One application of accrual accounting is adjusting the accounts.
Performance measurement is the use of quantitative tools to gauge an organization’s
performance in relation to a specific goal or an expected outcome.
A report for a responsibility center includes costs and revenues that are not controlled
by a manager.
The day-by-day accumulation of interest is considered a transaction involving an
exchange of value.
The use of rule-of-thumb measures is superior to comparison of financial measures or
ratios of the same company over a period of time.
On a statement of cash flows prepared using the direct method, if inventory has
decreased from one accounting period to another, net purchases will be greater than the
cost of goods sold because net purchases during the period have exceeded the dollar
amount of the items sold during the period.
Wages of machine operators and other workers involved in actually shaping the product
are classified as indirect labor costs.
Companies that sell goods that have a high unit value tend to use the perpetual
inventory system.
Financial statement analysis is used to show how items in a company’s financial
statements relate to the company’s financial performance objectives.
A non value-adding activity is one that adds cost to a product or service but does not
increase its market value.
The accounting rate-of-return method is widely used to measure the estimated
performance of a capital investment, primarily because it uses time value of money
concepts.
When depreciation rates are revised, an adjustment for previous years’ depreciation
must be recorded.
The ending balance of Work in Process account is compared with the total costs shown
on the job order cost cards to ensure correctness.
Traditional costing and backflush costing provide the same ending balances only when
there is little or no ending inventory.
Cost of goods sold is a type of expense.
In breakeven analysis adjusted for a profit factor, increasing the unit sales price will
decrease the number of units needed to meet the targeted profit.
When calculating a partial year’s depreciation, the length of time an asset has been
owned usually is rounded to the nearest month. This rounding practice is justified by
the principle or rule of
A.matching.
B.materiality.
C.conservatism.
D.full disclosure.
Use the following information to calculate cost of goods sold under each of three
methods: (a) FIFO, (b) LIFO, and (c) average-cost. Assume the periodic inventory
system is used. (Show your work.)
For work done during August, Footprints Company incurred direct materials costs of
$104,000 and conversion costs of $260,000. The company employs a just-in-time
operating philosophy and backflush costing. At the end of August, it was determined
that the Work in Process Inventory account had been assigned $1,080 of costs, and the
ending balance of the Finished Goods Inventory account was $1,220. There were no
beginning inventory balances.
Using the information provided for Footprints Company, what was the ending balance
of the Cost of Goods Sold account for August?
A.$361,700
B.$362,780
C.$362,920
D.$364,000
When payment is received by mail, a detailed list of such receipts would not be retained
by the
A.receiving department.
B.accounting department.
C.person who opens the mail.
D.cashier.
If net cash flows from operating activities were $388,000, net income were $100,000,
and net sales were $1,200,000, the cash flow yield would equal (Round amounts to two
decimal places)
A.$288,000.
B.$812,000.
C.3.88 times.
D.3.09 times.
Assume the indirect method is used to compute net cash flows from operating activities.
For this item extracted from the financial statements’”Decrease in Income Taxes
Payable’”indicate the effect on net income in arriving at net cash flows from operating
activities by choosing one of the following:
A.Add to net income to arrive at net cash flows from operating activities.
B.Subtract from net income to arrive at net cash flows from operating activities.
C.Not used to adjust net income to calculate net cash flows from operating activities.
Liquidity ratios are an indication of a company’s
A.ability to effectively employ its resources.
B.overall debt to equity position.
C.overall debt position.
D.ability to pay bills when they are due and to meet unexpected needs for cash.
An American company makes a credit purchase of goods from a company in London
for $1,000. On the date of purchase, the exchange rate was $1.50 per pound. However,
on the date of payment, the rate had risen to $1.55 per pound. As a result, the American
company would record
A.an exchange gain of $50.
B.an exchange loss of $1,550.
C.an exchange loss of $50.
D.no exchange gain or loss.
When freight-in is a relatively small amount, most companies include the cost in
A.operating expenses.
B.cost of goods sold.
C.administrative expenses.
D.merchandise inventory.
A promissory note is executed in June. When the note is paid the following January, the
payee’s entry includes (assuming a calendar-year accounting period and no reversing
entries) a
A.debit to Interest Income.
B.credit to Cash.
C.credit to Interest Receivable.
D.debit to Notes Receivable.
In a job order costing system, the purchase of materials on account should be recorded
as follows:
A.Materials Inventory
Work in Process Inventory
B.Materials Inventory
Accounts Payable
C.Work in Process Inventory
Accounts Payable
D.Accounts Payable
Materials Inventory
Which of the following is a batch-level activity?
A.Testing products
B.Inspection
C.Implementation of engineering changes
D.Maintenance of the building
Under a defined benefit pension plan,
A.actuarial computations are unnecessary.
B.accounting for annual pension expense is simple.
C.retirement payments are based on the amount accumulated in the pension fund.
D.the employer guarantees the employees certain benefits upon retirement.
On January 2, 20×5, Clair Inc. signed a 9% mortgage payable for $200,000 with equal
monthly payments of $2,400. When Clair makes the second payment, how much
interest expense will be recorded?
A.$0
B.$1,494.
C.$1,500.
D.$1,482.
Which of the following is one of the conditions for recognition of an expense?
A.There is a reasonable expectation that cash will be paid.
B.The expense will be recognized only when cash is paid.
C.The goods will be delivered or the services will be provided within the accounting
cycle.
D.The goods or services are used to produce revenue.
Which of the following forms the base of all operating budgets?
A.Direct materials purchases in units
B.Production budget (units)
C.Capital expenditures budget
D.Unit sales forecast
On January 1, 2014, Huan Manufacturing Company purchased for $94,000 a machine
that will produce an estimated 75,000 units of Product X. The machine has an estimated
useful life of five years and an estimated residual value of $4,000. Calculate the
following amounts: (a) the carrying value of the machine after it has been used for three
and one-half years, under the straight-line method; (b) depreciation expense for 2015,
under the production method (assume that 13,000 units were produced that year); and
(c) accumulated depreciation at the end of 2015, under the double-declining-balance
method. (Show your work.)
Mortgages payable
A.are usually paid in monthly installments.
B.have payments that include both interest on the debt and reduction in the debt.
C.are secured by real property.
D.All of these choices.
Juan invests $120,000 for a one-fifth interest in a partnership in which the other
partners have capital totaling $240,000 before admitting Juan. After distribution of the
bonus, Juan’s capital is
A.$120,000
B.$72,000
C.$96,000
D.$48,000
Provide explanations for the following related journal entries:
Distinguish between cost of goods sold and operating expenses, describing the nature of
these two items and their placement on a multistep income statement.
Each of the following statements violates a concept or convention of accounting. Write
the letter in the blank next to each statement corresponding to the concept or convention
violated.
_____ 1> A note to the financial statements indicating a change in inventory methods is
omitted.
_____ 2> When management is unsure of which estimates to use in a given situation,
the estimate resulting in the largest net income is always used.
_____ 3> In 20×5, a company uses straight-line depreciation and in 20×6 the company
uses declining-balance depreciation.
_____ 4> A small company expenses all expenditures under $10,000.
_____ 5> A small company purchases a $50,000 computer to save $3,000 per year in
bookkeeping wages.
Prepare journal entries for the following transactions involving notes payable for
Weston Company, whose fiscal year ends April 30. Omit explanations and round all
numbers to the nearest dollar.
Prior to a fire that destroyed most of its inventory, Tejada Company had inventory
purchases during the period of $40,000 and sales of $125,000. Tejada began the period
with $95,000 in inventory. Tejada’s typical gross profit percentage is 20 percent.
Inventory that cost $5,000 survived the fire. Using the gross profit method, estimate the
inventory loss from the fire. (Show your work.)