1) Generally accepted accounting principles do not allow variable costing to be used in
external financial statements because absorption costing makes it easier for financial
statement users to interpret year-to-year changes in reported income.
2) The starting point for developing comprehensive financial statement forecasts is a
detailed understanding of the company, its recent financial performance, and health.
3) Cash-basis accounting provides the most useful measure of future operating
performance.
4) During the past year a company reported bond interest expense of $29,875 and a
cash interest payment of $27,500; therefore the bond’s carrying value must have
increased by $2,375 during the past year.
5) Depreciation expense is the most common adjustment under the indirect method
because it does not cause cash to increase or decrease.
6) Revenue is recognized at the earliest moment that the critical event and measurability
criteria are both satisfied.
7) A periodic system of inventory is used when inventory volumes are low and per unit
costs are high.
8) Cost of goods available for sale is always the same regardless of the inventory cost
flow assumption in use.
9) Under the sales revenue approach, no bad debt expense is recorded when a specific
account (known to be uncollectible) is written off.
10) Current cost is an example of the economic sacrifice approach for valuing
long-lived assets.
11) It is possible to lower the interest rate on a loan by accepting more stringent loan
covenant restrictions.
12) The installment sales method of recognizing profit for accounting purposes is
acceptable if collection of the sales price is not reasonably assured.
13) Minority passive investments of less than 20% of the voting stock shares are
classified as either trading securities or available-for-sale securities.
14) Net asset valuation and income determination are inextricably intertwined.