ACCOUNTING 26TH EDITION BY WARREN -TEST BANK

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ACCOUNTING 26TH EDITION BY WARREN -TEST BANK

Chapter_05_Accounting_Systems

  1. The methods and procedures for collecting, classifying, summarizing, and reporting a business’s financial and operating information are called the accounting system.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-01 – 05-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Systems analysis is the final phase in the creation or revision of an accounting system.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-01 – 05-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Processing methods are the means by which the system collects, summarizes, and reports accounting information.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-01 – 05-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.06 – Recording Transactions ACCT.AICPA.FN.03 – Measurement

BUSPROG: Analytic

 

 

 

  1. Accounting systems evolve through a three-step process: analysis, design, and feedback.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-01 – 05-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.05 – Accounting Cycle ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. An accounting system design consists of internal controls and information processing methods.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-01 – 05-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Most accounting systems evolve as the business grows and requires changes in its methods for collecting, accumulating, and reporting information.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-01 – 05-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.05 – Accounting Cycle ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Once an accounting system has been implemented, feedback will be used to continuously analyze and improve the
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-01 – 05-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.05 – Accounting Cycle ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Designing a system to meet user needs is the final phase in the creation or revision of an accounting system.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-01 – 05-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.05 – Accounting Cycle ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. When specialized journals are used, the general journal is not
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Specialized journals are books of original entry.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Transactions must first be recorded into the general journal before they can be entered into specialized journals.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The format and number of specialized journals that a business uses depends upon the legal organization of the
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.03 – Business Forms

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. The basic procedure of posting from a revenue journal is to make all postings at the end of the month.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The principal ledger that contains all the balance sheet and income statement accounts is the general ledger.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The presence of a subsidiary ledger requires the presence of a summarizing control account in the general ledger.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. An account for each supplier of merchandise will appear in the accounts payable subsidiary ledger.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The customers subsidiary ledger is controlled by the general ledger account entitled Accounts Payable.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. When a sale for $1,350 takes place with a $250 deposit having been received in advance, only the $1,100 on account is recorded in the revenue journal.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Challenging

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Even when special journals are used, purchases of store equipment on account are recorded in the general journal.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. A control account is used to record the details of the individual subsidiary accounts.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. A cash refund paid to a customer who overpaid an account receivable is recorded in the cash payments journal.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Even when special journals are used, a personal withdrawal of cash is recorded in the general journal.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Services provided for cash are recorded in the revenue journal.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Services provided on account are recorded in the revenue journal.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Sales of office supplies for cash, at cost, to a neighboring business as an accommodation are recorded in the revenue journal.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The Other Accounts column in the cash receipts journal is used for recording debits to any account for which there is no special debit column.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The Other Accounts column in the cash payments journal is used for recording debits to any account for which there is no specialized debit column.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Purchases journals will have an Other Accounts Cr. column.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The use of subsidiary ledgers is limited to Accounts Payable and Accounts Receivable.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The revenue journal is designed for the efficient recording of cash sales transactions.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. The Post. Ref. column of the revenue journal will reference the account number of the customer.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The total of the accounts receivable subsidiary accounts and the balance of the accounts receivable control account should equal each other at the end of the period.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Adjusting journal entries are recorded in a special journal.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Even when special journals are used, closing journal entries are recorded in the general journal.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.08 – Closing Entries

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The accounts receivable subsidiary ledger is an example of a special journal.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Posting from a revenue journal to the customer account is normally done only at the end of the month.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. The purchase of supplies for cash would be recorded in the purchases journal.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. When a large number of individual accounts with a common characteristic are grouped together in a separate ledger, the summarizing account in the general ledger is called a control account.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The customers ledger and the creditors ledger refer to subsidiary ledgers.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. The total on the “Accounts Payable Creditor Balances” report at January 31, the end of the first month of operations, agrees with the total of the Accounts Payable debit column in the cash payments journal for the same
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The columns included in special journals are standardized for all businesses.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Generally, subsidiary ledgers are used for general ledger accounts that consist of a large number of individual items.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. In a computerized accounting system, all postings happen automatically at the end of the month.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-03 – 05-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.06 – Recording Transactions ACCT.AICPA.FN.03 – Measurement

BUSPROG: Analytic

  1. In computerized accounting systems, reports may be generated at any time.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-03 – 05-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.06 – Recording Transactions ACCT.AICPA.FN.03 – Measurement

BUSPROG: Analytic

  1. Computerized accounting systems prevent all journalizing errors.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-03 – 05-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.06 – Recording Transactions ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Using the Internet to perform business transactions is called e-commerce.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-04 – 05-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.03 – Business Forms ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The term B2C refers to transactions conducted between two companies.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-04 – 05-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.03 – Business Forms ACCT.AICPA.FN.02 – Leveraging Technology ACCT.AICPA.FN.03 – Measurement BUSPROG: Technology

  1. E-commerce provides additional business opportunities but at the cost of reduced speed and efficiency.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-04 – 05-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.06 – Recording Transactions ACCT.AICPA.FN.02 – Leveraging Technology ACCT.AICPA.FN.03 – Measurement BUSPROG: Technology

 

 

 

  1. One way to report revenue earned by a company is to present it by the different segments of business.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-05 – 05-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.06 – Recording Transactions ACCT.AICPA.BB.01 – Industry

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. A(n) system is the methods and procedures for collecting, classifying, summarizing and reporting a business’s financial and operating information.
    1. accounting
    2. fiduciary
    3. operations
    4. auditing

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-01 – 05-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The phase of accounting system installation in which the information needs of people in the organization are taken into account is
    1. analysis
    2. design
    3. implementation
    4. installation

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-01 – 05-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.05 – Accounting Cycle ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Which of the following is not one of the three phases needed when changing an accounting system, either in its entirety or in part?
    1. analysis
    2. design
    3. review
    4. implementation

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-01 – 05-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.05 – Accounting Cycle ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Which of the following is not part of a three-step process that a growing business uses for the evolution of its accounting system?
    1. analysis
    2. design
    3. implementation
    4. feedback

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-01 – 05-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.05 – Accounting Cycle ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The three phases of setting up an accounting system are, in order
    1. design, implementation, analysis
    2. analysis, design, implementation
    3. design, analysis, implementation
    4. implementation, design, analysis

 

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-01 – 05-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.05 – Accounting Cycle ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. The goal of systems design is to meet
    1. when to implement a system
    2. user needs
    3. the size of the competitor’s system
    4. changes to the present system

 

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-01 – 05-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.AICPA.BB.01 – Industry

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Which of the following is not an element of internal controls?
    1. to protect assets from misuse
    2. ensure the accuracy of business information
    3. ensure that laws and regulations are followed
    4. ensure that company policies are in place to maximize profits

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-01 – 05-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.10 – Internal Control

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. After an accounting system has been set up, what is the next step?
    1. create the chart of accounts
    2. obtain input from users to analyze and improve the system
    3. implement analysis and design
    4. set up internal controls

 

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-01 – 05-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.05 – Accounting Cycle ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Processing methods
    1. are the policies and procedures that protect assets from misuse
    2. must be computerized.
    3. are the means by which the accounting system collects, summarizes, and reports accounting information
    4. ensure that business laws and regulations are followed

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-01 – 05-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.05 – Accounting Cycle ACCT.AICPA.FN.03 – Measurement ACCT.AICPA.FN.04 – Reporting BUSPROG: Analytic

  1. The means by which the accounting system collects, summarizes, and reports accounting information is called information
    1. reporting methods
    2. accounting methods
    3. control methods
    4. processing methods

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-01 – 05-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.05 – Accounting Cycle ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The primary ledger containing all the balance sheet and income statement accounts is the
    1. general ledger
    2. creditors ledger
    3. customers ledger
    4. subsidiary ledger

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. The subsidiary ledger that includes customer account activity is called the
    1. asset ledger
    2. accounts payable ledger
    3. expense ledger
    4. accounts receivable ledger

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Every controlling account must have its own
    1. revenue ledger
    2. general ledger
    3. subsidiary ledger
    4. journal

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.10 – Internal Control

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. At the end of the month, the total of the amount column of the revenue journal is posted as a
    1. debit to Accounts Receivable and a credit to Cash
    2. debit to Accounts Receivable and a credit to Fees Earned
    3. debit to Cash and a credit to Fees Earned
    4. debit to Cash and a credit to Accounts Payable

 

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. The controlling account in the general ledger that summarizes the individual customer accounts in the subsidiary ledger is entitled
    1. Purchases
    2. Accounts Payable
    3. Fees Earned
    4. Accounts Receivable

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.5-02 – 5-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. When there are a large number of individual accounts with a common characteristic, it is common to place them in a separate ledger called a(n)
    1. general ledger
    2. income statement ledger
    3. group ledger
    4. subsidiary ledger

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. A purchase of supplies for cash is recorded in the
    1. revenue journal
    2. purchases journal
    3. cash receipts journal
    4. cash payments journal

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. A purchase of supplies on account is recorded in the
    1. revenue journal
    2. general journal
    3. purchases journal
    4. cash payments journal

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Which of the following transactions is recorded in the purchases journal?
    1. purchase of store supplies on account
    2. return of damaged office equipment
    3. purchase of store supplies for cash
    4. purchase of office equipment for cash

 

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. When posting column totals in the purchases journal, a credit should be posted to
    1. Merchandise Inventory
    2. Accounts Payable
    3. Sales Returns and Allowances
    4. Cash

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. In which journal would an adjustment for an overcharge by a creditor be recorded?
    1. general journal
    2. purchases journal
    3. cash payments journal
    4. cash receipts journal

 

ANSWER:                                  a

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Which of the following transactions is recorded in the revenue journal?
    1. sale of excess office equipment for cash
    2. rendering services for cash
    3. rendering services on account
    4. sale of excess office equipment on account

 

ANSWER:                                  c

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Each individual entry in the revenue journal is posted to
    1. the accounts receivable controlling account
    2. the accounts receivable subsidiary ledger
    3. the revenue controlling account
    4. the accounts receivable subsidiary ledger and the controlling account

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Which of the following is always recorded in the general journal?
    1. services rendered for cash
    2. correction of error in billing client
    3. purchases of equipment on account
    4. purchases of equipment for cash

 

ANSWER:                                  b

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Which of the following is always recorded in the general journal?
    1. rendering services for cash
    2. purchases of supplies on account
    3. rendering services on account
    4. closing entries

 

ANSWER:                                  d

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Which of the following is recorded in the cash receipts journal?
    1. cash withdrawn by the owner
    2. cash purchase of equipment
    3. cash received on customer’s account
    4. adjusting entry for depreciation

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Services performed for cash should be recorded in the
    1. revenue journal
    2. purchases journal
    3. cash receipts journal
    4. cash payments journal

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Which of the following is recorded in the cash payments journal?
    1. adjusting entry for accrued salaries
    2. receipt of cash on supplies returned
    3. receipt of cash from services rendered
    4. payment of employees’ salaries

 

ANSWER:                                  d

DIFFICULTY:                           Challenging Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. A cash payments journal would not include a
    1. Cash credit column
    2. Sales Discounts credit column
    3. Accounts Payable debit column
    4. Other Accounts debit column

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. In which journal is the return of supplies purchased on account recorded?
    1. general journal
    2. cash receipts journal
    3. cash payments journal
    4. purchases journal

 

ANSWER:                                  a

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. A cash purchase of supplies should be recorded in the
    1. cash receipts journal
    2. purchase journal
    3. general journal
    4. cash payments journal

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. When posting the column totals of a cash payments journal, a debit should be posted to
    1. Cash
    2. Accounts Payable
    3. Sales Discounts
    4. Unearned Revenue

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. In which journal is the receipt of a promissory note from a customer on account recorded?
    1. revenue journal
    2. cash receipts journal
    3. general journal
    4. purchases journal

 

ANSWER:                                  c

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Subsidiary ledgers
    1. are used only for Accounts Payable and Accounts Receivable
    2. may be used for various general ledger accounts
    3. may be used only for the Cash account
    4. are never used for more than four accounts

 

ANSWER:                                  b

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Some of the more common subsidiary ledgers are
    1. accounts payable, accounts receivable, and owner’s equity subsidiary ledgers
    2. accounts receivable and accounts payable subsidiary ledgers
    3. accounts receivable, accounts payable, cash, checking, petty cash, and owner’s equity subsidiary ledgers
    4. cash and owner’s equity subsidiary ledgers

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. If the individual subsidiary ledger accounts contained the following data:

Cadence Company – Vendor – $200 – credit balance

Franklin Enterprises – Customer – $750 – debit balance

Marcelo Construction – Client – $125 – debit balance

Peyton Supplies – Supplier – $375 – credit balance

 

The accounts receivable (A/R) control account and the accounts payable (A/P) control account balances would be: a. A/R – $1,375, A/P – $375

  1. A/R – $525, A/P – $175 c. A/R – $875, A/P – $575 d. A/R – $750, A/P – $700

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Which of the following is not considered a special journal?
    1. purchases journal
    2. cash receipts journal
    3. general journal
    4. cash payments journal

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Which of the following journals is called an all-purpose journal?
    1. general journal
    2. purchases journal
    3. revenue journal
    4. accounting journal

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Which of the following is true about the revenue journal?
    1. Cash revenues and revenues on account are recorded in the revenue journal.
    2. Only cash revenues are recorded in the revenue journal.
    3. Only revenues on account are recorded in the revenue journal.
    4. Unearned revenues are also recorded in the revenue journal.

 

ANSWER:                                  c

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The cash receipts journal will be used for
    1. only cash received from customers on account
    2. all cash received for any purpose
    3. cash received from customers on account and cash sales
    4. only cash received from cash sales

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. An “Accounts Receivable Customer Balances” report shows
    1. revenues by customer for a specified date range
    2. customer balances owed as of a specific date
    3. cash payments to creditors for a specific date range
    4. sales by customer as of a specific date

 

ANSWER:                                  b

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-03 – 05-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.15 – Current Assets Reporting

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. A cash investment made by the owner should be recorded in the
    1. cash receipts journal
    2. purchases journal
    3. cash payments journal
    4. revenue journal

 

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. A withdrawal of cash made by the owner will be found in the
    1. cash receipts journal
    2. cash payments journal
    3. revenue journal
    4. purchases journal

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. An owner transfers a personal automobile to the company with a fair market value of $12,000. The entry will be made in the
    1. purchases journal
    2. cash payments journal
    3. cash receipts journal
    4. general journal

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. In which journal would adjusting entries be found?
    1. cash receipts journal
    2. cash payments journal
    3. general journal
    4. purchases journal

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. In which journal would you find cash revenues recorded?
    1. cash payments journal
    2. general journal
    3. revenues journal
    4. cash receipts journal

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. In which journal would the payment of salaries be posted?
    1. cash receipts journal
    2. special journal
    3. cash payments journal
    4. expense journal

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. The following cash receipts journal headings have been suggested for Tower Tree-Trimming Service Company. Which of the following statements is false?

 

Date Account Debited Post. Ref. Accounts Receivable Cr. Cash Cr. Other Accounts Dr.
  1. The second column should be Account Credited.
  2. The Cash column should be a debit.
  3. The Other Accounts column should be a credit.
  4. The Accounts Receivable column should be a debit.

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Which of the following is not a special journal?
    1. cash receipts journal purchases journal
    2. accounts receivable journal d. cash payments journal

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Which of the following general ledger accounts normally has a subsidiary ledger?
    1. Capital Stock Retained Earnings
    2. Supplies d. Accounts Payable

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Which transaction is normally recorded in a special journal?
    1. sales returns depreciation expense
    2. purchases on account d. issued stock dividend

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. An adjustment resulting from a creditor reducing the amount owed on an unpaid invoice due to an invoicing error would be recorded in the
    1. general journal
    2. purchases journal
    3. cash payments journal
    4. cash receipts journal

 

ANSWER:                                  a

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. If a company uses special journals
    1. it must have one for cash, receivables, and payables
    2. it may have no more than four
    3. the quantity and design depend on the needs of the company
    4. the design must comply with the FASB requirements

 

ANSWER:                                  c

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Mocha Coffee Shop has asked the accountant to keep track of the purchases for beverage, food, and retail items. The accountant has implemented a purchases journal. Which of the following columns should be included in the new purchases journal?
    1. Accounts Payable Cr., Beverage Supplies Dr., Food Supplies Dr., Retail Items Dr., Other Accounts Dr.
    2. Accounts Payable Dr., Other Accounts Dr., Beverage Supplies Cr., Food Supplies Cr., Retain Items Cr.
    3. Beverage Supplies Dr., Food Supplies Dr., Retail Items Dr., Other Accounts Dr., Cash Cr.
    4. Beverage Supplies Dr., Food Supplies Dr., Retail Items Dr., Other Accounts Cr., Accounts Payable Dr.

 

ANSWER:                                  a

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. When using a purchases journal
    1. all cash and credit purchases are recorded in the journal
    2. posting to creditor accounts is only done at the end of the month
    3. the “Other Accounts” total is posted to Accounts Payable at month’s end
    4. there will always be an “Accounts Payable Cr.” column

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. When using a revenue journal
    1. separate “Fees Earned” and “Accounts Receivable” columns are included
    2. both cash sales and sales on account are recorded in the journal
    3. revenues are normally recorded when the company sends customer invoices
    4. postings to customer accounts are done at month’s end

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Beachside Coffee Shop, in an effort to streamline its accounting system, has decided to utilize a cash receipts journal in its operations. If the company records the cash sale of food for $18, which is the correct entry?
    1. Cash Cr., $18; Food Revenue Dr., $18
    2. Cash Dr., $18; Food Revenue Dr., $18
    3. Cash Dr., $18; Food Revenue Cr., $18
    4. Cash Cr., $18; Food Revenue Cr., $18

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. A basic manual accounting system includes all of the following except
    1. a chart of accounts
    2. a two­column journal
    3. a general ledger
    4. a computer on which the system runs

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.06 – Recording Transactions ACCT.AICPA.FN.03 – Measurement

BUSPROG: Analytic

 

 

 

  1. Which of the following statements is false?
    1. Most computerized accounting systems use principles from manual systems.
    2. Subsidiary ledgers and special journals are only useful when a business doesn’t have a large number of similar transactions.
    3. Even small companies use computerized accounting systems.
    4. Large companies often integrate their accounting system with their automated business systems.

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCT.WARD.16.05-03 – 05-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. A computerized accounting system will not allow which of the following types of journalizing errors?
    1. entering an amount in an incorrect account
    2. reversing the debit and credit accounts in a transaction
    3. processing a transaction that has unequal debits and credits
    4. entering a transaction with an incorrect date

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-03 – 05-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Computerized accounting systems
    1. are only used by medium- and large-sized companies
    2. are generally not as accurate as manual systems
    3. record and post transactions at the same time
    4. must make use of special journals

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-03 – 05-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. The total on the “Cash Receipts” report generated by QuickBooks software at January 31 would be equal to the
    1. total revenue earned for the month of January
    2. total of the purchases journal on January 31
    3. total of the Cash Dr. column of the cash receipts journal in a manual system
    4. balance in Accounts Receivable at January 31

 

ANSWER:                                  c

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-03 – 05-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Put the following into the correct order for processing a sale on account with QuickBooks.
  2. Prepare reports.
  3. Record the sale by completing an electronic invoice form.
  4. Record collection of payment by completing a “receive payment” form.
    1. B­C­A
    2. A­B­C
    3. B­A­C
    4. C­B­A

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-03 – 05-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Which of the following is not an advantage of a computerized system over a manual system?
    1. Transactions are recorded and posted at the same time.
    2. Accuracy is usually better with a computerized system.
    3. Current balances are always available.
    4. Internal controls are optional to the computerized system.

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-03 – 05-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. A recent trend in which the accounting system and data are stored and distributed over the Internet by a third-party is called
    1. supply chain management.
    2. cloud software solutions.
    3. customer management.
    4. life­cycle computing.

 

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-03 – 05-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.06 – Recording Transactions ACCT.AICPA.FN.02 – Leveraging Technology BUSPROG: Technology

 

  1. Month-end postings to control accounts in a computerized accounting system are not required because
    1. control accounts are not used in computerized systems
    2. transactions are posted to accounts immediately
    3. the input operator can choose to post to accounts at any time
    4. transactions are posted at the end of the financial year

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-03 – 05-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.06 – Recording Transactions ACCT.AICPA.FN.03 – Measurement

BUSPROG: Analytic

 

  1. Computerized accounting systems
    1. provide a tedious form of record keeping
    2. improve the timeliness of reporting
    3. prevent all journalizing errors
    4. are only used in medium and large businesses

 

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-03 – 05-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. What is meant by the term B2C?
    1. balance to cash
    2. business to cash
    3. book to capital
    4. business to consumer

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-04 – 05-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.03 – Business Forms ACCT.AICPA.FN.02 – Leveraging Technology ACCT.AICPA.FN.03 – Measurement BUSPROG: Technology

 

  1. In addition to B2B and B2C transactions, the Internet is commonly used in all of the following business activities except
    1. supply chain management regulatory compliance management
    2. customer relationship management d. product life cycle management

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-04 – 05-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.03 – Business Forms ACCT.AICPA.FN.03 – Measurement BUSPROG: Technology

 

  1. When Richard Miller purchases a fishing pole through Amazon.com, he is utilizing
    1. B1C e­commerce.
    2. B2B e­commerce.
    3. B2C e­commerce.
    4. B1B e­commerce.

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Understanding

LEARNING OBJECTIVES:        ACCT.WARD.16.05-04 – 05-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.03 – Business Forms

ACCT.AICPA.FN.02 – Leveraging Technology BUSPROG: Technology

 

 

 

  1. Which of the following is not an area where the Internet is used for business purposes?
    1. business cycle management
    2. customer relationship management
    3. supply chain management
    4. product life­cycle management

 

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-04 – 05-04

ACCREDITING STANDARDS:  ACCT.AICPA.FN.02 – Leveraging Technology

BUSPROG: Technology

 

  1. E-commerce
    1. accounts for less than 1% of all retail sales
    2. only relates to transactions between a company and a consumer
    3. can improve the speed and efficiency of transactions
    4. increases paperwork

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-04 – 05-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.03 – Business Forms ACCT.AICPA.BB.01 – Industry

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Business may be segmented by all except
    1. region
    2. product line
    3. customer type
    4. time period

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-05 – 05-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.23 – Financial Statement Analysis ACCT.AICPA.FN.03 – Measurement

BUSPROG: Analytic

 

 

 

  1. Connie’s Specialties Inc. offers exclusive interior design services. The following revenue information was determined from Connie’s records.

 

Current Year                                Prior Year

Consultation Services             $1,000,000      $   800,000

Design Services                        1,800,000       1,500,000

 

Using a horizontal analysis, which is correct?

  1. The consultation services showed an increase in revenue of 25%.
  2. The consultation services showed a decrease in revenue of 25%.
  3. The design services showed an increase in revenue of 25%.
  4. The design services showed a decrease in revenue of 25%.

 

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-05 – 05-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.23 – Financial Statement Analysis

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Segment data
    1. can be used for vertical, but not horizontal analysis
    2. is gathered from invoices entered into the accounting system
    3. is only useful by product line
    4. analysis is required by GAAP

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-05 – 05-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.23 – Financial Statement Analysis ACCT.AICPA.FN.03 – Measurement

BUSPROG: Analytic

 

 

 

  1. Waller Company does business in two regional segments: North and South. The following annual revenue information was determined from the accounting system’s invoice data:

 

Segment Current Year Prior Year
North $  80,000 $100,000
South   260,000   200,000
Total revenues $340,000 $300,000

Using horizontal analysis, determine the percentage change in revenues for the North region. Round to one decimal place.

  1. 22.4% b. (20.0%)
  2. 20.0% d. (22.4%)

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-05 – 05-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Snelling Company does business in two regional segments: North and South. The following annual revenue information was determined from the accounting system’s invoice data:

 

Segment Current Year Prior Year
North $  75,000 $100,000
South   260,000   220,000
Total revenues $335,000 $320,000

Using horizontal analysis, determine the percentage change in revenues for the South region. Round to one decimal place.

  1. 18.2% b. 84.6%
  2. (18.2%) d. 15.4%

 

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-05 – 05-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. The following is an example of

 

Segment Current Year Prior Year Amount Percent
College textbooks $  78,000 $  55,000 $23,000  41.8%
High school textbooks 129,000 115,000 14,000  12.2%
Elementary school textbooks   105,000   121,000   (16,000) (13.2%)
Total textbook revenue $312,000 $291,000 $21,000   7.2%
  1. product analysis vertical analysis
  2. horizontal analysis d. percentage analysis

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-05 – 05-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. The following is an example of

 

Segment Current Year Percent Prior Year Percent
College textbooks $  78,000 25.0% $  55,000 18.9%
High school textbooks 129,000 41.3% 115,000 39.5%
Elementary school textbooks   105,000   33.7%   121,000   41.6%
Total textbook revenue $312,000 100.0% $291,000 100.0%
  1. product analysis vertical analysis
  2. horizontal analysis d. percentage analysis

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-05 – 05-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Briefly describe the three-step process of accounting system development.

ANSWER:

(1) Analysis. Identify the needs of those who use the business’s financial information and determine how the system should provide this information.
(2) Design. The system is designed so that it will meet the users’ needs.
(3) Implementation. The chosen system is put in place.

DIFFICULTY:                           Easy

Bloom’s: Understanding LEARNING OBJECTIVES:        ACCT.WARD.16.05-01 – 05-01 ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.05 – Accounting Cycle

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Define and describe an accounting system.

ANSWER:                                  An accounting system is the methods and procedures for collecting, classifying, summarizing, and reporting a business’s financial and operating information.  Accounting systems for large companies often record more than just basic transaction data (i.e. aircraft maintenance for an airline).  These systems evolve through the process of (1) analysis of information needs, (2) system design, and (3) implementation of the design. Input from users is used to analyze and improve the system.

DIFFICULTY:                           Moderate

Bloom’s: Understanding LEARNING OBJECTIVES:        ACCT.WARD.16.05-01 – 05-01 ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.AICPA.FN.03 – Measurement

BUSPROG: Analytic

 

 

 

  1. Utilizing the revenue journal below, journalize the following five transactions of Porshe Creations:
  • On March 20, Porshe sells 25 cell phone covers to Xtreme at $4.50 per cover on invoice 887.
  • On March 21, Porshe sells 5 cell phone covers to Sidekick for $7.50 per cover on invoice 908.
  • On March 22, Porshe sells 18 cell phone covers to Rock-On at $4.25 per cover on invoice 938.
  • On March 26, Porshe sells 200 cell phone covers to Micro at $3.75 each on invoice
  • On March 29, Porshe sells 6 cell phone covers to Charmers for $8.35 each on invoice 997.

 

Revenue Journal Page 15
 

 

Date

 

Invoice No.

 

 

Account Debited

 

Post. Ref.

Accts. Rec.

Dr.

Sales Rev.

Cr.

 


 

ANSWER:

Revenue Journal   Page 15
 

Date

Invoice

No.

 

Account Debited

Post

Ref.

A/R Dr.

Sales Rev Cr.

March 20 887 Xtreme 112.50
March 21 908 Sidekick 37.50
March 22 938 Rock-On 76.50
March 26 959 Micro 750.00
March 29 997 Charmers 50.10

 

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Discuss the process of posting from a revenue journal to the subsidiary ledger and to the general ledger.

ANSWER:                                  Each transaction is posted individually to customer accounts in the accounts receivable subsidiary ledger. This should be done on a regular basis to keep customer balances current.

 

To provide a trail of the entries posted to the subsidiary and general ledgers, the source of the entries is indicated in the Posting Reference column by inserting the letter R for Revenue Journal and the page number of the revenue journal.

 

A check mark is inserted in the Posting Reference column to indicate that the transaction has been posted to the subsidiary ledger.

 

At the end of the month, the column total is posted to the general ledger as a debit to Accounts Receivable and a credit to Fees Earned. This total is equal to the sum of the month’s debits to the individual accounts in the subsidiary ledger.

DIFFICULTY:                           Challenging

Bloom’s: Understanding

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Two transactions were posted to the following customer account.

 

NAME:  Boogie Board Water Wear ADDRESS:  2340 Xtreme Surf

 

Date Item Post. Ref. Debit Credit Balance
   July   1 Balance 805
  6 Invoice 406 R42 645 1,450
24 Invoice 456 CR56 710 740

 

Describe each transaction and the source of each posting.

 

 

ANSWER:

July 6 Sold $645 on account to Boogie Board Water Wear, itemized on Invoice 406.  Amount posted from page R42 of the revenue journal

 

July 24 Cash of $710 was collected from Boogie Board Water Wear, Invoice 456.  Amount posted from page CR56 of the cash receipts journal.

 

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. The following purchase transactions occurred during August for Backcountry Kayak Excursions.

 

Aug.   1   Purchased kevlar kayaks (equipment) for $5,600 on account from Gear Inc.

6   Purchased kayaks paddles (supplies) for $3,250 on account from Southland Company.

14   Purchased life vests (supplies) for $2,500 on account from Gear Inc.

 

Record these transactions in a purchase journal.

 

Purchases Journal
 

 

Date

 

Account Credited

 

Post. Ref.

 

Accounts Payable Cr.

 

 

Supplies Dr.

Other Accounts Dr.  

 

Post. Ref.

 

 

Amount

 

ANSWER:

Purchases Journal
 

 

Date

 

 

Account Credited

 

 

Post. Ref.

 

 

Accounts Payable Cr.

 

 

Supplies Dr.

 

 

Other

Accounts Dr.

 

 

Post. Ref.

 

 

Amount

Aug.   1 Gear Inc. 5,600 Equipment 5,600
   6 Southland Co. 3,250 3,250
14 Gear Inc. 2,500 2,500

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. For each of the following businesses, explain how a purchase journal might be modified for the specific business.
  2. North County Medical Center
  3. Tri-County Farms, Inc.
  4. Prescott’s Quick Lube and Tire Store

ANSWER:                                  The purchases journal for North County Medical Center may include columns for pharmaceutical products (IV solutions, injectable drugs), linens (sheets, blankets, pillows), and disposable medical equipment (needles, syringes).

 

The purchases journal for Tri-County Farms may include columns for the various types of seeds (corn, wheat), livestock (cows, hogs, sheep), fertilizer, and fuel.

 

The purchases journal for Prescott’s Quick Lube and Tire Store may include columns for oil products (motor oil, grease), tires, and maintenance fluids (transmission fluid, antifreeze).

DIFFICULTY:                           Moderate

Bloom’s: Understanding

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. For each of the following businesses, explain how a revenue journal might be modified for the specific business.
  2. Jon’s Auto Repair Business
  3. Esquire Movie Theater
  4. Beach Hut Snack Bar, Restaurant, and Lounge

ANSWER:                                  Jon’s Auto Repair Business might modify the revenue journal to include columns for each type of major repair services. In addition, columns for warranty repairs and sales taxes may be added.

 

The Esquire Movie Theater might modify the revenue journal to include admissions, concessions, and game room revenues from video games in the lobby.

 

The Beach Hut Snack Bar, Restaurant, and Lounge might modify the revenue journal to include columns for snack bar sales, restaurant sales, and liquor sales in the lounge. In addition, columns for credit card charges and sales taxes may be added.

DIFFICULTY:                           Challenging

Bloom’s: Understanding

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Explain what subsidiary ledgers are and give examples of three types of subsidiary ledgers that a business might

ANSWER:                                  A subsidiary ledger groups a large number of accounts with a common characteristic together.  Each subsidiary ledger is summarized in the general ledger by a controlling account. Most commonly, companies use accounts receivable and accounts payable subsidiary ledgers to detail individual customer or vendor accounts. Businesses often use subsidiary ledgers to keep track of equipment purchased, its location, and other equipment data.

DIFFICULTY:                           Easy

Bloom’s: Understanding

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Two transactions were posted to the following customer account:

 

NAME:   Gen-X Products, Inc. Address:  123 My Way

Date Item Post. Ref. Debit Credit Balance
Mar.  1 Balance 1,150
10 Invoice 987 R45 990 2,140
19 Invoice 995 CR78 825 1,315

 

Describe each transaction and the source of each posting.

ANSWER:

Mar. 10      Sold $990 on account to Gen-X Products Inc., itemized on Invoice No. 987. Amount posted from page 45 of the revenue journal.

 

19      Collected cash of $825 from Gen-X Products Inc. (Invoice No. 995). Amount posted from page 78 of the cash receipts journal.

DIFFICULTY:                           Moderate

Bloom’s: Understanding

LEARNING OBJECTIVES:        ACCT.WARD.16.5-02 – 5-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Two transactions were posted to the following customer account:

 

NAME:   Roswell Communications, Inc. Address:  345 Alien Way

Date Item Post. Ref. Debit Credit Balance
  May   1 Balance 750
14 Invoice 522 CR230 625 125
25 Invoice 545 R115 3,500 3,625

 

Describe each transaction and the source of each posting.

ANSWER:

May 14    Collected cash of $625 from Roswell Communications Inc. (Invoice No. 522). Amount posted from page 230 of the cash receipts journal.

 

  • Sold $3,500 on account to Roswell Communications Inc., itemized on Invoice No. 545. Amount posted from page 115 of the revenue

DIFFICULTY:                           Moderate

Bloom’s: Understanding

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Two transactions were posted to the following supplier’s (creditor’s) account:

 

NAME:    Banner Computer Services, Inc. Address:  890 Novice Lane

Date Item Post. Ref. Debit Credit Balance
July     1 Balance 5,645
19 Invoice 45 P16 1,755 7,400
26 Invoice 39 CP36 3,500 3,900

 

Describe each transaction and the source of each posting.

ANSWER:

July 19     Purchased $1,755 on account from Banner Computer Services Inc., itemized on Invoice 45. Amount posted from page 16 of the purchases journal.

 

  • Paid $3,500 to Banner Computer Services Inc. on account (Invoice 39). Amount posted from page 36 of the cash payments journal.

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The following cash receipts journal headings have been suggested for Tower Tree-Trimming Service Company. What problems do you see with these headings?

 

Date Account Credited Post. Ref. Fees Earned Cr. Accounts Receivable Cr. Cash Cr. Other Accounts Dr.

 

ANSWER:                                  The Cash column is for debits (not credits).  The Other Accounts column is for credits (not debits).  A better order of columns would be to place the Other Accounts Cr. column to the left of the Fees Earned Cr. column.

DIFFICULTY:                           Challenging

Bloom’s: Understanding

LEARNING OBJECTIVES:        ACCT.WARD.16.5-02 – 5-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Two transactions were posted to the following supplier’s (creditor’s) account:

 

NAME:    Xample, Inc. Address:  567 Harrison Blvd.

Date Item Post. Ref. Debit Credit Balance
Nov.    1 Balance 125
  9 Invoice 564 CP45 55 70
18 Invoice 574 P28 75 145

 

Describe each transaction and the source of each posting.

ANSWER:

Nov.   9    Paid $55 to Xample Inc. on account (Invoice 564). Amount posted from page 45 of the cash payments journal.

 

18     Purchased $75 on account from Xample Inc., itemized on Invoice 574. Amount posted from page 28 of the purchases journal.

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Davidson, Inc. incurred the following transactions during the month of January. Record the appropriate ones in the cash receipts journal. If a transaction should not be recorded in the cash receipts journal, indicate where it should be

 

  • On January 3, a one-year insurance policy was purchased for $2,400. The account number for prepaid insurance is 16.
  • On January 5, Davidson received a payment on account from Pasher Industries of $625.
  • On January 12, Davidson made sales on account of $3,500 and sales for cash of $2,300.

The fees earned account number is 41.

  • On January 26, Davidson received $1,250 in rent revenue from a tenant who leases a portion of its building. The rent revenue account number is 44.
  • On January 29, Davidson received a payment on account from Gooden, Inc. for $2,000.

 

Date

Account Credited Post.
Ref.
Other Accounts
Cr.
Accounts Receivable Cr. Cash
Dr.

 

ANSWER:

 

 

 

Date

 

Account Credited

 

Post.

Ref.

Other Account

Cr.

Accounts Receivable Cr.  

Cash

Dr.

 

Jan.   5

Pasher Industries  

625

 

625

Jan. 12 Fees Earned 41 2,300 2,300
Jan. 26 Rent Revenue 44       1,250 1,250
Jan. 29 Gooden, Inc. 2,000 2,000

 

Transaction (a) should be recorded in the cash payments journal and the sales on account in transaction (c) should be recorded in the revenue journal.

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Harris, Inc. incurred the following transactions during the month of February. Record the appropriate ones in the cash payments journal. Include posting references. If a transaction should not be recorded in the cash payments journal, indicate where it should be posted.
  • On February 3, the company purchased $650 worth of supplies on account. The supplies account number is 15.
  • On February 5, Harris made a payment on account to Sanders Industries in the amount of $1,215 – check number 2214.
  • On February 14, Harris bought a one-year insurance policy for $1,500. The prepaid insurance account number is 14 – check number 2215
  • On February 22, Harris paid monthly rent of $2,000. The rent expense account number is 63 – check number 2216.
  • On February 26, Harris purchased equipment making a down payment of $3,000 (check number 2217) and agreeing to pay the $4,000 balance in 30 days. The equipment account number is 18.

 

 

 

Date

 

Check Number

 

 

Account Debited

 

Post. Ref.

Other Accounts Dr.  

Accounts Payable Dr.

 

Cash Cr.

 

ANSWER:

 

 

Date

 

Check Number

 

 

Account Debited

 

Post.

Ref.

Other Account

Dr.

Accounts Payable
Dr.
 

Cash

Cr.

2/05/10 2004 Sanders Industries 1,125 1,125
2/14/10 2005 Prepaid Insurance 14 1,500 1,500
2/22/10 2006 Rent Expense 63       2,000 2,000
2/26/10 2007 Equipment 18 3,000 3,000

 

Transaction (a) should be recorded in the purchases journal as should the $4,000 balance due on the equipment in transaction (e).

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. The following purchases journal headings have been suggested for Tower Tree-Trimming Service Company. What problems do you see with these headings?

 

 

 

Date

 

Account Credited

 

Post.

Ref.

 

Accounts Payable Dr.

Accounts Receivable
Cr.
 

Cash

Cr.

Other Accounts Dr.

 

ANSWER:                                  Accounts Receivable and Cash are not needed in the purchase journal, since this journal is for purchases on account by Tower.  Accounts Payable should be a credit.  There should be a Supplies Dr. column. Also, there should be two columns to the extreme right with the headings “Post. Ref.” and “Amount.”

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Two transactions were posted to the following creditor’s account.

 

NAME         Windsurf, Inc. ADDRESS   343 Coastline Road

Date Item Post. Ref. Debit Credit Balance
Aug.    1 Balance 1,210
  8 Invoice 333 CP38 1,210
15 Invoice  567 P11 735 735

 

Describe each transaction and the source of each posting.

 

ANSWER:

Aug 8 Payment of $1,210 to Windsurf, Inc. on account (Invoice No. 333).  Amount posted from page CP38 of the cash payments journal.
Aug 15 Purchased $735 on account from Windsurf, Inc. itemized on Invoice No. 567.  Amount posted from page P11 of the purchases journal.

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. List the four most common special journals used in accounting and describe the transactions recorded in each

ANSWER:                                  Purchases journal – for purchases made on account Revenue journal – for sales made on account

Cash receipts journal – for all cash receipt transactions Cash payment journal – for all cash payment transactions

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. If a two-column (all-purpose) general journal, a revenue journal, and a cash receipts journal are used, indicate the journal in which each of the following transactions should be recorded:
  • Investment of additional cash in the business by the owner.
  • Rendering of services for cash.
  • Rendering of services on account.
  • Receipt of cash on account from a customer.
  • Sale of office supplies for cash, at cost, to a neighboring business.
  • Adjustment to record supplies used at the end of the year.
  • Closing of drawing account at the end of the year.

ANSWER:                                  (a)    cash receipts journal

  • cash receipts journal
  • revenue journal
  • cash receipts journal
  • cash receipts journal
  • general journal
  • general journal

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. If a two-column (all-purpose) general journal, a purchases journal, and a cash payments journal are used, indicate the journal in which each of the following transactions should be recorded:
  • Payment of rent.
  • Purchase of supplies on account.
  • Purchase of computer on account.
  • Purchase of supplies for cash.
  • Advance payment of a one-year fire insurance policy on the office.
  • Adjustment to record accrued salaries at the end of the period.
  • Adjustment to record depreciation at the end of the month.
  • Payment of an account payable.

ANSWER:                                  (a)    cash payments journal

  • purchases journal
  • purchases journal
  • cash payments journal
  • cash payments journal
  • general journal
  • general journal
  • cash payments journal

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. The posting references in the following purchases journal are indicated by letters. Identify each posting reference [(a) through (i)] as representing (1) a posting to a general ledger account, (2) a posting to a subsidiary ledger account, or (3) that no posting is required.

 

PURCHASES JOURNAL

 

Date                 Account             Post.

Credited             Ref.

Accounts Payable Cr. Office Supplies Dr. Store Supplies Dr. )

)

)

)
July  3 Morton Company (a) 1,150 ….. 1,150 )
7 Jackson Co. (b) 4,800 4,800 ….. )
14 Fallon Inc. (c) 7,000 7,000 ….. )
26 Simpson Bros. (d)   2,350      …..     ….. )
31 15,300 11,800 1,150 )
(e) (f) (g) )

 

(

(

 

 

 

 

 

(

(     Account

Other Accounts Dr.  

Post. Ref.

 

 

Amount

(     ……

(     ……

(     ……

(     ……

(     Equipment

(h)

……

……

……

…… 1,950

( 1,950
( (i)

 

(

 

 

 

 

 

 

 

 

ANSWER:                                  (1)    General ledger account: (e), (f), (g), (h)

  • Subsidiary ledger account: (a), (b), (c), (d)
  • No posting required: (i)

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. The following are selected transactions related to purchases on account and cash payments completed during April of the current year.

April   1  Issued Check No. 60 in payment of rent for month, $2,400.

5  Purchased office supplies from Clauson Co., $850.

  • Issued Check No. 61 to Dame Co. for $9,750 for cash purchase of equipment.
  • Purchased store supplies from Ewing Co., $425.

 

15  Issued Check No. 62 to Clauson Co. in payment of April 5 invoice.

17  Purchased store supplies from Patton Co., $7,500.

20  Issued Check No. 63 to Ewing Co. in payment of April 10 invoice of $425.

25  Purchased equipment from Sloan Co., $7,750.

27  Issued Check No. 64 to Patton Co. for partial payment of the April 17 invoice, $4,000.

30  Purchased office supplies from Winthrop Co., $400.

 

  • Record the transactions in the purchases and cash payments journals.
  • Total and rule the purchases and cash payments journals as of April 30.
  • Indicate the method of posting the individual items and the totals of the purchases and cash payments journals in the following manner:
    • For individual items and totals to be posted to the subsidiary ledger or not to be posted, insert a check mark in the Posting Reference column or below the totals.
    • For individual items and totals to be posted to the general ledger, insert the letter “G” (as a substitute for specific account numbers) in the Posting Reference column or below the totals.

 

CASH PAYMENTS JOURNAL

 

Other Accounts
Check Account Post. Accounts Payable Cash
Date   No. Debited Ref.      Dr.          Dr.          Cr.    

 

PURCHASES JOURNAL                                          )

 

)
Accounts Store )
Account Post. Payable Supplies )
Date Credited Ref.      Cr.     Dr. )

 

(                                                                                           (                                    Other              Accounts              Dr.                    (   Office

(

Supplies

Post.

(     Dr.        Account            Ref.              Amount   

 


 

ANSWER:

CASH PAYMENTS JOURNAL

 

 

Date

 

Check

  No.

 

Account Debited

 

Post. Ref.

Other Accounts

     Dr.   

Accounts Payable

    Dr.   

 

Cash

  Cr.

Apr. 1 60 Rent Expense G 2,400 ….. 2,400
9 61 Equipment G 9,750 ….. 9,750
15 62 Clauson Co. ….. 850 850
20 63 Ewing Co. ….. 425 425
27 64 Patton Co.      ….. 4,000   4,000
30 12,150 5,275 17,425
(√) (G) (G)

 

PURCHASES JOURNAL                             )

 

 

 

Date

 

 

Account Credited

 

 

Post. Ref.

 

Accounts Payable

     Cr.    

 

Store Supplies

     Dr.   

)

)

)

)

Apr.  5 Clauson Co. 850 ….. )
10 Ewing Co. 425 425 )
17 Patton Co. 7,500 7,500 )
25 Sloan Co. 7,750 ….. )
30 Winthrop Co.      400     ….. )
30 16,925 7,925 )
(G) (G) )

 

 

(                                                                                              (                                         Other Accounts Dr.                        

(     Office
(    Supplies Post.
(        Dr.    Account Ref. Amount
(      850 …… …..
(       ….. …… …..
(       ….. …… …..
(       ….. Equipment G 7,750

 

(      400                   ……                  ……                            …..

(   1,250                                                                          7,750

 

 

(      (G)                                                                             (√ )

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Listed below are selected transactions completed by Ridge Company during March of the current year.

 

Mar.   5  Rendered services on account to Quinton Co., Invoice No. 92,$3,250.

10  Rendered services on account to Martin Inc., Invoice No. 93, $4,500.

13  Received $5,000 in payment of monthly rent, which was due on March 1.

15  Received payment from Quinton Co. for invoice of March 5.

  • Received payment from Martin Inc. for balance due on invoice of March 10.
  • Received amount due from Thomas Co. on sale made in February, $5,200.

31  Recorded cash from services rendered for cash during the month, $15,750.

 

  • Record the transactions in the revenue journal and cash receipts journal.
  • Total and rule the revenue and cash receipts journals.
  • Indicate the method of posting the individual items and the columnar totals of the revenue and cash receipts journals in the following manner:
    • For individual items and totals to be posted to the subsidiary ledger or not to be posted, insert a check mark in the Posting Reference column or below the totals.
    • For individual items and totals to be posted to the general ledger, insert the letter “G” (as a substitute for specific account numbers) in the Posting Reference column or below the totals.

 

REVENUE JOURNAL

 

Post. Accts. Rec. Dr.
Date Invoice No. Account Debited Ref. Services Revenue Cr.

 

CASH RECEIPTS JOURNAL

 

Other Accts.
Account Post. Accounts Rec. Cash
Date Credited Ref.       Cr.           Cr.          Dr.    

 


 

ANSWER:

 

REVENUE JOURNAL

 

 

Date

 

Invoice No.

 

Account Debited

Post.

 Ref.

Accts. Rec. Dr.

Services Revenue Cr.

Mar.  5 92 Quinton Co. 3,250
10 93 Martin Inc. 4,500
31 7,750
(G)(G)

 

CASH RECEIPTS JOURNAL

 

 

Account

Date           Credited

 

Post. Ref.

Other Accounts

     Cr.    

Accts. Rec.

    Cr.   

 

 

Cash

    Dr.  

Mar.  13  Rent Revenue G 5,000 ….. 5
15  Quinton Co. ….. 3,250 3
19  Martin Inc. ….. 4,500 4
20  Thomas Co. ….. 5,200 5
31  Services Revenue G 15,750      ….. 15
31 20,750 12,950 33
(√) (G)

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Down-Under, an aquatic supply store, makes the following five payments during August. Journalize them in the cash payments journal as appropriate.
  • On August 2, Down-Under paid Pondmaster, Inc. with check 6420 for 6 pumps at $435.00 each. The pumps had been purchased in July on account.
  • On August 10, Down-Under purchased $785.00 of office supplies from Business Systems with check 6421.
  • On August 15, Down-Under paid Aqua Magic $215.00 on account with check 6422.
  • On August 27, Down-Under paid an invoice for merchandise received earlier from Spindrifter, Inc. for 8 drains at $73.50 each with check 6423.
  • On August 31, Down-Under purchased $65.00 of koi clay from The Natural Wonder Company by writing check 6424. (Record in Pond Supplies Expense.)

 

Cash Payments Journal Page 17
 

 

Date

 

Check Number

 

 

Account Debited

 

Post. Ref.

Other Accounts Dr. Accounts Payable Dr.  

Cash Cr.

 

ANSWER:

Cash Payments Journal Page 17
Date Check

Number

Account Debited Post

Ref.

Other

Acct

Dr.

Accounts

Payable

Dr.

Cash

Cr.

 Aug   2 6420 Pondmaster, Inc. 2,610.00 2,610.00
Aug 10 6421 Office Supplies 785.00 785.00
Aug 15 6422 Aqua Magic 215.00 215.00
Aug 27 6423 Spindrifter, Inc. 588.00 588.00
Aug 31 6424 Pond Supplies Expense 65.00 65.00

 

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Voyager Electronic Services has three customers in its accounts receivable subsidiary ledger with beginning balances as follows:

Fred Yao Ming, $1,150.00 Kohl Townson, $850.00 Chandra Jahi, $1,075.00

 

Record the following transactions in a general journal. Then post to the accounts receivable account in the general ledger and to the customer accounts in the accounts receivable subsidiary ledger.

 

On June 3, Kohl Townson paid $325.00 on account.

On June 10, Chandra Jahi purchased $475.00 on account.

On June 15, Fred Yao Ming paid $395.00 on account.

On June 16, Fred Yao Ming purchased $685.00 on account. On June 23, Kohl Townson purchased $155.00 on account.

 

General Journal Page 41
 

Date

 

Account Title

Post. Ref.  

Debit

 

Credit

 

 

 

 

Accounts Receivable – controlling Account
Date: Item: Post Ref: Debit: Credit: Balance:
BB 3,075.00
Accounts Receivable – Fred Yao Ming
Date: Item: Post Ref: Debit: Credit: Balance:
BB 1,150.00
Accounts Receivable – Kohl Townson
Date: Item: Post Ref: Debit: Credit: Balance:
BB 850.00
Accounts Receivable – Chandra Jahi
Date: Item: Post Ref: Debit: Credit: Balance:
BB 1,075.00

 

 

 

 


 

ANSWER:

General Journal                         Page 41
 

Date

 

Account Title

Post. Ref.  

Debit

 

Credit

June   3 Cash 325.00
A/R – Kohl Townson 12/√ 325.00
10 A/R – Chandra Jahi 12/√ 475.00
Sales 475.00
15 Cash 395.00
A/R – Fred Yao Ming 12/√ 395.00
16 A/R – Fred Yao Ming 12/√ 685.00
Sales 685.00
23 A/R – Kohl Townson 12/√ 155.00
Sales 155.00

 

GENERAL  JOURNAL

 

Accounts  Receivable

 

Date

 

Item

 

Post. Ref.

 

Debit

 

Credit

Balance Debit    Credit
June  1 Beg. balance 3,075.00
3 J41 325.00 2,750.00
10 J41 475.00 3,225.00
15 J41 395.00 2,830.00
16 J41 685.00 3,515.00
23 J41 155.00 3,670.00

 

F

ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER

Fred Yao Ming

 

Date

 

Item

Post. Ref.  

Debit

 

Credit

 

Balance

June  1 Beg. balance 1,150.00
15 J41 395.00 755.00
16 J41 685.00 1,440.00

 

 

 

 

Kohl Townson

 

Date

 

Item

Post. Ref.  

Debit

 

Credit

 

Balance

June  1 Beg. balance 850.00
3 J41 325.00 525.00
23 J41 155.00 680.00

 

Chandra Jahi

 

Date

 

Item

Post. Ref.  

Debit

 

Credit

 

Balance

June  1 Beg. balance 1,075.00
10 J41 475.00 1,550.00

 

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.15 – Current Assets Reporting

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Read each transaction and identify the appropriate journal in which it should be recorded.
  2. Owner withdrew supplies.
  3. Sale made on account.
  4. Payment to vendor on account.
  5. Payment received from customer on account.
  6. Purchases on account.
  7. Adjusting journal entry for supplies used.
  8. Owner withdrew cash.
  9. Company borrows money from bank.
  10. Record monthly depreciation.
  11. Close revenue accounts at month’s end.

ANSWER:                                   1. general journal

  1. revenue journal
  2. cash payments journal
  3. cash receipts journal
  4. purchases journal
  5. general journal
  6. cash payments journal
  7. cash receipts journal
  8. general journal
  9. general journal

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Read each transaction and identify which journal the transaction should be recorded.
  2. Recorded adjusting journal entry for accrued interest.
  3. Performed advising services on account.
  4. Purchased office supplies on account.
  5. Borrowed money for expansion project.
  6. Received $500 from Tool Tech. on account.
  7. Owner withdrew cash for personal use.
  8. Paid monthly rent.
  9. Recorded depreciation on equipment.
  10. Completed Job 34aG for services provided to Beard Co.
  11. Purchased inventory on account.

ANSWER:                                  1. General journal

  1. Revenue journal
  2. Purchases journal
  3. Cash receipts journal
  4. Cash receipts journal
  5. cash payments journal
  6. Cash payments journal
  7. General journal
  8. Revenue journal
  9. Purchases journal

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. The posting references in the following revenue journal are indicated by letters. Identify each posting reference [(a) through (h)] as representing (1) a posting to a general ledger account, (2) a posting to a subsidiary ledger account, or (3) that no posting is required.

 

REVENUE JOURNAL
Post Acct. Rec. Dr.
Date Invoice No. Account Debited Ref. Fees Earned Cr.
April  3 190 Hill Company (a) 4,750
8 191 North Supply (b) 5,025
13 192 Macon Inc. (c) 2,100
17 193 White Products (d) 6,000
25 194 Easton Supply (e) 2,250
30 195 Karson Enterprises (f)   3,750
30 23,875
(g)  (h)

ANSWER:                                  (1)    General ledger account: (g), (h)

  • Subsidiary ledger account: (a), (b), (c), (d), (e), (f)
  • No posting required: —

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Sunrise Coffee Shop, in an effort to streamline its accounting system, has decided to utilize a cash receipts journal. Record the following transactions for the first two weeks in March, total the columns, and include the posting A partial chart of accounts is given below. After recording the transactions, indicate if there are any additional columns you would add to this journal.

 

Cash Receipts Journal
 

 

Date

 

Account Credited

 

Post. Ref.

Other Accounts Cr. Beverage Revenue Cr. Food Revenue Cr.  

Cash Cr.

 

 

 

March   1  Cash received for beverages, $375.

1  Cash received for food, $250.

1  Cash received for customer sales of Sunrise’s signature coffee mugs, $130

 

7  Cash received for beverages, $480 7  Cash received for food, $325

7  Cash received for customer sales of Sunrise’s signature coffee mugs, $115

10  Cash received on account from Central.com, $900

 

Chart of Accounts (Partial)​
10 Cash 41 Beverage Revenue
12 Accounts Receivable 42 Food Revenue
15 Retail Items 43 Retail Revenue

 

ANSWER:

 

Cash Receipts Journal
Date Description/
Account Credited
Post. Ref. Other
Cr.
Beverage
Revenue
Cr.
Food
Revenue
Cr.
Cash
Dr.
Mar. 1  Cash sales 375 375
1  Cash sales 250 250
1  Retail Revenue 43 130 130
7  Cash sales 480  480
7  Cash sales 325 325
7  Retail Revenue 43 115 115
10  A/R / Central.com 12/   900               900
1,145 855 575 2,575
(10) (41) (42) √ 

Yes – Retail Revenue Cr. and possibly Accounts Receivable Cr.

DIFFICULTY:                           Moderate

Bloom’s: Understanding LEARNING OBJECTIVES:        ACCT.WARD.16.05-03 – 05-03 ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.AICPA.FN.02 – Leveraging Technology ACCT.AICPA.FN.03 – Measurement BUSPROG: Technology

 

 

  1. Explain whether each of the following would usually be used in a computerized accounting system and why or why
  2. special journals
  3. accounts receivable control accounts
  4. electronic invoice form
  5. month-end postings to the general ledger

ANSWER:                                  Special journals and accounts receivable control accounts are generally not used in computerized systems. Instead, electronic forms like electronic invoice forms are used to record original transactions. Since the computer automatically posts transactions from electronic forms to the general ledger and individual accounts at the time the transactions are recorded, month-end postings are not necessary in a computerized system.

DIFFICULTY:                           Moderate

Bloom’s: Understanding LEARNING OBJECTIVES:        ACCT.WARD.16.05-03 – 05-03 ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.AICPA.FN.02 – Leveraging Technology ACCT.AICPA.FN.03 – Measurement BUSPROG: Technology

  1. The discovery and correction of errors is important in a computerized system. What kinds of errors might occur in these systems? What type(s) of errors will be prevented in a computerized system?

ANSWER:                                  Potential errors:

  1. Failing to record transactions.
  2. Recording a transaction more than once.
  3. Recording a transaction in incorrect accounts.
  4. Entering an incorrect number in both the debit and credit parts of the

 

With a computerized system, you cannot process a transaction unless debits equal credits. Additionally, you cannot post to the wrong account, as posting occurs automatically.

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-03 – 05-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.06 – Recording Transactions ACCT.AICPA.FN.03 – Measurement

BUSPROG: Analytic

 

 

 

  1. Identify the three main advantages of a computerized accounting system over a manual accounting system.

ANSWER:                                  1. Simplification of the recording process by recording transactions electronically and posting to both the general and subsidiary ledgers at the same time.

 

  1. Generally more accurate than manual systems.

 

  1. Provides management with current balance information to support decision making since account balances are updated as transactions are entered.

DIFFICULTY:                           Easy

Bloom’s: Understanding LEARNING OBJECTIVES:        ACCT.WARD.16.05-03 – 05-03 ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.AICPA.FN.03 – Measurement BUSPROG: Technology

  1. Define the meaning of the terms B2C and B2B as they relate to e-commerce.

ANSWER:                                  B2C – Business to consumer e-commerce – businesses sell directly to consumers via the Internet.

 

B2B – Business to business e-commerce – transactions are conducted between two businesses via the Internet.

DIFFICULTY:                           Easy

Bloom’s: Understanding LEARNING OBJECTIVES:        ACCT.WARD.16.05-04 – 05-04 ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.03 – Business Forms

ACCT.AICPA.FN.02 – Leveraging Technology ACCT.AICPA.FN.03 – Measurement BUSPROG: Technology

 

  1. Describe and discuss e-commerce.

ANSWER:                                  E-commerce is the term for using the Internet to perform business transactions.  B2C e-commerce involves transactions between businesses and consumers.  B2B e-commerce involves transactions between two businesses.

 

Currently e-commerce sales are over $225 billion in retail sales, or over 5% of all retail sales.  B2C allows consumers to shop and receive goods at home and improves the speed and efficiency of transactions.

DIFFICULTY:                           Moderate

Bloom’s: Understanding LEARNING OBJECTIVES:        ACCT.WARD.16.05-04 – 05-04 ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.ACBSP.APC.03 – Business Forms

ACCT.AICPA.FN.02 – Leveraging Technology ACCT.AICPA.FN.03 – Measurement BUSPROG: Technology

  1. The Internet creates opportunities for improving the speed and efficiency of transactions. Name and describe three key areas besides e-commerce where the Internet is being used for business purposes.

ANSWER:                                  1. Supply chain management (SCM) – Internet applications to plan supply needs and coordinate them with suppliers.

  1. Customer relationship management (CRM) – Internet applications to plan and coordinate marketing and sales efforts.
  2. Product life-cycle management (PLM) – Internet applications to plan and coordinate the product development and design process.

DIFFICULTY:                           Moderate

Bloom’s: Understanding LEARNING OBJECTIVES:        ACCT.WARD.16.05-04 – 05-04 ACCREDITING STANDARDS:  ACCT.ACBSP.APC.01 – Purpose

ACCT.AICPA.FN.02 – Leveraging Technology

ACCT.AICPA.FN.03 – Measurement BUSPROG: Technology

 

  1. Payton Company has the following segment revenues for the two most recent years.

 

Current Year (in millions) Prior Year

(in millions)

United States  $   825.00 $   600.00
Canada 325.50 345.50
Other countries      215.50      168.50
Total revenues $1,366.00 $1,114.00

 

 

Current Year (in millions)

 

Prior Year (in millions)

Amount Increase or (Decrease) Percent Increase or (Decrease)
United States $ 825.00 $ 600.00 $225.00 37.5%
Canada 325.50 345.50 (20.0) (5.8)
Other countries    215.50    168.50   47.00 27.9
Total revenues $1,366.00 $1,114.00 $252.00 22.6

 

Prepare a horizontal analysis of the segment data.

 

 

 

ANSWER:

 

 

 

 

 

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-05 – 05-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.23 – Financial Statement Analysis ACCT.AICPA.FN.03 – Measurement

BUSPROG: Analytic

 

 

 

  1. Payton Company has the following segment revenues for the two most recent fiscal years.

 

Current Year

(in millions)

Prior Year

(in millions)

China $   775.00 $   650.00
Canada 325.50 245.50
Other countries      215.50      168.50
Total revenues $1,316.00 $1,064.00

 

Prepare a vertical analysis of the segment data.

 

 

ANSWER:

Current Year

(in millions)

 

Percent

Prior Year

(in millions)

 

Percent

U.S. $   775.00 58.9% $      650.00 61.1%
Canada 325.50 24.7 245.50 23.1
Other countries      215.50   16.4        168.50    15.8
  Total Revenues $1,316.00 100.0% $1,064.00 100.0%

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-05 – 05-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.23 – Financial Statement Analysis ACCT.AICPA.FN.03 – Measurement

BUSPROG: Analytic

 

 

 

  1. Maximilian Corporation provided revenue disclosures for the current year by its major product segments in the notes to its financial statements as follows:

 

Major Product Segments Current Year (in millions)
Petroleum-based products $10,450
Industrial chemicals 9,460
Refined chemical products 8,575
Food additives 7,325
Emulsifiers 6,900
Pesticides 5,870
Salts 4,545
Wetting agents     3,215
Total revenues $56,340

 

Prepare a vertical analysis.

 

ANSWER:

Major Product Segments Current Year (in millions) Percent
Petroleum-based products $10,450 18.5%
Industrial chemicals 9,460 16.8
Refined chemical products 8,575 15.2
Food additives 7,325 13.0
Emulsifiers 6,900 12.2
Pesticides 5,870 10.4
Salts 4,545 8.1
Wetting agents     3,215     5.7
Total revenues $56,340 100.0%*

* Difference in percentages due to rounding.

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-05 – 05-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.23 – Financial Statement Analysis ACCT.AICPA.FN.03 – Measurement

BUSPROG: Analytic

 

 

 

 

  1. Eastwood Publishing reports the following segment data regarding its textbook sales:

 

Segment Current Year Prior Year
College textbooks $  78,000 $  55,000
High school textbooks 129,000 115,000
Elementary school textbooks   105,000   121,000
Total textbook revenue $312,000 $291,000

 

Perform a horizontal analysis and a vertical analysis for Eastwood Publishing Company.  Round to one decimal place.

ANSWER:                                  Horizontal Analysis:

 

 

 

 

 

 

Segment

 

Current Year

 

Prior Year

 

Amount

 

Percent

College textbooks         $ 78,000  

$  55,000

 

$ 23,000

 

41.8%

textbooks  

129,000

 

115,000

 

14,000

 

12.2%

school textbooks  

  105,000

 

  121,000

 

  (16,000)

 

(13.2%)

revenue  

$312,000

 

$291,000

 

$ 21,000

 

7.2%

 

High school

 

 

Elementary

 

 

Total textbook

 

 

Vertical Analysis:

 

Segment        Current Year      Percent         Prior Year        Percent

College textbooks          $ 78,000             25.0%           $ 55,000             18.9%

High school

textbooks                        129,000             41.3%            115,000             39.5%

Elementary

school textbooks            105,000           33.7%            121,000             41.6%

Total textbook

revenue                         $312,000           100.0%          $291,000           100.0%

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-05 – 05-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.23 – Financial Statement Analysis ACCT.AICPA.FN.03 – Measurement

BUSPROG: Analytic

 

 

 

  1. What is a business segment? How can business segments be analyzed?

ANSWER:                                  A business segment is a subset of a business.  Businesses may be segmented by region, product or service, or type of customer.  Segment analysis uses horizontal and vertical comparisons to analyze the segments’ contributions to the overall performance of the company.

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-05 – 05-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.03 – Business Forms

ACCT.ACBSP.APC.23 – Financial Statement Analysis ACCT.AICPA.FN.03 – Measurement

BUSPROG: Analytic

 

  1. Mickey Co. does business in three regional segments: West, East, and Central. The following information is availabl

 

Segment Current Year

(in thousands)

Prior Year

(in thousands)

East $   776,000 $   664,000
West 824,000 596,000
Central      495,000      325,000
Total revenues $2,095,000 $1,585,000

​Prepare a horizontal analysis of the segment data. Round percentages to two decimal places.

ANSWER:

 Segment Current Year (in thousands) Prior Year    (in thousands)  Amount Increase or (Decrease)  Percent Increase or (Decrease)
East  $   776,000  $   664,000  $112,000 16.87%
West  824,000  596,000  228,000  38.26%
Central        ​  495,000       325,000   170,000  52.31%
Total revenues  $2,095,000  $1,585,000  $510,000  32.17%

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-05 – 05-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.23 – Financial Statement Analysis

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

  1. 123 Kids TV operates in five major international segments.

 

Segment Current Year (in millions) Prior Year (in millions)
United States $  9,132 $  8,528
Canada 8,248 6,391
England 4,734 4,141
China 11,700 13,299
Brazil     5,645     6,391
Total revenues $39,459 $38,750

 

Prepare a horizontal analysis of the segment data. Round percentages to two decimal places.

 

ANSWER:

 

 Segment  Current Year

(in millions)

Prior Year

(in millions)

Amount 

Increase or

(Decrease)

 Percent

Increase or

(Decrease)

 United States  $  9,132  $ 8,528  $    604  7.08%
 Canada  8,248  6,391  1,857  29.06
 England  4,734  4,141  593  14.32
 China  11,700  13,299  (1,599)  (12.02)
 Brazil     5,645     6,391      (746)  (11.67)
 Total revenues $39,459  $38,750  $    709  1.83%

 

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-05 – 05-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.23 – Financial Statement Analysis

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Connie and Jill operate Reardon’s Bakery which has the following segment revenues for the most recent two fiscal

years.

 

Prepare a vertical analysis. Round percentages to two decimal places.

 

Segment Current Year

(in thousands)

Prior Year

(in thousands)

 Cakes  $   691,000 $   662,000
 Cupcakes  512,000  550,000
 Desserts  417,000  468,000
 Beverages      875,000      815,000
 Total revenues  $2,495,000 $2,495,000

 

ANSWER:

 

 Segment  Current Year

(in thousands)

Percent  Prior Year

(in thousands)

 Percent
 Cakes  $   691,000  27.70% $   662,000  26.53%
 Cupcakes  512,000  20.52%  550,000  22.04%
 Desserts  417,000  16.71%  468,000  18.76%
 Beverages      875,000   35.07%      815,000   32.67%
 Total revenues  $2,495,000  100.00% $2,495,000  100.00%

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-05 – 05-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.23 – Financial Statement Analysis

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Minnie Co. does business in three segments: Theme Park, Movie Production, and Merchandise. The following information from the current year is available:

 

Segment Current Year

(in thousands)

Prior Year

(in thousands)

Theme Parks  $   776,000 $   664,000
Movie Production  824,000  596,000
Merchandise      495,000       325,000
Total revenues  $2,095,000  $1,585,000

 

Prepare a vertical analysis of the segment data. Round percentages to two decimal places.

 

ANSWER:

 

Segment Current Year

(in thousands)

Percent Prior Year

(in thousands)

Percent
Theme Parks  $   776,000  37.04% $   664,000  41.89%
Movies  824,000  39.33%  596,000  37.60%
Merchandise      495,000   23.63%       325,000   20.50%
Total revenues  $2,095,000  100.00%  $1,585,000 100.00%

(rounded)

 

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.05-05 – 05-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.23 – Financial Statement Analysis

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

Match the transactions below with the journal or ledger in which it would be entered.

  1. purchases journal
  2. revenue journal
  3. cash receipts journal
  4. cash payments journal
  5. accounts receivable subsidiary ledger
  6. accounts payable subsidiary ledger
  7. general journal

 

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Monthly adjustment for supplies used

ANSWER:  g

 

  1. Cash receipt posting to an individual customer account

ANSWER:  e

 

  1. Record sale on account to customer

ANSWER:  b

 

  1. Record purchase on account from vendor

ANSWER:  a

 

  1. Record payment received from customer

ANSWER:  c

 

  1. Record payment made to vendor

ANSWER:  d

 

  1. Cash payment posting to an individual vendor account

ANSWER:  f

 

Match the following types of journal transactions with the journal in which it would be entered.

  1. cash receipts journal
  2. cash payments journal
  3. revenue journal
d.  purchases journal

e.  general journal

 

DIFFICULTY:                           Easy

Bloom’s: Knowledge

LEARNING OBJECTIVES:       ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.07 – Adjusting Entries

ACCT.ACBSP.APC.15 – Current Assets Reporting ACCT.ACBSP.APC.16 – Current Liabilities Reporting ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement

BUSPROG: Analytic

181. Sale on account

ANSWER:  c

 

182. Payment for supplies bought on account

ANSWER:  b

 

183. Adjusting entry

ANSWER:  e

 

184. Collection on account

ANSWER:  a

 

185. Equipment purchased on account

ANSWER:  d

 

 


 

Match each subsidiary ledger and general ledger posting to one of the descriptions of activities (a−e).

  1. Purchases on account
  2. Collections from customers on account
  3. Adjustment for expired insurance
  4. Payments to creditors on account
  5. Sales on account

 

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.18 – Special Journals

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Accounts receivable subsidiary ledger / Accounts Receivable Dr.

ANSWER:  e

 

  1. Accounts receivable subsidiary ledger / Accounts Receivable Cr.

ANSWER:  b

 

  1. Accounts payable subsidiary ledger / Accounts Payable Cr.

ANSWER:  a

 

  1. Accounts payable subsidiary ledger / Accounts Payable Dr.

ANSWER:  d

 

  1. No subsidiary ledger posting

ANSWER:  c

 

 


 

The transactions completed by Franklin Company during January, its first month of operations, are listed below.  Assume that Franklin Company uses the following journals: cash receipts (CR), cash payments (CP), revenue (R), purchases (P), and general (G).  Assume that it uses accounts receivable and accounts payable subsidiary ledgers as well as a general ledger.  Indicate by letters which journal would be used for each transaction and whether or not the entry requires a posting to a subsidiary ledger.

  1. CR, no subsidiary posting
  2. CP, no subsidiary posting
  3. R, no subsidiary posting
  4. P, no subsidiary posting
  5. G, no subsidiary posting
  6. CR, subsidiary posting
  7. CP, subsidiary posting
  8. R, subsidiary posting
  9. P, subsidiary posting
  10. G, subsidiary posting

 

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.05-02 – 05-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.15 – Current Assets Reporting ACCT.ACBSP.APC.16 – Current Liabilities Reporting ACCT.ACBSP.APC.18 – Special Journals ACCT.AICPA.FN.03 – Measurement

BUSPROG: Analytic

 

  1. Issued check for rent

ANSWER:  b

 

  1. Purchased equipment on account

ANSWER:  i

 

  1. Issued an invoice to a customer

ANSWER:  h

 

  1. Received a check from a customer for payment on account

ANSWER:  f

 

  1. Issued check for advertising expense

ANSWER:  b

  1. Issued check for a payment on account

ANSWER:  g

 

  1. Issued check for purchase of supplies

ANSWER:  b

 

  1. Issued check for salary

ANSWER:  b

 

  1. Received cash for a sale

ANSWER:  a

 

  1. Purchased supplies on account

ANSWER:  i

 

  1. Purchased a computer for cash

ANSWER:  b

 

  1. Paid for the equipment purchased on account

ANSWER:  g

 

  1. Recorded the adjustment for supplies used during the month

ANSWER:  e

 

Chapter_07_Inventories

  1. One of the two internal control procedures over inventory is to properly report inventory on the financial
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-01 – 07-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. A purchase order establishes an initial record of the receipt of the inventory.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-01 – 07-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. A perpetual inventory system is an effective means of control over inventory.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-01 – 07-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. A subsidiary inventory ledger can be an aid in maintaining inventory levels at their proper levels.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-01 – 07-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Safeguarding inventory and proper reporting of the inventory in the financial statements are the reasons for controlling the inventory.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-01 – 07-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Inventory controls start when the merchandise is shelved in the store area.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-01 – 07-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. A physical inventory should be taken at the end of every month.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-01 – 07-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The specific identification inventory method should be used when the inventory consists of identical, low-cost units that are purchased and sold frequently.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-02 – 07-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The choice of an inventory costing method has no significant impact on the financial statements.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-02 – 07-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Of the three widely used inventory costing methods (FIFO, LIFO, and average cost), the LIFO method of costing inventory assumes costs are charged based on the most recent purchases first.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-02 – 07-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. When using the FIFO inventory costing method, the most recent costs are assigned to the cost of merchandise sold.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-02 – 07-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. FIFO is the inventory costing method that follows the physical flow of the goods.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-02 – 07-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Under the LIFO inventory costing method, the most recent costs are assigned to ending inventory.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-02 – 07-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The weighted average inventory cost flow method is the least used of the inventory costing methods.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-02 – 07-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. If the perpetual inventory system is used, the merchandise inventory account is debited for purchases of
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-03 – 07-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Under the periodic inventory system, the merchandise inventory account continuously discloses the amount of inventory on hand.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-04 – 07-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Under the periodic inventory system, a physical inventory is taken to determine the cost of the inventory on hand and the cost of the merchandise sold.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-04 – 07-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. The three inventory costing methods will normally each yield different amounts of net income.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-05 – 07-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. The average cost method will always yield results between FIFO and LIFO.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-05 – 07-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. During periods of increasing costs, the use of the FIFO method of costing inventory will result in a greater amount of net income than would result from the use of the LIFO cost method.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-05 – 07-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. During periods of increasing costs, the use of the FIFO method of costing inventory will yield an inventory amount for the balance sheet that is higher than LIFO would produce.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-05 – 07-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. During periods of rapidly rising costs, the use of the LIFO method results in illusory or inventory profits.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-05 – 07-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. During periods of decreasing costs, the use of the LIFO method of costing inventory will result in a lower amount of net income than would result from the use of the FIFO method.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-05 – 07-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. During periods of increasing costs, an advantage of the LIFO inventory cost method is that it matches more recent costs against current revenues.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-05 – 07-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. In valuing merchandise for inventory purposes, net realizable value is the estimated selling price less any direct costs of disposal.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Unsold consigned merchandise should be included in the consignee’s inventory.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. If ending inventory for the year is understated, net income for the year is overstated.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. If ending inventory for the year is overstated, owner’s equity reported on the balance sheet at the end of the year is
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The lower of cost or market is a method of inventory valuation.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. “Market” as used in the phrase “lower of cost or market” for valuing inventory, refers to the price at which the inventory is being offered for sale by its owner.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. A consignor who has goods out on consignment with an agent should include the goods in ending inventory even though they are not in the possession of the consignor.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The use of the lower-of-cost-or-market method of inventory valuation increases net income for the period in which the inventory replacement price declined.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. The lower-of-cost-or-market method of determining the value of ending inventory can be applied on an item by item, by major classification of inventory, or by the total inventory.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. When merchandise inventory is shown on the balance sheet, both the method of determining the cost of the inventory and the method of valuing the inventory should be shown.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. It’s not unusual for large companies to use different inventory costing methods for different segments of its
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Direct disposal costs do not include special advertising or sales commissions.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Inventory errors, if not discovered, will self-correct within two years.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Generally, the lower the number of days’ sales in inventory, the better.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-07 – 07-07

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. One negative effect of carrying too much inventory is risk that customers will change their buying habits.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-07 – 07-07

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Average inventory is computed by adding the inventory at the beginning of the period to the inventory at the end of the period and dividing by two.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-07 – 07-07

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Inventory turnover measures the length of time it takes to acquire, sell, and replace the inventory.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-07 – 07-07

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. In the retail inventory method, the cost to retail ratio is equal to the cost of merchandise sold divided by the retail price of the merchandise sold.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-APP – 07-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Use of the retail inventory method requires taking a physical count of inventory.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-APP – 07-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. If a fire destroys the merchandise inventory, the gross profit method can be used to estimate the cost of merchandise destroyed.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-APP – 07-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. If a company uses a periodic inventory system, the gross profit method can be used to estimate inventory for monthly or quarterly statements.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-APP – 07-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

  1. Under a perpetual inventory system, the amount of each type of merchandise on hand is available in the
    1. customer’s ledger
    2. creditor’s ledger
    3. inventory ledger
    4. purchase ledger

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-01 – 07-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Which document authorizes the purchase of the inventory from an approved vendor?
    1. the purchase order
    2. the petty cash voucher
    3. the receiving report
    4. the vendor’s invoice

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-01 – 07-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The primary objectives of control over inventory are
    1. safeguarding the inventory from damage and maintaining constant observation of the inventory
    2. reporting inventory in the financial statements
    3. maintaining constant observation of the inventory and reporting inventory in the financial statements
    4. safeguarding inventory from damage and reporting inventory in the financial statements

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-01 – 07-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

  1. Taking a physical count of inventory
    1. is not necessary when a periodic inventory system is used
    2. should be done near year-end
    3. has no internal control relevance
    4. is not necessary when a perpetual inventory system is used

 

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-01 – 07-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Control of inventory should begin as soon as the inventory is received. Which of the following internal control steps is not done to meet this goal?
    1. check the invoice to the receiving report
    2. check the invoice to the purchase order
    3. check the invoice with the person who specifically purchased the item
    4. check the invoice extensions and totals

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-01 – 07-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. All of the following are documents used for inventory control except
    1. a petty cash voucher
    2. a vendor’s invoice
    3. a receiving report
    4. a purchase order

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-01 – 07-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Which document establishes an initial record of the receipt of the inventory?
    1. receiving report
    2. vendor’s invoice
    3. purchase order
    4. petty cash voucher

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-01 – 07-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Which of the following is not an example for safeguarding inventory?
    1. Storing inventory in restricted areas.
    2. Physical devices such as two-way mirrors, cameras, and alarms.
    3. Matching receiving documents, purchase orders, and vendor’s invoice.
    4. Returning inventory that is defective or broken.

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-01 – 07-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Which of the following methods is appropriate for a business whose inventory consists of a relatively small number of unique, high-cost items?
    1. FIFO
    2. LIFO
    3. average
    4. specific identification

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-02 – 07-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Ending inventory is made up of the oldest purchases when a company uses
    1. first-in, first-out
    2. last-in, first-out
    3. average cost
    4. retail method

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-02 – 07-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. When merchandise sold is assumed to be in the order in which the purchases were made, the company is using
    1. first-in, last-out
    2. last-in, first-out
    3. first-in, first-out
    4. average cost

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-02 – 07-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The two most widely used methods for determining the cost of inventory are
    1. FIFO and LIFO
    2. FIFO and average cost
    3. LIFO and average cost
    4. gross profit and average cost

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-02 – 07-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Cost flow is in the order in which costs were incurred when using
    1. average cost
    2. last-in, first-out
    3. first-in, first-out
    4. weighted average

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-02 – 07-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Cost flow is in the reverse order in which costs were incurred when using
    1. weighted average
    2. last-in, first-out
    3. first-in, first-out
    4. average cost

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-02 – 07-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The inventory method that assigns the most recent costs to cost of merchandise sold is
    1. FIFO
    2. LIFO
    3. weighted average
    4. specific identification

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-02 – 07-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. The inventory costing method that reports the most current prices in ending inventory is
    1. FIFO
    2. specific identification
    3. LIFO
    4. average cost

 

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-02 – 07-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The inventory costing method that reports the earliest costs in ending inventory is
    1. FIFO
    2. LIFO
    3. weighted average
    4. specific identification

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-02 – 07-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Which of the following companies would be more likely to use the specific identification inventory costing method?
    1. Gordon’s Jewelers
    2. Lowe’s
    3. Best Buy
    4. Walmart

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-02 – 07-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

Addison, Inc. uses a perpetual inventory system.  The following is information about one inventory item for the month of September:

 

Sep.  1 Inventory 20 units at $20
      4 Sold 10 units
10 Purchased 30 units at $25
17 Sold 20 units
30 Purchased 10 units at $30

 

 

  1. If Addison uses FIFO, the cost of the ending merchandise inventory on September 30 is
  2. $800
  3. $650
  4. $750
  5. $700

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-03 – 07-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. If Addison uses LIFO, the cost of the ending merchandise inventory on September 30 is
  2. $800
  3. $650
  4. $750
  5. $700

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-03 – 07-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. When using a perpetual inventory system, the journal entry to record the cost of merchandise sold is:
    1. debit Cost of Merchandise Sold; credit Sales
    2. debit Cost of Merchandise Sold; credit Merchandise Inventory
    3. debit Merchandise Inventory; credit Cost of Merchandise Sold
    4. No journal entry is made to record the cost of merchandise sold.

 

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-03 – 07-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Under the inventory method, accounting records maintain a continuously updated inventory value.
    1. retail
    2. periodic
    3. physical
    4. perpetual

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-03 – 07-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. The inventory data for an item for November are:

 

Nov.  1 Inventory 20 units at $19
4 Sold 10 units
10 Purchased 30 units at $20
17 Sold 20 units
30 Purchased 10 units at $21

Using a perpetual system, what is the cost of the merchandise sold for November if the company uses LIFO?

  1. $610
  2. $600
  3. $590
  4. $580

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-03 – 07-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The inventory data for an item for November are:

 

Nov.  1 Inventory 20 units at $19
       4 Sold 10 units
10 Purchased 30 units at $20
17 Sold 20 units
30 Purchased 10 units at $21

Using a perpetual system, what is the cost of the merchandise sold for November if the company uses FIFO? a. $610

  1. $600
  2. $590
  3. $580

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-03 – 07-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

Use the information below to answer the following questions.

 

The Boxwood Company sells blankets for $60 each.  The following was taken from the inventory records during May.  The company had no beginning inventory on May 1.

 

Date Blankets Units Cost
May    3 Purchase 5 $20
10 Sale 3
17 Purchase 10 $24
20 Sale 6
23 Sale 3
30 Purchase 10 $30

 

 

  1. Assuming that the company uses the perpetual inventory system, determine the cost of merchandise sold for the sale of May 20 using the LIFO inventory cost method.
  2. $136
  3. $144
  4. $180
  5. $120

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-03 – 07-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Assuming that the company uses the perpetual inventory system, determine the cost of merchandise sold for the sale of May 20 using the FIFO inventory cost method.
  2. $120
  3. $180
  4. $136
  5. $144

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-03 – 07-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Assuming that the company uses the perpetual inventory system, determine the ending inventory value for the month of May using the FIFO inventory cost method.
  2. $364
  3. $372
  4. $324
  5. $320

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-03 – 07-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Assuming that the company uses the perpetual inventory system, determine the gross profit for the sale of May 23 using the FIFO inventory cost method.
  2. $108
  3. $120
  4. $72
  5. $180

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-03 – 07-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Assuming that the company uses the perpetual inventory system, determine the ending inventory for the month of May using the LIFO inventory cost method.
  2. $324
  3. $372
  4. $320
  5. $364

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-03 – 07-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Assuming that the company uses the perpetual inventory system, determine the Gross Profit for the month of May using the LIFO cost method.
  2. $348
  3. $452
  4. $444
  5. $356

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-03 – 07-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

The following units of an inventory item were available for sale during the year:

 

Beginning inventory                                        10 units at $55

First purchase                                                  25 units at $60

Second purchase                                              30 units at $65

Third purchase                                                 15 units at $70

 

The firm uses the periodic inventory system.  During the year, 60 units of the item were sold.

 

  1. The value of ending inventory using FIFO is
  2. $1,250
  3. $1,350
  4. $1,375
  5. $1,150

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-04 – 07-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. The value of ending inventory using LIFO is
  2. $1,250
  3. $1,350
  4. $1,375
  5. $1,150

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-04 – 07-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The value of ending inventory rounded to nearest dollar using average cost is:
  2. $1,353
  3. $1,263
  4. $1,375
  5. $1,150

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-04 – 07-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

The following lots of a particular commodity were available for sale during the year:

 

Beginning inventory                                        10 units at $30

First purchase                                                  25 units at $32

Second purchase                                              30 units at $34

Third purchase                                                 10 units at $35

 

  1. The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of inventory at the end of the year according to the LIFO method?
  2. $655
  3. $620
  4. $690
  5. $659

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-04 – 07-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of inventory at the end of the year according to the FIFO method?
  2. $655
  3. $620
  4. $690
  5. $659

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-04 – 07-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of inventory at the end of the year rounded to nearest dollar according to the average cost method?
  2. $655
  3. $620
  4. $690
  5. $659

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-04 – 07-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

The following lots of a particular commodity were available for sale during the year:

 

Beginning inventory                                        5 units at $61

First purchase                                                  15 units at $63

Second purchase                                              10 units at $74

Third purchase                                                 10 units at $77

 

The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year.

 

  1. What is the amount of cost of goods sold for the year according to the average cost method?
  2. $1,380
  3. $1,375
  4. $1,510
  5. $1,250

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-04 – 07-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. What is the amount of cost of merchandise sold for the year according to the FIFO method? $1,380
  2. $1,375
  3. $1,510
  4. $1,250

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-04 – 07-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. What is the amount of cost of merchandise sold for the year according to the LIFO method? $1,380
  2. $1,375
  3. $1,510
  4. $1,250

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-04 – 07-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Under a periodic inventory system
    1. accounting records continuously disclose the amount of inventory
    2. a separate account for each type of merchandise is maintained in a subsidiary ledger
    3. a physical inventory is taken at the end of the period
    4. merchandise inventory is debited when goods are returned to vendors

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-04 – 07-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

The following lots of a particular commodity were available for sale during the year:

 

Beginning inventory                                        10 units at $60

First purchase                                                  25 units at $65

Second purchase                                              30 units at $68

Third purchase                                                 15 units at $75

 

The firm uses the periodic system and there are 25 units of the commodity on hand at the end of the year.

 

  1. What is the amount of the inventory at the end of the year using the FIFO method?
  2. $1,685
  3. $1,575
  4. $1,805
  5. $3,585

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-04 – 07-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

 

 

 

 

 

 

 

 

 

  1. What is the amount of the inventory at the end of the year using the LIFO method?
  2. $1,685
  3. $1,575
  4. $1,805
  5. $3,815

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-04 – 07-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. What is the amount of the inventory at the end of the year rounded to nearest dollar using the average cost method?
  2. $1,685
  3. $1,575
  4. $1,805
  5. $3,705

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-04 – 07-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. If Beginning Inventory (BI) + Purchases (P) – Ending Inventory (EI) = Cost of Merchandise Sold (COMS), an equivalent equation can be written as
    1. BI + P = COMS – EI
    2. BI – P = COMS + EI
    3. BI + P = COMS + EI
    4. EI + P = COMS – BI

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-04 – 07-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.BB.07 – Critical Thinking ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. During a period of consistently rising prices, the method of inventory that will result in reporting the greatest cost of merchandise sold is
    1. FIFO
    2. LIFO
    3. average cost
    4. weighted average

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-05 – 07-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. During times of rising prices, which of the following is not an accurate statement?
    1. Average costing will yield results that are between those of FIFO and LIFO.
    2. LIFO will result in a higher cost of merchandise sold than FIFO.
    3. FIFO will result in a higher net income than LIFO.
    4. LIFO will result in higher income taxes than FIFO.

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-05 – 07-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. If the revenues are correctly reported and the gross profit of a company is understated, what is the effect on owner’s equity?
    1. understated
    2. overstated
    3. correctly stated
    4. none of these

 

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-05 – 07-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. If merchandise inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is
    1. periodic
    2. LIFO
    3. FIFO
    4. average cost

 

ANSWER:                                  c

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-05 – 07-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. If merchandise inventory is being valued at cost and the purchase price is steadily falling, which method of costing will yield the largest net income?
    1. average cost
    2. LIFO
    3. FIFO
    4. weighted average

 

ANSWER:                                  b

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-05 – 07-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Which of the following will be the same amount regardless of the cost flow assumption adopted?
    1. number of items ordered
    2. gross profit
    3. cost of goods sold
    4. ending merchandise inventory

 

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-05 – 07-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. FIFO reports higher gross profit and net income than the LIFO method when
    1. prices are increasing
    2. prices are decreasing
    3. prices remain stable
    4. prices are reduced by 50%

 

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-05 – 07-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. During a period of falling prices, which of the following inventory methods generally results in the lowest balance sheet amount for inventory?
    1. average cost method
    2. LIFO method
    3. FIFO method
    4. cannot tell without more information

 

ANSWER:                                  c

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-05 – 07-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Damaged merchandise that can be sold only at prices below cost should be valued at
    1. net realizable value
    2. LIFO
    3. FIFO
    4. average cost

 

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. If a manufacturer ships merchandise to a retailer on consignment, the unsold merchandise should be included in the inventory of the
    1. consignee
    2. retailer
    3. manufacturer
    4. shipper

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Merchandise inventory at the end of the year was inadvertently overstated. Which of the following statements correctly states the effect of the error on net income, assets, and owner’s equity?
    1. net income is overstated, assets are overstated, and owner’s equity is understated
    2. net income is overstated, assets are overstated, and owner’s equity is overstated
    3. net income is understated, assets are understated, and owner’s equity is understated
    4. net income is understated, assets are understated, and owner’s equity is overstated

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Merchandise inventory at the end of the year was understated. Which of the following statements correctly states the effect of the error?
    1. net income is understated
    2. net income is overstated
    3. cost of merchandise sold is understated
    4. merchandise inventory reported on the balance sheet is overstated

 

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the error?
    1. owner’s equity is overstated
    2. cost of merchandise sold is overstated
    3. gross profit is understated
    4. net income is understated

 

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. If the cost of an item of inventory is $60 and the current replacement cost is $75, the amount included in inventory according to the lower of cost or market is
  2. $15
  3. $60
  4. $75
  5. $135

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Kristin’s Boutiques has identified the following items for possible inclusion in its December 31 inventory. Which of the following would not be included in the year-end inventory?
    1. Merchandise purchased FOB shipping point was picked up by the freight company but had still not arrived at

Kristin’s Boutique as of December 31.

  1. Kristin has in its warehouse merchandise on consignment from Abby Co.
  2. Kristin has sent merchandise to various retailers on a consignment basis.
  3. Kristin has merchandise on hand which has been returned by customers because of wrong size.

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. During the taking of its physical inventory on December 31, 2014, Barry’s Bike Shop incorrectly counted its inventory as $350,000 instead of the correct amount of $280,000. The effect on the balance sheet and income statement would be
    1. assets overstated by $70,000; retained earnings understated by $70,000; and net income statement understated by $70,000
    2. assets overstated by $70,000; retained earnings understated by $70,000; and no effect on the income statement
    3. assets, retained earnings, and net income all overstated by $70,000
    4. assets and retained earnings overstated by $70,000; and net income understated by $70,000

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. If a company mistakenly counts more items during a physical inventory than actually exist, how will the error affect their bottom line?
    1. no change to net income
    2. net income will be overstated
    3. net income will be understated
    4. only gross profit will be affected

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. If a company mistakenly counts less items during a physical inventory than actually exist, how will the error affect the cost of merchandise sold?
    1. understated
    2. overstated
    3. no change
    4. only inventory will be affected

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Too much inventory on hand
    1. ties up funds that could be used to improve operations
    2. increases the cost to safeguard the assets
    3. increases the losses due to price declines
    4. all of these

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-07 – 07-07

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Which of the following is used to analyze the efficiency and effectiveness of inventory management?
    1. inventory turnover only
    2. number of days’ sales in inventory only
    3. both inventory turnover and number of days’ sales in inventory
    4. neither inventory turnover or number of days’ sales in inventory

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-07 – 07-07

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Which of the following measures the relationship between cost of merchandise sold and the amount of inventory carried during the period?
    1. inventory turnover
    2. fixed asset turnover
    3. retail method of inventory costing
    4. gross profit method of inventory costing

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-07 – 07-07

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Which of the following measures the length of time it takes to acquire, sell, and replace inventory?
    1. inventory turnover
    2. number of days’ sales in inventory
    3. retail method of inventory costing
    4. gross profit method of inventory costing

 

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-07 – 07-07

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  • Excess inventory results in all of the following except
    1. tied-up funds that could be used to improve operations
    2. lost sales
    3. increased storage expense
    4. increased risk of loss due to damage

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-07 – 07-07

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. The number of days’ sales in inventory measures
    1. the length of time it takes to acquire, sell, and replace the inventory
    2. the length of time it takes to acquire and receive payment for the inventory
    3. the number of days inventory is on hand prior to sale
    4. the number of days inventory takes to arrive after ordering

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-07 – 07-07

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. For the year ended December 31, Depot Max’s cost of merchandise sold was $56,900. Inventory at the beginning of the year was $6,540. Ending inventory was $7,250.  Compute Depot Max’s inventory turnover for the year.
  2. 8.7
  3. 7.8
  4. 8.3
  5. 44.0

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-07 – 07-07

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. For the year ended December 31, Depot Max’s cost of merchandise sold was $56,900. Inventory at the beginning of the year was $6,540. Ending inventory was $7,250.  Depot Max’s number of days’ sales in inventory is closest to
    1. 42
    2. 46
    3. 8
    4. 44

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-07 – 07-07

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. The method of estimating inventory that uses records of the selling prices of the merchandise is called
    1. retail method
    2. gross profit method
    3. inventory turnover method
    4. average cost method

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-APP – 07-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. On the basis of the following data, what is the estimated cost of the merchandise inventory on May 31 using the retail method?

 

Cost Retail
May 1 Merchandise inventory $125,000 $166,667
May 1-31 Purchases 235,000 313,333
May 1-31 Sales 230,000

 

  1. $250,000
  2. $360,000
  3. $172,500
  4. $187,500

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-APP – 07-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. If the estimated rate of gross profit is 30%, what is the estimated cost of the merchandise inventory on September 30, based on the following data?

 

Sep. 1 Merchandise inventory (at cost) $125,000
Sep. 1-30 Purchases, net (at cost) 300,000
Sep. 1-30 Sales, net 150,000
a.$320,000 b.$192,500 c.$275,000 d.$105,000

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-APP – 07-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. All of the following are reasons to use an estimated method of costing inventory except
    1. Perpetual inventory records are not maintained.
    2. Purchase records are not maintained.
    3. A disaster has destroyed the inventory records and the inventory.
    4. Interim financial statements are required but physical inventory is only taken at the end of the financial accounting period.

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-APP – 07-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Garrison Company uses the retail method of inventory costing. It started the year with an inventory that had a retail cost of $45,000. During the year, Garrison purchased an inventory with a retail sales value of $300,000.  After performing a physical inventory, Garrison calculated the inventory at retail to be $80,000.  The mark up is 100% of cost.  Determine the ending inventory at its estimated cost.
  2. $160,000
  3. $80,000
  4. $40,000
  5. $45,000

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-APP – 07-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. A company will most likely use an estimated method of determining inventory when
    1. the company decides not to do a physical inventory
    2. a natural disaster has destroyed most of the inventory
    3. the company has not kept up with its inventory records
    4. the company is preparing annual financial statements

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-APP – 07-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Stevens Company started the year with an inventory cost of $145,000. During the month of January, Stevens purchased inventory that cost $53,000. January sales totaled $140,000.  Estimated gross profit is 35%.  The estimated ending inventory as of January 31 is
  2. $58,000
  3. $91,000
  4. $107,000
  5. $69,300

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-APP – 07-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Determine the total value of the merchandise using net realizable value.

 

Item Quantity Selling Price Commission
Doll 10 $7 $2
Horse 5 9 3
  1. $35 b. $80 c. $115 d. $25

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. If a company values inventory at the lower of cost or market, which of the following is the value of merchandise inventory on the balance sheet? Apply the lower-of-cost-or-market method to inventory as a whole.

 

Item Inventory Quantity Unit Cost Price Unit Market Price
Product C 420 $  6 $  5
Product D 370 12 14
  1. $6,960
  2. $7,700
  3. $6,540
  4. $7,280

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-06 – 07-06

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Safeguarding inventory from damage or theft is a primary objective for the control of inventory. If you were running a clothing store, name three specific controls you would implement to guard inventory from theft.

ANSWER:                                  Answers will vary but may include ink tags, alarm tags, bells that signal a customer is entering the area to try on clothing, chains that hook through the sleeves of garments and are locked onto clothing racks, scanners to screen customers as they leave the store for unpaid merchandise, and greeters at the store’s entrance to keep customers from bringing in bags that can be used to shoplift merchandise.

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.07-01 – 07-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. List three different security measures taken to safeguard inventory.

ANSWER:                                  Answers will vary and may include

  • storing inventory in areas that are restricted to only authorized employees
  • using physical devices such as two-way mirrors, cameras, and security guards
  • locking high-priced inventory in cabinets
  • placing sensors at each of the exits that are set off by alarm tags

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.07-01 – 07-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

Chapter_25_Differential_Analysis_and_Product_Pricing

  1. Differential revenue is the amount of income that would result from the best available alternative proposed use of
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. Differential revenue is the amount of increase or decrease in revenue expected from a particular course of action as compared with an alternative.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost after modifying the style is estimated to be $48, the differential cost for this situation is $48.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost after modifying the style is estimated to be $48, the differential cost for this situation is $12.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

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.

 

  1. The differential revenue of producing Product P is $82 per pound.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

  1. The differential revenue of producing Product P is $22 per pound.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. The differential cost of producing Product P is $13 per pound.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. The differential cost of producing Product P is $55 per pound.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. 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.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. Differential analysis can aid management in making decisions on a variety of alternatives, including whether to discontinue an unprofitable segment and whether to replace usable plant assets.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

  1. A cost that will not be affected by later decisions is termed a sunk cost.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

  1. A cost that will not be affected by later decisions is termed an opportunity cost.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. The amount of income that would result from an alternative use of cash is called opportunity cost.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. Since the costs of producing an intermediate product do not change regardless of whether the intermediate product is sold or processed further, these costs are not considered in deciding whether to further process a product.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. The costs of initially producing an intermediate product should be considered in deciding whether to further process a product, even though the costs will not change, regardless of the decision.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. In deciding whether to accept business at a special price, the short-run price should be set high enough to cover all variable costs and expenses.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. Differential analysis only considers the short-term (one-year) effects of discontinuing a product.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. Make-or-buy options often arise when a manufacturer has excess productive capacity in the form of unused equipment, space, and labor.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. In addition to the differential costs in an equipment-replacement decision, the remaining useful life of the old equipment and the estimated life of the new equipment are important considerations.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. Manufacturers must conform to the Robinson-Patman Act, which prohibits price discrimination within the United States unless differences in prices can be justified by different costs of serving different customers.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. When a segment of a company is showing a net loss, it is always best to discontinue the segment in order not to continue with losses.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. Discontinuing a segment or product may not be the best choice when the segment is contributing to fixed expenses.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. Make-or-buy decisions should be made only with related parties.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. Depending on the capacity of the plant, a company may best be served by further processing some of the product and leaving the rest as is, with no further processing.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

  1. A practical approach that is frequently used by managers when setting normal long-run prices is the cost-plus
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. The product cost concept includes all manufacturing costs plus selling and administrative expenses in the cost amount to which the markup is added to determine product price.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. The product cost concept includes all manufacturing costs in the cost amount to which the markup is added to determine product price.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. In using the product cost concept of applying the cost-plus approach to product pricing, selling expenses, administrative expenses, and profit are covered in the markup.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. When estimated costs are used in applying the cost-plus approach to product pricing, the estimates should be based upon normal levels of performance.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. When estimated costs are used in applying the cost-plus approach to product pricing, the estimates should be based upon ideal levels of performance.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. Cost-plus methods determine the normal selling price by estimating a cost amount per unit and adding a markup.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCT.WARD.16.25-APP – 25-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. A bottleneck begins when demand for the company’s product exceeds the ability to produce the product.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-03 – 25-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. A bottleneck happens when a key piece of manufacturing machinery can produce 1,000 units per hour and demand for the product supports a production rate of 1,200 units per hour.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-03 – 25-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. When a bottleneck occurs between two products, the company must determine the contribution margin for each product and manufacture the product that has the highest contribution margin per bottleneck hour.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-03 – 25-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. The theory of constraints is a manufacturing strategy that focuses on reducing the influence of bottlenecks on a
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-03 – 25-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. The lowest contribution margin per scarce resource is the most profitable.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-03 – 25-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

  1. Activity-based costing provides more accurate and useful cost data than traditional systems.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-04 – 25-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.11 – Strategic Planning ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. Activity-based costing is determined by charging products for only the services (activities) they used during
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-04 – 25-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.11 – Strategic Planning ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. In using the variable cost concept of applying the cost-plus approach to product pricing, fixed manufacturing costs and fixed selling and administrative expenses must be covered by the markup.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-APP – 25-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. In using the variable cost concept of applying the cost-plus approach to product pricing, fixed manufacturing costs and both fixed and variable selling and administrative expenses must be covered by the markup.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-APP – 25-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. In using the total cost concept of applying the cost-plus approach to product pricing, selling expenses, administrative expenses, and profit are covered in the markup.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-APP – 25-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. Under the total cost concept, manufacturing cost plus desired profit is included in the total cost per unit.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-APP – 25-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. The total cost concept includes all manufacturing costs plus selling and administrative expenses in the cost amount to which the markup is added to determine product price.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-APP – 25-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. Under the variable cost concept, only variable costs are included in the cost amount per unit to which the markup is
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-APP – 25-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. The desired selling price for a product will be the same under both variable and total cost.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-APP – 25-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. The amount of increase or decrease in revenue that is expected from a particular course of action as compared with an alternative is
    1. manufacturing margin
    2. contribution margin
    3. differential cost
    4. differential revenue

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. The amount of increase or decrease in cost that is expected from a particular course of action as compared with an alternative is
    1. period cost
    2. product cost
    3. differential cost
    4. discretionary cost

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. A cost that will not be affected by later decisions is termed a(n)
    1. period cost
    2. differential cost
    3. sunk cost
    4. replacement cost

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. The condensed income statement for a Fletcher Inc. for the past year is as follows:

 

Product
F G H Total
Sales $300,000 $210,000 $340,000 $850,000
Costs:
     Variable costs   $180,000   $180,000   $220,000  $590,000
     Fixed costs     50,000     50,000     40,000   140,000
     Total costs $230,000 $230,000 $260,000 $730,000
Income (loss) $  70,000 $ (20,000) $  80,000 $120,000

 

Management is considering the discontinuance of the manufacture and sale of Product G at the beginning of the current year. The discontinuance would have no effect on the total fixed costs and expenses or on the sales of Products F and H. What is the amount of change in net income for the current year that will result from the discontinuance of Product G?

  1. $20,000 increase
  2. $30,000 increase
  3. $20,000 decrease
  4. $30,000 decrease

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. The condensed income statement for a Hayden Corp. for the past year is as follows:

 

Product
    T     U
Sales $680,000 $320,000
Costs:
     Variable costs   $540,000  $220,000
     Fixed costs   145,000     40,000
Total costs $685,000 $260,000
Income (loss)    $   (5,000) $  60,000

 

Management is considering the discontinuance of the manufacture and sale of Product T at the beginning of the current year. The discontinuance would have no effect on the total fixed costs and expenses or on the sales of Product U. What is the amount of change in net income for the current year that will result from the discontinuance of Product T?

  1. $140,000 increase
  2. $5,000 increase
  3. $5,000 decrease
  4. $140,000 decrease

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. Sage Company is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for $15 per unit. The unit cost for the business to make the part is $20, including fixed costs, and $11, not including fixed costs. If 30,000 units of the part are normally purchased during the year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease from making the part rather than purchasing it?
    1. $150,000 cost increase
    2. $120,000 cost decrease
    3. $150,000 cost increase
    4. $120,000 cost increase

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. Piper Corp. is operating at 70% of capacity and is currently purchasing a part used in its manufacturing operations for $24 per unit. The unit cost for the business to make the part is $36, including fixed costs, and $26, not including fixed costs. If 15,000 units of the part are normally purchased during the year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease from making the part rather than purchasing it?
    1. $30,000 cost decrease
    2. $180,000 cost increase
    3. $30,000 cost increase
    4. $180,000 cost decrease

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. The amount of income that would result from an alternative use of cash is called:
    1. differential income
    2. sunk cost
    3. differential revenue
    4. opportunity cost

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

  1. Yasmin Co. can further process Product B to produce Product C. Product B is currently selling for $30 per pound and costs $28 per pound to produce. Product C would sell for $55 per pound and would require an additional cost of $31 per pound to produce. What is the differential cost of producing Product C?
    1. $30 per pound
    2. $31 per pound
    3. $28 per pound
    4. $55 per pound

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

Carmen Co. can further process Product J to produce Product D. Product J is currently selling for $20 per pound and costs $15.75 per pound to produce. Product D would sell for $38 per pound and would require an additional cost of $8.55 per pound to produce.

 

  1. What is the differential cost of producing Product D?
    1. $6.50 per pound
    2. $8.55 per pound
    3. $17.00 per pound
    4. $5.25 per pound

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

  1. What is the differential revenue of producing Product D?
    1. $6.75 per pound
    2. $22.25 per pound
    3. $18.00 per pound
    4. $6.25 per pound

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

  1. Grace Co. can further process Product B to produce Product C. Product B is currently selling for $60 per pound and costs $38 per pound to produce. Product C would sell for $95 per pound and would require an additional cost of $13 per pound to produce. What is the differential revenue of producing and selling Product C?
    1. $35 per pound
    2. $38 per pound
    3. $95 per pound
    4. $60 per pound

 

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. Delaney Company is considering replacing equipment which originally cost $600,000 and which has $420,000 accumulated depreciation to date. A new machine will cost $790,000. What is the sunk cost in this situation?
  2. $370,000
  3. $790,000
  4. $180,000
  5. $190,000

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

  1. Delaney Company is considering replacing equipment which originally cost $600,000 and which has $420,000 accumulated depreciation to date. A new machine will cost $790,000 and the old equipment can be sold for $8,000. What is the sunk cost in this situation?
  2. $172,000
  3. $180,000
  4. $188,000
  5. $290,000

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. Lara Technologies is considering a cash outlay of $250,000 for the purchase of land, which it could lease out for $35,000 per year. If alternative investments are available that yield a 12% return, the opportunity cost of the purchase of the land is
  2. $35,000
  3. $30,000
  4. $250,000
  5. $4,200

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. Jarrett Company is considering a cash outlay of $300,000 for the purchase of land, which it could lease out for $36,000 per year. If alternative investments are available that yield a 9% return, the opportunity cost of the purchase of the land is
  2. $27,000
  3. $36,000
  4. $9,000
  5. $72,000

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. Farris Company is considering a cash outlay of $500,000 for the purchase of land, which it could lease out for $40,000 per year. If alternative investments are available that yield a 15% return, the opportunity cost of the purchase of the land is
  2. $75,000
  3. $40,000
  4. $44,000
  5. $7,500

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. Jacoby Company received an offer from an exporter for 30,000 units of product at $15 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data are available:

 

Domestic unit sales price $21
Unit manufacturing costs:
   Variable 12
    Fixed 5

 

What is the differential revenue from the acceptance of the offer?

  1. $450,000
  2. $630,000
  3. $510,000
  4. $120,000

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

Stryker Industries received an offer from an exporter for 15,000 units of product at $17.50 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data is available:

 

Domestic unit sales price $20
Unit manufacturing costs:
Variable 11
Fixed 1

 

  1. What is the differential revenue from the acceptance of the offer?
  2. $300,000
  3. $262,500
  4. $52,500
  5. $250,000

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. What is the differential cost from the acceptance of the offer?
  2. $200,000
  3. $262,500
  4. $85,500
  5. $165,000

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. What is the amount of income or loss from acceptance of the offer?
    1. $97,500 income
    2. $94,500 loss
    3. $37,500 income
    4. $37,500 loss

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

Rylan Corporation received an offer from an exporter for 25,000 units of product at $16 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data are available:

 

Domestic unit sales price $22
Unit manufacturing costs:
   Variable 11
   Fixed 6

 

  1. What is the differential cost from the acceptance of the offer?
  2. $150,000
  3. $275,000
  4. $550,000
  5. $125,000

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

  1. What is the amount of the income or loss from acceptance of the offer?
  2. $125,000 loss
  3. $25,000 income
  4. $125,000 income
  5. $25,000 loss

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

  1. Relevant revenues and costs refer to
    1. activities that occurred in the past
    2. monies already earned and/or spent
    3. last year’s net income
    4. differences between the alternatives being considered

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. Keating Co. is considering disposing of equipment that cost $50,000 and has $40,000 of accumulated depreciation to Keating Co. can sell the equipment through a broker for $25,000 less 5% commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $48,750. Keating will incur repair, insurance, and property tax expenses estimated at $8,000 over the five-year period. At lease-end, the equipment is expected to have no residual value. The net differential income from the lease alternative is
  2. $17,000
  3. $7,000
  4. $27,000
  5. $14,500

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. Sparrow Co. is currently operating at 80% of capacity and is currently purchasing a part used in its manufacturing operations for $8.00 a unit. The unit cost for Sparrow Co. to make the part is $9.00, which includes $0.60 of fixed If 4,000 units of the part are normally purchased each year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease for making the part rather than purchasing it?
    1. $12,000 cost decrease
    2. $4,000 cost increase
    3. $20,000 cost decrease
    4. $1,600 cost increase

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. Heston and Burton, CPA’s, currently work a five-day week. They estimate that net income for the firm would increase by $75,000 annually if they worked an additional day each month. The cost associated with the decision to continue the practice of a five-day work week is an example of a(n)
    1. differential revenue
    2. sunk cost
    3. differential income
    4. opportunity cost

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. Starling Co. is considering disposing of a machine with a book value of $12,500 and estimated remaining life of five 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
    1. decrease of $11,000
    2. decrease of $15,000
    3. increase of $11,000
    4. increase of $15,000

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. Nighthawk Inc. is considering disposing of a machine with a book value of $22,500 and an estimated remaining life of three years. The old machine can be sold for $6,250. A new machine with a purchase price of $68,750 is being considered as a replacement. It will have a useful life of three years and no residual value. It is estimated that the annual variable manufacturing costs will be reduced from $43,750 to $20,000 if the new machine is purchased. The net differential increase or decrease in cost for the entire three years for the new equipment is
    1. $8,750 increase
    2. $31,250 decrease
    3. $8,750 decrease
    4. $2,925 decrease

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

Falcon Co. produces a single product. Its normal selling price is $30.00 per unit. The variable costs are $19.00 per unit. Fixed costs are $25,000 for a normal production run of 5,000 units per month. Falcon received a request for a special order that would not interfere with normal sales. The order was for 1,500 units with a special price of $20.00 per unit. Falcon has the capacity to handle the special order, and for this order, a variable selling cost of $1.00 per unit would be eliminated.

 

  1. If the order is accepted, what would be the impact on net income?
    1. decrease of $750
    2. decrease of $4,500
    3. increase of $3,000
    4. increase of $1,500

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

  1. Should the special order be accepted?
    1. cannot determine from the data given
    2. yes
    3. no
    4. there would be no difference in accepting or rejecting the special order

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. Mighty Safe Fire Alarm is currently buying 50,000 motherboards from MotherBoard, Inc. at a price of $65 per Mighty Safe is considering making its own boards. The costs to make the board are as follows: direct materials, $32 per unit; direct labor, $10 per unit; and variable factory overhead, $16.00 per unit. Fixed costs for the plant would increase by $75,000. Which option should be selected and why?
    1. buy, $75,000 more in profits
    2. make, $275,000 increase in profits
    3. buy, $275,000 more in profits
    4. make, $350,000 increase in profits

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. Rowan Quinn Company manufactures kitchen appliances. Currently, it is manufacturing one of its components at a variable cost of $40 and fixed costs of $15 per unit. An outside provider of this component has offered to sell Rowan Quinn the component for $45. Determine the best plan and calculate the savings.
    1. $5 savings per unit if manufactured
    2. $5 savings per unit if purchased
    3. $10 savings per unit if manufactured
    4. $15 savings per unit if purchased

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

  1. Discontinuing a product or segment is a huge decision that must be carefully analyzed. Which of the following would be a valid reason not to discontinue an operation?
    1. losses are minimal
    2. variable costs are less than revenues
    3. variable costs are more than revenues
    4. allocated fixed costs are more than revenues

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. Which of the following would be considered a sunk cost?
    1. purchase price of new equipment
    2. equipment rental for the production area
    3. net book value of equipment that has no market value
    4. warehouse lease expense

 

ANSWER:                                  c

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

  1. All of the following should be considered in a make-or-buy decision except
    1. cost savings
    2. quality issues with the supplier
    3. future growth in the plant and other production opportunities
    4. whether the supplier will make a profit that would no longer belong to the business

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

  1. Which of the following reasons would cause a company to reject an offer to accept business at a special price?
    1. The additional sale will not conflict with regular sales.
    2. The additional sales will increase differential income.
    3. The additional sales will not increase fixed expenses.
    4. The additional sales will increase fixed expenses.

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-01 – 25-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

  1. A practical approach that is frequently used by managers when setting normal long-run prices is the
    1. cost-plus approach
    2. economic theory approach
    3. price graph approach
    4. price skimming

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

  1. Which of the following is not a cost concept commonly used in applying the cost-plus approach to product pricing?
    1. total cost concept
    2. product cost concept
    3. variable cost concept
    4. fixed cost concept

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

  1. When using the product cost concept of applying the cost-plus approach to product pricing, what is included in the markup?
    1. desired profit
    2. total fixed manufacturing costs, total fixed selling and administrative expenses, and desired profit
    3. total costs plus desired profit
    4. total selling and administrative expenses plus desired profit

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

  1. What cost concept used in applying the cost-plus approach to product pricing covers selling expenses, administrative expenses, and desired profit in the markup?
    1. total cost concept
    2. product cost concept
    3. variable cost concept
    4. sunk cost concept

 

ANSWER:                                  b

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

  1. What cost concept used in applying the cost-plus approach to product pricing includes only total manufacturing costs in the cost amount to which the markup is added?
    1. variable cost concept
    2. total cost concept
    3. product cost concept
    4. opportunity cost concept

 

ANSWER:                                  c

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. The target cost approach assumes that:
    1. markup is added to total cost
    2. the selling price is set by the marketplace
    3. markup is added to variable cost
    4. markup is added to product cost

 

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

Mallard Corporation uses the product cost concept of product pricing. Below is cost information for the production and sale of 45,000 units of its sole product. Mallard desires a profit equal to a 12% rate of return on invested assets of $800,000.

 

Fixed factory overhead cost $82,000
Fixed selling and administrative costs 45,000
Variable direct materials cost per unit 5.50
Variable direct labor cost per unit 7.65
Variable factory overhead cost per unit 2.25
Variable selling and administrative cost per unit 0.90

 

  1. The dollar amount of desired profit from the production and sale of the company’s product is
  2. $105,840
  3. $225,000
  4. $96,000
  5. $220,500

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

  1. The cost per unit for the production of the company’s product is
  2. $13.15
  3. $17.22
  4. $15.40
  5. $15.75

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. The markup percentage on product cost for the company’s product is 23.4%
  2. 10.98%
  3. 26.1%
  4. 18%

 

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. The unit selling price for the company’s product is
  2. $19.35
  3. $15.75
  4. $22.05
  5. $21.25

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. What pricing concept considers the price that other providers charge for the same product?
    1. demand-based concept
    2. total cost concept
    3. cost-plus concept
    4. competition-based concept

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

Flyer Company sells a product in a competitive marketplace.  Market analysis indicates that its product would probably sell at $48 per unit.  Flyer management desires a 12.5% profit margin on sales.  Their current full cost for the product is $44 per unit.

 

  1. What is the desired profit per unit?
    1. $6
    2. $8
    3. $5
    4. $4

 

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

  1. Which equation better describes target costing?
    1. Selling price – Desired profit = Target costs
    2. Selling price + Profit = Target costs
    3. Target variable costs + Contribution margin = Selling price
    4. Selling price = Profit – Target variable costs

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

Flyer Company sells a product in a competitive marketplace.  Market analysis indicates that its product would probably sell at $48 per unit.  Flyer management desires a 12.5% profit margin on sales.  Their current full cost for the product is $44 per unit.

 

  1. If the company meets the new target cost number, how much will it have to cut costs per unit, if any?
    1. $1
    2. $3
    3. $2
    4. $0

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

  1. Using the variable cost concept, determine the markup per unit for 30,000 units using the following data:

 

Variable cost per unit $15.00
Total fixed costs $90,000
Desired profit a. $10 $150,000
b. $15
c. $8
d. $23
ANSWER: c

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.11 – Strategic Planning BUSPROG: Analytic

 

 

 

The Swan Company produces its product at a total cost of $43 per unit. Of this amount, $8 per unit is selling and administrative costs. The total variable cost is $30 per unit and the desired profit is $20 per unit.

 

  1. Determine the markup percentage on product cost.
  2. 80%
  3. 46.5%
  4. 70%
  5. 110%

 

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

Flyer Company sells a product in a competitive marketplace.  Market analysis indicates that its product would probably sell at $48 per unit.  Flyer management desires a 12.5% profit margin on sales.  Their current full cost for the product is $44 per unit.

 

  1. What is the target cost of the company’s product?
  2. $44
  3. $42
  4. $43
  5. $40

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

  1. Using the variable cost concept, determine the selling price for 30,000 units using the following data:

 

Variable cost per unit $15.00
Total fixed costs $90,000
Desired profit a. $10 $150,000
b. $15
c. $8
d. $23

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.33 – Incremental analysis

ACCT.IMA.11 – Strategic Planning BUSPROG: Analytic

Flyer Company sells a product in a competitive marketplace.  Market analysis indicates that its product would probably sell at $48 per unit.  Flyer management desires a 12.5% profit margin on sales.  Their current full cost for the product is $44 per unit.

 

  1. If the company cannot cut costs any lower than they already are, what would the profit margin on sales be to meet the market selling price?
  2. 9.3%
  3. 7.3%
  4. 10.3%
  5. 8.3%

 

ANSWER:                                  d

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

 

  1. Target costing is arrived at by taking
    1. the selling price minus desired profit
    2. the selling price and adding desired profit
    3. the selling price and subtracting the budget standard cost
    4. the budget standard cost and reducing it by 10%

 

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.25-02 – 25-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

  1. Peyton Company manufactures Phone X and Phone Y. Peyton can sell all it can make of either. Based on the following data, assuming the number of hours is a constraint, which statement is true?

 

            X              Y
Sales price $48 $44
Variable cost 38 28
Time needed to process 5 hours 8 hours

 

  1. X is more profitable than Y.
  2. Y is more profitable than X.
  3. Neither X nor Y is profitable.
  4. X and Y are equally profitable.

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.25-03 – 25-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.27 – Managerial Accounting Features/Costs

ACCT.ACBSP.APC.33 – Incremental analysis ACCT.IMA.14 – Decision Analysis BUSPROG: Analytic

 

 

 

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