value of $100,000. Interest is paid
semiannually. The market interest rate on the issue date was 10% and the issuer
received $95,016 cash for the bonds. The issuer uses the effective interest method for
amortization. On the first semiannual interest date, what amount of discount should
issuer amortize?
Answer:
A company produces two joint products (called 101 and 202) in a single operation that
uses one raw material called Casko. Four hundred gallons of Casko were purchased at a
cost of $800 and were used to produce 150 gallons of Product 101, selling for $5 per
gallon, and 75 gallons of Product 202, selling for $15 per gallon. How much of the
$800 cost should be allocated to each product, assuming that the company allocates cost
based on sales revenue?
Answer:
At the beginning of the year, a company had $120,000 worth of liabilities. During the
year, assets increased by $160,000, and at year-end they equaled $360,000. Liabilities
decreased $20,000 during the year. Calculate the beginning and ending values of equity.
Answer:
______________________________________ is the stockholders’ equity applicable to
common shares divided by the number of common shares outstanding.
Answer: