1) General accounting principles arise from long-used accounting practices.
2) The accrual basis of accounting reflects the principle that revenue is recorded when it
is earned, not when cash is received.
3) Another name for relevant cost is unavoidable cost.
4) The journal is known as the book of final entry because financial statements are
prepared from it.
5) If land is purchased as a building site, the cost of removing existing structures is not
charged to the Land account.
6) The merchandise purchases budget is the starting point for preparing the master
budget.
7) When the cost of a short-term held-to-maturity debt security is different from the
maturity value, the difference is amortized over the remaining life of the security.
8) An invoice is an itemized statement of goods prepared by the vendor listing the
customer’s name, items sold, sales prices, and terms of sale.
9) Prime costs consist of direct labor and factory overhead.
10) The use of debt is sometimes described as financial leverage because debt can have
the effect of increasing the return on equity.
11) A company’s quick assets are $147,000 and its current liabilities are $143,000. This
company’s acid-test ratio is 1.03.
12) An overhead cost variance is the difference between the actual overhead incurred
for the period and the standard overhead applied.
13) A unique feature of process costing systems is the use of a single Goods in Process
Inventory control account when more than one production department exists.
14) Pantheon Company has prepared the following forecasts of monthly sales:
Pantheon has decided that the number of units in its inventory at the end of each month
should equal 25% of the next month’s sales. The budgeted cost per unit is $30.
(1) How many units should be in July’s beginning inventory?
(2) What amount should be budgeted for the cost of merchandise purchases in July?
(3) How many units should be purchased in September?
15) A company inadvertently produced 6,000 defective portable CD players. The CD
players cost $20 each to be manufactured. A salvage company will purchase the
defective units as they are for $16 each. The production manager reports that the defects
can be corrected for $9 per unit, enabling the company to sell them at the regular price
of $30.00. The repair operations would not affect other production operations. Prepare
an analysis that shows which action should be taken.
16) Macleod Company’s product has a contribution margin per unit of $62.50 and a
contribution margin ratio of 25%. What is the per unit selling price of the product?
17) Conley and Liu allow Lepley to purchase a 25% interest in their partnership for
$50,000 cash. Conley and Liu both have capital balances of $55,000 each, and have
agreed to share income and loss equally. Prepare the journal entry to record the
admission of Lepley to the partnership.
18) Harv’s Sound Systems produces speakers for movie theaters that sell for $1,200
each. Listed below are selected cost items for the production of 600 units. Classify each
cost as either fixed or variable, and either a product or a period cost.
19) The _________________________ method uses income statement relationships to
estimate bad debts and is based on the idea that a given percent of a company’s credit
sales for a period are uncollectible.