CMA Prep Exam
Which inventory pricing method generally approximates current cost for each of the following?
Ending Inventory Cost of Goods Sold FIFO LIFO
Each organization plans and budgets its operations for slightly different reasons. Which one of the following is nota significant reason for planning?
Ensuring profitable operations.
A firm that is deploying just-in-time manufacturing for the first time will
Establish contracts with a few carefully chosen suppliers since an interruption in supply is disruptive of the production process.
A statement of cash flows is intended to help users of financial statements
Evaluate a firm's liquidity, solvency, and financial flexibility.
The cost of materials has risen steadily over the year. Which of the following methods of estimating the ending balance of the materials inventory account will result in the highest profit, assuming all other variables remain constant?
First-in, first-out (FIFO).
A statement of financial position allows investors to assess all of the following except the
Net realizable value of enterprise assets.
How should the balances of progress billings and construction in progress be shown at reporting dates prior to the completion of a long-term contract?
Net, as a current asset if debit balance and current liability if credit balance.
Under the allowance method of recognizing uncollectible accounts, the entry to write-off an uncollectible account
Has no effect on net income.
Which of the following are acceptable formats for reporting comprehensive income? I.In one continuous financial statement II.In a statement of changes in equity III.In a separate statement of net income IV.In two separate but consecutive financial statements
I and IV only.
A primary objective of external financial reporting is
Provision of information that is useful to present and potential investors, creditors, and others in making rational financial decisions regarding the enterprise.
Which one of the following transactions should be classified as a financing activity in a statement of cash flows?
Purchase of treasury stock.
In contrast to just-in-time manufacturing, materials requirements planning is a(n)
Push system.
Which one of the following items would have to be included for a company preparing a schedule of cash receipts and disbursements for calendar Year 1?
The borrowing of funds from a bank on a note payable taken out in June Year 1 with an agreement to pay the principal and interest in June Year 2.
A budget manual, which enhances the operation of a budget system, is mostlikely to include
Distribution instructions for budget schedules.
A favorable materials price variance coupled with an unfavorable materials usage variance most likely results from
The purchase of lower than standard quality materials.
Committed costs are costs that
Establish the current level of operating capacity and cannot be altered in the short run.
The primary purpose of the statement of financial position is to reflect
Items of value, debt, and net worth.
Unrealized gains and losses on trading securities should be presented in the
Income statement.
Which one of the following is correctregarding a relevant range?
Total fixed costs will not change.
A systematic approach to reaching targeted cost levels during value chain analysis is known as
Value engineering.
A physical inventory count showed an entity had inventory costing $1,000,000 on hand at December 31, Year 1. Excluded from this amount were the following:•Goods costing $82,000, shipped to a customer free on board (FOB) shipping point on December 28, Year 1. They were expected to be received by the customer on January 4, Year 2.•Goods costing $122,000, shipped to a customer free on board (FOB) destination December 30, Year 1. They were expected to be received by the customer on January 5, Year 2.Compute the correct ending inventory to be reported on the shipper's statement of financial position at December 31, Year 1.
$1,122,000
A master budget was prepared based on the following projections:Estimated cash disbursements for inventories are Sales $ 2,400,000 Decrease in inventories 60,000 Decrease in accounts payable 100,000 Gross margin 40%
$1,480,000 Projected cost of sales is 60% of $2,400,000 of sales, or $1,440,000. Projected purchases is the $1,440,000 cost of sales less $60,000 projected decrease in inventory which is $1,380,000. Projected cash payments is the projected purchases of $1,380,000 plus the $100,000 projected decrease in accounts payable, which is $1,480,000.
A company's budget contains the following information:How many equivalent units should the company plan to produce? units Beginning finished goods inventory 85 Beginning work-in-process in equivalent units 10 Desired ending finished goods inventory 100 Desired ending work-in-process in equivalent 40 Units Projected Sales 1800
$1,845 The finished units needed are calculated as follow. Needed for sales 1,800 Needed for ending inventory 100 Total finished units needed 1900 Less: Beginning inventory (85) Finished units needed 1,815 The units to be produced are calculated as follow: Finished units needed 1,815 Needed for ending inventory 40 Total units in process 1,855 Less: Beginning WIP inventory (10) Units to be produced 1,815
Based on a physical inventory taken on December 31, a company determined its chocolate inventory on a FIFO basis at $26,000 with a replacement cost of $20,000. The company estimated that, after further processing costs of $12,000, the chocolate could be sold as finished candy bars for $40,000. The company's normal profit margin is 10% of sales. Under the lower-of-cost-or-market rule, what amount should the company report as chocolate inventory in its December 31 balance sheet?
$24,000
A company has accumulated its support costs into three pools that will be allocated to numerous products using the step-down method. Usage of each pool's services is shown below.If the company allocates Pool1's costs first, Pool2's costs second, and Pool3's costs third, the amount of costs allocated from Pool2 to Pool3 is pool 1 pool2 pool 3 All products usage of pool 1 0% 10% 8% 82% usage of pool 2 6% 4 10 70 usage of pool 3 10% 8 10 78 Direct costs $150,000 80,000 55,000
$11,875 The amount of costs allocated from Pool 2 to pool 3 can be calculated as follows: Pool 1 Pool2 Pool 3 Total costs before allocation $150,000 $80,000 $55,000 Allocate Pool 1s costs (150,000) 15,000* 12,000** Total after allocating Pool 1's costs 0 95,000 67,000 Allocate Pool 2's costs (95,000) 11,875*** *$$150 x [10% / (10%+ 8% + 82%)] =$15,000 **$150 x [8%/ (10% + 8% = 82%)] =$12,000 ***$95,000 x [10%/ (10% + 70%)]=$11,875
Jordan Auto has developed the Each unit contains 3 pounds of direct materials Following production plan: The desired direct materials ending inventory Each month is 120% of the next month's Production, plus 500 pounds. (The beginning Month units inventory meets this requirement.) Jordan has January 10,000 developed the following direct labor standards for February 8,000 production of these units: March 9,000 April 12,000 Department 1 Department 2 Hours per unit 2.0 0.5 Hourly rate $7.25 $12.00 Jordan's Auto's total budgeted direct labor dollars for February usage should be
$164,000 The standard unit labor cost is $20.50 [($7.25 ×2 hours in Department 1) + ($12 ×.5 hour in Department 2)], so the total budgeted direct labor dollars for February equal $164,000 (8,000 units ×$20.50)
The average labor cost per unit for the first batch produced by a new process is $120. The cumulative average labor cost after the second batch is $72 per product. Using a batch size of 100 and assuming the learning curve continues, the total labor cost of four batches will be
$17,280 The learning curve reflects the increased rate at which people perform tasks as they gain experience. The time required to perform a given task becomes progressively shorter. Ordinarily, the curve is expressed in a percentage of reduced time to complete a task for each doubling of cumulative production. One common assumption in a learning curve model is that the cumulative average time (and labor cost) per unit is reduced by a certain percentage each time production doubles. Given a $120 cost per unit for the first 100 units and a $72 cost per unit when cumulative production doubled to 200 units, the learning curve percentage must be 60% ($72 ÷$120). If production is again doubled to 400 units (four batches), the average unit labor cost should be $43.20 ($72 ×60%). Hence, total labor cost for 400 units is estimated to be $17,280 (400 units ×$43.20).
An entity has 8,000 units in inventory on January 1, valued at $10 per unit. During the year, the entity sold 25,000 units and purchased inventory as follows:If the entity uses the weighted-average method of inventory valuation, cost of goods sold for the period will be Date quantity purchased Unit price april 1 15,000 units $8 July 1 10,000 units 9 Oct. 1 12,500 units 10
$228,023
Using absorption costing, a company's income for October was $250,000. The company began the month with 10,000 units in finished goods inventory that contained $30,000 of fixed manufacturing overhead costs. During October, the company produced 330,000 units and sold 325,000 units. The fixed manufacturing overhead for October totaled $990,000. If the company used variable costing, its income for October would be
$235,000
A company is creating its pro forma balance sheet for next year. The company anticipates that 50% of sales will be collected during the month of sale, 40% will be collected in the month following the sale, and 10% will be collected 2 months after the sale. If the company's budgeted sales for the months of October, November, and December of the upcoming year are $200,000, $350,000, and $450,000, respectively, the company's budgeted year-end accounts receivable balance is
$260,000 The entire October sales account will be collected by the end of the year; however, 10% of November sales will be collected in January in the following year, and a total of 50% of December sales will be collected in the following year (40% in January and 10% in February). The budgeted year-end accounts receivable balance is $260,000 [($350,000 ×10%) + ($450,000 ×40%) + ($450,000 ×10%)].
An entity purchased a machine for $700,000. The machine was depreciated using the straight-line method and had a residual value of $40,000. The machine was sold on December 31, Year 1. The accumulated depreciation related to the machine was $495,000 on that date. The entity reported a gain on the sale of the machine of $75,000 in its income statement for the fiscal year ending December 31, Year 1. The selling price of the machine was
$280,000
An entity had the following sales and accounts receivable balances, prior to any adjustments at year end:The entity uses 3% of accounts receivable to determine its allowance for uncollectible accounts at year end. By what amount should the entity adjust its allowance for uncollectible accounts at year end? Credit sales $10,000,000 accounts receivable 3,000,000 allowance for uncollectible accts. 50,000
$40,000
A company has just completed its prospective financial statements for the coming year. Relevant information is summarized below:From the information provided above, the increase in the cash account for the coming year will be Projected net income $100,000 Anticipated capital expenditures 50,000 Increase in working capital 25,000 Depreciation expense 15,000
$40,000 The change in cash can be calculated as follows: Accrual-basis net income $100,000 Less: capital outlays (50,000) Less: increase in working capital (25,000) Add: depreciation expense (noncash) 15,000 Increase in cash $40,000
A company has developed the following sales projections for the calendar year. May$100,000 June 120,000 July140,000August 160,000 September150,000 October130,000 Normal cash collection experience has been that 50% of sales are collected during the month of sale and 45% in the month following sale. The remaining 5% is never collected. The company's budgeted cash collections for the third calendar quarter are May$100,000 June 120,000 July140,000August 160,000 September150,000 October130,000
$414,000 If 50% of sales are collected in the month of sale and 45% in the next month, with the balance uncollectible, collections during the third quarter will be based on sales during June, July, August, and September. As calculated on the right, total budgeted collections are $414,000. June: $120,000 x 45 = $54,000 July: 140,000 x (50% + 45%)=133,000 August: 160,000 x (50% +45%)=152,000 September: 150,000 x 50% =75,000 Total 414,000
From the following budgeted data, calculate the budgeted indirect cost rate that would be used in a normal costing system. Total direct labor hours $250,000 Total indirect labor hours 50,000 direct cost $10,000,000 Total indirect labor hours related costs 5,000,000 Total indirect nonlabor hours related costs 7,000,000
$48 Total indirect costs are $12,000,000 ($5,000,000 + $7,000,000). The appropriate allocation base is direct labor hours, since this more closely matches activity level than does indirect labor or the combination of the two. The budgeted indirect cost rate is thus $48 per direct labor hour ($12,000,000 ÷250,000).
A manufacturing firm planned to manufacture and sell 100,000 units of product during the year at a variable cost per unit of $4.00 and a fixed cost per unit of $2.00. The firm fell short of its goal and only manufactured 80,000 units at a total incurred cost of $515,000. The manufacturing cost variance was
$5,000 favorable.
A company manufactures a specialty line of T-shirts using a job-order costing system. During March, the following costs were incurred in completing job ICU2: direct materials, $13,700; direct labor, $4,800; administrative, $1,400; and selling, $5,600. Overhead was applied at the rate of $25 per machine hour, and job ICU2 required 800 machine hours. If job ICU2 resulted in 7,000 good shirts, the cost of goods sold per unit would be
$5.50 Cost of goods sold is based on the manufacturing costs incurred in production but does not include selling or general and administrative expenses. Manufacturing costs equal $38,500 [$13,700 DM + $4,800 DL + (800 hours ×$25) OH]. Thus, per-unit cost is $5.50 ($38,500 ÷7,000 units).
A corporation's annual budget shows expected inventory purchases of $55,000,000 from its suppliers. Selected financial information from the corporation's pro forma beginning and ending balance sheets are as shown below.On the corporation's pro forma Statement of Cash Flows, the dollar amount that would be shown for "Cash payments to suppliers" is January 1 December 3 Inventory $6,000,000 $7,500,000 Accounts payable $ 4,000,000 $5,000,000
$54,000,000 Cash paid to suppliers is calculated as follows: purchases-increase in accounts payable. The corporation will have $54,000,000 ($55,000,000purchases -$1,000,000 increase in accounts payable) as cash paid to suppliers on the pro forma Statement of Cash Flows.
An entity purchased a truck for $38,600 to transport equipment to various job sites. For this purpose, storage bins were welded to the truck bed at a cost of $1,700. The controller of the entity estimates the useful life of the truck to be 5 years and the residual value to be $1,000. Using the double-declining balance method, the depreciation expense on the truck for its second year of use is
$9,672
Jackson industries employs a standard cost system in which direct materials inventory is carried at standard cost. Jackson has established the following standards for the prime costs of one unit of product.During May, Jackson purchased 125,000 pounds of direct materials at a total cost of $475,000. The total factory wages for May were $364,000, 90% of which were for direct labor. Jackson manufactured 22,000 units of product during May, using 108,000 pounds of direct materials and 28,000 direct labor hours. Jackson's direct labor usage (efficiency) variance for May is. Standard quantity Standard price Standard cost Direct materials 5 pounds $3.60/pound $18.00 Direct Labor 1.25 hours $12.00/hour 15,00 $33.00
$6,000 unfavorable.
A distributor of video discs is developing its budgeted cost of goods sold for next year. The distributor has the following range of sales estimates and associated probabilities for the year:Sales Estimate Probability$ 60,000 25%85,000 40100,000 35The distributor's cost of goods sold averages 80% of sales. What is the expected value of the distributor's budgeted cost of goods sold?
$67,200 The expected value is calculated by weighting each sales estimate by the probability of its occurrence. Consequently, the expected value of sales is $84,000 [$60,000 ×.25) + ($85,000 ×.40) + ($100,000 ×.35)]. Cost of goods sold is therefore $67,200 ($84,000 ×.80).
A corporation owns 60% of S Corp.'s outstanding capital stock. On May 1, the corporation advanced S $70,000 in cash, which was still outstanding at December 31. What portion of this advance should be eliminated in the preparation of the December 31 consolidated balance sheet?
$70,000
The controller of a company has requested a quick estimate of the manufacturing supplies needed for the month of July when production is expected to be 470,000 units to meet the ending inventory requirements and sales of 475,000 units. The company's budget analyst has the following actual data for the last 3 months:Using these data and the high-low method to develop a cost estimating equation, the estimate of needed manufacturing supplies for July would be months production in units Manufacturing supplies march 450,000 $723,060 april 540,000 853,560 may 480,000 766,560
$752,060 The fixed and variable portions of mixed costs may be estimated by identifying the highest and the lowest costs within the relevant range. The difference in cost divided by the difference in activity is the variable rate. Once the variable rate is found, the fixed portion is determinable. April and March provide the highest and lowest amounts. The difference in production was 90,000 units (540,000 April − 450,000 March), and the difference in the cost of supplies was $130,500 ($853,560 − $723,060). Hence, the unit variable cost was $1.45 ($130,500 ÷90,000 units). The total variable costs for March must have been $652,500 (450,000 units ×$1.45 VC per unit), and the fixed cost must therefore have been $70,560 ($723,060 − $652,500). The probable costs for July equal $681,500 (470,000 units ×$1.45 VC per unit), plus $70,560 of fixed costs, a total of $752,060.
The marketing manager has learned the following about a new product that is being introduced: Sales of this product are planned at $100,000 for the first year. Sales commission expense is budgeted at 8% of sales plus the marketing manager's incentive budgeted at an additional 1/2%. The preparation of a product brochure will require 20 hours of marketing salaried staff time at an average rate of $100 per hour, and 10 hours at $150 per hour for an outside illustrator's effort. The variable marketing cost for this new product will be
$8,500
For the month of December, a bottling company expects to sell 12,500 cases of water at $24.80 per case and 33,100 cases of cola at $32.00 per case. Sales personnel receive 6% commission on each case of water and 8% commission on each case of cola. In order to receive a commission on a product, the sales personnel team must meet the individual product revenue quota. The sales quota for water is $500,000, and the sales quota for cola is $1,000,000. The sales commission that should be budgeted for December is
$84,736 The sale of 12,500 cases of water at $24.80 per case produces revenue of $310,000, an amount that does not qualify for commissions. The sale of 33,100 cases of cola at $32 per case produces revenue of $1,059,200. This amount is greater than the minimum and therefore qualifies for a commission of $84,736 ($1,059,200 ×8%). This calculation assumes that commissions are paid on all sales if the revenue quota is met.
A company is in the process of projecting its cash position at the end of the second quarter. Shown below is pertinent information from the company's records.From the data above, determine the company's projected cash balance at the end of the second quarter. Cash balance at end of 1st quarter $36,000 Cash collections from customers for 2 d quarter 1,300,000 Accounts payable at end of 1st quarter 1,000,00 Accounts payable at end of 2nd quarter 75,000 All 2nd quarter costs and expenses (accrual basis) 1,200,000 Depreciation (accrued expense included above) 60,000 Purchases of equipment (for cash) 50,000 Gain on sale of asset (for cash) 5,000 Net book value of asset sold 35,000 Repayment of notes payable 66,000
$95,000 The company's records show that the costs and expenses are recorded using the accrual basis, Not that all the expenses are accrued expenses. The change in the company's cash balance can be calculated as follows; Beginning cash balance $36,000 Add: Cash collections 1,300.00 Less: Net change in accounts payable (25,000) Less: Accrual-basis costs and expenses (1,200,000) Add: Depreciation expense (noncash) 60,000 Less: Payment for equipment (50,000) Add: Net cash received from asset sale 40,000 Less: Retirement of notes payable (66,000) Ending cash balance $95,000 Note that cash is generally paid for expenses even in accrual-basis accounting. the company's Records state that depreciation is included in the $1,200,000 of accrual basis costs and Expenses. Thus, it is safe to assume that this is the only noncash expense. Since it is a noncash expense depreciation will be added back in when calculating the ending cash balance.
The correlation coefficient that indicates the weakest linear association between two variables is
-0.11 The correlation coefficient can vary from -1 to +1. A -1 relationship indicates a perfect negative correlation, and a +1 relationship indicates a perfect positive correlation. A zero correlation coefficient would indicate no linear association between the variables. Thus, the correlation coefficient that is nearest to zero indicates the weakest linear association. Of the options given in the question, the correlation coefficient that is nearest to zero is -0.11.
A corporation manufactures specialty components for the electronics industry in a highly labor intensive environment. A manufacturer has asked the corporation to bid on a component that the corporation made for the manufacturer last month. The previous order was for 80 units and required 120 hours of direct labor to manufacture. The manufacturer would now like 240 additional components. The corporation experiences an 80% learning curve on all of its jobs. The number of direct labor hours needed for the corporation to complete the 240 additional components is Units Cumulative Average Hours 80 1.5 hours (120/80) 160 1.2 hours (1.5x .8) 320 .96 hours (1.2 x .8)
187.2 One common assumption made in a learning curve model is that the cumulative average time per unit is reduced by a certain percentage each time production doubles. An 80% learning curve results in the following performance for the lots shown:Thus, to produce 320 units, total production time will be 307.2 hours (320 ×.96). The total time for the last 240 units will be 187.2 hours (307.2 -120) Units Cumulative Average Hours 80 1.5 hours (120/80) 160 1.2 hours (1.5x .8) 320 .96 hours (1.2 x .8)
A sales budget shows quarterly sales for the next year as follows:Company policy is to have a finished goods inventory at the end of each quarter equal to 20% of the next quarter's sales. Budgeted production for the second quarter of the next year would be Quarter Units 1 10,000 2 8,000 3 12,000 4 14,000
8,800 units. The finished units needed for sales (8,000), plus the units desired for ending inventory (12,000 units to be sold in the third quarter ×20% = 2,400), minus the units in beginning inventory (8,000 units to be sold in the second quarter ×20% = 1,600), equals budgeted production for the second quarter of 8,800 units.
A company is a maker of men's slacks (pants). The company would like to maintain 20,000 yards of fabric in ending inventory. The beginning fabric inventory is expected to contain 25,000 yards. The expected yards of fabric needed for sales is 90,000. Compute the yards of fabric that the company needs to purchase.
85,000 The company's fabric purchase requirements can be calculated as follows: Needed for sales 90,000 Add; ending inventory 20,000 Less: beginning inventory (25,000) Total purchases 85,000
In an organization that plans by using comprehensive budgeting, the master budget is
A compilation of all the separate operational and financial budget schedules of the organization.
When an investor uses the equity method to account for investments in common stock, the investment account will be increased when the investor recognizes
A proportionate interest in the net income of the investee.
Which one of the following actions would result in a decrease in income?
Accelerating purchases at the end of the year when using the last-in, first-out inventory method in times of rising prices.
An advantage of incremental budgeting when compared with zero-based budgeting is that incremental budgeting
Accepts the existing base as being satisfactory.
An accounting system that collects financial and operating data on the basis of the underlying nature and extent of the cost drivers is
Activity-based costing.
Which one of the following temporary differences will result in a deferred tax asset?
Advance rental receipts accounted for on the accrual basis for financial statement purposes and on a cash basis for tax purposes.
Which method of recording uncollectible accounts expense is consistent with accrual accounting?
Allowance DirectWrite-Off yes No
The fixed overhead volume variance is the
Amount of the underappliedor overappliedfixed overhead costs.
The cost of statistical quality control in a product quality cost system is categorized as a(n)
Appraisal cost.
Items reported as prior-period adjustments
Are reflected as adjustments of the opening balance of the retained earnings of the earliest period presented.
Inventorial able costs
Are regarded as assets before the products are sold.
A building contractor has a fixed-price contract to construct a large building. It is estimated that the building will take 2 years to complete. Progress billings will be sent to the customer at quarterly intervals. Which of the following describes the preferable point for revenue recognition for this contract if the outcome of the contract can be estimated reliably?
As progress is made toward completion of the contract.
From a modern internal auditing perspective, which one of the following statements represents the mostimportant benefit of an internal auditing activity to management?
Assurance that there is reasonable control over day-to-day operations.
If a worker encounters a production kanbanat his or her workstation, the worker should
Begin manufacturing the requested item.
Depreciation expense is added to net income under the indirect method of preparing a statement of cash flows in order to
Reverse noncash charges deducted from net income.D.
The balanced scorecard provides an action plan for achieving competitive success by focusing management attention on critical success factors. Which one of the following is notone of the perspectives on the business into which critical success factors are commonly grouped in the balanced scorecard?
Competitor business strategies.
A publicly traded corporation is the lessee in a leasing agreement to lease land and a building. If the lease contains a bargain purchase option, the land and the building should be recorded as a(n)
Capital lease but separately classified.
To determine whether to recognize the impairment of a depreciable fixed asset, a company must compare the
Carrying amount of the asset and the undiscounted future cash flows expected to be generated by the asset.
In preparing a corporate master budget, which one of the following is mostlikely to be prepared last?
Cash budget.
Which one of the following schedules would be the last item to be prepared in the normal budget preparation process
Cash budget.
The physical reconfiguration of equipment that often accompanies the institution of a just-in-time manufacturing regime is described as the creation of
Cells.
In analyzing company operations, the controller of the corporation found a $250,000 favorable flexible-budget revenue variance. The variance was calculated by comparing the actual results with the flexible budget. This variance can be wholly explained by
Changes in unit selling prices.
The requirement of the Foreign Corrupt Practices Act of 1977 to devise and maintain adequate internal control is assigned in the Act to the
Company as a whole with no designation of specific persons or positions.
Process value analysis is a key component of activity-based management that links product costing and
Continuous improvement.
A company manufactures three products at its highly automated factory. The products are very popular, with demand far exceeding the company's ability to supply the marketplace. To maximize profit, management should focus on each product's
Contribution margin per machine hour.
Which one of the following is notan advantage of a participatory budgeting process?
Control of uncertainties.
Of the following, the primary objective of compliance testing is to determine whether
Controls are functioning as planned.
Notes to financial statements are beneficial in meeting the disclosure requirements of financial reporting. The notes should notbe used to
Correct an improper presentation in the financial statements.
A company uses a comprehensive planning and budgeting system. The proper order for the company to prepare certain budget schedules would be
Cost of goods sold, income statement, balance sheet, and statement of cash flows.
On a balanced scorecard, which is more of an internal process measure than an external-based measure?
Cycle time.
DEF is the consignee for 1,000 units of product X for ABC Company. ABC should recognize the revenue from these 1,000 units when
DEF sells the goods and informs ABC of the sale.
When the fair value of an investment in debt securities exceeds its amortized cost, how should each of the following debt securities be reported at the end of the year, given no election of the fair value option?
Debt Securities Classified As Held-to-Maturity Available-for-Sale Amortized cost Fair Value
A corporation entered into a 3-year contract using the percentage-of-completion method for financial income and the completed-contract method for taxable income. The corporation expected the project to be profitable throughout the construction period. The effect on the corporation's financial statements for the third year would be a(n)
Decrease in the deferred tax liability account.
When the allowance method of recognizing uncollectible accounts is used, the entry to record the write-off of a specific account
Decreases both accounts receivable and the allowance for uncollectible accounts.
Risk assessment is a process
Designed to identify potential events that may affect the entity.
The expected value of perfect information is the
Difference between the expected profit under certainty and the expected monetary value of the best act under uncertainty.
A company produces farm tractors. The details of its budgeted cost of goods manufactured schedule should come from which of the following schedules?
Direct materials used, direct labor, manufacturing overhead, and work-in-process.
Under throughput costing, the only cost considered to be truly variable in the short run is
Direct materials.
The four categories of costs associated with product quality costs are
External failure, internal failure, prevention, and appraisal.
Which of the following items is notclassified as other comprehensive income (OCI)?
Extraordinary gains from extinguishment of debt
One of the financial statement auditor's major concerns is to ascertain whether internal control is designed to provide reasonable assurance that
Financial reporting is reliable.
The difference between the actual amounts and flexible budget amounts for the actual output achieved is the
Flexible budget variance.
A standard costing system is mostoften used by a firm in conjunction with
Flexible budgets.
Which of the following is nota phase in a value-chain analysis?
Identify means for improving product cost efficiency.
The letter xin the standard regression equation is bestdescribed as a(n)
Independent variable.
Because of inexact estimates of the service life and the residual value of a plant asset, a fully depreciated asset was sold in the current year at a material gain. This gain mostlikely should be reported
In the other revenues and gains section of the current income statement.
A department store sells gift certificates that may be redeemed for merchandise. Each certificate expires 3 years after issuance. The revenue from the gift certificates should be recognized
In the period the certificates are redeemed or in the period they expire if they are allowed to lapse.
An investor uses the equity method to account for an investment in common stock. After the date of acquisition, the investment account of the investor is
Increased by its share of the earnings of the investee and is decreased by its share of the losses of the investee.
Which of the following is nota typical benefit of an outsourcing arrangement?
Increased control over a necessary function.
The best advantage of a zero-coupon bond to the issuer is that the
Interest can be amortized annually on a straight-line basis but is a noncash outlay.
The cost of scrap, rework, and tooling changes in a product quality cost system is categorized as a(n)
Internal failure cost.
A continuous profit plan
Is a plan that is revised monthly or quarterly.
Life-cycle costing
Is sometimes used as a basis for cost planning and product pricing.
There are various budgets within the master budget cycle. One of these budgets is the production budget. Which one of the following bestdescribes the production budget?
It is calculated from the desired ending inventory and the sales forecast.
Intraperiodincome tax allocation arises because.
Items included in the determination of taxable income may be presented in different sections of the financial statements.B.
A major impact of the Foreign Corrupt Practices Act of 1977 is that registrants subject to the Securities Exchange Act of 1934 are now required to
Keep records that reflect the transactions and dispositions of assets and to maintain a system of internal accounting controls.
Which of the following expenditures qualifies for asset capitalization?
Legal costs associated with obtaining a patent on a new product.
All of the following are advantages of the use of budgets in a management control system exceptthat budgets
Limit unauthorized expenditures.
A company has accumulated data for the last 24 months in order to determine if there is an independent variable that could be used to estimate shipping costs. Three possible independent variables being considered are packages shipped, miles shipped, and pounds shipped. The quantitative technique that should be used to determine whether any of these independent variables might provide a good estimate for shipping costs is
Linear regression.
The accounting measurement that is notconsistent with the going concern concept is
Liquidation value.
A corporation reported the following standard-to-actual cost information.Which one of the following bestexplains both of the corporation's variances? Actual Costs total variance Direct materials $19,250 900 F Direct labor $17,600 800 U
Lower-quality, lower-cost materials resulted in higher than expected rework costs.
Which of the following is trueregarding the comparison of managerial and financial accounting?
Managerial accounting need not follow generally accepted accounting principles (GAAP), while financial accounting must follow them.
The financial statements included in the annual report to the shareholders are leastuseful to which one of the following?
Managers in charge of operating activities.
Capacity expansion is also referred to as
Market penetration.
Of the following pairs of variances found in a flexible budget report, which pair is mostlikely to be related?
Material usage variance and labor efficiency variance.
The immediate goal of a theory of constraints (TOC) analysis is to
Maximize contribution margin through the constraint.
Using the balanced scorecard approach, an organization evaluates managerial performance based on
Multiple financial and nonfinancial measures.
A manufacturer uses a standard cost system with overhead applied based upon direct labor hours. The budget for the production of 5,000 units for the month of May included the following information: Direct labor (10,000 hours at $15 per hour) $150,000 Variable overhead 30,000Fixed overhead 80,000 During May, 6,000 units were produced and the fixed overhead budget variance was $2,000 favorable. Fixed overhead during May was
Overappliedby $18,000.
Which of the following is the best characteristic concerning the capital budget? The capital budget is a(n)
Plan that assesses the long-term needs of the company for plant and equipment purchases.
Which one of the following statements is correctregarding the effect preferred stock has on a company?
Preferred shareholders' claims take precedence over the claims of common shareholders in the event of liquidation.
To comply with the matching principle, the cost of labor services of an employee who participates in the manufacturing of a product normally should be charged to the income statement in the period in which the
Product is sold.
Under a standard cost system, the materials efficiency variances are the responsibility of
Production and industrial engineering.
A company uses straight-line depreciation for financial reporting purposes, but uses accelerated depreciation for tax purposes. Which of the following account balances would be lower in the financial statements used for tax purposes than it would be in the general purpose financial statements?
Retained earnings.
A company is being sued in a wrongful discharge suit for $500,000. The company attorney has advised that the probability of the plaintiff prevailing and receiving the full amount is about 80%. The attorney also indicated that the case would likely be tied up in the courts for 2 to 3 years. The most appropriate financial statement presentation for this loss contingency would be
Record $500,000 as a loss contingency.
Which one of the following is notan advantage of activity-based budgeting?
Reduction of planning uncertainty.
An airline should recognize revenue from airline tickets in the period when
Related flights occur.
Which of the following terms is notconnected with the employment of just-in-time (JIT) manufacturing?
Safety stock.
Price variances and efficiency variances can be key to the performance measurement within a company. In evaluating the performance within a company, a materials efficiency variance can be caused by all of the following except the
Sales volume of the product.
The variance that arises solely because the quantity actually sold differs from the quantity budgeted to be sold is
Sales volume variance.
The Sarbanes-Oxley Act has strengthened auditor independence by requiring that management
Select auditors through audit committees.
Which one of the following statements regarding selling and administrative budgets is mostaccurate?
Selling and administrative budgets need to be detailed in order that the key assumptions can be better understood.
A widely used approach that managers use to recognize uncertainty about individual items and to obtain an immediate financial estimate of the consequences of possible prediction errors is
Sensitivity analysis.
When compared with ideal standards, practical standards
Serve as a better motivating target for manufacturing personnel.
Which one of the following statements concerning approaches for the budget development process is correct?
Since department managers have the most detailed knowledge about organizational operations, they should use this information as the building blocks of the operating budget.
A difference between standard costs used for cost control and the budgeted costs of the same manufacturing effort can exist because
Standard costs represent what costs should be, whereas budgeted costs are expected actual costs.
A subsidiary has a receivable from its parent. Should this receivable be separately reported in the subsidiary's balance sheet and in the parent's consolidated balance sheet?
Subsidiary's Balance Sheet Yes Parent's Consolidated Balance Sheet NO
The use of activity-based costing (ABC) normally results in
Substantially greater unit costs for low-volume products than is reported by traditional product costing •ABC differs from traditional product costing because it uses multiple allocation bases and therefore allocates overhead more accurately. The result is that ABC often charges low-volume products with more overhead than a traditional system. •For example, the cost of machine setup may be the same for production runs of widely varying sizes. This relationship is reflected in an ABC system that allocates setup costs on the basis of the number of setups. •However, a traditional system using an allocation base such as machine hours may underallocatesetup costs to low-volume products. Many companies adopting ABC find they have been losing money on low-volume products because costs were higher than originally thought.
Legal fees incurred by a company in defending its patent rights should be capitalized when the outcome of litigation is
Successful Unsuccessful yes no
Which one of the following methods of depreciation will result in the lowest reported net income in the early life of a depreciable asset?
Sum-of-the-years'-digits depreciation method.
A premium on bonds payable arises when
The amount received from sale of the bonds at issuance exceeds the face value of the bonds.
Which of the following statements regarding benchmarking is false?
The benchmarking organization against which a firm is comparing itself must be a direct competitor.
The terms direct cost and indirect cost are commonly used in accounting. A particular cost might be considered a direct cost of a manufacturing department but an indirect cost of the product produced in the manufacturing department. Classifying a cost as either direct or indirect depends upon
The cost object to which the cost is being related.
Which of the following is notan appropriate basis for measuring the cost of property, plant, and equipment?
The cost should include the purchase price without a deduction for trade discounts.
After performing a thorough study of a firm's operations, an independent consultant determined that the firm's labor standards were probably too tight. Which of the following facts would be inconsistent with the consultant's conclusion?
The firm's budgeting process was well-defined and based on a bottom-up philosophy.C.Management noted that minimal i
Which of the following statements about a capital lease is false?
The lessor records the leased item as an asset.
Generally, individual departmental rates rather than a plantwiderate for applying manufacturing overhead are used if
The manufactured products differ in the resources consumed from the individual departments in the plant.
In target costing,
The market price of the product is taken as a given
Which of the following is mostlikely to be regarded as a strength in internal control in a traditional external audit?
The performance of financial audits by the internal audit activity.
A large manufacturing company has two service departments and two production departments. Each of the service departments renders services to each other and to the two production departments. Which one of the following methods would mostaccurately allocate the costs of the service departments to the production departments of this company?
The reciprocal allocation method.
A corporation uses the following format to present performance results to the production managers. This format may be confusing to the production manager because Months Actual Months Budget Price variance quantity variance Direct materials $10,000 $12,000 $1,000 F $1,000 F Direct labor 20,000 19,500 500 F $1,000 U Variable overhead 4,000 $4,000 100 U 100F Fixed overhead 12,000 12,200 200 F Sales units 50,000 52,000
The report includes variances beyond the control and knowledge of the production manage
There are three components of audit risk: inherent risk, control risk, and detection risk. Inherent risk is
The susceptibility of an assertion to a material misstatement, assuming that there are no related internal control structure policies or procedures.
FIFO requires separate costing of goods started last period and finished this period and goods started and completed this period. The weighted-average method does not. Which is the truestatement about the cost of completed goods transferred under FIFO to the next production department or to finished goods inventory?
The two amounts are considered combined as the goods are transferred
Securities held primarily for sale in the near term to generate income on short-term price differences are known as
Trading securities.
The static budget for the month of May was for 9,000 units with direct materials at $15 per unit. Direct labor was budgeted at 45 minutes per unit for a total of $81,000. Actual output for the month was 8,500 units with $127,500 in direct materials and $77,775 in direct labor expense. The direct labor standard of 45 minutes was maintained throughout the month. Variance analysis of the performance for the month of May shows a(n)
Unfavorable direct labor price variance of $1,275.
Variable overhead is applied on the basis of standard direct labor hours. If, for a given period, the direct labor efficiency variance is unfavorable, the variable overhead efficiency variance will be
Unfavorable.
Under a standard cost system, direct labor price variances are usually notattributable to
Union contracts approved before the budgeting cycle.
A calendar-year corporation had $17,000 of spoilage during April that production management characterized as abnormal. The spoilage was incurred on Job No. 532, which was sold 3 months later for $459,000. Which of the following correctly describes the impact of the spoilage on the corporation's unit manufacturing cost for Job No. 532 and on the year's operating income?
Unit Manufacturing Cost OperatingIncome No effect Decrease
A firm uses a process-costing system and inspects its goods at the end of manufacturing. The inspection as of June 30 revealed the following information for the month of June:Unit costs were: materials, $3.50 and conversion costs, $6.00. The number of units that the firm would transfer to its finished goods inventory and the related cost of these units are Good units completed 16,000 Normal spoilage Units 300 Abnormal spoilage units 1000
Units Transferred cost $16,000 $154,850 Only salable goods (16,000) are transferred to finished goods inventory. Under process costing, the full cost of normal spoilage is borne by good units. Thus, the total dollar amount transferred to finished goods was $154,850 [(16,000 + 300) ×$9.50].
Which one of the following items is included in the determination of income from continuing operations?
Unusual loss from a write-down of inventory.
The purpose of identifying manufacturing variances and assigning their responsibility to a person/department should be to
Use the knowledge about the variances to promote learning and continuous improvement in the manufacturing operations.
The difference between variable costs and fixed costs is
Variable costs per unit are fixed over the relevant range and fixed costs per unit are variable.
Multiple or departmental overhead rates are considered preferable to a single or plantwideoverhead rate when
Various products are manufactured that do not pass through the same departments or use the same manufacturing techniques.
Under the lower-of-cost-or-market method, the replacement cost of an inventory item would be used as the designated market value
When it is below the net realizable value and above the net realizable value less the normal profit margin.
The efficiency variance for either direct labor or materials can be divided into
Yield variance and mix variance.