With credit terms of 2/10, n/30, the seller is offering the purchaser a 2% cash discount
if the amount is paid within 10 days of the invoice date. Otherwise, the full amount is
due in 30 days.
Answer:
Product costs consist of direct labor, direct materials, manufacturing overhead, and
indirect costs.
Answer:
The variable costing income statement classifies costs based on cost behavior rather
than function.
Answer:
Three transactions that would be recorded in the sales journal are: (1) recording sales
taxes (2) recording sales returns and allowances, and (3) recording purchases discounts.
Answer:
A common payment pattern for installment notes is to pay the accrued interest
periodically and to pay the principle amount on the maturity date.
Answer:
For a corporation, the equity section is divided into two main accounts: Common Stock
and Retained Earnings.
Answer:
For projects financed from borrowed funds, the hurdle rate must exceed the interest rate
paid on these funds.
Answer:
If a company has excess capacity, increases in production level will increase variable
production costs but not fixed production costs.
Answer:
Part of the cash budget is based on information drawn from the capital expenditures
budget.
Answer:
Departmental wage expenses are direct expenses of that department.
Answer:
Internal control in technologically advanced accounting systems depends more on the
design and operation of the information system and less on the analysis of its resulting
documents.
Answer:
Many companies link manager bonuses to income computed under absorption costing
because this is how income is reported to shareholders.
Answer:
Controls of cash disbursements are important for companies as most large thefts occur
from payment of fictitious invoices.
Answer:
A company can change from one acceptable accounting principle to another as long as
the change improves the usefulness of information in its financial statements.
Answer:
The cost method of accounting is used for long-term investments in equity securities
with significant influence.
Answer:
A company normally sells a product for $25 per unit. Variable per unit costs for this
product are: $3 direct materials, $5 direct labor, and $2 variable overhead. The
company is currently operating at 100% of capacity producing 30,000 units per year.
Total fixed costs are $75,000 per year. The company should accept a special order for
1,000 units which would be sold for $13 per unit because the special order price
exceeds variable costs.
Answer:
The trial balance can serve as a replacement for the balance sheet, since debits must
balance with credits.
Answer:
Equivalent units of production need to be determined only if a processing department
adds materials and labor to its products at different rates.
Answer:
Dividends are expenses of a business.
Answer:
Job order manufacturing systems would be appropriate for companies that produce
compact disks or disposable cameras.
Answer:
A disadvantage of an investment with a short payback period is that it will produce
revenue for only a short period of time.
Answer:
When using the allowance method of accounting for uncollectible accounts, the
recovery of a bad debt would be recorded as a debit to Cash and a credit to Bad Debts
Expense.
Answer:
Times interest earned can be calculated by multiplying income by the interest rate on a
company’s debt.
Answer:
To buy into an existing partnership, the new partner must contribute cash.
Answer:
The financial budgets include the cash budget and the capital expenditures budget.
Answer:
Manufacturing overhead costs are those that can be traced directly to the product.
Answer:
Net income for a period will be overstated if accrued salaries are not recorded at the
end of the accounting period.
Answer:
Return on total assets for a cost center is a useful measure to evaluate the cost center
manager.
Answer:
The quality of receivables refers to the likelihood of collection without loss.
Answer:
A visual inspection of a scatter diagram may be used to identify the approximate
relation between past cost and volume.
Answer:
If at the time of partnership liquidation, a partner has a $5,000 capital deficiency and
pays the partnership $5,000 out of personal assets to cover the deficiency, then that
partner is entitled to share in the final distribution of cash.
Answer:
Cost-volume-profit analysis is frequently based on the assumption that the production
level is the same as the sales level.
Answer:
During a given year, if a company produces more units than it sells, then ending
inventory units will be less than beginning inventory units.
Answer:
A company estimates that costs for the next year will be $600,000 for indirect labor,
$40,000 for factory utilities, and $1,000,000 for the CEOs salary. The company uses
machine hours as its overhead allocation base. If 80,000 machine hours are planned for
this next year, then the plantwide overhead rate is $8 per machine hour.
Answer:
On a bank statement, deposits are listed as debits because the bank increases its cash
account when the deposit is made.
Answer:
The five basic principles of accounting information systems are control, competency,
compatibility, flexibility, and cost-benefit.
Answer:
Common stock always carries a preference for receiving dividends over preferred
stock.
Answer:
The Factory Overhead account will have a credit balance at the end of a period if
overhead applied during the period is greater than the overhead incurred.
Answer:
A long-term investment classified as equity securities with controlling influence
implies that the investor can exert a controlling influence over the investee.
Answer:
ABC is significantly less costly to implement and maintain than more traditional
overhead costing systems.
Answer:
Which of the following costs is not included in factory overhead?
A. Payroll taxes on the wages of supervisory factory workers.
B. Indirect labor.
C. Depreciation of manufacturing equipment.
D. Manufacturing supplies used.
E. Direct materials.
Answer:
Short-term investments in held-to-maturity debt securities are accounted for using the:
A. Market value method with market adjustment to income.
B. Market value method with market adjustment to equity.
C. Cost method with amortization.
D. Cost method without amortization.
E. Equity method.
Answer:
Bonds that have an option exercisable by the issuer to retire them at a stated dollar
amount prior to maturity are known as:
A. Convertible bonds
B. Sinking fund bonds
C. Callable bonds
D. Serial bonds
E. Junk bonds
Answer:
A plan that shows the predicted costs for direct materials, direct labor, and overhead to
be incurred in manufacturing the units in the production budget is called the:
A. Sales budget.
B. Merchandise purchases budget.
C. Production budget.
D. Rolling budget.
E. Manufacturing budget.
Answer:
Stock that was reacquired by the company and is still held by the issuing corporation is
called:
A. Capital stock
B. Treasury stock
C. Redeemed stock
D. Preferred stock
E. Callable stock
Answer:
A report based on predicted amounts of revenues and expenses corresponding to the
actual level of output is called a:
A. Rolling budget.
B. Production budget.
C. Flexible budget.
D. Merchandise purchases budget.
E. Fixed budget.
Answer:
Walker Company reports net income of $420,000 for the year ended December 31,
2013. It also reports $75,600 depreciation expense and a gain of $11,000 on the sale of
machinery. Its comparative balance sheets reveal a $33,600 decrease in accounts
receivable, $17,220 increase in accounts payable, $9,240 increase in prepaid expenses,
and $13,020 increase in wages payable. What is the net cash flows provided (used) by
operating activities using the indirect method?
A. ($539,200)
B. $300,800
C. $561,200
D. ($300,800)
E. $539,200
Answer:
Reference: 22_07
Assume Rock Bottom Golf is divided into four departments that operate as profit
centers and that the data below is from the most recent fiscal year.
Given the information above, which of Rock Bottom Golfs departments has the highest
contribution margin as a percent of sales?
A. Golf Clubs.
B. Golf Bags.
C. Golf Balls.
D. Golf Apparel.
E. None, this is not a calculation performed at the department level.
Answer:
Company A and Company B each borrow $2,000 from the bank. Company A signed a
60-day, 12% note. Company B signed a 90-day, 11% note. How will each of these
companies record these events in their respective general journals on the day the money
was borrowed?
A.
Company A
Company B
00 Notes Payableompany record this event in the general journal?
00000000000000000000000000000000000000000000000000000000000000
B.
Company A
Company B
C.
Company A
Company B
D.
Company A
Company B
E. .
Company A
Answer:
Which of the following statements is true?
A. Retained earnings must be closed each accounting period.
B. A post-closing trial balance should include only permanent accounts.
C. Information on the work sheet can be used in place of preparing financial statements.
D. By using a work sheet to prepare adjusting entries, you need not post these entries to
the ledger accounts
E. Closing entries are only necessary if errors have been made.
Answer:
A company had net cash flows from operations of $120,000, total cash flows of
$500,000, and average total assets of $2,500,000. The cash flow on total assets ratio
equals:
A. 4.8%
B. 5.0%
C. 20.0%
D. 20.8%
E. 24.0%
Answer:
A manufacturing firm’s cost of goods manufactured is equivalent to a merchandising
firm’s:
A. Cost of goods sold.
B. Cost of goods purchased.
C. Cost of goods available.
D. Beginning merchandise inventory.
E. Ending merchandise inventory.
Answer:
A $130 credit to Office Equipment was credited to Fees Earned by mistake. By what
amounts are the accounts under- or overstated as a result of this error?
A. Office Equipment, understated $130; Fees Earned, overstated $130.
B. Office Equipment, understated $260; Fees Earned, overstated $130.
C. Office Equipment, overstated $130; Fees Earned, overstated $130.
D. Office Equipment, overstated $130; Fees Earned, understated $130.
E. Office Equipment, overstated $260; Fees Earned, understated $130.
Answer:
Duke Corporation reports the following components of stockholders equity on
December 31, 2013:
In 2014, the following transactions affected its stockholders equity accounts.
What is the journal entry required for the March 3 transaction?
A.
B.
C.
D.
E.
Answer:
On November 15, 2013, Betty Corporation accepted a note receivable in place of an
outstanding accounts receivable in the amount of $138,460. The note is due in 90 days
and has an interest rate of 5%. What is the appropriate journal entry to record at
maturity?
A.
B.
C.
D.
E.
Answer:
Actual fixed overhead for a company during March was $97,612. The flexible budget
for fixed overhead this period is $88,000 based on a production level of 5,500 units. If
the company actually produced 4,300 units, what is the fixed overhead spending
variance for March?
A. $9,612 favorable
B. $1,200 unfavorable
C. $28,812 unfavorable
D. $9,612 unfavorable
E. $28,812 favorable
Answer:
A company produces two boat models, Montauk and Orient. Both products are being
considered for major investment projects next year. Relevant data follow:
Required:
a. Calculate the net present value and the profitability index of the Montauk (assuming
a discount rate of 12%).
b. Calculate the net present value and the profitability index of the Orient.
c. Which boat should the company acquire and why?
Answer:
If a company applies overhead to production with a predetermined rate, a credit balance
in the Factory Overhead account at the end of the period means that:
A. The bookkeeper has made an error because the debits don’t equal the credits.
B. The balance will be carried forward to the next period as an overhead cost.
C. Actual overhead was less than the overhead amount charged to production.
D. The overhead was underapplied for the period.
E. Actual overhead was greater than the overhead amount charged to production.
Answer:
Which of the following is a financial budget?
A. Sales budget.
B. Budgeted balance sheet.
C. Production budget.
D. Capital expenditure budget
E. Merchandise purchasing budget.
Answer:
Dividend yield is the percent of cash dividends paid to common shareholders relative
to the:
A. Common stock’s market value.
B. Earnings per share.
C. Investors’ purchase price of the stock.
D. Amount of retained earnings.
E. Amount of cash.
Answer:
Wallah Company agreed to accept $5,000 in cash along with an $8,000, 90-day, 13.5%
note from customer Judith Klemper to settle her $13,000 past-due account. How should
Wallah record this transaction? A.
B.
C.
D.
E.
Answer:
A company has twice as much owner’s equity as it does liabilities. If total liabilities are
$50,000, what amount of assets are owned by the company?
A. $50,000
B. $100,000
C. $150,000
D. $200,000
E. Assets cannot be determined from the given information.
Answer:
A cost that requires a current and/or future outlay of cash, and is usually an incremental
cost, is a(n):
A. Out-of-pocket cost
B. Sunk cost
C. Opportunity cost
D. Operating cost
E. Uncontrollable cost
Answer:
Which of the following statements is incorrect?
A. The normal balance of accounts receivable is a debit.
B. The normal balance of dividends is a debit.
C. The normal balance of unearned revenues is a credit.
D. The normal balance of an expense account is a credit.
E. The normal balance of common stock is a credit.
Answer:
The impact of technology on internal controls includes which of the following?
A. Reduced processing errors.
B. Elimination of the need for regular audits.
C. Elimination of the need to bond employees.
D. More efficient separation of duties.
E. Elimination of fraud.
Answer:
A Company forecasts sales of $91,500 for the quarter ended December 31. Its gross
profit rate is 18% of sales, and its September 30 inventory is $25,000. If the December
31 inventory is targeted at $7,500, budgeted purchases for the fourth quarter should be:
A. $57,530
B. $107,530
C. $0
D. $82,530
E. $91,000
Answer:
An income statement account that is used to record cash overages and cash shortages
arising from omitted petty cash receipts and from errors in making change is called the:
A. Cash Lost account.
B. Bank Reconciliation account.
C. Petty Cash account.
D. Cash Over and Short account.
E. Cash Receivable account.
Answer:
The total amount of stock that a corporation’s charter allows it to issue is referred to
as:
A. Issued stock
B. Outstanding stock
C. Common stock
D. Preferred stock
E. Authorized stock
Answer:
A sawmill paid $70,000 for logs that produced 200,000 board feet of lumber in three
different grades and amounts as follows:
How much of the $70,000 joint cost should be allocated to No. 2 Common?
A. $0
B. $17,500
C. $23,333
D. $35,000
E. $70,000
Answer:
The account used to record the transfers of assets from a business to its stockholders
is:
A. A revenue account
B. The dividends account
C. Common stock account
D. An expense account
E. A liability account
Answer:
The owners of a partnership:
A. Have created an entity that can also be called a sole proprietorship.
B. Have unlimited liability.
C. Have to have a written agreement in order to be legal.
D. Have created a legal organization separate from its owners.
E. Are called shareholders.
Answer:
The comparison of a company’s financial condition and performance across time is
known as ________________________________.
Answer:
Folsom Custom Skis, founded by Jordon Grano, sells skis at an average price of
approximately $1,300 per pair. At this price the company is breaking even. Jordan
hopes to double his companys sales in the near future. Could the company make a profit
if the current cost structure and sales price per pair of skis remained the same while
sales volume doubled?
Answer:
When purchase costs regularly rise, the ___________________ method of inventory
valuation yields the lowest gross profit and net income, providing a tax advantage.
Answer:
Explain the what value separating cash flows into operating activities, investing
activities, and financing activities has to financial statement users when it comes
analyzing cash flows and the company’s financial condition.
Answer:
What is a transfer price and what methods are used to set its value?
Answer:
Heather, Incorporated reports the following annual cost data for its single product:
This product is normally sold for $56 per unit. If Heather increases its production to
80,000 units while sales remain at the current 60,000 unit level, by how much would
the companys gross margin increase or decrease under absorption costing? Assume the
company has idle capacity to double current production.
Answer:
Thomas Company has total fixed costs of $360,000 and variable costs of $14 per unit.
If the unit sales price is reduced from $24 to $20 and advertising is increased by
$10,000, sales will increase from 40,000 to 65,000 units. Should Thomas reduce its per
unit sales price and pay for the additional advertising? (Support your answer with
calculations.)
Answer:
Three of the most common tools of financial analysis are (1)
_________________________, (2) ___________________________ and (3)
______________________________.
Answer:
Conley and Liu allow Lepley to purchase a 25% interest in their partnership for
$35,000 cash. Lepley has exceptional talents that will enhance the partnership. Conley’s
and Liu’s capital account balances are $55,000 each. The partners have agreed to share
income or loss equally. Prepare the general journal entry to record the admission of
Lepley to the partnership.
Answer:
What is a short-term note payable? Explain the accounting issues related to notes
payable.
Answer:
During November, Heim Company allocated overhead to products at the rate of $26 per
direct labor hour. This figure was based on 80% of capacity or 1,600 direct labor hours.
However, Heim Company operated at only 70% of capacity, or 1,400 direct labor hours.
Budgeted overhead at 70% of capacity is $38,900, and overhead actually incurred was
$38,000. What is the company’s volume variance for November? (Indicate whether the
variance is favorable or unfavorable.)
Answer:
What is a cost accounting system? What are the two basic types of cost accounting
systems?
Answer:
During January, a company that uses a perpetual inventory system had beginning
inventory, purchases and sales as follows. What was the FIFO cost of the company’s
January 31 inventory?
Answer:
The life of a partnership is ____________________ in duration.
Answer:
Reference: 21_08
Fairfield Co. has collected the following information about its production activities for
the current year:
Actual costs and quantities:
Direct materials used 95,000 lbs. @ $6.30 per lb.
Units completed during the year, 50,000 units
Standard costs and quantities:
Price per lb. of direct material, $6.05
Two lbs. of direct material per unit
Calculate the direct materials price and quantity variances and indicate whether each is
favorable or unfavorable.
Answer:
Inventory shrinkage can be computed by comparing the ___________ of inventory
with recorded quantities and amounts.
Answer:
List the four elements found in all fraud schemes.
Answer:
_______________ bonds have specific assets of the issuing company pledged as
collateral.
Answer: