1) Most managers stress the importance of understanding and predicting cash flows for
business decisions.
2) When computing payback period, the year in which a capital investment is made is
year 1.
3) Stocks with a price-earnings ratio less than 20 to 25 are likely to be overpriced.
4) If the straight-line depreciation method is used, the annual average investment
amount used in calculating rate of return is calculated as (beginning book value +
ending book value)/2.
5) A common statutory restriction is reported on the income statement whereas; a
common contractual restriction is reported in the stockholders’ equity section of the
balance sheet.
6) A company has $80,000 in outstanding accounts receivable and it uses the allowance
method to account for uncollectible accounts. Experience suggests that 6% of
outstanding receivables are uncollectible. The current credit balance (before
adjustments) in the allowance for doubtful accounts is $1,200. The journal entry to
record the adjustment to the allowance account includes a debit to Bad Debts Expense
for $4,800.
7) The term restricted retained earnings refers to statutory but not contractual
restrictions.
8) The market rate for bonds is generally higher when the time period to maturity is
longer due to the risk of adverse events occurring over the time period.
9) The total sales variance can be divided into the sales price variance and the sales
volume variance.
10) The debt-to-equity ratio enables financial statement users to assess the risk of a
company’s financing structure.
11) All expected future payments are liabilities.
12) When preparing the operating activities section of the statement of cash flows using
the indirect method, expenses with no cash outflows are added back to net income.
13) Information processors capture information and enable its transfer to the system’s
information processing component.
14) A physical count of supplies on hand at the end of May for Masters, Inc. indicated
$1,250 of supplies on hand. The general ledger balance before any adjustment is
$2,100. What is the adjusting entry for office supplies that should be recorded on May
31?
A.Debit Supplies Expense $1,250 and credit Supplies $1,250.
B.Debit Prepaid Supplies $850 and credit Supplied Expense $850.
C.Debit Supplies Expense $1,250 and credit Supplies $2,100.
D.Debit Supplies $1,250 and credit Cash $1,250.
E.Debit Supplies Expense $850 and credit Supplies $850.
15) Identify the situation below that will result in a favorable variance.
A.Actual revenue is higher than budgeted revenue.
B.Actual revenue is lower than budgeted revenue.
C.Actual income is lower than expected income.
D.Actual costs are higher than budgeted costs.
E.Actual expenses are higher than budgeted expenses.
16) Zhang Industries budgets production of 300 units in June and 310 units in July.
Each finished unit requires 4 pounds of raw material K, which costs $5 per pound. Each
month’s ending inventory of raw materials should be 30% of the following month’s
budgeted production. The June 1 raw materials inventory has 360 pounds of raw
material K. Compute budgeted purchases for raw material K for June.
A.1,200 lbs.
B.1,240 lbs.
C.1,212 lbs.
D.1,220 lbs.
E.880 lbs.
17) Cost accounting systems used by manufacturing companies are based on the:
A.Periodic inventory system.
B.Perpetual inventory system.
C.Finished goods inventories.
D.Weighted average inventories.
E.LIFO inventory system.
18) On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8%
installment note requiring equal payments each June 30 of $37,258. What amount of
principle will be included in the first annual payment?
A.$20,000
B.$37,258
C.$25,000
D.$232,742
E.$17,258
19) The calculation of total asset turnover is:
A.Gross profit divided by average total assets.
B.Average total assets divided by gross profit.
C.Net sales divided by average total assets.
D.Average total assets multiplied by net sales.
E.Net assets multiplied by total assets.
20) The predetermined overhead rate for Shilling Manufacturing is based on estimated
direct labor costs of $350,000 and estimated factory overhead of $770,000. Actual costs
incurred were:
a. Calculate the predetermined overhead rate and calculate the overhead applied during
the year.
b. Determine the amount of over- or underapplied overhead and prepare the journal
entry to eliminate the over- or underapplied overhead assuming that it is not material in
amount.
21) A corporation reported cash of $14,000 and total assets of $178,300 on its balance
sheet. Its common-size percent for cash equals:
A..0785%.
B.7.85%.
C.12.73%.
D.1273%.
E.7850%.
22) The Discount on Bonds Payable account is:
A.A liability.
B.A contra liability.
C.An expense.
D.A contra expense.
E.A contra equity.
23) Clayborn Company deposits all cash receipts on the day they are received and
makes all cash payments by check. At the close of business on May 31, its Cash
account shows a debit balance of $17,025. Clayborn’s May bank statement shows
$15,800 on deposit in the bank. Determine the adjusted cash balance using the
following information:
The adjusted cash balance should be:
A.$16,400
B.$11,200
C.$21,000
D.$16,425
E.$17,000
24) A partnership agreement:
A.Is not binding unless it is in writing.
B.Is the same as a limited liability partnership.
C.Is binding even if it is not in writing.
D.Does not generally address the issue of the rights and duties of the partners.
E.Is also called the articles of incorporation.
25) All of the following statements related to recording warranty expense are true
except:
A.Recording estimated warranty expense complies with the full disclosure principle.
B.Warranty expense should be recorded in the period when the warranty service is
performed.
C.Recording estimated warranty expense complies with the matching principle.
D.The seller reports a warranty obligation as a liability.
E.Warranty costs are probable and the amount can be estimated.
26) A buyer issues a _______________________ to inform the seller of a debit made to
the seller’s account payable in the buyer’s records.
27) The steps in the accounting process focus on analyzing and recording financial
transactions and events within a company. Those steps are shown below. Using the
number system of 1 as the first step and 4 as the last step in the process, number the
steps in the correct order in which they would occur (1 thru 4).
_____ Record relevant transactions and events in a journal
_____ Post journal information to the ledger accounts
_____ Prepare and analyze the trial balance
_____ Analyzing each transaction
28) A supplementary record created to maintain a separate account for each customer is
called the ________________________.
29) Drake Company pays its employees for two weeks of vacation each year. The total
annual cost of the vacation benefit is $109,920. Prepare the journal entry to record the
monthly accrued vacation expense.
30) What is a production budget?
31) __________________ is an estimate of an asset’s value at the end of its benefit
period (or useful life).
32) Refer to the following information about the Shaping Department of the Minnesota
Factory for the month of August. Minnesota Factory uses the FIFO method of inventory
costing.
The cost per equivalent unit of materials is $10.00, and the cost per equivalent unit of
labor and overhead is $22.00. Compute the cost that should be assigned to the ending
Work in Process inventory for August.
33) The following information is available for the Brookstone Company:
Additional information:
(1) There was no gain or loss on the sales of the long-term investments, nor on the
bonds retired.
(2) Old machinery with an original cost of $45,060 was sold for $2,520 cash.
(3) New machinery was purchased for $81,060 cash.
(4) Cash dividends of $40,320 were paid.
(5) Additional shares of stock were issued for cash.
Prepare a complete statement of cash flows for calendar-year 2013 using the indirect
method.
34) What are some causes of direct labor rate and efficiency variances?