The interest rate used to calculate interest expense in the effective interest method of
amortization is equal to the market rate of interest at the time the bonds are issued.
The foundation of the internal control system is the control _____________ – the
collection of environmental factors that influence the effectiveness of control
procedures.
If a company is concerned about minimizing its income tax burden, it would use the
straight-line depreciation method to accomplish this objective.
The understatement of ending inventories in one period leads to a(n)
____________________ of cost of goods sold in the same period.
The ratio of a company’s cost of goods sold to its average inventory is called its
__________.
As a result of the bank reconciliation process, a company will prepare an adjusting
entry for a debit memo but notfor a credit memo.
Most annual reports contain the following list of basic elements. For each element
identify the person(s) who prepared the element and describe the information a user
would expect to find in each element. Some information is verifiable, while other
information is subjectively chosen by management. Indicate whether the information in
each element is verifiable.
Match the terms with the descriptions provided.
a. Consignment f. Purchase allowance
b. Discount period g. Purchase discounts
c. Inventory h. Purchase returns
d. LIFO Reserve i. Purchases
e. Lower of cost or market rule
37. Arrangement whereby goods owned by one party are held and offered for sale by
another party.
38. A reduction in the amount of goods available for sale caused by defective
merchandise.
39. Merchandise held for sale in the normal course of business.
40. Reduce the amount that is owed to the seller for payment within the discount
period.
41. The amount that the inventory would increase or decrease if the company had used
FIFO instead of LIFO.
42. The time span during which purchase discounts are available.
43. Represents a departure from reporting assets at their historical cost.
44. In the periodic inventory system, the account used to record the cost of
merchandise acquired for resale.
45. Under the perpetual inventory system, a reduction in the inventory account balance
not caused by a sale or return.
A trial balance is the listing of each active account and its corresponding debit or credit
balance at a particular point in time.
Federal excise taxes payable is nota current liability.
Cabana Club
The company’s consolidated statement of income is provided below:
Refer to Cabana Club. Identify three specific accounts in which the company might
need to accrue additional expenses as a result of adjustments. Indicate the effects of
these adjustments on the fundamental accounting equation. Ignore amounts.
The accountant must make journal entries for all items in the book section of the bank
reconciliation.
A couple of years ago you inherited a substantial sum of money. This morning one of
your second cousins approached you about her struggling day spa business that caters to
college students. She would like to borrow $20,000 for a state-of-the-art tanning room
for her business. She assures you that the business is steadily growing and promises that
you will have your money back in six to nine months at the latest. You are concerned
about the day spa’s ability to generate sufficient resources to repay the loan. What
financial ratios can you examine to assess the short-term liquidity of your cousin’s day
spa? Provide the formula for each ratio.
A cost-cutting measure used in many business organization is the use of a(n)
____________________ fund, whereby a custodian handles disbursements and
documentation for small expenditures.
If a company made a payment on account, then assets and liabilities would both
decrease.
Current liabilities are typically listed in the order in which they will be paid.
The classifications in the balance sheet are to help users determine how a company
obtained its resources.