A commitment is a legal obligation that meets the technical requirements for recognition
as a liability.
The interest coverage ratio and the debt to equity ratio are measures of profitability.
The purpose of establishing a desired rate of return on investment is to set a point above
which the best alternative will be considered acceptable.
When earnings from the investment exceed the interest payments on an investment,
negative financial leverage has occurred.
Which of the following is TRUE of the engineering method of separating costs?
A.It is generally used to estimate the cost of activities and new products.
B.It is sometimes called a time and motion study.
C.It separates costs by performing a step-by-step analysis of various elements involved.
D.All of these choices are correct.
Both the number of entries and the number of ledger accounts decrease when you
change to a backflush costing system.
When a company can prove it is worth more than its balance sheet indicates, it may
record some goodwill.
In a liquidation, partners are given back the assets that they originally invested.
Interest paid on bonds payable would be included in the financing activities category on
the statement of cash flows.
Interest on a promissory note is recognized when the note is issued.
Once an owner of convertible preferred stock has converted to common, he or she
cannot convert back to preferred.
The higher the value assigned to ending inventory, the lower the gross margin.
A just-in-time philosophy seeks to maximize inventories.
While measuring performance, managers must be able to distinguish between what is
being measured and the actual measures used to monitor performance and compare
results.
A just-in-time operation seeks to eliminate all product support functions.
The par value of treasury stock is deducted from total Contributed Capital and Retained
Earnings in determining total stockholders’ equity.
A manager can improve EVA by
A.decreasing assets.
B.increasing tax expense.
C.increasing cost of capital.
D.decreasing current liabilities.
Explain why each of the following persons or groups would be interested in seeing the
financial statements of a company. Also state whether each has a direct or indirect
financial interest.
a. Potential investor
b. Internal Revenue Service
c. A labor union
d. Securities and Exchange Commission
e. Potential creditor
f. Management
g. Economic planners
Which of the following items is not classified as a natural resource?
A.Timberland
B.A gas reserve
C.An oil well
D.Goodwill
When a statement of cash flows is prepared using the indirect method,
A.net income is the starting point in determining cash flows from operations.
B.cash paid for dividends is not included.
C.the increase in cash is different than when the direct method is used.
D.the amount of cash collected from customers is calculated.
The performance of Steve, the manager of Center B, is evaluated the end of every
month, by comparing the amount spent on manufacturing overhead with the budgets
prepared at the beginning of the month. What type of responsibility center is Center B?
A.Cost center
B.Discretionary cost center
C.Profit center
D.Revenue center
Use this information to answer the following question.
A periodic inventory system is used.
Cost of goods sold under FIFO is
A.$429.
B.$426.
C.$452.
D.$237.
Chad has been making skateboards for his friends and now has more orders than he can
handle. He has decided to turn the business into a full-time venture and plans to develop
the company into a Fortune 500 company. However, he does not have enough cash and
has decided to apply for a Small Business Administration loan. The loan officer
informed him that she will need to see projected financial statements with supporting
schedules for the next 12 months of operations.
a. Identify the financial statements and supporting schedules you believe are
appropriate.
b. What information will you need to include in the budgeted financial statements, and
where will you get this information?
Which of the following is necessary for computing cost of goods sold but not necessary
for computing the cost of goods available for sale?
A.Freight-in
B.Purchases
C.Ending merchandise inventory
D.Beginning merchandise inventory
Days’ payable is a measure of
A.liquidity.
B.volatility.
C.long-term solvency.
D.profitability.
The controller for Tires and More, Inc. has recorded the following transactions during
the month: the owner established the business with a $20,000 investment on the 1st of
the month; the company recorded $36,000 of revenue for tires and services provided
during the month; and expenses of $22,000 were recorded for the month. Additionally,
on the last day of the month the owner withdrew $2,000 for personal expenses. What is
the balance of Owner’s Equity at the end of the month, and is the balance a debit or a
credit?
A.$32,000 debit.
B.$32,000 credit.
C.$18,000 credit.
D.$36,000 debit.
Which of the following assets could be described as nonphysical?
A.Inventory
B.Cash
C.Trademarks
D.Supplies
A limited partnership
A.allows some partners to limit their loss to the amount of his or her investment.
B.has an agreed-upon limited life.
C.is a corporation that U.S. tax laws treat as a partnership.
D.is a firm with a limited life that a company creates to achieve a specific objective,
such as raising money by selling receivables.
In a partnership liquidation,
A.creditors should be paid before partners
B.gains and losses on the sale of assets are allocated to the partners on the basis of their
current capital balances
C.the last entry credits the partners’ Capital accounts
D.the partners’ accounts are settled on the basis of the stated ratios
James Corporation’s controller has developed the cost and usage data listed below in
preparation of standard unit cost information for the coming year.
Using the above information provided for James Corporation, the standard unit cost for
direct labor is
A.$24.
B.$45.
C.$20.
D.$63.
Use this information to answer the following question.
The total dollar amount of assets to be classified as current assets is
A.$252,000.
B.$238,000.
C.$294,000.
D.$406,000.
Pearl Inc. incurred overhead costs of $65,000 in May, 2014. The overhead applied on
the basis of direct labor hours for May was $90,000. The company worked for 500
hours in the month. What is the predetermined overhead rate per direct labor hour?
A.$130 per direct labor hour
B.$180 per direct labor hour
C.$1.38 per direct labor hour
D.$500 per direct labor hour
Use this balance sheet and income statement to answer the following question. Use
ending balances whenever average balances are required for computing ratios.
The return on equity for National Textile is
A.40 percent.
B.67 percent.
C.47 percent.
D.32 percent.
The convention of consistency refers to consistent use of accounting principles
A.among firms.
B.within a given accounting period.
C.within industries.
D.among accounting periods.
Which of the following is a market strength ratio?
A.Return on equity
B.Dividend yield
C.Debt to equity ratio
D.Payables turnover
The par value of the common stock represents the
A.amount entered into the corporation’s Common Stock account when a share is issued.
B.liquidation value of the stock.
C.market value of a share of stock.
D.amount the corporation received when the stock was issued.
Which of the following accounts is classified as a short-term financial asset?
A.Office Supplies
B.Accounts Receivable
C.Equipment
D.Prepaid Insurance
Period costs are
A.charged against the revenue of the current period.
B.initially recognized on the balance sheet as inventory.
C.charged to the period in which the product generates revenue.
D.further classified as direct costs and indirect costs.
Comment on the change in both the carrying value and the balance of the Unamortized
Bond Premium account over the life of a bond issue.
The income statement account balances on December 31, 20×5, for Janice Company
appear below. In addition, beginning merchandise inventory was $3,000 and ending
merchandise inventory was $4,000. Prepare a 20×5 income statement for the company.
Why is process value analysis not part of the general ledger accounting system?
A company establishes a $200 petty cash fund. The fund is replenished in the amount of
$180, after petty cash vouchers of $80 for postage, $68 for donations, and $54 for meals
had accumulated. Was there a cash shortage, overage, or neither? (State amount if
overage or shortage.)
The following facts pertain to the stockholders’ equity section of the balance sheet of
Avenida Corporation:
During 20×5, Avenida declared and distributed a stock dividend. Also during 20×5,
Avenida declared and paid cash dividends of $17,000. There were no changes in the
number of shares of stock issued and outstanding during the period except for the
change caused by the stock dividend. Calculate the amount of net income reported by
Avenida for 20×5.
The following information relates to the number of common shares of the Swan
Corporation:
140,000 Authorized shares 60,000 Unissued shares 8,000 Treasury shares
Calculate the number of outstanding shares from the information given. Show your
calculations.
Total payroll for a given week is $34,000. If 70 percent of the company’s employees
typically qualify to receive two weeks’ paid vacation per year (50 weeks), the entry to
record estimated liability for vacation pay for the week is
Grace Corporation purchased treasury stock for $150,000. The journal entry to record
the transaction is:
President/CEO to her Controller:
Dina Corporation purchased plant assets for $60,000 cash. The journal entry to record
the transaction that correctly shows the outflow of cash is: