Most managers stress the importance of understanding and predicting cash flows for
business decisions.
Answer:
The assignment of costs to cost of goods sold and to inventory using specific
identification is the same for both the perpetual and periodic systems.
Answer:
Total asset turnover reflects a company’s ability to use its assets to generate sales and is
an important indication of operating efficiency.
Answer:
Budget preparation is best determined in a top-down managerial approach.
Answer:
Multinational corporations can be U.S. companies with operations in other countries.
Answer:
The revenue recognition principle is the basis for making adjusting entries that pertain
to unearned and accrued revenues.
Answer:
Money orders, cashier’s checks, and certified checks are examples of cash equivalents.
Answer:
With regard to accounts receivable, both GAAP and IFRS require the allowance
method for uncollectibles (unless uncollectibles are immaterial).
Answer:
When the current value of a partnership is greater than the recorded amounts of equity,
the current partners usually require any new partner to pay a bonus for the privilege of
joining.
Answer:
A company reports basic earnings per share of $3.50, cash dividends per share of
$0.75, and a market price per share of $64.75. The company’s dividend yield equal is
equal to 21.4%.
Answer:
A company that has days’ sales uncollected of 30 days and days’ sales in inventory of
18 days implies that inventory will be converted to cash in about 12 days.
Answer:
The days’ sales uncollected ratio measures a company’s ability to manage its debt.
Answer:
The financial budgets of a business include the cash budget, the budgeted income
statement, and the budgeted balance sheet.
Answer:
A bank reconciliation explains any differences between the balance of a checking
account on the depositor’s records and the balance reported on the bank statement.
Answer:
A stock option is also called a stock dividend.
Answer:
A company can have a liability even if the amount of the obligation is unknown.
Answer:
Managerial accounting is an area of accounting that provides internal reports to assist
the decision- making needs of internal users.
Answer:
Accumulated depreciation represents funds set aside to buy new assets when the assets
currently owned are replaced.
Answer:
Interest payments on bonds are determined by multiplying the par value of the bond by
the stated contract rate.
Answer:
Companies that use a series of manufacturing processes to produce standardized
products should use a process cost accounting system.
Answer:
If the factory labor cost for a month was $123,000 (paid in cash), the following journal
entry would be recorded by the process cost accounting system:
Answer:
A balance sheet covers a period of time, such as a month or year.
Answer:
The sales budget is derived from the production budget.
Answer:
Cash sales shorten the operating cycle for a merchandiser; credit purchases lengthen
operating cycles.
Answer:
Some companies allocate their overhead cost using a plantwide overhead rate largely
because of its simplicity.
Answer:
If the total balance of the accounts receivable ledger equals the total of the controlling
Accounts Receivable account, then the accounts are presumed to be correct.
Answer:
Understanding generally accepted accounting principles is not necessary when using
and interpreting financial statements.
Answer:
When an asset is purchased (or disposed of) at any time other than the beginning or the
end of an accounting period, depreciation is recorded for part of a year so that the year
of purchase or the year of disposal is charged with its share of the asset’s depreciation.
Answer:
Batch level costs vary with the number of units produced.
Answer:
Period costs are incurred by purchasing merchandise or manufacturing finished goods.
Answer:
Cycle efficiency is the ratio of value-added time to total cycle time.
Answer:
Under the perpetual inventory system, special journals are not required.
Answer:
Financial accounting relies on accepted principles that are enforced through an
extensive set of rules and guidelines; managerial accounting systems are flexible.
Answer:
ABC can be used to assign costs to any cost object that is of management interest.
Answer:
The periodic inventory system requires updating the inventory account only at the end
of the period to reflect the quantity and cost of both the goods available and the goods
sold.
Answer:
Additional costs incurred if a company pursues a certain course of action are sunk costs.
Answer:
The percent change is computed by subtracting the analysis period amount from the
base period amount, then dividing the result by the base period amount and then
multiplying that result by
Answer:
A company borrowed $5,000 by signing a three-month promissory note at 10%. The
total interest on the note is $500.
Answer:
Which of the following identifies the proper order of the accounting cycle?
A. Analyze, journalize, unadjusted trial balance
B. Analyze, post, unadjusted trial balance
C. Journalize, post, unadjusted trial balance
D. Unadjusted trial balance, adjusted trial balance, close
E. Adjusted trial balance, adjustments, financial statements
Answer:
A company’s old machine, which cost $40,000 and had accumulated depreciation of
$30,000, was traded in on a new machine of like purpose having an estimated 20-year
life with an invoice price of $50,000. The company also paid $43,000 cash, along with
its old machine to acquire the new machine. The value of new machine should be
recorded at:
A. $40,000
B. $47,000
C. $50,000
D. $53,000
E. $10,000
Answer:
An account used in the periodic inventory system that is not used in the perpetual
inventory system is:
A. Merchandise Inventory
B. Sales
C. Sales Returns and Allowances
D. Accounts Payable
E. Purchases
Answer:
The accounting principle that requires revenue to be reported when earned is the:
A. Matching principle
B. Revenue recognition principle
C. Time period principle
D. Accrual reporting principle
E. Going-concern principle
Answer:
A responsibility accounting performance report documents:
A. Only actual costs.
B. Only budgeted costs.
C. Both actual costs and budgeted costs.
D. Only direct costs.
E. Only indirect costs.
Answer:
Doggy Day Park Inc. currently has a special tank used to provide exercise hydro
therapy for the dogs. The current book value of the tank is $25,000 and they could sell
it for $12,000 if they wanted to do so. Doggy is evaluating a new tank system that will
provide additional therapy capability. The new tank will cost $55,000 and will save
$7,500 per year in operating costs. The new tank system is expected to last six years.
Required:
a. Using incremental analysis, should they buy the new tank? Show calculations to
support your answer.
b. Will the answer to (a) change if they can only sell the old tank for $5,000? Why or
why not?
Answer:
Which of the following statements best describes the relationship of U.S. GAAP and
IFRS?
A. They are identical.
B. They are entirely different conceptual frameworks.
C. They are similar but not identical.
D. Neither has anything to do with accounting.
E. They both relate only to publicly traded companies.
Answer:
Acme Company has credit sales of $3.10 million for year 2013. Accounts Receivable
total $947,360 and the company estimates that 2% of accounts receivable will remain
uncollectible. Historically, .9% of sales have been uncollectible. On December 31,
2013, the companys Allowance for Doubtful Accounts has an unadjusted credit balance
of $2,575. Acme prepared a schedule of its December 31, 2013, accounts receivable by
age. Based on past experience, it estimates the percent of receivables in each age
category that will become uncollectible. This information is summarized here:
Assuming the company uses the percent of accounts receivable method, what is the
amount that Acme will enter as the Bad Debt Expense in the December 31 adjusting
journal entry?
A. $18,947.20
B. $16,372.20
C. $23,024.40
D. $27,900.00
E. $21,522.20
Answer:
Mission Company has three employees:
What is the amount that Mission Company will withhold from Smiths August gross
pay?
A. $ 62.00
B. $138.50
C. $443.20
D. $581.70
E. $76.50
Answer:
If a company records prepayment of expenses in an asset account, the adjusting entry
would:
A. Result in a debit to an expense and a credit to an asset account.
B. Cause an adjustment to prior expense to be overstated and assets to be understated.
C. Cause an accrued liability account to exist.
D. Result in a debit to a liability and a credit to an asset account.
E. Decrease cash.
Answer:
A company’s transactions with its creditors to borrow money and/or to repay the
principal amounts of loans are reported as cash flows from:
A. Operating activities
B. Investing activities
C. Financing activities
D. Direct activities
E. Indirect activities
Answer:
Assume a company sells a given product for $90 per unit. How many units must be sold
to break even if variable selling costs are $2 per unit, variable production costs are $31
per unit, and total fixed costs are $1,799,946?
A. 31,578 units.
B. 19,995 units.
C. 20,454 units.
D. 14,634 units.
E. 899,973 units.
Answer:
The Filtering Department started the current month with beginning goods in process
inventory of $55,000. During the month, it was assigned the following costs: direct
materials, $77,000; direct labor, $44,000; and factory overhead, 20% of direct material
cost. Also, inventory with a cost of $66,000 was transferred out of the department to the
next phase in the process. The ending balance of the Goods in Process Inventory
account for the Filtering Department is:
A. $66,000
B. $110,000
C. $132,000
D. $125,400
E. $191,400
Answer:
During the past year a company had total fixed costs of $700,000. Its product sold for
$93 per unit. Variable costs during this time equaled $45 per unit. Next year the
company is anticipating a 10% increase in total fixed costs and a $3 per unit decrease in
variable costs but would like to maintain its current selling price per unit. How many
units must the company sell next year to earn $1 million? (Round answer to complete
units.)
A. 19,608
B. 34,706
C. 36,875
D. 20,833
E. 19,033
Answer:
A department had 600 units which were 40% complete in beginning Goods in Process
Inventory. During the current period, 7,000 units were transferred out. Ending Goods in
Process Inventory was 800 units which were 40% complete. Using the FIFO method,
what are the equivalent units produced if all direct material and direct labor are added
uniformly throughout the process?
A. 7,080
B. 6,960
C. 7,320
D. 7,680
E. 7,800
Answer:
Employees earn vacation pay at the rate of one day per month. During July, 25
employees qualify for one vacation day each. Their average daily wage is $100 per day.
What is the amount of vacation benefit expense for the month of July?
A. $25
B. $100
C. $1,200
D. $2,500
E. $30,000
Answer:
Overhead is applied as a percent of direct labor costs. Estimated overhead and direct
labor costs for the year were $112,500 and $125,000, respectively. During the year,
actual overhead was $107,400 and actual direct labor cost was $120,000. The entry to
close the over- or underapplied overhead at year-end, assuming an immaterial amount,
would include:
A. A debit to Cost of Goods Sold for $600.
B. A credit to Factory Overhead for $600.
C. A credit to Finished Goods Inventory for $600.
D. A debit to Goods in Process Inventory for $600.
E. A credit to Cost of Goods Sold for $600.
Answer:
A company’s employer payroll taxes are 0.8% for federal unemployment taxes, 5.4%
for state unemployment taxes, 6.2% for FICA Social Security taxes on earnings up to
$106,800 and 1.45% for FICA Medicare taxes on all earnings. Compute the W-2 Wage
and Tax Statement information required below for the following employees:
Answer:
Reference: 23_03
Teague Plumbing has received a special one-time order for 1,500 toilets (units) at $75
per unit. Teague currently produces and sells 7,500 units at $100 each. This level
represents 75% of its capacity. Production costs for these units are $75 per unit, which
includes $70 variable cost and $5 fixed cost. To produce the special order, shipping
costs of $10,000 will be incurred. Management expects no other changes in costs as a
result of the additional production.
If Teague wishes to earn $1,250 on the special order, the size of the order would need to
be:
A. 4,500 units
B. 2,250 units
C. 1,125 units
D. 625 units
E. 300 units
Answer:
The following data relates to Lead Companys estimated amounts for next year.
What is the companys plantwide overhead rate if direct labor hours are the allocation
base?
(Round to two decimal places)
A. $3.43 per direct labor hour.
B. $2.14 per direct labor hour.
C. $4.36 per direct labor hour.
D. $.29 per direct labor hour.
E. $.47 per direct labor hour.
Answer:
The statement of cash flows reports:
A. Assets, liabilities, and equity.
B. Revenues, gains, expenses, and losses.
C. Cash inflows and outflows for an accounting period.
D. Equity, net income, and dividends.
E. Changes in equity.
Answer:
Allocations of joint product costs can be based on the relative market values of the
products:
A. And never on the relative physical quantities of the products.
B. Plus an adjustment for future excess margins.
C. And not on any other basis.
D. At the time the products are separated.
E. Only if the products contain both direct and indirect costs.
Answer:
The following information relates to the manufacturing operations of the IMH
Publishing Corporation for the year:
The raw materials used in manufacturing during the year totaled $118,000. Raw
materials purchased during the year amount to:
A. $107,000
B. $115,000
C. $118,000
D. $121,000
E. $126,000
Answer:
A company reports the following information regarding its production cost:
Required: Perform the following independent calculations.
a. Compute total variable overhead cost if the production cost per unit under variable
costing is $240.
b. Compute total variable overhead cost if the production cost per unit under absorption
costing is $240.
Answer:
Swola Company reports the following annual cost data for its single product.
This product is normally sold for $25 per unit. If Swola increases its production to
200,000 units, while sales remain at the current 75,000 unit level, by how much would
the companys gross margin increase or decrease under absorption costing?
A. $187,500 increase.
B. $112,500 increase.
C. There will be no change in gross margin.
D. $112,500 decrease.
E. $187,500 decrease.
Answer:
On a bank reconciliation, an unrecorded debit memorandum for printing checks is:
A. Noted as a memorandum only.
B. Added to the book balance of cash.
C. Deducted from the book balance of cash.
D. Added to the bank balance of cash.
E. Deducted from the bank balance of cash.
Answer:
Reference: 21_07
Montaigne Corp. has the following information about its standards and production
activity in November:
The volume variance is:
A. $1,295U
B. $1,295F
C. $2,400U
D. $2,400F
E. $3,695U
Answer:
Industry standards for financial statement analysis:
A. Are based on a company’s prior performance.
B. Are set by the government.
C. Are set by the financial performance and condition of the company’s industry.
D. Are based on rules of thumb.
E. Compare a company’s income with the prior year’s income.
Answer:
Pepsi’s accounts receivable turnover was 9.9 for this year and 11.0 for last year.
Coca-Cola’s turnover was 9.3 for this year and 9.3 for last year. These results imply
that:
A. Coke has the better turnover for both years.
B. Pepsi has the better turnover for both years.
C. Coke’s turnover is improving.
D. Coke’s credit policies are too loose.
E. Coke is collecting its receivables more quickly than Pepsi in both years.
Answer:
Reference: 20_04
Kyoto, Inc. predicts the following sales in units for the coming four months:
Although each month’s ending inventory of finished units should be 60% of the next
month’s sales, the March 31 finished goods inventory is only 100 units. A finished unit
requires five pounds of raw material B. The March 31 raw materials inventory has 200
pounds of B. Each month’s ending inventory of raw materials should be 30% of the
following month’s production needs.
Kyotos budgeted production for the second quarter is:
A. 820 units
B. 864units
C. 492 units
D. 449 units
E. 878 units
Answer:
___________________________ are corrections of material errors in prior period
financial statements.
Answer:
Della’s Donuts had cash inflows from operating activities of $27,000, cash outflows
from investing activities of $22,000, and cash outflows from financing activities of
$12,000. Calculate the net increase or decrease in cash.
Answer:
Chips Co. assigned direct labor cost to its products in May for 1,300 standard hours of
direct labor at the standard $8 per hour rate. The direct labor rate variance for the month
was $200 favorable and the direct labor efficiency variance was $150 favorable.
Prepare the journal entry to charge Goods in Process Inventory for the standard labor
cost of the goods manufactured in May and to record the direct labor variances.
Assuming that the direct labor variances are immaterial, prepare the journal entry that
Chips would make to close the variance accounts.
Answer:
No-par stock to which the directors assign a value per share is called
_______________________.
Answer:
Describe the purpose of horizontal financial statement analysis and how it is applied.
Answer:
Having external auditors test the company’s financial records and evaluate the
effectiveness of the internal control system is part of the internal control principle of
________________________.
Answer:
Water Girl Corp.’s 2013 income statement follows:
The company also experienced the following during 2013:
Required: Calculate the company’s net cash provided or used by operating activities
using the direct method.
Answer:
Burien, Inc. operates a retail store with two departments, A and B. Its departmental
income statement for the current year follows:
Burien allocates building depreciation, maintenance, and utilities on the basis of square
footage. Office expenses are allocated on the basis of sales.
Management is considering an expansion to a three-department operation. The
proposed Department C would generate $120,000 in additional sales and have a 17.5%
contribution to overhead. The company owns its building. Opening Department C
would redistribute the square footage to each department as follows: A, 19,040; B,
21,760 sq. ft.; C, 13,600. Increases in indirect expenses would include: maintenance,
$500; utilities, $3,800; and office expenses, $1,200.
Complete the following departmental income statements, showing projected results of
operations for the three sales departments. (Round amounts to the nearest whole dollar.)
Answer:
Thompson Company has acquired a machine from a dealer which requires a payment of
$45,000 at the end of five years. This transaction includes interest at 8%, compounded
semiannually. What is the value of the machine today?
Answer:
Define and explain significant noncash investing and financing activities and the
method of reporting them on the statement of cash flows.
Answer:
A company reported the following data:
Required:
1) Calculate the days’ sales in inventory for each year.
2) Comment on the trend in inventory management.
Answer:
A company performed testing services for a client. The client paid the company $3,000
in cash. Enter the appropriate amounts for this transaction into the company’s
accounting equation format shown below:
Answer:
Assume that the following information is available for Coldwrap, Inc.:
Compute contribution margin ratio for each product line.
Answer:
Comparative calendar-year financial data for a company are shown below:
Calculate:
(1) Accounts receivable turnover for
(2) Days’ sales uncollected for 2014.
(3) Inventory turnover for 2014.
(4) Days’ sales in inventory for 2014.
Answer:
Jack Dorsey, Evan Williams, and Biz Stone are the owners of the social
communications network, Twitter. If they also own a personal collection of vintage
bobble heads valued at $25,000, how would the bobble heads be reflected on the
company books? State the accounting concept or principle that supports your answer.
Answer:
Anchovy, Inc., a producer of frozen pizzas, began operations this year. During this year,
the company produced 16,000 cases of pizza and sold 15,000. At year-end, the
company reported the following income statement using absorption costing:
Production costs per case total $19, which consists of $15.50 in variable production
costs and $3.50 in fixed production costs (based on the 16,000 units produced). Eight
percent of total selling and administrative expenses are variable. Compute net income
under variable costing.
Answer:
A ________________________ is a potential obligation arising from a past transaction
or event that depends on a future event.
Answer:
A company had stockholders’ equity on January 1 as follows: Common Stock, $10 par
value, 1,000,000 shares authorized, 250,000 shares issued; Contributed Capital in
Excess of Par Value, Common Stock, $750,000 and Retained Earnings of $2,700,000.
On May 20, $1,500,000 worth of retained earnings was appropriated for a plant
expansion to be constructed next year. Prepare the journal entry to record the
appropriation.
Answer: