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1) During periods of rapidly rising costs, the use of the LIFO method results in illusory
or inventory profits.
2) At the end of a period (before adjustment), Allowance for Doubtful Accounts has a
debit balance of $2,000. The Accounts Receivable balance is analyzed by aging the
accounts and the amount estimated to be uncollectible is $15,000. The amount to be
recorded in the adjusting entry for the bad debt expense is $15,000.
3) Use of a plantwide factory overhead rate assumes that the activities causing overhead
costs are the same across all departments and products.
4) Standards are designed to evaluate price and quantity variances separately.
5) The effects of differences in accounting methods are of little importance when
analyzing comparable data from competing businesses.
6) The trial balance may be listed on the work sheet instead of being prepared
separately.
7) If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is
$12,928, the semiannual straight-line amortization of the premium is $1,416.
8) The job order costing system is used by service firms to determine revenues,
expenses, and ultimately profit.
9) Eliminating a product or segment may have the long-term effect of reducing fixed
costs.
10) A budget performance report compares actual results with the budgeted amounts
and reports differences for possible investigation.
11) Conversion and direct materials are generally both added at the end of the
production process.
12) Gains and losses on the redemption of bonds are reported as other income or other
expense on the income statement.
13) Costs of failing to control quality include prevention costs and external failure
costs.
14) Repayments of bonds would be shown as a cash outflow in the investing section of
the statement of cash flows.
15) The underlying principle of allocating operating expenses to departments is to
assign to each department an amount of expense proportional to the revenues of that
department.
16) The plant managers in a cost center can be held responsible for major differences
between budgeted and actual costs in their plants.
