1) The concept of incremental cost is the same as the concept of differential cost.
2) An external transaction is an exchange of value within an organization.
3) Since income tax expense is created by earning income, a liability is incurred when
income is earned.
4) The direct materials section of a job cost sheet shows the materials costs assigned to
a job, but the direct labor section only shows the total hours of labor allocated to the
job.
5) When convertible bonds are converted to a company’s stock, the carrying value of
the bonds is transferred to equity accounts and no gain or loss is recorded.
6) The present value factor for determining the present value of $6,300 to be received
three years from today at 10% interest compounded semiannually is 0.7462.
7) The accrual basis of accounting requires adjustments to recognize revenues in the
periods they are earned and to match expenses with revenues.
8) Capital structure refers to a company’s long-run financial viability and its ability to
cover long-term obligations.
9) Process cost accounting systems consider overhead costs to include those costs that
cannot be traced to a specific process.
10) The maturity date of a note refers to the date the note must be repaid.
11) Adopting a lean business model should have no effect on cost in a modern
manufacturing environment.
12) The quality of receivables refers to the likelihood of collection without loss.
13) To streamline a voucher system, procedures for purchasing, receiving, and paying
for merchandise can be performed by one department or individual.
14) Mortgage bonds are backed only by the good faith and credit of the issuing
company.
15) Part of the cash budget is based on information taken from the capital expenditures
budget.
16) Planning activities are the means an organization uses to pay for resources like land,
buildings, and equipment to carry out its plans.
17) A materials requisition is a source document used by production managers to
request materials for production and also used to assign materials costs to specific jobs
or to overhead.
18) Since pledged accounts receivables only serve as collateral for a loan and are not
sold, it is not necessary to disclose the pledging.
19) A company established a $400 petty cash fund by issuing a check to the custodian
on October 1. On October 15, the petty cash fund was replenished and increased to
$1,000 in total. The contents of the petty cash fund at the time of the October 15
replenishment were:
Prepare the general journal entry to record both the reimbursement and the increase of
the petty fund on October 15.
20) Gates Company collected the following data regarding production of one of its
products. Compute the variable overhead cost variance, the variable overhead spending
variance, the variable overhead efficiency variance, the fixed overhead cost variance,
the fixed overhead spending variance, and the fixed overhead volume variance.
21) _______________________________________ refers to the programs that help
managers direct a company’s vital operations.
22) Return on equity _______________ when the expected rate of return from the
acquired assets is greater than the rate of interest on the bonds used to finance the asset
acquisition.
23) A company paid $2,500 cash to satisfy a previously recorded account payable. Set
up the necessary T-accounts below and show how this transaction would be recorded
directly in those accounts.
24) Partners in a partnership are taxed on ____________________, not on their
withdrawals.
25) A company purchased a computer system on January 1, Year 1, for $1,600,000.
Prepare the journal entries to record depreciation for the first 6 months of Year 3 and the
sale of the computer assuming it is sold on July 1, Year 3, for $1,000,000 cash. The
straight-line method of depreciation was used based on an expected life of six years and
a salvage value of $130,000.
26) Discuss the important accounting features of a periodic inventory system including
accounts and procedures used.