Sales variances allow managers to focus on sales mix as well as sales quantities.
The current ratio is used to help assess a company’s ability to pay its debts in the near
future.
An out-of-pocket cost requires a future cash outlay and is relevant for decision making.
A special order of goods or services should always be accepted when the incremental
revenue exceeds the normal revenue.
Long-term bonds have relatively higher interest rates because they carry higher risk due
to the longer time period.
An unadjusted trial balance is a list of accounts and balances prepared before
adjustments are recorded and posted.
The International Accounting Standards board (IASB) has the authority to impose its
standards on companies around the world.
Cost-volume-profit analysis cannot be used when a firm produces and sells more than
one product.
Land is not subject to depreciation because it has an unlimited life. This means that
items which increase the usefulness of the land such as parking lots are not depreciated.
Objectivity means that financial information is supported by independent unbiased
evidence.
Transactions are first recorded in the ledger.
An annuity is a series of equal payments at equal time intervals.
The equity section of the balance sheet of a partnership can report the separate capital
account balances of each partner.
Few companies take a physical count of inventory each year, and rely on inventory
records alone to determine the inventory value.
Bookkeeping is the same as accounting.
Conversion of preferred stock to common stock is disclosed in the financing section of
the statement of cash flows.
One of the most important decisions in accounting for inventory is determining the unit
costs assigned to inventory items.
In calculating the rate of return on average investment, average investment should be
calculated as (beginning book value + ending book value)/2.
Departmental information is important and always disclosed to the public as part of the
company’s annual report and footnotes.
A variable or flexible budget is so named because it only focuses on variable costs.
Closing entries are required at the end of each accounting period to close all ledger
accounts.
Partners’ withdrawals are credited to their separate withdrawals accounts.
The focus of financial accounting is on an organization’s projects, processes, and
subdivisions, and the focus of managerial accounting is on the whole organization.
Long-term investments include investments in land or other assets not used in a
company’s operations.
The conservatism constraint requires that when more than one estimate of the amounts
to be received or paid in the future exists and these estimates are about equally likely,
then the less optimistic amount is used.
The carrying (book) value of a bond at the time when it is issued is always equal to its
par value.
When an investor company owns more than 25% of the voting stock of an investee
company, it has a controlling influence.
Capital budgeting is the process of analyzing alternative long-term investments and
deciding which assets to acquire or sell.
Inadequacy refers to the insufficient capacity of a company’s plant assets to meet the
company’s growing productive demands.
Cancelled checks are checks the bank has paid and deducted from the customer’s
account during the period.
Subsidiary ledgers are not needed in perpetual inventory systems because the
accounting system captures sufficient details to support analyses that decision makers
need.
Anheiser-Busch reported average total assets of $10,965 million and net sales of
$11,430 million. Its total asset turnover equals .96.
The file of job cost sheets for completed but undelivered jobs equals the balance in the
Goods in Process Inventory account.
On a spreadsheet used to prepare the operating section of the statement of cash flows,
depreciation expense does not require an entry in the Analysis of Changes columns
because it is a noncash item.
The debt-to-equity ratio enables financial statement users to assess the risk of a
company’s financing structure.
Profit margin measures the relation of debt to assets.
Adjusting entries are made after the preparation of financial statements.
A firm produces and sells two products, Mica and Plax. The following information is
available relating to setup costs (a part of factory overhead):
With traditional two-stage allocation of overhead costs, using direct labor hours as the
allocation base, the setup cost portion of overhead that is allocated to each unit of
product is:
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
A company purchased new computers at a cost of $14,000 on September 30, 2010. The
computers are estimated to have a useful life of 4 years and a salvage value of $2,000.
The company uses the straight-line method of depreciation. How much depreciation
expense will be recorded for the computers for the year ended December 31, 2010?
A.$250
B.$750
C.$875
D.$1,000
E.$3,000
A merchandising company:
A.Earns net income by buying and selling merchandise.
B.Receives fees only in exchange for services.
C.Earns profit from commissions only.
D.Earns profit from fares only.
E.Buys products from consumers.
Reversing entries:
A.Are optional.
B.Are mandatory.
C.Correct errors in journal entries.
D.Are required by GAAP.
E.Are prepared on the worksheet.
A debit memorandum is:
A.Required whenever a journal entry is recorded.
B.The source document for the purchase of merchandise inventory.
C.Required when a purchase discount is granted.
D.The document a buyer issues to inform the seller of a debit made to the seller’s
account in the buyer’s records.
E.Not necessary in a perpetual inventory system.
A company sold a machine that originally cost $100,000 for $60,000 cash. The
accumulated depreciation on the machine was $40,000. The company should recognize
a:
A.$0 gain or loss.
B.$20,000 gain.
C.$20,000 loss.
D.$40,000 loss.
E.$60,000 gain.
The party that has the right to exercise the call option on callable bonds is(are):
A.The bondholders.
B.The bond issuer.
C.The bond indenture.
D.The bond trustee.
E.The bond underwriter.
On December 31 of the current year, a company’s unadjusted trial balance included the
following: Accounts Receivable, debit balance of $97,250; Allowance for Doubtful
Accounts, credit balance of $951. What amount should be debited to Bad Debts
Expense, assuming 6% of outstanding accounts receivable at the end of the current year
will be uncollectible?
A.$ 951.
B.$3,992.
C.$4,884.
D.$5,835.
E.$6,786.
Harrow Co. is a multi-million business. The business results for the year have been
seriously impacted by a slowing economy. The company wants to improve its net
income. It has incurred $2,500,000 in unpaid salaries at the end of the year and wants to
leave those amounts unrecorded at the end of the year. (a) How would this omission
affect the financial statements of Harrow? (b) Which accrual basis of accounting
principles does this omission violate? (c) Would this be considered an ethical problem?
Responsibility account performance reports:
A.Become more detailed at higher levels of management.
B.Become less detailed at higher levels of management.
C.Are equally detailed at all levels of management.
D.Are useful in any format.
E.Are irrelevant.
A company had the following accounts and balances year-end:
If all of the accounts have normal balances, what are the totals for the trial balance?
A.$ 45,200.
B.$ 67,000.
C.$104,800.
D.$209,600.
E.$186,600.
A company reported the following information regarding its inventory.
Beginning inventory: cost is $70,000; retail is $130,000
Net purchases: cost is $65,000; retail is $120,000
Sales at retail: $145,000
The year-end inventory showed $105,000 worth of merchandise available at retail
prices. What is the cost of the ending inventory?
A.$ 48,300.
B.$ 56,700.
C.$ 56,441.
D.$ 78,300.
E.$105,000.
A company’s history indicates that 20% of its sales are for cash and the rest are on
credit. Collections on credit sales are 30% in the month of the sale, 50% in the next
month, and 15% the following month. Projected sales for January, February, and March
are $60,000, $85,000 and $95,000, respectively. The March expected cash receipts from
all current and prior credit sales is:
A.$57,000
B.$63,080
C.$64,000
D.$80,750
E.$90,250
A properly designed internal control system:
A.Lowers the company’s risk of loss.
B.Insures profitable operations.
C.Eliminates the need for an audit.
D.Requires the use of non-computerized systems.
E.Is not necessary if the company uses a computerized system.
An expense that does not require allocation between departments is a(n):
A.Common expense.
B.Indirect expense.
C.Direct expense.
D.Administrative expense.
E.All of these.
Identify the financial analysis building block most appropriately associated with each
ratio listed below by placing the letter of the building block a through d beside each
ratio 1 through 10. Each building block may be used more than once.
(a) Liquidity and Efficiency
(b) Solvency
(c) Profitability
(d) Market Prospects
1) Return on Total Assets
2) Accounts Receivable Turnover
3) Dividend Yield
4) Times Interest Earned
5) Days’ Sales in Inventory
6) Basic Earnings per Share
7) Inventory Turnover
8) Equity Ratio
9) Price Earnings Ratio
10) Debt Ratio
A buyer failed to take advantage of the vendor’s credit terms of 2/15, n/45, but instead
paid the invoice in full at the end of 60 days. By not taking advantage of the cash
discount, the buyer lost the equivalent of ____________ annual interest on the amount
of the purchase.
A.12.2%
B.16.2%
C.18.9%
D.24.3%
E.24.5%
Stocks that pay relatively large cash dividends on a regular basis are called:
A.Small capital stocks.
B.Mid capital stocks.
C.Growth stocks.
D.Large capital stocks.
E.Income stocks.
If assets are $365,000 and equity is $120,000, then liabilities are:
A.$120,000.
B.$245,000.
C.$365,000.
D.$485,000.
E.$610,000.
Determine the net income of a company for which the following information is
available for the month of May.
A.$190,000.
B.$210,000.
C.$230,000.
D.$400,000.
E.$610,000.
A company issued 5-year, 7% bonds with a par value of $100,000. The market rate
when the bonds were issued was 6.5%. The company received $101,137 cash for the
bonds. Using the straight-line method, the amount of recorded interest expense for the
first semiannual interest period is:
A.$3,386.30.
B.$3,500.00.
C.$3,613,70.
D.$6,633.70.
E.$7,000.00.
A list of all the accounts in the accounts receivable ledger with their balances and the
total is a(n):
A.Schedule of accounts.
B.Controlling account.
C.Schedule of accounts receivable.
D.Subsidiary ledger.
E.Special journal.
The following is a list of selected users of accounting information. Match the
appropriate user to the following information needs.
1)Production Managers
2)Lenders
3)Suppliers
4)Employees
5)Shareholders
A)Judge the soundness of a customer before making sales on credit.
B) Measuring risk and return of loans.
C) Assessing the risk and return of acquiring shares.
D)Monitor costs and ensure quality.
E)Assessing employment opportunities.
The use of an Accounts Payable controlling account:
A.Reduces the number of accounts in the subsidiary ledger.
B.Reduces the total number of accounts maintained.
C.Reduces the number of entries in the general journals.
D.Reduces the number of accounts in the general ledger.
E.Increases the number of columns in the journals.
A company manufactures and sells a product for $120 per unit. The company’s fixed
costs are $68,760, and its variable costs are $90 per unit. The company’s break-even
point in dollars is:
A.$91,680.
B.$68,760.
C.$2,292.
D.$275,040.
E.$206,280.
The maturity date of a note receivable:
A.Is the day of the credit sale.
B.Is the day the note was signed.
C.Is the day the note is due to be paid.
D.Is the date of the first payment.
E.Is the last day of the month.
In the accounting records of a defendant, lawsuits:
A.Are estimated liabilities.
B.Should always be recorded.
C.Should always be disclosed.
D.Should be recorded if payment for damages is probable and the amount can be
reasonably estimated.
E.Should never be recorded.
Xtreme Sports has $100,000 of 8% noncumulative, nonparticipating, preferred stock
outstanding. Xtreme Sports also has $500,000 of common stock outstanding. In the
company’s first year of operation, no dividends were paid. During the second year,
Xtreme Sports paid cash dividends of $30,000. This dividend should be distributed as
follows:
A.$8,000 preferred; $22,000 common.
B.$16,000 preferred; $14,000 common.
C.$7,500 preferred; $22,500 common.
D.$15,000 preferred; $15,000 common.
E.$0 preferred; $30,000 common.
Which of the following budgets is not an operating budget?
A.Sales budget.
B.Cash budget.
C.General and administrative expense budget.
D.Selling expenses budget.
E.Merchandise purchases.
A company has bonds outstanding with a par value of $100,000. The unamortized
discount on these bonds is $4,500. The company retired these bonds by buying them on
the open market at 97. What is the gain or loss on this retirement?
A.$0 gain or loss.
B.$1,500 gain.
C.$1,500 loss.
D.$3,000 gain.
E.$3,000 loss.
A current ratio of 2.1 suggests that a company has ____________ current assets to
cover current liabilities.
_________________________ are capital expenditures that make a plant asset more
productive; they often involve adding a component to an asset or replacing one of its
old components with a better one, and do not always increase an asset’s life.
Unearned revenues are amounts received _______________ for future products or
services.
Sarbanes Oxley (SOX) demands that companies safeguard inventory and properly
report it. List methods that companies should use to safeguard inventory and accounting
procedures that should be used to properly report inventory.
Flash reported net income of $17,500 for the past year. At the beginning of the year the
company had $200,000 in assets. By the end of the year, assets had increased to
$300,000. Calculate the return on assets.
Long-term investments in held-to-maturity debt securities are accounted for using the
___________________________.
Myrex Corporation purchased $4,000 in merchandise from TechCom. Myrex signed a
60-day, 10%, $4,000 promissory note. TechCom should record the sale with a journal
entry debiting ____________________ for $ ________ and crediting
__________________ for $ ________.
Fleming Company had the following results of operations for the past year:
A foreign company (whose sales will not affect Fleming’s regular sales) offers to buy
2,000 units at $5.00 per unit. In addition to variable manufacturing costs, there would
be shipping costs of $1,200 in total on these units. Should Fleming take this order?
Explain.
Rockport Company reports the following in millions: net sales of $25,355 for 2009 and
$22,340 for 2008; end-of-year total assets of $15,875 for 2009 and $13,860 for 2008.
Compute its total asset turnover for 2009 and assess its level if competitors average a
total asset turnover of 2.0 times.
What is the main difference between a cost center and a profit center?
Describe the difference between wholesalers and retailers.
Explain (in detail) how to compute each of the following depreciation methods:
straight-line, units-of-production, and double-declining-balance.