Budgets are normally used only by profit-making businesses.
Answer:
The budgeted direct materials purchases is based on the sum of (1) the materials needed
for production and (2) the desired ending materials inventory, less (3) the estimated
beginning materials inventory.
Answer:
On the balance sheet for a manufacturing business, the cost of direct materials, direct
labor, and factory overhead, which have entered into the manufacturing process but are
associated with products that have not been finished, is reported as direct materials
inventory.
Answer:
The master budget of a small manufacturer would normally include all necessary
component budgets except the capital expenditures budget.
Answer:
The excess of divisional income from operations over a minimum amount of desired
income from operations is termed the residual income.
Answer:
When merchandise inventory is shown on the balance sheet, both the method of
determining the cost of the inventory and the method of valuing the inventory should be
shown.
Answer:
Cost systems using detailed estimates of each element of manufacturing cost entering
into the finished product are called standard cost systems.
Answer:
Form W-2 is called the Wage and Tax Statement.
Answer:
The major advantage of residual income as a performance measure is that it gives
consideration to not only a minimum rate of return on investment but also the total
magnitude of income from operations earned by each division.
Answer:
Generally, the lower the number of days’ sales in inventory, the better.
Answer:
The flexible budget is, in effect, a series of static budgets for different levels of activity.
Answer:
When an owner contributes equipment to the business, he or she retains ownership of
the property.
Answer:
A qualitative characteristic that may impact upon capital investment analysis is
manufacturing flexibility.
Answer:
If the adjustment of the unearned rent account at the end of the period to recognize the
amount of rent earned is inadvertently omitted, the net income for the period will be
understated.
Answer:
In preparing the cash flows from operating activities section of the statement of cash
flows by the indirect method, the amortization of bond discount for the period is
deducted from the net income for the period.
Answer:
If land costing $145,000 was sold for $205,000, the $60,000 gain on the sale would be
added to net income in of the operating activities section of the statement of cash flows
(prepared by the indirect method).
Answer:
The unadjusted, adjusted, and final trial balances are prepared during the accounting
cycle of a period.
Answer:
When accounting for uncollectible receivables and using the percentage of sales
method, the matching principle is violated.
Answer:
A partnership is subject to federal income taxes.
Answer:
In a company’s annual report, the section called management discussion and analysis
provides critical information in interpreting the financial statements and assessing the
future of the company.
Answer:
Foreign currency translation adjustment is an example of an item that would be
included in Other Comprehensive Income.
Answer:
The declaration and issuance of a stock dividend would be reported on the statement of
cash flows.
Answer:
If bonds are sold for a discount, the carrying value of the bonds is equal to the face
value less the unamortized discount.
Answer:
The doomsday ratio includes both cash and cash equivalents in the numerator.
Answer:
In net present value analysis for a proposed capital investment, the expected future net
cash flows are reduced to their present values.
Answer:
Closing journal entries are recorded in the general journal.
Answer:
Under the direct method of reporting cash flows from operations, the major source of
cash is cash received from customers.
Answer:
During periods of increasing costs, an advantage of the LIFO inventory cost method is
that it matches more recent costs against current revenues.
Answer:
Expense accounts are increased by credits.
Answer:
Revenues and expenses should be recorded in the same period to which they relate.
Answer:
The master budget is an integrated set of budgets that tie together a company’s
operating, financing and investing activities into an integrated plan for the coming year.
Answer:
The entry to record the issuance of common stock at a price above par includes a debit
to
A.Organizational Expenses
B.Common Stock
C.Cash
D.Paid-In Capital in Excess of Par-Common Stock
Answer:
Which of the following abbreviations is correct?
A.Debit “Dr”, Credit “Cd”
B.Debit “Db”, Credit “Cr”
C.Debit “Db”, Credit “Cd”
D.Debit “Dr”, Credit “Cr”
Answer:
A purchase of supplies on account is recorded in the
A.Revenue journal
B.General journal
C.Purchases journal
D.Cash Payments journal
Answer:
From the following data, determine for the current year the (a) rate earned on total
assets, (b) rate earned on stockholders’ equity, (c) rate earned on common stockholders’
equity, (d) earnings per share on common stock, (e) price-earnings ratio on common
stock, and (f) dividend yield on common stock. Assume that the current market price
per share of common stock is $25. (Present key figures used in your computations.)
Round percentage values to one decimal place, dollar values to two decimal places, and
other ratios to one decimal place.
Answer:
Calzone Co. has budgeted salary increases to factory supervisors totaling 8%. If selling
prices and all other cost relationships are held constant, next year’s break-even point:
A.will decrease by 8%
B.will increase by 8%
C.cannot be determined from the data given
D.will increase at a rate greater than 8%
Answer:
The profit margin for Atlantic Division is 28% and the investment turnover is 2.8. What
is the rate of return on investment for Atlantic Division?
A.20%
B.28%
C.14%
D.78.4%
Answer:
The statement of owner’s equity shows
A.only net income, beginning and ending capital
B.only total assets, beginning and ending capital
C.only net income, beginning capital, and withdrawals
D.all the changes in the owner’s capital as a result of net income, net loss, additional
investments, and withdrawals
Answer:
The following data is given for the Bahia Company:
Overhead is applied on standard labor hours.
The factory overhead controllable variance is:
A.$65U
B.$65F
C.$540U
D.$540F
Answer:
Denzel Jones owns and operates Crystal Cleaning Company. Recently, Denzel
withdrew $10,000 from Crystal Cleaning, and he contributed $6,000, in his name, to
Habitat for Humanity. The contribution of the $6,000 should be recorded on the
accounting records of which of the following entities?
A.Crystal Cleaning and Habitat for Humanity
B.Denzel Jones’ personal records and Habitat for Humanity
C.Denzel Jones’ personal records and Crystal Cleaning
D.Denzel Jones’ personal records, Crystal Cleaning, and Habitat for Humanity
Answer:
A responsibility center in which the department manager is responsible for costs,
revenues, and assets for a department is called:
A.a cost center
B.a profit center
C.an operating center
D.an investment center
Answer:
Based on the following production and sales estimates for May, determine the number
of units expected to be manufactured in May.
A.75,000
B.90,000
C.85,000
D.115,000
Answer:
Land costing $71,000 was sold for $50,000 cash. The loss on the sale was reported on
the income statement as other expense. On the statement of cash flows, what amount
should be reported as an investing activity from the sale of land?
A.$50,000
B.$71,000
C.$121,000
D.$21,000
Answer:
Most operating decisions of management focus on a narrow range of activity called the:
A.relevant range of production
B.strategic level of production
C.optimal level of production
D.tactical operating level of production
Answer:
On the statement of cash flows, a $7,500 gain on the sale of fixed assets would be
A.added to net income in converting the net income reported on the income statement
to cash flows from operating activities
B.deducted from net income in converting the net income reported on the income
statement to cash flows from operating activities
C.added to dividends declared in converting the dividends declared to the cash flows
from financing activities related to dividends
D.deducted from dividends declared in converting the dividends declared to the cash
flows from financing activities related to dividends
Answer:
The amount of time spent by an employee in the factory is usually recorded on:
A.time tickets
B.job order cost sheets
C.employees’ earnings records
D.statement of owners’ equity
Answer:
The balance in the supplies account, before adjustment at the end of the year is $6,250.
The proper adjusting entry if the amount of supplies on hand at the end of the year is
$1,500 would be
A.debit Supplies $1,500, credit Supplies Expense $1,500
B.debit Supplies Expense $4,750, credit Supplies $4,750
C.debit Supplies Expense $1,500, credit Supplies $1,500
D.debit Supplies $4,750, credit Supplies Expense $4,750
Answer:
Which of the following financial statements reports information as of a specific date?
A.income statement
B.statement of owner’s equity
C.statement of cash flows
D.balance sheet
Answer:
The following adjusting journal entry does not include an explanation. Select the best
explanation for the entry.
A.Record payment of fees earned
B.Record fees earned at the end of the month
C.Record fees that have not been earned at the end of the month
D.Record payment of fees to be earned.
Answer:
Which of the following is an example of a cost that varies in total as the number of
units produced changes?
A.Salary of a production supervisor
B.Direct materials cost
C.Property taxes on factory buildings
D.Straight-line depreciation on factory equipment
Answer:
The account type and normal balance of Prepaid Expense is
A.revenue, credit
B.expense, debit
C.liability, credit
D.asset, debit
Answer:
Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, income
from operations amounting to $302,500, and a desired minimum rate of return of 15%.
The investment turnover for Chicks is:
A.1.3
B.1.5
C.1.0
D.1.1
Answer:
The budgeted finished goods inventory and cost of goods sold for a manufacturing
company for the year 2012 are as follows: January 1 finished goods, $765,000;
December 31 finished goods, $540,000; cost of goods sold for the year, $2,560,000.
The budgeted costs of goods manufactured for the year is?
A.$1,255,000
B.$2,335,000
C.$2,785,000
D.$3100,000
Answer:
Yadkin Valley’s April sales forecast projects that 6,000 units will sell at a price of
$10.50 per unit. The desired ending inventory is 30% higher than the beginning
inventory, which was 1,000 units. Budgeted purchases of units in April would be:
A.7,000 units
B.6,000 units
C.6,300 units
D.7,300 units
Answer:
In 2012 Robert Corporation had net income of $250,000 and paid dividends to common
stockholders of $50,000. They had 50,000 shares of common stock outstanding during
the entire year. Robert Corporation’s common stock is selling for $50 per share on the
New York Stock Exchange.
Robert Corporation’s price-earnings ratio is
A.10 times.
B.5 times.
C.2 times.
D.8 times.
Answer:
In recording the cost of merchandise sold for cash, based on data available from
perpetual inventory records, the journal entry is
A.debit Cost of Merchandise Sold; credit Sales
B.debit Cost of Merchandise Sold; credit Merchandise Inventory
C.debit Merchandise Inventory; credit Cost of Merchandise Sold
D.debit Accounts Receivable; credit Merchandise Inventory
Answer:
At the end of the current year, Accounts Receivable has a balance of $90,000;
Allowance for Doubtful Accounts has a credit balance of $850; and net sales for the
year total $300,000. Bad debt expense is estimated at 2.5% of net sales.
Determine (a) the amount of the adjusting entry for uncollectible accounts; (b) the
adjusted balances of Accounts Receivable, Allowance of Doubtful Accounts; and Bad
Debt Expense; and (c) the net realizable value of accounts receivable.
Answer:
All of the following are advantages of decentralization except:
A.Managers make better decisions when closer to the operation of the company.
B.Expertise in all areas of the business is difficult, decentralization makes it better to
delegate certain responsibilities.
C.Each decentralized operation purchases their own assets and pays for operating costs.
D.Decentralized managers can respond quickly to customer satisfaction and quality
service.
Answer:
The Warbler Jeans Company produces two different types of jeans. One is called the
“Simple Life” and the other is called the “Fancy Life” The company’s Production
Budget requires 353,500 units of Simple jeans and 196,000 Fancy jeans to be
manufactured. It is estimated that 2.5 direct labor hours will be needed to manufacture
one pair of Simple Life jeans and 3.75 hours of direct labor hours for each pair of Fancy
Life jeans.
What is the total number of direct labor hours needed for both lines of jeans?
A.883,750 direct labor hours
B.1,618,750 direct labor hours
C.735,000 direct labor hours
D.353,500 direct labor hours
Answer:
Next year’s sales forecast shows that 20,000 units of Product A and 22,000 units of
Product B are going to be sold for prices of $10 and $12 per unit, respectively. The
desired ending inventory of Product A is 20% higher than its beginning inventory of
2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending
inventory of B is 3,000 units.
Total budgeted sales of both products for the year would be:
A.$42,000
B.$200,000
C.$264,000
D.$464,000
Answer:
Net income appears on the work sheet in the
A.debit column of the Balance Sheet columns
B.debit column of the Adjustments columns
C.debit column of the Income Statement columns
D.credit column of the Income Statement columns
Answer:
When a company sells machinery at a price equal to its book value, this transaction
would be recorded with an entry that would include the following:
A.debit Cash and Accumulated Depreciation; credit Machinery
B.debit Machinery; credit Cash and Accumulated Depreciation
C.debit Cash and Machinery; credit Accumulated Depreciation
D.debit Cash and Depreciation Expense; credit Accumulated Depreciation
Answer:
Which one of the statements below is not a purpose for the journal?
A.to show increases and decreases in accounts
B.to show a chronological order by date
C.to show a complete transaction in one place
D.to help locate errors
Answer:
A fixed asset’s estimated value at the time it is to be retired from service is called
A.book value
B.residual value
C.market value
D.carrying value
Answer:
Sunrise Coffee Shop, in an effort to stream line their accounting system, has decided to
utilize a Cash Receipts Journal in its operation. Record the following transactions to the
Cash Receipts Journal for the first two weeks in March, add the columns, and include
the Post Reference information from the accounts given.
Are there any additional columns you would add to this journal?
Answer:
Dennis Corp. issued $2,500,000 of 20-year, 9% callable bonds on July 1, 2007, with
interest payable on June 30 and December 31. The fiscal year of the company is the
calendar year. Journalize the entries to record the following selected transactions:
Answer:
Crain Company budgeted 35,000 direct labor hours and incurred 40,000 direct labor
hours. It incurred $780,000 of overhead and estimated overhead was $735,000.
What is Crain’s predetermined overhead rate? Was overhead overapplied or
underapplied for the year? By how much?
Answer:
Crow Manufacturers, Inc. projected sales of 75,000 bicycles for 2012. The estimated
January 1, 2012, inventory is 5,000 units, and the desired December 31, 2012, inventory
is 8,000 units. What is the budgeted production (in units) for 2012?
Answer:
The Finishing Department of Pinnacle Manufacturing Co. prepared the following
factory overhead cost budget for October of the current year, during which it expected
to operate at a 100% capacity of 10,000 machine hours:
During October, the plant was operated for 9,000 machine hours and the factory
overhead costs incurred were as follows: indirect factory wages, $16,400; power and
light, $10,000; indirect materials, $3,000; supervisory salaries, $12,000; depreciation of
plant and equipment, $8,800; insurance and property taxes, $3,200.
Prepare a factory overhead cost variance report for October. (The budgeted amounts for
actual amount produced should be based on 9,000 machine hours.)
Answer:
Identify four capital investment analysis models discussed in the chapter and discuss
the strengths and weaknesses of each model.
Answer:
The chart of accounts classify the accounts to make identification of the accounts easier.
Discuss how companies set up their chart of accounts for use in their business
Answer:
The accountant for Flagger Company prepared the following list of account balances
from the company’s records for the year ended December 31, 2011:
Prepare an Income Statement for Flagger Company in good form.
Answer:
List the principal advantage of Electronic Funds Transfers.
Answer:
An 6-year project is estimated to cost $350,000 and have no residual value. If the
straight-line depreciation method is used and the average rate of return is 12%,
determine the estimated annual net income.
Answer:
Differentiate between financial and managerial accounting, addressing such issues as
what reports are generated, when, and for whom.
Answer:
An employee of Morgan Corporation has found some partially completed units of
Model X in a dusty corner of the warehouse. A job ticket attached to the units indicates
that a total of $750 in manufacturing costs have been used to bring the materials to this
point in the manufacturing process. The units can be sold in their current condition for
$275 to a scrap metal dealer. If Morgan spends $250 to complete the units, they could
be sold for $600.
A. What should Morgan do? Why?
B. Identify the sunk cost, if any.
Answer:
The inventory at May 1 and the costs charged to Work in Process–Department B during
May for Stella Company are as follows:
During May, all direct materials are transferred from Department A, the units in process
at May 1 were completed, and of the 55,000 units entering the department, all were
completed except 6,000 units which were 70% completed. Inventories are costed by the
first-in, first-out method.
Prepare a cost of production report for May. Round unit cost data to four decimal places
and total cost to nearest cent.
Answer:
McMann Company has a condensed income statement as shown::
REQUIRED:
Prepare a horizontal analysis of McMann Company’s income statements. Comment on
the trends, both favorable and unfavorable.
Answer:
To meet projected annual sales, Greenleaf Manufacturers, Inc. needs to produce 75,000
machines for 2012. The estimated January 1, 2012, inventory is 7,000 units, and the
desired December 31, 2012, inventory is 12,000 units. What are projected sales units
for 2012?
Answer:
The net income reported on the income statement for the current year was $210,000.
Depreciation recorded on equipment and a building amount to $62,500 for the year.
Balances of the current asset and current liabilities accounts at the beginning and end of
the year are as follows:
Answer:
According to a summary of the payroll of Scotland Company, $450,000 was subject to
the 7.0% social security tax and $500,000 was subject to the 1.5% Medicare tax.
Federal income tax withheld was $98,000. Also, $15,000 was subject to state (4.2%)
and federal (0.8%) unemployment taxes.
Answer:
