A capital expenditures budget is prepared before the operating budgets.
Goodwill is the amount by which a company’s value exceeds the value of its individual
assets and liabilities.
Analysis of a single financial item is important but is often of limited value.
Receivables can be used to obtain cash by either selling them or using them as security
for a loan.
Preparation of a trial balance is the first step in the analyzing and recording process.
A merchandising company’s operating cycle begins with the sale of merchandise and
ends with the collection of cash from the sale.
Credit sales are recorded by crediting an Accounts Receivable.
The closing process is a two-step process. First revenue, expense, and withdrawals are
set to a zero balance. Second, the process summarizes a period’s assets and expenses.
If a production department has 100 equivalent units of production with respect to direct
materials in a given reporting period, the equivalent units of production with respect to
direct labor also must be 100.
Cumulative preferred stock has a right to be paid both current and prior periods’ unpaid
dividends before any dividend is paid to common shareholders.
Present Value of 1
Future Value of 1
Present Value of an Annuity of 1
Future Value of an Annuity of 1
With deposits of $5,000 at the end of each year, you will have accumulated $38,578 at
the end of the sixth year if the annual rate of interest is 10%.
Cash and office supplies are both classified as current assets.
Decision makers and other users of financial statements are especially interested in
evaluating a company’s ability to use its assets in generating sales.
The evaluation of company performance and financial condition includes evaluation of
(1) past and current performance, (2) current financial position, and (3) future
performance and risk.
The relevant range of operations excludes extremely high and low levels of production
that are not likely to occur.
Trading securities, held-to-maturity debt securities, and equity securities giving an
investor significant influence over an investee are always considered short-term
investments.
Costs incurred during an accounting period but that are unpaid and unrecorded are
accrued expenses.
An error in the period-end inventory balance will cause an error in the calculation of
cost of goods sold.
Delivery expense is reported as part of general and administrative expense in the seller’s
income statement.
Maintaining adequate records is an important internal control principle.
Cash withdrawn by the owner of a proprietorship should be treated as an expense of the
business.
The revenue recognition principle is the basis for making adjusting entries that pertain
to unearned and accrued revenues.
Plant assets refer to intangible assets that are used in the operations of a business.
In a process cost accounting system, a department’s production should be measured in
terms of equivalent units when its beginning or ending inventory includes goods in
process.
Return on assets is also known as return on investment.
The present value of an annuity factor at 8% for 10 years is 6.7101. This implies that an
annuity of ten $15,000 payments at 8% yields a present value of $2,235.
The monetary unit assumption means that all international transactions must be
expressed in dollars.
If on January 1, 2009 a company paid $18,000 cash for one year of rent in advance and
adjusting entries are made at the end of each month, the balance of Prepaid Rent as of
December 1, 2009 should be $1,500.
Capital expenditures are also called balance sheet expenditures.
Traditional budgeting is generally better than activity-based budgeting when attempting
to reduce costs by eliminating nonvalue-added activities.
The Paid-in Capital, Treasury Stock account can have a zero or credit balance, but it
cannot have a debit balance.
The purchase of supplies appears on the statement of cash flows as an investing activity
because it involves the purchase of assets.
The full disclosure principle:
A.Requires that when a change in inventory valuation method is made, the notes to the
statements report the type of change, its justification and its effect on net income.
B.Requires that companies use the same accounting method for inventory valuation
period after period.
C.Is not subject to the materiality principle.
D.Is only applied to retailers.
E.Is also called the consistency principle.
An estimate of an asset’s value to the company, calculated by discounting the future
cash flows from the investment at an appropriate rate and then subtracting the initial
cost of the investment, is known as:
A.Annual net cash flows.
B.Rate of return on investment.
C.Net present value.
D.Payback period.
E.Unamortized carrying value.
When a partner is added to a partnership:
A.The previous partnership ends.
B.The underlying business operations end.
C.The underlying business operations must close and then re-open.
D.The partnership must continue.
E.The partnership equity always increases.
Medina Corp. uses the weighted average method for inventory costs and had the
following information available for the year:
Equivalent units of production for the year are:
A.3,200 units.
B.3,320 units.
C.3,240 units.
D.3,520 units.
E.3,800 units.
An income statement that includes cost of goods sold as another expense and shows
only one subtotal for total expenses is a:
A.Balanced income statement.
B.Single-step income statement.
C.Multiple-step income statement.
D.Combined income statement.
E.Simplified income statement.
Renee Jackson is a partner in Sports Promoters. Her beginning partnership capital
balance for the current year is $55,000, and her ending partnership capital balance for
the current year is $62,000. Her share of this year’s partnership income was $5,250.
What is her partner return on equity?
A.8.47%
B.8.97%
C.9.54%
D.1047%
E.1060%
Of the following errors, which one by itself will cause the trial balance to be out of
balance?
A.A $200 cash salary payment posted as a $200 debit to Cash and a $200 credit to
Salaries Expense.
B.A $100 cash receipt from a customer in payment of his account posted as a $100
debit to Cash and a $10 credit to Accounts Receivable.
C.A $75 cash receipt from a customer in payment of his account posted as a $75 debit
to Cash and a $75 credit to Cash.
D.A $50 cash purchase of office supplies posted as a $50 debit to Office Equipment and
a $50 credit to Cash.
E.An $800 prepayment from a customer for services to be rendered in the future was
posted as an $800 debit to Unearned Revenue and an $800 credit to Cash.
Cash equivalents:
A.Are short-term, highly liquid investment assets.
B.Include 6-month CDs.
C.Include checking accounts.
D.Are recorded in petty cash.
E.Include money orders.
Using the information presented in problem 160:
(a) Calculate the current ratio. Comment on the ability of Tom Janes Co. to meets its
short-term debts.
(b) Calculate the debt ratio and comment on the financial position and risk analysis of
Tom Janes Co.
(c) Using the account balances to analyze the financial position of Tom Janes Co., why
would the owner need to invest an additional $300,000 in the business when the
business is already profitable and the owner had an existing capital balance of
$320,000?
The Wage and Tax Statement is:
A.Form 940.
B.Form 941.
C.Form 1040
D.Form W-2.
E.Form W-4.
If the times interest ratio:
A.Increases, then risk increases.
B.Increases, then risk decreases.
C.Is greater than 1.5, then the company is in default.
D.Is less than 1.5, the company is carrying too little debt.
E.Is greater than 1.5, the company is likely carrying too much debt.
The operating functions of a business include:
A.Research and development.
B.Purchasing.
C.Marketing.
D.Distribution.
E.All of these.
Parker Plumbing has received a special one-time order for 1,500 faucets (units) at $5
per unit. Parker currently produces and sells 7,500 units at $6.00 each. This level
represents 75% of its capacity. Production costs for these units are $4.50 per unit, which
includes $3.00 variable cost and $1.50 fixed cost. To produce the special order, a new
machine needs to be purchased at a cost of $1,000 with a zero salvage value.
Management expects no other changes in costs as a result of the additional production.
Should the company accept the special order?
A.No, because additional production would exceed capacity.
B.No, because incremental costs exceed incremental revenue.
C.Yes, because incremental revenue exceeds incremental costs.
D.Yes, because incremental costs exceed incremental revenues.
E.No, because the incremental revenue is too low.
A debit to Sales Returns and Allowances and a credit to Accounts Receivable:
A.Reflects an increase in amount due from a customer.
B.Recognizes that a customer returned merchandise and/or received an allowance.
C.Requires a debit memorandum to recognize the customer’s return.
D.Is recorded when a customer takes a discount.
E.All of these.
Match the following definitions and terms by placing the letter that identifies the best
definition in the blank space next to the term.
a. Decrease in an asset and expense account, and increase in a liability, owner’s capital
and revenue account; recorded on the right side of a T-account.
b. A file containing all accounts of a company and their balances.
c. An accounting system where each transaction affects and is recorded in at least two
accounts; the sum of the debits for each entry must equal its credits.
d. A company’s record of each transaction in one place that shows debits and credits for
each transaction.
e. An increase in an asset and expense account, and decrease in a liability, owner’s
capital, and revenue account; recorded on the left side of a T-account.
f. A record of the increases and decreases in a specific asset, liability, equity, revenue, or
expense item.
g. A simple account form used as a helpful tool in showing the effects of transactions
and events on specific accounts.
h. Another name for the accounting books, or simply the books.
i. The process of transferring journal entry information to the ledger.
j. The sources of accounting information.
1)Posting
2) Source documents
3)Debit
4)Account
5) Ledger
6)T-account
7)Credit
8) Journal
9)Accounting records
10)Double-entry accounting
A trial balance prepared after the closing entries have been journalized and posted is
the:
A.Unadjusted trial balance.
B.Post-closing trial balance.
C.General ledger.
D.Adjusted trial balance.
E.Work sheet.
A trial balance prepared before any adjustments have been recorded is:
A.An adjusted trial balance.
B.Used to prepare financial statements.
C.An unadjusted trial balance.
D.Correct with respect to proper balance sheet and income statement amounts.
E.Only prepared once a year.
On March 15, Carter Company purchased 10,000 shares of Tonya Corp. stock for
$35,000. This investment is considered to be an available-for-sale investment. On June
30, the stock had a market value of $38,000. Carter must report:
A.The $3,000 difference on the income statement as a gain.
B.The $3,000 difference as an adjustment to the market value at year-end.
C.The $3,000 difference in the equity section of the balance sheet.
D.A & C
E.B & C
An investor purchased $75,000 Cort’s 8%, three-year bonds payable on April 1, 2008.
The bonds pay interest semiannually on June 1 and December 1. Cort plans to hold the
bonds until they mature. When the bonds mature, Cort should prepare the following
journal entry:
A.debit Long-Term Investments”HTM, $75,000; credit Cash, $75,000.
B.debit Cash, $6,000; credit, Unrealized Gain-Equity, $6,000.
C.debit Cash, $75,000; credit Long-Term InvestmentsHTM, $75,000.
D.debit Unrealized Gain-Equity, $6,000; credit Cash, $6,000.
E.debit Cash, $75,000; credit Long-Term InvestmentsAFS, $75,000.
The Cash Over and Short account:
A.Is used to record a credit balance in the cash account.
B.Is an income statement account used for recording the income effects of cash
overages and cash shortages from errors in making change and/or from errors in
processing petty cash transactions.
C.Is not necessary in a computerized accounting system.
D.Can never have a debit balance.
E.Can never have a credit balance.
Accounts payable appear on which of the following statements?
A.Balance sheet.
B.Income statement.
C.Statement of owner’s equity.
D.Statement of cash flows.
E.Transaction statement.
Contingent liabilities can be:
A.Probable.
B.Remote.
C.Reasonably possible.
D.Estimable.
E.All of these.
Acme-Jones Corporation uses a weighted-average perpetual inventory system.
August 2, 10 units were purchased at $12 per unit.
August 18, 15 units were purchased at $14 per unit.
August 29, 12 units were sold.
What was the amount of the cost of goods sold for this sale?
A.$148.00.
B.$150.50.
C.$158.40.
D.$210.00.
E.$330.00.
A decrease in the fair market value of a security that has not yet been realized through
an actual sale of the security is called a(n):
A.Contingent loss.
B.Realizable loss.
C.Unrealized loss.
D.Capitalized loss.
E.Market loss.
Electron borrowed $75,000 cash from TechCom by signing a promissory note.
TechCom’s entry to record the transaction should include a:
A.Debit to Notes Receivable for $75,000.
B.Debit to Accounts Receivable for $75,000.
C.Credit to Notes Receivable for $75,000.
D.Debit Notes Payable for $75,000.
E.Credit to Sales for $75,000.
The purchase of raw materials on account in a process costing system is recorded with
a:
A.Debit to Purchases and credit to Cash.
B.Debit to Purchases and a credit to Accounts Payable.
C.Debit to Raw Materials Inventory and a credit to Accounts Payable.
D.Debit to Accounts Payable and a credit to Raw Materials Inventory.
E.Debit to Goods in Process Inventory and a credit to Accounts Payable
The contribution margin per unit expressed as a percentage of the product’s selling price
is the:
A.Volume variance.
B.Margin of safety.
C.Contribution margin ratio.
D.Break-even point.
E.Rate of return on sales.
A company sold $12,000 worth of trampolines with an extended warranty. It estimates
that 2% of these sales will result in warranty work. The company should:
A.Consider the warranty expense a remote liability since the rate is only 2%.
B.Recognize warranty expense at the time the warranty work is performed.
C.Recognize warranty expense and liability in the year of the sale.
D.Consider the warranty expense a contingent liability.
E.Recognize warranty liability when the company purchases the trampolines.
The purchases journal is used for recording:
A.Credit purchases.
B.Credit sales.
C.Cash sales.
D.Cash purchases.
E.Cash disbursements.
The sales journal is used for recording:
A.Credit purchases.
B.Credit sales.
C.Cash sales.
D.Cash purchases.
E.Cash receipts.
The question of when revenue should be recognized on the income statement
(according to GAAP) is addressed by the:
A.Revenue recognition principle.
B.Going-concern principle.
C.Objectivity principle.
D.Business entity principle.
E.Cost principle.
A sales invoice:
A.Is a type of source document.
B.Is used by sellers to record the sale.
C.Is used by buyers to record purchases.
D.Gives rise to an entry in the accounting process.
E.All of these.
Annie’s Attic has the following account balances for the dates given:
Also, its net income, for September 1 through September 30 was $20,000 and there
were no investments or withdrawals by the owner. Determine the equity at both
September 1 and September 30.
In order to be classified as an extraordinary gain or loss, the item must be both (1)
_________________________ and (2) _________________________.
If a 60-day note receivable is dated September 22, what is the maturity date of the note?
Contingent liabilities are recorded in the accounts if the future event is
_______________ and the amount owed can be _______________.
What are the accounting basics for debt securities, including recording their acquisition,
interest earned, and their disposal?
One of the main differences between the calculation of cost of goods sold for a
merchandiser and that of a manufacturer is that the calculation includes cost of goods
purchased for the merchandiser, but the manufacturer replaces that with
_____________________________.
On September 30 of the current year, a company acquired and placed in service a
machine at a cost of $700,000. It has been estimated that the machine has a service life
of five years and a salvage value of $40,000. Using the double-declining-balance
method of depreciation, prepare a schedule showing depreciation amounts for the
current year and the next 4 years (round answers to the nearest dollar). The company
closes its books on December 31 of each year.
The master budget process nearly always begins with the preparation of the
___________________ and usually finishes with the preparation of the
______________________, the ________________, and the
______________________.
____________________ preferred stock gives holders the option to exchange their
preferred shares for common shares at a specified rate.
The treasurer of a company is responsible for cash management. List five cash
management principles that are essential for effective cash management.
Explain the concept of the present value of a single amount.