Deck 15: Overhead Application: Variable and Absorbtion Costing

Question 1

Scorpion Company pays wages of $400 per day. The work week begins on Monday and ends on Friday. Wages are paid weekly every Friday. The current month ends on a Thursday. The adjusting entry for wages will:

A) increase expenses by $2,000
B) have no effect on expenses
C) increase expenses by $400
D) increase expenses by $1,600

Answer 1

D

Question 2

The adjusting entry increases owners' equity and decreases liabilities.

A) unrecorded revenue
B) deferred revenue
C) depreciation
D) wages

Answer 2

B

Question 3

The entity's economic obligations to nonowners is(are) called:

A) retained earnings
B) liabilities
C) owners' equity
D) assets

Answer 3

B

Question 4

Cash collected from the customers before goods are delivered is known as:

A) deferred revenue
B) advances from customers
C) unearned revenue
D) All of these answers are correct.

Question 5

The accounting convention of permits a company to immediately expense assets (such as a garbage can) with small values and long useful lives.

A) conservatism
B) materiality
C) objectivity
D) continuity

Question 6

Assume that Pacer Company's paid- in capital at the beginning of the period was $475,000. Pacer Company's total revenues and total expenses were $870,000 and $550,000, respectively. A dividend of $70,000 was declared and paid to shareholders. Pacer Company's net income is:

A) $250,000
B) $405,000
C) $320,000
D) $390,000

Question 7

Research and development costs:

A) are initially recorded as assets, and are expensed when the goods produced are sold
B) are initially recorded as assets, and are expensed when they are paid in cash
C) are initially expensed
D) are initially recorded as assets, and written off in a systematic way over a period of years

Question 8

The is (are) largely responsible for developing generally accepted accounting principles in the United States.

A) IASC
B) SEC
C) FASB and IASC
D) FASB

Question 9

Proctor Company had the following transactions. 1. The owner started the company by investing $8,000 of cash.
2) The company paid $2,000 for six months' rent in advance.
3) The company acquired $3,300 in inventory with two- thirds of the purchase on account.
4) The company sold inventory costing $1,400 for $2,900 on account.
The balance in the Cash account is:

A) $7,800 debit balance
B) $4,900 credit balance
C) $1,600 debit balance
D) $4,900 debit balance

Question 10

Laker Company acquired a machine for $33,000. At the beginning of the current year the machine had accumulated depreciation of $12,000. Annual depreciation expense totaled $3,000. The book value of the machine at the end of the year equals:

A) $24,000
B) $33,000
C) $18,000
D) $21,000

Question 11

Distinctions between paid- in capital and retained earnings are rarely made for:

A) sole proprietorship and corporations
B) corporations
C) partnerships and sole proprietorships
D) corporations and partnerships

Question 12

would result in unchanged income under both the accrual and the cash basis.

A) The expiration of prepaid rent
B) The payment of two months of rent in advance
C) Recognition of the current period's depreciation
D) None of these answers is correct.

Question 13

are sections of the balance sheet.

A) Assets, liabilities, and expenses
B) Expenses, revenues, and owners' equity
C) Revenues, assets, and liabilities
D) Assets, liabilities, and owners' equity

Question 14

The acquisition of inventory for cash will:

A) increase liabilities and decrease stockholders' equity
B) decrease assets and decreases liabilities
C) leave total assets unaffected
D) have no effect on the accounting equation

Question 15

Piston Company owns a fixed asset with an original cost of $100,000. Piston Company estimates it will use the asset for 4 years, at which time the asset can be sold for $10,000. The annual depreciation expense is:

A) $- 0-
B) $22,500
C) $25,000
D) $10,000

Question 16

The adjusting entry increases expenses and decreases assets.

A) wages
B) unearned revenue
C) unrecorded revenue
D) depreciation

Question 17

From the following information, determine the total stockholders' equity ending balance. $\begin{array}{ll}\text { Dividends } & \$ 8,000 \\\text { Ending R et ained Earnings } & 24,000 \\\text { Net Income } & 14,000 \\\text { Paid-in C apital, beginning } & 29,000 \\\text { Paid-in C apital, ending } & 26,000\end{array}$

A) $53,000
B) $101,000
C) $50,000
D) $32,000

Question 18

discloses the economic resources of the organization and the claims against those resources.

A) The balance sheet
B) The statement of retained earnings
C) The income statement
D) The statement of cash flows

Question 19

Mr. Chamberlain invested $40,000 cash in a new corporation. The new corporation will record this transaction with a:

A) debit to Paid- in Capital and a credit to Retained Earnings for $40,000
B) debit to Cash and a credit to Retained Income for $40,000
C) debit to Retained Earnings and a credit to Cash for $40,000
D) debit to Cash and a credit to Paid- in Capital for $40,000

Question 20

The following information was extracted from the accounting records of Hemingway's Company: $\begin{array}{ll}\text { Beginning Paid- In Capital } & \$ 87,000 \\\text { Beginning R etained Earnings } & \$ 211,000 \\\text { Beginning As sets } & \$ 455,000\end{array}$ During the period assets increased by $150,000, revenues were $200,000, and expenses were $165,000. No additional investments were made by the owners. The amount of Hemingway Company's liabilities at the beginning of the period is:

A) $157,000
B) $224,000
C) $331,000
D) $579,000

Question 21

Hawk Company paid 6 months' insurance in advance, covering the period of July1 to December 31. The total payment was $5,400. At the time of the payment, the entire amount was used to increase the balance in the Prepaid Insurance account. The balance in the Prepaid Insurance account as of September 30 is:

A) $3,600
B) $1,800
C) $2,700
D) $- 0-

Question 22

A multi- step income statement:

A) is prepared only by corporations
B) includes information about retained earnings
C) includes a subtotal for gains and losses
D) includes a subtotal for gross profit

Question 23

is an example of an implicit transaction.

A) Returning defective inventory
B) Paying wages which have been accrued
C) Accruing of interest expense
D) Paying cash for three months' rent in advance

Question 24

are increased with debits.

A) Assets and expenses
B) Expenses and paid- in capital
C) Assets and revenues
D) Liabilities and retained earnings

Question 25

The accounting convention of means selecting the method of measurement that yields the gloomiest immediate results.

A) conservatism
B) materiality
C) objectivity
D) cost benefit

Question 26

The accrual basis of accounting recognizes the impact of transactions on the financial statements in the period when:

A) revenues are earned and expenses are incurred
B) cash is received or disbursed
C) the accounting equation is decreased
D) the transaction occurs

Question 27

The matching concept matches .

A) expenses and related revenues in the same time period
B) the dollar amount of total assets and the dollar amount of total liabilities and total owners' equity
C) the dollar amount of expenses and the dollar amount of revenues
D) the revenues earned and the revenues realized

Question 28

is not one of the three major financial statements.

A) The statement of cash flows
B) The balance sheet
C) The statement of equity position
D) The income statement

Question 29

Van Halen Company pays weekly wages every Friday. The current month ends on a Wednesday. The adjusting entry for wages will:

A) decrease liabilities and decrease cash.
B) increase liabilities and increase expenses
C) increase expenses and decrease cash
D) increase assets and increase expenses

Question 30

The use of acquisition cost less depreciation in valuing an asset on the balance sheet is the logical result of the _ accounting convention.

A) cost benefit
B) materiality
C) conservatism
D) continuity

Question 31

would result in an increase in net income under the accrual basis, but not an increase in net income under the cash basis.

A) The expiration of prepaid rent.
B) Cash collection from a credit customer
C) The cash sale of inventory at a sales price in excess of cost
D) The sale of inventory on account at a sales price in excess of cost

Question 32

The following information was extracted from the accounting records of Poe's Company: $\begin{array}{ll}\text { Beginning Paid-In Capital } & \$ 87,000 \\\text { Beginning Retained Earnings } & \$ 21,000 \\\text { Beginning As sets } & \$ 455,000\end{array}$ During the period assets increased by $150,000, revenues were $200,000, and expenses were $165,000. No additional investments were made by the owners. The amount of Poe Company's liabilities at the end of the period is:

A) $150,000
B) $272,000
C) $157,000
D) $45,000

Question 33

would result in a decrease in net income under the cash basis, but it would not result in a decrease in net income under the accrual basis.

A) The purchase of inventory on account
B) The recognition of depreciation expense
C) The payment of two months of rent in advance
D) The expiration of prepaid rent

Question 34

Rocket Company paid $16,000 for January, February, March, and April rent in advance. The balance in the Prepaid Rent account as of January 31 is:

A) $4,000
B) $12,000
C) $16,000
D) $- 0-

Question 35

The adjusting entry increases expenses and increases liabilities.

A) depreciation
B) wages
C) prepaid rent
D) revenue received from customers in advance

Question 36

West Company's accountant recorded a debit to Accounts Payable and a credit to Cash. This transaction will:

A) decrease Cash and decrease Accounts Payable
B) increase Cash and increase Accounts Payable
C) increase Cash and decrease Accounts Payable
D) decrease Cash and increase Accounts Payable

Question 37

A magazine publisher sells annual subscriptions. The distribution of the monthly issue affects the firm by:

A) increasing liabilities and decreasing revenues
B) increasing assets and increasing revenues
C) increasing revenues and decreasing liabilities
D) increasing liabilities and increasing assets

Question 38

Valuing assets at replacement cost to facilitate the measurement of "economic income" violates the accounting convention.

A) conservatism
B) cost benefit
C) objectivity
D) materiality

Question 39

The ownership claim arising from reinvestment of previous profits is called:

A) stockholders' equity
B) retained earnings
C) net assets
D) reinvestment income

Question 40

The accounting convention of _ ignores the effects of price level changes.

A) recognition
B) cost benefits
C) matching
D) stable monetary unit

Question 41

The ownership claim arising from funds contributed by the owners of the business is called:

A) retained earnings
B) liabilities
C) stockholders' equity
D) paid- in capital

Question 42

The cash basis of accounting recognizes the impact of transactions in the period when:

A) revenues and expenses occur
B) the accounting equation increases
C) the transaction occurs
D) cash is received or disbursed

Question 43

From the following information, determine the beginning balance in the Retained Earnings account. $\begin{array}{ll}\text { Dividends } & \$ 8,000 \\\text { Ending Retained Earnings } & 24,000 \\\text { Net Income } & 14,000 \\\text { Paid- in Capital, beginning } & 29,000 \\\text { Paid-in Canital ending } & 26,000\end{array}$

A) $\$ 18,000$
B) $\$ 46,000$
C) $\$ 2,000$
D) None of these answersis correct.

Question 44

Cavalier Company paid $2,700 for 6 months' insurance, covering the period of April 1 to September 30. At the time of the payment, the entire amount was used to increase the balance in the Prepaid Insurance account. The balance in the Prepaid Insurance account as of April 30 is:

A) $900
B) $2,250
C) $1,800
D) $- 0-

Question 45

Source documents are associated with:

A) adjusting entries
B) explicit transactions
C) implicit transactions
D) All of these answers are correct.

Question 46

Cash collected from customers before goods are delivered will:

A) increase revenues and decrease liabilities
B) increase assets and increase revenues
C) increase liabilities and decrease revenues
D) increase liabilities and increase assets

Question 47

would result in a decrease in income under both the accrual and cash basis.

A) The payment of this period's rent
B) The recognition of last period's rent
C) The cash purchase of inventory
D) The payment of next period's rent

Question 48

is also called the statement of financial position.

A) The income statement
B) The statement of retained earnings
C) The statement of cash flows
D) The balance sheet

Question 49

The stockholders' equity section of a corporation's balance sheet can be divided into:

A) retained earnings and paid- in capital
B) net income and retained earnings
C) net income, retained earnings, and paid- in capital
D) paid- in capital and net income

Question 50

are gross decreases in ownership claims from delivering goods or services.

A) Revenues
B) Assets
C) Profits
D) Expenses

Question 51

Identify which one of the following statements is false.

A) A transaction can increase the balance in two accounts.
B) A transaction must increase and decrease the same number of accounts.
C) A transaction can increase the balance in two accounts and decrease the balance in one account.
D) A transaction can increase the balance in one account and decrease the balance in another account.

Question 52

Identify which one of the following statements is false.

A) Owners' equity solely represents the profits made by an organization in the current period.
B) Assets must always equal the sum of liabilities and owners' equity.
C) Liabilities are economic obligations or claims against the assets of an organization by outsiders.
D) Assets are economic resources which are expected to benefit future cash inflows or reduce future cash outflows.

Question 53

Player Company sold inventory costing $900 for $1,400 on account. If Player Company operates under the accrual basis, what effect will the transaction have on the liabilities and owners' equity side of the balance sheet?

A) There will be no effect since the sales and/or cost of goods sold are income statement accounts.
B) Owners' equity will decrease by $900.
C) Owners' equity will increase by $500.
D) There will be no effect since the customer to whom the inventory was sold has not yet paid.

Question 54

would not appear on the financial statements for a sole proprietorship.

A) Accumulated Depreciation
B) Unearned Sales Revenues
C) Paid- in Capital
D) Cost of Goods Sold

Question 55

The has ultimate responsibility for specifying generally accepted accounting principles for publicly traded companies in the United States.

A) IASC
B) FASB
C) SEC
D) GAAP

Question 56

Depreciation is computed on:

A) equipment and buildings
B) equipment, land, and buildings
C) equipment and land
D) land and buildings

Question 57

Cash payment on accounts payable will:

A) increase liabilities and decrease stockholders' equity
B) decrease assets and decrease liabilities
C) increase assets and liabilities
D) have no effect on the accounting equation

Question 58

The acquisition of inventory on open account will:

A) have no effect on the accounting equation
B) increase liabilities and decrease stockholders' equity
C) increase assets and liabilities
D) decrease assets and decrease liabilities

Question 59

Given below is the activity of Super Company: 1. Owners invested $20,000 in cash in the business
2) Credit sales were $80,000
3) Cash sales were $10,000
4) Cash collections from credit customers were $36,000
5) Cash borrowed on a note payable was $27,000
The total revenue for Super Company, using the accrual basis of accounting, is:

A) $46,000
B) $173,000
C) $126,000
D) $90,000

Question 60

Unexpired costs are considered to be:

A) assets
B) expenses, whether or not cash has been paid
C) expenses, if cash has been paid
D) adjusted expenses

Question 61

To be recorded in a period's accounting record, revenue must be:

A) earned and rendered
B) rendered and collected
C) earned and collectible
D) earned and collected

Question 62

Magic Company owns a fixed asset with an original cost of $100,000. Magic Company estimates it will use the asset for 4 years, at which time the asset can be sold for $10,000. The book value of the asset after two years of use is:

A) $100,000
B) $45,000
C) $55,000
D) $50,000

Question 63

Elgin Company purchased $4,000 of inventory, paying cash for 25% of the purchase, with the remainder on account. Elgin Company should:

A) debit Inventory for $4,000, credit Cash for $1,000, and credit Accounts Payable for $3,000
B) debit Cash for $1,000, debit Accounts Payable for $3,000, and credit Inventory for $4,000
C) debit Inventory for $4,000, credit Cash for $1,000, and credit Note Payable for $3,000
D) debit Cash for $1,000, debit Note Payable for $3,000, and credit Inventory for $4,000

Question 64

is an example of an explicit transaction.

A) Signing a contract to perform services in two months, at which time payment will be received
B) Paying cash for three months' rent in advance
C) Recognizing depreciation expense
D) Accruing earned but unpaid wages at the end of the month

Question 65

The board of directors of Knick Company declared a dividend. Later, the dividend was disbursed to stockholders. The dividend disbursement would:

A) decrease net income
B) decrease both net income and stockholders' equity
C) decrease stockholders' equity
D) None of these answers is correct.

Question 66

Assume that Shack Company's paid- in capital at the beginning of the period was $475,000. Shack Company's total revenues and total expenses were $870,000 and $550,000, respectively. A dividend of $70,000 was declared and paid to shareholders. Shack Company's ending paid- in capital is:

A) $405,000
B) $795,000
C) $475,000
D) $725,000

Question 67

Any event that affects the financial position of an organization and requires recording is called:

A) an account
B) a posting
C) a transaction
D) an accounting change

Question 68

are increased with credits.

A) Revenues
B) Retained earnings
C) Liabilities
D) All of these answers are correct.

Question 69

are gross income ownership claims from delivering goods or services.

A) Profits
B) Revenues
C) Assets
D) Expenses

Question 70

Clipper Company paid $36,000 for May, June, July, and August rent in advance. The company recorded this transaction by increasing the balance in the Prepaid Rent account. The balance in the Prepaid Rent account as of August 1 is:

A) $9,000
B) $- 0-
C) $27,000
D) $18,000

Question 71

is (are) economic resources that are expected to benefit future activities.

A) Stockholders' equity
B) Liabilities
C) Retained earnings
D) Assets

Question 72

Identify which one or more of the following equations is not correct.

A) Stockholders' Equity = Paid- in Capital + Retained Earnings
B) Assets - Liabilities = Stockholders' Equity
C) Revenues - expenses = gross profit
D) All of these answers are correct.

Question 73

The excess of assets over the liabilities

Question 74

The accounting convention of guides the relative sophistication of the accounting system.

A) conservatism
B) materiality
C) objectivity
D) cost benefit

Question 75

Economic resources that are expected to benefit future activities

Question 76

Implicit transactions are an integral part of:

A) cash basis accounting
B) accrual basis accounting
C) not- for- profit accounting
D) All of these answers are correct.

Question 77

For a corporation, the excess of the assets over the liabilities is called:

A) paid- in capital
B) retained earnings
C) common stock
D) owners' equity

Question 78

Amounts owed to creditors for purchases on open accounts

Question 79

Identify which one of the following statements is always true.

A) An increase in an asset account must decrease another asset account.
B) A decrease in an asset account must increase a liability or owners' equity account.
C) An increase in an asset account must increase a liability or owners' equity account.
D) None of these answers is correct.

Question 80

The conventions, rules, and procedures that together make up accepted accounting practice at any given time