Assets tied up in inventory are referred to as nonproductive assets.
Answer:
Job order costing is applicable to manufacturing firms only and not service firms.
Answer:
A typical sales journal is used to record cash sales.
Answer:
An investor purchased $50,000 of bonds that were held to maturity. The investor’s
journal entry at maturity of the bonds should include a debit to Cash for $50,000 and a
credit to Long-Term Investments for $50,000.
Answer:
A columnar journal is any journal with only one column.
Answer:
It can be expected that companies that sell perishable goods have higher inventory
turnover than companies that sell nonperishable goods.
Answer:
The return on total assets can be calculated as the profit margin times the total asset
turnover.
Answer:
Purchase returns refer to merchandise a buyer acquires but then returns to the seller.
Answer:
A favorable direct materials price variance might lead to an unfavorable direct materials
quantity variance because the company purchased cheap materials.
Answer:
The process cost summary presents calculations of the cost of units completed during
the reporting period but does not present any information about the ending goods in
process inventory.
Answer:
A liability does not exist if there is any uncertainty about whom to pay, when to pay, or
how much to pay.
Answer:
Continuous budgeting is the practice of preparing a new budget for a selected number
of future periods and revising those budgets as each period is completed.
Answer:
During a given year, Compaq had net sales of $32,000 million and average account
receivables of $6,850 million. Its accounts receivable turnover is equal to 0.21.
Answer:
Data concerning volume-related measures are readily available in most manufacturing
settings.
Answer:
Plant assets are used in everyday operations of the business and have useful lives that
extend over more than one accounting period.
Answer:
External auditors audit the financial statements to verify that they are prepared
according to generally accepted accounting principles.
Answer:
The direct method of preparing the statement of cash flows is usually viewed as user
friendly since it requires less accounting knowledge to understand it.
Answer:
The formula for computing interest on a note is the principal of the note times the
annual interest rate times time expressed in a fraction of year.
Answer:
A process cost accounting system records all factory overhead costs directly in the
Goods in Process Inventory accounts.
Answer:
Facility level costs are not traceable to individual product lines, batches or units.
Answer:
A debit balance in retained earnings is often referred to as a retained earnings deficit.
Answer:
Debit means the right-hand side of any account.
Answer:
A budget is a formal statement of future plans, usually expressed in monetary terms.
Answer:
Sales variances allow managers to focus on sales mix as well as sales quantities.
Answer:
When a partner leaves a partnership, the present partnership ends, but the business can
still continue to operate.
Answer:
The decision to accept an additional volume of business should be based on a
comparison of the revenue from the additional business with the sunk costs of
producing that revenue.
Answer:
Experience shows that when times interest earned falls below 5 to 2.0 and remains at
that level or lower for several time periods, the default rate on liabilities increases
sharply.
Answer:
A financial statement analysis report should include a brief table of contents to help
users focus on those areas most relevant to their decisions.
Answer:
The most complex of the cost estimation methods is the high-low method.
Answer:
An out-of-pocket cost benefits a business, but is paid by an outside party.
Answer:
If a department that applies process costing starts the reporting period with 50,000
physical units that were 25% complete with respect to direct materials and 40%
complete with respect to direct labor, it must add 12,500 equivalent units of direct
materials and 20,000 equivalent units of direct labor to complete them.
Answer:
If a bond’s interest period does not coincide with the issuing company’s accounting
period, an adjusting entry is necessary to recognize bond interest expense accruing
since the most recent interest payment.
Answer:
A company’s ability to pay its short-term obligations depends on many factors
including how quickly it is able to sell its merchandise inventory.
Answer:
In the retail inventory method of inventory valuation, the retail amount of inventory
refers to the dollar amount measured by looking at the selling prices of inventory
items.
Answer:
Reference: 17_01
Kudzu Company sells two products Big X and Little X. Current direct material and
direct labor costs are detailed below. Next year, the company wishes to use a plantwide
overhead rate with direct labor hours as its allocation base. Next years overhead is
estimated to be $525,000. The direct labor and direct materials costs are estimated to be
consistent with the current year. Direct labor costs $20 per hour and the company
expects to manufacture 16,000 units of Big X and 18,000 units of Little X next year.
Kudzu has 34,000 total estimated direct labor hours for next year.
Answer:
The cash basis of accounting requires that revenues be recognized when cash payments
from customers are received.
Answer:
The full disclosure principle:
A. Requires that when a change in inventory valuation method is made, the notes to the
financial statements report the type of change, why it was made, and its effect on net
income.
B. Requires that companies use the same accounting method for inventory valuation
period after period.
C. Is not subject to the materiality principle.
D. Is only applied to retailers.
E. Is also called the consistency principle.
Answer:
The number of days’ sales uncollected is calculated by:
A. Dividing accounts receivable by net sales.
B. Dividing accounts receivable by net sales and then multiplying by 365.
C. Dividing net sales by accounts receivable.
D. Dividing net sales by accounts receivable and then multiplying by 365.
E. Multiplying net sales by accounts receivable and dividing the result by 365.
Answer:
The following costs are included in a recent summary of data for a company:
advertising expense, $85,000; depreciation expense factory building, $133,000; direct
labor, $250,000; direct material used, $300,000; factory utilities, $105,000; and sales
salaries expense, $150,000. Determine the dollar amount of prime costs.
A. $1,023,000
B. $550,000
C. $488,000
D. $235,000
E. $238,000
Answer:
A company ages its accounts receivables to determine its end of period adjustment for
bad debts. At the end of the current year, management estimated that $39,375 of the
accounts receivable balance would be uncollectible. Prior to any year-end adjustments,
the Allowance for Doubtful Accounts had a credit balance of $3,285. What adjusting
entry should the company make at the end of the current year to record its estimated
bad debts expense?
A.
B.
C.
D.
E.
Answer:
The Malcolm Baldrige Award was established by:
A. The United Nations.
B. The U. S. Chamber of Commerce.
C. The Malcolm Baldrige Foundation.
D. The U. S. Congress.
E. The SEC.
Answer:
In a typical purchases journal, you would expect to see the following columns:
A. Accounts payable dr.
B. Purchase discounts cr.
C. Accounts receivable cr.
D. Inventory dr. (if perpetual method used).
E. Cost of Goods Sold dr. (if perpetual method used).
Answer:
The following company information is available:
The direct materials price variance is:
A. $10,000 unfavorable B. $13,200 unfavorable
C. $9,600 unfavorable
D. $3,600 unfavorable
E. $13,200 favorable
Answer:
A trial balance prepared after adjustments have been recorded is called a(n):
A. Balance sheet
B. Adjusted trial balance
C. Unadjusted trial balance
D. Classified balance sheet
E. Unclassified balance sheet
Answer:
An employer’s federal unemployment taxes (FUTA) are reported:
A. Annually
B. Semiannually
C. Quarterly
D. Monthly
E. Weekly
Answer:
A company wishes to buy new equipment for $35,000. The equipment is expected to
generate an additional $9,600 in cash inflows for seven years. All cash flows occur at
year-end. A bank will make an $35,000 loan to the company at a 10% interest rate so
that the company can purchase the equipment. Use the table below to determine
break-even time for this equipment.
A. Break-even time is between three and four years.
B. Break-even time is between four and five years.
C. Break-even time is between five and six years.
D. Break-even time is between six and seven years.
E. This project will never break-even.
Answer:
Which of the following statements is true regarding variable costing?
A. It is a traditional costing approach.
B. Only manufacturing costs that change in total with changes in production level are
included in product costs.
C. It is not permitted to be used for managerial reporting.
D. It treats overhead in the same manner as absorption costing.
E. It makes it easier to manipulate earnings with changes in production levels.
Answer:
What is the debt to equity ratio for a company that has $700,000 in total liabilities and
$3,500,000 in total equity?
A. 20%
B. 5
C. $2,100,000
D. 2%
E. .5
Answer:
Which of the following statements about budgeting is false?
A. Budgeting is an aid to planning and control.
B. Budgets create standards for performance evaluation.
C. Budgets help coordinate the activities of the entire organization.
D. Budgeting forces managers to think ahead and formalize long-range objectives.
E. The master budget should only be prepared by top management.
Answer:
Which of the following would not appear on a responsibility accounting performance
report?
A. Actual costs for a period.
B. Variance from the budget.
C. Budgeted costs for a period.
D. Controllable costs.
E. Uncontrollable costs.
Answer:
A direct cost is a cost that is:
A. Identifiable as controllable.
B. Recorded as part of manufacturing overhead.
C. Fixed with respect to the volume of activity.
D. Traceable to a cost object.
E. Sunk with respect to a cost object.
Answer:
If a company borrows money from a bank, the interest paid on this loan should be
reported on the statement of cash flows as a(n):
A. Operating activity.
B. Investing activity.
C. Financing activity.
D. Noncash investing and financing activity.
E. None of these. This is not reported in the statement of cash flows.
Answer:
Maryland Company offers a bonus plan to its employees equal to 3% of net income.
Maryland’s net income is expected to be $960,000. The amount of the employee bonus
expense is estimated to be
A. $27,961
B. $28,800
C. $29,000
D. $29,691
E. $30,000
Answer:
Failure by a promissory note’s maker to pay the amount due at maturity is known as:
A. Protesting a note
B. Closing a note
C. Dishonoring a note
D. Discounting a note
E. Depreciating a note
Answer:
Reference: 17_06
Assume that the Oregon Ice Cream Company is considering the costs of two of their
product linesice cream sandwiches and dessert bars. The company identified the
following partial list of activities, costs, and activity drivers expected for the next year.
Refer to the data in the preceding tables. How much overhead cost will be assigned to
the ice cream sandwich product line using activity-based costing (ABC)?
A. $340,000
B. $368,000
C. $28,000
D. $850.08
E. $433,682
Answer:
Cost of goods sold:
A. Is another term for merchandise sales.
B. Is the cost of merchandise sold to customers.
C. Is another term for revenue.
D. Is also called gross margin.
E. Is a term only used by service firms.
Answer:
Investments in trading securities:
A. Include only equity securities.
B. Are reported as current assets.
C. Include only debt securities.
D. Are reported at their cost, no matter what their market value.
E. Are long-term investments.
Answer:
The costs that should be incurred under normal conditions to produce a specific product
or component or to perform a specific service are:
A. Variable costs.
B. Fixed costs.
C. Standard costs.
D. Product costs.
E. Period costs.
Answer:
Beginning assets were $437,600, beginning liabilities were $262,560, common stock
issued during the year totaled $45,000, revenue for the year was $414,250, expenses for
the year were $280,000, dividends declared was $22,700, and ending liabilities is $
$350,000.
What is the ending equity for the year?
A. $700,160
B. $331,590
C. $134,250
D. $612,560
E. $175,040
Answer:
The Maximum Experience Company acquired a building for $500,000. Maximum
Experience had an appraisal done and found that the building was worth $575,000. The
seller had paid $300,000 for the building six years ago. Which accounting principle
would prescribe that Maximum Experience record the building on its records at
$500,000?
A. Monetary unit principle
B. Going-concern principle
C. Cost principle
D. Business entity principle
E. Revenue recognition principle
Answer:
On November 12, Kendra, Inc., a U.S. Company, sold merchandise on credit to
Nakakura Company of Japan at a price of 1,500,000 yen. The exchange rate was
$0.00837 per yen on the date of sale. On December 31, when Kendra prepared its
financial statements, the exchange rate was $0.00843. Nakakura Company paid in full
on January 12, when the exchange rate was $0.00861. On December 31, Kendra should
prepare the following journal entry for this transaction:
A.
B.
C.
D.
E. No journal entry is required until the amount is collected
Answer:
A company had a profit margin of 8%. If net income equaled $40,000 and average total
assets equaled $332,500, how much were net sales?
A. $3,200
B. $500,000
C. $26,600
D. $4,156,250
E. $372,500
Answer:
Given the following items and costs as of the balance sheet date, determine the value of
Faltron Company’s merchandise inventory.
– $1,000 goods sold by Faltron to another company. The goods are in transit and
shipping terms are FOB destination.
– $2,000 goods sold by another company to Faltron. The goods are in transit and
shipping terms are FOB destination.
– $3,000 owned by Faltron but in the possession of another company, the consignee.
– Damaged goods owned by Faltron that originally cost $4,000 but now have a $500 net
realizable value.
A. $10,000
B. $6,500
C. $5,500
D. $5,000
E. $4,500
Answer:
Match the following terms with the appropriate definitions:
A) Long-term investments
B) Subsidiary
C) Unrealized gain or loss
D) Consolidated financial statements
E) Parent company
F) Available-for-sale securities
G) Held-to-maturity securities
H) Trading securities
I) Return on total assets
J) Equity method
Answer:
When the sales journal’s column for accounts receivable and sales is totaled at the end
of the month, its total is:
A. Debited to Sales and credited to Accounts Receivable.
B. Debited to Accounts Receivable and credited to Cash.
C. Debited to Cash and credited to Accounts Receivable.
D. Debited to Accounts Receivable and credited to Sales.
E. Debited to Cash and credited to Sales.
Answer:
The inventory valuation method that identifies the invoice cost of each item in ending
inventory to determine the cost assigned to that inventory is the:
A. Weighted-average inventory method,
B. First-in, first-out method,
C. Last-in, first-out method,
D. Specific identification method,
E. Retail inventory method,
Answer:
________________________ refers to a company’s ability to pay for its short-term
obligations.
Answer:
A company spent $52,000 in cash for this period’s advertising activities. Enter the
appropriate amounts for this transaction into the accounting equation format shown
below:
Answer:
Roller Blade Company uses the perpetual inventory system and had the following
transactions during October:
Prepare journal entries to record each of the preceding transactions.
Answer:
Reference: 16_06
Refer to the following information about the Dipping Department of the Indiana
Factory for the month of August:
The cost per equivalent unit of materials is $10, and the cost per equivalent unit of labor
and overhead is $22.
What total cost should be assigned to the units that were in process at the end of
August?
Answer:
A company purchased a truck on October 1 of the current year at a cost of $40,000.
The truck is expected to last six years and have a salvage value of $2,200. The
company’s annual accounting period ends on December 31.
1) What is the depreciation expense for the current year, assuming the straight-line
method is used?
2) What is the depreciation expense for the current year, assuming the
double-declining-balance method is used?
Answer:
Describe a worksheet and explain why it is useful.
Answer:
A company that uses a perpetual inventory system made the following cash purchases
and sales. There was no beginning inventory.
Prepare the general journal entries to record the March 16 sale using the LIFO
inventory valuation method.
Answer:
A ___________________________ gives a complete record of each transaction in one
place and shows debits and credits for each transaction.
Answer:
Fleming Company had the following results of operations for the past year:
A foreign company (whose sales will not affect Fleming’s regular sales) offers to buy
2,000 units at $5 per unit. In addition to variable manufacturing costs, there would be
shipping costs of $1,200 in total on these units. Should Fleming take this order?
Explain.
Answer:
Texana Inc. imports inventory from Mexico. Prepare the journal entries for Texana to
record the following transactions. Include any year-end adjustments.
Answer:
An asset that cost $50,000 was purchased on January 1. The asset has an estimated
useful life of three years and an estimated salvage value of $3,200. Using the
straight-line method, prepare the necessary adjusting journal entry for the end of the
year.
Answer:
A company can buy a machine that is expected to have a three-year life and a $30,000
salvage value. The machine will cost $1,800,000 and is expected to produce a $200,000
after-tax net income to be received at the end of each year. If a table of present values of
1 at 12% shows values of 0.8929 for one year, 0.7972 for two years, and 7118 for three
years, what is the net present value of the cash flows from the investment, discounted at
12%?
Answer:
Describe the accounting for natural resources, including their acquisition, cost
allocation, and account titles.
Answer:
A company has two employees whose total January salaries totaled $8,000. The federal
income tax rate for both employees is 15%. The FICA Social Security tax is 6.2% and
the FICA Medicare tax is 1.45%. Calculate the amount of employee taxes withheld and
prepare the company’s journal entry to accrue the January salaries expense and
withholding of January taxes.
Answer:
Juanita invested $100,000 and Jacque invested $95,000 in a new partnership. They
agreed to a $50,000 annual salary allowance to Juanita and a $40,000 annual salary
allowance to Jacque. They also agreed to an annual interest allowance of 10% on the
partners’ beginning-year capital balance, with the balance to be divided equally. Under
this agreement, what are the income or loss shares of the partners if the annual
partnership income is $102,000?
Answer:
_______________ bonds are bonds that mature at more than one date, often in a series
and thus are usually repaid over a number of periods.
Answer:
The fixed overhead variance can be broken down into the _________________
variance and the _________________ variance.
Answer:
Calculate the total amount of interest that would be owed on a $9,000, 60-day, 9% note
receivable.
Answer:
A company is looking into two alternative methods of producing its product. The
following information about the two alternatives is available:
If the company’s expected sales volume is 35,000 units, which alternative should be
selected?
Answer: