1) A high accounts receivable turnover in comparison with competitors suggests that the
firm should tighten its credit policy.
2) Overapplied overhead is the amount by which actual overhead cost exceeds the
overhead applied to products during the period.
3) When the attitude of continuous improvement exists throughout an organization,
every manager and employee seeks to continuously experiment with new and improved
business practices.
4) Incremental costs should be considered in a make or buy decision.
5) Costs may be classified by many different cost classifications.
6) If a production department has 100 equivalent units of production with respect to
direct materials in a given reporting period, the equivalent units of production with
respect to direct labor also must be 100.
7) Closing entries are normally entered in the general journal and then posted to the
work sheet.
8) The selling expenses budget is normally prepared before the sales budget because
selling expenses affect the amount of sales.
9) The International Accounting Standards Board (IASB) is the government group that
establishes reporting requirements for companies that issue stock to the public.
10) The time period assumption assumes that an organization’s activities can be divided
into specific time periods.
11) Sales discounts is a contra revenue account, meaning that the Sales Discounts
account is added to the Sales account when computing a company’s net sales.
12) Bookkeeping is the recording of transactions and events and is only part of
accounting.
13) Preparation of a trial balance is the first step in the analyzing and recording process.
14) A company has current assets of $15,000 and current liabilities of $9,500. Its
current ratio is 1.6.
15) ___________________ are additional costs of plant assets that do not materially
increase the asset’s life or productive capabilities.
16) Peru, Inc. is preparing its master budget for the first quarter of its calendar year. The
following forecasted data relate to the first quarter:
Prepare a budgeted income statement for this first quarter.
17) Tappet Corporation is preparing its master budget for the quarter ending March 31.
It sells a single product for $25 a unit. Budgeted sales are 40% cash and 60% on credit.
All credit sales are collected in the month following the sales. Budgeted sales for the
next four months follow:
At December 31, the balance in accounts receivable is $10,000, which represents the
uncollected portion of December sales. The company desires merchandise inventory
equal to 30% of the next month’s sales in units. The December 31 balance of
merchandise inventory is 340 units, and inventory cost is $10 per unit. Forty percent of
the purchases are paid in the month of purchase and 60% are paid in the following
month. At December 31, the balance of Accounts Payable is $8,000, which represents
the unpaid portion of December’s purchases. Operating expenses are paid in the month
incurred and consist of:
Sales commissions (10% of sales)
Freight (2% of sales)
Office salaries ($2,400 per month)
Rent ($4,800 per month)
Depreciation expense is $4,000 per month. The income tax rate is 40%, and income
taxes will be paid on April 1. A minimum cash balance of $10,000 is required, and the
cash balance at December 31 is $10,200. Loans are obtained at the end of a month in
which a cash shortage occurs. Interest is 1% per month, based on the beginning of the
month loan balance, and must be paid each month. If an excess of cash exists, loan
repayments are made at the end of the month. At December 31, the loan balance is $0.
Prepare a master budget (round all dollar amounts to the nearest whole dollar) for each
of the months of January, February, and March that includes the:
Sales budget
Table of cash receipts
Merchandise purchases budget
Table of cash disbursements for merchandise purchases
Table of cash disbursements for selling and administrative expenses
Cash budget, including information on the loan balance
Budgeted income statement
18) The budget process is usually administered by a ____________________.
19) The following are the steps in the accounting cycle. List them in the order in which
they are completed:
Prepare adjusted trial balance
Post transactions
Prepare an unadjusted trial balance
Journalize transactions
Prepare the financial statements
Close the temporary accounts
Adjust the ledger accounts
Prepare a post-closing trial balance
Analyze transactions