1) Each adjusting entry affects only one or more income statements account and never
cash.
2) Process manufacturing usually reflects a manufacturer that produces large quantities
of identical products.
3) After adjustment, the balance in the Allowance for Doubtful Accounts has the effect
of reducing accounts receivable to its estimated realizable value.
4) Accrued vacation benefits are a form of estimated liability for an employer.
5) Required payroll deductions result from laws and include income taxes, Social
Security taxes, pension and health contributions, union dues, and charitable giving.
6) Profit margin is calculated by dividing net sales by net income.
7) Managers only use the cash flow statement to evaluate the net cash increase or
decrease, and do not pay much attention to the details of cash flows from operating
activities, cash flows from investing activities, and cash flows from financing activities.
8) The direct method for preparing and reporting the statement of cash flows reports net
income and then adjusts it for items necessary to calculate net cash provided or used by
operating activities.
9) Capital expenditures are also called balance sheet expenditures.
10) A company’s file of job cost sheets for finished but unsold jobs equals the balance in
the Finished Goods Inventory account.
11) A company using the periodic inventory system does not record the increase in cost
of goods sold and decrease in inventory at the time of each sale in the sales journal.
12) Debt securities are recorded at cost when purchased, and interest revenue for
investments in debt securities is recorded when earned.
13) Budgets are normally more effective when all levels of management are involved in
the budgeting process.
14) The Sarbanes-Oxley Act (SOX) requires each issuer of securities to disclose
whether it has adopted a code of ethics for its senior financial officers and the contents
of that code.
15) A journal gives a complete record of each transaction in one place, and shows the
debits and credits for each transaction.
16) Dividend yield is computed by dividing annual cash dividends per share by the
market value per share.
17) Return on total assets can be separated into the profit margin ratio and total asset
turnover.
18) To buy into an existing partnership, the new partner must contribute cash to the
partnership.
19) Overapplied overhead is the amount by which overhead applied to jobs using the
predetermined overhead allocation rate exceeds the overhead incurred during a period.
20) The manufacturing budget shows only the direct materials needed for production.
21) Identify and explain the key components of income for a merchandising company.
22) Discuss the purpose of a bank reconciliation.
23) For a manufacturer, the cost of goods sold can be computed by adding the
beginning finished goods inventory to ________________________ and then
subtracting the ending finished goods inventory.
24) For each of the following independent cases, use the information provided to
calculate the missing cash inflow or cash outflow using the direct method.
25) A company is considering a proposal to invest $30,000 in a project that would
provide the following net cash flows:
Compute the project’s payback period.
26) Assets removed from the business by the business owner for personal use are called
___________.
27) What is the purpose of a good financial statement analysis report? What are the key
components?
28) Hanover Hats produces specialty logo baseball caps for a variety of customers.
Selected cost data for Hanover follows: direct materials cost $8,000; sales commissions,
$9,000; depreciation on factory equipment, $21,000; factory labor, $16,000; factory
lease, $24,000. If Hanover Hats sells 6,100 caps at an average price of $12 for each cap,
what is the company’s contribution margin?
29) A department store has budgeted cost of goods sold for August of $60,000 for its
women’s coats. Management wants to have $12,000 of coats in inventory at the end of
the month to prepare for the winter season. Beginning inventory in August was $8,000.
What dollar amount of coats should be purchased to meet the above plans?
30) What are the components of the manufacturing statement? Describe each
component.