1) Under the periodic inventory system, the cost of merchandise sold is recorded when
sales are made.
2) The contribution margin ratio is the same as the profit-volume ratio.
3) Once an account has been closed for the period, inserting a line in the balance
columns zeros out the account, making it ready for the following period.
4) In applying the first-in, first-out method of costing inventories, if 8,000 units which
are 30% completed are in process at June 1, 28,000 units are completed during June,
and 4,000 units were 80% completed at June 30, the number of equivalent units of
production for June was 28,600.
5) The petty cash fund eliminates the need for a bank checking account.
6) Differential revenue is the amount of increase or decrease in revenue expected from a
particular course of action as compared with an alternative.
7) If the balance in Cash Short and Over at the end of a period is a credit, it indicates
that cash shortages have exceeded cash overages for the period.
8) Earnings per share amounts are only required to be presented for income from
continuing operations and net income on the face of the statement.
9) For years one through five, a proposed expenditure of $500,000 for a fixed asset with
a 5-year life has expected net income of $40,000, $35,000, $25,000, $25,000, and
$25,000, respectively, and net cash flows of $90,000, $85,000, $75,000, $75,000, and
$75,000, respectively. The cash payback period is 5 years.
10) Net income was $51,000 for the year. The accumulated depreciation balance
increased by $14,000 over the year. There were no sales of fixed assets or changes in
noncash current assets or liabilities. Under the indirect method, the cash flow from
operations is $37,000.
11) A check outstanding for two consecutive months will appear only on the first
month’s bank reconciliation.
12) Dollar amounts of working capital are difficult to assess when comparing
companies of different sizes or in comparing such amounts with industry figures.