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business
accounting principles

Questions and Answers of Accounting Principles

In computing the ratio of net sales to assets, why are long-term investments excluded in determining the amount of the total assets? LO4
In determining the number of times interest charges are earned, why are interest charges added to income before income tax? LO4
In determining the rate earned on total assets, why is interest expense added to net income before dividing by total assets? LO4
The net income (after income tax) of A. L. Gibson Inc. was $25 per common share in the latest year and $40 per common share for the preceding year. At the beginning of the latest year, the number of
The price-earnings ratio for the common stock of Essian Company was 10 at Decem- ber 31, the end of the current fiscal year. What does the ratio indicate about the sell- ing price of the common stock
Why would the dividend yield differ significantly from the rate earned on common stockholders' equity? LO4
a. What are the major components of an annual report?b. Indicate the purpose of the Financial Highlights section and the Management Dis- cussion and Analysis. LO4
Which of the following is not considered a cost of manufacturing a product? LO3A. Direct materials cost C. Sales salaries B. Factory overhead cost D. Direct labor cost
Which of the following costs would be included as part of the factory overhead costs of a microcomputer manufacturer? LO3A. The cost of memory chips B. Depreciation of testing equipment C. Wages of
For which of the following would the job order cost system be appropriate? LO3A. Antique furniture repair shop B. Rubber manufacturer C. Coal mining D. All of the above
If the factory overhead account has a credit balance, factory overhead is said to be: LO3A. underapplied B. overapplied C. underabsorbed D. in error
What are the major differences between managerial accounting and financial account- ing? LO3
a. What is the role of the controller in a business organization?b. Does the controller have a line or staff responsibility? LO3
For a company that produces microcomputers, would memory chips be considered a direct or an indirect materials cost of each microcomputer produced? LO3
What three costs make up the cost of manufacturing a product? LO3
Name the three inventory accounts for a manufacturing business and describe what each balance represents at the end of an accounting period. LO3
For a manuchfandaisec sotld?u rer, what is comparable to a merchandising business's cost of mer- LO3
How is product cost information used by managers? LO3
a. Name two principal types of cost accounting systems.b. Which system provides for a separate record of each particular quantity of product that passes through the factory?c. fWahcitcorhy ? system
What kind of firm would use a job order cost system? LO3
Hewlett-Packard Company assembles printed circuit boards in which a high volume of standardized units are assembled and tested. Is the job order cost system appropriate in t his situation? LO3
Which account is used in a job order cost system to accumulate direct materials, direct labor, and factory overhead applied to production costs for individual jobs? LO3
What is a job cost sheet? LO3
How does the use of the materials requisition help control the issuance of materials from the storeroom? LO3
What document serves as the basis for posting to (a) the direct materials section of the job cost sheet and (b) the direct labor section of the job cost sheet? LO3
Describe the source of the data for debiting Work in Process for (a) direct materials, (b) direct labor, and (c) factory overhead. LO3
Discuss how the predetermined factory overhead rate can be used in job order cost accounting to assist management in pricing jobs. LO3
a. How is a predetermined factory overhead rate calculated?b. Name three common bases used in calculating the rate. LO3
At the end of the fiscal year, there was a relatively minor balance in the factory overhead account. What procedure can be used for disposing of the balance in the account? LO3
What account is the controlling account for (a) the materials ledger. (b) the job cost sheets, and (c) the finished goods ledger or stock ledger? LO3
What is the difference between a product cost and a period cost? LO3
How can job cost information be used to identify cost improvement opportunities? LO3
What account is debited for completed service jobs? LO3
There were 2,000 pounds in process at the beginning of the period in the Packing Department. Packing received 24,000 pounds from the Blending Department during the month, of which 3,000 pounds were
Information relating to production in Department A for May is as follows: LO3If 500 units were one-fourth completed at May 31.5,500 units were completed during May. and inventories are costed by the
Based on the data presented in Question 3. what is the conversion cost per equivalent unit? LO3 A. $10 C. $25 B. $15 D. $32
Ifonlfloorwmiantgi:o n from the accounting system revealed theWhich of the following statements best interprets this information? LO3 A. The total costs are out of control.B. The product costs have
Which type of cost system, process or job order, would be best suited for each of the following: LO3(a) custom jewelry manufacturer, (b) paper manufacturer, (c) automobile repair shop, (d) building
Are perpetual inventory accounts for materials, work in process, and finished goods generally used for (a) job order and (b) process cost systems? LO3
In a job order cost system, direct labor and factory overhead applied are debited to individual jobs. How are these items treated in a process cost system and why? LO3
What two groups of manufacturing costs are referred to as conversion costs? LO3
What are transferred-out materials? LO3
What account for a production department receives the debit for "transferred-in materials"? LO3
What are die four steps for detennining the cost of goods completed and the ending inventory? LO3
What is meant by the term equivalent units? LO3
Why is the cost per equivalent unit often determined separately for direct materials and conversion costs? LO3
What is the purpose for determining the cost per equivalent unit? LO3
How is actual factor," overhead accounted for in a process manufacturer? LO3
What data are summarized in the two principal sections of the cost of production report? LO3
What is the most important purpose of the cost of production report? LO3
How are cost of production reports used for controlling and improving operations? LO3
How is "yield" determined for a process manufacturer? LO3
What is just-in-time processing? LO3
How does just-in-time processing differ from the conventional manufacturing process? LO3
Which of the following statements describes variable costs? LO2 A. Costs that vary on a per-unit basis as the level of activity changes. B. Costs that vary in total in direct proportion to changes in
If sales are $500.000, variable costs are $200,000, and fixed costs are $240,000, what is the contribution mar- gin ratio? LO2A. 40% B. 48% C: 52% D. 60%
If the unit selling price is $16, the unit variable cost is $12, and fixed costs are $160,000, what are the break- even sales (units)? LO2 A. 5,714 units C. 13.333 units B. 10,000 units D. 40.000
Based on the data presented in Question 3, how many units of sales would be required to realize income from operations of $20,000? LO2 A. 11,250 units C. 40,000 units B. 35,000 units D. 45,000 units
Based on the following operating data, what is the operating leverage? LO2 Sales $600,000 Variable costs 240,000 Contribution margin $360,000 Fixed costs 160,000 Income from operations $200,000 A.
What are the three most common classifications of cost behavior? LO2
Describe how total variable costs and unit variable costs behave with changes in the level of activity. LO2
Describe the behavior of (a) total fixed costs and (b) unit fixed costs as the level of activity increases. LO2
In cost analyses, how are mixed costs treated? LO2
Which of the following graphs illustrates how total variable costs behave with changes in total units produced? LO2 Total Cost (a) 0 Total Units Produced 0 Total Cost (b) Total Units Produced
Which of the following graphs illustrates how unit variable costs behave with changes in total units produced? LO2 Unit Cost G 0 Total Units Produced 0 Unit Cost (b) Total Units Produced
Which of the following graphs best illustrates fixed costs per unit as the activity base changes? LO2 0 Costs per Unit Activity Base (a) 0 Costs per Unit Activity Base (b)
In applying the high-low method of cost estimation, how is the total fixed cost estimated? LO2
How is contribution margin calculated? LO2
If fixed costs increase, what would be the impact on the (a) contribution margin? (b) income from operations? LO2
What equation is used to determine the break-even point in sales units? LO2
If the unit cost of direct materials is decreased, what effect will this change have on the break-even point? LO2
If insurance rates are increased, what effect will this change in fixed costs have on the break-even point? LO2
How does the sales mix affect the calculation of the break-even point? LO2
How is the margin of safety calculated? LO2
a. How is operating leverage computed?b. What does operating leverage measure? LO2
What is the amount of depreciation, using the decliningbalance method (twice the straight-line rate) for the second year of use for equipment costing $9,000, with an estimated residual value of $600
An example of an accelerated depreciation method is: LO2 A. Straight-line C. Units-of-production B. Declining-balance D. Depletion
A fixed asset priced at $100,000 is acquired by trading in a similar asset that has a book value of $25,000.Assuming that the trade-in allowance is $30,000 and that $70,000 cash is paid for the new
Which of the following is an example of an intangible asset? LO2 A. Patents C. Copyrights B. Goodwill D. All of the above
Which of the following qualities arc characteristic of fixed assets? (a) tangible, (b)capable of repeated use in the operations of the business, (c) held for sale in the normal course of business,
Spiral Co. acquired an adjacent vacant lot with the hope of selling it in the future at a gain. The lot is not intended to be used in Spiral's business operations. Where should such real estate be
Tensile Company solicited bids from several contractors to construct an addition to its office building. The lowest bid received was for $340,000. Tensile Company decided to constaict the addition
Are the amounts at which fixed assets are reported in the balance sheet their approximate market values as of the balance sheet date? Discuss. LO2
Name the three factors that need to be considered in determining the amount of periodic depreciation. LO2
Trigger Company purchased a machine that has a manufacturer's suggested life of 15 years. The company plans to use the machine on a special project that will last 11 years. At the completion of the
Of the three common depreciation methods, which is most widely used? LO2
A revision of depreciable fixed asset lives resulted in an increase in the remaining lives of certain fixed assets. The company would like to include, as income of the current period, the cumulative
Differentiate between the accounting for capital expenditures and revenue expenditures. LO2
Immediately after a used truck is acquired, a new motor is installed and the tires are replaced at a total cost of $4,750. Is this a capital expenditure or a revenue expenditure? LO2
In what sections of the income statement are gains and losses from the disposal of fixed assets presented? LO2
Differentiate between a capital lease and an operating lease. LO2
Describe the internal controls for acquiring fixed assets. LO2
Why is a physical count of fixed assets necessary? LO2
What is the term applied to the periodic charge for (a) ore removed from a mine. (b) the use of an intangible asset? LO2
a. Over what period of time should the cost of a patent acquired by purchase be amortized?b. In general, what is the required treatment for research and development costs? LO2
How should (a) fixed assets and (b) intangible assets be reported in the balance sheet? LO2
A business issued a $5,000, 60-day, 12% note to the bank. The amount due at maturity is: LO2 A. $4,900 C. $5,100 B. $5,000 D. $5,600
A business issued a $5,000, 60-day note to a supplier, which discounted the note at 12%. The proceeds are: LO2 A. $4,400 C. $5,000 B. $4,900 D. $5,100
An employee's rate of pay is $20 per hour, with time and a half for all hours worked in excess of 40 during a week. The social security rate is 6.0% on the first $80,000 of annual earnings, and the
What two types of transactions cause most current liabilities? LO2

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