Cost concepts such as variable, fixed, mixed, direct and indirect apply only to
manufacturers and not to service companies.
Joint costs can be allocated either using a physical basis or a value basis.
The lower of cost or market rule for inventory valuation must be applied to each
individual unit separately, and not to major categories of inventory or to the entire
inventory.
Compound interest means that interest in a second period is based on the total amount
of principal plus interest accrued in the first period.
A discount on bonds payable occurs when a company issues bonds with an issue price
less than par value.
Generally the lower the risk, the lower the return that can be expected.
When taking a physical count of inventory, the use of prenumbered inventory tickets is
an application of internal control.
An account is a record of increases and decreases in a specific asset, liability, equity,
revenue, or expense item.
Understanding generally accepted accounting principles is not necessary to use and
interpret financial statements.
A potential lawsuit claim is recorded when the claim can be reasonably estimated and it
is reasonably possible.
Assets are the resources owned or controlled by a business.
Activity-based costing can be especially effective in situations where many different
products are manufactured in the same department or departments.
The management concept of customer orientation encourages a company to set up its
production system to produce large quantities of the same product for all customers.
A company’s post-closing trial balance has a debit total of $40,350 and a credit total of
$40,650. Accordingly, the company should review for errors in the closing process.
The difference in the sales journal between the perpetual and periodic inventory
systems is that a column is used to record cost of goods sold and inventory amounts for
each sale under the perpetual system but not the periodic system.
Total variable costs change proportionately with changes in output activity.
The concepts of direct costs and controllable costs are essentially the same; also,
indirect costs and uncontrollable costs are essentially the same.
Enterprise resource planning software is primarily used for recording journal entries.
Profit margin reflects the percent of profit in each dollar of revenue.
If the indirect materials cost for a reporting period was $37,500, the following journal
entry would be recorded by the process cost accounting system:
A check involves 3 parties: the maker who signs the check, the payee who is the
recipient, and the bank on which the check is drawn.
Cost-volume-profit analysis can be used to predict the effects of reduced selling prices,
increased fixed costs, and reduced variable costs on break-even points.
Based on a predicted level of production and sales of 12,000 units, a company
anticipates reporting operating income of $26,000 after deducting variable costs of
$72,000 and fixed costs of $10,000.
Based on this information, the budgeted amounts of fixed and variable costs for 15,000
units would be:
A.$10,000 of fixed costs and $72,000 of variable costs.
B.$10,000 of fixed costs and $90,000 of variable costs.
C.$12,500 of fixed costs and $90,000 of variable costs.
D.$12,500 of fixed costs and $72,000 of variable costs.
E.$10,000 of fixed costs and $81,000 of variable costs.
Adams Co. uses the following standard to produce a single unit of its product:
Variable overhead (2 hrs. @ $3/hr.) $6
Actual data for the month show variable overhead costs of $150,000, and 24,000 units
produced. The total variable overhead variance is:
A.$6,000F.
B.$6,000U.
C.$78,000U.
D.$78,000F.
E.$0.
Baker Company’s sales mix is 3 units of A, 2 units of B, and 1 unit of C. Selling prices
for each product are $20, $30, and $40, respectively. Variable costs per unit are $12,
$18, and $24, respectively. Fixed costs are $320,000. What is the break-even point in
composite units?
A.1,111.
B.1,600.
C.2,666.
D.4,000.
E.5,000.
Griggs Company holds $50,000 of 8% bonds as a held-to-maturity security. Which of
the following is the correct journal entry to record the receipt of the semiannual interest
payment?
A.debit Cash, $4,000; credit Long-Term InvestmentsHTM, $4,000.
B.debt Cash, $2,000; credit Long-Term InvestmentsHTM, $2000.
C.debit Cash, $2,000; credit Interest Revenue, $2,000.
D.debit Unrealized Gain-Equity, $2,000; credit Cash, $2,000.
E.debit Cash, $4,000; credit Unrealized Gain-Equity, $4,000.
Ordinary repairs:
A.Are expenditures to keep an asset in normal operating condition.
B.Are necessary if an asset is to perform to expectations over its useful life.
C.Are treated as expenses.
D.Include cleaning, lubricating, and normal adjusting.
E.All of these.
The formula for computing annual straight-line depreciation is:
A.Depreciable cost divided by useful life in units.
B.Cost plus salvage value divided by the useful life in years.
C.Cost less salvage value divided by the useful life in years.
D.Cost multiplied by useful life in years.
E.Cost divided by useful life in units.
Alton Company has an overhead application rate of 160% and allocates overhead based
on direct materials. During the current period, direct labor is $50,000 and direct
materials used are $80,000. Determine the amount of overhead Alton Company should
record in the current period.
A.$ 31,250
B.$ 50,000
C.$ 80,000.
D.$ 128,000.
E.$ 208,000.
The system of preparing financial statements based on recognizing revenues when the
cash is received and reporting expenses when the cash is paid is called:
A.Accrual basis accounting.
B.Operating cycle accounting.
C.Cash basis accounting.
D.Revenue recognition accounting.
E.Current basis accounting.
The appropriate section in the statement of cash flows for reporting the receipt of cash
dividends from investments in securities is:
A.Operating activities.
B.Financing activities.
C.Investing activities.
D.Schedule of noncash investing or financing activity.
E.None of these. This is not reported on the statement of cash flows.
Incurred but unpaid expenses that are recorded during the adjusting process with a debit
to an expense and a credit to a liability are:
A.Intangible expenses.
B.Prepaid expenses.
C.Unearned expenses.
D.Net expenses.
E.Accrued expenses.
Accounting standards:
A.Allow companies to omit the statement of cash flows from a complete set of financial
statements if cash is an insignificant asset.
B.Require that companies omit the statement of cash flows from a complete set of
financial statements if the company has no investing activities.
C.Require that companies include a statement of cash flows in a complete set of
financial statements.
D.Allow companies to include the statement of cash flows in a complete set of financial
statements if the cash balance makes up more than 50% of the current assets.
E.Allow companies to omit the statement of cash flows from a complete set of financial
statements if the company has no financing activities.
A company purchased equipment and signed a 7-year installment loan at 9% annual
interest. The annual payments equal $9,000. The present value of an annuity for 7 years
at 9% is 5.0330. The present value of the loan is:
A.$ 9,000.
B.$ 5,033.
C.$63,000.
D.$57,330.
E.$45,297.
Match each of the following terms with the appropriate definitions.
1) Patent
2) Obsolescence
3) Amortization
4) Extraordinary repairs
5) Land improvements
6) Book value
7) Salvage value
8) Copyright
9) Inadequacy
10) Depletion
A) Major repairs that extend the useful life of a plant asset beyond its original estimate.
B) A condition which, because of new inventions and improvements, a plant asset is no
longer useful in producing goods or services with a competitive advantage.
C) The process of allocating the cost of an intangible asset to expense over its estimated
useful life.
D) The process of allocating the cost of natural resources to the periods when they are
consumed.
E) An estimate of an asset’s value at the end its benefit period.
F) The total cost of a plant asset less its accumulated depreciation.
G) Assets that increase the benefits of land, have a limited useful life, and are subject to
depreciation.
H) A right granted that gives its owner the exclusive privilege to publish and sell
musical, literary, or artistic work during the life of the creator plus 70 years.
I) The insufficient capacity of plant assets to meet the company’s productive demands.
J) An exclusive right granted to its owner to manufacture and sell an item, or to use a
process, for 20 years.
A company buys a machine for $60,000 that has an expected life of 9 years and no
salvage value. The company anticipates a yearly net income of $2,850 after taxes of
30%, with the cash flows to be received evenly throughout each year. What is the
accounting rate of return?
A.2.85%.
B.4.75%.
C.6.65%.
D.9.50%.
E.42.75%.
A company issued 7% preferred stock with a $100 par value. This means that:
A.Preferred shareholders have a guaranteed dividend.
B.The amount of the potential dividend is $7 per year per preferred share.
C.Preferred shareholders are entitled to 7% of the annual income.
D.The market price per share will approximate $100 per share.
E.Only 7% of the total paid-in capital can be preferred stock.
The following information is available for Holland Company at December 31:
Based on this information, Holland Company should report Cash and Cash Equivalents
on December 31 of:
A.$35,421
B.$50,421
C.$37,546
D.$36,246
E.$40,439
Extraordinary repairs:
A.Are revenue expenditures.
B.Extend an asset’s useful life beyond its original estimate.
C.Are credited to accumulated depreciation.
D.Are additional costs of plants assets that do not materially increase the asset’s life.
E.Are expensed as incurred.
Capital budgeting decisions are risky because:
A.The outcome is uncertain.
B.Large amounts of money are usually involved.
C.The investment involves a long-term commitment.
D.The decision could be difficult or impossible to reverse.
E.All of these are true
A company had a bulldozer destroyed by fire. The bulldozer originally cost $125,000
with accumulated depreciation of $60,000. The proceeds from the insurance company
were $90,000. The company should recognize:
A.A loss of $25,000.
B.A gain of $25,000.
C.A loss of $65,000.
D.A gain of $65,000.
E.A gain of $90,000.
In business decision-making, managers typically examine the two fundamental factors
of:
A.Risk and capital investment.
B.Risk and rate of return.
C.Capital investment and rate of return.
D.Risk and payback.
E.Payback and rate of return.
On June 30, 2009, Apricot Co. paid $7,500 cash for management services to be
performed over a two-year period. Apricot follows a policy of recording all prepaid
expenses to asset accounts at the time of cash payment.
On June 30, 2009 Apricot should record:
A.A credit to an expense for $7,500.
B.A debit to an expense for $7,500.
C.A debit to a prepaid expense for $7,500.
D.A credit to a prepaid expense for $7,500.
E.A debit to Cash for $7,500.
The model whose goal is to eliminate waste while satisfying the customer and
providing a positive return to the company is:
A.Total quality management.
B.Managerial accounting.
C.Customer orientation.
D.Continuous improvement.
E.Lean business model.
The Terrapin Manufacturing Company has the following job cost sheets on file. They
represent jobs that have been worked on during June of the current year. This table
summarizes information provided on each sheet:
(a) What is the cost of the goods in process inventory on June 30?
(b) What is the cost of the finished goods inventory on June 30?
(c) What is the cost of goods sold for the month of June?
Of the following, which one affects cash during a period?
A.The declaration of a stock dividend.
B.Writing off an uncollectible account receivable.
C.The declaration of a cash dividend.
D.An adjusting entry recognizing the expiration of prepaid insurance.
E.The payment of interest expense accrued in a previous accounting period.
At the end of the day, the cash register tape shows $1,000 in cash sales but the count of
cash in the register is $1,035. The proper entry to account for this excess includes a:
A.Credit to Cash for $35.
B.Debit to Cash for $35.
C.Credit to Cash Over and Short for $35.
D.Debit to Cash Over and Short for $35.
E.Debit to Petty Cash for $35.
The following information is available for Talking Toys, Inc., for the current year:
The total manufacturing costs incurred during the year were:
A.$13,000.
B.$44,500.
C.$57,500.
D.$94,500.
E.$89,000.
Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued
revenues are all examples of:
A.Items that require contra accounts.
B.Items that require adjusting entries.
C.Asset and equity.
D.Asset accounts.
E.Income statement accounts.
Direct material costs are recorded:
A.Indirectly to Goods in Process account.
B.Indirectly to a Finished Goods account.
C.Directly to a Goods in Process account.
D.Directly to a Finished Goods account.
E.Directly to a Cost of Goods Sold account.
A period’s ___________________ becomes the next period’s beginning inventory.
____________________________ and _____________________ are the starting
points for the analyzing and recording process.
__________________ expenses are those costs that are incurred in a period but are both
unpaid and unrecorded.
The person to whom a note is payable is known as the ______________.
An advantage of the _________________ method of inventory valuation is that it tends
to smooth out the effect of erratic changes in costs.
Abrams Co. has total fixed costs of $240,000 and a contribution margin ratio of 40%. If
rent expense increases by $5,000, how much will sales have to increase to cover this
increase in costs?
Explain how to record the receipt of a note receivable.
Present Value of 1
Future Value of 1
Present Value of an Annuity of 1
Future Value of an Annuity of 1
A company needs to have $200,000 in 4 years, and will create a fund to insure that the
$200,000 will be available. If they can earn a 7% return, how much must the company
invest in the fund today to equal the $200,000 at the end of 4 years?
Investments that are readily convertible to a known amount of cash and are sufficiently
close to their maturity so that the market value is unaffected by interest rate changes are
______________________________.
Present Value of 1
Future Value of 1
Present Value of an Annuity of 1
Future Value of an Annuity of 1
A company is setting aside $21,354 today, and wishes to have $30,000 at the end of
three years for a down payment on a piece of property. What interest rate must the
company earn?
The unit contribution margin divided by the selling price per unit is the
____________________.