A mortgage payable is a long-term debt that is backed with a security interest in specific
property.
A sales allowance is recorded with a credit to Accounts Payable.
If variable costs increase, and all other factors remain the same, the margin of safety
will become smaller.
Contribution margin is calculated by deducting the total cost of goods sold from sales
revenue.
Data from a trial balance is used to prepare the income statement, statement of retained
earnings, and the balance sheet.
The normal balance of an account is the increase side of the account.
The worksheet is NOT a journal, a ledger, or a financial statement.
The non-cash investing and financing activities section of the statement of cash flows
appears as a separate schedule of the statement of cash flows or in the notes to the
financial statements.
The inventory, purchases, and cost of goods sold budget determines cost of goods sold
for the budgeted income statement, ending Merchandise Inventory for the budgeted
balance sheet, and merchandise inventory purchases for the cash budget.
When a company collects the face value of a bond investment at maturity, total assets
increase.
Net pay is the total amount of compensation that an employee takes home after the
deductions are made.
Absorption costing is more appropriate than variable costing for making plant
production capacity decisions.
The closing process helps in measuring each period’s net income separately from all
other periods.
Many service, merchandising, and manufacturing firms use discounted cash flow
methods to make capital investment decisions.
Purchase discounts are calculated on the amount of the merchandise purchased
including freight costs.
Dividends receivable, interest receivable, and taxes receivable are generally categorized
as other receivables.
Contribution margin is the amount that contributes to covering the fixed costs and then
to providing operating income.
The accounting period used for the annual financial statements is called the fiscal year.
Most public companies use the indirect method to prepare their statement of cash flows
because it is the method the FASB prefers.
Budgets provide a benchmark that motivates employees and helps managers evaluate
performance.
An invoice is also known as a bill.
A receivable occurs when a business sells goods or services to another party on account.
The smaller the current ratio, the higher the firm’s ability to repay its current debts.
Interest on a $6,000 note at 8% for 4 months is $160.
When the variable cost per unit increases, the total number of units required to break
even also increases.
On the maturity date, the bondholder is paid the face amount of the bond plus the last
interest payment.
Vertical analysis involves comparing each figure in the financial statements with a
corresponding figure of the previous year.
The T-account is a summary device that is shaped like a capital T with debits posted on
the left side of the vertical line and credits posted on the right side of the vertical line.
On July 1, 2016, Sharon Equipment Dealer issued $590,000 of 6% 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 will be higher than the amount
of cash paid to the bondholders.
The flexible budget variance is the difference between expected results in the flexible
budget for the actual units sold and the static budget.
A company is uncertain whether a complex transaction should result in an asset being
recorded at $100,000 or at $150,000. Under the conservatism principle, it should
choose to show it at $100,000.
Federal unemployment compensation tax is paid by the employer and is not deducted
from an employee’s gross earnings.
Unlike cash dividends, which are optional payments to stockholders, the interest
payment on bonds is required.
Manufacturing overhead costs are allocated to the Work-in-Process Inventory account
by a debit to the Manufacturing Overhead account.
The cost principle requires a business to record the assets acquired, or services received,
at their actual cost.
Higher fixed costs decrease the total contribution margin required to break even.
Roberts Logistics provides the following information:
What is the company’s asset turnover ratio? (Round your answer to two decimal places.)
A) 4.00
B) 4.48
C) 12.44
D) 7.00
Rockville Corporation makes a $1,200 purchase of merchandise inventory on account.
This transaction will be recorded in the ________.
A) cash payments journal
B) sales journal
C) cash receipts journal
D) purchases journal
Annual reports ________.
A) are required to be prepared by every corporation
B) discuss the company’s competitors and the risks related to the company’s business
C) are also called a Form 10-Q
D) only include the company’s financial statements
To evaluate the financial performance of an investment center, a business needs key
performance indicators that measure ________.
A) manufacturing efficiency and product defect rate
B) operating income and the use of the center’s assets
C) customer satisfaction and market share
D) generation of sales revenues and control of operating expenses
Gnome Company is deciding whether to continue to manufacture a component or to
buy the component from a supplier. Which of the following is relevant to this decision?
A) the potential uses of the facilities that are currently used to manufacture the
component
B) the insurance on the manufacturing facility that will continue regardless of the
decision
C) fixed costs that do not differ between the alternatives
D) the cost of the equipment that is currently being used to manufacture the component
Which of the following is an objective of managerial accounting?
A) to generate a company’s financial statements for tax reporting
B) to provide information to business managers to assist them in controlling their
business
C) to provide information to shareholders to assist them with their investment decisions
D) to ensure that the reports produced for internal and external business purposes are
GAAP compliant
The formation of a partnership firm requires a minimum of ________.
A) four partners
B) three partners
C) one partner
D) two partners
A new factory manager was hired for a company that was experiencing slow production
rates and lower production volumes than demanded by management. Upon
investigation, the manager found that the workers were poorly motivated and not
closely supervised. Midway through the quarter, an incentive program was initiated,
and cash bonuses were given when workers hit their production targets. Within a short
time, production output increased, but the bonuses had to be charged to the direct labor
budget, and the manager was worried about the impact of these costs on operating
income. This could produce a(n) ________.
A) unfavorable direct materials cost variance
B) unfavorable direct materials efficiency variance
C) unfavorable direct labor efficiency variance
D) unfavorable direct labor cost variance
A business prepays four months’ office rent. Which of the following accounts is
debited?
A) Rent Expense
B) Cash
C) Prepaid Rent
D) Unearned Rent
Ursula Tax Planning Service has the following plant assets: Communications
equipment: Cost, $7,120 with useful life of eight years; Furniture: Cost, $22,800 with
useful life of 12 years; and Computer: Cost, $12,000 with useful life of four years.
(Assume residual value of all the assets is zero.) Ursula’s monthly depreciation expense
calculated using the straight-line method is ________. (Round any intermediate
calculations to two decimal places, and your final answer to the nearest dollar.)
A) $250
B) $158
C) $74
D) $482
Businesses record goodwill ________.
A) when they enjoy an outstanding reputation and loyalty with customers
B) if they acquire another company at an amount higher than the market value of its net
assets
C) when they continue the business of an acquired corporation
D) if their market value has increased significantly in the recent years
Island Promotional Services uses a job order system for costing and billing promotional
services for dance and ballet performances. Island has four public relations specialists
and office staff. At the beginning of the year, Island estimated the total cost of salaries
and benefits for the public relations specialists at $684,000 and a total of 7,600 billable
hours for the year. The office and administrative costs were estimated at $418,000. The
allocation base for office and administrative costs is billable hours. In June, Island
signed a contract for a Russian ballet performance. It negotiated a price of $6,800 for its
services. When the job was complete, Island’s records showed that it had logged 37.0
billable hours. What was the actual total cost of the job for Island?
A) $5,365
B) $2,035
C) $3,330
D) $1,295
Contribution margin ratio is equal to ________.
A) fixed costs divided by contribution margin per unit
B) net sales revenue per unit minus variable costs per unit
C) net sales revenue minus variable costs
D) contribution margin divided by net sales revenue
Which of the following is an attribute of the internal control procedure—competent,
reliable, and ethical personnel?
A) providing cross training to allow sales personnel to record revenue transactions
B) the need to train and supervise employees
C) monitoring of internal controls by external auditors
D) purchase of burglar alarms
Before any internal control procedure is initiated, which of the following questions
must be primarily addressed by a company?
A) Will this put an end to theft?
B) Is this the best security money can buy?
C) How much benefit will be derived from the cost of the procedure?
D) Will this prevent accounting errors?
Which of the following is an example of the benchmarking function of the budgeting
process?
A) A budget demands integrated input from different business units and functions.
B) Budgeting requires close cooperation between accountants and operational
personnel.
C) Budget figures are used to evaluate the performance of managers.
D) The budget outlines a specific course of action for the coming period.
A reversing entry ________.
A) is required by GAAP
B) is dated the last day of an accounting period
C) exactly resembles the prior adjusting entry prepared in the books
D) switches the debit and the credit of a previous entry
Minnetonka, Inc. is a merchandiser of stone ornaments. The company sold 15,100 units
during the year. The company has provided the following information:
What is the unit cost per item sold? (Round your answer to the nearest cent.)
A) $19.21
B) $15.77
C) $22.85
D) $19.40
Which of the following assumes that financial statements of a business can be prepared
for specific periods?
A) matching principle
B) revenue recognition principle
C) time period concept
D) adjusting entry principle
A contingency was evaluated at year-end and considered to have a remote possibility of
becoming an actual liability. If this was not reported on the balance sheet or in the notes
to the financial statements, what effect would this have on the financial reporting of the
company?
A) There would be no effect.
B) The liabilities on the balance sheet would be understated.
C) The information about the transaction would be inadequately disclosed in the notes.
D) The net income of the company would be understated.
Contribution margin ratio is the ratio of contribution margin to ________.
A) net sales revenue
B) cost of goods sold
C) total variable costs
D) total fixed costs
The accounts of Melissa Manufacturing showed the following balances at the beginning
of December:
The following transactions took place during the month:
December 2: Issued direct materials $37,000 and indirect materials $4,000 to production.
December 15: Incurred $6,000 and $5,000 toward factory’s direct labor cost and indirect
labor cost, respectively.
What should be the balance in the Work-in-Process Inventory following these
transactions?
A) $124,000
B) $87,000
C) $75,000
D) $86,000
Moylan Roofing Company has provided the following information:
Which of the following statements is true, if the sales volume increases by 10%?
A) Operating income will increase by $50,600.
B) Operating income will increase by $27,300.
C) Fixed expenses will increase by $21,600.
D) Contribution margin will increase by $77,900.
Roberts Construction Group paid $6,000 for a plant asset that had a market value of
$10,500. At which of the following amounts should the plant asset be recorded?
A) $10,500
B) $3,000
C) $6,000
D) $12,000
The type of intangible asset related to the exclusive right to reproduce and sell a book
or intellectual property is a ________.
A) franchise
B) trademark
C) copyright
D) patent
Which of the following is included in the cost of land?
A) cost of fencing
B) cost of paving
C) brokerage commission
D) cost of outdoor lighting
A(n) ________ is represented by a certificate and is commonly traded on an exchange.
A) inventory
B) intangible asset
C) interest
D) security
Which of the following transactions would be shown in the non-cash investing and
financing activities section of the statement of cash flows?
A) sold equipment with book value of $15,000 in exchange for $15,000 cash
B) retired company bonds before the maturity date by paying a negotiated amount
C) issued 50,000 shares of stock at $2 per share
D) purchased land by signing a 10-year note for $500,000
Which of the following statements is true of process costing?
A) It uses one Work-in-Process Inventory account.
B) It tracks and assigns both period costs and product costs to units produced.
C) It accumulates product costs by production departments.
D) It assigns manufacturing overhead costs to products only in the last production
process.
Which of the following columns is typically included in a payroll register?
A) Direct Labor Hours Worked
B) Warranties Payable
C) Current Period Earnings
D) Sales Tax
The times-interest-earned ratios of four companies are given below:
Which of the above companies has the highest debt-paying ability?
A) Forge Corp.
B) Fellow, Inc.
C) Stacy Corp.
D) Bennett, Inc.
Which of the following would most likely be treated as an activity in an activity-based
costing system?
A) direct labor cost
B) machine processing
C) direct materials cost
D) sales revenues
Describe the transactions recorded in the cash payments journal.
For available-for-sale investments, state:
• Reporting method used
• How unrealized holding gain or loss is reported
• Balance sheet effects
• Income statement effects
Classify each cost of a furniture manufacturer as either product cost (PR) or period cost
(PE).
Complete the following statements:
A traditional income statement classifies costs by ________; that is, costs are classified
as either ________ costs or ________ costs.
A contribution margin income statement classifies costs by ________; that is, costs are
classified as either ________ costs or ________ costs.
Jenkins Services reported the following balances:
Compute earnings per share for 2016, price/earnings ratio for 2016, assuming the market
price on December 31, 2016 is $37.50 per share, and the rate of return on common
stockholders’ equity for 2016.
(Show your computations and round to two decimal places.)
Complete the following table, which compares the effects of LIFO, FIFO, and
weighted-average inventory costing methods on the financial statements in periods of
rising inventory costs. The answer should be lowest, highest, or middle.
Yates, Inc. is evaluating two possible investments in depreciable plant assets. The
company uses the straight-line method of depreciation. The following information is
available:
Compute the payback period for each investment. Show your calculations and round to
one decimal place.
For each of the following expenditures, indicate whether the amount is debited to an
asset account or to an expense account.
On December 1, 2017, Galahad, Inc. had 200,000 shares of $1 par value common stock
issued and outstanding. The next day Galahad declared and distributed a 50% stock
dividend. The market value of the stock on December 2, 2017 was $9 per share. Prepare
the journal entry for the transaction.
Ferrero Corp. manufactures gourmet dips along with potato chips flavored with Cajun
spices. The market price for similar chips is $7. The management of the company
desires a 30% net profit margin.
The current costing data relating to this product are as follows.
Direct materials $1.00
Direct labor 1.50
Manufacturing overhead 2.75
Nonmanufacturing costs 0.75
Requirement: Determine if Ferrero’s current full-product costs meet its target cost.
What does the debt to equity ratio show, and how is it calculated?
When recording direct materials usage, what does an unfavorable direct materials
efficiency variance represent? Will this variance have a debit or credit balance?
The following information relates to Bloomberg Manufacturing’s overhead costs for the
month:
Bloomberg allocates manufacturing overhead to production based on standard direct labor
hours.
Bloomberg reported the following actual results for last month: actual variable overhead,
$14,500; actual fixed overhead, $5,400; actual production of 4,700 units at 0.22 direct
labor hours per unit. The standard direct labor time is 0.20 direct labor hours per unit.
Compute the variable overhead efficiency variance. (round the answer to the nearest
dollar)
Brookside Equipment Company uses the periodic inventory system. Brookside reported
the following selected amounts at June 30, 2017:
Requirement A: Compute net sales revenue.
Requirement B: Compute cost of goods sold.
Requirement C: Compute gross profit.
List the two distinctly different gains and losses that are included on the income
statement after continuing operations.
What is the difference between simple interest and compound interest?
If the likelihood of a future event is probable and the amounts of the expense can be
estimated, how should the company report the contingency?
Average Art is a new business. During its first year of operations, credit sales were
$40,000 and collections of credit sales were $36,000. One account, $650, was written
off. Management uses the percent-of-sales method to account for bad debts expense and
estimates 2% of credit sales to be uncollectible. Prepare the entry to record bad debts
expense.