Fixed costs per unit decrease as production levels decrease.
Free cash flow is calculated by adding cash payments planned for investments in
long-term assets and cash dividends to the amount of net cash provided by operating
activities.
All costs incurred in the manufacture of final products are product costs.
A standard cost system is an accounting system that uses standards for product costs.
When a company is evaluating an investment proposal with high risk, a low discount
rate should be used.
Financial statements are business documents used to communicate information needed
to make business decisions.
If all other factors remain constant, an increase in fixed costs will increase the
breakeven point.
Companies can report a negative amount in retained earnings.
Management accountability is the manager’s responsibility to the various stakeholders
of the company to maximize profits.
A direct labor efficiency variance is favorable if laborers actually work more hours than
the flexible budget calls for to produce the actual quantity of output .
In a vertical analysis of the balance sheet, the base amount is (100%) is total liabilities.
An organization’s receivables can be categorized into accounts receivable, notes
receivable, and other receivables.
The debt to equity ratio measures the proportion of total liabilities relative to the total
equity.
A business can be organized as a sole proprietorship, partnership, corporation, or
limited-liability company (LLC).
A company purchased machinery by issuing a long-term note payable. This is an
example of a non-cash investing and financing activity for the statement of cash flows.
Martinez Installations Company uses the direct method to prepare its statement of cash
flows. Martinez has reported sales revenues of $200,000 on its income statement for
2017. If the balance in Accounts Receivable has increased by $10,000 during the year,
then $10,000 needs to be added to $200,000 to calculate collections from customers.
If a bond is issued at a discount, the issue price is greater than face value.
The goal of the time period concept is to compute an accurate net income or net loss.
When a company uses the perpetual inventory system, there is no need to conduct a
physical count of inventory.
Manufacturing companies have inventory accounts, but merchandising companies do
not.
The difference that arises between the balance on the bank statement and the balance on
the company’s books because of a time lag in recording transactions is known as a
permanent difference.
A textile manufacturing company is most likely to use job order costing to arrive at the
cost per unit of textile manufactured and sold to customers.
The cost of goods manufactured is recorded with a debit to the Work-in-Process
Inventory account and a credit to the Cost of Goods Manufactured account.
Using the effective-interest amortization method, the calculation for the amount of
premium amortization is the difference between the cash paid and the calculated interest
expense.
Accounting is referred to as the language of business because it is the method of
communicating business information to decision makers.
In a standard cost system, the standard overhead allocation rate replaces the
predetermined
overhead allocation rate but the concept is the same.
Separate customer accounts receivable are called subsidiary accounts.
On a standard cost income statement, the variances with debit balances are shown in
parentheses because they are contra expenses and therefore decrease the expense Cost
of Goods Sold.
Sales commissions are included in manufacturing overhead.
The selling and administrative expense budget separates fixed and variable expenses.
The only difference between the present value and future value of a lump sum is the
amount of interest that is earned in the intervening time span.
When the internal rate of return is the same as the required rate of return, the net present
value of an investment will be positive.
Differential analysis is a common approach to making short-term business decisions.
When finished products are sold, Sales Revenue is debited, and Cost of Goods Sold is
credited.
Service companies sell their time, skills, and knowledge.
A company discovers that its cost of goods sold is understated by an insignificant
amount. It does not need to correct the error because of the conservatism principle.
All transactions are recorded in either one of the special journals or in the general
journal, but not both.
The percent-of-sales method calculates bad debts expense as a percentage of net credit
sales.
On September 1, Peterson Maintenance Company contracted to provide monthly
maintenance services for the next eight months at a rate of $2,600 per month. The client
paid Peterson $20,800 on September 1. Assuming Peterson records deferred revenues
using the alternative treatment, what would be the entry on September 1?
A) Debit Cash and credit Unearned Revenue for $20,800
B) No entry is needed until the services are performed
C) Debit Cash and credit Service Revenue for $20,800
D) Debit Prepaid Maintenance and credit Cash for $20,800
Which of the following entries would be made as the result of the revenue recognition
principle?
A)
B)
C)
D)
The times-interest-earned ratio is calculated as ________.
A) earnings before interest and tax divided by interest expense
B) profit before tax divided by interest expense
C) net income divided by interest expense
D) income tax expense plus interest expense divided by interest expense
________ is the equity earned by profitable operations that is not distributed to
stockholders.
A) Assets
B) Dividend
C) Retained earnings
D) Common stock
Gravity Manufacturing produces a chemical pesticide and uses process costing. There
are three processing departments—Mixing, Refining, and Packaging. On January 1, the
first department—Mixing—had no beginning inventory. During January, 41,000 fl. oz.
of chemicals were started in production. Of these, 32,000 fl. oz. were completed, and
9,000 fl. oz. remained in process. In the Mixing Department, all direct materials are
added at the beginning of the production process, and conversion costs are applied
evenly through the process. The weighted-average method is used.
At the end of January, the equivalent unit data for the Mixing Department were as
follows:
* Percent complete for conversion costs: 40%
In addition to the above, the costs per equivalent unit were $1.80 for direct materials and
$5.25 for conversion costs. Using this data, calculate the cost of the units that were
transferred out of the Mixing Department and into the Refining Department.
A) $168,000
B) $110,400
C) $225,600
D) $57,600
Saturn, Inc. signed a one-year $24,000 note payable at 8% interest on May 1, 2017.
How much interest expense must be accrued on May 31, 2017?
A) $1,920
B) $12,800
C) $160
D) $80
A.S. Design Corporation reports the following cost information for March:
What is the amount of manufacturing overhead incurred by the company in March?
A) $30,330
B) $138,570
C) $13,430
D) $12,430
Flannery Company, a manufacturer of small appliances, had the following activities,
allocated costs, and allocation bases:
The above activities are carried out at two of its regional offices.
What is the cost per letter for the correspondence activity? (Round your answer to the
nearest cent.)
A) $12.00
B) $45.00
C) $4.44
D) $0.80
On January 1, 2017, Finch Company issued $74,000 of five-year, 8% bonds when the
market interest rate was 12%. The issue price of the bonds was $62,000. Finch uses the
effective-interest method of amortization for bond discount. Semiannual interest
payments are made on June 30 and December 31 of each year. How much interest
expense will be recorded when the first interest payment is made? (Round your answer
to the nearest dollar number.)
A) $2,480
B) $3,720
C) $2,960
D) $4,440
Which of the following is an example of a storage device in an accounting information
system?
A) monitor
B) network
C) printer
D) server
Dividends is a(n) ________ account that has a normal ________ balance.
A) liability; credit
B) equity; debit
C) liability; debit
D) equity; credit
On January 1, A Plus Services has the following balances:
Accounts Receivable $25,000 (debit)
Bad Debts Expense $0
A Plus Services has the following transactions during January: Credit sales of $140,000,
collections of credit sales of $90,000, and write-offs of $16,000. A Plus Services uses
the direct write-off method. At the end of January, the balance of Accounts Receivable
is ________.
A) $10,286
B) $59,000
C) $24,889
D) $75,000
Which of the following is a measure of how quickly an item can be converted to cash?
A) Debt ratio
B) Current ratio
C) Liquidity
D) Accounting cycle
On December 1, 2016, Fine Dining Products borrowed $84,000 on a 12%, 5-year note
with annual installment payments of $16,800 plus interest due on December 1 of each
succeeding year. On December 1, the principal amount was recorded as a long-term
note payable. What amount of the note payable will be shown as current portion of
Long-Term Note Payable on the balance sheet as of December 31, 2016? (Round your
answer to nearest whole number.)
A) $16,800
B) $26,880
C) $10,080
D) $33,600
The formula for calculating the cash ratio is calculated is ________.
A) (Cash) / Total liabilities
B) (Cash + Cash equivalents) / Total current liabilities
C) (Cash + Cash equivalents) / Total assets
D) (Cash equivalents) / Total current liabilities
Markus Company maintains a separate accounts receivable account for each customer.
On June 18, Markus sells $6,400 services on account to customer Anthony and $1,000
services on account to customer Walker. How will these two transactions affect the
control and subsidiary accounts?
A) The control account, Accounts Receivable, will be increased with a debit of $7,400.
B) The individual customer accounts in the subsidiary ledger will be increased with
credits.
C) After posting this sales transaction, the sum of the balances in subsidiary accounts
receivable will not equal the control account balance.
D) The control account will have a debit balance and the subsidiary accounts will have
a credit balance. This keeps the accounting equation in balance.
The static budget, at the beginning of the month, for Assembly Furniture Company
follows:
Static budget:
Sales volume: 1,100 units; Sales price: $71.00 per unit
Variable costs: $33.00 per unit; Fixed costs: $36,400 per month
Operating income: $5,400
Actual results, at the end of the month, follows:
Actual results:
Sales volume: 980 units; Sales price: $75.00 per unit
Variable costs: $36.00 per unit; Fixed costs: $33,500 per month
Operating income: $4,720
Calculate the sales volume variance for fixed costs.
A) $2,940 U
B) $2,900 F
C) $4,560 U
D) $0
The management of Alpha Lawnmowers has calculated the following variances:
What is the total variable overhead variance of the company?
A) $2,500 F
B) $12,500 F
C) $8,500 F
D) $4,000 F
Which of the following is a disadvantage when a business accepts credit cards or debit
cards from customers?
A) The business bears the responsibility of collecting cash from the customer.
B) The business bears the risk of nonpayment by the customer.
C) The business pays a processing fee.
D) The business checks customers’ credit ratings.
Red Tail Manufacturing, Inc. provided the following information for the year:
The inventory account balances as of January 1 are given below.
What is the ending balance in the Finished Goods Inventory?
A) $304,570
B) $302,570
C) $306,570
D) $596,570
Which of the following two methods are typically used for initial screening of
investments, rather than for detailed, in-depth analysis?
A) payback and accounting rate of return
B) net present value and payback
C) internal rate of return and net present value
D) accounting rate of return and net present value
The matching principle is also called the ________.
A) adjusting entry concept
B) revenue recognition principle
C) expense recognition principle
D) time period concept
The assets of Moon Company are $160,000 and the total liabilities are $60,000. The
equity is ________.
A) $160,000
B) $220,000
C) $60,000
D) $100,000
Nylan Tiles is considering an investment in new equipment costing $858,000. The
equipment will be depreciated on a straight-line basis over a five-year life and is
expected to have a residual value of $62,000. The equipment is expected to generate net
cash inflows of $1,002,000 in total during the five-year life. What is the accounting rate
of return associated with the equipment investment? (Round your answer to two
decimal places.)
A) 12.36%
B) 8.96%
C) 45.23%
D) 9.34%
Zertrax, Inc. reports the following information for July:
What is the total fixed cost using variable costing?
A) $800,000
B) $390,000
C) $260,000
D) $560,000
South Bay Manufacturing began business on January 1. During its first year of
operation, South Bay worked on five industrial jobs and reported the following
information at year-end:
South Bay’s allocation of overhead costs left a debit balance of $1,400 in the
Manufacturing Overhead account, which was adjusted to zero at year-end. What was the
amount of gross profit earned during the year?
A) $26,700
B) $2,400
C) $28,100
D) $22,900
________ is a pay amount stated at an hourly rate.
A) Salary
B) Wage
C) Commission
D) Bonus
Louise, Inc. has a cash balance of $20,000 on April 1. The company is now preparing
the cash budget for the second quarter. Budgeted cash collections and payments are as
follows:
There are no budgeted capital expenditures or financing transactions during the quarter.
Based on the above data, calculate the projected cash balance at the end of May.
A) $22,000
B) $53,400
C) $48,400
D) $43,800
Overton, Inc. had the following transactions in 2017, its first year of operations:
• Issued 8,000 shares of common stock. Stock has par value of $0.01 per share and was
issued at $40.00 per share.
• Earned net income of $200,000.
• Paid dividends of $8.00 per share.
At the end of 2017, what is total stockholders’ equity?
A) $320,000
B) $456,000
C) $136,000
D) $584,000
An equity security ________.
A) represents a credit relationship with another company or governmental entity
B) is a standardized contract between two parties to acquire various forms of
investments
C) represents stock ownership in another company and sometimes pays dividends
D) is a financial instrument that entitles the holder to receive periodic interest
The payroll department of a manufacturing company is most likely to be a(n)
________.
A) cost center
B) revenue center
C) investment center
D) profit center
Refer to the following adjusted trial balance.
What will the final ending balance in the Retained Earnings account be after posting the
closing entries?
A) $24,250
B) $25,250
C) $29,150
D) $26,250
Which of the following liabilities is created when a company receives cash for services
to be provided in the future?
A) Unearned Revenue
B) Accrued Liability
C) Accounts Payable
D) Estimated Warranty Payable
The revenue, expenses, Sales Returns and Allowances, and Sales Discounts will be
closed via the ________ account.
A) Income Summary
B) Retained Earnings
C) Dividend
D) Stockholders’ Equity
Poodle Grooming Salon provides dog grooming services. In March, the business
groomed 245 dogs, earned $10,300 in revenues, and incurred the following operating
costs:
Compute the cost of one grooming. (Round to two decimal places.)
What is the decision rule for outsourcing?
How is the contribution margin calculated?
A company is evaluating an investment. The company uses the straight-line method of
depreciation. Use the following information to compute the accounting rate of return.
Show your calculations and round to one decimal place.
Complete the statement, using the following terms: increases, decreases, or have no
effect on.
Decreases in fixed cost ________ contribution margin per unit and ________ the
breakeven point.
Smart Calendars is a new business. During its first year of operations, credit sales were
$40,000, and collections of credit sales were $36,000. One account, $650, was written
off. Using the aging-of-receivables method, management calculates $200 as its estimate
of uncollectible amounts at year end. Prepare the journal entry to record bad debts
expense.
Northwest, Inc. records indicate that January sales on account were $109,000. The
company’s management estimates warranty expense to be 3.6% of sales. Prepare the
journal entry to record warranty expense.
Backyard Living sells its barbecue sets for $170 each. Suppose the company incurs the
following average cost per barbecue set:
Direct materials $52
Direct labor 28
Variable manufacturing overhead 11
Variable selling expenses 5
Fixed manufacturing overhead* 24
Total cost $120
* $ 1,800,000 / 75,000 units
Backyard Living has enough idle capacity to accept a one-time-only special order from
Superstore, Inc. for 2,000 barbecue sets at a sales price of $130 per set. Backyard
Living will not incur $2 of variable selling expenses for this order.
How would accepting the order affect Backyard Living’s operating income?
Journalize the following transaction for a merchandiser that uses the perpetual
inventory system.
Received returned goods from a customer, $1,000 (cost, $740).
The following is the adjusted trial balance as of December 31, 2017 of Piedmont
Exteriors, Inc.:
Provide the closing entry for the Income Summary account.
Paramount, Inc. decided to reward its employees with a bonus of 7% on annual net
income, after deducting the bonus. The company reported net income of $513,600
before the calculation of the bonus. Prepare the journal entry to accrue employee bonus
expense.
Hosanna Furnishings finished Job A40, which involved $4,000 of direct materials and
$600 of direct labor. Hosanna uses a predetermined overhead allocation rate based on
40% of direct labor costs. Provide the journal entry needed to record the completion of
the job.
Briefly discuss what gross profit represents and how it affects the net earnings of a
merchandiser.
List the three sections of the cash budget.
What is the only difference between present value and future value?
Hometown Resources, Inc. has a 9% rate of return on total assets and the industry
average is 12%. How was the 9% rate of return on total assets computed? Comment on
this information.
The Assembling Department of Miller, Inc. had 10,000 units in process on December 1
and received 30,000 units from the Sewing Department. During the month, it completed
20,000 units and transferred them to the Packaging Department. Calculate the number
of units accounted for by the Assembling Department for December. Prepare the
production cost report for the Assembling Department for the whole units for the month
of December. Use the FIFO method.
List three ways in which using a standard cost system helps managers.
For trading investments, provide the following:
• Reporting method used
• How unrealized holding gain or loss is reported
• Balance sheet effects
• Income statement effects