1) The high-low method is used to derive an estimated line of cost behavior by
graphically connecting the two cost amounts identified with the highest and lowest
volume levels.
2) On October 15, a company received $15,000 cash as a down payment on a
consulting contract. The amount was credited to Unearned Consulting Revenue. By
October 31, 10% of the services required by the contract were completed. The company
will record consulting revenue of $1,500 from this contract for October.
3) Good internal control dictates that a person who controls an asset also maintains that
asset’s accounting records.
4) The purchase of a property that included land, building, and improvements is called a
lump-sum purchase.
5) The balance sheet provides a link between beginning and ending income statements.
6) It is acceptable to record prepayment of expenses as debits to expense accounts.
7) A company has $595,000 in total stockholders’ equity. Preferred stock outstanding is
valued at $150,000, and 75,000 shares of common stock are outstanding. Its book value
per common share is $7.93.
8) On May 15, Briar Company purchased 10,000 shares of Broder Corp. for $80,000.
The securities are considered available-for-sale securities. On September 30, the stock
had a market value of $85,000. The $5,000 difference must be reported on the income
statement as a $5,000 gain.
9) A cash equivalent must be readily convertible to a known amount of cash, and must
be sufficiently close to its maturity so its market value is unaffected by interest rate
changes.
10) Bonds and long-term notes are similar in that they are typically transacted with
multiple lenders.
11) Owner’s withdrawals are expenses.
12) Profitability is the ability to generate positive market expectations.
13) A company’s month-end adjusting entry for Insurance Expense is $1,000. If this
entry is not made then expenses are understated by $1,000 and net income is overstated
by $1,000.
14) Three of the most common tools of financial analysis include horizontal analysis,
vertical analysis, and ratio analysis.
15) The aim of a post-closing trial balance is to verify that (1) total debits equal total
credits for temporary accounts, and (2) all temporary accounts have zero balances.
16) Identify the three basic forms of business organizations.
17) Match the following terms with the appropriate definition.
18) Sales discounts can benefit a seller by decreasing the delay in receiving cash, and
__________.
19) If a prepaid expense account were not adjusted for the amount used, on the balance
sheet assets would be ___________________ and equity would be
__________________.
20) Sherman Company can sell all of product A that it produces but only 160,000 units
of Z and it has limited production capacity. It can produce 6 units of A per hour or 10
units of Z per hour, and it has 30,000 production hours available. Contribution margin
per unit is $12 for A and $10 for Z. What is the most profitable sales mix for this
company?
21) On December 14 Bench Company received $3,700 cash for consulting services that
will be performed in January. Bench records all such prepayments in a liability account.
Prepare a general journal entry to record the $3,700 cash receipt.
22) To write off an uncollectible account receivable when the allowance method of
accounting for uncollectible accounts is used, a company should debit
_______________________ and credit accounts receivable.
23) Use the following income statement and information about changes in noncash
current assets and liabilities to (1) prepare only the cash flows from operating activities
section of the statement of cash flows using the indirect method and (2) compute the
company’s cash flow on total assets ratio for the year assuming that average total assets
are $525,250.
Changes in current asset and current liability accounts for the year that relate to
operations follow.
24) A ___________ inventory system updates the accounting record for inventory only
at the end of a period.