The balance in a bond discount account should be reported on the balance sheet as a
deduction from the related bonds payable.
Answer:
The profit margin component of rate of return on investment analysis focuses on
profitability by indicating the rate of profit earned on each sales dollar.
Answer:
The account for each supplier of merchandise will appear in the accounts payable
subsidiary ledger.
Answer:
Journalizing transactions using the double-entry bookkeeping system will eliminate
fraud.
Answer:
As we compare a merchandise business to a service business, the financial statement
that changes the most is the Balance Sheet.
Answer:
The direct method of preparing the operating activities section of the statement of cash
flows reports major classes of gross cash receipts and gross cash payments.
Answer:
Growth firms generally pay regular dividends to stockholders.
Answer:
Conversion costs are the combination of direct labor, direct material and factory
overhead costs.
Answer:
The methods of evaluating capital investment proposals can be grouped into two
general categories that can be referred to as (1) methods that ignore present value and
(2) present values methods.
Answer:
The minimum amount of desired divisional income from operations is set by top
management by establishing a maximum rate of return considered acceptable for
invested assets.
Answer:
The totals of the Adjusted Trial Balance columns on a work sheet will always be the
sum of the Trial Balance column totals and the Adjustments column totals.
Answer:
The main source of paid-in-capital is from issuing stock.
Answer:
For income tax purposes most companies use an accelerated deprecation method called
double declining balance.
Answer:
Long-lived assets that are intangible in nature, used in the operations of the business,
and not held for sale in the ordinary course of business are called fixed assets.
Answer:
A process whereby the effect of fluctuations in the level of activity is built into the
budgeting system is referred to as flexible budgeting.
Answer:
A company is considering the purchase of a new machine for $48,000. Management
expects that the machine can produce sales of $16,000 each year for the next 10 years.
Expenses are expected to include direct materials, direct labor, and factory overhead
totaling $8,000 per year plus depreciation of $4,000 per year. All revenues and expenses
except depreciation are on a cash basis. The payback period for the machine is 6 years.
Answer:
After a bank reconciliation is completed, adjusting entries are prepared for items in the
balance per company’s records as well as items in the balance per bank statement.
Answer:
Office salaries expense for a department store is an indirect expense.
Answer:
The accounts receivable subsidiary ledger is an example of a special journal.
Answer:
The direct labor and overhead costs of providing services to clients are accumulated in
a work-in-process account.
Answer:
A net loss is shown on the work sheet in the credit columns of both the Income
Statement columns and the Balance Sheet columns.
Answer:
The double declining balance depreciation method calculates depreciation each year by
taking twice the straight line rate times the book value of the asset at the beginning of
each year.
Answer:
If sales total $2,000,000, fixed costs total $800,000, and variable costs are 60% of sales,
the contribution margin ratio is 40%.
Answer:
When selling a piece of equipment for cash, a loss will result when the proceeds of the
sale are less than the book value of the asset.
Answer:
Gilbert Corporation had 25,000 finished units and 8,000 units were 35% complete. The
equivalent units totaled 30,200.
Answer:
Job order cost accounting systems may be used to evaluate a company’s efficiency.
Answer:
Although Allowance for Doubtful Accounts normally has a credit balance, it may have
either a debit or a credit balance before adjusting entries are recorded at the end of the
accounting period.
Answer:
Hill Co. can further process Product O to produce Product P. Product O is currently
selling for $60 per pound and costs $42 per pound to produce. Product P would sell for
$82 per pound and would require an additional cost of $13 per pound to produce.
The differential cost of producing Product P is $13 per pound.
Answer:
If the standard to produce a given amount of product is 600 direct labor hours at $15
and the actual was 600 hours at $17, the rate variance was $1,200 unfavorable.
Answer:
If Division Inc. expects to sell 200,000 units in 2012, desires ending inventory of
24,000 units, and has 22,000 units on hand as of the beginning of the year, the budgeted
volume of production for 2012 is 198,000 units.
Answer:
In valuing damaged merchandise for inventory purposes, net realizable value is the
estimated selling price less any direct costs of disposal.
Answer:
The trial balance may be listed on the work sheet instead of being prepared separately.
Answer:
At the end of a period, (before adjustment), Allowance for Doubtful Accounts has a
credit balance of $250. The net credit sales for the period total $500,000. If the
company estimates uncollectible accounts expense at 1% of net credit sales, the amount
of bad debt expense to be recorded in an adjusting entry is $4,750.
Answer:
The totals at the bottom of the trial balance and the totals at the bottom of the balance
sheet both show equality and balancing, and therefore should be equal.
Answer:
Opportunity cost is the amount of increase or decrease in cost that would result from the
best available alternative to the proposed use of cash or its equivalent.
Answer:
The DuPont formula uses financial information to measure the performance of a
business.
Answer:
The budget for Department 10 of Treble Company for the current month ending March
31 is as follows:
During March, the costs incurred in Department 10 of Treble Company were materials,
$204,000; factory wages, $285,000; supervisory salaries, $63,600; depreciation of plant
and equipment, $35,000; power and light, $21,360; insurance and property taxes,
$14,400; maintenance, $9,456.
Answer:
Cash dividends of $50,000 were declared during the year. Cash dividends payable were
$10,000 and $5,000 at the beginning and end of the year, respectively. The amount of
cash for the payment of dividends during the year is
A.$55,000
B.$50,000
C.$65,000
D.$60,000
Answer:
What effects does this journal entry have on the accounts?
A.Increase Cash and increase Land
B.Increase Land and decrease Cash
C.Decrease Cash and decrease Land
D.Increase Cash and decrease Land
Answer:
On January 1, 2014, the Horton Corporation issued 10% bonds with a face value of
$200,000. The bonds are sold for $192,000. The bonds pay interest semiannually on
June 30 and December 31 and the maturity date is December 31, 2018. Horton records
straight-line amortization of the bond discount. The bond interest expense for the year
ended December 31, 2014, is
A.$10,800
B.$18,400
C.$21,600
D.$28,000
Answer:
The bank reconciliation
A.should be prepared by an employee who records cash transactions
B.is part of the internal control system
C.is for information purposes only
D.is sent to the bank for verification
Answer:
XYZ Co. incurred the following costs related to the office building used in operating its
sports supply company:
a. Replaced a broken window.
b. Replaced the roof that had been on the building 23 years.
c. Serviced all the air conditioners before summer started.
d. Replaced the air conditioners with refrigerated air conditioners in the customer
service areas.
e. Added a warehouse to the back of the building.
f. Repainted the interior walls.
g. Installed window shutters on all windows.
Classify each of the costs as a capital expenditure or a revenue expenditure. For those
costs identified as capital expenditures, classify each as an additional or replacement
component.
Answer:
The charter of a corporation provides for the issuance of 100,000 shares of common
stock. Assume that 60,000 shares were originally issued and 10,000 were subsequently
reacquired. What is the amount of cash dividends to be paid if a $2 per share dividend is
declared?
A.$ 60,000
B.$ 20,000
C.$120,000
D.$100,000
Answer:
Starling Co. is considering disposing of a machine with a book value of $12,500 and
estimated remaining life of five years. The old machine can be sold for $1,500. A new
high-speed machine can be purchased at a cost of $25,000. It will have a useful life of
five years and no residual value. It is estimated that the annual variable manufacturing
costs will be reduced from $26,000 to $23,500 if the new machine is purchased. The
total net differential increase or decrease in cost for the new equipment for the entire
five years is:
A.decrease of $11,000
B.decrease of $15,000
C.increase of $11,000
D.increase of $15,000
Answer:
Which of the following would be subtracted from the balance per bank on a bank
reconciliation?
A.Outstanding checks
B.Deposits in transit
C.Notes collected by the bank
D.Service charges
Answer:
Watson Company issued a 60-day, 8% note for $18,000, dated April 5, to Laker
Company on account. (Assume a 360-day year when calculating interest.)
(a) Determine the due date of the note.
(b) Determine the maturity value of the note.
(c) Journalize the entries to record the following:
-1 receipt of the note by the payee, and
-2 receipt by the payee of the amount due on the note at maturity. Round answers to the
nearest $1.
Answer:
If budgeted beginning inventory is $8,300, budgeted ending inventory is $9,400, and
budgeted cost of goods sold is $10,260, budgeted purchases should be:
A.$1,100
B.$9,300
C.$11,360
D.$11,250
Answer:
A company with 100,000 authorized shares of $4 par common stock issued 50,000
shares at $9. Subsequently, the company declared a 2% stock dividend on a date when
the market price was $10 a share. The effect of the declaration and issuance of the stock
dividend is to
A.decrease retained earnings, increase common stock, and increase paid-in capital
B.increase retained earnings, decrease common stock, and decrease paid-in capital
C.increase retained earnings, decrease common stock, and increase paid-in capital
D.decrease retained earnings, increase common stock, and decrease paid-in capital
Answer:
The amount of increase or decrease in revenue that is expected from a particular course
of action as compared with an alternative is termed:
A.manufacturing margin
B.contribution margin
C.differential cost
D.differential revenue
Answer:
Using the letter preceding each account, arrange the following selected accounts in the
order they would normally appear in a chart of accounts of a company that uses a
multiple-step income statement.
(a) Accounts Payable
(b) Accounts Receivable
(c) Merchandise Inventory
(d) Miscellaneous Selling Expense
(e) Sales Discounts
(f) Interest Expense
(g) Income Summary
(h) Misc. Admin. Expense
(i) Freight Out
(j) Sales Returns and Allowances
Answer:
Ending inventory is made up of the oldest purchases when a company uses
A.first-in, first-out
B.last-in, first-out
C.average cost
D.retail method
Answer:
Which of the following is not an example for safeguarding inventory?
A.Storing inventory in restricted areas.
B.Physical devices such as two-way mirrors, cameras, and alarms.
C.Matching receiving documents, purchase orders, and vendor’s invoice.
D.Returning inventory that is defective or broken.
Answer:
The charter of a corporation provides for the issuance of 100,000 shares of common
stock. Assume that 45,000 shares were originally issued and 5,000 were subsequently
reacquired. What is the amount of cash dividends to be paid if a $2 per share dividend is
declared?
A.$80,000
B.$10,000
C.$90,000
D.$100,000
Answer:
A department store has budgeted sales of 12,000 men’s suits in September. Management
wants to have 6,000 suits in inventory at the end of the month to prepare for the winter
season. Beginning inventory for September is expected to be 4,000 units. What is the
dollar amount of the purchase of suits? Each suit has a cost of $75.
A.$900,000
B.$1,050,000
C.$1,350,000
D.$1,200,000
Answer:
The primary purpose of a stock split is to
A.increase paid-in capital
B.reduce the market price of the stock per share
C.increase the market price of the stock per share
D.increase retained earnings
Answer:
When comparing a retail business to a service business, the financial statement that
changes the most is the
A.Balance Sheet
B.Income Statement
C.Statement of Owner’s Equity
D.Statement of Cash Flow
Answer:
If the expected sales volume for the current period is 9,000 units, the desired ending
inventory is 200 units, and the beginning inventory is 300 units, the number of units set
forth in the production budget, representing total production for the current period, is:
A.9,000
B.8,900
C.8,700
D.9,100
Answer:
Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and
100,000 shares of $50 par common stock. The following amounts were distributed as
dividends:
Determine the dividends in arrears for preferred stock for the second year.
A.$25,000
B.$10,000
C.$0
D.$30,000
Answer:
A company, using the periodic inventory system, has merchandise inventory costing
$175 on hand at the beginning of the period. During the period, merchandise costing
$635 is purchased. At year-end, merchandise inventory costing $160 is on hand. The
cost of merchandise sold for the year is
A.$970
B.$650
C.$300
D.$620
Answer:
The net income reported on the income statement for the current year was $275,000.
Depreciation recorded on fixed assets and amortization of patents for the year were
$40,000 and $9,000, respectively. Balances of current asset and current liability
accounts at the end and at the beginning of the year are as follows:
What is the amount of cash flows from operating activities reported on the statement of
cash flows prepared by the indirect method?
A.$198,000
B.$324,000
C.$352,000
D.$296,000
Answer:
The budgeting process does not involve which of the following activities:
A.Specific goals are established
B.Periodic comparison of actual results to goals
C.Execution of plans to achieve goals
D.Increase in sales by increasing marketing efforts.
Answer:
Accompanying the bank statement was a debit memo for an NSF check received from a
customer. What entry is required in the company’s accounts?
A.debit Other Income; credit Cash
B.debit Cash; credit Other Income
C.debit Cash; credit Accounts Receivable
D.debit Accounts Receivable; credit Cash
Answer:
Sharp and Townson had capital balances of $60,000 and $120,000 respectively on
January 1 of the current year. On May 8, Sharp invested an additional $10,000 in the
partnership. During the year, Sharp and Townson withdrew $25,000 and $45,000
respectively. After closing all expense and revenue accounts at the end of the year,
Income Summary has a credit balance of $90,000, that Sharp and Townson have agreed
to split on a 2:1 basis, respectively.
Answer:
The budget that summarizes future plans for the acquisition of fixed assets is the:
A.direct materials purchases budget
B.production budget
C.sales budget
D.capital expenditures budget
Answer:
Two income statements for Debra’s Design Services are shown below:
(a) Prepare a vertical analysis of Debra’s Design Services income statements.
(b) What type of trend(s) are indicated: favorable or unfavorable trend?
(c) What other information would enhance the analysis?
Answer:
When determining whether to record an asset as a fixed asset, what two criteria must be
met?
A.Must be an investment and must be long lived.
B.Must be long lived and must use the asset in a productive manner.
C.Must be short lived and must be a tangible asset.
D.Must be a tangible asset and must be an investment.
Answer:
Several items are missing from the following table of rate of return on investment and
residual income. Determine the missing items, identifying each item by the appropriate
letter.
Round percentage values to one decimal point.
Answer:
Match the term with the appropriate definition.
Answer:
The payroll summary for December 31 for Waters Co. revealed total earnings of
$80,000. Earnings subject to 6% social security tax were $60,000; earnings subject to
1.5% Medicare tax were $80,000; and earnings of $3,000 were subject to 4.3% state
and 0.8% federal unemployment compensation tax. Journalize the entry to record the
accrual of payroll taxes.
Answer:
Complete each of the columns on the table below, indicating in which section each item
would be reported on the statement of cash flow (Operating, Investing, or Financing),
the amount that would be reported, and whether the item would create an increase or
decrease in cash. For item that affect more than one section of the statement, indicate all
affected. Assume the indirect method of reporting cash flows operating activities.
The first item has been completed as an example.
Answer:
The estimated amount of depreciation on equipment for the current year is $5,300.
Journalize the adjusting entry to record the depreciation.
Answer:
Given the following data, prepare an amortization schedule (use the straight line
method)
1/1/10 – issued $800,000, 9%, 3 year bonds, interest paid annually on 12/31 to yield 8%
Use the following format (round to nearest dollar, may have small rounding difference);
Date Cash paid Int. expense Amortization Bond carry value
Answer:
Big Wheel, Inc. collects 25% of its sales on account in the month of the sale and 75% in
the month following the sale. If sales on account are budgeted to be $150,000 for March
and receipts from sales on account total $162,500 in April, what are budgeted sales on
account for April?
Answer:
Lockrite Security Company manufacturers home alarms. Currently it is manufacturing
one of its components at a total cost of $45 which includes fixed costs of $15 per unit.
An outside provider of this component has offered to sell them the component for $40.
Provide a differential analysis of the outside purchase proposal.
Answer:
Rosser Company produces a container that requires 4 yds. of material per unit. The
standard price of one yard of material is $4.50. During the month, 9,500 chairs were
manufactured, using 37,300 yards.
Answer:
On May 1, 2012, Chase Inc. purchases $60,000 of 10-year, Manus Corporation 8%
bonds dated March 1, 2012 at 100 plus accrued interest. What entry would Chase record
when receiving its semiannual interest on March 1, 2013?
Answer:
A project is estimated to cost $248,400 and provide annual cash flows of $50,000 for
eight years. Determine the internal rate of return for this project, using the following
table.
Answer:
The Grant Company has sales of $300,000, and the break-even point in sales dollars if
$225,000. Determine the company’s margin of safety percentage.
Answer:
Discuss and describe how errors in accounts can be found.
Answer:
Magnolia, Inc. manufactures bedding sets. The budgeted production is for 55,000
comforters in 2012. Each comforter requires 7 yards of material. The estimated January
1, 2012, beginning inventory is 31,000 yards. The desired ending balance is 30,000
yards of material. If the material costs $4.00 per yard, determine the materials budget
for 2012.
Answer:
Voyager Electronic Services has three customers in its Accounts Receivable Subsidiary
Ledger with the following detail:
Fred Yao Ming Beginning balance $1,150.00
Kohl Townson Beginning balance $850.00
Chandra Jahi Beginning balance $1,075.00
Accounts Receivable controlling Account balance $3,075.00
Journalize then post the following five transactions to the General Journal. Then post
the journal entries to the Accounts Receivable Subsidiary Ledger. Update the balance of
the Accounts Receivable controlling Account balance.
On June 3rd, Kohl Townson pays $325.00 on account.
On June 10th, Chandra Jahi purchases $475.00 on account.
On June 15th, Fred Yao Ming pays $395.00 on account.
On June 16th, Fred Yao Ming purchases $685.00 on account.
On June 23rd, Kohl Townson purchases $155.00 on account.
Answer:
The Mountain Springs Water Company has two departments, Purifying and Bottling.
The Bottling Department had 8,000 liters in beginning work in process inventory (60%
complete). During the period 70,000 liters were completed. The ending work in process
was 3,000 liters (60% completed). What are the total equivalent units for direct
materials under the FIFO method if materials were added at the beginning of the
process?
Answer:
Information for the Sandy Manufacturing Company for the month of July 2012 is as
follows:
Prepare a cost of production report for the month of July, using the FIFO method.
Answer:
Why is the sales budget usually prepared first?
Answer:
You are trying to explain debit and credit memos that appear on bank statements and
whether these will increase or decrease your company’s bank account balance.
Complete the following table to help your new staff understand.
Answer:
Consider the cash account below.
Additional Information: cash disbursements were 80% of collections.
How much was the Beginning Balance of the Cash Account?
Answer: