1) Sales Discounts is added to the Sales account when computing a company’s net sales.
2) The file of job cost sheets for completed but undelivered jobs equals the balance in
the Work in Process Inventory account.
3) Management by exception means that managers focus on the most significant
differences between actual costs and standard costs.
4) A good financial statement analysis report often includes the following sections:
executive summary, analysis overview, evidential matter, assumptions, key factors, and
inferences.
5) All necessary amounts to prepare the balance sheet, including ending owner’s capital,
can be found in the Balance Sheet columns of the work sheet.
6) Decision makers in practice do not need a basic knowledge of how accounting
information systems work because they can be relied upon to be accurate.
7) Natural resources are assets that include standing timber, mineral deposits, and oil
and gas fields.
8) A company holds $40,000 of 7% bonds as a held-to-maturity security. The journal
entry to record receipt of a semiannual interest payment includes a debit to Cash for
$2,800 and a credit to Interest Revenue for $2,800.
9) A company that has days’ sales uncollected of 30 days and days’ sales in inventory of
18 days implies that inventory will be converted to cash in about 12 days.
10) Overapplied overhead is the amount by which actual overhead cost exceeds the
overhead applied to products during the period.
11) Receipts of cash dividends and interest earned on loans are classified as investing
activities.
12) Liquidity refers to the availability of resources to meet short-term cash
requirements.
13) Memphis Company anticipates total sales for April, May, and June of $800,000,
$900,000, and $950,000 respectively. Cash sales are normally 25% of total sales. Of the
credit sales, 30% are collected in the same month as the sale, 65% are collected during
the first month after the sale, and the remaining 5% are not collected. Compute the
amount of cash received from total sales for May.
A.$561,500.
B.$652,500.
C.$817,500.
D.$592,500.
E.$890,000.
14) The accounting rate of return is calculated as:
A.The after-tax income divided by the total investment.
B.The after-tax income divided by the annual average investment.
C.The cash flows divided by the annual average investment.
D.The cash flows divided by the total investment.
E.The annual average investment divided by the after-tax income.
15) If the times interest earned ratio:
A.Increases, then risk increases.
B.Increases, then risk decreases.
C.Is greater than 1.5, the company is in default.
D.Is less than 1.5, the company is carrying too little debt.
E.Is greater than 3.0, the company is likely carrying too much debt.
16) Refer to the following selected financial information from McCormik, LLC.
Compute the company’s accounts receivable turnover for Year 2.
A.8.62.
B.8.28.
C.8.94.
D.5.78.
E.7.90.
17) A company received cash proceeds of $206,948 on a bond issue with a par value of
$200,000. The difference between par value and issue price for this bond is recorded as
a:
A.Credit to Interest Income.
B.Credit to Premium on Bonds Payable.
C.Credit to Discount on Bonds Payable.
D.Debit to Premium on Bonds Payable.
E.Debit to Discount on Bonds Payable.
18) A company had a market price of $27.50 per share, earnings per share of $1.25, and
dividends per share of $0.40. Its price-earnings ratio equals:
A.3.1.
B.22.0.
C.93.8.
D.32.0.
E.3.3.
19) The common-size percent is computed by:
A.Dividing the analysis amount by the base amount.
B.Dividing the base amount by the analysis amount.
C.Dividing the analysis amount by the base amount and multiplying the result by 100.
D.Dividing the base amount by the analysis amount and multiplying the result by 1,000.
E.Subtracting the base amount from the analysis amount and multiplying the result by
100.
20) Bonds that give the issuer an option of retiring them before they mature are:
A.Debentures.
B.Serial bonds.
C.Sinking fund bonds.
D.Registered bonds.
E.Callable bonds.
21) On October 1, Goodwell Company rented warehouse space to a tenant for $2,500
per month and received $12,500 for five months’ rent in advance on that date. The
collection was credited to the Unearned Rent account. The company’s annual
accounting period ends on December 31. The Unearned Rent account balance at the end
of December, after adjustment, should be:
A.$5,000.
B.$7,500.
C.$12,500.
D.$2,500.
E.$10,000.
22) Which one of the following items is normally not a manufacturing cost?
A.Direct materials.
B.Factory overhead.
C.General and administrative expenses.
D.Direct labor.
E.Conversion cost.
23) Saffron Industries most recent balance sheet reports total assets of $42,000,000,
total liabilities of $16,000,000 and stockholders’ equity of $26,000,000. Management is
considering using $3,000,000 of excess cash to prepay $3,000,000 of outstanding
bonds. What effect, if any, would prepaying the bonds have on the company’s
debt-to-equity ratio?
A.Prepaying the debt would cause the firm’s debt-to-equity ratio to improve from .62
to .50.
B.Prepaying the debt would cause the firm’s debt-to-equity ratio to improve from .62
to .57.
C.Prepaying the debt would cause the firm’s debt-to-equity ratio to worsen from .62 to .
50.
D.Prepaying the debt would cause the firm’s debt-to-equity ratio to worsen from .62 to .
57.
E.Prepaying the debt would cause the firm’s debt-to-equity ratio to remain unchanged.
24) The second step in accounting for production activity in a period, after determining
the physical flow of units, is to compute ______________________.
25) Policies and procedures used by management to monitor and control business
activities are known as ____________________________.
26) Gemstone Products allows customers to use bank credit cards to charge purchases.
The bank used by Gemstone Products processes all bank credit cards in exchange for a
3% processing fee and all credit card receipts deposited are credited to the company
account on the day of deposit. Assume that on January 18, Gemstone Products sold and
deposited $18,000 worth of bank credit card receipts. Prepare the general journal entry
to record this transaction.
27) What is a capital expenditures budget?
28) Prudence Co. receives a $26,000, 90-day, 4% note receivable. What is maturity
value of the note?
29) ABC Catering received $800 cash from a customer for catering services to be
provided next month. Given the choices below, determine the general journal entry that
ABC Catering will make to record this transaction.
30) The following data relates to the Mass Company’s first operating period. Calculate
the total cost of goods sold for each product.
31) Prepare journal entries to record the following merchandising transactions of
Margin Company, which applies the perpetual inventory system. Margin Company
offers all of its credit customers credit terms of 2/10, n/30.
