Accounting Final Exam 2024-2025. Questions and Correct, Verified Answers. Graded A, Exams of Accounting

Download Accounting Final Exam 2024-2025. Questions and Correct, Verified Answers. Graded A and more Exams Accounting in PDF only on Docsity!

Accounting Final Exam 2024-2025.

Questions and Correct, Verified Answers.

Graded A

A budget period should be - ANSlong enough to provide an obtainable goal under normal business conditions. A cost center - ANSincurs costs (and expenses) but does not directly generate revenues. (ex. usually a production center or service department.) A distinguishing characteristic of an investment center is that - ANSthe profitability of the center is related to the funds invested in the center. A flexible budget - ANSprojects budget data for various levels of activity. The flexible budget is a series of static budgets at different levels of activity. The flexible budget recognizes that the budgetary process is more useful if it is adaptable to changed operating conditions. If actual is less than budget, it is favorable. A flexible budget can be prepared for each of the types of budgets included in the master budget. - ANSTrue A flexible budget is a series of static budgets at different levels of activities. - ANSTrue

A major element in budgetary control is - ANSthe comparison of actual results with planned objectives. A master budget consists of - ANSinterrelated financial budgets and operating budgets A measure frequently used to evaluate the performance of the manager of an investment center is - ANSthe rate of return on funds invested in the center. A measure that describes the cash remaining from operations after adjustment for capital expenditures and dividends is - ANSfree cash flow. A profit center - ANSincurs costs (and expenses) and also generates revenues. (ex. individual departments of retail stores and branch offices of banks.) A responsibility report should - ANSshow only those costs that a manager can control. A responsibility reporting system - ANSinvolves the preparation of a report for each level of responsibility in the company's organization chart. A sales forecast - ANSshows forecasts for the industry and for the firm A statement of cash flows indicates the sources and uses of cash during a period. - ANSTrue

A static budget - ANSis a projection of budget data at one level of activity.

• Data for different levels of activity are ignored.
• As a result, actual results are always compared with the budget data at the activity level used in developing the master budget.
• A static budget is appropriate in evaluating a manager's effectiveness in controlling costs when: (The actual level of activity closely approximates the master budget activity level, and/or the behavior of the costs in response to changes in activity is fixed.) A static budget is one that is geared to one level of activity. - ANSTrue Accounting generally has the responsibility for - ANSexpressing the budget in financial terms. Ace Company monitors its managers' performance using a static budget. Which one of the following situations will provide the fairest evaluation for those managers? - ANSWhen the company performs at the same activity level as the static budget level. Additional information - ANSSuch information includes transaction data that are needed to determine how cash was provided or used during the period. Advantages & Disadvantages to "bottom-to-top" approach or participative budgeting: - ANSAdvantages: Lower-level managers have more detailed knowledge of their areas and can provide more accurate budget estimates.

When managers participate in the budgeting process, they are more likely to perceive the budget as fair. Disadvantages: It is more time-consuming (and thus more costly). It can foster budgetary "gaming" through budgetary slack. Budgetary slack occurs when managers intentionally underestimate budgeted revenues or overestimate budgeted expenses to make it easier to achieve budgetary goals An investment center - ANSincurs costs (and expenses), generates revenues, and has control over investment funds available for use. (ex. subsidiary companies.) Another name for the static budget is - ANSMaster Budget Behavioral principles should include: - ANSManagers of responsibility centers should have direct input into the process of establishing budget goals for their area of responsibility. The evaluation of performance should be based entirely on matters that are controllable by the manager being evaluated. Top management should support the evaluation process. The evaluation process must allow managers to respond to their evaluations. The evaluation should identify both good and poor performance. Budget reports comparing actual results with planned objectives should be prepared only once a year. - ANSFalse budgetary control - ANSThe use of budgets in controlling operations

Budgetary control involves: - ANSDeveloping budgets. Analyzing the differences between actual and budgeted results. Taking corrective action. Modifying future plans, if necessary. budgeted balance sheet - ANSa projection of financial position at the end of the budget period. It is developed from the budgeted balance sheet for the preceding year and the budgets for the current year. budgeted income statement - ANSthe important end-product of the operating budgets. This budget indicates the expected profitability of operations and it provides a basis for evaluating company performance. The budgeted income statement is prepared from the:

• Sales budget.
• Production budget.
• Direct labor budget.
• Direct materials budget.
• Manufacturing overhead budget.
• Selling and administrative expense budget. Budgeting in not-for-profit organizations - ANSusually starts with budgeting expenditures, rather than receipts.

Budgeting is usually most closely associated with which management function? - ANSPlanning Budgets are statements of management's plans stated in financial terms. - ANSTrue cash disbursements section - ANSshows expected payments for direct materials, direct labor, manufacturing overhead, and selling and administrative expenses. This section also includes projected payments for income taxes, dividends, investments, and plant assets. Cash dividends paid to stockholders are classified on the Statement of Cash Flows as - ANSfinancing activities. Cash paid for dividends - ANS(cash outflow & financing activity) Cash paid for interest - ANS(cash outflow & operating activity) Cash provided by operating activities fails to take into account that a company must invest in new fixed assets just to maintain its current level of operations. - ANSTrue Cash provided by operations is generally equal to operating income. - ANSFalse

cash receipts section - ANSincludes expected receipts from the company's principal source(s) of revenue such as cash sales and collections from customers on credit sales. Cash received from sale of a plant asset - ANS(cash inflow & investing activity) Cash received from sale of goods - ANS(cash inflow & operating activity) Comparative balance sheets - ANSInformation in the comparative balance sheets indicates the amount of the changes in asset, liability, and stockholders' equity accounts from the beginning to the end of the period. Controllable costs for responsibility accounting purposes are those costs that are directly influenced by - ANSa given manager within a given period of time. Controllable margin is defined as - ANScontribution margin less controllable fixed costs. Conversion of bonds to common stock - ANS(Noncash effect & noncash activity) Cost centers, profit centers, and investment centers can all be classified as responsibility centers. - ANSTrue Current income statement. - ANSInformation in this statement helps determine the amount of net cash provided or used by operating activities during the period.

Direct materials budget - ANSshows both the quantity and cost of direct materials to be purchased. Each of the following are particularly interested in the statement of cash flows except - ANSgovernment agencies. Effective budgeting depends on - ANSa sound organizational structure. In such a structure, authority and responsibility for all phases of operations are clearly defined. Examples of significant noncash activities are: - ANSIssuance of common stock to purchase assets. Conversion of bonds into common stock. Direct issuance of debt to purchase assets. Exchange of plant assets. Financial budgets - ANS(focus primarily on the cash resources needed to fund expected operations and planned capital expenditures) Financing activities include - ANSa) obtaining cash from issuing debt and repaying the amounts borrowed, and b) obtaining cash from stockholders, repurchasing shares, and paying dividends. Financing activities include the obtaining of cash from issuing debt and repaying the amounts borrowed. - ANSTrue

Financing activities involve - ANSissuing debt. Financing activities involve - ANSlong-term liability and owners' equity items. financing section - ANSshows expected borrowings and the repayment of the borrowed funds plus interest. This section is needed when there is a cash deficiency or when the cash balance is below management's minimum required balance. Flexible budgets are used to evaluate - ANSa manager's performance in production control and cost control. Flexible budgets are widely used in production and service departments. - ANSTrue Free Cash Flow - ANSA measurement to provide additional insight regarding a company's cash generating ability is free cash flow. Free cash flow describes the cash remaining from operations after adjustment for capital expenditures and dividends. has the responsibility for coordinating the preparation of the budget & ordinarily includes the president, treasurer, chief accountant (controller), and management personnel from each major area of the company. - ANSbudget committee If a company has both an inflow and outflow of cash related to property, plant, and equipment, the - ANScash inflow and cash outflow should be reported separately in the investing activities section.

if a firm is overstaffed... - ANSLabor costs will be disproportionately high. Profits will be lower because of the additional salaries. Staff turnover will increase because of lack of challenging work. If an enterprise is understaffed... - ANSRevenue may be lost because existing and prospective client needs for service cannot be met. Professional staff may seek other jobs because of excessive work loads. If costs are not responsive to changes in activity level, then these costs can be best described as - ANSFixed If there were 60000 pounds of raw materials on hand on January 1, 120000 pounds are desired for inventory at January 31, and 410000 pounds are required for January production, how many pounds of raw materials should be purchased in January? - ANS470000 pounds In developing the cash flows from operating activities, most companies in the U. S.

• ANSuse the indirect method. In preparing net cash flow from operating activities using the direct method, each item in the income statement is adjusted from the accrual basis to the cash basis.
• ANSTrue In service enterprises, such as a public accounting firm, a law office, or a medical practice, the critical factor in budgeting is _________________ - ANScoordinating professional staff needs with anticipated services.

Indicate where the payment of income taxes would appear, if at all, on the statement of cash flows. - ANSOperating activities section. Investing activities include - ANSa) acquiring and disposing of investments and property, plant, and equipment, and b) lending money and collecting the loans. Investing activities include - ANScollecting cash on loans made. Land acquired from the issuance of common stock is reported - ANSin a separate schedule at the bottom of the statement of cash flows. Management by exception - ANSmeans that top management's review of a budget report is focused entirely or primarily on differences between actual results and planned objectives. manufacturing overhead budget - ANSshows the expected manufacturing overhead costs; distinguish between fixed and variable costs. master budget - ANSa set of interrelated budgets that constitutes a plan of action for a specified time period. It contains two classes of budgets: Not-for-profit entities - ANSutilize responsibility accounting in trying to minimize the cost of providing services.

Operating activities - ANSinclude the cash effects of transactions that create revenues and expenses. They thus enter into the determination of net income. Operating budgets - ANS(show the individual budgets that result in the preparation of the budgeted income statement) Performance evaluation - ANSis a management function that compares actual results with budget goals. Performance reports should: - ANSContain only data that are controllable by the manager of the responsibility center. Provide accurate and reliable budget data to measure performance. Highlight significant differences between actual results and budget goals. Be tailor-made for the intended evaluation by ensuring only controllable costs are included. Be prepared at reasonable intervals. Production Budget - ANSshows the units that must be produced to meet anticipated sales. Responsibility accounting - ANSinvolves accumulating and reporting costs (and revenues, where relevant) on the basis of the manager who has the authority to make the day-to-day decisions about the items. Responsibility accounting can be used at every level of management in which the following conditions exist: - ANSCosts and revenues can be directly associated with the specific level of management responsibility.

The costs and revenues can be controlled by employees at the level of responsibility with which they are associated. Budget data can be developed for evaluating the manager's effectiveness in controlling the costs and revenues. Sales Budget - ANSdetermined from sales forecast; all other budgets are determined after the sales budget prepared by multiplying the expected unit sales volume for each product by its anticipated unit selling price. selling and administrative expense budget - ANSa projection of anticipated operating expenses; distinguish between fixed and variable costs. The accumulation of accounting data on the basis of the individual manager who has the authority to make day-to-day decisions about activities in an area is called

• ANSresponsibility accounting. The acquisition of a building by issuing bonds would be considered an investing and financing activity that did not affect cash. - ANSTrue The budgetary system should do the following: - ANSIdentify the name of the budget report such as the sales budget or the manufacturing overhead budget State the frequency of the report such as weekly, or monthly. Specify the purpose of the report. Indicate the primary recipient(s) of the report.

The budgeted income statement indicates the expected profitability of operations for the next year. - ANSTrue The cash budget - ANSshows anticipated cash flows. Because cash is so vital, this budget is often considered to be the most important output in preparing financial budgets. The cash budget contains three sections:

• cash receipts
• cash disbursements
• financing section The direct materials budget contains both quantity and cost data. - ANSTrue The dollar amount of the controllable margin - ANSis usually lower than the contribution margin. The flexible budget - ANSis a series of static budgets at different levels of activity. The flexible budget report consists of two sections: - ANSProduction data for a selected activity index (such as direct labor hours) Cost data for variable and fixed costs. The indirect method of preparing the Statement of Cash Flows begins with - ANSnet income

The information in a Statement of Cash Flows should help investors and creditors assess the entity's ability to pay dividends and meet obligations. - ANSTrue The linens department of a large department store is - ANSa profit center. The major differences between the budgets of a merchandiser and a manufacturer - ANSa merchandiser:

1. Uses a merchandise purchases budget instead of a production budget.
2. Does not use the manufacturing budgets (direct materials, direct labor, and manufacturing overhead). The measurement of free cash flow provides additional insight regarding a company's cash-generating ability. - ANSTrue The number of direct labor hours needed for production is obtained from the production budget. - ANSTrue The order of presentation of activities on the statement of cash flows is - ANSoperating, investing, and financing. The primary benefits of budgeting are - ANSIt requires all levels of management to plan ahead. It provides definite objectives for evaluating performance. It creates an early warning system for potential problems. It facilitates the coordination of activities within the business. It results in greater management awareness of the entity's overall operations.

It motivates personnel throughout the organization to meet planned objectives. The primary purpose of the statement of cash flows is to - ANSprovide information about the cash receipts and cash payments during a period. The sale of land for cash would be classified as a cash inflow from an investing activity. - ANSTrue The single most important output in preparing financial budgets is the - ANScash budget. The starting point when budgeting for a not-for-profit organization is generally to budget expenditures first. - ANSTrue The statement of cash flows is a required statement that must be prepared along with an income statement, balance sheet, and retained earnings statement. - ANSTrue The statement of cash flows reports - ANSCash receipts, Cash payments, Net change in cash resulting from Operating, Investing, and Financing activities during the period. The statement of cash flows should help investors and creditors assess each of the following except the - ANSentity's ability to generate future income.

The terms "direct fixed costs" and "indirect fixed costs" are synonymous with "traceable costs" and "common costs," respectively. - ANSTrue The third (final) step in preparing the statement of cash flows is to - ANScompare the net change in cash with the change in the cash account reported on the balance sheet. The total direct labor hours required in preparing a direct labor budget are calculated using the - ANSproduction budget To determine the net cash provided (used) by operating activities, it is necessary to analyze - ANSthe current year's income statement. & a comparative balance sheet. & additional information. To develop the flexible budget, management should take the following steps: - ANSIdentify the activity index and the relevant range of activity. Identify the variable costs, and determine the budgeted variable cost per unit of activity for each cost. Identify the fixed costs, and determine the budgeted amount for each cost. Prepare the budget for selected increments of activity within the relevant range. Total budgeted fixed costs appearing on a flexible budget will be the same amount as total fixed costs on the master budget. - ANSTrue

Under management by exception, which differences between planned and actual results should be investigated? - ANSMaterial and controllable. Using the indirect method, an increase in accounts receivable during a period is deducted from net income in calculating cash provided by operations. - ANSTrue Using the indirect method, patent amortization expense for the period - ANSis added to net income. What is budgetary control? - ANSThe use of budgets in controlling operations. Which of the following valuations of operating assets is not readily available from the accounting records? - ANSMarket value Which of the following would be classified as an operating activity? - ANSPayment of interest. Which of the following would be subtracted from net income using the indirect method? - ANSAn increase in accounts receivable Which one of the following affects cash during a period? - ANSPayment of an accounts payable Which one of the following budgets would be prepared for a manufacturer but not for a merchandiser? - ANSDirect labor budget

Which one of the following is a step that management must perform when developing the flexible budget? - ANSIdentify the activity index and the relevant range of activity. Which one of the following is necessary if a company expects its budget to be effective? - ANSThe company must have a sound organizational structure. Which one of the following would be the same total amount on a flexible budget and a static budget if the activity level is different for the two types of budgets? - ANSFixed manufacturing overhead