1) What does the acronym “GAAP” stand for? Name the group that has the primary
responsibility for establishing US GAAP.
2) Who are the primary users of financial accounting information? Who are the primary
users of managerial accounting information?
3) What effect does providing services on account have on the statement of cash flows?
The balance sheet?
4) Indicate how each event affects the elements of financial statements. Use the
following letters to record your answer in the box shown below each element. You do
not need to enter amounts.
Liu Co. made an adjusting entry to reflect one year’s expiration of insurance. Three
years of insurance had been prepaid at the beginning of the year, with the entire amount
being recorded as prepaid insurance. Show the effects of the adjusting entry.
5) What is meant by “double taxation?” Which form of business organization is subject
to double taxation?
6) Debit memos in a bank statement describe transactions that act to increase the
depositor’s assets
7) Classify the following cost as a selling or general and administrative period cost or as
a direct or indirect product cost by entering the dollar amount in the appropriate
column: Hale Company paid $4,000 for various supplies that it used in the factory (oil
and materials used in machine maintenance).
8) Discuss the three elements that are typically present when fraud occurs.
9) Indicate whether each of the following statements is true or false.
1>Managers should not use two different methods in evaluating capital investment
decisions because different methods generally give different results
2>To say that an investment earns the desired rate of return assumes that all cash flows
generated by the investment are reinvested at the desired rate of return
3>Copley Corporation uses a required rate of return of 10% for its capital investment
decisions. A particular project had a negative net present value. For this project, the
actual rate of return was expected to be more than 10%
4>An ordinary annuity assumes that cash flows occur at the beginning of each period
5>The net present value of a capital investment project is calculated by subtracting the
present value of expected cash inflows from the cost of the investment
10) Rayburn’s Tents makes backpacking tents. It has the capacity to produce 10,000
tents per year and currently is producing and selling 7,000 tents. Normal selling price
for a tent is $470. Unit-level costs are $100 for direct materials, $200 for direct labor,
and $25 for other manufacturing costs. Facility-level costs of $80 are allocated to each
tent. Rayburn’s has received a special order for 1,500 tents at $340 each.
Required:
Should Rayburn’s accept the special order? Support your answer with appropriate
computations that show how the order will affect Rayburn’s income.