1) If a company is highly leveraged, this means that it has relatively low risk of not
being able to repay its debt.
2) One purpose of financial statement analysis for internal users is to provide
information helpful in improving the company’s efficiency and effectiveness in
providing products and services.
3) The primary purpose of the statement of cash flows is to report all major cash
receipts (inflows) and cash payments (outflows) during a period.
4) The gross margin ratio is defined as gross margin divided by net sales.
5) The balance sheet is based on the accounting equation.
6) The higher the accounts receivable turnover, the less quickly accounts receivable are
collected.
7) The carrying (book) value of a bond payable is the par value of the bonds plus the
discount.
8) Capital budgeting decisions are risky because the outcome is uncertain, large
amounts are usually involved, the investment involves a long-term commitment, and
the decision could be difficult or impossible to reverse.
9) Identifying the proper ethical path is easy.
10) Harry’s Bikes’ current assets are $400 million and its current liabilities are $250
million. Its current ratio is 0.63.
11) A trial balance that is in balance is proof that no errors were made in journalizing
the transactions, posting to the ledger, and preparing the trial balance.
12) If cash was incorrectly debited for $100 instead of correctly credited for $100, the
cash account is out of balance by $100.
13) Vertical analysis is used to reveal patterns in data covering successive periods.
14) On January 1, Year 1, Acadia purchased a computer system that cost $1,480,000.
The estimated useful life of the computer is 3 years and salvage value is $40,000.
Straight-line depreciation is to be used. On January 1, Year 2, the company determined
that the estimated useful life of the computer would be 4 years instead of 3 years. The
estimated salvage value will only be $10,000.
Prepare the journal entry to record depreciation expense for Year 1
Prepare the journal entry to record depreciation expense for Year 2
15) Outdoor Sports, Inc., produces two types of skis, downhill skis and cross country
skis. Product and production information about the two items is shown below:
Required:
1> If Outdoor Sports uses the traditional two-stage method of allocating overhead costs
based on direct labor hours, what is the amount of indirect costs per set of skis for each
of the two types of skis?
2> If Outdoor Sports uses activity based costing, what is the total amount of indirect
costs per set of skis for each of the two types of skis? Assume that depreciation is
allocated based on machine hours, setup costs based on the number of setups, and
miscellaneous costs based on the number of direct labor hours.
16) There are three major subgroups of the master budget. These are
_______________________, __________________, and ______________________.
17) The owner’s claim on assets is called _________________.
18) Data for Madison Realty are as follows:
The owner, Mary Madison, withdrew a total of $30,000 for personal use during the
year. Using the above data, prepare Madison Realty’s Statement of Owner’s Equity for
the year ended December 31.
19) What factors should be considered before establishing a partnership? What were
some of the areas that the partners of Kids Konserve focused on before and after
forming their partnership?
20) On a bank statement, deposits are shown as _________________, because the
depositor’s account is a liability on the bank’s records.
21) Using the information given below for a company that uses a perpetual inventory
system, calculate the ending inventory using FIFO.