1) When expenses exceed revenues, there is a net loss and the Income Summary
account would have a credit balance.
2) Indirect labor refers to the cost of the workers whose efforts are directly traceable to
specific units or batches of product.
3) Trading securities are always reported as current assets.
4) Production budgets should always show both budgeted units of product and costs.
5) Closing revenue and expense accounts at the end of the accounting period serves to
make the revenue and expense accounts ready for use in the next period.
6) The high-low method can be used to derive an estimated line of cost behavior.
7) Asset turnover is computed by dividing average total assets by cost of sales.
8) Withdrawals by the owner are a business expense.
9) Process cost accounting systems are commonly used by companies that manufacture
standardized products by passing them through a series of manufacturing steps.
10) Bonding does not discourage loss from theft because employees know that bonding
is an insurance policy against loss from theft.
11) If net present values are used to evaluate two investments that have equal costs and
equal total cash flows, the one with more cash flows in the early years has the higher
net present value.
12) FUTA requires employers to pay a federal unemployment tax on the first $7,000 in
salary or wages paid to each employee.
13) Cost-volume-profit analysis provides approximate, but not precise, answers to
questions about costs, volumes, and profits.
14) The main limitation in using book value per share for stock valuation models is the
potential difference between recorded value and market value for both assets and
liabilities.
15) Torville Company’s contribution margin income statement is presented below. Sales
for the current period consisted of 5,000 units. Determine the company’s break-even
point in dollars.
16) A manufacturing company’s finished goods inventory on January 1 was $68,000;
cost of goods manufactured was $147,000; and the December 31 finished goods
inventory was $77,000. What is the cost of goods sold for that year?
17) A __________________________ is a document explaining the payment of a
check.
18) Basketball Products LP is organized as a limited partnership that sells sporting
equipment. Information related to the two partner’s capital balances is given below.
Compute the partner return on equity for each limited partner. How would each partner
evaluate the success of the partnership? What would you recommend the partners do
with respect to additional investments or withdrawals?
19) Describe the banking activities that promote the control of cash and identify the
internal control objectives served by the banking activities.
20) A _____________ account is an account linked with another account, having an
opposite normal balance, and reported as a subtraction from that other account’s
balance.
21) Pastimes Co. offers its employees a bonus equal to 2% of the company’s net
income. The estimated net income for the year is expected to be $850,000. Prepare the
general journal entry to record the employee bonus plan expense.
22) _______________________ are nonoperating activities that include interest,
dividend, and rent revenues, and gains from asset disposals.