accounting 610 midterm practice

The balance sheet shows the following accounts and amounts: Cash $13,000; Short-term Debt $21,000; Buildings and Equipment $420,000; Inventory, $44,000; Notes Payable $60,000; Accumulated Depreciation $110,000; Common Stock $80,000; Accounts Receivable $38,000; Retained Earnings $237,000; Accounts Payable $17,000. Total liabilities on the balance sheet are:

$21,000 + $60,000 + $17,000 = $98,000

The balance sheet shows the following accounts and amounts: Cash $26,000; Short-term Debt $42,000; Buildings and Equipment $840,000; Inventory, $88,000; Notes Payable $120,000; Accumulated Depreciation $220,000; Common Stock $160,000; Accounts Receivable $76,000; Retained Earnings $474,000; Accounts Payable $34,000. Total assets on the balance sheet are:

$26,000 + $840,000 + $88,000 − $220,000 + $76,000 = $810,000

The following information exists for ABC Company: Selling price per unit = $60. Variable expenses per unit = $40. If ABC's breakeven point is 5,000 units and it sells 5,750 units in March, its operating income will be $ .

15,000

In managerial accounting, planned activity is compared to actual performance results in order to the activities of the organization.

Control

The following information was available for the year ended December 31, 2022: Net sales$ 300,000 Cost of goods sold210,000 Average accounts receivable for the year15,000 Accounts receivable at year-end18,000 Average inventory for the year60,000 Inventory at year-end70,000 The inventory turnover for 2022 was:

Cost of goods sold ÷ Average inventories = $210,000 ÷ $60,000 = 3.5 times.

Identify the characteristics of the budgeting process.

Creates a financial plan for the organization. Uses financial accounting concepts. Uses managerial accounting concepts. Provides a benchmark in order to compare actual performance results.

The following amounts were reported on the December 31, 2022, balance sheet: Cash$ 8,000 Land20,000 Accounts payable15,000 Bonds payable120,000 Merchandise inventory30,000 Retained earnings80,000 Buildings and equipment, net of accumulated depreciation180,000 Accounts receivable22,000 Common stock40,000 Wages payable5,000 The current ratio at December 31, 2022 was:

Current ratio = CA ÷ CL CA = $8,000 + $30,000 + $22,000 = $60,000. CL = $15,000 + $5,000 = $20,000. Current ratio = $60,000 ÷ $20,000 = 3.0

As the volume of activity increases, fixed costs __ when expressed on a per unit basis.

Decreases

For the year ended December 31, 2022, a company reported earnings per share of $1.95 and cash dividends per share of $0.30. During 2023, the company had a 3-for-2 stock split. In the annual report for the year ended December 31, 2023, earnings per share and cash dividends for 2022 would be reported, respectively, as

Earnings per share and cash dividends per share for 2022, as reported in the 2023 annual report, would be restated as though the 3-for-2 stock split in 2023 had occurred on January 1, 2022. Thus, both of the previously reported per share amounts for 2022 would have been reduced by a factor of 3 / 2 (or 1.5) as follows: $1.95 ÷ 1.5 = $1.30, and $0.30 ÷ 1.5 = $0.20.

The current cost structure for the production department of Performance, Incorporated, has fixed expenses of $500,000 and variable expenses of $200 per unit. Unit sales volume is 6,000 units. Performance, Incorporated, can invest in automated production equipment which will increase its fixed expenses to $980,000. What is the new variable expense per unit after automation that will produce the same current operating income on sales volume of 6,000 units?

Indifference Point: [$500,000 + ($200 × 6,000 units)] = [$980,000 + ___?_____ × 6,000 units)]; Solving for ___?____: $500,000 + $1,200,000 = $980,000 + (__?__ × 6,000); __?__ = $120 per unit

The following information was available for the year ended December 31, 2022: Net sales$ 240,000 Cost of goods sold160,000 Average accounts receivable for the year10,000 Accounts receivable at year-end12,000 Average inventory for the year40,000 Inventory at year-end50,000 The number of days' sales in inventory for 2022, using year-end inventories were

Inventory at year-end ÷ Average days' cost of goods sold =$50,000 ÷ ($160,000 ÷ 365 days) = $50,000 ÷ 438.4 days = 114.1 days.

To which function of management is an understanding of Cost-Volume-Profit relationships most relevant?

Planning

The following amounts were reported on the December 31, 2022, balance sheet: Cash$ 8,000 Land20,000 Accounts payable15,000 Bonds payable120,000 Merchandise inventory30,000 Retained earnings80,000 Buildings and equipment, net of accumulated depreciation180,000 Accounts receivable22,000 Common stock40,000 Wages payable5,000 Working capital at December 31, 2022 was:

WC = CA − CL CA = $8,000 + $30,000 + $22,000 = $60,000 . CL = $15,000 + $5,000 = $20,000. WC = $60,000 − $20,000 = $40,000

A standard cost best describes:

a budget for a single unit component of a product or service

When the number of units sold is Blank______.

above the breakeven point, profit equals units sold above the breakeven point multiplied by the contribution margin per unit below the breakeven point, loss equals each unit unsold below the breakeven point multiplied by the contribution margin per unit

Financial leverage:

arises because most borrowed funds have a fixed interest rate.

In managerial accounting, control is achieved by:

comparing planned activity to actual performance results

Revenues minus variable expenses equals:

contribution margin

As the volume of activity increases, fixed costs __ when expressed on a per unit basis.

decreases

Expenses are:

decreases in net assets resulting from usual operating activities.

Another term for the price/earnings ratio is:

earnings multiple

budgeting is the process of ___?___ planning

financial

Which costs remain constant in total as the budgeted volume of activity changes, but they could change as a result of the managerial decision-making process

fixed cost

Expressing fixed costs on a per unit basis of activity is misleading because:

fixed cost per unit decreases as activity increases.

As the level of activity increases

fixed cost per unit decreases.

A current ratio of 8.5 is usually an indication that the firm:

has not made the most productive use of its assets.

When the firm's activity requires it to operate at a level above the upper boundary of the relevant range, fixed expenses are likely to:

increase

Managerial accounting in contrast to financial accounting

is focused on the future supports internal planning decisions

Accrual accounting

is used for financial reporting purposes because it measures of a company's past earnings performance more accurately than does cash basis accounting.

The simplifying assumption made when using variable cost behavior pattern data is:

linearity

Simplifying assumptions identified for the use of cost behavior pattern data include:

linearity and relevant range.

Which of the following accounts is part of working capital?

merchandise inventory

When a certain amount of cost is expected to be incurred regardless of the budgeted level of activity, but the cost will also change as activity changes, this type of cost behavior is known as

mixed

The following information exists for ABC Company: Selling price per unit = $60. Variable expenses per unit = $45. If ABC's breakeven sales revenue is $150,000 and sales revenue for April totals $140,000, then for April the company's:

operating loss will be $2,500 Reason: This calculation is using the variable expense ratio. BE units is $150,000/$60 = 2,500 units. CM ratio is ($60-45 / $60) = 25%. FC = $150,000 * .25 = $37,500 at break even. $140,000 revenue / $60 = 2,333 units sold. 2,333 x $15 (CM) = $35,000 CM minus $37,500 FC = loss of $2,500 rounded.

The management process of identifying and quantifying the goals of the organization is known as:

planning

Financial reporting

process of providing financial statement information to external users includes detailed notes and other disclosures about a company's past performance

For a firm that presently has a current ratio of 2.0, the effect on this ratio of paying a current liability is that it:

raises the current ratio

As the volume of activity increases, fixed costs:

remain constant in total

The Statement of Cash Flows:

shows how cash changed during the period.

Transactions are summarized in:

the company's accounts.

Expressing a fixed cost on a per unit basis of activity is misleading because:

the fixed cost per unit decreases as the activity increases

The management process is illustrated through a series of key management activities referred to as

the planning and control cycle

What type of costs increase or decrease in total with the budgeted volume of activity but remain constant when expressed on a per unit basis?

variable cost

Contribution margin is defined as revenues minus:

variable expenses

The expanded contribution margin model provides a structure for explaining the effect on operating income of changes in:

variable expenses the volume of activity selling price fixed expenses

ZeroFued's net income for the year was $300,000. Average assets totaled $2 million, and average liabilities totaled $500,000. Return on equity (ROE) was:

$300,000 ÷ ($2,000,000 − $500,000) = 20%

Mamba Metals, Incorporated had an ROI of 12%, margin of 3%, and sales of $20 million for the year. Mamba's turnover for the year was

12% = 3% × ?question mark Solve for missing number: 12% divided by 3% = 4.0

Around Square, Incorporated had an ROI of 12.5%, turnover of 5.0, and sales of $8 million for the year. Around Square's margin for the year was:

12.5% = ?question mark × 5.0 Solve for missing number: 12.5% divided by 5.0 = 2.5%

ABC Company's sales are $100,000, fixed costs are $50,000, and variable costs are $30,000. ABC Company's contribution margin ratio is:

CM = $100,000 − $30,000 = $70,000; $70,000 ÷ $100,000 = 70%

If a firm's variable costs are 40% of sales and sales increase by $60,000 this month because of a special promotion, by how much will contribution margin increase?

CM = 1 − 40% = 60%; $60,000 × 60% = $36,000

Which classification of accounting is most concerned with the use of economic and financial information to plan and control many of the activities of the entity?

Managerial accounting

Yellowday Energy's margin was 3% and turnover was 4.0 on sales of $50 million for the year. Net income for the year was:

Net income = Margin × Sales 3% × $50,000,000 = $1,500,000

Which of the following is not a limitation of financial statements?

Net income from the income statement is added to the Retained Earnings account balance in the balance sheet

As compared to a traditional income statement format, which of the following terms do not appear on the contribution margin format income statement?

Operating expenses

Bentley estimates manufacturing overhead of $2,478,600 for 2022 and will apply overhead to units produced based on 729,000 machine hours. During 2022, Bentley used $1,540,000 of raw materials, paid $3,647,800 of direct labor, generated 724,000 machine hours, and produced 2,090,000 units. Required: Calculate Bentley's predetermined overhead rate and cost per unit of production for 2022.

Predetermined overhead application rate = ($2,478,600 estimated total overhead cost ÷ 729,000 estimated machine hours) = $3.40 per machine hour Total cost for 2,090,000 units produced: Raw materials$ 1,540,000 Direct labor3,647,800 Overhead (724,000 machine hours × $3.40 predetermined rate) 2,461,600 Total manufacturing cost$ 7,649,400 Cost per unit = ($7,649,400 total cost ÷ 2,090,000 units produced) = $3.66 per unit.

Which of the following is not an example of a decision or informed judgment that a potential investor would make from accounting information?

Probability of success of a new product development

Mechforce Manufacturing's net income was $420,000 on sales of $14 million. Average assets for the year were $10 million. ROI for the year was:

ROI = $420,000 ÷ $10,000,000 = 4.2%, or ROI = Margin × Turnover = ($420,000 ÷ $14,000,000) × ($14,000,000 ÷ $10,000,000) = 3.0% × 1.4 = 4.2%

Yellowday Energy's margin was 3% and turnover was 4.0 on sales of $50 million for the year. ROI for the year was:

ROI = Margin × Turnover = 3% × 4.0 = 12%

Which of the following are considered fixed costs? (Check all that apply.)

Supervisory salaries

At the beginning of the year, paid-in capital was $164 and retained earnings was $94. During the year, the stockholders invested $48 and dividends of $12 were declared and paid. Retained earnings at the end of the year were $104. Net income for the year was

Beginning retained earnings + Net income − Dividend = Ending retained earnings, or $94 + ? − $12 = $104. Solve for the missing net income = $104 − $94 + $12 = $22

Mix Masters, Incorporated, currently sells Product A and Product B in the following annual sales mix. For the coming year the company expects that sales of Product A will increase by 50% and sales of Product B will decrease by 33.3%. Current contribution margin ratios will remain unchanged for next year as will total fixed costs of $700,000 Product A $ 40,000 $ 60,000 25% Product B $ 60,000 $ 40,000 50% Total Sales $ 100,000 $ 100,000 The impact on operating income for Mix Masters, Incorporated, because of the shift in sales mix is:

Current CM = ($40,000 × 25%) + ($60,000 × 50%) = $40,000; After shift CM = ($60,000 × 25%) + ($40,000 × 50%) = $35,000. Since no change in FC, operating income will decrease ($40,000 − $35,000) by $5,000.

The following information was available for the year ended December 31, 2022: Net sales$ 300,000 Cost of goods sold210,000 Average accounts receivable for the year15,000 Accounts receivable at year-end18,000 Average inventory for the year60,000 Inventory at year-end70,000 The number of days' sales in inventory for 2022, using year-end inventories were:

Inventory at year-end ÷ Average days' cost of goods sold = $70,000 ÷ ($210,000 ÷ 365 days) = $70,000 ÷ 575.3 days = 121.7 days.

Which of the following are considered variable costs? (Check all that apply.)

Sales commissions Maintenance materials

If a firm borrowed money on a six-month bank loan, the firm's working capital immediately after obtaining the loan, relative to its working capital just prior to the loan, would be:

The same

Identify a true statement about standard costs

They are used in the planning and control processes of service firms that perform repetitive operations in the performance of services.

Which statements are true of fixed costs?

They do not change as the volume of activity changes. They include costs such as property taxes, executive salaries, and plant depreciation. They can change from year to year, sometimes due to managerial decisions.

Which of the following characteristics apply to managerial accounting as opposed to financial accounting?

Time frame involved is present and future for planning and control. Breadth of concern is on individual units of the organization plans and activities.

Using the high-low method, Company X has determined the variable portion of its cost formula for electricity to be $2 per unit. For the month of July Company X estimates that total electricity cost will amount to $66,000 based on producing 30,000 units. The amount of fixed electricity cost estimated for July is:

Total cost − total variable cost = total fixed cost. $66,000 − (30,000 × $2 per unit) = $6,000 fixed cost.

Calculate Acme's total manufacturing costs for July

Total manufacturing cost = (Direct materials + Direct labor + Manufacturing overhead) Direct materials $ 18,800 Direct labor 26,800 Manufacturing overhead: Factory supplies$ 3,300 Plant depreciation7,000 Indirect labor8,800 Utilities ($10,800 × 75%) 8,100 27,200 Total manufacturing cost $72,800

Contribution margin represents the amount of revenue left over after covering variable expenses from the sale of products or services available to cover fixed expenses and provide for operating income.

True

As the budgeted volume of activity changes, what type of cost will behave with both fixed and variable elements?

mixed cost

The linearity assumption suggests that the cost behavior pattern will graph as a straight line within the

relevant Range

The balance sheet shows the following accounts and amounts: Cash $26,000; Short-term Debt $42,000; Buildings and Equipment $840,000; Inventory, $88,000; Notes Payable $120,000; Accumulated Depreciation $220,000; Common Stock $160,000; Accounts Receivable $76,000; Retained Earnings $474,000; Accounts Payable $34,000. Total liabilities on the balance sheet are

$42,000 + 120,000 + $34,000 = $196,000

The following information was available for the year ended December 31, 2022: Sales$ 500,000 Net income80,000 Average total assets1,000,000 Average total stockholders' equity640,000 ROI for the year ended December 31, 2022 was:

Margin × Turnover = 16.0% × 0.5 = 8.0%, or Net income ÷ Average total assets = $80,000 ÷ $1,000,000 = 8.0%.

The following information was available for the year ended December 31, 2022: Net income$ 50,000 Average total assets600,000' Dividends per share 1.40 Earnings per share 5.00 Market price per share at year-end 70.00 The price/earnings ratio for 2022 was:

Market price per share ÷ Earnings per share = $70.00 ÷ $5.00 = 14.0.

The concept of operating leverage refers to which of the following?

Operating income changes proportionately more than revenues for any given change in activity level.

The time frame associated with an income statement is:

a past period of time.

Coronado Company applies manufacturing overhead to production at the rate of $5.8 per direct labor hour and ended March with $13,800 underapplied overhead. Actual manufacturing overhead incurred for March amounted to $134,440. Required: How many direct labor hours did Coronado Company incur during March?

Actual overhead incurred $134,440Applied overhead (?question mark direct labor hours × $5.8 per direct labor hour) Underapplied overhead$ 13,800 Applied overhead = Actual overhead incurred − Underapplied overhead = $134,440 − $13,800 = $120,640 Direct labor hours = Applied overhead ÷ Overhead rate per direct labor hour Direct labor hours = $120,640 ÷ $5.8 Direct labor hours = 20,800

The balance sheet equation can be represented by:

Assets = Liabilities + Stockholders' Equity Assets − Liabilities = Stockholders' Equity Net Assets = Stockholders' Equity ****All of the answers are correct.*****

The authoritative financial accounting standards-setting body in the United States is presently the:

Financial Accounting Standards Board (FASB)

Janson Company prepares an income statement for financial accounting purposes using the traditional income statement format, as well as an income statement for managerial accounting purposes using the contribution margin format. Selected information from both income statement formats are as follows: Revenues$ 200,000 Cost of goods sold$ 40,000 Contribution margin ratio50% Operating expenses$ 120,000 Fixed expenses$ 60,000 Using the traditional income statement format, the gross profit ratio is:

Revenues − CGS ÷ Revenues; $200,000 − $40,000 = $160,000; $160,000 ÷ $200,000 = 80%

Janson Company prepares an income statement for financial accounting purposes using the traditional income statement format, as well as an income statement for managerial accounting purposes using the contribution margin format. Selected information from both income statement formats are as follows: Revenues$ 200,000 Cost of goods sold$ 40,000 Contribution margin ratio50% Operating expenses$ 120,000 Fixed expenses$ 60,000 Using the contribution margin format, variable expenses are:

Revenues − Variable expenses = Contribution margin; CM = $200,000 × 50% = $100,000; Variable expenses = $200,000 − $100,000 = $100,000

Mixed costs are also referred to as

Semivariable costs.

In Year 1, a company sold 4,000 units each of Product A and Product B. For products A and B, the selling prices were $10 and $15, respectively. Also, the variable expenses for products A and B amounted to $8 and $10, respectively. The fixed expenses of the company amounted to $20,000. The company's average contribution margin ratio was 0.28, and the operating income was $8,000. In Year 2, the company was able to sell 6,000 units of Product A and 2,000 units of Product B. There was no change in the selling price, variable expenses, and the fixed expenses in Year 2. Based on the scenario, identify a true statement about the company's operating income in Year 2.

The company's operating income decreased by $6,000 in Year 2. Reason: Year 2: Company's operating income = Total revenue - Variable expenses - Fixed expenses =$90,000 - $68,000 - $20,000 = $2,000 In Year 1, the company's operating income was $8,000 (given). Therefore, in Year 2, the company's operating income decreased by $6,000 ($8,000 - $2,000).