The process of evaluating performance can be improved by using budgets.
Answer:
Three key variables determine the dollar value of inventory: (1) inventory quantity, (2)
costs of inventory, and (3) cost flow assumption.
Answer:
The International Accounting Standards Board (IASB) is the government group that
establishes reporting requirements for companies that issue stock to the public.
Answer:
Uncontrollable costs would continue even if a department were eliminated.
Answer:
The full disclosure principle requires the reporting of contingent liabilities that are
reasonably possible.
Answer:
The steps to reconcile the balance of the bank statement to the adjusted balance include
adding outstanding checks, deposits, and bank service charges.
Answer:
The voucher register is a journal that is used to record all approved vouchers within the
company.
Answer:
Under LIFO, the most recent costs are assigned to ending inventory.
Answer:
Items such as sales slips, invoices, checks, and purchase orders are source documents.
Answer:
A corporation is a separate legal entity from its owners.
Answer:
The matching principle is used by some companies to avoid allocating incidental
inventory costs to cost of goods sold.
Answer:
LIFO inventory value is often less than the inventory’s replacement cost because LIFO
inventory is valued using the oldest purchase cost.
Answer:
The International Accounting Standards Board (IASB) issues International Financial
Reporting Standards (IFRS) that identify preferred accounting practices.
Answer:
A note payable can be used to extend the payment due on an account payable.
Answer:
Bonds and long-term notes are similar in that they are typically transacted with
multiple lenders.
Answer:
Segment return on assets is segment operating income divided by segment average
assets.
Answer:
When using a spreadsheet to prepare the statement of cash flows, a decrease in
accounts payable is entered in the Analysis of Changes column with a debit in the
statement of cash flows section and a credit in the balance sheet section.
Answer:
The type of bond that provides the greatest security from theft of loss is the debenture.
Answer:
Revising an estimate of the useful life or salvage value of a plant asset is referred to as
a change in accounting estimate and is reflected in the past, current, and future financial
statements.
Answer:
Most financial measures of revenues and costs from accounting systems are based on
historical costs.
Answer:
The seller is responsible for paying shipping charges and bears the risk of damage or
loss in transit if goods are shipped FOB destination.
Answer:
The price that should be used to record transfers between divisions in the same
company is called the divisional price.
Answer:
Managers should accept special orders provided the special order price exceeds full
cost.
Answer:
Job order manufacturing systems would be appropriate for companies that produce
custom homes, specialized equipment, and special computer systems.
Answer:
The times interest earned ratio is calculated by dividing income before interest expense
and income taxes by interest expense.
Answer:
In a process cost accounting system, a department’s production should be measured in
terms of equivalent units when its beginning or ending inventory includes goods in
process.
Answer:
Premium on Bonds Payable increases a companys liabilities..
Answer:
A purchase requisition is a document the purchasing department sends to the vendor to
place an order.
Answer:
Capital budgeting decisions that relate to investments in technology are not as risky as
other types of capital budgeting decisions.
Answer:
The payee is the person who signs a check and authorizes payment.
Answer:
Companies follow both the matching principle and the materiality principle when
applying the direct write-off method.
Answer:
Debt guarantees are not disclosed because the guarantor is not the primary debtor.
Answer:
The maturity date of a note refers to the date the note is signed.
Answer:
A capital deficiency exists when all partners have a credit balance in their capital
accounts.
Answer:
Reference: 21_03
Bradford Company budgeted 4,000 pounds of material costing $5 per pound to produce
2,000 units. The company actually used 4,500 pounds that cost $5.10 per pound to
produce 2,000 units.
What is the direct materials quantity variance?
A. $400 unfavorable
B. $450 unfavorable
C. $2,500 unfavorable
D. $2,550 unfavorable
E. $2,950 unfavorable
Answer:
A company identified the following partial list of activities, costs, and activity drivers
expected for the next year:
Calculate activity rates for each of the three activities using activity-based costing
(ABC).
A. Extrusion: $304 per batch; handling: $32 per unit; packaging: $.03 per unit.
B. Extrusion: $88 per batch; handling: $32 per order; packaging: $.03 per unit.
C. Extrusion: $88 per order; handling: $32 per unit; packaging: $.03 per batch.
D. Extrusion: $418 per batch; handling: $117.33 per order; packaging: $.054 per unit.
E. Extrusion: $118.13 per batch; handling: $44 per order; packaging: $.0675 per unit.
Answer:
A line on a scatter diagram that is intended to reflect the past relation between cost and
volume is the:
A. Margin of safety line.
B. Break-even line.
C. Contribution margin line.
D. Estimated line of cost behavior.
E. Standard cost line.
Answer:
A company earned $2,000 in net income for October. Its net sales for October were
$10,000. Its profit margin is:
A. 2%
B. 20%
C. 200%
D. 500%
E. $8,000
Answer:
A company has 1,000 shares of $100 par preferred stock. It also has 25,000 shares of
common stock outstanding and its total stockholders’ equity equals $500,000. The book
value per common share is:
A. $15.38
B. $16.00
C. $19.23
D. $20.00
E. $100.00
Answer:
Why are ethics crucial to accounting?
A. Ethical behavior creates the most profit for the business.
B. Ethics are a tool which help the accountants balance the accounting equation.
C. For accounting information to be useful, it must be trusted and therefore the result of
ethical decisions.
D. Ethics are important to consider when applying GAAP but do not apply to
international accounting issues.
E. Ethics are a way to compute revenues and expenses, but they do not apply to assets,
liabilities, and owners equity.
Answer:
Reference: 17_05
Assume that a pet food manufacturer is considering adding two types of pet food to its
existing product line. Research had determined that good demand exists for dog food in
40-pound bags and cat food in 1/2pound cans.
The company identified the following partial list of activities, costs, and activity drivers
expected for the next year:
Refer to the data above. What are the overhead rates used to apply material handling
(MH) and storage costs (SC) using activity-based costing?
A. MH $300/batch; SC $2.73/unit.
B. MH $300/batch; SC $.20/lb.
C. MH $525/batch; SC $.205/unit.
D. MH $700/batch; SC $.205/lb.
E. MH $700/batch; SC $8.20/lb.
Answer:
A CVP graph presents data on:
A. Profit and loss on a unit basis.
B. Profit, loss, and break-even on a total basis.
C. Profit, loss, and break-even on a unit basis.
D. Only profit and loss on a total basis.
E. Profit and loss on a budget and actual basis.
Answer:
What is another name for the general journal?
A. The book.
B. The ledger.
C. The book of original entry.
D. The record.
E. The account book.
Answer:
FastForward has beginning equity of $257,000, net income of $51,000, dividends of
$40,000, and investments by owners in exchange for stock of $6,000. Its ending equity
is:
A. $223,000
B. $240,000
C. $268,000
D. $274,000
E. $208,000
Answer:
If net income for the period was $134,250, dividends distributed were $76,530 and
ending retained earnings was $862,520, what was the beginning retained earnings for
the period?
A. $1,073,300
B. $651,740
C. $804,800
D. $920,240
E. $728,270
Answer:
Which of the following items appears only in a manufacturing company’s financial
statements?
A. Cost of goods sold.
B. Cost of goods manufactured.
C. Goods available for sale.
D. Gross profit.
E. Net income.
Answer:
Match each of the following terms with the appropriate definitions.
A) Goodwill
B) Revenue expenditure
C) Betterment
D) Accelerated depreciation
E) Ordinary repairs
F) Depletion
G) Asset turnover
H) Change in accounting estimate
I) Units-of production method
J) Intangible assets
Answer:
Western Company had $500 of store supplies available at the beginning of the current
year. During the year Western Company purchased $2,750 worth of store supplies. On
December 31 of this year, $375 worth of store supplies remained.
a. Calculate the amount of Western Company’s store supplies expense for the current
year. (Show your calculations.)
b. Prepare the journal entry to adjust the supplies account.
Answer:
If Jefferson Company paid a bonus equal to 8% of net income after bonuses and the
total bonus distributed was $420,000, how much was net income for the year?
A. $5,250,000
B. $5,670,000
C. $6,250,000
D. $4,320,000
E. $4,875,000
Answer:
Given the trial balance amounts below, compute ending retained earnings.
A. $19,578
B. $29,578
C. $23,728
D. $49,578
E. $45,000
Answer:
Which of the following are advantages of using the plantwide overhead rate method?
A. The use of cost pools is considerably more accurate than other overhead allocations.
B. The necessary information is readily available.
C. It is more accurate than traditional overhead allocations.
D. Each department has its own overhead rate and its own allocation base.
E. It takes into account that when products differ in batch size and complexity, they
usually consume different amounts of overhead resources.
Answer:
Reference: 20_02
Julia’s Candy Co. reports the following information from its sales account and sales
budget:
Cash sales are normally 25% of total sales and all credit sales are expected to be
collected in the month following the date of sale.
Based on the information from Julias, the total amount of cash expected to be received
from customers in September is:
A. $30,000
B. $82,500
C. $112,500
D. $120,000
E. $202,500
Answer:
Greene Company uses a plantwide overhead rate with direct labor hours as the
allocation base. Use the following information to solve for the amount of direct labor
hours estimated per unit of product G2.
A. 1.5 DLH per unit of G2.
B. 6.2 DLH per unit of G2.
C. 9.3 DLH per unit of G2.
D. .66 DLH per unit of G2.
E. 14.09 DLH per unit of G2.
Answer:
The accounts receivable turnover is calculated by:
A. Dividing net sales by average accounts receivable.
B. Dividing net sales by average accounts receivable and multiplying by 365.
C. Dividing average accounts receivable by net sales.
D. Dividing average accounts receivable by net sales and multiplying by 365.
E. Dividing net income by average accounts receivable.
Answer:
Clark Corporation purchased 40% of IT corporation for $125,000 on January 1. On
May 20 of the same year, IT Corporation declared total cash dividends of $30,000. At
year-end, IT Corporation reported net income of $150,000. The balance in Clark
Corporation’s Long-Term Investment in IT Corporation account as of December 31
should be:
A. $77,000
B. $125,000
C. $173,000
D. $197,000
E. $370,000
Answer:
Net income is:
A. Assets minus liabilities.
B. The excess of revenues over expenses.
C. An asset.
D. The same as revenue.
E. The excess of expenses over retained earnings.
Answer:
The buyer who pays cash for an account receivable is referred to as a:
A. Payor
B. Pledgor
C. Factor
D. Payee
E. Pledgee
Answer:
A company had cost of goods sold of $150,000 during a given period. Compute cash
paid for merchandise during this period given the following data:
A. $145,500
B. $159,500
C. $140,500
D. $154,500
E. $157,000
Answer:
A company sold a machine that originally cost $100,000 for $60,000 cash. The
accumulated depreciation on the machine was $40,000. The company should recognize
a:
A. $0 gain or loss
B. $20,000 gain
C. $20,000 loss
D. $40,000 loss
E. $60,000 gain
Answer:
Preferred stock on which the right to receive dividends is forfeited for any year that the
dividends are not declared is called:
A. Noncumulative preferred stock
B. Participating preferred stock
C. Callable preferred stock
D. Cumulative preferred stock
E. Convertible preferred stock
Answer:
Reference: 21_05
A job was budgeted to require three hours of labor per unit at $8 per hour. The job
consisted of 8,000 units and was completed in 22,000 hours at a total labor cost of
$198,000.
What is the total labor cost variance?
A. $22,000 unfavorable
B. $16,000 unfavorable
C. $6,000 unfavorable
D. $16,000 favorable
E. $22,000 favorable
Answer:
The purchase of long-term assets by issuing a note payable for the entire amount is
reported on the statement of cash flows in the:
A. Operating activities.
B. Financing activities.
C. Investing activities.
D. Schedule of noncash financing and investing activities.
E. None of these as this is not reported on the statement of cash flows.
Answer:
An employee earned $47,000 during the year working for an employer. The FICA tax
for social security is 6.2%, and the FICA tax for Medicare is 1.45%. The employee’s
share of FICA taxes is:
A. $681.50.
B. $2,914.00.
C. $3,595.50.
D. $7,191.00.
E. Zero, since the employee’s pay exceeds the FICA limit.
Answer:
Reference: 22_01
Joint products A and B are produced in a single operation from Material M. Three
hundred gallons of Material M, costing $450, produced 200 gallons of Product A,
selling for $2 per gallon, and 100 gallons of Product B, selling for $6 per gallon.
If the $450 cost of the 300 gallons of Material M were to be allocated to the joint
products in proportion to the number of gallons of each product produced, Product A’s
share would be:
A. $0
B. $180
C. $225
D. $300
E. $450
Answer:
The distribution of assets to stockholders is called a(n):
A. Liability
B. Dividend
C. Expense
D. Contribution
E. Investment
Answer:
Once the estimated depreciation expense for an asset is calculated:
A. It cannot be changed due to the historical cost principle.
B. It may be revised based on new information.
C. Any changes are accumulated and recognized when the asset is sold.
D. The estimate itself cannot be changed; however, new information should be
disclosed in financial statement footnotes.
E. It cannot be changed due to the consistency principle.
Answer:
The following information is available for some of a companys segments (all amounts
are in millions):
a. Determine the segment return on assets for each geographic segment
b. Comment on the results. How do the segments compare with respect to profitability?
Answer:
How did Kyle Smitley obtain financing to start her company, barley and birch?
Answer:
Identify each of the following activities as unit level (U), batch level (B), product level
(P), or facility level (F) to indicate the way each is incurred with respect to production.
_____ (1) Providing electricity
_____ (2) Sampling product quality
_____ (3) Cutting parts
_____ (4) Receiving shipments
_____ (5) Organizing production
_____ (6) Printing checks
_____ (7) Providing personnel support
_____ (8) Calibrating machines
_____ (9) Cleaning workplace
_____ (10) Assembling components
Answer:
______________________ is the total compensation an employee earns including
wages, salaries, commissions, bonuses, and any compensation earned before deductions
such as taxes.
Answer:
Use the following data to determine the company’s cash disbursements for the month of
August and September:
Answer:
___________________ activities include those transactions that affect long-term
liabilities and equity.
Answer:
Cooper Company borrows $785,100 cash on November 1, 2013, by signing a 120-day,
8% note. What amount of interest expense should Cooper recognize in 2013?
Answer:
A _________________________ means that at least one partner has a debit balance in
his/her capital account at the point of the final distribution of cash.
Answer:
Explain how to compute dividend yield and discuss how it is used in analysis of a
company’s financial condition.
Answer:
Impact on relationships with customers, company image, and employee morale are all
examples of _________________________ decision factors.
Answer:
Absorption costing is also called ________________________ costing.
Answer:
Coca-Cola had income before interest expense and income taxes of $5,698 million and
interest expense of $199 million. Calculate Coca-Cola’s times interest earned ratio.
Answer:
_____________ is the amount of income earned per share of a company’s outstanding
common stock.
Answer:
A company is considering a five-year project. It plans to invest $80,000 now and it
forecasts cash inflows for each year of $22,857. The company requires a hurdle rate of
12%. Calculate the internal rate of return to determine whether it should accept this
project. Selected factors for a present value of an annuity of 1 for five years are shown
below:
Answer:
Given the following information, determine the cost of ending inventory at November
30 using the LIFO perpetual inventory method.
November 3: 15 units were purchased at $8 per unit.
November 11: 18 units were purchased at $9.50 per unit.
November 15: 15 units were sold at $45 per unit.
November 18: 30 units were purchased at $10.75 per unit.
November 30: 20 units were sold at $55 per unit.
Answer:
Define and contrast period costs and product costs. How are they reported in the
financial statements of a manufacturing company?
Answer:
A corporation reported average total assets of $397,350 in 2012 and $440,800 in 2013.
Its net operating cash flow was $35,667 for 2012 and $35,790 for 2013. Calculate the
cash flow on total assets ratio for both years. Comment on the results.
Answer:
Why is overhead allocation under ABC usually more accurate than either the plantwide
overhead allocation method or the departmental overhead allocation method?
Answer:
For each of the following items, indicate whether it would be classified as either an
operating activity, an investing activity, a financing activity, or a significant noncash
financing and investing activity.
Answer:
_____________________ bonds can be exchanged for a fixed number of shares of the
issuing corporation’s common stock.
Answer:
Lemon Yellow Company produces childrens clothing that requires two processes,
cutting and sewing, to complete. The company is concerned about one product, a
hooded jacket, which hasnt been selling as well as it had in past years. Information
related to the 20,000 jackets produced annually is shown in the following table:
Lemon Yellows total expected overhead costs and related overhead data are shown
below. The company uses departmental overhead rates based on direct labor hours in
the Cutting Department and machine hours in the Sewing Department.
Assume this jacket currently sells for $10. How much profit does the company make
per jacket?
Answer:
