1) An unfavorable variance is recorded with a debit.
2) An unadjusted trial balance is a list of accounts and balances prepared before
adjustments are recorded.
3) If Department A uses $10,000 of direct materials and Department B uses $15,000 of
direct materials, the following journal entry would be recorded by the process cost
accounting system:
4) A potential lawsuit claim is recorded when the claim can be reasonably estimated and
it is reasonably possible.
5) An account is a record of increases and decreases in a specific asset, liability, equity,
revenue, or expense item.
6) The journal is known as a book of original entry.
7) Depreciation measures the actual decline in market value of an asset.
8) When an equity security is sold, the sale proceeds are compared with the cost, and if
the cost is greater than the proceeds, a gain on the sale of the security is recorded.
9) Earned but uncollected revenues are recorded during the adjusting process with a
credit to a revenue and a debit to an expense.
10) A cash-based measure to help business decision makers estimate the amount and
timing of cash flows is the cash flow on total assets ratio.
11) A variable or flexible budget is so named because it only focuses on variable costs.
12) The price-earnings ratio reveals information about the stock market’s expectations
for a company’s future growth in earnings.
13) An advantage of bond financing is that issuing bonds does not affect owner control.
14) A company reported net income of $78,000 and had 15,000 common shares
outstanding throughout the current year. At year-end, the price per share of the
company’s stock was $49.40. What is the company’s year-end price-earnings ratio?
15) An _____________ is a series of equal payments occurring at equal intervals.
16) Identify the types of adjusting entries and explain the purpose of each type.
17) How does the objectivity principle support ethical behavior?
18) What is the effect of an error in the ending inventory balance on the income
statement?
19) ______________________ provide the basic information processed by an
accounting system, and can include bank statements, billings to customers, and
employee earnings records.
20) For Randy Hetrick of Fitness Anywhere, the major challenge was maintaining
appropriate levels of inventories while controlling costs. What is meant by this
statement?
21) Return on total assets is computed by dividing ___________ by _________.
22) A corporation plans to invest $1 million in oil exploration. The corporation is
considering two plans to raise the money. Under Plan #1, bonds with a contract rate of
interest of 6% would be issued. Under Plan #2, additional shares of common stock
would be issued at $20 per share. The corporation currently has 300,000 shares of stock
outstanding, and it expects to earn $700,000 per year before bond interest and income
taxes. The net income and return on investment for both plans is shown below:
Comment on the relative effects of each alternative, including when one form of
financing is preferred to another.