1) Stock is attractive to investors because stockholders are not liable for the
corporation’s actions and debts and because stock is easily transferred.
2) Cash registers, check protectors, time clocks and personal identification scanners are
examples of technologies that can improve internal control.
3) The main goal of the lean business model is the elimination of waste while satisfying
the customer and providing a positive return to the company.
4) Petty cash reimbursement requires a journal entry that involves a debit to the
appropriate expenses and a credit to Cash.
5) Significant sunk costs are relevant to decisions about the future.
6) All companies desire a low return on total assets.
7) Neither the payback period nor the accounting rate of return methods of evaluating
investments considers the time value of money.
8) Depreciation expense is calculated using its cost, estimates of an asset’s salvage
value, and an estimated useful life.
9) Plant assets are used in operations and have useful lives that extend over more than
one accounting period.
10) The purchase of land and buildings will generally be recorded in the same ledger
account.
11) Match the following terms with the definitions.
1)A report that compares actual results with the results expected under a fixed budget.
2)Difference between the total overhead cost applied to products and the total overhead
cost actually incurred.
3)Results from a comparison of actual cost or revenue to budget that contributes to
higher income.
4)Management’s use of budgets to see that planned objectives are met.
5)The difference between the actual price of an item and its standard price.
6)Difference between actual quantity of an input and the standard quantity of the input.
7)A report that compares actual performance and budgeted performance based on actual
sales volume or other activity level.
8)Results from a comparison of actual cost or revenue to budget that contributes to a
lower income.
A. Unfavorable variance
B. Fixed budget performance report
C. Spending variance
D. Favorable variance
E. Budgetary control
F. Overhead cost variance
G. Quantity variance
H. Flexible budget performance report
12) The rate that a state assigns reflecting a company’s stability or instability in
employing workers is the:
A.FICA rate.
B.Tax withholding rate.
C.Pay rate.
D.Credit rating.
E.Merit rating.
13) On May 1, Gosworth and Jordan formed a partnership. Gosworth contributed cash
of $100,000 and equipment valued at $142,000. Jordan contributed land valued at
$130,000 and a building valued at $250,000. The partnership also assumed
responsibility for Jordan’s $120,000 long-term note payable associated with the land
and building. The partners agreed to share income as follows: Gosworth is to receive a
salary allowance of $38,000, both are to receive an annual interest allowance of 8% of
their beginning-year capital investments, and any remaining income or loss is to be
shared equally. During the year, Gosworth withdrew $40,000 and Jordan withdrew
$42,000 cash. After the adjusting and closing entries are made to the revenue and
expense accounts at the end of the year, the Income Summary account had a credit
balance of $140,000. Prepare the journal entries to record (a) the partners’ initial capital
investments, (b) their cash withdrawals, and (c) closing of both the Withdrawals and
Income Summary accounts.
14) Franklin Company’s bank reconciliation as of August 31 is shown below.
The adjusting journal entries that Clayborn must record as a result of the bank
reconciliation include:
A.Debit Cash $4,500; credit Sales $4,500.
B.Debit Cash $1,725; credit Notes Receivable $1,725.
C.Debit Cash $50; credit Bank Service Fee Expense $50.
D.Debit Misc. Expense $3,900; credit Cash $3,900.
E.Debit Notes Receivable $1,725; credit Cash $1,725.
15) On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson
Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein
uses the perpetual inventory system. On March 15, Babson returns some of the
merchandise. The selling price of the merchandise is $600 and the cost of the
merchandise returned is $350. Babson pays the invoice on March 20, and takes the
appropriate discount. The amount that Klein receives from Babson on March 20 is:
A.$7,800.
B.$7,644.
C.$7,044.
D.$7,056.
E.$7,200.
16) The following information is available for the Harris Vacation Rental Agency. After
these closing entries what will be the balance in the Sue Harris, Capital account?
A.$65,000.
B.$80,000.
C.$130,000.
D.$145,000.
E.$280,000.
17) Sellers allow customers to use credit cards for all of the following reasons except:
A.To be able to charge more due to fees and interest.
B.To lessen the risk of extending credit to customers who cannot pay.
C.To speed up receipt of cash from the credit sale.
D.To increase total sales volume.
E. To avoid having to evaluate a customer’s credit standing for each sale.
18) A company had the following purchases during the current year:
On December 31, there were 26 units remaining in ending inventory. Using the FIFO
inventory valuation method, what is the cost of the ending inventory?
A.$3,280.
B.$3,200.
C.$3,445.
D.$3,540.
E.$3,640.
19) The debt ratio of Jackson’s Shoes is .9 and the debt ratio of Billy’s Catering is 1.0.
Based on this information, an investor can conclude:
A.Billy’s Catering finances a relatively lower portion of its assets with liabilities than
Jackson’s Shoes.
B.Billy’s Catering has a lower risk from its financial leverage.
C.Jackson’s Shoes has a higher risk from its financial leverage.
D.Billy’s Catering has the exact same dollar amount of total liabilities and total assets.
E.Jackson’s Shoes has less equity per dollar of assets than Billy’s Catering.
20) Common-size statements:
A.Reveal changes in the relative importance of each financial statement item to a base
amount.
B.Do not emphasize the relative importance of each item.
C.Compare financial statements over time.
D.Show the dollar amount of change for financial statement items.
E.Reveal patterns in data across successive periods.
21) The _____________________ is found by determining the difference between total
debits and total credits for an account, including any beginning balance.
22) Explain how accounting adjustments affect financial statements and provide an
example of an adjustment that would impact the statements if not recorded.
23) ________________ are checks written by the depositor, deducted on the depositor’s
records, and sent to the payee, but not yet recorded by the bank at the bank statement
date.
24) Morgan had net sales of $310,000 and average accounts receivable of $75,600. Its
competitor, Stanley, had net sales of $290,000 and average accounts receivables of
$61,350. Calculate the accounts receivable turnover for both companies. Which
company is doing a better job of managing its accounts receivables?
25) Unearned revenue is classified as a(an) _______________ on a business’s balance
sheet.
26) The Redtail Partnership agrees to dissolve. The cash balance after selling all assets
and paying all liabilities is $56,000. The final capital account balances are: Paulson,
$33,000; Gray, $27,000; and Chang, ($4,000). Chang agrees to pay $4,000 cash from
personal funds to settle his deficiency. Prepare the journal entries to record the
transactions required to dissolve this partnership.
27) Explain how the cash flows from operating activities section of the statement of
cash flows is prepared using the direct method.
28) Information for the Deuce Manufacturing Company follows. Compute the cost of
goods manufactured for this company.
29) On March 1, a company established a $75 petty cash fund. On March 12, the petty
cash fund contains $3 in cash and the following paid petty cash receipts:
transportation-in on merchandise inventory $14.25; postage, $19.50; and office
supplies, $36. Give the general journal entry to reimburse the fund and to increase its
amount to $150 on March 12.