Indicate how the following transactions affect the accounting equation:
(a) The purchase of supplies on account.
(b) The purchase of supplies for cash.
(c) A withdraw by the owner to pay personal expenses.
(d) Revenues received in cash.
(e) Revenues received on account.
Answer:
Nuthatch Corporation began its operations on September 1 of the current year.
Budgeted sales for the first three months of business are $260,000, $375,000, and
$400,000, respectively, for September, October, and November. The company expects
to sell 30% of its merchandise for cash. Of sales on account, 80% are expected to be
collected in the month of the sale and 20% in the month following the sale.
The cash collections in October from accounts receivable are:
A.$246,400
B.$262,500
C.$210,000
D.$294,500
Answer:
After all of the account balances have been extended to the Balance Sheet columns of
the work sheet, the totals of the debit and credit columns show debits of $37,686 and
the credits of $41,101. This indicates that
A.neither net income or loss can be calculated because it is found on the income
statement
B.the company has a net loss of $3,415 for the period
C.the company has a net income of $3,415 for the period
D.The amounts are out of balance and need to be corrected
Answer:
Quail Co. can further process Product B to produce Product C. Product B is currently
selling for $60 per pound and costs $42 per pound to produce. Product C would sell for
$92 per pound and would require an additional cost of $13 per pound to produce. What
is the differential revenue of producing and selling Product C?
A.$32 per pound
B.$42 per pound
C.$50 per pound
D.$18 per pound
Answer:
The Clydesdale Company has sales of $4,500,000. It also has invested assets of
$2,000,000 and operating expenses of $3,600,000. The company has established a
minimum rate of return of 7%.
What is Clydesdale Company’s profit margin?
A.20%
B.80%
C.44.4%
D.18%
Answer:
Use the following information in the adjusted trial balance for Stockton Company to
answer the following questions.
Determine the total liabilities for the period.
A.$1,900
B.$6,200
C.$4,300
D.$20,240
Answer:
Given the following cost data, what type of cost is shown?
A.mixed cost
B.variable cost
C.fixed cost
D.none of the above
Answer:
BAM Co. is evaluating a project requiring a capital expenditure of $806,250. The
project has an estimated life of four years and no salvage value. The estimated net
income and net cash flow from the project are as follows:
The company’s minimum desired rate of return is 12%. The present value of $1 at
compound interest of 12% for 1, 2, 3, and 4 years is .893, .797, .712, and .636,
respectively.
Determine: (a) the average rate of return on investment, including the effect of
depreciation on the investment, and (b) the net present value.
Answer:
Wonder Sales is authorized to issue 100,000 shares of $100 par, 2% preferred stock and
1,000,000 shares of $10 par common stock.
(a) On January 2nd, Wonder Sales issues 5,000 shares of preferred stock for $110 per
share and 65,000 shares of common stock at $10 per share. Journalize this issuance.
(b) On January 25th, Wonder Sales issued 250 shares of preferred stock to a Morton
Law Firm for settlement of an invoice for incorporation services. The invoice was for
$36,000. Journalize this issuance.
(c) On January 31st, Wonder Sales issues 500 shares of common stock to Setup Inc. for
fixtures. The fixtures have a fair market value of $8,500. Journalize this issuance.
Answer:
Selling the bonds at a premium has the effect of
A.raising the effective interest rate above the stated interest rate.
B.attracting investors that are willing to pay a lower rate of interest than on similar
bonds.
C.causing the interest expense to be higher than the bond interest paid.
D.causing the interest expense to be lower than the bond interest paid.
Answer:
Which transaction is normally recorded in a special journal?
A.sales returns
B.depreciation expense
C.purchases on account
D.issued stock dividend
Answer:
Kala and Leah, partners in Best Designs, have capital balances of $40,000 and $60,000
respectively. Adam joins the partnership by buying one-half of Kala’s interest for
$30,000. In addition, because of Adam’s outstanding sales skills, the partners agree to
increase his interest to 40% if he invests another $10,000. The income-sharing ratio of
Kala, Leah, and Adam is 4:3:1.
Answer:
Which of the following is an example of an accrued expense?
A.Salary owed but not yet paid
B.Fees received but not yet earned
C.Supplies on hand
D.A two-year premium paid on a fire insurance policy
Answer:
The Sharpe Company reports the following information for 2015:
Determine period costs for 2015.
A.$24,500
B.$30,300
C.$29,200
D.$35,000
Answer:
A restriction/appropriation of retained earnings
A.decreases total assets
B.increases total retained earnings
C.decreases total retained earnings
D.has no effect on total retained earnings
Answer:
Adjusting entries affect at least one
A.income statement account and one balance sheet account
B.revenue and the drawing account
C.asset and one owner’s equity account
D.revenue and one capital account
Answer:
Which of the following is not an internal control activity for cash?
A.The number of persons who have access to cash should be limited.
B.All cash receipts should be recorded promptly.
C.The functions of record keeping and maintaining custody of cash should be
combined.
D.Surprise audits of cash on hand should be made occasionally.
Answer:
Which of the following would not be considered an internal centralized service
department?
A.Payroll accounting department
B.Manufacturing department
C.Information systems department
D.Purchasing department
Answer:
The production budgets are used to prepare which of the following budgets.
A.Operating expenses
B.Direct materials purchases, direct labor cost, factory overhead cost
C.Sales in dollars
D.Sales in units
Answer:
The Sarbanes-Oxley Act of 2002 prohibits employment of auditors by their clients for
what period after their last audit of the client?
A.Indefinitely
B.One year
C.Two years
D.There is no such prohibition.
Answer:
Which of the following conditions would cause the break-even point to decrease?
A.Total fixed costs increase
B.Unit selling price decreases
C.Unit variable cost decreases
D.Unit variable cost increases
Answer:
The Sharpe Company reports the following information for 2015:
Determine product costs for 2015.
A.$24,500
B.$30,300
C.$29,200
D.$35,000
Answer:
As production increases, what should happen to the variable costs per unit?
A.Stay the same.
B.Increase.
C.Decrease.
D.Either increase or decrease, depending on the fixed costs.
Answer:
On the balance sheet, the amount shown for the Allowance for Doubtful Accounts is
equal to the
A.Uncollectible accounts expense for the year
B.total of the accounts receivables written-off during the year
C.total estimated uncollectible accounts as of the end of the year
D.sum of all accounts that are past due.
Answer:
Identify which of the following accounts should be closed with a debit or a credit to
Income Summary at the end of the fiscal year. If it is not closed to Income Summary,
mark as n/a.
1) Utilities Payable
2) Utilities Expense
3) Supplies
4) Supplies Expense
5) Fees Earned
6) Unearned Fees
7) Accounts Receivable
8) Jason Hill, Drawing
9) Jason Hill, Capital
10) Accumulated Depreciation – Equipment
11) Depreciation Expense – Equipment
12) Equipment
13) Prepaid Insurance
14) Insurance Expense
Answer:
The following units of an inventory item were available for sale during the year:
The firm uses the periodic inventory system. During the year, 60 units of the item were
sold.
The value of ending inventory using LIFO is:
A.$1,250
B.$1,350
C.$1,375
D.$1,150
Answer:
After all of the account balances have been extended to the Balance Sheet columns of
the work sheet, the totals of the debit and credit columns are $38,755 and $32,735,
respectively. What is the amount of net income or net loss for the period?
A.$6,020 net income
B.$38,755 net loss
C.$6,020 net loss
D.$32,735 net income
Answer:
Magpie Corporation uses the total cost concept of product pricing. Below is cost
information for the production and sale of 60,000 units of its sole product. Magpie
desires a profit equal to a 25% rate of return on invested assets of $700,000.
The dollar amount of desired profit from the production and sale of the company’s
product is:
A.$175,000
B.$67,200
C.$73,500
D.$96,000
Answer:
Which of the following are guidelines for behaving ethically?
A.I and II.
B.II and III.
C.I and III.
D.I, II, and III.
Answer:
Management accountants usually provide for a minimum cash balance in their cash
budgets for which of the following reasons:
A.stockholders demand a minimum cash balance
B.to comply with U.S. GAAP
C.it provides a safety buffer for variations in estimates
D.to have funds available for major capital expenditures
Answer:
The management of Wyoming Corporation is considering the purchase of a new
machine costing $375,000. The company’s desired rate of return is 6%. The present
value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the
foregoing information, use the following data in determining the acceptability in this
situation:
The average rate of return for this investment is:
A.5%
B.10%
C.25%
D.15%
Answer:
Robert Johnson contributed equipment, inventory, and $42,000 cash to the partnership.
The equipment had a book value of $25,000 and market value of $28,000. The
inventory has a book value of $50,000, but only had a market value of $15,000 due to
obsolescence. The partnership also assumed a $12,000 note payable owed by Robert
that was originally used to purchase the equipment.
What amount should Robert’s capital account be recorded?
A.$85,000
B.$73,000
C.$117,000
D.$105,000
Answer:
Which of the following is the proper adjusting entry, based on a prepaid insurance
account balance before adjustment of $14,000 and unexpired insurance of $3,000, for
the fiscal year ending on April 30?
A.debit Insurance Expense, $3,000; credit Prepaid Insurance, $3,000
B.debit Insurance Expense, $14,000; credit Prepaid Insurance, $14,000
C.debit Prepaid Insurance, $11,000; credit Insurance Expense, $11,000
D.debit Insurance Expense, $11,000; credit Prepaid Insurance, $11,000
Answer: