1) A company’s ability to issue unsecured debt depends on its credit standing.
2) A merchandising company’s operating cycle begins with the sale of merchandise and
ends with the collection of cash from the sale.
3) If a bond’s interest period does not coincide with the issuing company’s accounting
period, an adjusting entry is necessary to recognize bond interest expense accruing
since the most recent interest payment.
4) The master budget is a small component of the comprehensive budget.
5) A company has $424,000 in total stockholders’ equity. The company has no preferred
stock and has 40,000 common shares outstanding. Its book value per share is $10.60.
6) Depreciation is higher and income is lower in the short run when using accelerated
versus straight-line methods.
7) Within the same budget performance report, it is impossible to have both favorable
and unfavorable variances.
8) The present value of $2,000 to be received nine years from today at 8% interest
compounded annually is $1,000.
9) A process cost accounting system records all factory overhead costs directly in the
Goods in Process Inventory accounts.
10) The accrual basis of accounting recognizes expenses when cash is paid.
11) Payments on installment notes normally include accrued interest plus a portion of
the principal amount borrowed.
12) Multinational corporations can be U.S. companies with operations in other
countries.
13) The indirect method separately lists each major item of operating cash receipts and
cash payments.
14) The choice of an inventory valuation method can have a major impact on gross
profit and cost of sales.
15) Accrued expenses reflect transactions where cash is paid before a related expense is
recognized.
16) A high merit rating means that an employer has high employee turnover or seasonal
hiring.
17) cash equivalent F. Certified check
7>cash G. Cashier’s check
8>cash equivalent H. Money market accounts
9>cash I. Money orders
10>cash J. U.S. treasury bills
18) The following costs are incurred by Estes Manufacturing Co. Classify each cost
item as either a period cost or a product cost. If the cost is a product cost, identify it as a
prime and/or conversion cost.
19) A company had net income of $450,000 in Year 1 and $620,000 in Year 2. The
company had average total assets of $2,500,000 in Year 1 and $3,000,000 in Year 2.
Calculate the return on total assets for Year 1and Year 2. Comment on the results, did
the company’s performance improve?
20) Identify the users and uses of accounting information.
21) Peters, Inc. sells a single product and reports the following results from sales of
100,000 units:
A foreign company wants to purchase 15,000 units. However, they are willing to pay
only $36 per unit for this one-time order. They also agree to pay all freight costs. To fill
the order, Peters will incur normal production costs. Total fixed overhead will have to
be increased by $60,000 to pay for equipment rentals and insurance. No additional
administrative costs (variable or fixed) will be incurred in association with this special
order.
Required:
(1) Should Peters accept the order if it does not affect regular sales? Explain.
(2) Assume that Peters can accept the special order only by giving up 5,000 units of its
normal sales. Should Peters accept the special order under these circumstances?
22) A main purpose of the statement of cash flows is to report all the major cash
________ and cash _____________.
23) Use the following income statement and information about selected current assets
and current liabilities to calculate the net cash provided or used by operating activities
using the direct method.
Selected beginning and ending balances of current asset and current liability accounts,
all of which relate to operating activities, are as follows:
