D196 Accounting Questions with Solution, Exams of Accounting

Download D196 Accounting Questions with Solution and more Exams Accounting in PDF only on Docsity!

D196 Accounting Questions with Solutions

D196 Accounting Questions with Solutions D196 Principles 1 10. 11 12. 13. 14 What is the effect of a company's accounting department maintaining high ethical standards? The company’s accounting information will increase in value. Why might employees be interested in their company's financial accounting information? Financial statement data are often used in determining employee bonuses Which group establishes financial eccounting rules in the United States? Financial Accounting Standards Board (FASB) Which report is one of the three primary financial statements? Statement of cash flows A company paid f'5,000 cash in advertising costs. Assets decrease by 75,000; expenses increase by f15,000. What is 8 transaction? Two parties exchanging something of value Accompany borrowed fi80,000 cash from a bank. Assets increase by f180,000; liabilities increase by fi80,000_ What is the impact of expenses on the accounting equation? Expenses decrease owners’ equity. Which type of account are accounts payable and notes payable both examples of? Liability What is the purpose of the financial accounting cycle? To turn information about transactions into financial statements Which type of account are accounts payable and notes payable both examples of? Liability What is the purpose of the financial accounting cycle? To turn information about transactions into financial statements According to the accounting equation, the amount of liabilities and equity must always be equal to another amount. Assets Which item is an expense item? Cost of goods sald 15. How is gross profit computed? Sales minus cost of goods sold 16. i. 18. 19. 20. 21. 22. 2 24. 2 mh 26. 2 g 28. 29. Which type of account is retained earnings? Equity For purposes of cash flow classification in the statement of cash flows, which item is an ‘operating activity? Paying employees How does @ classified balance sheet provide useful information to 3 decision maker? it distinguishes between current and long-term assets. What information does a balance sheet provide to a decision maker? Summary of the financial position of a company at a particular date What is an account payable? The amount owed by 2 company that purchased goods or services from a supplier on credit What is an example of a financial cost that would result from poor direct labor budgeting and planning? Increased hiring, training, and overtime costs What does a manager have control over in a cost center? Costs . What should be considered when developing @ measure to evaluate the performance of 2 manager? Only controllable costs Why is this a mistake? Uncontrollable costs should not be included in the performance evaluation measure of a profit center manager. . Which budget should include the expected cost of supplies used by the office staff of the corporate headquarters? Administrative expense budget Which items are uncontrollable, external variables that make it difficult to forecast the level of sales? ‘Customer tastes and economic conditions . What is the correct sequence of budgets in a manufacturing business? Sales, production, direct materials Which type of business organization has a major focus on direct materials, direct labor, and overhead? Manufacturing What are the three primary functions that company managers use managerial accounting information for? Planning, controlling, and evaluating 45. In a job order costing system, what is the proper accounting for a product cost? It is reported as a part of cost of goods sold. 46. Which item is a period cost? Utility bills to heat the headquarters building 47. Which statement is true with respect to activity-based costing (ABC) systems? An ABC system allocates overhead based on multiple activities. 48. How is overhead allocated in an ABC system? Activity rate multiplied by number of cost driver events 49. In an ABC system, which name is given to 8 numerical measure reflecting the amount of a cost associated with a particular overhead cost activity? Cost driver 50. How are production costs treated in a process costing system? Costs are accumulated by process and averaged over all products made during the period. 51. How is the production cost per unit computed in a process costing system? Amount of total production cost divided by the number of units completed during a particular period of time 52. For which production process is process costing the appropriate costing method to use? Refining gasoline in a petroleum facility 53. Which overhead allocation method should be used for a business that mass-produces breakfast cereal? Process costing 54. Whatis the correct sequence for the flow of costs through a job order costing system? Raw materials inventory, work-in-process inventory, finished goods inventory, cost of goods sold 55. Which type of company cannot use job order costing? Petroleum refining plant 56. What is an example of direct materials? Cost of aluminum in making an airplane 57. Whatis an example of direct labor? Wages for furniture assemblers in a wood furniture manufacturer 58. What is an example of manufacturing overhead? Cost of sandpaper in making wood furniture Pre-Assessment 1. What is the effect of 3 company’s accounting department maintaining high ethical standards? The company's accounting information will increase in value. 2. Why might employees be interested in their company's financial accounting information? Financial statement data are often used in determining employee bonuses 3. Which group establishes financial accounting rules in the United States? Financial Accounting Standards Board (FASS) 4. Which report is one of the three primary financial statements? Statement of cash flows 5. Accompany paid fi5,000 cash in advertising costs. How does this transaction affect the paying company's accounting equation? Assets decrease by fi5,000; expenses increase by fi5,000. 6. What is transaction? Two parties exchanging something of value 10. L 12. 13. 14, 15. 16. 17 18. 19. 20. 2 22 2 24 25. A company borrowed fi80,000 cash from a bank How does this transaction affect the accounting equation of the borrowing company? Assets increase by 180,000; liabilities increase by 80,000. ‘What is the impact of expenses on the accounting equation? Expenses decrease owners’ equity. Which type of account are accounts payable and notes payable both examples of? Liability What is the purpose of the financial accounting cycle? To turn information about transactions into financial statements What is the effect of a company’s accounting department maintaining high ethical standards? The company’s accounting information will increase in value. Why might employees be interested in their company's financial accounting information? Financial statement data are often used in determining employee bonuses. Which group establishes financial accounting rules in the United States? Financial Accounting Standards Board (FASB) Which report is one of the three primary financial statements? Statement of cash flows A company paid 75,000 cash in advertising costs. How does this transaction affect the paying company's accounting equation? Assets decrease by f5,000; expenses increase by 15,000 What is 3 transaction? Two parties exchanging something of value A company borrowed 80,000 cash from a bank. How does this transaction affect the accounting equation of the borrowing company? Assets increase by £180,000; liabilities increase by fi80,000. What is the impact of expenses on the accounting equation? Expenses decrease owners’ equity. Which type of account are accounts payable and notes payable both examples of? Liability What is the purpose of the financial accounting cycle? To turn information about transactions into financial statements According to the accounting equation, the amount of liabilities and equity must always be equal to another amount. What is that other amount? Assets Which item is an expense item? Cost of goods sold How is gross profit computed? Sales minus cost of goods sold Which type of account is retained earnings? Equity For purposes of cash flow classification in the statement of cash flows, which item is an operating activity? Paying employees How does a classified balance sheet provide useful information to a decision maker? It distinguishes between current and long-term assets. 39 40. 44 42 4 44. 45 46. 47 48 49 50. 51 52 53 Aretail company purchased inventory costing fi100,000. By the end of the year, inventory costing 75,000 had been sold. How is the remaining fi25,000 in inventory reported in the financial statements? As an asset in the balance sheet How are the wages of cashiers classified in a merchandising company? Selling expense How are wages of office staff in a company headquarters building classified? Administrative expense Which label is given to the cost of the wood used in the construction of a piece of wooden furniture? Direct materials Which label is given to the cost of electricity in a furniture factory? Manufacturing overhead What is the sequence of the flow of costs through a manufacturing operation? Raw materials, work-in-process, finished goods, cost of gods sold What is the CVP equation? Sales - variable costs - fixed costs = profit Which cost category is not formally tracked in a company's accounting system? ‘Opportunity costs Why is the concept of relevant range important to a manager? Outside the relevant range, the variable cost per unit can change. Which statement correctly describes applied manufacturing overhead? The amount of manufacturing overhead that is assigned to the goods produced What is the label given to the quantity computed as estimated overhead costs divided by estimated level of activity? Predetermined overhead rate Ina job order costing system, what is the proper accounting for a product cost? It is reported as a part of cost of goods sold. Which item is a period cost? Utility bills to heat the headquarters building Which statement is true with respect to activity-based costing (ABC) systems? An ABC system allocates overhead based on multiple activities. How is overhead allocated in an ABC system? Activity rate multiplied by number of cost driver events 54. In an ABC system, which name is given to a numerical measure reflecting the amount of a cost associated with a particular overhead cost activity? Cost driver 55. How are production costs treated in 2 process costing system? Costs are accumulated by process and averaged over all products made during the period. 56. How is the production cost per unit computed in a process costing system? Amount of total production cost divided by the number of units completed during a particular period of time 57. For which production process is process costing the appropriate costing method to use? Refining gasoline in a petroleum facility 58. Which overhead allocation method should be used for a business that mass-produces breakfast cereal? Process costing 59. What is the correct sequence for the flow of costs through a jab order costing system? Raw materials inventory, work-in-process inventory, finished goods inventory, cost of goods sold 60. Which type of company cannot use job order costing? Petroleum refining plant 61. Whatis an example of direct materials? Cost of aluminum in making an airplane 62. Whatis an example of direct labor? ‘Wages for furniture assemblers in a wood furniture manufacturer 63. What is an example of manufacturing overhead? Cost of sandpaper in making wood furniture 64. 3 Primary Financial Statements * Balance Sheet * Income Statement *° Statement of Cash Flows 65. Cash Payments * Assets decrease * Expenses increase 66. Cash Loans * Assets increase * Liabilities increase 81 82. 83. B4. 85. 86. 87. 88. 89. ot 6 &. 2 92. 9 oo Manufacturing Budget Focus * Direct materials * Direct labor * Manufacturing overhead 3 Functions of Managerial Accounting * Planning * Controlling * Evaluating Product Cost Accounting * Record as inventory cost until product is sold Period Cost * Reported as an Administrative expense on Income Statement Remaining Inventory * Reported as an asset on Balance Sheet Selling Expense * Freight out * Salaries and commissions * Advertising Manufacturing Cost Flow Sequence * Raw materials * Work-in-Process * Finished goods * Cost of Goods Sold ‘CVP Equation * Profit = (Sales - Variable Expenses) - Fixed Expenses Opportunity Cost * Cost category not tracked in accounting system Contribution Margin Equation * Sales - Variable Costs . Variable Cost Ratio Equation * Variable Costs per Unit fi Price per Unit Relevant Range * Level of activity where fixed costs remain fixed * Variable cost per unit can change if outside range Applied Manufacturing Overhead * Amount of overhead assigned to goods purchased 94. Predetermined Overhead Rate * Rate used to charge manufacturing overhead cost to jobs established in advance for each period Itis computed by dividing the estimated total manufacturing overhead cost for the period by the estimated total amount of the allocation base for the period. 95. PreDetermined Overhead Rate Equation * Estimated Overhead Costs fl Estimated Activity Level rey 16. Job Order Costing * Cost system that assigns costs to specific production batches or jobs ~- Tax accountant for wealthy people - Road construction - Building construction 2 7. Job Order Product Cost * Reported as part of Cost of Goods Sold 98. Activity Based Costing * Allocation of overhead based on multiple activities 99. Activity Based Costing Equation *Cost Pool in Total fl Cost Driver 100. Activity rate Number of Cost Driver Events Cost Driver * Number reflecting amount of cost associated with particular overhead cost activity 101. Process Costing System * Accounting system that accumulates costs by process * Used by companies that manufacture identical units through a series of uniform production Steps 102. Process Costing Production Costs * Costs accumulated by process * Averaged over all products made during the period 103. Production Cost Equation * Total Production Cost fl Number of Units Completed 104. Process Costing System * Cost object is masses of identical or similar units of a product or service ~ EX = Refining gasoline in a petroleum facility — EX - Breakfast cereal Break Even- To make just enough income to cover costs without any profit or loss. Break-even Point- The amount of sales at which total costs of the number of units sold equal total revenues; the point at which there is no profit or loss Budget- A quantitative expression of a plan that shows how a firm or o1 resources over some specified period of time. nization will acquire and use Business Documents- Records of transactions used as the basis for recording accounting entries; include invoices, check stubs, receipts, and similar business papers. Business- An organization operated with the objective of making a profit from the sale of goods or services. Capital Budgeting- Systematic planning for long-term investments in operating assets. Capital Stock- The portion of stockholder's equity that represents investment by owners in exchange for shares of stock; also referred to as paid-in capital Cash Budget: A short-term schedule of expected cash inflows and outflows during a period of time. Certified Public Accountant (CPA)- An accountant who has met specified professional requirements established by the AICPA and local and state societies. A key service provided by CPAs is the performance of independent audits of financial statements. Classified Balance Sheet- A balance sheet that distinguishes between current and long-term assets. Comparative Financial Statements- Financial statements that include information for both the current year and preceding year(s) that are prepared for users to identify any significant changes in particular items. Contribution Margin Ratio- The percentage of net sales revenue left after variable costs are deducted; the contribution margin divided by net sales revenue Contribution Margin- The difference between total sales and variable costs; the portion of sales revenue available to cover fixed costs and provide a profit. Controllable Costs- Costs over which a manager has direct authority and can change. Cantrolling- Tracking the actual performance of a company. Cost Accountant- An accountant who is specially trained to prepare and analyze accounting information for internal decision-making. Cost Behavior- The way a costis affected by changes in activity levels. Cost Center- An organizational unit in which a manager has control over and is held accountable for cost performance. Cost Drivers- A numerical measure used to reflect the amount of a specific cost that is associated with a particular activity. Cost Objects- An output of a business, such as a product, service, or division Cost of Goods Manufactured Statement- A schedule supporting the income statement that summarizes the total cost of goods manufactured and transferred out of the work-inprocess inventory account during a period. These costs include direct materials, direct labor, and applied manufacturing overhead. Cost of Goods Sold Statement- A statement that sums the cost of goods sald for an accounting period based on the cost of goods sold formula. Cost Pool- Total cost being generated by a specific overhead cost activity. Cost Variance- A difference between the actual cost and the budgeted cost. Cost-volume-profit (C-V-P} Analysis- Techniques for determining how changes in revenues, costs, and level of activity affect the profitability of an organization. Current Assets- Cash and other assets that are expected to be converted to cash within a year. Current Liabilities- Liabilities expected to be satisfied within a year or the current operating cycle, whichever is longer Decentrelized Company- An organization in which managers at all levels have the authority to make decisions concerning the operations for which they are responsible. Differential Costs- Future costs that change as a result of a decision; also called incremental or relevant costs. Direct Costs- Costs that are specifically traceable to 2 unit of business or segment being analyzed Direct Labor Budget: A schedule of direct labor requirements for the budget period. Direct Labor- Wages paid to those who physically work on direct materials to transform them into a finished product and are traceable to specific products. Direct Materials Budget- A schedule of direct materials to be used during the budget period and direct materials to be purchased during that period Direct Materials- Materials that become part of the product and are traceable to it. Dividends- A sum of money distributed to the owners (stockholders) of a corporation. Generally Accepted Accounting Principles (GAAP}- Authoritative guidelines that define accounting practice ata particular time in the United States. Governmental Accounting Standards Board (GASB)- An independent private organization that sets the accounting and financial reporting standards for state and local governments following GAAP. Gross Margin- The difference between sales and cost of goods sold; gross profit Gross Profit- The difference between sales and cost of goods sold; grass margin. Horizontal Analysis" A method of financial statement analysis that compares a firm's results from year to year. Illiquid- Assets that take time and effort to convert into cash. Income Statement- The financial statement that reports the amount of net income earned by a company during a period. Indirect Costs- Costs normally incurred for the benefit of several segments within the organization; sometimes called common costs or joint costs. Indirect Labor- Labor that is necessary to a manufacturing or service business but is not directly related to the actual production of the product. Indirect Materials- Materials that are necessary to a manufacturing or service business but are not directly included in or are not a significant part of the actual product. Internal Revenue Service (IRS)- A government agency that prescribes the rules and regulations that govern the collection of tax revenues in the United States_ Internal Transaction- A transaction that occurs within a company, does not involve an external party, and is not recorded in the company's financial records International Accounting Standards Board (IASB)- A committee formed to develop international accounting standards. Investing Activities- Activities associated with buying and selling long-term assets Investment Center- An organizational unit in which 2 manager has control over and is held accountable for cost, revenue, and asset performance. Job Order Costing- A method of product costing whereby each jab, product, or batch of products is costed separately. Job- An individual product produced or service rendered in a job order costing system. Liabilities- Obligations to pay cash, transfer other assets, or provide services to someone else. Liquid- Assets that are in the form of cash or can be easily converted into cash. Long-term Assets- Assets that are illiquid and that are needed to operate a business over an extended period of time. Long-term Liabilities Liabilities that are not expected to be satisfied within year. Losses- Money lost on activities outside the normal business of a company. Management Accounting- The area of accounting concerned with providing internal financial reports ta assist management in making decisions. Manufacturing Business-Any organization whose main economic activity involves using components or raw materials to make finished goods for sale to customers. Manufacturing Overhead Budget- A schedule of production costs other than those for direct labor and direct materials. Manufacturing Overhead- All costs incurred in the manufacturing process other than direct materials and direct labor. Market Value- The value of a company as measured by the number of shares of stock outstanding multiplied by the current market price of the stock; the current value of a business. Master Budget- A network of many separate schedules and budgets that together constitute the overall operating and financing plan for the coming operating period. Merchandising Business- Any organization whose main economic activity involves purchasing finished goods and reselling them to customers. Mixed Costs- Costs that contain both variable and fixed costs components. Net Income- A line on the income statement that reports a company's operating income minus interest expense and taxes. Noncontrollable Costs- Costs over which 8 manger does not have direct authority and cannot change Nonprofit Organization- An entity without a profit objective, oriented toward providing services efficiently and effectively. Operating Activities- Activities that are part of the day-to-day business of a company. Operating Capital- Funds available for use in financing the day-to-day activities of a business. Operating Income- A line on the income statement that reports the results of what @ company does on a daily basis; calculated by sales minus cost of goods sold minus operating expenses. Responsibility Accounting- A system of evaluating performance in which managers are held accountable for the costs, revenues, assets, or other elements over which they have control Responsibility Center- An organizational unit in which a manager has control over and is held accountable for its performance. Retailers- Second-tier merchants who typically purchase products from wholesalers to distribute to end- user customers. Retained Earnings- The amount of accumulated earnings of the business that have not been distributed to owners. Return On Investment A measure of operating performance and efficiency in utilizing assets; computed in its simplest form by dividing net income by average total assets (also known as return on assets or ROA). Return On Sales Revenue- A measure of operating performance; computed by dividing net income by total sales revenue. Similar to profit margin Revenues- The amount of assets created through the sale of goods and services. Sales Budget- A schedule of projected sales over the budget period, which often includes a measure of revenue earned and cash collected from customers. Securities and Exchange Commission (SEC}- The government body responsible for regulating the financial reporting practices of most publicly owned corporations in connection with the buying and selling of stocks and bonds. Segment Margin Statement- A profit and loss statement that identifies costs directly chargeable to a segment and further divides them into variable and fixed cost behavior patterns. Segment Margins- The difference between segment revenue and direct segment costs; a measure of the segment's contribution to cover indirect fixed costs and provide costs; in effect, the operating profit created by the segment. Segment: A subsection of a company that is distinct from the whole of the company based on its operational activities, customers, or geographic location. Segment-margin Ratios- The segment margin divided by the segment's met sales revenue; a measure of the efficiency of the segment's operating perfarmance and, therefore, its profitability. Segments- Parts of an organization requiring seperate reports for evaluation by management. Selling and Administrative Expense Budget- A schedule of all nonproduction spending expected to occur during the budget period. Service Business- Any organization whose main economic activity involves producing a nonphysical product that provides value to a customer. Shareholders- Those who own a corporation by owning shares of stock in that corporation; also called stockholders. Statement of Cash Flows- The financial statement that reports the amount of cash collected and paid out by a. company during a period of time. Statement of Retained Earnings- A financial statement that identifies the changes in accumulated investments by owners and earnings or profits since day one. Stepped Costs- Costs that change in total in & stair-step fashion (in large amounts) with changes in volume of activity. Stockholders- Those who own a corporation by owning shares of stock in that corporation; also called shareholders. Stockholders Equity- The owners' equity section of a corporate balance sheet. Sunk Casts- Costs that are past costs and do not change as a result of a future decision. Target Income- A profit level desired by management. Transaction- Two parties exchanging something of value. Underapplied Manufacturing Overhead- The excess of actua| manufacturing overhead costs over the applied overhead costs for @ period (based on a predetermined application rete) Unit-level Activities- Activities that take place each time a unit of product is produced. Variable Cost Ratio The ratio of variable costs to sales. Variable Costs Costs that change in total in direct proportion to changes in activity level. Vertical Analysis- A method of financial statement analysis in which each line item is displayed asa percentage of another item to allow for comparison to other companies within the same industry. Wholesalers- Top-tier merchants who typically deal directly with the original manufacturers to distribute products to retailers. Work-in-process Inventory- Inventory that is partly completed in the production process, but not yet ready for sale to customers. Sales Revenue—Variable Costs—Fixed Costs=Profit