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The _______________________ is a record containing all accounts used by a company. An _______________ is a series of equal payments at equal time intervals. Answer: Annuity. The statement of cash flows is divided into three sections called the _____________, _____________, […]

On September 1, a corporation had 50,000 shares of $5 par value common stock, and $1,000,000 of retained earnings. On that date, when the market price of the stock is $15 per share, the corporation issues a 2-for-1 stock split. […]

_______________ is the deliberate misuse of the employer’s assets for the employee’s personal gain. An investing company that owns _________ of another (investee) company’s voting stock (but not more than 50%) is presumed to have a significant influence over the […]

A preemptive right means shareholders can purchase their proportional share of common stock issued later by the corporation. An activity-based costing system usually involves a fewer number of allocations compared with a traditional cost allocation system. Answer: FALSE A company […]

The return on total assets can be calculated as profit margin times total asset turnover. A contingent liability is a potential obligation that depends on a future event arising from a future transaction or event. Answer: FALSE Job order costing […]

_______________ is the process of transferring journal entry information to the ledger. What is the segment return on assets ratio? What is it used for? Answer: The segment return on assets is segment operating income divided by segment average assets. […]

The withdrawals account of each partner is closed to retained earnings at the end of the accounting period. Partners can invest both assets and liabilities into a partnership. Answer: TRUE Times interest earned can be calculated by multiplying income by […]

When a process cost accounting system assigns the cost of materials to a production department, the journal entry debits the Raw Materials Inventory account and credits the Goods in Process Inventory account for that department. Cost-volume-profit analysis is a precise […]

__________________________ refer to costs incurred in a period that are both unpaid and unrecorded. ______________________ refer to revenues earned in a period that are both unrecorded and not yet received in cash (or other assets). Explain how to compute book […]

Bonding does not discourage loss from theft because employees know that bonding is an insurance policy against loss from theft. If at the time of partnership liquidation, a partner has a $5,000 capital deficiency and pays the partnership $5,000 out […]

Noncash financing and investing activities are disclosed in the ____________ or in a separate ______________________________. Present Value of 1 Future Value of 1 Present Value of an Annuity of 1 Future Value of an Annuity of 1 Answer: Notes; schedule […]

Classify the following activities according to the appropriate section of the statement of cash flows. a. Operating activity b. Investing activity c. Financing activity 1) Cash paid for withdrawals by owners. 2) Cash paid for utilities. 3) Cash received from […]

A company had total assets of $350,000 and total liabilities of $101,500 and total equity of $248,500. Calculate its debt ratio. What is operating leverage? How can the degree of operating leverage be used in analyzing changes in sales? Answer: […]

In this chapter, you examined several short-term managerial decision tasks. Identify (list) any three of these types of decision tasks: _________________________ _________________________ _________________________ A company had net sales of $741,800. Its cost of goods sold must have been _________ to […]

Explain the difference between short-term and long-term investments. Cite examples of each. _____________________ is an estimate of an asset’s value at the end of its benefit period. Answer: Salvage value (or residual value or scrap value) The _________________ account is […]

_____________________ preferred stock has a feature that allows preferred stockholders to share with common stockholders in any dividends paid in excess of the percent or dollar amount stated on the preferred stock. Duval, Inc. budgets direct materials at $1/liter and […]

To avoid the time-consuming process of taking an inventory each year, most companies use the gross profit method to estimate ending inventory. Future value can be found if the interest rate (i), the number of periods (n), and the present […]

Mortgage bonds are backed only by the good faith and credit of the issuing company. The primary purpose of the statement of cash flows is to report all major cash receipts (inflows) and cash payments (outflows) during a period. Answer: […]

A ______________________ income statement includes cost of goods sold as another expense and shows only one subtotal for total expenses. _______________ bonds are bonds that mature at more than one date, often in a series, and thus are usually repaid […]

Sales variances allow managers to focus on sales mix as well as sales quantities. The current ratio is used to help assess a company’s ability to pay its debts in the near future. Answer: TRUE An out-of-pocket cost requires a […]

Successful use of a just-in-time inventory system can narrow the gap between the acid-test and the current ratio. According to the cost principle, it is preferable for managers to report an estimate of an asset’s value. Answer: FALSE The equity […]

Toys “R” Us had cost of goods sold of $8,321 million and its ending inventory was $2,027 million. Therefore its days’ sales in inventory equals 89 days. Comparative financial statements are reports that show financial amounts placed side by side […]

Briefly describe how manufacturing firms dispose of overapplied or underapplied factory overhead. ________________________ refers to a company’s ability to pay for its near-term obligations. Answer: Liquidity In the analysis of variances, management commonly focuses on four categories of production costs: […]

Harriet’s Toy Shop had net sales of $852,000. The gross profit was $230,000. Calculate Harriet’s cost of goods sold. When factory payroll for indirect labor is assigned, __________________ is debited. Answer: Factory Overhead When preparing the operating section of the […]

The building blocks of financial statement analysis include (1) liquidity, (2) salability, (3) solvency, and (4) profitability. A cash-based measure to help business decision makers estimate the amount and timing of cash flows is the cash flow on total assets […]

The time value of money is considered when calculating the payback period of an investment. A properly designed internal control system is a key part of systems design, analysis, and performance. Answer: TRUE The account form of the balance sheet […]

A company purchases a machine for $1,000,000. The machine has an expected life of 9 years and no salvage value. The company anticipates a yearly net income of $60,000 after taxes of 30% to be received uniformly throughout each year. […]

Outstanding checks refer to checks that have been: A.Written, recorded, sent to payees, and received and paid by the bank. B.Written and not yet recorded in the company books. C.Held as blank checks. D.Written, recorded on the company books, sent […]

In the process of completing a work sheet, you determine that the Income Statement debit column totals $83,000, while the Income Statement credit column totals $65,000. To enter net income (or net loss) for the period into the work sheet […]

A capital expenditures budget is prepared before the operating budgets. Goodwill is the amount by which a company’s value exceeds the value of its individual assets and liabilities. Answer: TRUE Analysis of a single financial item is important but is […]

The following information is available to you for the Wooden Company: From the information provided, calculate Wooden’s profit margin ratio for each of the three years. Comment on the results, assuming that the industry average for the profit margin ratio […]

___________________ are promises of payment from customers to sellers. ______________ users of accounting information are not directly involved in running the organization. Answer: External The process of allocating the cost of a natural resource to the period when it is […]

Capital structure refers to a company’s long-run financial viability and its ability to cover long-term obligations. Planning is defining an organization’s ideas, goals, and actions. Answer: TRUE On the date of the record the journal entry to record $10,000 in […]

A plant asset’s useful life might not be the same as its productive life. Input devices are the means to make accounting information available to users. Answer: FALSE The process cost summary is an important managerial accounting report produced by […]

_____________________ refers to the insufficient capacity of a company’s plant asset to meet the company’s productive demands. Describe the purpose of vertical financial statement analysis and how it is applied. Answer: Vertical financial statement analysis is used to evaluate each […]

Distinguish between selling expenses and general and administrative expenses. Explain the difference between the single-step and multiple-step income statements. Answer: A single-step income statement format includes cost of goods sold as another expense, and shows only one subtotal for total […]

Gross pay less all deductions is called ____________________. What are two questions that an owner might be able to answer by looking at accounting information? Answer: Some possible questions are: 1) How, what, when and how much must be purchased? […]

Earned but uncollected revenues are recorded during the adjusting process with a credit to a revenue and a debit to an expense. Under the perpetual inventory system, the cost of merchandise purchased is recorded in the Merchandise Inventory account. Answer: […]

A company purchased $1,800 of merchandise on December 5. On December 7, it returned $200 worth of merchandise. On December 8, it paid the balance in full, taking a 2% discount. The amount of the cash paid on December 8 […]

_____________________________________ consist of people, records, methods, and equipment that collect and process data from transactions and events, organize them in useful reports and communicate results to decision makers. Stockholders who are not officers or managers of a corporation do not […]

Explain the purpose and format of the statement of cash flows. Also describe its relevance to decision makers. ____________ are short-term, highly liquid investment assets that are readily convertible to a known amount of cash. Answer: Cash equivalents List the […]

When a credit customer returns merchandise to the seller, under a perpetual inventory system, the seller would debit Sales Returns and Allowances and credit Accounts Receivable and also debit Merchandise Inventory and credit Cost of Goods Sold. Both interest on […]

What are the four steps in accounting for production activity in a period? Trend percentage is calculated by dividing _________________________ by ___________________________ and multiplying the result by 100. Answer: Analysis period amount; base period amount When preferred stock is cumulative […]

Having external auditors test the company’s financial records and evaluate the effectiveness of the internal control system is part of the internal control principle of ________________________. The four building blocks of financial analysis are (1) ____________________, (2) __________________________, (3) ____________________ […]

If the seller is responsible for paying freight charges, then ownership of inventory passes when goods arrive at their destination. The current ratio is computed by dividing current liabilities by current assets. Answer: FALSE Bond sinking funds are examples of […]

A stock option is also called a stock dividend. A work sheet is a substitute for the set of financial statements. Answer: FALSE A buyer records the costs of shipping goods in a Delivery Expense, or transportation-out account when the […]

A company purchased a new truck at a cost of $42,000 on July 1, 2009. The truck is estimated to have a useful life of 6 years and a salvage value of $3,000. The company uses the straight-line method of […]

_______________________ is the estimated sales price of damaged goods minus the cost of making the sale. _________________________ is the use of electronic communication to transfer cash from one party to another. Answer: Electronic fund transfer (EFT) When the maker of […]

The margin of safety is the amount that sales can drop before the company incurs a loss. All disbursements from petty cash should be documented by a petty cash receipt. Answer: TRUE Land and buildings are generally recorded in the […]

Prichard Company has developed the following standard cost data based on 60,000 direct labor hours, which is 75% of capacity. Fixed overhead is $360,000 and variable overhead is $180,000 at this level of activity. During the current period, the company […]

Jorgensen Department Store has three departments: Clothing, Toys, and Jewelry. The most recent income statement, showing the total operating profit and departmental results is shown below: Based on this income statement, management is planning on eliminating the hardware department, as […]

Cost concepts such as variable, fixed, mixed, direct and indirect apply only to manufacturers and not to service companies. Joint costs can be allocated either using a physical basis or a value basis. Answer: TRUE The lower of cost or […]

Sellers generally prefer to receive notes receivable rather than accounts receivable when the credit period is long and the receivable is for a large amount. The effective interest method yields increasing amounts of bond interest expense and decreasing amounts of […]

Process costing is applied to operations with repetitive production and heterogeneous products. Financial accounting and tax accounting require the same recordkeeping and there should be no difference in results between the two accounting systems. Answer: FALSE If a department that […]

How is a classified balance sheet different from an unclassified balance sheet? List the order of the usual classifications on a classified balance sheet. Stock that has been issued and is held by stockholders is _________________________ stock. Answer: Outstanding What […]

The _____________________ is a measure of how quickly a merchandiser sells its merchandise inventory. The current portion of long-term debt is classified with the _________________________. Answer: Current Liabilities Describe the flow of labor costs in a job order costing system, […]

Sales less sales discounts less sales returns and allowances equals: A.Net purchases. B.Cost of goods sold. C.Net sales. D.Gross profit. E.Net income. An analytical technique used by management to focus on the most significant variances and give less attention to […]

It can be expected that companies selling perishable goods have a higher inventory turnover than companies selling nonperishable goods. Product costs can be classified as one of three types: direct materials, direct labor, or overhead. Answer: TRUE The book value […]

List the steps of the operating cycle for a merchandiser with credit sales. A company reported net sales for Year 1 of $285,000 and $575,000 for Year 2. The year-end balances of accounts receivable were $49,000 for Year 1 and […]

Identify whether each of the following items 1 through 10 would on appear on the bank side or the book side of a bank reconciliation. 1) Bank debit memorandum 2) Deposits in transit 3)The bank incorrectly recorded a check for […]

Use the following information about the current year’s operations of a company to calculate the cash paid for merchandise. A.$218,000. B.$223,200. C.$220,000. D.$228,800. E.$234,000. Which of the following is not a benefit of following a well-designed budgeting process? A.Improved decision-making […]