Midterm
1.If A sells to B, and B holds title while goods are in transit, the goods were shipped ____ __? If C sells to D, and C maintains title until the goods arrive at D’s door then the goods were shipped ?
A.FOB shipping point, FOB destination
B.FOB destination, FOB shipping point
C.FOB destination, FOB destination
D.FOB shipping point, FOB shipping point
2.When goods are sold on credit, revenue usually should be recognized at the date of
A.receipt of the sales order
B.passage of title from the seller to the buyer.
C.receipt of the goods by the buyer.
D.manufacture of the goods.
E.cash collection of the sales price.
3.Dart Company incurred the following costs during 2010:
Conversion Cost $750,000
Prime Cost $350,000
MOH $500,000
What was the amount of direct materials & direct labor used in 2010?
A. Direct Materials, $350,000, Direct Labor $250,000
B. Direct Materials, $350,000, Direct Labor $250,000
C. Direct Materials, $250,000, Direct Labor $100,000
D. Direct Materials, $100,000, Direct Labor $250,000
E. Direct Materials, $600,000, Direct Labor $150,000
4. In our comprehensive problem, how was the balance in Musical Expression’s bank account (i.e. cash account) reported for financial statement purposes?
A. Current Asset, Balance Sheet
B. Current Liability, Income Statement
C. Current Asset, Income Statement
D. Current Liability, Balance Sheet
E. It was not required to be reported.
5.Metro Corporation uses a predetermined overhead rate of $20 per machine hour. In deriving this figure, the company’s accountant used:
A.a denominator of budgeted machine hours for the current accounting period.
B.a denominator of actual machine hours for the current accounting period.
C.a denominator of actual machine hours for the previous accounting period.
D.a numerator of budgeted machine hours for the current accounting period.
E.a numerator of actual machine hours for the current accounting period.
6.The following data pertains to Lam Company’s manufacturing operations for the month of April: 4/1 4/30 Raw Materials $20,000 $35,000 Work -In-Process $10,000 $50,000 Finished Goods $125,000 $75,000 MOH Clearing Account 0 0* Accounts Payable (Wolf) $40,000 $20,000 Additional information (for the month of April): Actual Raw Materials Purchased $30,000 Actual Direct Labor dollars Incurred $25,000 Actual Hourly Direct Labor Rate $25 POHR $50 (per direct labor hour) Actual MOH Incurred $75,000 *This balance is after $25,000 of under-applied MOH was written off at the end of April. What was the amount of Direct Materials put in to production during April?
A.$15,000
B.$20,000
C.$30,000
D.$50,000
E.$55,000
7.Continuing with the facts provided in problem 6. What was the dollar amount of the total manufacturing costs incurred in April?
A.$40,000
B.$55,000
C.$90,000
D.$100,000
E.None of the above
8.Continuing with the facts provided in problem 6. Which of the following would have been included in Lam’s entry to write off the over/under applied MOH at the end of April?
A.Debit to Cost of Goods sold.
B.Credit to Cost of Goods sold.
C.Debit to Cost of Goods Manufactured.
D.Credit to Cost of Goods Manufactured.
E.Debited to Miscellaneous Expense
9.Continuing with the facts provided in problem 6. Assume that Lam Corporation buys all of its raw materials on account from Wolf Company. How much cash did Lam pay to Wolf during the month of April (i.e. for amounts owed on raw material purchases)?
A.$20,000
B.$30,000
C.$40,000
D.$50,000
E.$70,000
10.Continuing with the facts provided in problem 6. Assume that Lam reported the following for the month of April: Sales Revenue $200,000 Selling, General & Administrative Expense $25,000 What dollar amount of gross profit did Lam report for April?
A.$50,000$
B.$75,000
C.$100,000
D.175,000
E.None of the above
11.Lake operates a manufacturing company in southern California. Its facility is 200,000 square feet 20,000 of which is designated for selling, general & administrative purposes. The remaining 90% of space is used solely for production purposes. During the year, Lake incurred the following insurance costs: i. Lake purchases building insurance for its entire facility by paying a base premium of $50,000. ii. Lake pays a $5,000 premium to purchase a $1,000,000 “key man” life insurance policy. These types of policies insure the lives of key individuals within the company and are intended to help the company to recover from losses experienced as a result of their death. This particular policy covers Jake Little, VP of sales. Jake has been with the company for 30 years and his contacts within the industry and relationships with existing clients are immeasurable. iii. In order to be fully protected against fire damage, Lake must purchase a special endorsement (i.e. additional coverage) by paying an additional $6,000 of premiums. This special endorsement is required due to Lake’s use of hazardous (and highly flammable) chemicals in one particular stage of the production process. iv. Lake spends $10,000 to buy an endorsement covering the building for damages caused by an earthquake. v. Due to the bad driving records of three specific members of the sales force, Lake’s auto premiums went up by $4,000. What dollar amount of the above expenditures would be classified as period cost?
A.$60,000
B.$11,000
C.$15,000
D.$21,000
E.None of the above
12.The Kwok Company’s inventory balance on December 31, 2006, was $100,000 (based on a 12/31/06 physical count) before considering the following transactions:
1. Goods shipped to Kwok f.o.b. destination on December 20, 2006, were received on January 4, 2007. The invoice cost was $25,000.
2. Goods shipped from Kwok to a customer f.o.b. destination on December 26, 2006, were received by the customer on December 30, 2006. The sales price was $35,000 and the merchandise cost $25,000.
3. Goods shipped from Kwok to a customer f.o.b. destination on December 27, 2006, were received by the customer on January 3, 2007. The sales price was $35,000 and the merchandise cost $25,000.
4. Goods shipped to Kwok f.o.b. shipping point on December 28, 2006, were received on January 5, 2007. The invoice cost was $25,000.
5. Goods shipped from Kwok to a customer f.o.b. shipping point on December 28, 2006, were received by the customer on January 4, 2007. The sales price was $35,000 and the merchandise cost $25,000.
Determine the correct inventory amount to be reported in Kwok’s 2006 balance sheet.
A.$100,000
B.$125,000
C.$150,000.
D.$175,000.
E.$200,000
13.8/26th Hawthorne Manufacturing (the “buyer”) places an order to purchase materials from High Quality Vendor (“HQV”). The materials normally list for $20,000 but due to Hawthorne’s buying history the vendor gave them a 10% trade discount and the standard payment terms of 2/10, n/30 Hawthorne anticipates selling the items for $25,000. 8/29th The materials are shipped FOB Shipping point from HQV’s warehouse in California with $1,000 of freight prepaid. 9/4th The materials arrive at Hawthorne’s facility. Upon inspection of the goods, half of the order is sent back & not accepted. 9/6th Hawthorne pays the vendor the amount owed. How much cash will Hawthorne need to pay the seller in order to settle the account payable in full?
A.$10,000
B.$18,000
C.$9,820
D.$9,000
E.$8,820
14.Magazine Corporation has a company policy that any single check written that is greater than $5,000 requires two separate signatures. Stephen Mill, the controller, is one of the two individuals with authorization to sign checks. The second individual is the Treasurer, Susan Davis. Susan travels frequently for business and it is therefore hard to track her down to obtain her signature. On one particular day, Stephen realizes that there is a $9,000 vendor invoice that needs to be paid immediately or the company risks losing their 1% purchase discount. Noticing his frustration, one of his employees suggested that he side-step the rule by requesting two $4,500 checks be prepared instead of a single $9,000 check. After thinking it over, Stephen decides instead, to follow policy, and to wait to pay the invoice once Susan was available to sign the check. He also makes a mental note to discuss the “signature” issue with Susan in their next meeting. Which of the following statements is true?
A.Stephen’s behavior weakened the company’s control environment as he cost the company money.
B.Stephen’s decision has no impact on the company’s overall control environment. His decision impacted the execution of a specific control procedure (i.e. dual signatures) and nothing else.
C.Stephen’s employees may mirror his attitudes and actions (i.e. while performing their own jobs). Because of this fact, his decision strengthened the overall control environment.
D.Stephen’s employees may mirror his attitudes and actions (i.e. while performing their own jobs). Because of this fact, his decision (which cost the company money) weakened the overall control environment.
E.Both A and D
15.A manager of a large retail firm is interested in knowing what the company’s product costs are. Which of the following would be considered a product cost for the manager’s company?
A.Direct materials.
B.Direct labor.
C.Factory overhead.
D.Transportation costs incurred to purchase inventory.
E.All of the above
16.The cost of goods that were finished and transferred out of work-in-process during the current period is known as:
A.Cost of goods sold.
B.Cost of goods available for use.
C.Current period manufacturing costs
D.Cost of goods available for sale.
E.Cost of goods manufactured.
17.A few years ago, Flow Corporation introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to dollar sales are 1% within the first 12 months following the sale and 4% in the second 12 months following the sale. Flow ended 1990 with a final balance in its warranty liability account of $3,000. Sales and actual warranty expenditures for the year ended December 31, 1991 are $250,000 and $6,500 respectively. What amount should be reported as warranty liability on the 12/31/91 balance sheet?
A.$12,500
B.$6,000
C.$6,500
D.$2,500
E.$9,000
18.Winton Enterprises had the following events during 2007: The business issued $10,000 of common stock to its stockholders. The business purchased land for $6,000 cash. Services were provided to customers for $5,000 on account. Cash totaling $3,000 was collected from customers for services performed on account. The business purchased supplies on account for $5,000. Services were provided to customers for $10,000 cash. Winton used up $4,500 of the supplies purchased The company borrowed $8,000 from the bank. Operating expenses of $6,000 were incurred and paid in cash. Interest of $500 was accrued on the bank loan. A dividend of $1,000 was paid to the owners of Winton Enterprises. Assuming the company began operations during 2007, the amount of retained earnings as of December 31, 2007 would be:
A.$7,500
B.$14,000
C.$8,500
D.$3,000
E.None of the above
19.Which of the following would most likely lead to an overstatement of net income in the current year?
A.Recording revenue next period when the cash is collected although it is earned in the current year.
B.Recording an expense incurred this year even though the cash was not paid until the following year.
C.Failing to adjust a deferred rent expense account for the portion of the pre-payment that expired this year.
D.Recording revenue this period when earned even though the cash is collected next year.
E.None of the above would lead to an overstatement of net income.
20.Deferred Revenue normally carries a _______ balance and is reported on the ______________.
A.Credit; Statement of stockholders’ equity.
B.Debit; Income statement.
C.Credit; Balance sheet.
D.Debit; Balance Sheet.
E.Credit; Income Statement
21.Sunny Acres has operated a successful retirement community for the last ten years. In late March, Sunny Acres paid $24,000 for two years of business liability coverage (effective April 1st). This entire payment was debited to insurance expense. Which of the following adjusting entries should be made by Sunny Acres in 2009 to properly account for the policy?
A.DEBIT
CREDIT
Insurance Expense
12,000
Prepaid Insurance
12,000
B.DEBIT
CREDIT
Prepaid Insurance
15,000
Insurance Expense
15,000
C.DEBIT
CREDIT
Insurance Expense
9,000
Prepaid Insurance
9,000
D.DEBIT
CREDIT
Prepaid Insurance
24,000
Cash
24,000
E.None of the above
22.Willow Preparatory Academy recently upgraded the fire alarm system being used in the dormitories housing its students. The new system includes sophisticated heat and smoke sensors that if triggered will blast an audible warning siren and turn on special green lighting at the base of the floor to guide students while exiting the building. When smoke and/or fire is detected, the system will automatically start the built-in sprinkling system and send electronic emergency notification to the local fire department. In order to minimize disruption, the new system was installed over the holiday break while the students were not on campus. Looking at the new system as a whole, what type of control does it represent?
A.preventative and detective
B.preventative only
C.detective and corrective
D.corrective only
E.None of the above
23.Which of the following departments could initiate a purchase requisition: (i) accounting, (ii) receiving?
A.i only.
B.ii only.
C.Both i and ii.
D.Neither i nor ii.
24.Maltec Corporation has started placing its quarterly financial statements on its web page, thereby reducing by ten days the time to get information to investors and creditors. The qualitative concept improved is:
A.Comparability.
B.Consistency.
C.Relevance.
D.Reliability.
E.Materiality.
25.Radio Corporation had the following inventory purchases and sales during January of the current year:
Quantity
Unit
Extended
Date
in Units
Price
Value
Beg. Inventory
1-Jan
1,000
$1
$1,000
Purchase
8-Jan
1,000
$2
$2,000
Purchase
15-Jan
1,000
$3
$3,000
Purchase
22-Jan
1,000
$4
$4,000
Purchase
28-Jan
1,000
$5
$5,000
Sale
14-Jan
1,000
$6
$6,000
Sale
31-Jan
3,000
$6
$18,000
Using the first-in-first-out cost flow assumption what was Radio’s cost of goods sold assuming a periodic inventory system is maintained?
A.$14,000
B.$10,000
C.$9,000
D.$13,000
E.$12,000
26.Continuing with question # 25, assume instead that Radio uses the last-in-first-out cost flow assumption and maintains a perpetual inventory system. What is the dollar amount of Radio’s ending inventory?
A.$1,000
B.$2,000
C.$3,000
D.$4,000
E.$5,000
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