1) Indicate how the event affects the elements of the financial statements. If the
transaction affects a given element of the financial statements, enter the dollar amount
below that financial statement element with a plus to indicate an increase or a minus for
a decrease. If the item affects cash flow, indicate whether it is an operating activity,
investing activity, or financing activity.
Hill Corporation earned cash revenues of $12,000.
2) Are direct costs always variable costs? Are variable costs always direct costs?
3) Discuss possible reasons why a corporation may establish an appropriation of
retained earnings.
4) Indicate whether each of the following statements is true or false.
1>Sales estimates to be used in the budgeting process are usually prepared at the
highest level of an organization
2>Accompanying the sales budget is a schedule of cash receipts, which is used in
preparing the cash budget
3>A company’s senior vice president for sales would be held responsible for the sales
budget
4>The accuracy of sales forecasts is critical to the effectiveness of a business’ overall
budgeting process
5>Sales forecasts often are prepared using sophisticated computer programs and
statistical techniques
5) On which financial statement(s) does the Cost of Goods Sold account appear?
6) Indicate whether each of the following statements about separation of duties is true
or false.
1>One employee should not be responsible for both making cash sales to customers and
recording the transaction in the business’s accounting records
2>When a company has achieved an effective separation of duties, collusion among
employees would be required to commit theft or fraud and avoid detection
3>Making one employee responsible for authorization and recording of transactions
does not violate the principles of good internal control
4>Having a clear separation of duties will reduce employees’ temptation to commit
theft or fraud
5>When a business achieves a clear separation of duties, the work of one employee acts
as a check on the work of other employees
7) Indicate whether each of the following statements about financial statement analysis
is true or false.
1>Changes in general economic conditions (such as rate of inflation) can cause the
values for a company’s financial statement ratios to change from one year to the next
2>Conservatism produces a positive bias in a company’s financial statements and thus
in the ratios calculated from the financial statements
3>The dividend yield ratio indicates the percentage of a company’s net income that it
paid out in dividends
4>Comparing financial statement ratios of companies in different industries can give
misleading results
5>The value of a corporation’s price-earnings ratio indicates how optimistic investors
are about a company’s growth potential
8) What effect does the payment to a creditor have on total assets?
9) Comparative income statements for Richter Company are provided below:
Required:
Perform a horizontal analysis of Richter Company’s income statement by computing
percentage changes for each item from 2011 to 2012 . Discuss the results.
10) Indicate how the event affects the elements of the financial statements. If the
transaction affects a given element of the financial statements, enter the dollar amount
below that financial statement element with a plus to indicate an increase or a minus for
a decrease. If the item affects cash flow, indicate whether it is an operating activity,
investing activity, or financing activity.
Gomez Corporation paid rent for the month in the amount of $1,400.