Once the budgeted income statement is prepared, the __________ budget must be
prepared prior to the preparation of the budgeted balance sheet.
A. sales
B. purchases
C. operating expense
D. cash
ABC, Inc., is segmented into three divisions and the company is concerned about the
performance of Division Y. During your analysis of Division Y, you learn that $42,000
of the fixed expenses relate to general corporate expenses and had been allocated
equally between the three divisions.
(a.) Calculate what the company’s net income would be if Division Y were closed down.
(b.) Revise the income statement presented above into a more useful segmented income
statement.
_____________ costs between two alternative projects are those that would result from
selecting one alternative instead of the other.
A. Allocated
B. Differential
C. Sunk
D. Irrelevant
The inventory cost flow assumption describes the flow of product cost:
A. from the warehouse to the customer.
B. from the asset (inventory) account and to the expense (cost of goods sold) account.
C. from the revenue (sales) account and to the expense (cost of goods sold) account.
D. from the asset (inventory) account and to the revenue (sales) account.
Many airlines have frequent flyer programs that permit travelers to accumulate credits
that can be applied to the cost of tickets for future flights. Most airlines recognize the
cost of their frequent flyer programs when the credits are used to purchase tickets. This
practice, which seems to ignore the matching concept, results in:
A. stating liabilities and expenses at appropriate amounts.
B. overstating liabilities and expenses.
C. understating liabilities and expenses.
D. understating liabilities and overstating expenses.
On September 30, 2017, David’s Co.’s treasurer signed a note promising to pay
$260,000 on December 31, 2017. Proceeds of the note were $250,900.
(a.) Calculate the discount rate used by the lender.
(b.) Calculate the effective interest rate on the loan.
(c.) Write the journal entry to show the effect of recording interest expense for the
month of October. (Round to the nearest whole dollar)
In the buyer’s records, the purchase of merchandise on account would:
A. increase assets and increase expenses.
B. increase assets and increase liabilities.
C. increase liabilities and increase paid-in capital.
D. have no effect on total assets.
Paid-in Capital represents:
A. earnings retained for use in the business.
B. the amount invested in the entity by the stockholders.
C. fair value of the entity’s common stock.
D. net assets of the entity at the date of the statement.
In the statement of cash flows, depreciation and amortization expense is added back to
net income because:
A. these expenses do not affect cash, but were subtracted in the determination of net
income.
B. these expenses affect investing activities, not operating activities.
C. the cash disbursements for these accrued expenses will be made in a future period.
D. these expenses are recognized for accounting purposes, but they do not represent
economic costs.
If a firm borrowed money on a six-month bank loan, the firm’s working capital
immediately after obtaining the loan, relative to its working capital just prior to the
loan, would be:
A. Higher.
B. Lower.
C. The same.
D. Would depend on the amount borrowed.
The cost formula for the maintenance department of the Raven Co. is $13,000 per
month plus $6.50 per machine hour used by the production department.
a. Calculate the maintenance cost that would be budgeted for the month of November in
which 10,800 machine hours are planned to be used.
b. Prepare an appropriate performance report for the maintenance department assuming
that 11,130 machine hours were actually used in the month of November, and the total
maintenance cost incurred was $86,485.
XYZ Company produces three products: A, B, and C. Product A has a contribution
margin of $20 and requires 1 hour of machine time. Product B has a contribution
margin of $30 and requires 2 hours of machine time. Product C has a contribution
margin of $36 and requires 1.5 hours of machine time. If machine hours are considered
scarce, in what product mix order should XYZ Company schedule the production of
Products A, B, and C for the available machine hours?
A. first A, then B, then C.
B. first C, then A, then B.
C. first C, then B, then A.
D. first B, then C, then A.
If all units produced during the month of September are sold, and no additional units
are sold from the beginning finished goods inventory, then:
A. income determined with absorption costing will equal income determined with direct
costing.
B. ending work in process inventory will increase.
C. income determined with absorption costing will be lower than income determined
with direct costing.
D. ending finished goods inventory will decrease.
A debit entry will:
A. always decrease the account balance.
B. always increase the account balance.
C. increase the balance of a revenue account.
D. increase the balance of an expense account.
When the periodic inventory system is used:
A. operating profit from the sale of an item from inventory is known when the item is
sold.
B. gross profit from the sale of an item from inventory is known when the item is sold.
C. cost of goods sold can be calculated by subtracting the ending inventory amount
from the sum of beginning inventory and net purchases.
D. a physical inventory must be taken in order to estimate the cost of goods sold.
Capital expenditure analysis, which leads to the capital budget, attempts to determine
the impact of a proposed capital expenditure on the organization’s:
A. segment margin.
B. contribution margin.
C. ROI.
D. cost of capital.
The independent auditors’ report usually:
A. presents a “clean bill of health” for the company.
B. refers to the quality of the company’s products or services.
C. includes an opinion that the financial statements are correct.
D. includes an opinion that the financial statements present fairly, in all material
respects, financial information about the company.
Which of the following is a plan for acquiring the resources needed to complete the
manufacturing activities that will satisfy the organization’s sales forecast?
A. sales budget.
B. raw materials budget.
C. production budget.
D. direct labor budget.
The term noncontrollable cost:
A. implies that there is really nothing the manager can do to influence the amount of
cost.
B. only applies to long-term costs.
C. never applies to short-term costs.
D. is another term for discretionary cost.
As the level of activity decreases:
A. fixed cost per unit decreases.
B. variable cost per unit decreases.
C. fixed cost remains constant in total.
D. variable cost remains constant in total.
ABC Company’s standard direct labor cost per unit includes 3 hours @ $15 per hour.
During May ABC Company produced 380 units and incurred total labor cost of $16,200
for 1,200 actual direct labor hours worked. ABC’s labor efficiency variance for May is:
A. $0.
B. $900 U.
C. $300 U.
D. $900 F.
The gross profit ratio is useful to the manager for each of the following purposes except
that:
A. it can be used to determine the selling price to set for an item.
B. it can be used to estimate the amount of inventory lost in a fire.
C. it can be used to determine the amount available from a given amount of revenue to
cover operating expenses.
D. it can be used to estimate the amount of operating expenses for a period.
Presented below is a partially completed balance sheet for Baldin, Inc., at December 31,
2017, together with comparative data for the year ended December 31, 2016. From the
Statement of Cash Flows for the year ended December 31, 2017, you determine that:
• Net income for the year ended December 31, 2017, was $106,000.
• Dividends paid during the year ended December 31, 2017, were $42,000.
• Accounts receivable increased $14,000 during the year ended December 31, 2017.
• The cost of new buildings acquired during 2017, was $85,000.
• No buildings were disposed of during 2017.
• The land account was not affected by any transactions during the year, but the fair
value of the land at December 31, 2017, is $210,000.
Required:
(a.) Complete the December 31, 2017, balance sheet.
(b.) Prepare a statement of cash flows for the year ended December 31, 2017.
Company A has fixed expenses of $100,000 and variable expenses of $50 per unit.
Company B has fixed expenses of $200,000 and variable expenses of $25 per unit. The
volume of unit sales necessary to produce exactly the same operating income for
Company A and Company B is:
A. 2,500.
B. 4,000.
C. 5,000.
D. 7,500.
Which of the following organizational perspectives is not reported on a balanced
scorecard?
A. Environmental.
B. Customer.
C. Financial.
D. Internal Business Process.
If it is to be most useful for control purposes, what variance should be reported to the
supervisor responsible for the number of pounds of corn syrup used in the manufacture
of a candy bar?
A. raw material price variance, expressed in cents per pound.
B. raw material usage variance, expressed as a total cost for the month.
C. raw material usage variance, expressed in total pounds for the month.
D. raw material usage variance, expressed in total pounds for the week.
Which of the following activities is not included in the organization’s value chain?
A. marketing.
B. finance.
C. customer service.
D. research and development.
PlayCraft Co. manufactures toy boats. During 2016, total costs incurred in making
54,000 toy boats included $189,000 of fixed manufacturing overhead. The total
absorption cost per toy boat was $28.50.
(a.) Calculate the variable cost per toy boat.
(b.) The ending inventory of toy boats was 11,600 units higher at the end of 2016 than
at the beginning of the year. By how much and in what direction (higher or lower)
would cost of goods sold for 2016 be different under direct costing than under variable
costing?
(c.) Express the toy boat cost in a cost formula. What does this formula suggest the total
cost of making an additional 5,800 toy boats would be?
The operating expense budget is based on the:
A. sales budget.
B. production budget.
C. manufacturing overhead budget.
D. cash budget.
A particular common stock has an annual cash dividend of $4 per share and is predicted to
have a market value of $60 per share 5 years from now. Assuming a discount rate of 10%,
a fair market price for the stock today is:
A particular common stock has an annual cash dividend of $4 per share and is predicted to
have a market value of $60 per share 5 years from now. Assuming a discount rate of 10%,
a fair market price for the stock today is:
A. $40.00
B. $52.41
C. $75.16
D. $112.42
A standard cost or production standard that assumes maximum operating conditions and
100% efficiency at all times is called a(n):
A. attainable standard.
B. ideal standard.
C. past experience standard.
D. average standard.
If a cost is irrelevant to a decision, the cost could not be a:
A. fixed cost.
B. sunk cost.
C. differential cost.
D. variable cost.
The Modified Accelerated Cost Recovery System (MACRS) specifies which of the
following depreciation methods for buildings?
A. 150% declining-balance.
B. Double-declining-balance.
C. Straight line.
D. Buildings are not depreciable assets.
The balance sheet presentation of accounts receivable net of the allowance for doubtful
accounts has the effect of stating accounts receivable at:
A. original cost.
B. net realizable value.
C. market value.
D. lower of cost or market.
Which of the following is not included in a corporation’s annual report?
A. The reporting firm’s financial statements for the fiscal year.
B. The report of the external auditor’s examination of the financial statements.
C. Notes to the financial statements and key financial data for at least the past five
years.
D. A detailed Management’s Discussion and Analysis section.
E. All of the above are included in a corporation’s annual report.
For the year ended December 31, 2016, Flagpole, Inc., reported earnings per share of
$4.83. During 2017, the company had a 3-for-1 stock split.
Required:
Calculate the 2016 earnings per share that will be reported in Flagpole, Inc.’s 2017
annual report for comparative purposes.
The market price for low-end laser printers is well established at $400 per unit. ABC
Technologies is considering entering this market and has enough available space in its
plant to accommodate a new production line. However, several pieces of new
manufacturing equipment would be required which are estimated to cost $28,000,000.
ABC Technologies requires a minimum ROI of 15% on any product line investment
and estimate that it can capture 100,000 units of the low-end laser printer market at the
prevailing market price.
(a.) Calculate the target cost per unit for ABC Technologies if it is to enter the low-end
laser printer market while earning the minimum 15% ROI.
Firm Y has a margin of 7%, turnover of 1.2, and sales of $2,100,000.
Using the column headings provided below, show the effect, if any, of the transaction
entry or adjusting entry on the appropriate balance sheet category or on the income
statement by entering the account name, amount, and indicating whether it is an
addition (+) or subtraction (-).
Column headings reflect the expanded balance sheet equation; items that affect net
income should not be shown as affecting stockholders’ equity.
(1.) During the month, the board of directors declared a cash dividend of $2,400,
payable next month.
(2.) Employees were paid $3,800 in wages for their work during the first three weeks
of the month.
(3.) Employee wages of $1,200 for the last week of the month have not been recorded.
(4.) Merchandise that cost $1,800 was sold for $2,700. Of this amount, $2,000 was
received in cash and the balance is expected to be received within 30 days.
(5.) A contract was signed with a local radio station for a $200 advertisement; the ad
was aired during this month but will not be paid for until next month.
(6.) Store equipment was purchased at a cash price of $600. The original list price of
the equipment was $800, but a discount was received.
(7.) Received $360 of interest income for the current month.
(8.) Accrued $620 of interest expense at the end of the month.
For each of the following costs, check the columns that most likely apply.
For each of the following costs, check the columns that most likely apply.
Danzi, Inc., has budgeted sales for the month of July and estimated cost behavior
patterns for a number of its expenses listed below. From this information prepare an
operating expense budget for the month of July.
Listed below are a number of financial statement captions.
The following data have been collected by capital budgeting analysts at Erica, Inc.
concerning a new product line currently under consideration by management:
(a.) Calculate the net present value of the proposed investment in the new product line.
Ignore income taxes, and round all answers to the nearest $1.
(b.) What will the internal rate of return on this investment be relative to the cost of
capital? Explain your answer.
Ann Kimber is thinking about going out of business and retiring.
Marshall, Inc., produces three products but weekly demand for the three products
exceed the available amount of machine time. Following is information about each
product:
(a.) Determine how many units each of Product A, Product B, and Product C that
Marshall, Inc., should produce each week assuming 1,000 hours of available machine time.
On November 1, 2016, an advance rent payment of $15,000, representing a six-month
prepayment (for the rental period beginning on that date) was received in cash from the
company’s tenant.
Required:
Use the horizontal model (or write the journal entries) to record the effects of the
following items:
(a.) The six months of rent collected in advance on November 1, 2016.
(b.) The adjustment that will be made at the end of each month to show the amount of
rent “earned” during the month.
Firm W has accounts receivable of $4,100, cash of $3,500, property, plant, and
equipment of $30,200, merchandise inventory of $2,200, accounts payable of $5,700,
other accrued liabilities of $1,300, common stock of $10,000, and retained earnings of
$23,000.
Firm V has a current ratio of 1.9 and current assets of $136,800.