Accounting Test #1

The sale of equipment at less than its book value is a(an) __ of cash that is reported in the ___ activities section.

inflow, investing

A statement of cash flows summarizes the operating, ___, and ___ activities of a corporation

investing and financing

Indirect materials and indirect labor are classified as

manufacturing overhead

The cash effects of selling goods and services appears in the __ activities section of a statement of cash flows.

operating

The ___ function is concerned with setting goals and objectives for the entity.

planning

The management function that requires management to look ahead and establish objectives is

planning

Three broad managerial functions are:

planning, directing, controlling

Managerial accounting

primarily concerned with internal users and reports pertain to subunits of the entity

Each of the manufacturing cost components is a __ cost

product cost

Pharmco incurred the following costs while manufacturing its product: Materials used in production, $120,000; factory depreciation, $60,000; property taxes on the administrative offices, $12,000; labor costs of assembly-line workers, $95,000; factory supplies used, $8,000; advertising expense, $13,000; property taxes on the factory, $20,000; delivery expense, $23,000; salaries of the sales staff, $53,000; and sales commissions, $17,000. The total product costs for Pharmco are

product costs = direct materials + direct labor + manufacturing overhead = materials used in production ($120,000) + labor costs of assembly-line workers, ($95,000) + factory depreciation ($60,000) + factory supplies used ($8,000) + property taxes on the factory ($20,000).

A cost of goods manufactured schedule shows beginning and ending inventories for

raw materials and work in process only.

Managerial accounting reports generally pertain to ___ of a business and may be very detailed.

subunits

Directing

the function of coordinating diverse activities to product a smooth-running operation

planning

the function of setting goals and objectives

Net cash provided/used by operating activities can be determined using the __ method or the ___ method.

indirect or direct

Model Magic Manufacturing reported the following year-end balances: Beginning work in process inventory, $35,000; beginning raw materials inventory, $18,000; ending work in process inventory, $38,000; ending raw materials inventory, $15,000; raw materials purchased, $510,000; direct labor, $180,000; and manufacturing overhead, $75,000. What is the amount of total work in process for Model Magic for the current year?

(510,000) + direct labor ($180,000) + manufacturing overhead ($75,000). First, direct materials used = beginning raw materials inventory ($18,000) + raw materials purchased ($510,000) - ending raw materials inventory ($15,000) = $513,000. Then, total cost of work in process = beginning work in process inventory ($35,000) + direct materials used ($513,000) + direct labor ($180,000) + manufacturing overhead ($75,000) = $803,000

The three cost elements in manufacturing a product are

-direct materials -direct labor -manufacturing overhead

Decrease in A/R

Added to net income

Loss on disposal of land

Added to net income

Using the indirect approach, noncash charges in the income statement are ___ to net income and noncash credits are ___ to compute cash provided by operations.

Added, deducted

value chain

All business processes associated with providing a product or performing a service.

Buxmont Manufacturing reported the following year-end balances: Beginning work in process inventory, $40,000; beginning finished goods inventory, $60,000; ending work in process inventory, $20,000; ending finished goods inventory, $30,000; direct materials used, $240,000; direct labor, $250,000; manufacturing overhead, $150,000; selling expenses, $50,000; and administrative expenses, $350,000. How much would Buxmont Manufacturing report as cost of goods manufactured at year-end?

COGM=Beginning W.I.P+Total manufacturing costs (direct materials+direct labor+ manufacturing overhead)- Ending W.I.P 40,000+(240000+250000+150000)- 20000= 660,000

For the year, Redder Company has cost of goods manufactured of $600,000, beginning finished goods inventory of $200,000, and ending finished goods inventory of $250,000. The cost of goods sold is

COGS=beginning inventory+ pruchases= ending inventory $200,000 + $600,000 - $250,000 = $550,000.

issuance of common stock for cash

Cash inflow--financing activity

Proceeds from sale of equipment at book value

Cash inflow--investing activity

Declaration and payment of a cash dividend.

Cash outflow--financing activity

Redemption of bonds for cash

Cash outflow--financing activity

Purchase of building for cash

Cash outflow--investing activity

Which of the following is the calculation for free cash flow?

Cash provided by operations less capital expenditures less cash dividends

Which of the following would you find on the income statement of a manufacturing company, but not on the income statement of a merchandising company?

Cost of goods manufactured

Period costs

Costs that are noninventoriable

Decrease in accounts payable during a period

Deducted from net income

Increase in inventory during a period

Deducted from net income

Which group of costs consists of only product costs?

Direct labor, indirect labor, factory utilities

A manufacturing company usually has three inventory accounts which are

Finished goods inventory work in process inventory raw materials inventory

Manufacturing overhead

Indirect costs of manufacturing a product

Which one of the following is a trend in managerial accounting?

Large machines have been replaced with smaller, more flexible ones. This is one of the efforts to enhance the value chain to increase efficiency.

direct materials

Materials that can be physically and directly associated with manufacturing a product.

The cost applicable to units that have been started into production but not completed is shown as

Work in process inventory

The following data are available for Allen Clapp Corporation: Net income $200,000 Depreciation expense 40,000 Dividends paid 60,000 Gain on sale of land. 10,000 Decrease in accounts receivable 20,000 Decrease in accounts payable 30,000 How much is cash provided by operating activities using the indirect method?

Net cash provided by operating activities is computed by adjusting net income for the changes in the two current asset/current liability accounts listed. The decrease in accounts receivable is added to net income and the decrease in accounts payable is subtracted from net income. Noncash amounts that are part of income must be removed from net income as well. Depreciation expense is added back and the gain on the sale of land is subtracted from net income ($200,000 + $40,000 - $10,000 + $20,000 - $30,000 = $220,000).

Barry's BarBQue incurred the following costs: $1,400 for ribs, 45 hours of labor to cook the ribs at $10 per hour, $50 for seasoning and sauce, $300 for signs to advertise the ribs, $150 to clean the grill after cooking the ribs, and $100 of administrative costs. How much are total product costs?

Only manufacturing costs are included as product costs. Two costs listed are period costs which are not part of the cost of getting the product ready to sell. $1,400 + (45*$10) + $50 + $150 = $2,050

Which of the following are considered to be management's three broad functions?

Planning, directing, and controlling

Financial Accounting

Primarily concerned with external users and reports pertain to the entity as a whole

What type of cost is indirect labor?

Product Cost because it is part of the effort required to produce a product.

What type of cost is Direct Materials

Product cost (not manufacturing overhead not period cost

Acquisition of land in exchange for c/s

Significant non cash investing and financing

The types of reports prepared in managerial accounting are often ___-purpose reports prepared for a specific decision

Special-purpose reports

Which one of the following is a trend in industry?

The U.S. economy has shifted toward an emphasis on providing services.

Work In process inventory

The cost of products that are partially complete.

What is "balanced" in the balanced scorecard approach?

The emphasis on financial and non-financial performance measurements

Controlling

The function of keeping activities in accordance with plans

The following are data concerning cash received or paid from various transactions for Orange Peels Corporation: Sale of land $100,000 Sale of equipment 50,000 Issuance of common stock 70,000 Purchase of equipment 30,000 Payment of cash dividends 60,000 How much is net cash provided by investing activities?

The net cash provided by investing activities is $100,000 + $50,000 - $30,000 = $120,000. Issuance of common stock and the payment of dividends are financing activities. Investing activities include acquiring and disposing of investment and property, plant, and equipment, and lending money and collecting loans.

All activities associated with providing a product or service is referred to as

The value chain

Many companies now focus on reducing defects in finished products with the goal of zero defects. This is called

Total Quality Management

Net income is $132,000, accounts payable increased $10,000 during the year, inventory decreased $6,000 during the year, and accounts receivable increased $12,000 during the year. Under the indirect method, how much is net cash provided by operations?

a. $116,000 b. $136,000 c. $124,000 d. $112,000 An increase in accounts payable and a decrease in inventory are added to net income and an increase in accounts receivable is subtracted from net income. The result is: $132,000 + $10,000 + $6,000 - $12,000 = $136,000.

The following data are available for Something Strange: Issuance of bonds payable $100,000 Sale of investment 50,000 Issuance of common stock 60,000 Payment of cash dividends 30,000 How much is net cash provided by financing activities?

a. $130,000 b. $90,000 c. $160,000 d. $190,000 Answer: A $100,000 + $60,000 - $30,000 = $130,000 Financing activities deal with obtaining cash from issuing debt and repaying the amounts borrowed, and obtaining cash from stockholders, repurchasing shares, and paying dividends

Simpson Inc. reported $100,000 provided by operating activities. The company invested $30,000 in production equipment and it paid $10,000 in dividends. How much is its free cash flow?

a. $140,000 b. $60,000 c. $100,000 d. $70,000 Answer B: ($100,000 - $30,000 - $10,000 = $60,000). Free cash flow is cash remaining from operations after adjustments for capital expenditures and dividend

Which one of the following is not a manufacturing cost?

a. Advertising cost b. Wages of assembly workers c. Factory maintenance d. Wheels that are being installed on new automobiles being manufactured Answer A: This is a nonmanufacturing cost and is often called a period cost or operating expense. Advertising is not part of the cost of getting the products ready to sell. Instead, it is a cost relating to selling the product after it is ready for sale.

Which one of the following is not added back to net income in determining cash provided by operations under the indirect method?

a. Amortization expense b. An increase in inventory c. Depreciation expense d. Loss on sale of equipment Answer B An increase in inventory indicates that the company acquired more inventory than it paid for during the period.

In what section of the statement of cash flows will the issuance of bonds payable to acquire a building be reported?

a. Cash flows from investing activities b. Cash flows from financing activities c. Cash flows from operating activities d. Noncash investing and financing activities Answer D: Exchange of bonds payable directly for a building does not involve cash, so is shown as a noncash investing and financing activity reported in a supplemental schedule or a note to the statement of cash flows.

With which of the following does the indirect method of preparing the statement of cash flows begin?

a. Collections from customers b. Cash sales c. Net income d. Adjustments to reconcile net income to net cash provided by operating activities Answer: C When using the indirect method, the statement of cash flows starts with net income and then adjusts for noncash expenses and changes in current asset and current liability accounts.

Under the indirect method of preparing the statement of cash flows, which of the following is deducted from net income in the operating activities section?

a. Decrease in inventory b. Gain on sale of land c. Increase in wages payable d. Amortization expense Answer B

Which of the following costs would a computer manufacturer include in manufacturing overhead?

a. Depreciation on testing equipment. b. The cost of the memory chips. c. The wages earned by computer assemblers. d. The cost of the disk drives. Answer A

Which of the following is not an operating activity?

a. Dividends received b. Payment of taxes c. Payment of a cash dividend d. Payment to suppliers Answer C: Payment of a dividend is a financing activity

What type of activity is the purchase of equipment for cash?

a. Financing activity b. Operating activity c. Investing activity d. A non-cash investing activity that goes into a separate schedule of the notes of the statement of cash flows Answer C Investing activities deal with the cash acquisition and sale of long-term assets.

Which of the following answer choices lists the three manufacturing costs?

a. Indirect materials, indirect labor, and factory-related costs b. Work in process, finished goods, and cost of goods sold c. Raw materials, work in process, and finished goods d. Direct materials, direct labor, and manufacturing overhead Answer D

Which activities are reported on the statement of cash flows?

a. Investing, financing, and operating b. Financing, operating, and nonoperating c. Operating and nonoperating d. Investing, financing, and nonoperating Answer A

Which of the following statements is not true about managerial accounting?

a. It does not require an audit by a CPA. b. It is primarily for internal users such as officers and managers. c. Reports are generated as needed. d. It is highly aggregated. Answer: D Financial accounting is highly aggregated, whereas managerial is detailed for decision making.

Which of the following statements is true about managerial accounting?

a. It is primarily for internal users such as stockholders and managers. b. It provides more detailed information than financial accounting does. c. It pertains to a business as a whole. d. It must be prepared using generally accepting accounting principles. Answer B

Which of the following is considered part of the controlling process?

a. Looking ahead and establishing objectives b. Implementing planned objectives c. Keeping the company's activities on track d. Coordinating activities and human resources to produce a smooth running operation Answer C

Which of the following is an operating activity?

a. Making a loan to another entity b. Sale of equipment c. Payment of interest d. Payment of a cash dividend Answer: C

Which is an example of a cash flow from a financing activity?

a. None of the these are financing activities b. Purchase of equipment for cash c. Issuance of debt for cash d. Receipt of cash from sale of land Answer C: Financing activities deal with obtaining cash from issuing debt and repaying amounts borrowed, and obtaining cash from stockholders, repurchasing shares, and paying dividends.

How are cash dividends paid to stockholders classified on the statement of cash flows?

a. Operating activities b. Investing activities c. A combination of operating and investing activities d. Financing activities Answer D: Financing activities deal with obtaining cash from issuing debt and repaying the amounts borrowed, and obtaining cash from stockholders, repurchasing shares, and paying dividends.

Which is an example of a cash flow from an investing activity?

a. Payment of cash to suppliers for inventory b. Payment of cash to repurchase outstanding capital stock c. Receipt of cash from the issuance of bonds payable d. Receipt of cash from the sale of equipment Answer: D

Which of the following is not an element of manufacturing overhead?

a. Product inspector's salary. b. Sales manager's salary. c. Plant manager's salary. d. Factory repairman's wages. Answer B

Which is an example of a cash flow from an operating activity?

a. Receipt of cash from the sale of capital stock b. Payment of cash dividends to the company's stockholders c. None of these are operating d. Payment of cash to lenders for interest Answer D: Payment of cash to lenders for interest and receipt of interest are both operating activities.

Which of the following statements is correct?

a. Significant financing and investing activities that do not affect cash are not reported since they don't affect cash. b. Only financing and investing activities that directly affect cash are reported in a company's statement of cash flows. c. Significant noncash financing and investing activities are reported on the company's income statement. d. Significant financing and investing activities that do not affect cash are reported in either a separate schedule at the bottom of the statement of cash flows, or in a separate note or supplementary schedule to the financial statements. Answer: D

Hanover, Inc. purchased land through the issuance of long-term bonds. How is this reported on the statement of cash flows?

a. Significant noncash investing and financing activity that merits disclosure b. Investing inflow c. Operating activity d. Financing outflow Answer: A

Which of the following will not be reported in the statement of cash flows?

a. Sources of financing during the period b.The net change in plant assets during the year c. Cash receipts from sales of plant assets during the year d. Cash payments for plant asset acquisitions during the year Answer b: Both cash inflows and outflows must be reported in the investing activity and the financing activity sections.

Which of the following is incorrect about the statement of cash flows?

a. The indirect method may be used to report cash provided by operations. b. The operating section is the last section of the statement. c. The statement shows the cash provided (used) for three categories of activity. d. The direct method may be used to report cash provided by operations. Answer B: The operating activities section is first, followed by the investing and then the financing activities sections.

Which statement is not correct about the usefulness of the statement of cash flows?

a. The reader can make predictions about future cash flows by examining the statement of cash flows. b. By examining investing and financing transactions, a reader can better understand why assets and liabilities changed. c. It will help the reader determine the company's ability to meet its obligations. d. The reader can determine if the company will pay dividends in the near future. Answer D

Which of the following costs are classified as a period cost?

a. Wages paid to a production department supervisor. b. Wages paid to an assembly worker. c. Wages paid to a cost accountant department supervisor. d. Wages paid to a factory custodian. Answer C

Manufacturing overhead includes all of the following except

a. indirect labor. b. maintenance. c. direct materials. d. depreciation. Answer:C

Each of the following is a period cost except

a. non-manufacturing costs. b. administrative expenses. c. indirect labor. d. selling expenses. Answer C

Managerial accounting

a. places emphasis on special-purpose information. b. is limited to cost data. c. pertains to the entity as a whole and is highly aggregated. d. is governed by generally accepted accounting principles. Answer A

All of the following are distinguishing features of managerial accounting except

a. reports pertaining to subunits of the entity. b. independent audits. c. to provide special-purpose information. d. internal users. Answer B

Product costs include each of the following except

a. selling and administrative expenses. b. manufacturing overhead. c. direct labor. d. direct materials. Answer A

Which of the following is incorrect about the statement of cash flows?

a.It provides information about cash receipts and cash payments of an entity during a period. b.It reconciles the ending cash account balance to the balance per the bank statement. c. It provides information about the operating, investing, and financing activities of the business. d. It is the fourth basic financial statement Answer: B

A manufacturing company computes the cost of goods sold by adding cost of goods manufactured to the ___ and subtracting the__

beginning finished goods inventory ending finished goods inventory

The formula to determine the cost of goods manufactured is

beginning work in process inventory + total manufacturing costs - ending work in process inventory.

The ending work in process inventory is subtracted from the total cost of work in process to calculate

cost of goods manufactured

Manders Corporation has $20,000 of ending finished goods inventory at December 31. If beginning finished goods inventory was $15,000 and cost of goods sold was $40,000, how much would Manders Corporation report as cost of goods manufactured?

cost of goods sold ($40,000) + ending finished goods inventory ($20,000) - beginning finished goods inventory ($15,000) = $45,000.

The work of factory employees that can be physically and directly associated with converting raw materials into products is classified as

direct labor

___ is added to direct labor and manufacturing overhead to get total manufacturing costs for the current period.

direct materials

Companies compute cost of goods manufactured by subtracting ending work in process inventory from

total cost of work in process.

The sum of the direct materials costs, direct labor costs, and manufacturing overhead incurred is the

total manufacturing costs.