1) The reduction in the par or stated value of common stock, accompanied by the
issuance of a proportionate number of additional shares, is called a stock split.
2) If ending inventory for the year is understated, net income for the year is overstated.
3) Cash inflows and outflows are not netted in the investing or financing sections of the
statement of cash flows but are separately disclosed to give the reader full information.
4) Cash dividends are normally paid on shares of treasury stock.
5) FICA tax becomes a liability to the federal government at the time an employee’s
payroll is prepared.
6) The methods of evaluating capital investment proposals can be grouped into two
general categories that can be referred to as (1) methods that ignore present value and
(2) present values methods.
7) When the goods are sold, their costs are transferred from Work in Process to Finished
Goods.
8) A responsibility center in which the department manager has responsibility for and
authority over costs, revenues, and assets invested in the department is termed a cost
center.
9) The dollars available from each unit of sales to cover fixed cost and profit is the unit
variable cost.
10) Interest payments on 12% bonds with a face value of $20,000 and interest paid
semiannually would be $2,400 every 6 months.
11) Under the indirect method, expenses that do not affect cash are added to net income
in the operating activities section of the statement of cash flows.
12) Bonds of major corporations are traded on bond exchanges.
13) The fact that workers are unable to meet a properly determined direct labor standard
is sufficient cause to change the standard.
14) Adjustments for accruals are needed to record a revenue that has been earned or an
expense that has been incurred but not recorded.
15) Assets may be grouped according to common traits and depreciated by using a
single composite rate.
16) The total on the “Accounts Payable Creditors Balances” report at January 31, the
end of the first month of operations, agrees with the total of the Accounts Payable debit
column in the cash payments journal for the same period.
17) A building with a cost of $153,000 and accumulated depreciation of $42,000 was
sold for a $11,000 gain. When using the indirect method, the cash generated from this
investing activity was $121,000.
18) To determine cash payments for merchandise for the cash flow statement using the
direct method, a decrease in accounts payable is added to the cost of merchandise sold.
19) Nonmanufacturing costs are generally classified into two categories: selling and
administrative.
20) For accounting purposes, stated value is treated the same way as par value.
21) For each of the following business, explain how a revenue journal might be
modified for the specific business.
1> Jons Auto Repair Business
2> Esquire Movie Theater
3> Beach Hut Snack Bar, Restaurant, and Lounge
22) Journalize the following transactions for Donnell Inc. using both the periodic
inventory system and the perpetual inventory system, presented in a side-by-side format
shown at the end of this exercise.
Oct. 5 Purchased $18,000 of merchandise from Rex on account, terms 2/10, n/30.
Oct. 8 Returned merchandise purchased on account on Oct. 5 amounting to $3,500.
Oct. 15 Paid for purchase of Oct. 5, less Oct. 8 return and purchase discount.
23) The cost per equivalent units of direct materials and conversion in the Bottling
Department of Mountain Springs Water Company is $.45 and $.12, respectively. The
equivalent units to be assigned costs are as follows.
The beginning work in process inventory had a cost of $2,200. Determine the cost of
completed and transferred out production, and the ending work in process inventory.
24) Master Designs Company has cash flows for operating activities of $350,000. Cash
flows used for investments in property, plant, and equipment totaled $65,000, of which
70% of this investment was used to replace machinery to maintain existing capacity.
What is the free cash flow for Master Designs?
25) The following revenue and expense account balances were taken from the Income
Statement columns of the work sheet for Fraser Services Co. for December 31, 2010:
Prepare an income statement.