Successful use of a just-in-time inventory system can narrow the gap between the
acid-test and the current ratio.
According to the cost principle, it is preferable for managers to report an estimate of an
asset’s value.
The equity method with consolidation is used in accounting for long-term investments
in equity securities with controlling influence.
Delivery expense can also be called transportation-out or freight-out.
Under LIFO, the most recent costs are assigned to ending inventory.
In a periodic inventory system, cost of goods sold is recorded as each sale occurs.
To streamline a voucher system, procedures for purchasing, receiving, and paying for
merchandise can be performed by one department or individual.
A partnership is a business owned by two or more people.
When evaluating the days’ sales uncollected ratio, generally the less time that money is
tied up in receivables often translates into increased profitability.
The Income Summary account is used to close the permanent accounts at the end of an
accounting period.
Internal operating activities include research and development, distribution, and human
resources.
Although a fixed budget is only useful over the relevant range of operations, a flexible
budget is useful over all possible production levels.
The main limitation in using book value per share for stock valuation models is the
potential difference between recorded value and market value for both assets and
liabilities.
A materials consumption report is a source document that summarizes the materials
used during a reporting period.
Reversing entries adjust the accrued assets and accrued liabilities that were created by
adjusting entries at the end of the prior accounting period.
The decision to accept additional business should be based on a comparison of the
incremental (differential) costs of the added production with the additional revenues to
be received.
If cost variances are material, they should always be closed directly to Cost of Goods
Sold.
One purpose of financial statement analysis for internal users is to provide information
helpful in improving the company’s efficiency and effectiveness in providing products
and services.
If all columns balance upon completion of a work sheet, you can be sure that no errors
were made in preparing the work sheet.
The manufacturing budget shows only the direct materials needed for production.
A basic present value concept is that cash received in the future is worth more value
than the same amount of cash received today.
Interest expense on bonds is not tax deductible.
The usual third closing entry is to close Owner’s Capital to the Owner’s Withdrawals
account.
A limited liability company offers the limited liability of a partnership or proprietorship
and the tax treatment of a corporation.
A call provision in a bond indenture gives the issuing company an option to call the
bonds before they mature by paying the par value plus a call premium to the
bondholders.
An internal control system refers to the policies and procedures companies use to
protect assets, ensure reliable accounting, promote efficient operations, and urge
adherence to company policies.
A flexible budget expresses all costs on a per unit basis.
Under a job order cost accounting system, individual jobs are always charged with
actual overhead costs when they are transferred to finished goods.
Comprehensive income refers to all changes in equity in a period except those due to
investments and distributions to income.
For good internal control over cash, all payments should be made from the petty cash,
except for very large payments.
A stock dividend decreases the market price of the company’s stock.
Sales of $350,000 and net sales of $323,000 could reflect sales discounts of $27,000.
A customer’s promise to pay is called an account payable to the seller.
Callable bonds reduce the bondholder’s risk by requiring the issuer to create a sinking
fund of assets set aside at specified amounts and dates to repay the bonds at maturity.
A financial statement analysis report helps to reduce uncertainty in business decisions
through a rigorous and sound evaluation.
Identifying the proper ethical path is easy.
A maker who dishonors a note is one who does not pay it at maturity.
Installment accounts receivable are classified as current assets, even though the
installment period is more than one year, if the seller regularly offers customers such
terms
A company’s fiscal year must correspond with the calendar year.
A voucher system is a series of prescribed control procedures:
A.Designed to eliminate the need for subsidiary ledgers.
B.Designed to determine if the company is operating profitably.
C.Used almost exclusively by small companies.
D.Used to ensure that the company sells on credit only to creditworthy customers.
E.Designed to control cash disbursements and the acceptance of obligations.
Which of the following statements is true about assets?
A.They are economic resources owned or controlled by the business.
B.They are expected to provide future benefits to the business.
C.They appear on the balance sheet.
D.Claims on them can be shared between creditors and owners.
E.All of these.
An activity-based cost allocation system:
A.Is one form of a direct or variable costing system.
B.Does not provide total unit cost data.
C.Traces costs to products on the basis of activities performed on them.
D.Does not provide for the allocation of any cost to products that cannot be directly
attributable to those products.
E.Does not involve the level of detail and the number of allocations that companies
make with traditional allocation methods.
A 10-column spreadsheet used to draft a company’s unadjusted trial balance, adjusting
entries, adjusted trial balance, and financial statements, and which is an optional tool in
the accounting process is a(n) :
A.Adjusted trial balance.
B.Work sheet.
C.Post-closing trial balance.
D.Unadjusted trial balance.
E.General ledger.
Cost accounting systems used by manufacturing companies are based on the:
A.Periodic inventory system.
B.Perpetual inventory system.
C.Finished goods inventories.
D.Weighted average inventories.
E.LIFO inventory system.
A company’s normal operating range, which excludes extremely high and low volumes
that are not likely to occur, is called the:
A.Margin of safety.
B.Contribution range.
C.Break-even point.
D.Relevant range.
E.High-low point.
A business segment:
A.Requires only internal reporting.
B.Is a part of a company that is separately identified by its products, services, or
geographic market.
C.Requires special journals.
D.Requires subsidiary ledgers.
E.Cannot report its results separately.
Corporations often buy back their own stock:
A.To avoid a hostile take-over.
B.To have shares available for a merger or acquisition.
C.To have shares available for employee compensation.
D.To maintain market value for the company stock.
E.All of these.
A company has 1,000 shares of $100 par preferred stock. It also has 25,000 shares of
common stock outstanding, and its total stockholders’ equity equals $500,000. The book
value per common share is:
A.$ 15.38.
B.$ 16.00.
C.$ 19.23.
D.$ 20.00.
E.$100.00.
A company purchased a rope braiding machine for $190,000. The machine has a useful
life of 8 years and a residual value of $10,000. It is estimated that the machine could
produce 750,000 units of climbing rope over its useful life. In the first year, 105,000
units were produced. In the second year, production increased to 109,000 units. Using
the units-of-production method, what is the amount of depreciation that should be
recorded for the second year?
A.$25,200.
B.$26,160.
C.$26,660.
D.$27,613.
E.$53,160.
Scottie is the manager of an investment center within Hamilton Company. Using the
information below, calculate (a) return on total assets and (b) investment center residual
income.
Intangible assets include:
A.Patents.
B.Copyrights.
C.Trademarks.
D.Goodwill.
E.All of these.
The current period’s ending inventory is:
A.The next period’s beginning inventory.
B.The current period’s cost of goods sold.
C.The prior period’s beginning inventory.
D.The current period’s net purchases.
E.The current period’s beginning inventory.
The ability to generate positive market expectations is called:
A.Liquidity and efficiency.
B.Liquidity and solvency.
C.Profitability.
D.Market prospects.
E.Creditworthiness.
On January 1 of the current year, Bob’s Lawn Care Service reported owner’s capital
totaling $122,500. During the current year, total revenues were $96,000 while total
expenses were $85,500. Also, during the current year Bob withdrew $20,000 from the
company. No other changes in equity occurred during the year. If, on December 31 of
the current year, total assets are $196,000, the change in owner’s capital during the year
was:
A.A decrease of $9,500.
B.An increase of $9,500.
C.An increase of $30,500.
D.A decrease of $30,500
E.Impossible to determine from the information provided.
Hamilton Company owns 51,000 of Hennie Company’s 100,000 outstanding shares of
common stock. Hennie Company pays $25,000 in total cash dividends to its
shareholders. Hamilton’s entry to record this transaction should include a:
A.Debit to Dividend Revenue for $12,750.
B.Debit to Interest Revenue for $12,750
C.Credit to Long”Term investments for $12,750.
D.Credit to Long”Term Investments for $25,000.
E.Credit to Dividend Revenue for $25,000.
Gotham Company reported a December 31 ending inventory balance of $412,000. The
following additional information is also available:
The ending inventory balance of $412,000 included $72,000 of consigned inventory for
which Gotham was the consignor.
The ending inventory balance of $412,000 included $22,000 of office supplies that were
stored in the warehouse and were to be used by the company’s supervisors and
managers during the coming year.
The ending inventory balance of $412,000 did not include goods costing $48,000 that
were purchased by Gotham on December 28 and shipped FOB destination on that date.
Gotham did not receive the goods until January 2 of the following year.
The ending inventory balance of $412,000 included damaged goods at their original
cost of $38,000. The net realizable value of the damaged goods was $10,000.
The ending inventory balance of $412,000 included $43,000 of consigned inventory for
which Gotham was the consignee.
Based on this information, the correct balance for ending inventory on December 31 is:
A.$247,000
B.$341,000
C.$362,000
D.$309,000
E.$319,000
Intracompany standards for financial statement analysis:
A.Are often based on a company’s prior performance.
B.Are often set by competitors.
C.Are set by the company’s industry.
D.Are based on rules of thumb.
E.Are published in Dun and Bradstreet.
The deferred income tax liability:
A.Represents income tax payments that are deferred until future years because of
temporary differences between GAAP rules and tax accounting rules.
B.Is a contingent liability.
C.Can result in a deferred income tax asset.
D.Is never recorded.
E.Is recorded whether or not the difference between taxable income and financial
accounting income is permanent or temporary.
A company’s balance sheet shows: cash $22,000, accounts receivable $16,000, office
equipment $50,000, and accounts payable $17,000. What is the amount of owner’s
equity?
A.$17,000.
B.$29,000.
C.$71,000.
D.$88,000.
E.$105,000.
The market value of a bond is equal to:
A.The present value of all future cash payments provided by a bond.
B.The present value of all future interest payments provided by a bond.
C.The present value of the principal for an interest-bearing bond.
D.The future value of all future cash payments provided by a bond.
E.The future value of all future interest payments provided by a bond.
After preparing and posting the closing entries to close revenues (and gains) and
expenses (and losses) into the income summary, the income summary account has a
debit balance of $33,000. The entry to close the income summary account will include:
A.a debit of $33,000 to owner withdrawals.
B.a credit of $33,000 to owner withdrawals.
C.a debit of $33,000 to income summary.
D.a debit of $33,000 to owner capital.
E.a credit of $33,000 to owner capital.
Outback Products reports the following information:
Required:
(a) Calculate Outback Products’ degree of operating leverage (DOL).
(b) Outback Products forecasts a 6% increase in sales. What is the expected effect in
percent on pretax income?
A company purchased a cash register on January 1 for $5,400. This register has a useful
life of 10 years and a salvage value of $400. What would be the depreciation expense
for the second-year of its useful life using the double-declining-balance method?
A.$ 500.
B.$ 800.
C.$ 864.
D.$1,000.
E.$1,080.
A company rents a building with a total of 100,000 square feet, which are evenly
divided between two floors. The space on the first floor is considered twice as valuable
as that on the second floor. The total monthly rent for the building is $30,000. How
much of the monthly rental expense should be allocated to a department that occupies
10,000 square feet on the first floor?
A.$6,000.
B.$5,000.
C.$3,000.
D.$4,000.
E.$2,000.
A liability created by the receipt of cash from customers in payment for products or
services that have not yet been delivered to the customers is:
A.Recorded as a debit to an unearned revenue account.
B.Recorded as a debit to a prepaid expense account.
C.Recorded as a credit to an unearned revenue account.
D.Recorded as a credit to a prepaid expense account.
E.Not recorded in the accounting records until the earnings process is complete.
Dell had net sales of $35,404 million. Its average total assets for the period were
$14,502 million. Dell’s total asset turnover equals:
A.0.40.
B.0.35.
C.1.45.
D.2.44.
E.3.50.
Consolidated financial statements:
A.Show the results of operations, cash flows, and the financial position of all entities
under a parent’s control.
B.Show the results of operations, cash flows, and the financial position of the parent
only.
C.Show the results of operations, cash flows, and the financial position of the
subsidiary only.
D.Include the investments account on the balance sheet.
E.Do not include a balance sheet.
Foreign exchange rates fluctuate due to changes in :
A.Political conditions.
B.Economic conditions.
C.Supply and demand for currencies.
D.Expectations of future events.
E.All of these.
If overhead applied is less than actual overhead, it is:
A.Fully applied.
B.Underapplied.
C.Overapplied.
D.Expected.
E.Normal.
A partnership:
A.Is also called a sole proprietorship.
B.Has unlimited liability.
C.Has to have a written agreement in order to be legal.
D.Is a legal organization separate from its owners.
E.Has owners called shareholders.
Which of the following represents the correct formula for calculating cycle time for a
manufacturer?
A.Process time + inspection time – move time – wait time.
B.Process time – inspection time + move time + wait time.
C.Process time + inspection time + move time + wait time.
D.Process time – inspection time – move time – wait time.
E.Process time + inspection time + move time – wait time.
Discuss the relation between risk and return.
Identify the users and uses of accounting information.
Process manufacturing, also called process operations or process production, is the
___________ production of products in a _____________________ flow of steps.
The journal entry to record distribution of a cash dividend to common shareholders
includes a debit to _______________________ and a credit to __________.
Burien, Inc., operates a retail store with two departments, A and B. Its departmental
income statement for the current year follows:
Burien allocates building depreciation, maintenance, and utilities on the basis of square
footage. Office expenses are allocated on the basis of sales.
Management is considering an expansion to a three-department operation. The
proposed Department C would generate $120,000 in additional sales and have a 17.5%
contribution to overhead. The company owns its building. Opening Department C
would redistribute the square footage to each department as follows: A, 19,040; B,
21,760 sq. ft.; C, 13,600. Increases in indirect expenses would include: maintenance,
$500; utilities, $3,800; and office expenses, $1,200.
Complete the following departmental income statements, showing projected results of
operations for the three sales departments. (Round amounts to the nearest whole dollar.)
__________ allowances are items that reduce the amount of federal income taxes owed
by the individual.
A relatively new form of business organization that protects partners with limited
liability, allows limited partners to assume an active management role, and is taxed as a
partnership is a ______________________________
Describe the posting process for special journals.
Explain the debt ratio and its use in analyzing a company’s financial condition.
Thomas Co. produces and sells Ultra, Super, and Mega, and has total fixed costs of
$52,000. Sales and cost data follow:
Calculate the break-even point in composite units.
The _______________________________ is computed by discounting the future net
cash flows from the investment at the project’s required rate of return and then
subtracting the initial amount invested.
The following information is available for the McCartney Corporation:
Calculate the company’s inventory turnover and its days’ sales in inventory.
During the accounting period, the assets of a business increased $64,000 and liabilities
decreased $17,000; consequently, equity in the business must have
__________________ (increased, decreased) $__________________________.
A corporation is responsible for its own acts and debts. This is because a corporation is
considered a ____________________________________.
What is the impact of the adjusting entries on the balance sheet? Show calculation for
total assets, total liabilities, and owner’s equity without the adjustments; show
calculation for total assets, total liabilities, and owner’s equity with the adjustments.
Which one gives the most accurate presentation of the balance sheet?
___________________________ implies that each partner in a partnership can be
called on to pay a partnership’s debts.
A document that gives a designated agent the right to vote a stockholder’s stock is called
a _______________.
____________________ inventory consists of completed products ready for sale by a
manufacturer.