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When all the units produced are sold, the operating income calculated under absorption
costing is higher when compared to the operating income calculated under variable
costing. Assume that there is no beginning Finished Goods Inventory.
Short-term investments are investments in debt and equity securities that are highly
illiquid.
The post-closing trial balance shows the updated Retained Earnings balance.
The asset turnover ratio is calculated by dividing cost of goods sold by average total
assets.
Entries from the purchases journal are posted monthly to the accounts payable
subsidiary ledger and daily to the general ledger.
On July 1, 2106, Jordan Equipment Dealer issued $600,000 of 9% bonds payable that
mature in seven years. These bonds were issued at face value and pay interest each June
30 and December 31. Each semiannual interest payment is $27,000.
Having a cash ratio below 1 is a good thing.
Capital rationing is a process adopted when a company has limited resources, and it
must find ways to reduce operating expenses in all of its divisions and units.
Variable costing considers direct materials, direct labor, variable manufacturing
overhead, and fixed manufacturing overhead as product costs.
A stock split can involve issuing more shares of stock than authorized in the corporate
charter.
Under the first-in, first-out (FIFO) method, prior period costs are not merged with
current period costs.
A company that reports a discontinued operation or an extraordinary item must also
report earnings per share for each of these line items in the notes to the financial
statements.
Companies which use a just-in-time management system do not benefit from a quality
management system.
A business segment is an identifiable part of the company for which financial
information is available.
When a business collects cash, the Cash account is debited.
If the total debits equal the total credits on the trial balance, the individual account
balances will be error free.
An account that normally has a debit balance may occasionally have a credit balance.
Employer FICA tax is paid by the employer and is added to the employee's earnings.
The transfer price should be an amount between the market price and the variable cost.
When using the specific identification inventory costing method, ending inventory
amounts depend on which costs are assigned to the inventory sold.
The Service Revenue account is a permanent account.
Cash is a highly liquid asset, but cash equivalents are not highly liquid assets.
Management compares the costs of undertaking a quality improvement program to the
costs of continuing without the quality improvement program.
An accounting information system creates the structure to encourage adherence to
management policies.
Freemen Company's western territory's forecasted income statement for the upcoming
year is as follows:
Freemen Company's management is considering dropping the western territory. This move
would be financially advantageous only if the company could eliminate $196,000 of fixed
cost.
Absorption costing considers fixed selling and administrative costs as product costs.
When using the weighted-average inventory costing method in a perpetual inventory
system, a new weighted average cost per unit is computed at the end of each quarter.
Partisan Services purchased 10 delivery vehicles by issuing a 10-year installment note
payable for $320,000. This transaction is shown in the investing activities section of the
statement of cash flows.
If a company fails to make an adjusting entry for deferred expense, the assets will be
overstated. Assume the deferred expense is initially recorded as an asset.
Contribution margin is the difference between net sales revenue and variable costs.
Which of the following inventory costing methods yields the highest cost of goods sold
during a period of rising inventory costs?
A) specific identification
B) weighted-average
C) last-in, first-out
D) first-in, first-out
On January 1, 2017, Simpson Sales issued $23,000 in bonds for $35,800. These are
eight-year bonds with a stated rate of 9% and pay semiannual interest. Simpson Sales
uses the straight-line method to amortize the bond premium. Immediately after the issue
of the bonds, the ledger balances are as follows:
Bonds Payable
Premium on Bonds Payable
After the first interest payment on June 30, 2017, what is the balance of Premium on
Bonds Payable?
A) debit of $800
B) debit of $14,400
C) credit of $235
D) credit of $12,000
A furniture corporation manufactures two models of furniture—Standard and Deluxe.
The total estimated manufacturing overhead costs are $64,300. The following estimates
are available:
The company uses direct labor costs as the base to allocate manufacturing overhead.
Calculate the predetermined overhead rate. (Round your answer to two decimal places.)
A) 32.15%
B) 33.84%
C) 190.52%
D) 65.95%
Hank's Tax Planning Service started business in January 2016. The company rented an
office for $7,000 per month starting from January 1, 2016. On that day, Hank prepaid
the rent through June 30. The company makes adjusting entries at the end of each
month. What is the balance in the Prepaid Rent account as of April 30, 2016?
A) $14,000
B) $1,167
C) $7,000
D) $3,500
Holland Corporation's annual report is as follows.
Based on the information provided, find the rate of return on common stockholders' equity
on March 31, 2017. (Round your final answer two decimal places.)
A) 8.36%
B) 9.32%
C) 8.67%
D) 7.99%
Under a perpetual inventory system, merchandise returned by a customer to the seller is
recorded as a ________ in the books of seller.
A) sales return
B) sales allowance
C) sales discount
D) purchase return
Which of the following is true of consolidated statements?
A) They combine the balance sheets, income statements, and statements of cash flows
of the parent company with those of its peer group firms.
B) They combine the balance sheets, income statements, but not the statements of cash
flows of the subsidiary company using the consolidation method.
C) They combine the balance sheets, income statements, and statements of cash flows
of the subsidiary company with those of its investee firms.
D) They combine the balance sheets, income statements, and statements of cash flows
of the parent company with those of its controlling interest affiliates.
On January 1, Jackson, Inc.'s Work-in-Process Inventory account showed a balance of
$65,800. During the year, materials requisitioned for use in production amounted to
$70,900, of which $67,400 represented direct materials. Factory wages for the period
were $209,000 of which $186,600 were for direct labor. Manufacturing overhead is
allocated on the basis of 60% of direct labor cost. Actual overhead was $116,340. Jobs
costing $353,220 were completed during the year. The December 31 balance in
Work-in-Process Inventory is ________.
A) $65,800
B) $319,800
C) $431,760
D) $78,540
Which of the following is the typical order of the sections on a statement of cash flows?
A) operating, financing, investing
B) financing, investing, operating
C) investing, operating, financing
D) operating, investing, financing
A debt that a business owes is called ________.
A) an asset
B) a liability
C) stockholders' equity
D) revenue
Trainor Logistics provides the following information:
What is the company's return on investment? (Round your answer to two decimal places.)
A) 11.11%
B) 14.81%
C) 75.00%
D) 25.00%
Tangent Corporation sold a product for $7,150 to Michael Cardon on credit. The cost of
goods sold is $5,650. Assuming the firm is following a perpetual inventory system and
using a sales journal, it will record $5,650 in the ________.
A) Accounts Receivable DR, Sales Revenue CR column
B) Cost of Goods Sold DR, Merchandise Inventory CR column
C) Merchandise Inventory DR, Cost of Goods Sold CR column
D) Sales Revenue DR, Accounts Receivable CR column
Jasper, Inc. reports the following cost information for March:
What is the cost of goods sold for March?
A) $3,100
B) $72,800
C) $75,400
D) $78,100
The journal entry for accrued interest on a note payable includes ________.
A) a debit to Interest Expense and credit to Cash
B) a debit to Interest Expense and credit to Interest Payable
C) a debit to Interest Payable and credit to Cash
D) a credit to Interest Expense and debit to Notes Payable
On January 1, 2017, Killion Sales issued $22,000 in bonds for $17,700. These are
six-year bonds with a stated interest rate of 11% that pay semiannual interest. Killion
Sales uses the straight-line method to amortize the Bond Discount. Immediately after
the issue of the bonds, the ledger balances appeared as follows:
Bonds Payable
Discount on Bonds Payable
After the first interest payment on June 30, 2017, what is the balance of Discount on
Bonds Payable?
A) debit of $3,942
B) debit of $4,300
C) debit of $4,658
D) credit of $358
Which of the following is an important internal control over payroll?
A) separating the duties of the disbursement of paychecks from the recording of payroll
transactions in the ledger
B) separating the duties of safeguarding property from record-keeping of property
C) separating the duties of approving invoices from signing disbursement checks
D) separating the duties of cash disbursement from bank reconciliations
Allen Company is hired on December 15, 2016 to perform services, beginning on
December 16, 2016. Under this agreement, Allen will earn $4,500 monthly and receive
payment on January 15, 2017. What amount of service revenue should be recorded for
the year ending December 31, 2016?
A) 0
B) $2,250
C) $4,500
D) There is not enough information to answer this.
On January 1, Ajax Corp. accepted a one-year note for $55,000 at 7% from one of its
customers. When the note matured on December 31, the customer was unable to pay,
and the company recorded the dishonor. The amount of the debit recorded on December
31 is ________.
A) $51,150
B) $3,850
C) $55,000
D) $58,850
The reason investors buy bonds is to ________.
A) earn interest
B) own controlling interest in the company
C) exercise voting rights in a company
D) receive dividend payments
Which of the following best describes horizontal analysis?
A) comparing financial statement amounts from year to year for the same company
B) expressing each financial statement amount as a percentage of a budgeted amount
C) comparing a company's financial statements with other companies
D) calculating key ratios to evaluate performance
Which of the following is an advantage of decentralization?
A) Managers' motivation and retention can be increased by empowering segment
managers to make decisions.
B) Certain costs of activities may be duplicated.
C) Customer response time is generally decreased.
D) Top management can concentrate on decisions that relate to day-to-day operations of
segments.
The term "inventory," for a merchandiser, refers to ________.
A) raw materials that are used for production
B) equipment that are used in production process
C) the cost of goods sold
D) goods held for sale to customers
Common Stock is a separate account in the ________ category of the accounting
equation.
A) equity
B) asset
C) liability
D) revenue
Which of the following describes the cash budget?
A) It aids in planning to ensure the company has adequate inventory and cash on hand.
B) It captures the variable and fixed expenses of the business.
C) It depicts the breakdown of sales based on terms of collection.
D) It helps in planning to ensure the business has adequate cash.
Jackson Plumbing Services earned $500 by completing a job for Smith Company. The
$500 earned by Jackson Plumbing Services is its ________.
A) revenue
B) equity
C) gain
D) debt
In its first year of business, Smith, Inc. produced and sold 600 units. If Smith uses
variable costing, ________.
A) its operating income for the period will be higher than under absorption costing
B) its operating income for the period will be lower than under absorption costing
C) its value of ending Finished Goods Inventory reported in the balance sheet will be
higher than under absorption costing
D) its operating income will be the same as under absorption costing
Which of the following illustrates the internal control procedure—separation of duties?
A) Cashiers must not have access to accounting records.
B) External auditors will monitor internal controls.
C) Electronic devices must be installed to reduce theft.
D) The invoices and other documents must be pre-numbered.
Earning more income on borrowed money than the related interest expense is called
________.
A) premium
B) leverage
C) annuity
D) amortization
Margin, Inc. has two products—picture frames and candle holders. Financial data for
both the products follows:
Margin has two sales representatives—Jack Lynch and Peter Cho. Each sales
representative sold a total of 1,400 units during the month of March. Jack had a sales mix
of 80% picture frames and 20% candle holders. Peter had a sales mix of 70% picture
frames and 30% candle holders. What is the contribution margin ratio for picture frames
and candle holders, respectively?
A) 56%; 35%
B) 49%; 31%
C) 7%; 4%
D) 44%; 65%
An oil well cost $1,832,500 and is calculated to hold 160,000 barrels of oil. There is no
residual value. Which journal entry is needed to record the expense for the extraction of
37,000 barrels of oil during the year? All 37,000 barrels were sold ding the year.
(Round any intermediate calculations to the nearest cent, and your final answer to the
nearest dollar.)
A)
B)
C)
D)
Kaycom, Inc. reports the following information:
What is the amount of unit product cost that will be considered for external reporting
purposes? (Round any intermediate calculations and your final answer to the nearest cent.)
A) $40.00
B) $80.00
C) $125.00
D) $100.00
Zephyros Corporation had estimated manufacturing overhead costs for the coming year
to be $303,000. The total estimated direct labor hours and machine hours for the
coming year are 7,000 and 12,000, respectively. Manufacturing overhead costs are
allocated based on direct labor hours. What is the predetermined overhead allocation
rate? (Round your answer to the nearest cent.)
A) $25.25 per machine hour
B) $15.95 per direct labor hour
C) $43.29 per direct labor hour
D) $1.71 per machine hour
Comparing actual performance to previously budgeted amounts is part of the ________.
A) controlling function of managerial accounting
B) planning function of managerial accounting
C) reporting function of managerial accounting
D) organizing function of managerial accounting
When using management by exception, the purchasing manager should be questioned
for which of the following variances?
A) direct materials efficiency
B) variable overhead efficiency
C) direct materials cost
D) direct labor efficiency
Sagal Corporation has excess cash to invest and pays $200,000 to buy 7%, five-year
bonds of Richmond Corporation, at face value, on June 30, 2016. The bonds pay
interest on June 30 and December 31. Sagal intends to hold the bonds to maturity. The
bonds are disposed of, at face value, on June 30, 2021.
Prepare the journal entry for December 31, 2016 (omit the explanation).
What is an annual report? Briefly describe the key parts of the annual report.
List and briefly discuss three major differences between just-in-time costing (JIT) and
traditional costing.
Fisher Manufacturing uses a standard cost system. Data on standard costs and actual
costs are as follows:
Direct materials: Standard Actual
Direct materials units per unit of output 2.0 3.3
Sales price per unit of direct materials $5.00 $4.80
Direct materials cost per unit $10.00 $16.00
Number of units 3,000 3,000
Direct materials cost $30,000 $48,000
Direct labor: Standard Actual
Hours per unit 0.5 0.4
Cost per hour $18.00 $20.00
Labor cost per unit $9.00 $8.00
Number of units 3,000 3,000
Direct labor cost $27,000 $24,000
Variable overhead* Standard Actual
Hours per unit 0.5 0.4
Cost per hour $30.00 $29.00
Variable overhead cost per unit $15.00 $11.60
Number of units 3,000 3,000
Variable overhead cost $45,000 $34,800
*allocated based on direct labor hours
Fixed overhead* Standard Actual
Hours per unit 0.5 0.4
Cost per hour $10.00 $9.00
Fixed overhead cost per unit $5.00 $3.60
Number of units 3,000 3,000
Fixed overhead cost $15,000 $10,800
*allocated on the basis of direct labor hours
Give the journal entry to transfer the cost of units from Work-in-Process Inventory to
Finished Goods Inventory.
Wentlent Services, Inc. records deferred expenses as expenses when payment is made in
advance and deferred revenues as revenues when the payment is received in advance.
At the end of the year, Wentlent Services, Inc. makes the necessary adjustments based
on accrual basis accounting. On July 1, it paid rent for an office in the amount of
$24,000 for the period July 1 through June 30 of the following year. Provide the
year-end adjusting entry for rent prepayment.
List and briefly discuss the two basic components of a computerized accounting
information system.
Define assets. Provide three examples of assets.
Cobbe Sales sold 400 units of product to a customer on account. The selling price was
$28 per unit, and the cost, according to the company's inventory records, was $14 per
unit. Provide the journal entry to record the cost of goods sold. (Assume a perpetual
inventory system.)
Micro Electronics completed the following stock issuance transactions:
Prepare the journal entries to record these transactions. Explanations are not required.
Prepare a vertical analysis of the income statement shown below. (Round to two
decimal places.)
Trucker, Inc.
Income Statement
For the Year Ended December 31, 2017
Net Sales $7,000
Cost of Goods Sold 3,800
Gross Profit 3,200
Operating Expenses:
Selling Expenses 950
Administrative Expenses 670
Total Operating Expenses 1,620
Operating Income 1,580
Other Revenues and (Expenses):
Interest Revenue 0
Interest Expense (750)
Total Revenues and (Expenses) (750)
Income Before Income Taxes 830
Income Tax Expense 150
Net Income $680
For the following situation, state whether it represents a strength or weakness in internal
control and give the reason for your answer.
The bookkeeper opens the mail, makes the deposit, and makes the journal entries to
record receipt of the cash and checks.
State the effects of inventory errors on cost of goods sold and net income for periods 1
and 2. The response should be overstated or understated.
Period 1 Ending Merchandise Inventory is understated
Metropolitan Enterprises reports the following information at December 31:
Manufacturing Overhead
Requirements
1. What is the actual manufacturing overhead of Metropolitan Enterprises?
2. What is the allocated manufacturing overhead?
3. Is manufacturing overhead underallocated or overallocated? By how much?
What is the final step in the master budget process?
Morag Manufacturing Company's budgeted income statement includes the following
data:
The budget assumes that 60% of commission expenses are paid in the month in which they
are incurred and the remaining 40% are paid one month later. In addition, 50% of salaries
expenses are paid in the month in which they are incurred, and the remaining 50% are paid
one month later. Miscellaneous expenses, rent expense, and utility expenses are assumed to
be paid in the same month in which they are incurred. Insurance was prepaid for the year
on January 1. Prepare a schedule of cash payments for selling and administrative expenses
for the quarter ending June 30.
