A high current ratio indicates that current liabilities are greater than current assets.
The Social Security system is funded by contributions from both the employer and
employee.
A company should not change the inventory costing method each period in order to
maximize net income. This is an example of the disclosure principle.
The process of transferring data from the ledger to the journal is called posting.
The contribution margin format of the income statement categorizes costs by their
behavior.
Mayfield, Inc. withholds $720 from Stephen’s paycheck for federal income tax. This
amount is part of the company’s payroll tax expense.
The horizontal analysis of the balance sheet is based on the comparative balance sheet.
Rubin Installations Company uses the direct method to prepare its statement of cash
flows. Rubin has reported cost of goods sold of $95,000 on its income statement for
2017. If the balance in the Merchandise Inventory account decreased by $6,000 during
the year, then $6,000 needs to be added to $95,000 to calculate payments to suppliers
for inventory purchases.
Some costs are not controllable in the long run. However, in the short run, all costs are
controllable.
A production cost report helps managers identify the costs that can be reduced in the
production process.
The days’ sales in receivables ratio indicates the number of days it takes to collect the
average level of accounts receivable.
Under the first-in, first-out (FIFO) method, the current period equivalent units of
production for the units in the beginning inventory are always 100% complete.
The balance in the Bonds Payable account is a credit of $16,500. The balance in the
Premium on Bonds Payable account is a credit of $1,000. The balance sheet will report
the bond balance as $15,500.
Work-in-Process Inventory is debited when indirect labor costs are incurred in a job
order costing system.
The production cost report for Department 2 shows that $457,000 was assigned to the
51,000 units transferred to Finished Goods Inventory. Cost of goods sold equals
$457,000.
Held-to-maturity investments are categorized as long-term assets on the balance sheet,
regardless of the maturity date.
An examination of a company’s financial statements and records is called an audit.
Since cost is a reliable measure, the cost principle holds that the accounting records
should continue reporting an asset at its historical cost over its useful life.
The indirect and direct methods use different computations but produce the same
amount of net cash flow from operating activities.
Buying property, plant, and equipment for cash is considered a cash outflow for the
financing activities section of the statement of cash flows.
Activity-based costing uses a common allocation base for all activities.
On March 1, 2016, Vantage Services issued a 8% long-term notes payable for $22,000.
It is payable over a 16-year term in $1,375 principal installments on March 1 of each
year, beginning March 1, 2017. Each yearly installment will include both principal
repayment of $1,375 and interest payment for the preceding one-year period. The
journal entry to pay the first installment will include a debit to Interest Expense for
$1,760.
Cost behavior is considered in developing the selling and administrative expense budget
as costs are designated as variable or fixed.
The dividend payout ratio measures the annual dividend per share as a proportion of the
market price per share.
Internal control is an organizational plan that ensures that the financial statements are
prepared and submitted on time.
Factoring is an option available to a business to reduce the risk of uncollectible
accounts receivable.
When using the weighted-average inventory costing method, the dollar amounts for
ending inventory and cost of goods sold are the same for both the perpetual and
periodic inventory costing methods.
Unexpected or inconsistent movements among sales, merchandise inventory, and
receivables reflect normal market conditions and do not pose red flags in financial
statements.
In a manufacturing operation, depreciation of plant equipment should be debited to the
Depreciation Expense account.
In a manufacturing company, advertising and marketing costs are examples of period
costs.
A signature card is a card that shows each authorized person’s signature for a bank
account.
ERP systems can integrate all of a company’s functions, departments, and data into a
single system.
When job order costing is used in the service industry, the allocation of indirect costs is
normally based on machine hours.
On January 1, Unearned Revenue of Grossman, Inc. had a beginning balance of $1,400.
During January, the company earned $700 of the deferred revenue. The company also
collected $6,000 from a new customer for services to be performed the following
month. At the end of January, the Unearned Revenue account should have a balance of
$6,000.
On June 1, Edison, Inc. borrowed $24,000 on a one-year Note Payable with an interest
rate of 10% per year. It will repay the principal and interest at the end of the one-year
period. The company makes accrual adjustments at the end of each month. The
company should record interest expense of $2,400 on June 30.
Arturo Sales purchased some equipment for $12,000 by issuing a six-month note
payable. This will appear in the non-cash investing and financing activities section of
the statement of cash flows.
The expense associated with the cost of uncollectible accounts receivable is known as
bad debts expense.
When a company uses the first-in, first-out (FIFO) method, the cost of goods sold
correlates to the most recently purchased goods, and the value of ending inventory
correlates to the oldest goods in stock.
The IMA standards of ethical practice require managerial accountants to maintain their
professional competence.
A modification of the overhead allocation method which uses a single plantwide rate, is
to use multiple predetermined overhead allocation rates that have different allocation
bases.
Trading investments are categorized on the balance sheet as ________.
A) fixed assets
B) current assets
C) intangible assets
D) short-term liabilities
The entry to record the purchase of direct materials on account would include a
________.
A) debit to the Raw Materials Inventory account
B) debit to the Work-in-Process Inventory account
C) credit to the Work-in-Process Inventory account
D) credit to the Raw Materials Inventory account
The journal entry for adjustment of overallocated manufacturing overhead includes a
________.
A) credit to Finished Goods Inventory
B) credit to Manufacturing Overhead
C) debit to Work-in-Process Inventory
D) credit to Cost of Goods Sold
Which of the following statements is true?
A) Accounts receivable are more liquid than cash.
B) Notes receivable are always classified as current assets.
C) Notes receivable usually have longer collection terms than accounts receivable.
D) Accounts receivable are liabilities.
To fill in the unadjusted trial balance columns in a worksheet, the account balances
before adjustments are copied directly from the ________.
A) ledger
B) adjusted trial balance
C) chart of accounts
D) balance sheet of previous year
A petty cash fund was established with a $390 balance. It currently has cash of $43 and
petty cash tickets totaling $347. Which of the following would be included in the entry
to replenish the fund?
A) a credit to Petty Cash for $347
B) a debit to Petty Cash for $43
C) a credit to Cash for $43
D) a credit to Cash for $347
For accounting purposes, depreciation refers to the ________.
A) method of allocating the cost of a plant asset to expense it over its useful life
B) method of declining the market value of an asset to its book value
C) method of estimating an asset’s current market value
D) process of selling a used asset
Refer to the following trial balance.
How much is the gross profit?
A) $169,000
B) $180,000
C) $282,000
D) $89,000
A business purchases equipment for $8,000 cash. Which of the following accounts is
credited?
A) Cash
B) Accounts Payable
C) Common Stock
D) Equipment
A company is evaluating three possible investments. The following information is
provided by the company:
What is the payback period for Project A? (Assume that the company uses the straight-line
depreciation method.) (Round your answer to two decimal places.)
A) 2.87 years
B) 1.59 years
C) 3.87 years
D) 5.00 years
On January 1, 2017 Hillop, Inc. had total assets of $369,000. During the year, the
company purchased new machinery worth $90,000 and promised to pay the amount due
after two years. Throughout the year, it earned revenue of $59,000 every month.
Calculate the asset turnover ratio.
A) 1.04 times
B) 1.80 times
C) 1.71 times
D) 1.54 times
Which of the following four perspectives of the balanced scorecard enables
management to answer the question, “How can we continue to improve and create
value?”
A) financial
B) customer
C) internal business
D) learning and growth
Which of the following is an advantage of enterprise resource planning (ERP) systems?
A) It is inexpensive to implement.
B) It provides financial benefits only to small corporations.
C) It replaces separate software systems, such as sales and payroll.
D) Its implementation requires smaller commitment of time and people.
Bryant, Inc. provides the following data:
Additional information:
Calculate the rate of return on total assets for 2017. (Round your answer to two decimal
places.)
A) 45.79%
B) 62.03%
C) 71.98%
D) 50.74%
Glitter Services, Inc. pays $1,350,000 to acquire 35% of voting stock of Grey
Investments, Inc. on March 5, 2017. When this transaction is recorded, the ________.
A) total equity will increase
B) total assets will increase
C) total assets will decrease
D) total cash will decrease
Gross profit represents the mark-up on ________.
A) sales revenue
B) merchandise inventory
C) operating expenses
D) transportation cost
The sale of merchandise inventory for cash is recorded in the ________.
A) general journal
B) cash receipts journal
C) sales journal
D) accounts receivable journal
On November 1, 2017, Archangel Services issued $313,000 of eight-year bonds with a
stated rate of 12% at par. Interest payments occur each April 30 and October 31. On
December 31, 2017, Archangel made an adjusting entry to accrue interest at year-end.
What is the amount of Interest Expense that will be recorded on December 31, 2017?
A) $37,560
B) $6,260
C) $18,780
D) $783
Posting a transaction means ________.
A) calculating the balance in an account
B) transferring data from the journal to the ledger
C) preparing a summary of account balances
D) finding the account number in the chart of accounts
The rate of return on total assets measures a company’s ________.
A) ability to meet its short-term obligations
B) ability to repay its long-term debt
C) success in using assets to earn income
D) success in earning high returns on investments in stocks and bonds of other
companies
O’Brien Coatings Company uses the indirect method to prepare its statement of cash
flows. Refer to the following information for 2017:
The beginning balance in the Cash account was $2,900.
Net cash provided by operating activities: $40,000
Net cash used for investing activities: $(25,500)
Net cash provided by financing activities: $1,700
The statement of cash flows will show ________.
A) ending cash of $16,200
B) total net cash flows of positive $65,500
C) total net cash flows of negative $16,200
D) ending cash of $19,100
The statement of stockholders’ equity ________.
A) reports the number of shares and any changes during the year in preferred, common,
and treasury stock
B) is required to be presented along with the statement of retained earnings
C) is not required by IFRS
D) does not show the changes to the Retained Earnings account because that
information is provided in the statement of retained earnings
Which of the following statements, regarding the reporting of intangible assets, is
correct?
A) If a company uses the contra account, Accumulated Amortization, this account
typically shown on the balance sheet.
B) Amortization expense is reported on the balance sheet.
C) Intangible assets are shown only at their net book value.
D) All intangible assets are shown on the balance sheet at fair market value on balance
sheet date.
Paid-in capital consists of ________.
A) amounts received from customers
B) amounts raised by issuing bonds or preferred stocks
C) earnings generated by the corporation
D) amounts received from stockholders in exchange for stock
Potlatch Company manufactures sonars for fishing boats. Model 100 sells for $200.
Potlatch produces and sells 5,000 units per year. Cost data are as follows:
An offer has come in for a one-time sale of 300 units at a special price of $130 per unit.
The marketing manager says that the sale will not affect the company’s regular sales
activities, and that it will not require any variable selling and administrative costs. The
production manager says that there is plenty of excess capacity and the sale will not impact
fixed costs in any way. What is the effect of this deal on operating income?
A) Operating income increases by $200.
B) Operating income increases by $1,500.
C) Operating income decreases by $10,500.
D) Operating income increases by $10,500.
Ethan was a professional classical guitar player until a motorcycle accident left him
disabled. After long months of therapy, he hired an experienced luthier and started a
small shop to make and sell Spanish guitars. The guitars sell for $600, and the fixed
monthly operating costs are as follows:
Ethan’s accountant told him about contribution margin ratios, and Ethan understood clearly
that for every dollar of sales, $0.60 went to cover his fixed costs, and anything above that
point was profit.
Ethan wishes to earn $5,000 of operating profit each month. Calculate the amount of sales
revenue required to achieve the target profit. (Round your answer to the nearest dollar.)
A) $5,450
B) $8,175
C) $13,784
D) $20,675
At the end of the year, Metro, Inc. has an unadjusted credit balance in the
Manufacturing Overhead account of $820. Which of the following is the year-end
adjusting entry needed to adjust the account?
A) A debit to Cost of Goods Sold of $820 and a credit to Finished Goods Inventory of
$820
B) A debit to Manufacturing Overhead of $820 and a credit to Finished Goods
Inventory of $820
C) A debit to Manufacturing Overhead of $820 and a credit to Cost of Goods Sold of
$820
D) A debit to Cost of Goods Sold of $820 and a credit to Manufacturing Overhead of
$820
Happy Farmer, Inc. has 44,000 shares of common stock outstanding and 3,000 shares of
preferred stock outstanding. The common stock is $0.08 par value; the preferred stock
is 8% noncumulative with a $100.00 par value. On October 15, 2017, the company
declares a total dividend payment of $56,000. What is the total amount of dividends that
will be paid to the common stockholders?
A) $56,000
B) $32,000
C) $3,520
D) $24,000
Which of the following is true of outputs in an accounting information system?
A) In a manual system, reports and financial statements must be created using Word
documents, Excel spreadsheets, or PowerPoint.
B) In a computerized system, the software can generate reports instantaneously that can
never be manipulated.
C) Examples of outputs in an accounting information system include purchase invoices,
bank checks, and sales invoices.
D) Since the output in an accounting information system is audited and error-free, it
provides the evidence and data for accounting transactions.
Which of the following is an example of how managers use product cost reports to
control costs?
A) setting product prices high enough for the company to be profitable
B) providing cost of goods sold for the income statement
C) determining if newer, more efficient equipment should be acquired
D) promoting products that are most profitable
Melville Services has a weekly payroll of $50,000. December 31, 2016 falls on
Thursday and Melville will pay its employees the following Monday (January 4, 2017)
for the previous full week. Assume that Melville has a five-day workweek and has an
unadjusted balance in Salaries Expense of $845,000. Prepare the January 4, 2017
journal entry. Reversing entries are not made.
How is the unit contribution margin calculated?
Identify each cost below as variable (V), fixed (F), or mixed (M), relative to units sold.
Explain the reason for your answer.
