1) Matching. Select the term from the list provided that best matches each of the
following descriptions. The first is done for you.
2) Indicate whether each of the following statements about decentralization is true or
false.
1>Investment centers tend to appear in the upper levels of a company’s organization
chart
2>Managers of investment centers are accountable for assets, liabilities, and earnings
3>Decentralization of an organization means that the organization has operations in
many different places
4>Decentralization means delegating authority to managers and holding them
responsible for their performance
5>Decentralization allows local managers to make more decisions
3) Indicate whether each of the following statements is true or false.
1>Accounts payable is classified as a current asset
2>Accounts receivable is classified as a current asset
3>A current asset will be converted into cash or consumed within one year or an
operating cycle
4>Prepaid insurance is a current liability
5>The receipt of a customer’s advance payment for a service to be performed during the
next three months is a current liability
4) Indicate whether each of the following statements about management practice is true
or false.
1>Maintaining too much inventory is a non-value-added activity
2>Inventory holding costs include warehousing costs, theft, and obsolescence
3>Just in time is not applicable or useful for a merchandising business
4>A just-in-time system can lead to increased customer satisfaction
5>Just in time systems primarily relate to controlling downstream costs
5) What are profit centers? How should the manager of a profit center be evaluated?
6) What is a financial statement audit?
7) Indicate how each event affects the elements of financial statements. Use the
following letters to record your answer in the box shown below each element. You do
not need to enter amounts. Assume use of a perpetual inventory system.
Youkilis Co. sold merchandise to a customer for $2,400 cash. The merchandise had
originally cost Youkilis $1,800. Show how the transaction would affect Youkilis’s
financial statements.
8) Bob’s Food Stop is considering installing video games in its stores. The machines
cost $350,000 and have an estimated seven-year useful life. Ignore income taxes. The
following projected income statement is provided:
Required:
Bob’s Food Stop’s target unadjusted rate of return is 12%. Compute the unadjusted rate
of return on the original investment. Would you recommend that the machines be
purchased? Why or why not?
9) Indicate whether each of the following statements is true or false.
1>The primary objective of accounting is to provide information that is stable over time
2>Financial statement ratios permit comparisons over time and among different
companies
3>Current accounting principles indicate that financial statements should be prepared to
meet information needs of those who have a reasonably informed knowledge of
business
4>Financial statements are aimed at the information needs of stockholders only
5>Knowledge of financial statement analysis techniques is useful to stockholders and
creditors but not to the managers of a business