1) Variable costs per unit increase proportionately with increases in output activity.
2) The number of equivalent units of production assigned to ending goods in process
inventory should be equal to or less than the number of physical units in ending goods
in process inventory.
3) The purchase of supplies on credit should be recorded with a debit to Supplies and a
credit to Accounts Payable.
4) Accurate source documents are crucial to accounting systems to limit the possibility
of entering faulty data into the system.
5) A company’s total cost of inventory was $305,000 and its market value is $297,000.
Under the lower cost or market, the amount reported should be $305,000.
6) Unearned revenues are liabilities.
7) Return on assets is useful to decision makers for evaluating management, analyzing
and forecasting profits, and in planning activities.
8) When using the equity method, receipt of cash dividends increases the carrying
(book) value of an investment in equity securities.
9) A voucher system’s control over cash disbursements begins when a company incurs
an obligation that will result in eventual payment of cash.
10) Debt securities are recorded at cost when purchased.
11) The legal contract between the issuing corporation and the bondholders is called the
bond indenture.
12) A company purchased $6,000 worth of supplies in August and recorded the
purchase in the Supplies account. On August 31, the fiscal year-end, the supplies count
equaled $3,200. The adjusting entry would include a $2,800 debit to Supplies.
13) Accounting information processes are structured to eliminate the need for
professional judgment.
14) Off-the-shelf accounting software is not adequate to meet the needs of small
businesses.
15) A joint cost of producing two products can be allocated between those products on
the basis of the relative physical quantities of each product produced.
16) Trescott Company had the following results of operations for the past year:
A foreign company (whose sales will not affect Trescott’s market) offers to buy 3,000
units at $17.00 per unit. In addition to variable manufacturing costs, selling these units
would increase fixed overhead by $500 and selling and administrative costs by $1,000.
If Trescott accepts the offer, its profits will:
A.Decrease by $4,500
B.Increase by $4,500
C.Decrease by $300
D.Increase by $13,500
E.Increase by $15,000
17) Refer to the following selected financial information from Hansen’s, LLC. Compute
the company’s profit margin for Year 2.
A.14.1%
B.11.7%
C.9.6%
D.16.7%
E.33.9%
18) Total asset turnover is used to evaluate:
A.The efficiency of management’s use of assets to generate sales
B.The necessity for asset replacement
C.The number of times operating assets were sold during the year
D.The cash flows used to acquire assets
E.The relation between asset cost and book value
19) There are at least three different methods to separate costs into fixed and variable.
These methods are the ______________, ______________, and _______________
methods.
20) A company issued 10-year, 9% bonds, with a par value of $500,000 when the
market rate was 9.5%. The issuer received $484,087 in cash proceeds. Prepare the
issuer’s journal entry to record the bond issuance.
21) Define the return on total assets and explain how it is used to measure a company’s
financial performance.
22) ____________ are short-term, highly liquid investment assets that are readily
convertible to a known amount of cash.
23) Describe installment notes and the way in which installment notes are paid.
24) Long-term investments in available-for-sale securities are reported at their _______
on the balance sheet.
25) Renton Co. uses special journals to record its transactions. They use the perpetual
inventory system. Shown below are the purchasing and cash disbursement transactions
for current month of May:
Record these transactions in the following journals.