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Right!","The total of a fixed expense is indeed fixed (does not change) as the volume increases or decreases by a reasonable amount."] Text[2]=["

Wrong.","The total of a fixed expense is indeed fixed (does not change) as the volume increases or decreases by a reasonable amount."] Text[3]=["

Wrong.","A 5% sales commission is an example of a variable expense."] Text[4]=["

Right!","The answer is false because a 5% sales commission is an example of a variable expense."] Text[5]=["

Right!","Property taxes do not vary with sales. Rather they are fixed, because they are based upon an assessed value of the property. Rent is generally based on the value of property and competitive rates per square foot. Hence rent usually will not vary with sales. (An exception would be a retail mall where it is agreed that rent will be based on sales.)"] Text[6]=["

Wrong.","Generally property taxes and rents are fixed. They are usually based on the value of the property and do not vary with the company's sales."] Text[7]=["

Right!","Variable expenses will increase in total as volume increases and variable expenses will decrease in total as volume decreases."] Text[8]=["

Wrong.","Variable expenses will increase in total as volume increases and variable expenses will decrease in total as volume decreases."] Text[9]=["

Wrong.","Usually an office manager's salary is fixed in total. The salary is unlikely to decrease in the months when the sales volume decreases or to increase in the months when the sales volume increases. "] Text[10]=["

Right!","The answer is false because an office manager's salary is not likely to change in total as sales volume changes. "] Text[11]=["

Right!","If a retailer sells more units of goods, sales revenue increases and the cost of goods sold also increases. When fewer units of goods are sold, sales revenue decreases and the cost of goods sold decreases."] Text[12]=["

Wrong.","The correct answer is 'True' because a retailer's cost of goods sold will increase in total as sales increase. Cost of goods sold will decrease in total when sales decrease."] Text[13]=["

Right!","This is the correct answer."] Text[14]=["

Wrong.","The correct answer is 'True.'"] Text[15]=["

Right!","If revenues minus all expenses (fixed and variable, and including cost of goods sold) equals zero, you are at the break-even point. "] Text[16]=["

Wrong.","If revenues minus all expenses (fixed and variable, and including cost of goods sold) equals zero, you are at the break-even point. "] Text[17]=["

Wrong.","Fixed expenses divided by the contribution margin per unit is the break-even point in UNITS (not the break-even point in dollars). "] Text[18]=["

Right!","Fixed expenses divided by the contribution margin per unit is the break-even point in UNITS (not the break-even point in dollars)."] Text[19]=["

Right!",""] Text[20]=["

Wrong.","It is true that the required profit should be added to the fixed expenses to calculate the sales point (in units or dollars) necessary to earn a profit of $30,000."] Text[21]=["

Right!","The contribution margin is sales minus variable expenses. The contribution margin ratio is the contribution margin expressed as a percentage of sales or revenues. In this question the variable expenses are 70% (58%+7%+5%) of sales. That means the contribution margin ratio is 30%."] Text[22]=["

Wrong.","70% is the variable expenses as a percentage of sales. The contribution margin ratio is the remainder of sales minus variable expenses, expressed as a percentage of sales. In this case the contribution margin ratio is 30%."] Text[23]=["

Wrong.","The contribution margin is sales minus variable expenses. The contribution margin ratio is the contribution margin expressed as a percentage of sales or revenues. In this question the variable expenses are 70% (58%+7%+5%) of sales. That means the contribution margin ratio is 30%."] Text[24]=["

Wrong.","The fixed expenses are $77,000 and the contribution margin ratio is 30% (Sales minus variable costs of 70%.) Therefore, the break-even point in dollars = $77,000 divided by 30%."] Text[25]=["

Wrong.","The break-even point is fixed expenses divided by the contribution margin. In this case the contribution margin ratio is 30%."] Text[26]=["

Right!","Fixed expenses of $77,000 divided by the contribution margin ratio of 30% = $256,667."] Text[27]=["

Wrong.","$112,000 is the total of $77,000 of fixed expenses plus the required profit of $35,000. This $112,000 will be covered by the contribution margin of 30% of sales. That means the sales must be significantly greater than $112,000."] Text[28]=["

Wrong.","$112,000 is the total of $77,000 of fixed expenses plus the required profit of $35,000. This $112,000 will be covered by the contribution margin of 30% of sales. That means the sales must be significantly greater than $145,000."] Text[29]=["

Right!","$112,000 (the total of the fixed expenses plus the desired profit) gets divided by the contribution margin of 30% to arrive at the required sales of $373,333."] Text[30]=["

Wrong.","This is NOT the best answer. Fixed expenses are assumed to be the same in total only in a reasonable range of volume. The tripling of volume is more than a reasonable change. If volume did triple, it is likely that the company would have to add more space and more salaried employees. This would mean more fixed expenses."] Text[31]=["

Right!","This is the best answer."] Text[32]=["

Wrong.","Fixed expenses are ones that do not change in total. On a per unit basis, fixed expenses actually decrease. For example, if rent is a fixed expense at $3,000 per month and the volume varies between 5,000 units to 6,000 units, the rent per unit will be 50 cents at 6,000 units and 60 cents at 5,000 units."] Text[33]=["

Right!","Variable expenses change in total as volume changes. They are fixed on a per unit basis. For example, the cost of the flour in a loaf of bread is a variable expense for the bakery. The cost of flour will be higher in total as more loaves of bread are produced. The cost of flour is probably constant on a per unit basis."] Text[34]=["

Wrong.","Variable expenses do not change on a per unit basis. They increase in total as more units are produced. For example, let's assume that a bakery puts one pound of flour into each loaf of its bread. The bakery pays 20 cents per pound for flour. If the bakery makes and sells 100 loaves, it will have flour of $20 in the 100 loaves. If the bakery makes and sells 250 loaves, it will have flour of $50 in the 250 loaves."] Text[35]=["

Right!","For example, a company is faced with the decision to continue to serve customers in three states or to expand so that its service area will be four states. It is agreed that the senior executives will not receive any additional compensation if the fourth state is added. Therefore, the total compensation of the senior executives is NOT relevant to the decision. The actual senior executive compensation amount (regardless of amount) will be the same amount whether the company stays in three states or expands to the fourth state. What matters are the ADDITIONAL expenses and the ADDITIONAL revenues."] Text[36]=["

Wrong.","See the discussion under True."] Text[37]=["

Right!","The company will have more profit if a decision results in more additional revenues than additional expenses."] Text[38]=["

Wrong.","It is true that if the additional revenues exceed the additional expenses, the company's profit will increase."] Text[39]=["

Wrong.","Inventory IS a current asset."] Text[40]=["Wrong.","Prepaid Insurance IS a current asset because it is likely to be used up within one year of the balance sheet date (or within the operating cycle, if the operating cycle is longer than one year)."] Text[41]=["

Right!","Fixtures is NOT a current asset account. Fixtures is reported under property, plant and equipment (which is part of a company's long-term assets)."] Text[42]=["

Wrong.","The current ratio is current assets DIVIDED BY current liabilities. Working capital is current assets MINUS current liabilities."] Text[43]=["

Wrong.","This answer is incorrect."] Text[44]=["

Right!","This is the correct answer."] Text[45]=["

Right!","This is the correct answer."] Text[46]=["

Wrong.","This answer is incorrect."] Text[47]=["

Wrong.","Working capital is current assets MINUS current liabilities. The current ratio is current asset DIVIDED BY current liabilities."] Text[48]=["

Wrong.","The quick ratio includes Cash, Temporary Investments, and Accounts Receivable—the items that can be turned into cash QUICKLY. Inventory is NOT considered a quick asset."] Text[49]=["

Right!","Inventory is NOT considered a quick asset. The quick ratio includes Cash, Temporary Investments, and Accounts Receivable. Items that can be turned into cash QUICKLY."] Text[50]=["

Wrong.","The quick ratio includes Cash, Temporary Investments, and Accounts Receivable—the items that can be turned into cash QUICKLY. Inventory is NOT considered a quick asset."] Text[51]=["

Wrong.","See the calculations for $66,000."] Text[52]=["

Right!","Working capital = current assets MINUS current liabilities. In this case that means $126,000 MINUS $60,000 = $66,000."] Text[53]=["

Wrong.","See the calculations for $66,000."] Text[54]=["

Wrong.","See the calculations for 2.1 : 1."] Text[55]=["

Wrong.","See the calculations for 2.1 : 1."] Text[56]=["

Right!","The current ratio = [current assets DIVIDED BY current liabilities] : 1. In this case that means [$126,000 DIVIDED BY $60,000] : 1 = 2.1 : 1."] Text[57]=["

Right!","The quick ratio or acid test ratio = [(Cash + Temporary Investments + Accounts Receivable) DIVIDED BY current liabilities] : 1 = [($10,000 + $0 + $30,000) DIVIDED BY $60,000] : 1 = 0.66667 : 1 or rounded to 0.7 : 1."] Text[58]=["

Wrong.","See the calculations for 0.7 : 1"] Text[59]=["

Wrong.","See the calculations for 0.7 : 1"] Text[60]=["

Wrong.","See the calculations for 5.0."] Text[61]=["

Right!","The inventory turnover = Cost of Goods Sold DIVIDED BY average Inventory. In this case that means $525,000 DIVIDED BY $105,000 = 5.0"] Text[62]=["

Wrong.","See the calculations for 5.0"] Text[63]=["

Wrong.","See the calculations for 10.0."] Text[64]=["

Wrong.","See the calculations for 10.0."] Text[65]=["

Right!","The accounts receivable turnover = Credit Sales DIVIDED BY average Accounts Receivable. In this case that means $830,000 DIVIDED BY $83,000 = 10.0."] Text[66]=["

Wrong.","See the calculations for 37."] Text[67]=["

Right!","The number of days sales in Accounts Receivable during the year 2009 would be 365 days in the year DIVIDED BY the accounts receivable turnover of 10.0 = 36.5 or 37 days."] Text[68]=["

Wrong.","See the calculations for 37."] Text[69]=["

Wrong.","See the calculations for 73."] Text[70]=["

Wrong.","See the calculations for 73."] Text[71]=["

Right!","The number of days sales in Inventory during the year 2009 would be 365 days DIVIDED BY the inventory turnover of 5.0 = 73 days."] Text[72]=["

Wrong.","See the calculations for 10.0."] Text[73]=["

Wrong.","See the calculations for 10.0."] Text[74]=["

Right!","The times interest earned is calculated by taking the earnings of the company before interest and income tax expense and dividing it by the amount of interest expense. In this case the earnings before interest and income tax expense is $400,000 + $140,000 + $60,000 which equals $600,000. That amount divided by the interest expense of $60,000 = 10.0."] Text[75]=["

Right!","The return on stockholders' equity for 2009 is the company's net income after tax DIVIDED BY the average stockholders' equity during the year. In this case that means $400,000 DIVIDED BY $2,000,000 = 20%."] Text[76]=["

Wrong.","See the calculations for 20%."] Text[77]=["

Wrong.","See the calculations for 20%."] Text[78]=["

Wrong.","P&L is often used when referring to the income statement."] Text[79]=["

Right!","The statement of financial position is NOT associated with the income statement. It is associated with the balance sheet."] Text[80]=["

Wrong.","This name is used instead of income statement."] Text[81]=["

Wrong.","A balance sheet's heading is a point in time."] Text[82]=["

Right!","An income statement covers the period of time shown in its heading."] Text[83]=["

Right!","This is the correct answer."] Text[84]=["

Wrong.","Gains pertain to items outside of the main operations."] Text[85]=["

Wrong.","Expenses are associated with the main operations of a company... not with the disposal of long-term assets."] Text[86]=["

Right!","Because the sale of equipment is outside of the main business activity and the amount received was greater than the amount at which the asset was carried in the company books, it is reported as a gain. The amount of the gain is the amount by which the proceeds exceeds the carrying amount."] Text[87]=["

Wrong.","To have a loss the proceeds would have to be less than the carrying amount."] Text[88]=["

Wrong.","Revenues involve the main operations of the company... not with the disposal of long-term assets."] Text[89]=["

Wrong.","The company is incurring (having) interest expense every day that the loan is outstanding. The December income statement must report one month's interest expense."] Text[90]=["

Right!","The income statement must report the interest incurred regardless of the date the interest is paid. $100,000 X .12 X 1/12 = $1,000."] Text[91]=["

Wrong.","Interest is associated with the finance function, not the main activity of buying/producing and selling."] Text[92]=["

Right!","Interest is associated with the finance function, which is not the main operations of the company."] Text[93]=["

Wrong.","There is no subtotal in the single-step income statement."] Text[94]=["

Right!","It will appear as the result of subtracting the cost of goods sold from net sales."] Text[95]=["

Wrong.","The single-step statement shows operating and non-operating revenues in one group, and it shows operating and non-operating expenses as another group."] Text[96]=["

Right!","Multiple-step shows operating revenues and expenses separate from the non-operating revenues and expenses."] Text[97]=["

Right!","Interest revenue is outside of a company's main operations."] Text[98]=["

Wrong.","Interest earned is a non-operating revenue."] Text[99]=["

Wrong.","Interest earned would appear in the non-operating section."] Text[100]=["

Wrong.","Under the accrual basis of accounting, revenues are recognized when the revenues are earned, not when the cash is received."] Text[101]=["

Right!","Under the accrual basis of accounting, revenues are recognized when earned."] Text[102]=["

Wrong.","The statement of operations is another name for the income statement."] Text[103]=["

Right!","The balance sheet is also referred to as the statement of financial position or the statement of financial condition."] Text[104]=["

Wrong.","The balance sheet reflects an instant or a POINT in time."] Text[105]=["

Right!","The balance sheet is at an instant or point in time."] Text[106]=["

Wrong.","Expenses are an element of the income statement. (However, expenses do cause a decrease in owner's/stockholders' equity on the balance sheet.)"] Text[107]=["

Wrong.","Gains are an element of the income statement. (However, gains do cause an increase in owner's/stockholders' equity on the balance sheet.)"] Text[108]=["

Right!","Liabilities are an element of the balance sheet along with assets and owner's/stockholders' equity."] Text[109]=["

Wrong.","Losses are an element of the income statement. (However, losses do cause a decrease in owner's/stockholders' equity on the balance sheet."] Text[110]=["

Wrong.","Accounts Payable is a liability account."] Text[111]=["

Right!","Prepaid Insurance is a current asset. Prepaid costs that have not yet expired are considered to be assets."] Text[112]=["

Wrong.","Unearned Revenue is a liability account. It comes about when a company has received cash in advance of earning it. As a result the company has the cash, but also has the obligation/liability to perform the service, deliver the product, or return the cash."] Text[113]=["

Right!","Accumulated Depreciation is a contra asset account. It is located in the long-term asset section of the balance sheet under the heading of property, plant, and equipment."] Text[114]=["

Wrong.","Mary Smith, Capital is an owner equity account and is not a contra account. (Mary Smith, Drawing would be a contra owner equity account."] Text[115]=["

Right!","Asset accounts normally have debit balances. "] Text[116]=["

Wrong.","Asset accounts normally have debit balances."] Text[117]=["

Wrong.","Liability accounts normally have credit balances."] Text[118]=["

Right!","Liability accounts normally have credit balances."] Text[119]=["

Wrong.","Owner's/stockholders' accounts normally have credit balances."] Text[120]=["

Right!","Owner's/stockholders' accounts normally have credit balances."] Text[121]=["

Wrong.","Asset accounts normally have debit balances, so a contra asset would have a credit balance."] Text[122]=["

Right!","Since asset accounts normally have debit balances, a contra asset account would have a credit balance."] Text[123]=["

Wrong.","Accounts Receivable would be credited if the $1,000 received was a collection of an amount billed previously."] Text[124]=["

Wrong.","Prepaid Services is an asset account arising if ABC had paid cash to supplier/vendor in advance of receiving the service. In this case ABC is receiving cash."] Text[125]=["

Wrong.","Service Revenue would be credited if ABC was performing the services in December and was being paid immediately. In this case the service will not be provided/earned until February 2008."] Text[126]=["

Right!","Unearned Revenue should be credited because ABC has not earned the $1,000 and ABC has an obligation to perform the service in the future."] Text[127]=["

Right!","In January ABC is collecting an account receivable. The account receivable was established in December when ABC performed the service and earned the revenue and also established a right to receive the money in January."] Text[128]=["

Wrong.","The receipt of $4,000 is not revenue, it is a collection of an account receivable. Service revenue was recognized when it was earned in December. You can only recognize revenue once."] Text[129]=["

Wrong.","Owner equity is not involved. The asset Cash is increased and the asset Accounts Receivable is decreased."] Text[130]=["

Wrong.","Assets were increased with the debit to Accounts Receivable. The credit to the income statement account Service Revenues has the effect of increasing owner's/stockholders' equity."] Text[131]=["

Right!","The credit to the income statement account Service Revenues will have the effect of increasing owner's/stockholders' equity."] Text[132]=["

Wrong.","Accounts Receivable IS a current asset because the accounts will usually be collected in a month or two."] Text[133]=["

Right!","Land is not a current asset, because land will NOT turn to cash within one year of the balance sheet date, or within the operating cycle if the operating cycle is longer than one year."] Text[134]=["

Wrong.","Prepaid Insurance IS a current asset, because it will usually expire within one year of the balance sheet date."] Text[135]=["

Wrong.","Supplies IS a current asset in that supplies on hand will be used within one year of the balance sheet date."] Text[136]=["

Wrong.","To be a current liability a note payable must be due within one year of the balance sheet date (or within the operating cycle if the operating cycle is longer than one year)."] Text[137]=["

Right!","Unearned Revenue will most likely be earned within one year of the balance sheet date. Therefore it is a current liability. (As it is earned, it moves from the balance sheet to the income statement as revenue.)"] Text[138]=["

Right!","Owner's/stockholders' equity will decrease—keeping the accounting equation and the balance sheet in balance."] Text[139]=["

Wrong.","Owner's/stockholders' equity will decrease—keeping the accounting equation and the balance sheet in balance."] Text[140]=["

Wrong.","Assets are unchanged until ABC pays the invoice in January."] Text[141]=["

Right!","In December an expense and a liability are recorded. So liabilities increased and owner's equity decreased."] Text[142]=["

Wrong.","In December an expense and a liability are recorded. So liabilities increased and owner's equity decreased."] Text[143]=["

Wrong.","Deferred credits appear with the liabilities."] Text[144]=["

Right!","Deferred credits appear with the liabilities."] Text[145]=["

Wrong.","Deferred credits appear with the liabilities. They are often positioned between the liabilities and owner's/stockholders' equity."] Text[146]=["

Right!","Notes Payable cannot appear as a current asset. It is either a current liability or a long-term liability."] Text[147]=["

Wrong.","Notes Payable could be a current liability."] Text[148]=["

Wrong.","Notes Payable could be a long-term liability."] Text[149]=["

Wrong.","There is no liability for ABC until Juanita performs work for ABC. Prior to January 2, ABC has a commitment but will not have a liability."] Text[150]=["

Wrong.","There is no liability for ABC until Juanita performs work for ABC. Prior to January 2, ABC has a commitment but will not have a liability."] Text[151]=["

Right!","There is no liability for ABC until Juanita performs work for ABC. Prior to January 2, ABC has a commitment but will not have a liability."] Text[152]=["

Wrong.","Owner's equity = total assets minus total liabilities."] Text[153]=["

Wrong.","Owner's equity = total assets minus total liabilities."] Text[154]=["

Right!","Total assets of $150,000 minus total liabilities of $80,000 equals owner's equity of $70,000."] Text[155]=["

Wrong.","Owner's equity = total assets minus total liabilities."] Text[156]=["

Right!","Depreciation is added back to net income in the operating activities section because the company's net income was reduced by the depreciation expense shown on the income statement; however, the company's cash was not reduced by depreciation expense. (Accordingly depreciation expense is referred to as a non-cash expense.)"] Text[157]=["

Wrong.","Depreciation expense appears in the operating activities section."] Text[158]=["

Wrong.","Depreciation expense appears in the operating activities section."] Text[159]=["

Wrong.","Depreciation expense appears in the operating activities section."] Text[160]=["

Wrong.","The entire proceeds from the sale of a long-term asset are shown in the investing activities section of the statement of cash flows."] Text[161]=["

Right!","The entire proceeds from the sale of a long-term asset are shown in the investing activities section of the statement of cash flows."] Text[162]=["

Wrong.","Financing activities involve long-term liabilities and stockholders equity. The entire proceeds from the sale of a long-term asset are shown in the investing activities section of the statement of cash flows."] Text[163]=["

Wrong.","The entire proceeds from the sale of a long-term asset are shown in the investing activities section of the statement of cash flows."] Text[164]=["

Right!","The loss (computed as proceeds minus the book value) appeared on the income statement and reduced the company's net income. However, the company's cash did not decrease. (Actually the company's cash increased by the amount received for the asset.) You need to add back the loss that reduced net income on the income statement so that the amount reflects the cash from operating activities."] Text[165]=["

Wrong.","The loss must be added back to the net income amount appearing in the operating activities section of the statement of cash flows."] Text[166]=["

Wrong.","The loss must be added back to the net income amount appearing in the operating activities section of the statement of cash flows."] Text[167]=["

Wrong.","The loss must be added back to the net income amount appearing in the operating activities section of the statement of cash flows."] Text[168]=["

Wrong.","Dividends declared/paid are shown in the financing activities section."] Text[169]=["

Wrong.","Dividends declared/paid are shown in the financing activities section."] Text[170]=["

Right!","Dividends cause stockholders' equity and cash to decrease. Changes in long-term liabilities and stockholders' equity are shown in the financing activities section of the statement of cash flows."] Text[171]=["

Wrong.","Dividends declared/paid are shown in the financing activities section."] Text[172]=["

Right!","The gain (computed as proceeds minus the book value) appeared on the income statement and increased the company's net income. However, the entire proceeds from the sale of a company's assets are shown in the investing section. In order to avoid double-counting the proceeds from the gain must be subtracted from the net income amount appearing in the operating activities section of the statement of cash flows."] Text[173]=["

Wrong.","The gain is shown as a deduction in the operating activities section. The proceeds from the sale will appear in the investing section."] Text[174]=["

Wrong.","The gain is shown as a deduction in the operating activities section. The proceeds from the sale will appear in the investing section."] Text[175]=["

Wrong.","The gain is shown as a deduction in the operating activities section. The proceeds from the sale will appear in the investing section."] Text[176]=["

Wrong.","The entire proceeds will be shown in the investing activities section. (The gain will appear as a deduction in the operating activities section of the statement of cash flows.)"] Text[177]=["

Right!","The entire proceeds will be shown in the investing activities section. (The gain will appear as a deduction in the operating activities section of the statement of cash flows.)"] Text[178]=["

Wrong.","The entire proceeds will be shown in the investing activities section. (The gain will appear as a deduction in the operating activities section of the statement of cash flows.)"] Text[179]=["

Wrong.","The entire proceeds will be shown in the investing activities section. (The gain will appear as a deduction in the operating activities section of the statement of cash flows.)"] Text[180]=["

Right!","Merchandise Inventory is a current asset. Changes in current assets (other than Cash) and changes in current liabilities are shown in the operating activities section of the statement of cash flows. An increase in Merchandise Inventory will be shown as a deduction in the cash from the operating activities section."] Text[181]=["

Wrong.","Merchandise Inventory is a current asset. Changes in current assets (other than Cash) and changes in current liabilities are shown in the operating activities section of the statement of cash flows."] Text[182]=["

Wrong.","Merchandise Inventory is a current asset. Changes in current assets (other than Cash) and changes in current liabilities are shown in the operating activities section of the statement of cash flows."] Text[183]=["

Wrong.","Merchandise Inventory is a current asset. Changes in current assets (other than Cash) and changes in current liabilities are shown in the operating activities section of the statement of cash flows."] Text[184]=["

Right!","Accounts Payable is a current liability account. Changes in current liabilities and changes in current assets (other than Cash) are shown in the operating activities section of the statement of cash flows. An increase in Accounts Payable will be shown as an increase in the cash from operating activities."] Text[185]=["

Wrong.","Accounts Payable is a current liability account. Changes in current liabilities and changes in current assets (other than Cash) are shown in the operating activities section of the statement of cash flows."] Text[186]=["

Wrong.","Accounts Payable is a current liability account. Changes in current liabilities and changes in current assets (other than Cash) are shown in the operating activities section of the statement of cash flows."] Text[187]=["

Wrong.","Accounts Payable is a current liability account. Changes in current liabilities and changes in current assets (other than Cash) are shown in the operating activities section of the statement of cash flows."] Text[188]=["

Wrong.","Bonds Payable is a long-term liability. Changes in long-term liabilities and changes in stockholders' equity are shown in the financing activities section."] Text[189]=["

Wrong.","Bonds Payable is a long-term liability. Changes in long-term liabilities and changes in stockholders' equity are shown in the financing activities section."] Text[190]=["

Right!","Bonds Payable is a long-term liability. Changes in long-term liabilities and changes in stockholders' equity are shown in the financing activities section. A decrease in Bonds Payable will be shown as an decrease in cash from financing activities."] Text[191]=["

Wrong.","Bonds Payable is a long-term liability. Changes in long-term liabilities and changes in stockholders' equity are shown in the financing activities section."] Text[192]=["

Wrong.","The purchase of treasury stock results in a decrease in stockholders' equity. Changes in stockholders' equity and long-term liabilities are shown in the financing activities section of the statement of cash flows."] Text[193]=["

Wrong.","The purchase of treasury stock results in a decrease in stockholders' equity. Changes in stockholders' equity and long-term liabilities are shown in the financing activities section of the statement of cash flows."] Text[194]=["

Right!","The purchase of treasury stock results in a decrease in stockholders' equity. Changes in stockholders' equity and long-term liabilities are shown in the financing activities section of the statement of cash flows. The purchase of Treasury Stock will cause a decrease in cash from financing activities."] Text[195]=["

Wrong.","The purchase of treasury stock results in a decrease in stockholders' equity. Changes in stockholders' equity and long-term liabilities are shown in the financing activities section of the statement of cash flows."] Text[196]=["

Wrong.","The new delivery truck to be used in the business is a long-term asset. Changes in long-term assets are shown in the investing activities section of the statement of cash flows."] Text[197]=["

Right!","The new delivery truck to be used in the business is a long-term asset. Changes in long-term assets are shown in the investing activities section of the statement of cash flows. The purchase of a delivery truck will cause a decrease in cash from investing activities."] Text[198]=["

Wrong.","The new delivery truck to be used in the business is a long-term asset. Changes in long-term assets are shown in the investing activities section of the statement of cash flows."] Text[199]=["

Wrong.","The new delivery truck to be used in the business is a long-term asset. Changes in long-term assets are shown in the investing activities section of the statement of cash flows."] Text[200]=["

Right!","Accounts Receivable is a current asset. Changes in current assets (other than Cash) and changes in current liabilities are shown in the operating activities section of the statement of cash flows. A decrease in the Accounts Receivable will appear as an increase in cash from operating activities."] Text[201]=["

Wrong.","Accounts Receivable is a current asset. Changes in current assets (other than Cash) and changes in current liabilities are shown in the operating activities section of the statement of cash flows."] Text[202]=["

Wrong.","Accounts Receivable is a current asset. Changes in current assets (other than Cash) and changes in current liabilities are shown in the operating activities section of the statement of cash flows."] Text[203]=["

Wrong.","Accounts Receivable is a current asset. Changes in current assets (other than Cash) and changes in current liabilities are shown in the operating activities section of the statement of cash flows."] Text[204]=["

Wrong.","Bonds Payable is a long-term liability. Changes in long-term liabilities and changes in stockholders' equity are shown in the financing activities section."] Text[205]=["

Wrong.","Bonds Payable is a long-term liability. Changes in long-term liabilities and changes in stockholders' equity are shown in the financing activities section."] Text[206]=["

Right!","Bonds Payable is a long-term liability. Changes in long-term liabilities and changes in stockholders' equity are shown in the financing activities section. An increase in Bonds Payable will be reported as a increase in cash from financing activities."] Text[207]=["

Wrong.","Bonds Payable is a long-term liability. Changes in long-term liabilities and changes in stockholders' equity are shown in the financing activities section."] Text[208]=["

Right!","Prepaid Insurance is a current asset. Changes in current assets (other than Cash) and changes in current liabilities are shown in the operating activities section of the statement of cash flows. A decrease in Prepaid Insurance will be reported as an increase in cash from operating activities."] Text[209]=["

Wrong.","Prepaid Insurance is a current asset. Changes in current assets (other than Cash) and changes in current liabilities are shown in the operating activities section of the statement of cash flows."] Text[210]=["

Wrong.","Prepaid Insurance is a current asset. Changes in current assets (other than Cash) and changes in current liabilities are shown in the operating activities section of the statement of cash flows."] Text[211]=["

Wrong.","Prepaid Insurance is a current asset. Changes in current assets (other than Cash) and changes in current liabilities are shown in the operating activities section of the statement of cash flows."] Text[212]=["

Right!","Income Taxes Payable is a current liability account. Changes in current liabilities and changes in current assets (other than Cash) are shown in the operating activities section of the statement of cash flows. A decrease in a current liability will be reported as a decrease in cash from operating activities."] Text[213]=["

Wrong.","Income Taxes Payable is a current liability account. Changes in current liabilities and changes in current assets (other than Cash) are shown in the operating activities section of the statement of cash flows."] Text[214]=["

Wrong.","Income Taxes Payable is a current liability account. Changes in current liabilities and changes in current assets (other than Cash) are shown in the operating activities section of the statement of cash flows."] Text[215]=["

Wrong.","Income Taxes Payable is a current liability account. Changes in current liabilities and changes in current assets (other than Cash) are shown in the operating activities section of the statement of cash flows."] Text[216]=["

Wrong.","The issuance of common stock results in an increase in stockholders' equity. Changes in stockholders' equity and long-term liabilities are shown in the financing activities section of the statement of cash flows."] Text[217]=["

Wrong.","The issuance of common stock results in an increase in stockholders' equity. Changes in stockholders' equity and long-term liabilities are shown in the financing activities section of the statement of cash flows."] Text[218]=["

Right!","The issuance of common stock results in an increase in stockholders' equity. Changes in stockholders' equity and long-term liabilities are shown in the financing activities section of the statement of cash flows. The proceeds from the issuance of common stock will be reported as an increase in cash from financing activities."] Text[219]=["

Wrong.","The issuance of common stock results in an increase in stockholders' equity. Changes in stockholders' equity and long-term liabilities are shown in the financing activities section of the statement of cash flows."] Text[220]=["

Right!","Amortization of the cost of an intangible asset is added back to net income in the operating activities section because the company's net income was reduced by the amortization expense shown on the income statement; however, the company's cash was not reduced by amortization expense. (Accordingly amortization expense is referred to as a non-cash expense.)"] Text[221]=["

Wrong.","Amortization expense appears in the operating activities section."] Text[222]=["

Wrong.","Amortization expense appears in the operating activities section."] Text[223]=["

Wrong.","Amortization expense appears in the operating activities section."] Text[224]=["

Wrong.","The exchange or conversion of bonds into common (or preferred) stock is a non-cash exchange and appears as supplemental information."] Text[225]=["

Wrong.","The exchange or conversion of bonds into common (or preferred) stock is a non-cash exchange and appears as supplemental information."] Text[226]=["

Wrong.","The exchange or conversion of bonds into common (or preferred) stock is a non-cash exchange and appears as supplemental information."] Text[227]=["

Right!","The exchange or conversion of bonds into common (or preferred) stock is a non-cash exchange and appears as supplemental information."] Text[228]=["

Wrong.","Prepaid Insurance is a current asset. An increase in any asset account balance (other than Cash) is assumed to have used Cash or decreased Cash. Both of these are considered to have a negative effect on Cash."] Text[229]=["

Right!","Prepaid Insurance is a current asset. An increase in any asset account balance (other than Cash) is assumed to have used Cash or decreased Cash. Both of these are considered to have a negative effect on Cash.

[Because Prepaid Insurance is a current asset, the decrease in Cash appears in the operating activities section of the statement of cash flows.] "] Text[230]=["

Right!","Supplies (on Hand) is a current asset account. A decrease in any asset account balance (other than Cash) is assumed to be a source of Cash, provided Cash, increased Cash, or have used less Cash than the amount of Supplies Expense shown on the income statement. All of these are considered to have a positive effect on Cash.

[Because Supplies is a current asset, the increase in Cash will appear in the operating activities section of the statement of cash flows.]"] Text[231]=["

Wrong.","Supplies (on Hand) is a current asset account. A decrease in any asset account balance (other than Cash) is assumed to be positive for the company's Cash account. Also see the Positive answer."] Text[232]=["

Right!","Equipment is a long-term asset. A decrease in any asset account (other than Cash) is assumed to be a source of Cash, provided Cash, or increased Cash. All of these are positive effects on Cash.

[The entire proceeds from the sale of the equipment will be shown in the investing activities section of the statement of cash flows.]"] Text[233]=["

Wrong.","Equipment is a long-term asset. A decrease in any asset account (other than Cash) is assumed to be a source of Cash, provided Cash, or increased Cash. All of these are positive effects on Cash."] Text[234]=["

Right!","The Loss on the Sale of Equipment caused a decrease to the net income amount on the income statement. However, there was no decrease in Cash for this loss. Therefore, we need to add back (show an increase) to the net income amount appearing in the operating activities section."] Text[235]=["

Wrong.","The Loss on the Sale of Equipment had already reduced the net income amount on the income statement. However, there was no decrease in Cash for this income statement item. Therefore you must add this amount back to the net income amount appearing in the operating activities section—a positive effect."] Text[236]=["

Right!","Income Taxes Payable is a current liability. An increase in any liability account (or in stockholders' equity) is assumed to increase Cash or at least be favorable from a Cash point of view. If Income Taxes Payable increased, the company did not pay the entire amount of Income Tax Expense shown on the income statement. Since the starting point in the operating activities section is net income, you add back the increase in Income Taxes Payable.

To assist in understanding the increase or decrease, you could substitute 'favorable effect on Cash' for increases in liabilities. (Substitute 'negative effect on Cash' for decreases in liabilities.) If a payable increases, it means the company did NOT pay all of the bills and that has a favorable effect on Cash.

Another way to remember the effect is that the effect on Cash will be the SAME direction as a change in the liability account balance. An increase in any liability will be a positive amount/effect on the statement of cash flows (SCF). A decrease in any liability will be shown as a negative amount/effect on the SCF.

[Because Income Taxes Payable is a current liability, the change will be shown in the operating activities section of the SCF.]"] Text[237]=["

Wrong.","Income Taxes Payable is a current liability. An increase in any liability account (or in stockholders' equity) is assumed to increase Cash or at least be favorable from Cash point of view. If Income Taxes Payable increased, the company did not pay the entire amount of Income Tax Expense shown on the income statement. Since the starting point in the operating activities section is net income, you add back the increase in Income Taxes Payable.

To assist in understanding the increase or decrease, you could substitute 'favorable effect on Cash' for increases in liabilities. (Substitute 'negative effect on Cash' for decreases in liabilities.) If a payable increases, it means the company did NOT pay all of the bills and that has a favorable effect on Cash.

Another way to remember the effect is: the effect on Cash will be the SAME direction as a change in the liability account balance. An increase in any liability will be a positive amount on the statement of cash flows (SCF). A decrease in any liability will be shown as a negative amount on the SCF."] Text[238]=["

Wrong.","Accounts Payable is a current liability account. It is assumed that a company had to use or decrease Cash in order to decrease any liability. You could also think of negative amounts on the statement of cash flows as being unfavorable from a Cash point of view. Decreasing a liability is unfavorable or negative as far as Cash is concerned.

Another way to remember the effect is: the change in Cash will be in the SAME direction as a change in the liability account balance. An increase in any liability will be a positive amount on the statement of cash flows (SCF). A decrease in any liability will be shown as a negative amount on the SCF."] Text[239]=["

Right!","Accounts Payable is a current liability account. It is assumed that a company had to use or decrease Cash in order to decrease any liability. You could also think of negative amounts on the statement of cash flows as being unfavorable from a Cash point of view. Decreasing a liability is unfavorable or negative as far as Cash is concerned.

TIP: The change in Cash will be the SAME direction as a change in the LIABILITY account balance. An increase in any liability will be a positive amount on the statement of cash flows (SCF). A decrease in any liability will be shown as a negative amount on the SCF.

[Because Accounts Payable is a current liability, the change will be shown in the operating activities section of the SCF.]"] Text[240]=["

Wrong.","Accounts Receivable is a current asset. An increase in any asset (other than Cash) is assumed to have a negative effect on Cash. The change in Cash is the OPPOSITE sign of the change in the other ASSET'S balance."] Text[241]=["

Right!","Accounts Receivable is a current asset. An increase in any asset (other than Cash) is assumed to have a negative effect on Cash. The change in Cash is the OPPOSITE sign of the change in the other ASSET'S balance.

[Because Accounts Receivable is a current asset, the change appears in the operating activities section.]"] Text[242]=["

Right!","The change in Cash will be the SAME direction as the change in the balance of a LIABILITY account. In this case the Warranty Liability balance increased, so the effect on Cash shown on the statement of cash flows is also a positive amount.

[Because Warranty Liability is a current liability, the change will appear in the operating activities section.]"] Text[243]=["

Wrong.","If a liability account increases, Cash is assumed to also increase. Recall that the effect on Cash is the same sign/direction as the change in the liability."] Text[244]=["

Wrong.","Dividends decrease the company's amount of Cash. "] Text[245]=["

Right!","Dividends do decrease the company's Cash, which is a negative effect on Cash.

[Because dividends affect a stockholders' equity account, dividends will be shown in the financing activities section as a negative amount.]"] Text[246]=["

Right!","The proceeds received by the company for the new stock being issued will increase the company's Cash, a positive effect on Cash.

[Because the transaction involves stockholders' equity, the amount will appear in the financing activities section of the statement of cash flows.] "] Text[247]=["

Wrong.","The company will be increasing its Cash by issuing new shares of stock. An increase to Cash is a positive effect."] Text[248]=["

Wrong.","The Gain on Sale of Equipment was an increase to the net income on the income statement. On the statement of cash flows we need to subtract the gain from the net income so that only the cash from operating activities appears in the operating activities section. This subtraction or decrease will also prevent the double counting of the gain, since the entire proceeds from the sale are reported in the investing activities section."] Text[249]=["

Right!","The Gain on Sale of Equipment was an increase to the net income on the income statement. On the statement of cash flows we need to subtract the gain from the net income so that only the cash from operating activities appears in the operating activities section. This subtraction or decrease will also prevent the double counting of the gain, since the entire proceeds from the sale are reported in the investing activities section."] Text[250]=["

Wrong.","An increase in any asset (other than Cash) is assumed to have a negative effect on Cash. An increase in any asset (other than Cash) is assumed to be a use of Cash or a decrease in Cash."] Text[251]=["

Right!","An increase in any asset (other than Cash) is assumed to have a negative effect on Cash. It is assumed that Cash was used or decreased."] Text[252]=["

Right!","Cash is always debited when cash is received."] Text[253]=["

Wrong.","Remember that whenever cash is received, the Cash account is DEBITED. Also remember that we debit asset accounts (other than contra asset accounts) in order to increase their normal debit balance."] Text[254]=["

Wrong.","The owner's equity account, Mary Smith, Capital, should be CREDITED. There are two reasons for this. One reason is that the Cash account was debited (because the company received cash). Therefore, the other part of the transaction needs to be a credit.

The second reason is that the normal balance for Mary Smith, Capital is a credit balance and to increase its balance, we need to CREDIT the account. Recall that the owner equity account, Mary Smith, Capital is on the right side or credit side of the accounting equation and therefore its balance is normally a credit balance."] Text[255]=["

Right!","This owner's equity account should be credited, not debited."] Text[256]=["

Wrong.","The correct answer is Accounts Receivable. The words 'on account' and 'credit terms' indicate that cash was not received."] Text[257]=["

Right!","The account Accounts Receivable should be debited in August. Accounts Receivable, an asset, was increased in August. "] Text[258]=["

Wrong.","The account to be debited is Accounts Receivable. This account, Service Revenue should be CREDITED in August. It is very rare that any revenue account would be debited."] Text[259]=["

Wrong.","No cash was involved in August. Further, cash is credited when a company PAYS cash."] Text[260]=["

Wrong.","You should have DEBITED Accounts Receivable in August. A credit to Accounts Receivable would reduce the account balance, which is not the case in August."] Text[261]=["

Right!","You should credit revenues when they are earned."] Text[262]=["

Right!","We always debit Cash when cash is received."] Text[263]=["

Wrong.","The correct answer is to debit Cash, since cash was received. Accounts Receivable should be CREDITED, since this asset is reduced when the company collects on its accounts receivable. (A debit to Accounts Receivable or any asset will increase the account balance.)"] Text[264]=["

Wrong.","There is no revenue in September. The revenue was earned and recognized in August. Further the Service Revenue account is almost always CREDITED—rarely debited."] Text[265]=["

Wrong.","When cash is received the Cash account would be DEBITED, not credited."] Text[266]=["

Right!","When an asset such as Accounts Receivable is decreased, you credit the account."] Text[267]=["

Wrong.","Service Revenue was credited in August when the service was performed. You cannot recognize revenue twice for the same service. In September the company is merely collecting an accounts receivable. This means the credit should be to Accounts Receivable."] Text[268]=["

Wrong.","Accounts Payable is a liability account. Liability accounts have credit balances and to increase the balance you need to CREDIT the account."] Text[269]=["

Right!","To increase a liability you credit the liability account. "] Text[270]=["

Right!","Cash and other assets are debited to increase their balances."] Text[271]=["

Wrong.","A credit will DECREASE the Cash account (or any asset account) balance."] Text[272]=["

Right!","Since land is an asset, you debit the account to increase its balance."] Text[273]=["

Wrong.","The correct answer is debit. Since land is an asset, you need to DEBIT the Land account to increase its balance."] Text[274]=["

Wrong.","Since Notes Payable is a liability account, you need to CREDIT the account to increase it."] Text[275]=["

Right!","As with any liability account, you credit the account to increase its balance."] Text[276]=["

Right!","Accounts Receivable is an asset and a debit will increase an asset account."] Text[277]=["

Wrong.","A credit will DECREASE an asset such as Accounts Receivable. To increase Accounts Receivable you need to debit the account."] Text[278]=["

Wrong.","Mary Smith, Capital is an owner equity account and its normal balance is a credit balance. Therefore to increase the account you need to CREDIT it."] Text[279]=["

Right!","Mary Smith, Capital is an owner equity account with a normal balance of credit. Hence you credit the account to increase its balance."] Text[280]=["

Right!","Supplies is an asset account. Asset accounts normally have debit balances and are debited to increase their balances."] Text[281]=["

Wrong.","Supplies is an asset account. Asset accounts normally have debit balances and are DEBITED to increase their balances."] Text[282]=["

Right!","Supplies Expense should be debited. Except for special situations (correcting entries, closing entries, and some adjusting entries) expenses are always debited."] Text[283]=["

Wrong.","Supplies Expense should be DEBITED. Except for special situations (correcting entries, closing entries, and some adjusting entries) expenses are always debited."] Text[284]=["

Right!","Prepaid Insurance is an asset and assets are increased with a debit."] Text[285]=["

Wrong.","Prepaid Insurance is an asset and assets are increased with a DEBIT. When you prepay insurance you pay cash. This means the entry will have to CREDIT Cash. That in turn means you will need to DEBIT an account—and the account is Prepaid Insurance."] Text[286]=["

Wrong.","Revenue accounts are almost always CREDITED. The exceptions are: correcting, closing, and some adjusting entries. Think of performing a service for cash. You would debit Cash because you received cash and you would need to credit an account, because of double entry. Since you are earning the money by performing the service, you should credit a revenue account. Revenues also have the effect of increasing owner's equity, which normally has a credit balance."] Text[287]=["

Right!","Revenue accounts are almost always CREDITED. (The exceptions are: correcting, closing, and some adjusting entries.) Revenues have the effect of increasing owner's equity, so it is reasonable for revenues to have a credit balance. "] Text[288]=["

Right!","The drawing account normally has a debit balance and should be debited when the owner withdraws assets from the business for personal use. You can also visualize the journal entry. When the owner draws money out of the business, the business will CREDIT Cash. That means the other account involved will have to be debited. Mary Smith, Drawing is a contra owner's equity account."] Text[289]=["

Wrong.","The drawing account normally has a debit balance and should be debited when the owner withdraws assets from the business for personal use. You can also visualize the journal entry. When the owner draws money out of the business, the business will CREDIT Cash. That means the other account involved will have to be debited. Mary Smith, Drawing is a contra owner's equity account."] Text[290]=["

Right!","Equipment is an asset and should be debited to increase the account balance."] Text[291]=["

Wrong.","A credit will decrease an asset account balance. To increase an asset account balance you need to debit the account. "] Text[292]=["

Wrong.","Unearned Revenue is a liability account. A debit will decrease a liability account. You want to credit a liability account in order to increase it."] Text[293]=["

Right!","Since Unearned Revenue is a liability account, a credit will increase its balance."] Text[294]=["

Right!","Accounts Payable is a liability account. To decrease a liability account you debit the account."] Text[295]=["

Wrong.","Accounts Payable is a liability account. Liability accounts have credit balances and to decrease the balance you need to DEBIT the account. (If you were to pay off a liability, you would have to credit Cash, so the entry to the liability account would have to be a debit.) "] Text[296]=["

Wrong.","A debit will INCREASE the Cash account (or any asset account) balance. A CREDIT will decrease the Cash account."] Text[297]=["

Right!","A credit will DECREASE the Cash account (or any asset account) balance."] Text[298]=["

Wrong.","The correct answer is credit. Since land is an asset, you need to CREDIT the Land account to decrease its balance."] Text[299]=["

Right!","Since land is an asset, you credit the Land account to decrease its balance."] Text[300]=["

Right!","As with any liability account, you debit the Notes Payable account to decrease its balance."] Text[301]=["

Wrong.","Since Notes Payable is a liability account with its normal credit balance, a DEBIT is needed to decrease the account balance."] Text[302]=["

Wrong.","Accounts Receivable is an asset and a CREDIT is needed to decrease its normal debit balance."] Text[303]=["

Right!","A credit will decrease an asset such as Accounts Receivable."] Text[304]=["

Right!","Mary Smith, Capital is an owner equity account with a normal balance of credit. Hence you debit the account to decrease its balance."] Text[305]=["

Wrong.","Mary Smith, Capital is an owner equity account with a normal balance of credit. If you credit the account you are increasing its balance. A DEBIT will decrease balance."] Text[306]=["

Wrong.","Supplies is an asset account. Asset accounts normally have debit balances and a debit will increase asset balances. You should CREDIT an asset to reduce an asset's balance."] Text[307]=["

Right!","Since Supplies is an asset account, it will be reduced by a credit. "] Text[308]=["

Wrong.","A debit will INCREASE Supplies Expense. It is very unusual that previous expenses already recorded in an expense account will be decreased. However, a CREDIT will reduce the normal debit balances of expenses."] Text[309]=["

Right!","It is very unusual that previous expenses already recorded in an expense account will be decreased. However, a credit will reduce the normal debit balances of expenses."] Text[310]=["

Wrong.","Prepaid Insurance is an asset and to decrease an asset you need to CREDIT the account."] Text[311]=["

Right!","Prepaid Insurance is an asset and will be reduced with a credit."] Text[312]=["

Right!","Because revenue accounts have credit balances, you are correct to indicate that a debit will reduce the balance."] Text[313]=["

Wrong.","Revenue accounts have credit balances, so crediting a revenue account will INCREASE the balance."] Text[314]=["

Wrong.","A debit to the drawing account will increase (not decrease) the balance in Mary Smith, Drawing. (Since this drawing account is a contra owner's equity account, the debit will cause the owner's equity to decrease. However, the debit causes the drawing account balance to increase.) To DECREASE the balance in the drawing account, you will need to CREDIT the account."] Text[315]=["

Right!","Because Mary Smith, Drawing is a contra owner equity account with a debit balance, you are correct to indicate a credit is needed to reduce the balance."] Text[316]=["

Wrong.","Equipment is an asset and a debit will increase the account balance. You would have to CREDIT Equipment in order to reduce its balance."] Text[317]=["

Right!","A credit will decrease this asset's account balance. "] Text[318]=["

Right!","Unearned Revenue is a liability account and its balance will be decreased with a debit."] Text[319]=["

Wrong.","Since Unearned Revenue is a liability account, you need to DEBIT this account in order to decrease its balance."] Text[320]=["

Wrong.","Accounts Payable is a liability account. Liability accounts have CREDIT balances. Liabilities are on the right hand or credit side of the accounting equation."] Text[321]=["

Right!","Liability accounts normally have credit balances. "] Text[322]=["

Right!","Cash and other assets have debit balances."] Text[323]=["

Wrong.","Cash and other assets have DEBIT balances. Assets are on the left or debit side of the accounting equation."] Text[324]=["

Right!","Since Land is an asset, its normal balance is a debit balance."] Text[325]=["

Wrong.","The correct answer is debit. Since Land is an asset, its normal balance is a DEBIT balance."] Text[326]=["

Wrong.","Since Notes Payable is a liability account, its balance is normally a CREDIT balance."] Text[327]=["

Right!","Liability accounts normally have credit balances."] Text[328]=["

Right!","Accounts Receivable is an asset. Therefore its normal balance is a debit balance."] Text[329]=["

Wrong.","Accounts Receivable is an asset. Therefore its normal balance is a DEBIT balance."] Text[330]=["

Wrong.","Mary Smith, Capital is an owner equity account and its normal balance is a CREDIT balance."] Text[331]=["

Right!","Mary Smith, Capital is an owner equity account with a normal balance of credit."] Text[332]=["

Right!","Supplies is an asset account. Asset accounts normally have debit balances."] Text[333]=["

Wrong.","Supplies is an asset account. Asset accounts normally have debit balances."] Text[334]=["

Right!","Supplies Expense (and all expenses) should normally have a debit balance."] Text[335]=["

Wrong.","Supplies Expense (and all expenses) should normally have a DEBIT balance."] Text[336]=["

Right!","Prepaid Insurance is an asset and assets normally have debit balances."] Text[337]=["

Wrong.","Prepaid Insurance is an asset and assets normally have debit balances."] Text[338]=["

Wrong.","Revenue accounts normally have CREDIT balances. (Revenues will cause owner equity to increase and owner equity normally has a credit balance.) "] Text[339]=["

Right!","Revenue accounts normally have CREDIT balances. (Revenues will cause owner equity to increase and owner equity normally has a credit balance.) "] Text[340]=["

Right!","The drawing account normally has a debit balance and should be debited when the owner withdraws assets from the business for personal use."] Text[341]=["

Wrong.","The drawing account normally has a DEBIT balance and should be debited when the owner withdraws assets from the business for personal use."] Text[342]=["

Right!","Equipment is an asset and therefore normally has a debit balance."] Text[343]=["

Wrong.","Equipment is an asset and therefore normally has a DEBIT balance."] Text[344]=["

Wrong.","Unearned Revenue is a liability account. As a result this account's normal balance is a CREDIT."] Text[345]=["

Right!","Since Unearned Revenue is a liability account, its normal balance is a credit balance."] Text[346]=["","December 31, 2008 (the last day of the accounting period)"] Text[347]=["","Two"] Text[348]=["","Interest Expense (an income statement account)"] Text[349]=["","Interest Payable (a balance sheet account)"] Text[350]=["","$1,000.
Computation:
12% per year is 1% per month X $100,000 = $1,000 per month.

Another method is Principal X Rate X Time = $100,000 X .12 X 1/12 = $1,000.

As of December 31 the company owes just one month of interest. When the note becomes due, the company will have to remit six months of interest for a total of $6,000 ($100,000 X .12 X 6/12)."] Text[351]=["","If the company fails to make the December 31 adjusting entry there will be four consequences:

1) Interest Expense will be understated (too little expense being reported) by $1,000.
2) Net Income will be overstated (too much net income being reported) by $1,000.
3) Owner's Equity will be overstated by $1,000.
4) Interest Payable will be understated by $1,000.

The accounting equation and balance sheet will show liabilities (Interest Payable) understated by $1,000 and owner's equity overstated by $1,000."] Text[352]=["","December 31, 2008"] Text[353]=["","Two"] Text[354]=["","Interest Receivable (a balance sheet account)"] Text[355]=["","Interest Revenue or Interest Income (an income statement account)"] Text[356]=["","$1,000.
Computation:
12% per year is 1% per month X $100,000 = $1,000 per month.

Another method is Principal X Rate X Time = $100,000 X .12 X 1/12 = $1,000.

As of December 31 the bank has earned just one month of interest. When the note becomes due, the bank will collect six months of interest for a total of $6,000 ($100,000 X .12 X 6/12)."] Text[357]=["","If the bank fails to make the December 31 adjusting entry there will be four consequences:

1) Interest Revenue or Interest Income will be understated by $1,000.
2) Net Income will be understated by $1,000.
3) Owner's Equity will be understated by $1,000.
4) Interest Receivable will be understated by $1,000.

The accounting equation and balance sheet will show assets (Interest Receivable) understated by $1,000 and owner's equity understated by $1,000."] Text[358]=["","December 31, 2008"] Text[359]=["","Two"] Text[360]=["","Insurance Expense (an income statement account)"] Text[361]=["","Prepaid Insurance (a balance sheet account)"] Text[362]=["","$200.
Calculation:
$2,400 divided by the 12 months of coverage = $200 per month. As of December 31 one month has gone by, so one month of insurance has expired and belongs in expense. (This means that the Prepaid Insurance account should have a balance of $2,200—11 months still prepaid or unexpired X $200 per month.)"] Text[363]=["","If the company fails to make the December 31 adjusting entry there will be four consequences:

1) Prepaid Insurance will be overstated by $200.
2) Insurance Expense will be understated by $200.
3) Net Income will be overstated by $200.
4)Owner's equity will be overstated by $200.

The accounting equation and balance sheet will show assets (Prepaid Insurance) overstated by $200 and owner's equity overstated by $200."] Text[364]=["","December 31, 2008"] Text[365]=["","Two"] Text[366]=["","Prepaid Insurance (a balance sheet account)"] Text[367]=["","Insurance Expense (an income statement account)"] Text[368]=["","$2,200.
Calculation:
$2,400 divided by the 12 months of coverage = $200 per month. As of December 31 one month has gone by, so one month of insurance has expired and belongs in Insurance Expense. Presently there is a $2,400 debit balance in Insurance Expense. To reduce the Insurance Expense to $200, you need to credit Insurance Expense for $2,200. Prepaid Insurance should have a balance of $2,200 because 11 months of insurance is still prepaid or unexpired X $200 per month."] Text[369]=["","If the company fails to make the December 31 adjusting entry there will be four consequences:

1) Prepaid Insurance will be understated by $2,200.
2) Insurance Expense will be overstated by $2,200.
3) Net Income will be understated by $2,200.
4) Owner's equity will be understated by $2,200.

The accounting equation and balance sheet will show assets (Prepaid Insurance) understated $2,200 and owner's equity understated by $2,200."] Text[370]=["","December 31, 2008"] Text[371]=["","Two"] Text[372]=["","Unearned Revenue (a balance sheet account)"] Text[373]=["","Service Revenue (an income statement account)"] Text[374]=["","$200.
Calculation:
$2,400 divided by the 12 months of coverage = $200 per month. As of December 31 one month has gone by, so one month of insurance has been earned and belongs in revenue. (This means that the Unearned Revenue account should have a balance of $2,200—11 months still unearned X $200 per month.) "] Text[375]=["","If XYZ Insurance Co. fails to make the December 31 adjusting entry there will be four consequences:

1) Unearned Revenue will be overstated by $200.
2) Service Revenue will be understated by $200.
3) Net Income will be understated by $200.
4) Owner's equity will be understated by $200.

The accounting equation and balance sheet will show liabilities (Unearned Revenue) overstated by $200 and owner's equity understated by $200."] Text[376]=["","December 31, 2008"] Text[377]=["","Two"] Text[378]=["","Supplies Expense (an income statement account)"] Text[379]=["","Supplies (a balance sheet account)"] Text[380]=["","$800.
Calculation:
The balance in the current asset account Supplies before any adjustment is a debit balance of $1,500. The actual amount of supplies on hand (unused) was determined to be $700. Therefore, the balance in the current asset account Supplies should be a debit balance of $700, not the present balance of $1,500. To reduce the Supplies account from a debit balance of $1,500 to become a debit balance of $700, you will need to credit Supplies for $800. The other half of the entry needs to be a debit of $800 to Supplies Expense. Since expenses are costs that have been used up, the $800 debit balance in Supplies Expense is proper. (Your company bought $1,500 and has $700 on hand/unused. Therefore, $800 must have been used up.)"] Text[381]=["","If your company fails to make the December 31 adjusting entry there will be four consequences:

1) Supplies will be overstated by $800.
2) Supplies Expense will be understated by $800.
3) Net Income will be overstated by $800.
4) Owner's equity will be overstated by $800.

The accounting equation and balance sheet will show assets (Supplies) overstated by $800 and owner's equity overstated by $800."] Text[382]=["","December 31, 2008"] Text[383]=["","Two"] Text[384]=["","Supplies (a balance sheet account)"] Text[385]=["","Supplies Expense (an income statement account)"] Text[386]=["","$700.
Calculation:
Account balances before adjustment: Supplies $0; Supplies Expense $1,500.
Since there are $700 of supplies on hand, the balance in the current asset account Supplies must be increased from $0 to $700. Hence a debit to Supplies for $700.
The present balance of $1,500 in the Supplies Expense account must be reduced, because not all $1,500 of supplies have been used. Since $700 of supplies are on hand, the company is assumed to have used only $800 of supplies. ($1,500 minus $700 on hand.) To report Supplies Expense of $800, we need to credit Supplies Expense for $700."] Text[387]=["","If your company fails to make the December 31 adjusting entry there will be four consequences:

1) Supplies Expense will be overstated by $700.
2) Supplies will be understated by $700.
3) Net Income will be understated by $700.
4) Owner's equity will be understated by $700.

The accounting equation and balance sheet will show assets (Supplies) understated by $700 and owner's equity understated by $700."] Text[388]=["

Wrong.","The cost principle is associated with the carrying amounts of the business assets."] Text[389]=["

Right!","The owner's assets are not shown on the balance sheet of the business. This is true even if the business is a sole proprietorship."] Text[390]=["

Wrong.","The monetary unit involves the expression of amounts in dollars and the assumption that the dollar's purchasing power does not change (no inflation)."] Text[391]=["

Right!","The cost principle requires the accountant to show assets at cost and expenses at cost rather than at higher amounts. Accountants are not allowed to recognize gains from merely holding the land. To be able to recognize a gain on the land, the company would have to sell the land."] Text[392]=["

Wrong.","The economic entity assumption involves keeping the owner's personal transactions separate from the business transactions."] Text[393]=["

Wrong.","A better answer is the cost principle. Keeping the asset amount at cost is due to the cost principle. The monetary unit assumption is that the dollar is stable over time—no inflation."] Text[394]=["

Wrong.","A better answer is monetary unit assumption. The cost principle requires accountants to record transactions at cost (an objective measurement) and to keep the asset at cost."] Text[395]=["

Wrong.","The economic entity assumption involves keeping the owner's personal transactions separate from the business transactions."] Text[396]=["

Right!","The monetary unit assumption is that the dollar is stable over time—no inflation."] Text[397]=["

Wrong.","Conservatism involves choosing between acceptable alternatives. In other words conservatism is used to break a tie between two acceptable choices of how to account for something. It is also associated with recognizing losses but not gains for certain situations."] Text[398]=["

Wrong.","The economic entity assumption involves keeping the owner's personal transactions separate from the business transactions."] Text[399]=["

Right!","The full disclosure principle requires businesses to disclose information that is relevant to the decisions of investors and creditors."] Text[400]=["

Wrong.","Conservatism involves choosing between acceptable alternatives. In other words conservatism is used to break a tie between two acceptable choices of how to account for something. It as also associated with recognizing losses but not gains for certain situations."] Text[401]=["

Wrong.","The full disclosure principle requires businesses to disclose information that is relevant to the decisions of investors and creditors."] Text[402]=["

Right!","When an amount is so small/immaterial an accountant may decide to ignore an accounting principle. For example, a large company might purchase a $300 digital camera to be used for the next five years. The matching principle would call for an expense (depreciation) of $60 per year for five years. Most accountants would violate the matching principle and expense the entire $300 in the year it is acquired. The rationale is that the decision makers would not be misled by the small differences of $240 in the year purchased and $60 per year in each of the following four years."] Text[403]=["

Wrong.","The economic entity assumption involves keeping the owner's personal transactions separate from the business transactions."] Text[404]=["

Right!","This is the correct answer."] Text[405]=["

Wrong.","The time period assumption (also known as periodicity) is the assumption that the ongoing business activity can be segregated into time periods of a year, a month, a week, etc."] Text[406]=["

Right!","Conservatism involves choosing between acceptable alternatives. In other words conservatism is used to break a tie between two acceptable choices of how to account for something. It is also associated with recognizing losses but not gains for certain situations."] Text[407]=["

Wrong.","Materiality involves insignificant amounts. For example, many companies report their financial statements in thousands of dollars. The reason is that pennies, dollars, and hundreds of dollars are not significant to the decision makers using the financial statements. Another example is the immediate expensing of a $15 stapler instead of depreciating the stapler over its useful life of 5 years."] Text[408]=["

Wrong.","The monetary unit involves the expression of amounts in dollars and the assumption that the dollar's purchasing power does not change (no inflation)."] Text[409]=["

Wrong.","The cost principle requires the accountant to show assets and expenses at cost rather than at higher amounts."] Text[410]=["

Right!","This is the correct answer."] Text[411]=["

Wrong.","The monetary unit involves the expression of amounts in dollars and the assumption that the dollar's purchasing power does not change (no inflation)."] Text[412]=["

Wrong.","The accounting rate of return uses accounting revenues and expenses (not cash flows) with NO consideration of the time value of money—no discounting."] Text[413]=["

Right!","The internal rate of return model uses cash flows and then discounts them to the present. The rate that discounts the cash flows to a net present value of zero is the internal rate of return."] Text[414]=["

Wrong.","The payback model uses the cash flows from the project to determine the time needed to recoup the cash investment. However, the cash flows are NOT discounted."] Text[415]=["

Right!","The accounting rate of return uses accounting revenues and expenses without discounting or considering the time value of money."] Text[416]=["

Wrong.","The internal rate of return model uses cash flows and then discounts them to the present. The rate that discounts the cash flows to a net present value of zero is the internal rate of return."] Text[417]=["

Wrong.","The net present value is the future cash flows discounted back to the present and netted against the cash paid in the present. If the net present value is a zero, the project is earning exactly the rate used to discount the cash. If the net present value is a positive amount (the present value of all cash received is GREATER than the present value of all cash paid) the project is earning more than the rate used to discount the cash flows. If the net present value is a negative amount (present value of all cash received is LESS than the present value of all cash paid) the project is earning less than the rate used to discount the cash."] Text[418]=["

Right!","The accounting rate of return does NOT use cash flows. It uses accounting revenues and expenses without discounting/without consideration of the time value of money."] Text[419]=["

Wrong.","The internal rate of return model uses cash flows and then discounts them to the present. The rate that discounts the cash flows to a net present value of zero is the internal rate of return."] Text[420]=["

Wrong.","The payback model uses the cash flows from the project to determine the time needed to recoup the cash investment. However, the cash flows are NOT discounted."] Text[421]=["

Wrong.","Since the net present value of the project was a negative amount, the project is expected to earn less than 16%. Since the negative amount is only $300 versus the immediate cash investment of $450,000, the project earning VERY close to 16%—but it is slightly less than 16%."] Text[422]=["

Right!","Since the net present value of the project was a negative amount, the project is expected to earn less than 16%. Since the negative amount is only $300 versus the immediate cash investment of $450,000, the project earning VERY close to 16%—but it is slightly less than 16%."] Text[423]=["

Wrong.","The project is expected to earn almost 16%. The small negative net present value of $300 is VERY small in relation to the cash outlay of $450,000. (It is possible that the project is earning a 15.95% return.) So while the project just missed the 16% cutoff, it still provides a significant internal rate of return."] Text[424]=["

Wrong.","See the calculations for $11,000."] Text[425]=["

Right!","The present values for the FUTURE cash INFLOWS are: ($50,000 X 0.86) + ($40,000 X 0.74) + ($60,000 X 0.64) = $111,000. The present value of the cash outflows is ($100,000 X 1.00) = $100,000. The present values of $111,000 IN vs. $100,000 OUT = the net present value of $11,000—a positive net IN amount."] Text[426]=["

Wrong.","See the calculations for $11,000."] Text[427]=["

Wrong.","See the calculations for $11,000."] Text[428]=["

Wrong.","See the calculations for 2.17 years."] Text[429]=["

Wrong.","See the calculations for 2.17 years."] Text[430]=["

Right!","Payback is the number of years it takes to recoup the initial cash outlay for the project. The time value of money (discounting the future cash flows) is not involved. In this the case, the cash in years 1 + 2 = $50,000 + $40,000 = $90,000 after two years. Assuming the cash flow in year 3 is uniform throughout year 3, the remaining $10,000 (needed to reach $100,000) occurs about 1/6 of the way into year 3 ($10,000 needed divided by the total cash in year 3 of $60,000). This makes the payback 2.17 years."] Text[431]=["

Wrong.","See the calculations for 2.17 years."] Text[432]=["

Right!","A positive net present value indicates that the present value of the cash inflows exceeds the present value of the cash outflow when both the inflows and outflows were discounted by a specified rate. The positive net present value indicates that the project will return more than the specified rate used in discounting the cash flows."] Text[433]=["

Wrong.","A positive net present value indicates that the present value of the cash inflows exceeds the present value of the cash outflow when both the inflows and outflows were discounted by a specified rate. The positive net present value indicates that the project will return more than the specified rate used in discounting the cash flows."] Text[434]=["

Wrong.","Depreciation Expense is a noncash expense. That is, there is no outlay of cash. The accounting entry is a debit to Depreciation Expense and a credit to Accumulated Depreciation. (Cash was most likely spent when the asset was acquired.)"] Text[435]=["

Right!","Depreciation Expense is a noncash expense. That is, there is no outlay of cash. The accounting entry is a debit to Depreciation Expense and a credit to Accumulated Depreciation. (Cash was most likely spent when the asset was acquired.)"] Text[436]=["

Right!","Depreciation Expense shown on the tax return does reduce taxable income, which in turn does reduce the amount of cash paid for income taxes."] Text[437]=["

Wrong.","Depreciation Expense shown on the tax return does reduce taxable income, which in turn does reduce the amount of cash paid for income taxes."] Text[438]=["

Wrong.","The accounting rate of return uses accounting revenues and accounting expenses and Depreciation Expense is indeed an accounting expense and CANNOT be ignored. (However, Depreciation Expense is considered a noncash expense.)"] Text[439]=["

Right!","Depreciation Expense CANNOT be ignored in computing the accounting rate of return, because it is indeed an accounting expense. (However, Depreciation Expense is considered a noncash expense.)"] Text[440]=["

Wrong.","The amount on the income statement should be based on the accountant's matching principle. The amount on the income tax return should be based upon income tax regulations."] Text[441]=["

Right!","The amount on the income statement should be based on the accountant's matching principle. The amount on the income tax return should be based upon income tax regulations."] Text[442]=["

Wrong.","The purpose of depreciation is to match the cost of the asset to revenues derived from using the asset or to the periods benefiting from the asset. The amount not yet depreciated (or not yet matched to revenues or periods) does not indicate the current value. For example, a computer might be depreciated over five years with equal amounts each year; however, the computer's value after one year may be only half of its cost."] Text[443]=["

Right!","The purpose of depreciation is to match the cost of the asset to revenues derived from using the asset or to the periods benefiting from the asset. The amount not yet depreciated (or not yet matched to revenues or periods) does not indicate the current value. For example, a computer might be depreciated over five years with equal amounts each year; however, the computer's value after one year may be only half of its cost."] Text[444]=["

Right!","This is true because of the cost principle and the matching principle. The company is trying to match the cost of the asset to the revenues derived from the asset or to the periods benefiting from the asset."] Text[445]=["

Wrong.","Depreciation is an ALLOCATION technique, not a VALUATION technique."] Text[446]=["

Wrong.","An asset (such as a computer) may have a very long physical life. However, due to rapid technological advances the asset's useful life may be a small fraction of its physical life."] Text[447]=["

Right!","An asset (such as a computer) may have a very long physical life. However, due to rapid technological advances the asset's useful life may be a small fraction of its physical life."] Text[448]=["

Right!","The accountant's matching principle requires that the cost be allocated over the USEFUL life. An accountant might use a useful life of five years for her new computer, since the accounting software does not change significantly. A graphic artist might find that the software for that sector is changing dramatically and will require a more technologically advanced computer in two years. For financial statement purposes the graphic artist will correctly use a USEFUL life of two years while the accountant will correctly use a USEFUL life of five years. (Income tax depreciation is not covered in the AccountingCoach.com materials.)"] Text[449]=["

Wrong.","The accountant's matching principle requires that the cost be allocated over the USEFUL life. An accountant might use a useful life of five years for her new computer, since the accounting software does not change significantly. A graphic artist might find that the software for that sector is changing dramatically and will require a more technologically advanced computer in two years. For financial statement purposes the graphic artist will correctly use a USEFUL life of two years while the accountant will correctly use a USEFUL life of five years. (Income tax depreciation is not covered in the AccountingCoach.com materials.)"] Text[450]=["

Right!","The goal is to match the cost of an asset to the revenues derived from the use of the asset or to match the cost to the accounting periods benefiting from the asset."] Text[451]=["

Wrong.","The goal is to match the cost of an asset to the revenues derived from the use of the asset or to match the cost to the accounting periods benefiting from the asset."] Text[452]=["

Right!","Accumulated Depreciation is a contra asset account (its balance is a credit balance even though assets usually have debit balances) shown in the section of the balance sheet section Property, Plant and Equipment. Because its balance is a credit, it is a deduction from the other assets which have debit balances."] Text[453]=["

Wrong.","Accumulated Depreciation is a contra asset account (its balance is a credit balance even though assets usually have debit balances) shown in the section of the balance sheet section Property, Plant, and Equipment. Because its balance is a credit, it is a deduction from the other assets which have debit balances."] Text[454]=["

Right!","After the original cost has been depreciated, the depreciation associated with the original cost ceases. If the asset is used for five additional years, there will be no Depreciation Expense in those five years. (However, if the company spends additional amounts to extend the asset's life, the additional amounts can be depreciated in those years.) "] Text[455]=["

Wrong.","After the original cost has been depreciated, the depreciation associated with the original cost ceases. If the asset is used for five additional years, there will be no Depreciation Expense in those five years. (However, if the company spends additional amounts to extend the asset's life, the additional amounts can be depreciated in those years.) "] Text[456]=["

Right!","Depreciation Expense for the financial statements is based on the accountant's matching principle. The depreciation on the income tax return is subject to income tax regulations. (The tax regulations do allow for tax depreciation to be accelerated and even immediate expensing under certain conditions.) Hence, it is very likely (and proper) that the financial statement and income tax return will differ as far as depreciation expense."] Text[457]=["

Wrong.","Depreciation Expense for the financial statements is based on the accountant's matching principle. The depreciation on the income tax return is subject to income tax regulations. (The tax regulations do allow for tax depreciation to be accelerated and even immediate expensing under certain conditions.) Hence, it is very likely (and proper) that the financial statement and income tax return will differ as far as depreciation expense."] Text[458]=["

Right!","The entry for depreciation is a debit to Depreciation Expense and a credit to Accumulated Depreciation. Cash is not involved. The depreciation entry reduces net income, but it does not reduce the company's Cash. Hence, some refer to depreciation as a noncash expense."] Text[459]=["

Wrong.","The entry for depreciation is a debit to Depreciation Expense and a credit to Accumulated Depreciation. Cash is not involved. The depreciation entry reduces net income, but it does not reduce the company's Cash. Hence, some refer to depreciation as a noncash expense."] Text[460]=["

Wrong.","Land is generally not depreciated. It is assumed that the useful life of land will be indefinite. Land Improvements are depreciated, because these constructed assets are assumed to have a limited life. Examples of Land Improvements would be the parking lot and the lighting in the parking lot."] Text[461]=["

Right!","Land is generally not depreciated. It is assumed that the useful life of land will be indefinite. Land Improvements are depreciated, because these constructed assets are assumed to have a limited life. Examples of Land Improvements would be the parking lot and the lighting in the parking lot."] Text[462]=["

Right!","They are conceptually the same. Depreciation Expense, Amortization Expense, and Depletion Expense can be defined as the systematic allocation of the cost of an asset from the balance sheet to expense on the income statement over the useful life of the asset."] Text[463]=["

Wrong.","They are conceptually the same. Depreciation Expense, Amortization Expense, and Depletion Expense can be defined as the systematic allocation of the cost of an asset from the balance sheet to expense on the income statement over the useful life of the asset."] Text[464]=["

Wrong.","Depreciation Expense is based on an estimated useful life and an estimated salvage value. The Depreciation Expense for each year is often determined early in the asset's life and is not changed routinely—although revisions are permitted."] Text[465]=["

Right!","Depreciation Expense is based on an estimated useful life and an estimated salvage value. The Depreciation Expense for each year is often determined early in the asset's life and is not changed routinely—although revisions are permitted."] Text[466]=["

Wrong.","Over the life of an asset, the depreciation in total will be the same. What is different is the timing of the depreciation."] Text[467]=["

Right!","While the timing of the depreciation will differ between methods, the total amount of depreciation over the life of the asset will be the same."] Text[468]=["

Wrong.","The double-declining balance method is a form of accelerated depreciation. This means the depreciation is faster in the early years of the asset's life and then slower in later years when compared to the straight-line method. "] Text[469]=["

Right!","The double-declining balance method and the sum-of-the-years' digits method are forms of accelerated depreciation."] Text[470]=["

Wrong.","The sum-of-the-years' digits method is a form of accelerated depreciation. This means the depreciation is faster in the early years of the asset's life and then slower in later years when compared to the straight-line method."] Text[471]=["

Wrong.","Select $20,000 to view the correct calculation."] Text[472]=["

Wrong.","Select $20,000 to view the correct calculation."] Text[473]=["

Wrong.","Select $20,000 to view the correct calculation."] Text[474]=["

Right!","The calculation involves several steps. One step is to compute the straight-line depreciation rate. This is done by dividing 100% by the years of useful life. In this case it is 100% divided by 10 years = 10%. The straight-line rate is then doubled to produce the double-declining balance rate (DDB rate). In this example the DDB rate is 10% X 2 = 20%. The DDB rate of 20% is then multiplied times the book value at the beginning of the period specified. (Book value is cost  accumulated depreciation.) In this example the book value is $100,000 at the beginning of year 1 of the asset's life. The DDB Depreciation Expense for year 1 is: 20% multiplied times $100,000 = $20,000. "] Text[475]=["

Wrong.","Select $16,000 to view the correct calculation."] Text[476]=["

Wrong.","Select $16,000 to view the correct calculation."] Text[477]=["

Right!","The calculation involves several steps. One step is to compute the straight-line depreciation rate. The straight-line rate is 100% divided by the years of useful life. In this case it is 100% divided by 10 years = 10%. The straight-line rate is then doubled to produce the double-declining balance rate (DDB). In this example the DDB rate is 10% X 2 = 20%. The DDB rate of 20% is then multiplied times the book value at the beginning of the period specified. (Book value is cost minus accumulated depreciation.) In this example the book value is $100,000 minus $20,000 at the beginning of year 2 of the asset's life. The DDB Depreciation Expense for year 2 is: 20% multiplied times the book value of $80,000 = $16,000. "] Text[478]=["

Wrong.","Select $16,000 to view the correct calculation."] Text[479]=["

Wrong.","Select $20,000 to view the correct calculation."] Text[480]=["

Wrong.","Select $20,000 to view the correct calculation."] Text[481]=["

Wrong.","Select $20,000 to view the correct calculation."] Text[482]=["

Right!","The calculation requires several steps. One step is to determine the total amount to be depreciated over the useful life of the asset. That amount is the cost minus the estimated salvage value at the end of its useful life. In this example, the estimated salvage value is assumed to be zero. That means the entire cost of $110,000 is to be depreciated. The next step is to find the sum of the years' digits. This is done by adding the digits from 1 through the years of useful life. In this example with a useful life of 10 years, you would add 1+2+3+4+5+6+7+8+9+10=55. (A short cut is to multiply the years of useful life by that number plus 1 and then divide the result by 210 times 11 = 110 divided by 2 = 55.) That number will be the denominator of a fraction whose numerator will be the years of the asset's life remaining as of the beginning of the year. That fraction times the $110,000 to be depreciated is the depreciation for that year. For Year 1 the Depreciation Expense will be 10/55 times $110,000 = $20,000."] Text[483]=["

Wrong.","Select $20,000 to view the correct calculation."] Text[484]=["

Wrong.","Select $18,000 to view the correct calculation."] Text[485]=["

Wrong.","Select $18,000 to view the correct calculation."] Text[486]=["

Right!","The calculation requires several steps. One step is to determine the total amount to be depreciated over the useful life of the asset. That amount is the cost minus the estimated salvage value at the end of its useful life. In this example, the estimated salvage value is assumed to be zero. That means the entire cost of $110,000 is to be depreciated. The next step is to find the sum of the years' digits. This is done by adding the digits from 1 through the years of useful life. In this example with a useful life of 10 years, you would add 1+2+3+4+5+6+7+8+9+10=55. (A short cut is to multiply the years of useful life by that number plus 1 and then divide the result by 210 times 11 = 110 divided by 2 = 55.) That number will be the denominator of a fraction whose numerator will be the years of the asset's life remaining as of the beginning of the year. That fraction times the $110,000 to be depreciated is the depreciation for that year. For Year 2 the Depreciation Expense will be 9/55 times $110,000 = $18,000."] Text[487]=["

Wrong.","Select $18,000 to view the correct calculation."] Text[488]=["

Wrong.","Select $18,000 to view the correct calculation."] Text[489]=["

Wrong.","There is no account entitled Salvage in the general ledger. As a result there is no salvage amount in the books."] Text[490]=["

Right!","Book value is cost minus the accumulated depreciation. (Sometimes book value is referred to as carrying value.) Book value is not an indication of the fair market value of an asset. "] Text[491]=["

Wrong.","There is no account entitled Salvage in the general ledger. As a result there is no salvage amount in the books."] Text[492]=["

Wrong.","The correct answer is cost minus accumulated depreciaton."] Text[493]=["

Wrong.","A change in an estimate affects the current period and future periods. Since it is not an error, the financial statements issued in previous periods are considered proper based on the information at that time and will not need to be revised."] Text[494]=["

Right!","A change in an estimate affects the current period and future periods. Since it is not an error, the financial statements issued in previous periods are considered proper based on the information at that time and will not need to be revised."] Text[495]=["

Wrong.","Under FIFO the first or oldest costs are the first costs being matched with revenues of the current period."] Text[496]=["

Right!","The most recent purchases are the last costs in and those costs are coming out of inventory first."] Text[497]=["

Wrong.","Try another answer."] Text[498]=["

Right!","Under FIFO the first or oldest costs come out of inventory first, leaving the most recent costs in inventory."] Text[499]=["

Wrong.","Under LIFO the most recent costs come out of inventory first, leaving the oldest costs in inventory."] Text[500]=["

Wrong.","Try another answer."] Text[501]=["

Wrong.","Under FIFO the first or oldest costs come out of inventory first, leaving the most recent costs in inventory."] Text[502]=["

Right!","Under LIFO the most recent costs come out of inventory first, leaving the oldest costs in inventory."] Text[503]=["

Wrong.","Try another answer."] Text[504]=["

Right!","Because of the cost principle, inventory is carried at cost. Only if there is some impairment or if replacement cost is less than cost or if the company is in a unique industry would the inventory be at an amount other than its cost."] Text[505]=["

Wrong.","Because of the cost principle, inventory is carried at cost. Only if there is some impairment or if replacement cost is less than cost or if the company is in a unique industry would the inventory be at an amount other than its cost."] Text[506]=["

Right!","Under the periodic method the Inventory account is dormant throughout the accounting period. At the end of the accounting period the inventory account is adjusted to the amount on hand."] Text[507]=["

Wrong.","Under the perpetual method the Inventory account IS continuously or perpetually updated with each purchase or sale of merchandise."] Text[508]=["

Wrong.","With rising costs, the first or oldest costs are the lower costs. Matching old, low costs against current sales will result in higher profits, higher taxable income, and higher income tax expense."] Text[509]=["

Right!","With rising costs of merchandise, the most recent purchases will have higher costs. Taking the last (most recent) costs out of inventory first will mean the recent higher costs will be matched against current sales. (This leaves the older lower costs in the Inventory account.) Matching the latest/recent/higher costs against current sales results in less profit, less taxable income, and less income tax expense than FIFO or an average cost."] Text[510]=["

Wrong.","Try another answer."] Text[511]=["

Right!","Because costs are declining over time, the first or oldest costs are the higher costs. Matching these higher/older costs against current revenues will result in lower profits, lower taxable income, and lower income tax expense."] Text[512]=["

Wrong.","Because costs are declining over time, the latest/most recent costs are lower than the older/first costs. Matching the latest/recent/lower costs with current revenues will mean higher profits, higher taxable income, and higher income tax expense."] Text[513]=["

Wrong.","Choose another answer."] Text[514]=["

Right!","Under LIFO periodic the cost of the latest purchase during the accounting period is expensed first, even if the item was not the unit physically sold. "] Text[515]=["

Wrong.","Under LIFO periodic the cost of the latest purchase during the accounting period is expensed first, even if the item was not the unit physically sold. (Under LIFO perpetual the cost of the lastest purchase AS OF THE TIME OF THE SALE is expensed.)"] Text[516]=["

Wrong.","Choose another answer."] Text[517]=["","  150"] Text[518]=["","$1,770. This amount will be divided up between the cost of goods sold and the ending inventory. It can serve as a check figure."] Text[519]=["

Wrong.","See the calculations for $1,460."] Text[520]=["

Wrong.","See the calculations for $1,460."] Text[521]=["

Wrong.","See the calculations for $1,460."] Text[522]=["

Right!","LIFO periodic first matches to current period sales revenues the most recent costs of the period followed by the next to most recent, etc. In the year 2009 a total of 120 units were sold, so LIFO periodic requires that we select the last cost of 2009 first and keep 'peeling away' the costs until we reach a total of 120 units. This means we will expense to the cost of goods sold: 50 units at $13 + 40 units at $12 + 30 units at $11. This amounts to $650 + $480 + $330 = $1,460 for the 120 units sold.

[The cost remaining in Inventory will be 10 units at $11 + 20 units at $10 = $110 + $200 = $310. This amount of $310 plus the $1,460 of cost of goods sold shown above = $1,770 the cost of goods available.]"] Text[523]=["

Right!","FIFO periodic (and perpetual) means that you first match the first or oldest costs with the current period's sales. For the 120 units sold in 2008 the cost of goods sold under the FIFO cost flow will be 20 units at $10 PLUS 40 units at $11 PLUS 40 units at $12 PLUS 20 units at $13 = $200 + $440 + $480 + $260 = $1,380.

[The cost of goods remaining in Inventory will be 30 units at $13 = $390. This cost of $390 plus the cost of goods sold of $1,380 = $1,770 the cost of goods available.]"] Text[524]=["

Wrong.","See the calculations for $1,380."] Text[525]=["

Wrong.","See the calculations for $1,380."] Text[526]=["

Wrong.","See the calculations for $1,380."] Text[527]=["

Wrong.","See the calculations for $1,416."] Text[528]=["

Wrong.","See the calculations for $1,416."] Text[529]=["

Right!","Under the periodic method, the average cost is really a weighted-average determined by taking the $1,770 of cost of goods available and dividing it by the 150 units available for a weighted-average of $11.80 per unit. The $11.80 is applied to both the units sold and to the units remaining in Inventory. The cost of goods sold is 120 units X $11.80 = $1,416.

[The cost of goods remaining in Inventory will be 30 units at $11.80 = $354. This cost of $354 plus the cost of goods sold of $1,416 = $1,770 which is the cost of goods available.]"] Text[530]=["

Wrong.","See the calculations for $1,416."] Text[531]=["

Wrong.","See the calculations for $1,410."] Text[532]=["

Right!","Under LIFO perpetual you remove from Inventory the latest cost as of the time of the sale, and that cost goes to the cost of goods sold. Here is how the costs flow out of Inventory and onto the income statement as the Cost of Goods Sold under LIFO perpetual:

Date of Sale
Jan. 3110 units at a cost of $11 each
=
$110
Feb. 2810 units at a cost of $11 each
=
110
Mar. 3110 units at a cost of $11 each
=
110
Apr. 3010 units at a cost of $11 each
=
110
May 31 10 units at a cost of $10 each
=
100
June 3010 units at a cost of $12 each
=
120
July 3110 units at a cost of $12 each
=
120
Aug. 3110 units at a cost of $12 each
=
120
Sep. 3010 units at a cost of $12 each
=
120
Oct. 3110 units at a cost of $13 each
=
130
Nov. 3010 units at a cost of $13 each
=
130
Dec. 3110 units at a cost of $13 each
=
130
Total Cost of Goods Sold = $1,410

[At Dec. 31 the ending inventory cost will be: (10 units at $10 each = $100) + (20 units at $13 each = $260) = $360. This $360 plus the Cost of Goods Sold of $1,410 = $1,770 which is the cost of goods available.]

Note the difference between this and LIFO periodic in Item 10."] Text[533]=["

Wrong.","See the calculations for $1,410."] Text[534]=["

Wrong.","See the calculations for $1,410."] Text[535]=["

Right!","Under the perpetual moving-average cost flow assumption, a new average cost is developed whenever additional items are added to the Inventory. When goods are sold, Inventory is reduced by moving-average cost per unit at the time of the sale. The costs removed from Inventory will move onto the income statement as the Cost of Goods Sold (COGS) as follows:

Jan. 25 purchase: new avg. cost of $10.67 (20 units at $10, 40 units at $11)
COGS on Jan 31, Feb 28, Mar 31, Apr 30, May 31= 50 units sold X avg. cost of $10.67 = $533.50
June 20 purchase: new avg. cost of $11.73 (10 units at $10.67, 40 units at $12)
COGS on June 30, July 31, Aug 31, Sep 30 = 40 units sold X avg. cost of $11.73 = $469.20
Oct. 10 purchase: new avg. cost of $12.78 (10 units at $11.73, 50 units at $13)
COGS on Oct 31, Nov 30, Dec 31 = 30 units sold X $12.78 = $383.40
Total Cost of Goods Sold = $1,386.10

(At Dec. 31 the ending inventory cost will be: 30 units at $12.78 = $383.40. This $383.40 plus the Cost of Goods Sold of $1,386.10 = $1,769.50 which is within $0.50 of the cost of goods available. This small difference is due to rounding the per unit costs to two decimal places.)"] Text[536]=["

Wrong.","See the calculations for $1,386."] Text[537]=["

Wrong.","See the calculations for $1,386."] Text[538]=["

Wrong.","See the calculations for $1,386."] Text[539]=["

Wrong.","See the calculations for $41,000."] Text[540]=["

Wrong.","See the calculations for $41,000."] Text[541]=["

Right!","The solution can be in the format of a multiple-step income statement for the period of January 1 through January 28:

Sales(known)$50,000
Cost of Goods Sold
Beginning Inventory(known)$40,000
Purchases(known)+36,000
Cost of Goods Avail$76,000
Less: Ending Inventory(unknown)
Cost of Goods Avail$35,000 (70% of sales)*
Gross Profit% is known$15,000 (30% of sales)

The ending inventory is the amount/difference between the cost of goods available and the cost of goods sold, or $41,000.

* or Sales minus Gross Profit."] Text[542]=["

Right!","Under the retail method nearly all the amounts are given and you need to sort them into the cost column or into the retail column. The Goods Available line is very important, as it is also the average cost to retail ratio.

   Cost   Retail
Beginning Inventory (known)$15,000$21,000
Purchases (known)+12,000+15,000
Goods Available & Cost to Retail Ratio  27,000  36,000
Sales (known, and always at retail)–16,000
Ending Inventory at retail$20,000
Ending Inventory at cost$15,000*

*$20,000 at retail times $27,000/$36,000"] Text[543]=["

Wrong.","See the calculations for $15,000."] Text[544]=["

Wrong.","See the calculations for $15,000."] Text[545]=["

Right!","The company's profits before income taxes are too high by $24,000 because too much of the cost of the goods available went to the balance sheet account Inventory. This meant that too little of costs went to the income statement item called Cost of Goods Sold. With too little Cost of Goods Sold being matched with Sales on the current period's income statement, the profit is too high by $24,000.You might think of the accounting equation. If the asset Inventory is too big, another part of the accounting equation is improper. In this case assets were overstated, and owner's (stockholders') equity is overstated as a result of the current period's profit being overstated."] Text[546]=["

Wrong.","See the answer for Too High."] Text[547]=["

Wrong.","See the answer for Too High."] Text[548]=["

Right!","The company's current asset account Cash is increased."] Text[549]=["

Wrong.","The company's current asset account Cash is INCREASED."] Text[550]=["

Wrong.","The company's current asset account Cash is INCREASED."] Text[551]=["

Wrong.","Liabilities are NOT involved in this transaction."] Text[552]=["

Wrong.","Liabilities are NOT involved in this transaction."] Text[553]=["

Wrong.","Liabilities are NOT involved in this transaction."] Text[554]=["

Right!","The proprietor's Capital account is increased. (If the company is a corporation, then the Common Stock account(s) would be increased.)"] Text[555]=["

Wrong.","The proprietor's Capital account is increased. (If the company is a corporation, then the Common Stock account(s) would be increased.)"] Text[556]=["

Wrong.","The proprietor's Capital account is increased. (If the company is a corporation, then the Common Stock account(s) would be increased.)"] Text[557]=["

Wrong.","The company's current asset account Cash would be DECREASED."] Text[558]=["

Right!","The company's current asset account Cash would be decreased."] Text[559]=["

Wrong.","The company's current asset account Cash would be DECREASED."] Text[560]=["

Wrong.","Liabilities are NOT involved in this transaction."] Text[561]=["

Wrong.","Liabilities are NOT involved in this transaction."] Text[562]=["

Wrong.","Liabilities are NOT involved in this transaction."] Text[563]=["

Wrong.","The proprietorship's owner's equity would DECREASE by an entry to the Drawing account. If the company is a corporation, Stockholders' Equity would DECREASE by an entry to Retained Earnings or to Dividends."] Text[564]=["

Right!","The proprietorship's owner's equity would DECREASE by an entry to the Drawing account. If the company is a corporation, Stockholders' Equity would DECREASE by an entry to Retained Earnings or to Dividends."] Text[565]=["

Wrong.","The proprietorship's owner's equity would DECREASE by an entry to the Drawing account. If the company is a corporation, Stockholders' Equity would DECREASE by an entry to Retained Earnings or to Dividends."] Text[566]=["

Right!","The company's current asset account Cash is increased."] Text[567]=["

Wrong.","The company's current asset account Cash is INCREASED."] Text[568]=["

Wrong.","The company's current asset account Cash is INCREASED."] Text[569]=["

Right!","The company's liabilities (such as Notes Payable or Loans Payable) have increased."] Text[570]=["

Wrong.","The company's liabilities (such as Notes Payable or Loans Payable) have INCREASED."] Text[571]=["

Wrong.","The company's liabilities (such as Notes Payable or Loans Payable) have INCREASED."] Text[572]=["

Wrong.","Owner's (Stockholders') Equity is NOT involved in this transaction."] Text[573]=["

Wrong.","Owner's (Stockholders') Equity is NOT involved in this transaction."] Text[574]=["

Wrong.","Owner's (Stockholders') Equity is NOT involved in this transaction."] Text[575]=["

Wrong.","The company's current asset Cash has DECREASED."] Text[576]=["

Right!","The company's current asset Cash has decreased."] Text[577]=["

Wrong.","The company's current asset Cash has DECREASED."] Text[578]=["

Wrong.","The company's liabilities (such as Notes Payable or Loans Payable) have DECREASED."] Text[579]=["

Right!","The company's liabilities (such as Notes Payable or Loans Payable) have decreased."] Text[580]=["

Wrong.","The company's liabilities (such as Notes Payable or Loans Payable) have DECREASED."] Text[581]=["

Wrong.","Owner's (Stockholders') Equity is NOT involved in this transaction."] Text[582]=["

Wrong.","Owner's (Stockholders') Equity is NOT involved in this transaction."] Text[583]=["

Wrong.","Owner's (Stockholders') Equity is NOT involved in this transaction."] Text[584]=["

Right!","A non-current asset Equipment is increased."] Text[585]=["

Right!","The current asset Cash is decreased."] Text[586]=["

Wrong.","One asset is increased and one asset is decreased."] Text[587]=["

Wrong.","Liabilities are NOT involved in this transaction."] Text[588]=["

Wrong.","Liabilities are NOT involved in this transaction."] Text[589]=["

Wrong.","Liabilities are NOT involved in this transaction."] Text[590]=["

Wrong.","Owner's (Stockholders') Equity is NOT involved in this transaction."] Text[591]=["

Wrong.","Owner's (Stockholders') Equity is NOT involved in this transaction."] Text[592]=["

Wrong.","Owner's (Stockholders') Equity is NOT involved in this transaction."] Text[593]=["

Right!","A non-current asset such as Trucks is increased."] Text[594]=["

Wrong.","A non-current asset such as Trucks is INCREASED."] Text[595]=["

Wrong.","A non-current asset such as Trucks is INCREASED."] Text[596]=["

Wrong.","Liabilities are NOT involved in this transaction."] Text[597]=["

Wrong.","Liabilities are NOT involved in this transaction."] Text[598]=["

Wrong.","Liabilities are NOT involved in this transaction."] Text[599]=["

Right!","The proprietor's Capital account is increased. (If the company is a corporation, then the Common Stock account(s) would be increased.)"] Text[600]=["

Wrong.","The proprietor's Capital account is increased. (If the company is a corporation, then the Common Stock account(s) would be increased.)"] Text[601]=["

Wrong.","The proprietor's Capital account is increased. (If the company is a corporation, then the Common Stock account(s) would be increased.)"] Text[602]=["

Right!","The company's current asset account Supplies is increased."] Text[603]=["

Wrong.","The company's current asset account Supplies is INCREASED."] Text[604]=["

Wrong.","The company's current asset account Supplies is INCREASED."] Text[605]=["

Right!","The company's current liabilities (Accounts Payable) have increased."] Text[606]=["

Wrong.","The company's liabilities have INCREASED."] Text[607]=["

Wrong.","The company's liabilities have INCREASED."] Text[608]=["

Wrong.","Owner's (Stockholders') Equity is NOT involved in this transaction."] Text[609]=["

Wrong.","Owner's (Stockholders') Equity is NOT involved in this transaction."] Text[610]=["

Wrong.","Owner's (Stockholders') Equity is NOT involved in this transaction."] Text[611]=["

Right!","The asset Land has increased. (Two other accounts are also involved.)"] Text[612]=["

Right!","The asset Cash has decreased. (Two other accounts are also involved.)"] Text[613]=["

Wrong.","Two asset accounts' balances have changed."] Text[614]=["

Right!","The liabilities (Notes Payable account) have decreased."] Text[615]=["

Wrong.","The liabilities (Notes Payable account) have DECREASED."] Text[616]=["

Wrong.","The liabilities (Notes Payable account) have DECREASED."] Text[617]=["

Wrong.","Owner's (Stockholders') Equity is NOT involved in this transaction."] Text[618]=["

Wrong.","Owner's (Stockholders') Equity is NOT involved in this transaction."] Text[619]=["

Wrong.","Owner's (Stockholders') Equity is NOT involved in this transaction."] Text[620]=["

Right!","Assets are increased."] Text[621]=["

Wrong.","Assets are INCREASED because Accounts Receivable is a current asset.)"] Text[622]=["

Wrong.","Assets are INCREASED because Accounts Receivable is a current asset.)"] Text[623]=["

Wrong.","Liabilities are NOT involved in this transaction."] Text[624]=["

Wrong.","Liabilities are NOT involved in this transaction."] Text[625]=["

Wrong.","Liabilities are NOT involved in this transaction."] Text[626]=["

Right!","Ultimately, revenues cause Owner's Equity to increase. (In a proprietorship the owner's Capital account will be increased. In a corporation the Retained Earnings account will be increased.)"] Text[627]=["

Wrong.","Ultimately, revenues cause Owner's Equity to increase. (In a proprietorship the owner's Capital account will be increased. In a corporation the Retained Earnings account will be increased.)"] Text[628]=["

Wrong.","Ultimately revenues cause Owner's Equity to increase. (In a proprietorship the owner's Capital account will be increased. In a corporation the Retained Earnings account will be increased.)"] Text[629]=["

Right!","The current asset account Cash increases."] Text[630]=["

Right!","The current asset account Accounts Receivable decreases."] Text[631]=["

Wrong.","Two asset accounts' balances will change."] Text[632]=["

Wrong.","Liabilities are NOT involved in this transaction."] Text[633]=["

Wrong.","Liabilities are NOT involved in this transaction."] Text[634]=["

Wrong.","Liabilities are NOT involved in this transaction."] Text[635]=["

Wrong.","Owner's (Stockholders') Equity is NOT involved in this transaction."] Text[636]=["

Wrong.","Owner's (Stockholders') Equity is NOT involved in this transaction."] Text[637]=["

Wrong.","Owner's (Stockholders') Equity is NOT involved in this transaction."] Text[638]=["

Wrong.","Assets are NOT involved in this transaction."] Text[639]=["

Wrong.","Assets are NOT involved in this transaction."] Text[640]=["

Wrong.","Assets are NOT involved in this transaction."] Text[641]=["

Right!","Liabilities increase because Accounts Payable is a current liability."] Text[642]=["

Wrong.","Liabilities INCREASE because Accounts Payable is a current liability."] Text[643]=["

Wrong.","Liabilities INCREASE because Accounts Payable is a current liability."] Text[644]=["

Wrong.","An expense will cause Owner's (Stockholders') Equity to DECREASE."] Text[645]=["

Right!","An expense will cause Owner's (Stockholders') Equity to decrease."] Text[646]=["

Wrong.","An expense will cause Owner's (Stockholders') Equity to DECREASE."] Text[647]=["

Wrong.","The current asset Cash will DECREASE."] Text[648]=["

Right!","The current asset Cash will decrease."] Text[649]=["

Wrong.","The current asset Cash will DECREASE."] Text[650]=["

Wrong.","Liabilities will DECREASE since Accounts Payable is a current liability."] Text[651]=["

Right!","Liabilities will decrease since Accounts Payable is a current liability."] Text[652]=["

Wrong.","Liabilities will DECREASE since Accounts Payable is a current liability."] Text[653]=["

Wrong.","Owner's (Stockholders') Equity is NOT involved in this transaction."] Text[654]=["

Wrong.","Owner's (Stockholders') Equity is NOT involved in this transaction."] Text[655]=["

Wrong.","Owner's (Stockholders') Equity is NOT involved in this transaction."] Text[656]=["

Wrong.","The list will include accounts that are available for amounts. Some accounts appear on the chart of accounts even if the accounts have had no amounts recorded in them."] Text[657]=["

Right!","You selected the correct answer. Some accounts listed in the chart of accounts will NOT have amounts recorded in them, especially if it is early in the accounting year."] Text[658]=["","income statement"] Text[659]=["",""] Text[660]=["

Wrong.","Accounting uses 'double-entry.' This means at least two accounts are involved in every transaction."] Text[661]=["

Not the best answer.","While many transactions involve only two accounts, many transactions involve more than two accounts. Two accounts is the minimum number."] Text[662]=["

Right!","Two is the minimum number of accounts required to record a transaction; however, many transactions involve more than two accounts."] Text[663]=["","organization"] Text[664]=["

Right!","Many people use the term income when referring to sales, service fees earned, contributions received, etc. Many accountants prefer the term revenues when describing sales, service fees earned, etc. (Some accountants would like to save the word income to describe the 'net' of revenues minus expenses. Others would use it for non-operating revenues. Obviously, they haven't convinced the rest of the world and the best selling accounting software uses the term income instead of revenue.)"] Text[665]=["

Wrong.","The largest selling accounting software uses the term income instead of revenue. While some accountants may prefer one term instead of another, you should be aware that many people use the terms interchangeably."] Text[666]=["

Right!","Generally, the larger and more sophisticated the company, the more digits in the account numbers. For sorting the accounts into meaningful reports, the various digits do signify a specific category."] Text[667]=["

Wrong.","The digits are useful for sorting information into the appropriate reports."] Text[667]=["

Wrong.","See True."] Text[668]=["

Right!","The income statement reports the net income (revenues and gains minus expenses and losses) for a period of time, such as a year or month."] Text[669]=["

Wrong.","The statement of cash flows reports the cash flows during a period of time."] Text[670]=["

Right!","The balance sheet reports assets, liabilities, and owner's equity at a point in time, such as December 31 or March 31."] Text[671]=["

Wrong.","The income statement reports the net income (revenues minus expenses) for a period of time such as a year or a month."] Text[672]=["

Wrong.","This financial statement reports the cash flows for a period of time such as a year or month."] Text[673]=["

Right!","Unexpired costs are assets."] Text[674]=["

Wrong.","Liabilities are obligations."] Text[675]=["

Wrong.","See Assets."] Text[676]=["

Wrong.","Assets are unexpired costs."] Text[677]=["

Right!","Expenses are costs that have expired or are used up during the accounting period."] Text[678]=["

Wrong.","Liabilities are obligations as of a point in time."] Text[679]=["

Wrong.","Revenues are fees that have been earned."] Text[680]=["

Wrong.","The company expects to receive the cash in the next accounting period."] Text[681]=["

Right!","When a client is allowed to pay in a future accounting period, the company reports an increase in the asset account Accounts Receivable."] Text[682]=["

Wrong.","There is an increase in Accounts Receivable."] Text[683]=["

Right!","Because of the cost principle, assets are generally reported at cost. An exception is the reporting of marketable investments, assets whose value has been 'impaired' and the accounting practices for certain industries."] Text[684]=["

Wrong.","Accountants report the cost to acquire an asset, not the amount at which the asset will sell."] Text[685]=["

Wrong.","Generally the cost principle will prevent a company from recording a future cost. An exception is items in inventory that are reported at the lower of cost or a constrained replacement cost."] Text[686]=["

Right!","Depreciation does allocate a long term asset's cost to expense over the life of the asset."] Text[687]=["

Wrong.","Depreciation is recorded in its own separate account entitled Depreciation Expense and the amount of depreciation expense is also added to the credit balance in the contra asset account Accumulated Depreciation"] Text[688]=["

Wrong.","This answer is incorrect."] Text[689]=["

Right!","This is the correct answer."] Text[690]=["

Wrong.","Unearned Revenues is a balance sheet account, not an income statement account. As the company earns the money that was received in advance, it will move from the Unearned Revenues account to the Service Revenues account (an income statement account)."] Text[691]=["

Wrong.","Credit means the right side."] Text[692]=["

Right!","Debit means the left side."] Text[693]=["

Right!","Credit means the right side."] Text[694]=["

Wrong.","Debit means the left side."] Text[695]=["

Right!","This is the correct answer."] Text[696]=["

Wrong.","This answer is incorrect."] Text[697]=["

Wrong.","This answer is incorrect."] Text[698]=["

Right!","This is the correct answer."] Text[699]=["

Right!","This is the correct answer."] Text[700]=["

Wrong.","This answer is incorrect."] Text[701]=["","debit"] Text[702]=["","general"] Text[703]=["","fixed"] Text[704]=["","current assets"] Text[705]=["","Prepaid Insurance"] Text[706]=["","True"] Text[707]=["","fiscal year"] Text[708]=["","contribution margin"] Text[709]=["","gross profit"] Text[710]=["","inventory turnover"] Text[711]=["","balance sheet"] Text[712]=["","chart of accounts"] Text[713]=["","general ledger"] Text[714]=["","accrual"] Text[715]=["","depreciation"] Text[716]=["","drawing"] Text[717]=["","temporary"] Text[718]=["","gain"] Text[719]=["","working capital"] Text[720]=["","accrue"] Text[721]=["","income statement"] Text[722]=["","cost"] Text[723]=["","contra"] Text[724]=["","prior period adjustment"] Text[725]=["","Years 2007 through 2010"] Text[726]=["","natural resources"] Text[727]=["","variable"] Text[728]=["","unusual"] Text[729]=["","net present value"] Text[730]=["","internal"] Text[731]=["","payback"] Text[732]=["","statement of cash flows"] Text[733]=["","operating"] Text[734]=["","straight-line"] Text[735]=["","accelerated"] Text[736]=["","True"] Text[737]=["","Yes"] Text[738]=["","treasury"] Text[739]=["","operating expense"] Text[740]=["","quick or acid-test"] Text[741]=["","perpetual"] Text[742]=["","periodic"] Text[743]=["","LIFO"] Text[744]=["","LIFO"] Text[747]=["","outstanding"] Text[748]=["","in transit"] Text[749]=["","isn't"] Text[750]=["

Wrong.","Checks that have been written are already recorded on the books."] Text[751]=["

Wrong.","Checks that have been written have already been recorded on the books."] Text[752]=["

Wrong.","Outstanding checks must be DEDUCTED from the balance per the bank statement."] Text[753]=["

Right!","Outstanding checks must be deducted from the balance per the bank statement."] Text[754]=["

Wrong.","The bank service charge must be DEDUCTED from the balance per the books."] Text[755]=["

Right!","The bank service charge must be deducted from the balance per the books."] Text[756]=["

Wrong.","The service charge already appears on the bank statement."] Text[757]=["

Wrong.","The service charge is already deducted on the bank statement."] Text[758]=["

Right!","Add the interest to the Cash balance on the company's books."] Text[759]=["

Wrong.","Wrong answer."] Text[760]=["

Wrong.","The interest earned is already recorded by the bank and the amount is included in the bank balance. You need to put the interest where it isn't."] Text[761]=["

Wrong.","The interest earned has already been ADDED on the bank statement and it is part of the bank balance."] Text[762]=["

Wrong.","The interest charged by the bank will need to be DEDUCTED from the balance per books."] Text[763]=["

Right!","Deduct the interest charged from the company's Cash balance on the company's books."] Text[764]=["

Wrong.","The interest already appears on the bank statement as deduction from the bank balance."] Text[765]=["

Wrong.","The interest already is shown on the bank statement as a deduction from the bank balance."] Text[766]=["

Wrong.","Deposits in transit already appear on the company's books."] Text[767]=["

Wrong.","Deposits in transit already appear on the company's books as additions to the Cash balance."] Text[768]=["

Right!","Deposits in transit are added to the balance per the bank statement."] Text[769]=["

Wrong.","Deposits in transit are ADDED to the balance per the bank statement."] Text[770]=["

Wrong.","The item does not belong to your company and therefore should not be entered into your company's books."] Text[771]=["

Wrong.","The item does not belong to your company and therefore should not be entered into your company's books."] Text[772]=["

Right!","The bank will need to add this amount to your company's bank balance in order to correct its erroneous deduction."] Text[773]=["

Wrong.","The bank statement had already deducted this item that should not have been deducted. To correct the problem the bank statement balance needs to be increased."] Text[774]=["

Wrong.","The credit memo does not belong to your company, therefore it should not be added to your book's Cash balance."] Text[775]=["

Wrong.","The adjustment should be an addition to the BANK balance."] Text[776]=["

Wrong.","The adjustment should be an ADDITION to the balance per the bank."] Text[777]=["

Right!","The adjustment is a deduction to the bank's balance."] Text[778]=["

Wrong.","The bank fee needs to be DEDUCTED from the balance in the company's Cash account."] Text[779]=["

Right!","The bank fee has to be deducted from the company's Cash account balance as shown on its books."] Text[780]=["

Wrong.","The bank fee has already been deducted on the bank statement. The bank fee must now be deducted on the company's books."] Text[781]=["

Wrong.","The bank fee has already been deducted by the bank on the bank statement."] Text[782]=["

Wrong.","The company originally deducted $67 from its Cash balance. The company should have deducted $76. This means the company did not deduct enough originally. It must deduct an additional $9 from its Cash BALANCE. Keep in mind that the question is what needs to happen to the Cash BALANCE to have the correct amount of Cash. It is not asking what has to happen to the amount being deducted."] Text[783]=["

Right!","An additional $9 must be deducted from the Cash balance, since $67 was not a large enough deduction."] Text[784]=["

Wrong.","There is no adjustment to the bank balance; it is proper. The error is in the Cash account on the company's books."] Text[785]=["

Wrong.","There is no adjustment to the bank balance; it is proper. The error is in the Cash account on the company's books."] Text[786]=["

Wrong.","The company has already added too much to its Cash account. (The company had recorded an addition of $998, when the correct amount should have been only $989.)"] Text[787]=["

Right!","The company has to deduct $9, because it originally added $998 and should have added only $989. The Cash account balance was too high and therefore needs to have a deduction of $9."] Text[788]=["

Wrong.","There is no adjustment to the bank balance; it is proper. The error is in the Cash account on the company's books."] Text[789]=["

Wrong.","There is no adjustment to the bank balance; it is proper. The error is in the Cash account on the company's books."] Text[790]=["

Right!","The amount collected by the bank is on the bank statement, but it is not yet on the books. So it must be added to the Cash account on the books."] Text[791]=["

Wrong.","The amount should be added to the book balance."] Text[792]=["

Wrong.","The bank statement is already reporting this $1,000 item. The bank balance does NOT need to be adjusted."] Text[793]=["

Wrong.","The bank statement is properly showing the $1,000 as part of the bank account's balance."] Text[794]=["

Wrong.","The amount must be DEDUCTED from the balance in the company's Cash account."] Text[795]=["

Right!","The amount gets deducted from the balance in the company's Cash account. It was already deducted by the bank on the bank statement."] Text[796]=["

Wrong.","The amount was properly deducted from the bank statement. No further adjustment is needed on the bank statement."] Text[797]=["

Wrong.","The amount was properly deducted from the bank statement. No further adjustment is needed on the bank statement."] Text[798]=["","
Balance per Bank
+ Deposits in Transit
- Oustanding checks
Adjusted Balance per Bank		 $ 1430
+    60
-  840
$   650

(or)

Balance per Books
+ Interest
- Service charges
- Returned check
- Check printing
Adjusted Balance per Books		 $ 851
+   19
-   30
- 100
- 90
$ 650
"] Text[801]=["","The Cash account increases, and because of the double entry system, the owner's equity account Mary Smith, Capital also increases."] Text[802]=["","The Cash account decreases, and because of the double entry system, the asset account Inventory increases."] Text[803]=["","The Cash account increases, and because of the double entry system, the liability account Notes Payable increases."] Text[804]=["","It is assumed that the company pays the dividend and therefore the Cash account decreases. Because of the double entry system, the stockholders' equity account Retained Earnings also decreases."] Text[805]=["","The Cash account decreases, and because of the double entry system, the liability account Accounts Payable is decreased."] Text[806]=["","The Cash account decreases, and because of the double entry system, the asset account Prepaid Insurance increases."] Text[807]=["","There is no effect on the Cash account. The transaction does, however, result in a debit to the asset account Accounts Receivable and a credit to the income statement account Sales, which has the effect of increasing sales and net income on the income statement. The transaction changes nothing on the statement of cash flows since there is no cash involved at this time (the cash will be received in 30 days)."] Text[808]=["","On the day the cash is received, the Cash account increases, and because of the double entry system, the asset account Accounts Receivable is decreased. (Be aware that this transaction has no effect on the income statement—there is no increase in Sales and no increase in net income.)"] Text[809]=["","If Accounts Payable decreased, we assume that the company paid some of its bills, therefore we assume that the Cash account also decreased."] Text[810]=["","If the asset account Prepaid Insurance increased, we assume that the company paid an insurance premium that covered more than the current month. Therefore, we assume that the Cash account decreased. Consider the general journal entry for this transaction:

Prepaid Insurance
xxx
Cash
xxx
"] Text[811]=["","If the asset account Land increased, we assume that the company paid cash to purchase the land, therefore, the Cash account decreased. Consider the general journal entry for this transaction:

Land
xxx
Cash
xxx
"] Text[812]=["","The Cash account increased because we assume that the company receives cash from the sale of any and all assets. Consider the general journal entry for this transaction:

Cash
xxx
Land
xxx
Gain on Sale of Land
xxx
"] Text[813]=["","The Cash account increases because we assume the company receives cash when it issues bonds."] Text[814]=["","The Cash account decreases because we assume that the company used cash or paid cash to repurchase/redeem/reduce its bonds that are outstanding."] Text[820]=["

Wrong.","The balance sheet reports assets, liabilities, and stockholders' equity."] Text[821]=["

Right!",""] Text[822]=["

Wrong.","This financial statement explains how a company's cash balance changed during the accounting period."] Text[823]=["

Right!",""] Text[824]=["

Wrong.","The income statement reports revenues and expenses and the resulting net income."] Text[825]=["

Wrong.","This financial statement explains how a company's cash balance changed during the accounting period."] Text[826]=["

Wrong.",""] Text[827]=["

Right!",""] Text[828]=["

Wrong.",""] Text[829]=["

Right!",""] Text[830]=["","net income"] Text[831]=["","assets"] Text[832]=["

Right!","This is true because of the cost principle."] Text[833]=["

Wrong.","Because of the cost principle, assets are generally not reported at their current market value."] Text[834]=["

Wrong.","This would violate the cost principle."] Text[835]=["","liabilities"] Text[836]=["","payable"] Text[837]=["

Wrong.",""] Text[838]=["

Right!","The company that is to perform the service or is to deliver the product has received the cash in advance and therefore has an obligation (liability) to deliver the service or the product."] Text[839]=["

Wrong.",""] Text[840]=["

Wrong.",""] Text[841]=["

Right!","Because of double entry, every transaction will affect at least two accounts."] Text[842]=["

Wrong.",""] Text[843]=["","chart of accounts"] Text[844]=["","stockholders' equity or owner's equity"] Text[845]=["

Right!",""] Text[846]=["

Wrong.",""] Text[847]=["

Wrong.",""] Text[848]=["

Right!",""] Text[849]=["

Right!",""] Text[850]=["

Wrong.",""] Text[851]=["

Wrong.",""] Text[852]=["

Right!",""] Text[853]=["

Right!",""] Text[854]=["

Wrong.",""] Text[855]=["

Wrong.",""] Text[856]=["

Right!",""] Text[857]=["

Right!",""] Text[858]=["

Wrong.",""] Text[859]=["

Wrong.",""] Text[860]=["

Right!",""] Text[870]=["","The account(s) that are debited are stated first (in this case the account is Cash). Some transactions might involve two accounts that need to be debited, these would both be stated before the accounts that are credited."] Text[871]=["","This means that the Cash account was debited for $20,000. Since Cash is an asset account and it is debited--this means your Cash was increased by $20,000."] Text[872]=["","The account(s) that are credited are listed second and are indented (in this case the account is Common Stock)."] Text[873]=["","Since Common Stock is part of stockholders' equity, it is credited when the account increases. In this case Common Stock is increased by $20,000."] Text[900]=["","Owner's Equity or Stockholders' Equity (if a corporation)"] Text[901]=["","The answer will be displayed here."] Text[902]=["","This means the period of October 1 through December 31, 2007."] Text[903]=["","This means the period of November 29 through December 27, 2007."] Text[904]=["","This means the period of October 1, 2005 through September 30, 2007."] Text[905]=["","accumulated depreciation"] Text[906]=["","infrequent"] Text[907]=["","return"] Text[910]=["

Wrong.","The amounts listed on the balance sheet are the costs of these long-term assets minus the amount of accumulated depreciation. Rarely, would the net of those amounts be any indication of the fair market value of those assets."] Text[911]=["

Right!","The amounts listed on the balance sheet are the costs of these long-term assets minus the amount of accumulated depreciation. Rarely, would the net of those amounts be any indication of the fair market value of those assets."] Text[912]=["

Wrong.","The total of stockholders' equity is equal to the amounts listed on the balance sheet for assets minus the amounts listed on the balance sheet for liabilities. It is likely that the fair value of the assets is different from the cost less depreciation shown on the balance sheet. In addition the corporation's management team, customer allegiance, and many of its brands may not be listed on the balance sheet as assets."] Text[913]=["

Right!","The corporation's fair is often significantly different than the stated amounts for the assets reported on the balance sheet."] Text[914]=["

Right!",""] Text[915]=["

Wrong.","The book value of the corporation is the reported amount of stockholders' equity. Stockholders' equity is equal to the reported amounts of assets minus the reported amounts of liabilities."] Text[916]=["

Wrong.","The balance sheet heading should NOT state a period of time. Rather, the third line of the heading in this example should be December 31, 2008."] Text[917]=["

Right!","The balance sheet should report the instant or point in time such as December 31, 2008."] Text[918]=["

Right!","The solution is shown below.

Cash Provided by Operating Activities:
Net Income
$
100,000
Add back Depreciation Expense
+
10,000
Less the increase in Accounts Receivable
–
30,000
Less the decrease in Accounts Payable
–
15,000
    Cash Provided by Operating Activities
$
65,000

"] Text[919]=["

Wrong.","Try another answer."] Text[920]=["

Wrong.","Try another answer."] Text[921]=["

Wrong.","Try another answer."] Text[922]=["

Right!","The solution is shown below.

Cash Provided by Operating Activities:
Net Income
$
200,000
Add back Depreciation Expense
+
30,000
Less the Gain on the Sale of Truck
–
5,000
Add the decrease in Accounts Receivable
+
10,000
    Cash Provided by Operating Activities
$
235,000

"] Text[923]=["

Wrong.","Try another answer."] Text[924]=["

Wrong.","Try another answer."] Text[925]=["

Right!","The entire proceeds from the sale of a long-term asset is reported under Cash from Investing Activities."] Text[926]=["

Wrong.","Try another answer."] Text[927]=["

Wrong.","Full disclosure is associated with adequately reporting information that is relevant to the readers of the financial statements. This is often carried out in the notes (footnotes) to the financial statements. "] Text[928]=["

Right!","As long as the digits omitted are small in relation to the true amounts, companies will round numbers so as to emphasize the relevant digits. The rationale is that no one will be misled by the omission of the insignificant digits."] Text[929]=["

Wrong.","In the U.S. the monetary unit is associated with the reporting of all items in U. S. dollars and that the U. S. dollar's purchasing power does not change over time."] Text[930]=["

Right!","Conservatism is used in order to 'break a tie'. Accountants should strive to be objective and to use conservatism when doubt exists between two options."] Text[931]=["

Wrong.","Cost involves recording transactions at their cash value at the time of the transaction."] Text[932]=["

Wrong.","Materiality involves insignificant amounts and the accounting for those amounts."] Text[933]=["

Wrong.","Economic entity involves reporting of a business's transactions separate from the owner's personal transactions and from the transactions of other entities."] Text[934]=["

Wrong.","Full disclosure involves communicating information so that the readers of the financial statements can make informed decisions."] Text[935]=["

Right!","Certain industries (usually those that are regulated by the government) have unique reporting requirements that are followed on the financial statements as well as the reports to the government."] Text[936]=["

Wrong.","Cost involves recording transactions at their cash value at the time of the transaction."] Text[937]=["

Wrong.","The matching principle would emphasize depreciation, such as 'matching' $50 of Depreciation Expense each year for five years with the revenues during those five years."] Text[938]=["

Right!","Because this is a large company, $250 is considered to be an insignificant amount. Hence if the company depreciates the camera at $50 per year for five years or expenses $250 in the year it is purchased, an investor or lender would not be misled by the additional expense of $200 per year in the first year and the $50 difference in the next four years."] Text[939]=["

Wrong.","Conservatism requires that when two acceptable accounting options are available, the accountant should choose the option that results in less assets, less profit, or a greater liability amount in order to 'break the tie' between the options."] Text[940]=["

Right!","The matching principle requires the company to match 1/12 of the annual property tax to each month when revenues are earned as a result of the property."] Text[941]=["

Wrong.","In the U.S. the monetary unit is associated with the reporting of all items in U. S. dollars and that the U. S. dollar's purchasing power does not change over time."] Text[942]=["

Wrong.","Full disclosure involves communicating information so that the readers of the financial statements can make informed decisions."] Text[943]=["

Wrong.","In the U.S. the monetary unit is associated with the reporting of all items in U. S. dollars and that the U. S. dollar's purchasing power does not change over time."] Text[944]=["

Right!","The revenue recognition principle requires that revenue be reported when revenue is earned (when goods are sold or services are provided) and not at the time when payment is received."] Text[945]=["

Wrong.","Cost involves recording transactions at their cash value at the time of the transaction."] Text[946]=["

Wrong.","Full disclosure involves communicating information so that the readers of the financial statements can make informed decisions."] Text[947]=["

Right!","The matching principle requires that expenses be matched to the related revenues or to the accounting period when the expenses are incurred. When the expenses are paid for is not relevant."] Text[948]=["

Wrong.","Conservatism requires that when two acceptable accounting options are available, the accountant should choose the option that results in less assets, less profit, or a greater liability amount in order to 'break the tie' between the options."] Text[949]=["

Right!","The cost principle requires that assets and other transactions be recorded at cost. The chief executive was not purchased at a cost and therefore is not reported as an asset on the corporation's balance sheet. The monetary unit assumption is also another reason why the executive is not recorded—we do not know how to measure the executive in U.S. dollars."] Text[950]=["

Wrong.","Going concern is an assumption that the company will continue on long enough to carry out its objectives and commitments."] Text[951]=["

Wrong.","Cost involves recording transactions at their cost or cash value at the time of the transaction."] Text[952]=["

Wrong.","Full disclosure involves communicating information so that the readers of the financial statements can make informed decisions."] Text[953]=["

Right!","The matching principle requires that expenses be matched to the related revenues or to the accounting period when the expenses are incurred. When the expenses are paid for is not relevant."] Text[954]=["

Wrong.","Going concern is an assumption that the company will continue on long enough to carry out its objectives and commitments."] Text[955]=["

Wrong.","Materiality involves insignificant amounts and the accounting for those amounts."] Text[956]=["

Right!","The revenue recognition principle requires that revenues be recognized when they are earned, not when the cash is received."] Text[957]=["

Right!","The cost principle requires that assets be recorded at their cost at the time they are acquired. The cost principle prohibits increasing the cost of items in inventory before an item is sold."] Text[958]=["

Wrong.","Full disclosure involves communicating information so that the readers of the financial statements can make informed decisions."] Text[959]=["

Wrong.","In the U.S. the monetary unit is associated with the reporting of all items in U. S. dollars and that the U. S. dollar's purchasing power does not change over time."] Text[960]=["

Wrong.","Cost involves recording transactions at their cost or cash value at the time of the transaction."] Text[961]=["

Right!","The matching principle requires that expenses be matched with the related revenues or to the appropriate period of time. In this case the company is incurring interest expense every minute that it has the loan. For one month's use of the money, the company has Interest Expense of $600 and it needs to be reported on the December income statement in order to be in compliance with the matching principle and the accrual basis of accounting."] Text[962]=["

Wrong.","The revenue recognition principle requires that revenue be reported when revenue is earned (when goods are sold or services are provided) and not at the time when payment is received."] Text[963]=["

Right!","The bank service charge is not yet entered on the company's books, so it will require a journal entry."] Text[964]=["

Wrong.","Deposits in transit are already on the company's books, but they do not appear on the bank statement."] Text[965]=["

Wrong.","The bank will need to make a correcting entry in its records in order to correct the bank statement for the company."] Text[966]=["

Wrong.","The check printing charge will require a journal entry to the company's books."] Text[967]=["

Right!","There is no journal entry needed for outstanding checks. Outstanding checks are checks already recorded on the company's books, but they have not year appeared on the bank statement."] Text[968]=["

Wrong.","The fee for the NSF check will require a journal entry to the company's books."] Text[969]=["

Wrong.","The company subtracted $98 from its accounting records instead of $89. That means the company has subtracted $9 too much for check #2754. Therefore the company must add $9 to its Cash balance."] Text[970]=["

Right!","The company had subtracted $98 from its accounting records instead of $89. That means the company has subtracted $9 too much for check #2754...causing the balance to be too low by $9. Therefore the company must add $9 to its Cash balance."] Text[971]=["

Wrong.","The company had subtracted $98 from its accounting records instead of $89. That means the company has subtracted $9 too much for check #2754...causing the balance to be too low by $9. Therefore the company must add $9 to its Cash balance."] Text[972]=["

Right!","The company added $165 to its accounting records when it should have added only $156. In other words it added $9 too much to its Cash balance. As a result the company must subtract $9 from its Cash balance."] Text[973]=["

Wrong.","The company added $165 to its accounting records when it should have added only $156. In other words it added $9 too much to its Cash balance. As a result the company must subtract $9 from its Cash balance."] Text[974]=["

Wrong.","The company added $165 to its accounting records when it should have added only $156. In other words it added $9 too much to its Cash balance. As a result the company must subtract $9 from its Cash balance."] Text[975]=["

Right!",""] Text[976]=["

Wrong.",""] Text[977]=["

Right!",""] Text[978]=["

Wrong.",""] Text[979]=["

Wrong.","The contribution margin is selling price per unit minus VARIABLE expenses per unit."] Text[980]=["

Right!","The contribution margin is selling price per unit minus VARIABLE expenses per unit."] Text[981]=["

Wrong.","Break-even analysis is useful for service companies as well as companies that sell products."] Text[982]=["

Right!",""] Text[983]=["

Right!",""] Text[984]=["

Wrong.","Contribution margin per unit is $10: Selling Price per unit of $17 minus Variable Expenses per unit of $7."] Text[985]=["

Wrong.","Contribution margin per unit is $10: Selling Price per unit of $17 minus Variable Expenses per unit of $7."] Text[986]=["

Wrong.","The break-even point is 14,000 units: Fixed Expenses of $140,000 divided by the Contribution Margin per unit of $10."] Text[987]=["

Right!",""] Text[988]=["

Wrong.","The break-even point is 14,000 units: Fixed Expenses of $140,000 divided by the Contribution Margin per unit of $10."] Text[989]=["

Wrong.","The number of units that will generate a profit of $42,000 is 18,200 units: Fixed Expenses of $140,000 + Desired Profit of $42,000 = $182,000 divided by the Contribution Margin per unit of $10."] Text[990]=["

Right!",""] Text[991]=["

Wrong.","The number of units that will generate a profit of $42,000 is 18,200 units: Fixed Expenses of $140,000 + Desired Profit of $42,000 = $182,000 divided by the Contribution Margin per unit of $10."] Text[992]=["

income statement","Nearly all adjusting entries involve one balance sheet account and one income statement account."] Text[993]=["","accrual"] Text[994]=["

Wrong.",""] Text[995]=["

Right!","The specific account might be entitled Unearned Revenues, Unearned Fees, or Customer Deposits."] Text[996]=["

Wrong.","This account is used for the amounts that have been earned."] Text[997]=["

Right!","Depreciation, utilities, wages, and unearned revenues are just a few examples of adjusting entries that will require some estimating."] Text[998]=["

Wrong.",""] Text[999]=["","accruals"] Text[1000]=["

Right!","It is an accrual because the expense has occurred but it is not yet recorded in the company's accounting records."] Text[1001]=["

Wrong.",""] Text[1002]=["

Wrong.",""] Text[1003]=["

Right!","The amounts are already in the accounting records and they need to be adjusted. Not all of the amounts for supplies are to be expensed—some need to be deferred to the next accounting period when they will be used."] Text[1004]=["

Wrong.",""] Text[1005]=["

Right!","The amount is already in the accounting records. However, the amount that has not yet been earned needs to be deferred to a later accounting period."] Text[1006]=["

Right!","The cost of inventory is the cost paid to the supplier plus all costs necessary to get the merchandise in place and ready for sale including freight-in."] Text[1007]=["

Wrong.",""] Text[1008]=["","Purchase Discounts"] Text[1009]=["","Ending Inventory"] Text[1010]=["

Wrong.","Land is not depreciated. Part of the purchase price must be allocated (assigned) to Land. The remaining cost is assigned to the Building and that amount is depreciated."] Text[1011]=["

Right!","Land is not depreciated"] Text[1012]=["

Wrong.","The book value represents the cost of the asset minus the Accumulated Depreciation. The fair market value of the asset might be more or less than the book value."] Text[1013]=["

Right!","The book value represents the cost of the asset minus the Accumulated Depreciation. The fair market value of the asset might be more or less than the book value."] Text[1014]=["

$2,000","Calculated as follows: Cost of $30,000 minus Estimated Salvage Value of $2,000 = Amount to Be Depreciated. $28,000 divided by 7 years = $4,000 for a full year. In 2009 the asset was in service for six months, so the depreciation expense for 2009 is $2,000 (6/12 of $4,000)."] Text[1015]=["

$4,000","Calculated as follows: Cost of $30,000 minus Estimated Salvage Value of $2,000 = Amount to Be Depreciated $28,000 divided by 7 years = $4,000 for a full year."] Text[1016]=["

$6,000","Calculated as follows: Cost of $30,000 minus Estimated Salvage Value of $0 = Amount to Be Depreciated. $30,000 divided by 10 years = $3,000 per year for the years 2006, 2007, 2008, and 2009.

After 4 years the Book Value is $18,000 ($30,000 minus $12,000). The Book Value of $18,000 will have to be depreciated over the remaining life of 3 years = $6,000 per year."] Text[1017]=["

Right!","Expenses are almost always debited. The exceptions would be closing entries and possibly correcting and adjusting entries."] Text[1018]=["

Wrong.",""] Text[1019]=["

Wrong.",""] Text[1020]=["

Right!","Revenues are almost always credited. The exceptions would be closing entries and possibly correcting and adjusting entries."] Text[1021]=["

Right!",""] Text[1022]=["

Wrong.",""] Text[1023]=["

Wrong.",""] Text[1024]=["

Right!","Since asset accounts are likely to have debit balances, a contra-asset account will have the opposite balance."] Text[1025]=["

Right!","Since liability accounts are likely to have credit balances, a contra-liability account will have the opposite balance."] Text[1026]=["

Wrong.",""] Text[1027]=["

dr.","Apparently the abbreviation is based on the Latin form of the word debit."] Text[1028]=["

Right!",""] Text[1029]=["

Wrong.","Operating Income is Gross Profit minus Operating Expenses."] Text[1030]=["

Wrong.",""] Text[1031]=["

Wrong.",""] Text[1032]=["

Right!",""] Text[1033]=["

Wrong.",""] Text[1034]=["

Right!",""] Text[1035]=["

Wrong.","When cash is collected does not determine when sales and service revenues have been earned. When payments are made does not determine when expenses are incurred."] Text[1036]=["

This is not the best answer.","This could be true if there were no non-operating revenues and expenses."] Text[1037]=["

Wrong.","Net Sales is Gross Sales minus Sales Discounts and Sales Returns and Allowances."] Text[1038]=["

Right!",""] Text[1039]=["

Right!",""] Text[1040]=["

Wrong.",""] Text[1041]=["

Wrong.",""] Text[1042]=["

Wrong.",""] Text[1043]=["

Right!",""] Text[1044]=["

Wrong.",""] Text[1045]=["

Wrong.",""] Text[1046]=["

Wrong.",""] Text[1047]=["

Right!",""] Text[1048]=["

Right!","The earnings per share must appear on the income statement if a corporation's stock is publicly traded."] Text[1049]=["

Wrong.","The earnings per share must appear on the income statement if a corporation's stock is publicly traded."] Text[1050]=["

Right!","The notes are an integral part of the statements."] Text[1051]=["

Wrong.","The notes are an integral part of the statements."] Text[1052]=["

Right!","Depreciation Expense is an example of a significant expense that is an estimate."] Text[1053]=["

Wrong.","Depreciation Expense and Bad Debts Expense are examples of expenses that are estimates."] Text[1054]=["","Stockholders' Equity"] Text[1055]=["

Right!","Since current assets generally 'turn over' within one year, the current value is close to the recorded and reported amounts. Current liabilities would also have current values close to the reported amounts."] Text[1056]=["

Wrong.","Generally long-term assets were recorded several years earlier. That means that the current value will have changed during those years."] Text[1057]=["

Wrong.","Since stockholders' equity is the difference in the reported amount of total assets and total liabilities, the net amount is not likely to be the same as the current value."] Text[1058]=["

Wrong.","Only transactions with a measurable amount get recorded in the accounting records."] Text[1059]=["

Right!","Only transactions with a measurable amount get recorded in the accounting records."] Text[1060]=["

Wrong.","Since stockholders' equity is the difference in the reported amount of total assets and total liabilities, the net amount is not likely to be the same as the current value."] Text[1061]=["

Right!",""] Text[1062]=["

Wrong.",""] Text[1063]=["

Right!","Free cash flow is cash provided by operating activities minus capital expenditures."] Text[1064]=["

Right!",""] Text[1065]=["

Wrong.",""] Text[1066]=["

Wrong.",""] Text[1067]=["","common-size"] Text[1068]=["","fixed expenses"] Text[1069]=["","bank"] Text[1070]=["","statement of cash flows"] Text[1071]=["","operating"] Text[1072]=["","investing"] Text[1073]=["","financing"] Text[1074]=["","cost"] Text[1075]=["","conservatism"] Text[1076]=["","matching"] Text[1077]=["","365 days"] Text[1078]=["","current liability"] Text[1079]=["","unusual in nature AND infrequent in occurrence"] Text[1080]=["

Wrong.","The amounts in the general ledger are past, historical amounts. Relevant amounts for a decision are the present and future amounts. You could start with the general ledger amounts, but they need to be adjusted to the present and future."] Text[1081]=["

Right!","The amounts in the general ledger are past, historical amounts."] Text[1082]=["

Right!","Expenses remain fixed in a reasonable range of sales or other activity. A 200% increase in activity is so significant that even fixed costs will likely change. For example, you may need to add another supervisor, another manager, and to expand the warehouse."] Text[1083]=["

Wrong.","Expenses remain fixed in a reasonable range of sales or other activity. A 200% increase in activity is so significant that even fixed costs will likely change. For example, you may need to add another supervisor, another manager, and to expand the warehouse."] Text[1084]=["

Wrong.","A sole proprietor's compensation will not be included in Salaries Expense. Any amounts withdrawn from the company for the proprietor's personal use are debited to the proprietor's drawing account. The drawing account is a contra owner's equity account."] Text[1085]=["

Right!","The sole proprietor does not receive a salary. Rather, any amounts withdrawn from the company for the proprietor's personal use are debited to the proprietor's drawing account. The drawing account is a contra owner's equity account. "] Text[1086]=["

Right!","The original cost is a sunk, past cost."] Text[1087]=["

Wrong.","The original cost is a sunk, past cost. Such costs are not relevant to any decision, since decisions involve the present and the future."] Text[1088]=["

Right!","The money received from the sale of the equipment is in the present or future and as such is relevant to the decision."] Text[1089]=["

Wrong.","The money received from the sale of the equipment is in the present or future and as such is relevant to the decision."] Text[1090]=["

Wrong.","A variable expense varies in total as sales vary. It is constant on a per unit basis. For example, if a company pays a $3 commission on each item sold, the $3 per unit is constant and the total commission will vary as sales vary. If 100 items are sold, the total variable expense will be $300. If 200 items are sold, the total variable expense will be $600. "] Text[1091]=["

Right!","The variable expense per unit stays constant. If the variable expense is $3 per unit, the $3 per unit does not change."] Text[1092]=["

Right!",""] Text[1093]=["

Wrong.","Future costs and expenses that do NOT differ are irrelevant in a decision."] Text[1094]=["

Wrong.","Historical costs are past costs. Since no decision can affect the past, historical costs are not relevant to a decision."] Text[1095]=["","sunk"] Text[1096]=["","mixed"] Text[1097]=["","regression (or least-squares method)"] Text[1098]=["

Right!","The salary of the vice-president of human resources is not likely to change within a reasonable range of sales or other activity. "] Text[1099]=["

Wrong.","The salary of the vice-president of human resources is not likely to change within a reasonable range of sales or other activity. "] Text[1100]=["

Wrong.","The salary of the vice-president of human resources is not likely to change within a reasonable range of sales or other activity. "] Text[1101]=["

Right!","The office rent is not likely to change within a reasonable range of sales or other activity."] Text[1102]=["

Wrong.","The office rent is not likely to change within a reasonable range of sales or other activity."] Text[1103]=["

Wrong.","The office rent is not likely to change within a reasonable range of sales or other activity."] Text[1104]=["

Wrong.","Sales commissions expense is a variable expense, because the total amount of sales commissions will increase in proportion to the increase in sales and it will decrease in total as sales decrease."] Text[1105]=["

Wrong.","Sales commissions expense is a variable expense, because the total amount of sales commissions will increase in proportion to the increase in sales and it will decrease in total as sales decrease."] Text[1106]=["

Right!","Sales commissions expense is a variable expense, because the total amount of sales commissions will increase in proportion to the increase in sales and it will decrease in total as sales decrease."] Text[1107]=["

Wrong.","The shipping department will likely have some expenses that are fixed (depreciation of equipment, salary of supervisor, heat, etc.) and some expenses that are variable (electricity for equipment used, some hourly-paid employees, shipping boxes, labels, etc.)"] Text[1108]=["

Right!","The shipping department will likely have some expenses that are fixed (depreciation of equipment, salary of supervisor, heat, etc.) and some expenses that are variable (electricity for equipment used, some hourly-paid employees, shipping boxes, labels, etc.)"] Text[1109]=["

Wrong.","The shipping department will likely have some expenses that are fixed (depreciation of equipment, salary of supervisor, heat, etc.) and some expenses that are variable (electricity for equipment used, some hourly-paid employees, shipping boxes, labels, etc.)"] Text[1110]=["

Right!","The property tax on the office building will not change because of a reasonable change is sales volume or other activity."] Text[1111]=["

Wrong.","The property tax on the office building will not change because of a reasonable change is sales volume or other activity."] Text[1112]=["

Wrong.","The property tax on the office building will not change because of a reasonable change is sales volume or other activity."] Text[1113]=["

Wrong.","A retailer's cost of goods sold will increase in total as sales increase and it will decrease in total as sales decrease."] Text[1114]=["

Wrong.","A retailer's cost of goods sold will increase in total as sales increase and it will decrease in total as sales decrease."] Text[1115]=["

Right!","A retailer's cost of goods sold will increase in total as sales increase and it will decrease in total as sales decrease."] Text[1116]=["",""] Text[1117]=["",""] Text[1118]=["",""] Text[1119]=["",""] Text[1120]=["",""] Text[1121]=["","credit"] Text[1122]=["","debit"] Text[1123]=["","liability"] Text[1124]=["","asset"] Text[1125]=["","assets"] Text[1126]=["","owner's equity or stockholders' equity"] Text[1127]=["","accrual"] Text[1128]=["","accrual"] Text[1129]=["","cost"] Text[1130]=["","monetary unit"] Text[1131]=["","Expense"] Text[1132]=["","Prepaid"] Text[1133]=["","balance sheet"] Text[1134]=["","Cost of Goods Sold"] Text[1135]=["","Accumulated Depreciation"] Text[1136]=["","operating"] Text[1137]=["","deferred"] Text[1138]=["","current"] Text[1139]=["","multiple"] Text[1140]=["","working capital"] Text[1141]=["","current liabilities"] Text[1142]=["","contribution margin"] Text[1143]=["","accumulated depreciation"] Text[1144]=["","False"] Text[1145]=["","investing"] Text[1146]=["","operating"] Text[1147]=["","investing"] Text[1148]=["","financing"] Text[1149]=["","capital"] Text[1150]=["","LIFO or last in, first out"] Text[1151]=["","matching"] Text[1152]=["","cost of goods sold"] Text[1153]=["","extraordinary"] Text[1154]=["","accounting principle"] Text[1155]=["","materiality"] Text[1156]=["","income statement"] Text[1157]=["","chart"] Text[1158]=["","general"] Text[1159]=["","debit"] Text[1160]=["","loss"] Text[1161]=["","outstanding"] Text[1162]=["","books"] Text[1163]=["","perpetual"] Text[1164]=["","non-operating expense"] Text[1165]=["","True"] Text[1166]=["","gross profit"] Text[1167]=["","True"] Text[1168]=["","Inventory, Supplies, Prepaid Insurance are three examples."] Text[1169]=["","True"] Text[1170]=["","False"] Text[1171]=["","direct"] Text[1172]=["","direct"] Text[1173]=["","overhead"] Text[1174]=["","standard"] Text[1175]=["Right!",""] Text[1176]=["Wrong.",""] Text[1177]=["Wrong.",""] Text[1178]=["Wrong.","If the drill had specified general office supplies, then this answer would be correct. However, the drill specified that the supplies were used in the manufacturing process."] Text[1179]=["Wrong.","Manufacturing supplies are indirect materials, which are part of manufacturing overhead."] Text[1180]=["Right!","Indirect materials such as manufacturing supplies are part of manufacturing overhead."] Text[1181]=["","Variance"] Text[1182]=["Right!",""] Text[1183]=["Wrong.",""] Text[1184]=["","usage (or quantity or efficiency)"] Text[1185]=["Right!",""] Text[1186]=["Wrong.","Rate is used interchangeably with price."] Text[1187]=["Wrong.","Spending is the price variance associated with variable manufacturing overhead."] Text[1188]=["Wrong.","Efficiency is used interchangeably with quantity and usage."] Text[1189]=["Right!",""] Text[1190]=["Wrong.","Usage is used interchangeably with quantity and efficiency."] Text[1191]=["Right!","Isolating and recording the price variance as soon as possible is viewed as advantageous."] Text[1192]=["Wrong.","This means that the direct materials price variance will not be isolated until the direct materials is used."] Text[1193]=["Wrong.",""] Text[1194]=["Wrong.","The budget variance pertains to spending more than the budgeted amount."] Text[1195]=["Wrong.",""] Text[1196]=["Right!",""] Text[1197]=["Right!",""] Text[1198]=["Wrong.",""] Text[1199]=["Wrong.",""] Text[1200]=["Right!",""] Text[1201]=["Wrong.",""] Text[1202]=["Wrong.","See the calculation for $30."] Text[1203]=["Right!","The good output was 100 trays. The standard pounds of material per tray are 2 pounds. Therefore, the standard pounds of plastic that should have been used for the good output = 200 pounds. The standard cost of the materials will be $600 (200 std lbs X $3 std cost). The actual pounds used was $210 pounds X $3 std cost = $630. The $30 difference (10 additional lbs. X $3 std cost) is an unfavorable usage or quantity variance."] Text[1204]=["Wrong.","See the calculation for $30."] Text[1205]=["Wrong.","See the calculation for $30."] Text[1206]=["Wrong.","Try another answer."] Text[1207]=["Wrong.","Try another answer."] Text[1208]=["Wrong.","Try another answer."] Text[1209]=["Right!","
1.The good output's standard hours X standard rate
1,000 units X 4 = 4,000 std hrs X $20
=
$ 80,000
400 units X 6 = 2,400 std hrs X $20
=
   48,000
Total std cost = 6,600 std hrs X $20
=
 128,000

2.Actual hours X standard rate
6,500 actual hours X $20
=
$130,000

3.Difference (Efficiency Variance)
=
($ 2,000) Unfavorable
The number of hours allowed for the output was 6,400 but 6,500 hours were actually used. Hence 100 additional hours were used (unfavorable) times the standard cost of $20 per hour = $2,000.

"] Text[1210]=["Wrong.","Try another answer."] Text[1211]=["Wrong.","Try another answer."] Text[1212]=["Right!","
1.Actual hours X standard rate
6,500 act hrs X $20 std rate
=
$130,000

2.Actual hours X actual rate
6,500 act hrs X $19
=
$123,500

3.Difference (Rate Variance)
=
$   6,500 Favorable
(Rate varied favorably by $1 on the 6,500 hours.)

"] Text[1213]=["Wrong.","Try another answer."] Text[1214]=["Wrong.","Try another answer."] Text[1215]=["Wrong.","Try another answer."] Text[1216]=["Right!","Since $50,000 of the $200,000 of standard costs reside in the finished goods inventory, it is reasonable to assign 50/200 or 25% of the variance to the finished goods inventory."] Text[1217]=["Wrong.","Try another answer."] Text[1218]=["Wrong.","Try another answer."] Text[1219]=["Wrong.","Try another answer."] Text[1220]=["Wrong.","Try another answer."] Text[1221]=["Wrong.","Try another answer."] Text[1222]=["Wrong.","Try another answer."] Text[1223]=["Right!","Since the $8,000 unfavorable variance is immaterial in amount, the entire variance may be assigned to the cost of goods sold. "] Text[1224]=["",""] Text[1225]=["Wrong.","The accounting return uses accounting revenues and expenses (not cash flows) with NO consideration of the time value of money...no discounting."] Text[1226]=["Right!","The internal rate of return model uses cash flows and then discounts them to the present. The rate that discounts the cash flows to a net present value of zero is the internal rate of return."] Text[1227]=["Wrong.","The payback model uses the cash flows from the project to determine the time needed to recoup the cash investment. However, the cash flows are NOT discounted."] Text[1228]=["Right!","The accounting return uses accounting revenues and expenses without discounting or considering the time value of money."] Text[1229]=["Wrong.","The internal rate of return model uses cash flows and then discounts them to the present. The rate that discounts the cash flows to a net present value of zero is the internal rate of return."] Text[1230]=["Wrong.","The net present value is the cash flows discounted back to the present and then netted against the cash paid in the present. If this net present value is equal to zero, the project is earning exactly the rate used to discount the cash flows. If the net present value is a positive amount (the present value of all cash received is greater than the present value of all cash paid) the project is earning more than the rate used to discount the cash. If the net present value is a negative amount (present value of all cash received is less than the present value of all cash paid) the project is earning less than the rate used to discount the cash."] Text[1231]=["Right!","The accounting return does NOT use cash flows. It uses accounting revenues and expenses without discounting (without consideration of the time value of money)."] Text[1232]=["Wrong.","The internal rate of return model uses cash flows and then discounts them to the present. The rate that discounts the cash flows to a net present value of zero is the internal rate of return."] Text[1233]=["Wrong.","The payback model uses the cash flows from the project to determine the time needed to recoup the cash investment. However, the cash flows are NOT discounted."] Text[1234]=["Wrong.","Since the net present value of the project was a negative amount, the project is expected to earn less than 16%. Since the negative amount is only $300 versus the immediate cash investment of $450,000, the project is earning VERY close to 16%, but it is slightly less than 16%."] Text[1235]=["Right!","Since the net present value of the project was a negative amount, the project is expected to earn less than 16%. Since the negative amount is only $300 versus the immediate cash investment of $450,000, the project is earning VERY close to 16%, but it is slightly less than 16%."] Text[1236]=["Wrong.","The project is expected to earn almost 16%. The small negative net present value of $300 is VERY small in relation to the cash outlay of $450,000. (It is possible that the project is earning a 15.95% return.) So while the project just missed the 16% cutoff and therefore has a negative net present value, it still had a positive internal rate of return of almost 16%."] Text[1237]=["Wrong.","See the calculations for $11,000."] Text[1238]=["Right!","The present values for the FUTURE cash INFLOWS are: ($50,000 X 0.86) + ($40,000 X 0.74) + ($60,000 X 0.64) = $111,000. The present value of the cash outflows is ($100,000 X 1.00) = $100,000. The present values IN of $111,000 vs. the present value OUT of $100,000 = the net present value of $11,000...a positive net IN amount."] Text[1239]=["Wrong.","See the calculations for $11,000."] Text[1240]=["Wrong.","See the calculations for $11,000."] Text[1241]=["Wrong.","See the calculations for 2.17 years."] Text[1242]=["Wrong.","See the calculations for 2.17 years."] Text[1243]=["Right!","Payback is the number of years it takes to recoup the initial cash outlay for the project. The time value of money is not involved. (In other words there is no discounting of the cash flows.) The cash received in years 1 + 2 = $50,000 + $40,000 = $90,000 after two years. Assuming the cash flow in year 3 is uniform throughout year 3, the remaining $10,000 needed to reach the investment amount of $100,000 occurs about 1/6 of the way into year 3 ($10,000 needed divided by the total cash in year 3 of $60,000). This makes the payback 2.17 years."] Text[1244]=["Wrong.","See the calculations for 2.17 years."] Text[1245]=["Right!","A positive net present value indicates that the present value of the cash inflows exceeds the present value of the cash outflows. The positive net present value indicates that the project will return more than the specified rate used to discount the cash flows."] Text[1246]=["Wrong.","A positive net present value indicates that the present value of the cash inflows exceeds the present value of the cash outflows. The positive net present value indicates that the project will return more than the specified rate used to discount the cash flows."] Text[1247]=["Wrong.","Depreciation Expense is a noncash expense. That is, there is no outlay of cash. The accounting entry is a debit to Depreciation Expense and a credit to Accumulated Depreciation. Hence, no cash is used at the time of the depreciation entry. Cash was most likely spent when the asset was acquired."] Text[1248]=["Right!","Depreciation Expense is a noncash expense. That is, there is no outlay of cash. The accounting entry is a debit to Depreciation Expense and a credit to Accumulated Depreciation. Hence, no cash is used at the time of the depreciation entry. Cash was most likely spent when the asset was acquired."] Text[1249]=["Right!","Depreciation Expense shown on the tax return does reduce taxable income, which in turn does reduce the amount of cash paid for income taxes."] Text[1250]=["Wrong.","Depreciation Expense shown on the tax return does reduce taxable income, which in turn does reduce the amount of cash paid for income taxes."] Text[1251]=["Wrong.","The accounting rate of return uses accounting revenues and accounting expenses. Depreciation Expense is indeed an accounting expense and cannot be ignored. (However, Depreciation Expense is considered a noncash expense.)"] Text[1252]=["Right!","Depreciation Expense cannot be ignored when computing the accounting rate of return, because it is indeed an accounting expense. (However, the Depreciation Expense entry does not involve the payment of cash.)"] Text[1253]=["Wrong.","If you reject this project, you are rejecting earning the rate that was used to discount the cash flows."] Text[1254]=["Right!","If a project has a net present value of $0, the project is earning exactly the rate that was used to discount the cash flows. If that rate is the desired or targeted rate, the project is providing the desired or targeted rate...nothing more, nothing less."] Text[1255]=["Wrong.","If you discount by a larger rate, the present value will be smaller. In other words, a higher discount rate means you must earn a higher return and therefore will invest less for the future cash flows. (Also see the present value factors at the beginning of the drills. The higher the discount rate, the smaller are the present value factors.)"] Text[1256]=["Right!","If you discount by a larger rate, the present value will be smaller. In other words, a higher discount rate means you must earn a higher return and therefore will invest less for the future cash flows. (Also see the present value factors at the beginning of the drills. The higher the discount rate, the smaller are the present value factors.)"] Text[1257]=["Wrong.","The correct answer is $9,300 ($10,000 x 0.93)"] Text[1258]=["Right!","$10,000 x 0.93 = $9,300."] Text[1259]=["Wrong.","The correct answer is $9,300 ($10,000 x 0.93)"] Text[1260]=["Wrong.","The correct answer is $16,600 ($20,000 x 0.83)"] Text[1261]=["Right!","$20,000 x 0.83 = $16,600."] Text[1262]=["Wrong.","The correct answer is $16,600 ($20,000 x 0.83)"] Text[1263]=["Wrong.","See the calculation for $4,620."] Text[1264]=["Right!","($2,000 x 0.89) + ($4,000 x 0.71) = $4,620."] Text[1265]=["Wrong.","See the calculation for $4,620."] Text[1266]=["Wrong.","See the calculation for 8%."] Text[1267]=["Right!","$68,000 is the present value of $100,000 received at the end of five years. This means the present value of 1 factor for an amount received at the end of five years is 0.68 ($68,000 divided by $100,000). The factor of 0.68 at the end of five years appears in the column headed 8%. (See the present value of 1 table at the beginning of the drills.)"] Text[1268]=["Wrong.","See the calculation for 8%."] Text[1269]=["Wrong.","See the calculation for 8%."] Text[1270]=["Wrong.","See the calculation for 8%."] Text[1271]=["Wrong.","See the calculation for 10%."] Text[1272]=["Wrong.","See the calculation for 10%."] Text[1273]=["Right!","$15,900 is the present value of ($10,000 x 0.91) + ($10,000 x 0.68)."] Text[1274]=["Wrong.","See the calculation for 10%."] Text[1275]=["Wrong.","See the calculation for 10%."] Text[1276]=["Wrong.","See the calculation for 12%."] Text[1277]=["Wrong.","See the calculation for 12%."] Text[1278]=["Wrong.","See the calculation for 12%."] Text[1279]=["Right!","$15,300 is the present value of ($10,000 x 0.89) + ($10,000 x 0.64)."] Text[1280]=["Wrong.","See the calculation for 12%."] Text[1281]=["Wrong.","See the calculation for $101,000."] Text[1282]=["Right!","($10,000 x 1.00) + ($100,000 x 0.91) = $101,000."] Text[1283]=["Wrong.","See the calculation for $101,000."] Text[1284]=["Wrong.","See the calculation for $446,000."] Text[1285]=["Wrong.","See the calculation for $446,000."] Text[1286]=["Right!","The immediate lump sum is $446,000 calculated as follows: ($100,000 x 1.00) + ($100,000 x 0.94) + ($100,000 x 0.89) + ($100,000 x 0.84) + ($100,000 x 0.79)"] Text[1287]=["Wrong.","See the calculation for $446,000."] Text[1288]=["",""] Text[1289]=["",""] Text[1290]=["Wrong.","SG&A costs and interest expense are reported as expenses on the income statement in the accounting period in which they are incurred. They could be viewed as administrative overhead, but not manufacturing overhead."] Text[1291]=["Right!","These expenses are nonmanufacturing expenses."] Text[1292]=["","manufacturing"] Text[1293]=["Wrong.","Direct labor is a specific, separate component of the manufacturing cost of a product."] Text[1294]=["Right!","Indirect manufacturing labor is part of manufacturing overhead. Some examples include equipment maintenance, factory supplies, depreciation on the factory building."] Text[1295]=["Wrong.","Office depreciation is part of SG&A expenses and is not included in the manufacturing overhead. Office depreciation could be viewed as an administrative overhead."] Text[1296]=["","service"] Text[1297]=["Wrong.","SG&A and interest expenses are not allocated to inventories for financial reporting under generally accepted accounting purposes. (Management might allocate these expenses internally to assist in pricing and other marketing decisions. However, they are not allocated for inventory valuation purposes.)"] Text[1298]=["Right!","SG&A and interest expenses are not allocated to inventories for financial reporting under generally accepted accounting purposes. (Management might allocate these expenses internally to assist in pricing and other marketing decisions. However, they are not allocated for inventory valuation purposes.)"] Text[1299]=["Wrong.","Factory supplies are included in manufacturing overhead."] Text[1300]=["Wrong.","Quality control costs are included in manufacturing overhead."] Text[1301]=["Right!","Interest expense is an expense associated with the financing function and is not considered part of the manufacturing function."] Text[1302]=["Wrong.","ABC is the most favorable basis for allocating a variety of services provided by indirect labor."] Text[1303]=["Right!",""] Text[1304]=["Wrong.","Since the equipment is automated, direct labor hours would be the least favorable basis."] Text[1305]=["Right!",""] Text[1306]=["Wrong.","It is highly unlikely that direct labor hours will correlate with the indirect labor cost."] Text[1307]=["Wrong.","It is highly unlikely that machine hours will correlate with the indirect labor cost."] Text[1308]=["Wrong.","Income tax expense is associated with the income reported on the income statement."] Text[1309]=["Right!",""] Text[1310]=["Wrong.","SG&A would include the property taxes on the buildings used for selling and other nonmanufacturing functions."] Text[1311]=["Wrong.","Only rents directly pertaining to the manufacturing functions of the business are part of manufacturing overhead."] Text[1312]=["Wrong.","Rent for executive offices is an operating expense often reported as SG&A."] Text[1313]=["Right!","Rent for executive offices is an operating expense often reported as SG&A."] Text[1314]=["Wrong.","The more diversity of products and customers the more likely that additional factors will be needed to properly allocate costs."] Text[1315]=["Right!","The more diversity of products and customers the more likely that additional factors will be needed to properly allocate costs."] Text[1316]=["Right!",""] Text[1317]=["Wrong.","A low-volume item will mean a low number of machine hours and a corresponding low amount of manufacturing overhead being assigned to the products. However, the special handling will cause additional costs specifically associated with these items."] Text[1318]=["Wrong.","The costs associated with setting up a machine are associated with the batch of items that will be produced by the machine."] Text[1319]=["Right!","Setup costs should not be allocated directly to products via machine hours. Setup costs should be allocated to the batch of products that will be run after the setup occurs."] Text[1320]=["Right!","Setting up a machine is directly associated with the batch of items that will be processed after the setup occurs."] Text[1321]=["Wrong.",""] Text[1322]=["Right!",""] Text[1323]=["Wrong.",""] Text[1324]=["Right!","For example, a setup cost of $800 is associated with the batch of items that will be processed. A large quantity of items processed will mean a low setup cost per unit. A small quantity of items being processed will mean a high setup cost per unit."] Text[1325]=["Wrong.",""] Text[1326]=["Right!",""] Text[1327]=["Wrong.","Some products require very few activities and therefore cause very few costs. Other products might require a large amount of activities and therefore cause a large amount of costs."] Text[1328]=["Right!","ABC is most effective when there are variations in batch size, processes, or customer demands."] Text[1329]=["Wrong.","ABC is most effective when there are variations in batch size, processes, or customer demands."] Text[1330]=["Right!","Some products with a high gross profit may require some very expensive selling and administrative activities. If these expenses are greater than the gross profit, a loss will occur. Other products with smaller gross profits may actually be more profitable, because they require only a minimal amount of selling and administrative activities and expenses."] Text[1331]=["Wrong.","Some products with a high gross profit may require some very expensive selling and administrative activities. If these expenses are greater than the gross profit, a loss will occur. Other products with smaller gross profits may actually be more profitable, because they require only a minimal amount of selling and administrative activities and expenses."] Text[1332]=["Right!","By identifying SG&A activities and the cost of those activities, the SG&A expenses can be better traced to the products and customers requiring those activities."] Text[1333]=["Wrong.",""] Text[1334]=["",""] Text[1335]=["","direct"] Text[1336]=["","fixed manufacturing overhead (or fixed factory overhead)"] Text[1337]=["","indirect"] Text[1338]=["","batch"] Text[1339]=["","setup hours"] Text[1340]=["","machine hours"] Text[1341]=["","more"] Text[1342]=["","less"] Text[1343]=["","pool"] Text[1344]=["","dependent"] Text[1345]=["","independent"] Text[1346]=["","independent"] Text[1347]=["","service"] Text[1348]=["","simultaneous"] Text[1349]=["","process"] Text[1350]=["","process"] Text[1351]=["","work in process inventory"] Text[1352]=["","sunk"] Text[1353]=["","finished goods"] Text[1354]=["","direct materials"] Text[1355]=["","manufacturing overhead (or factory overhead)"] Text[1356]=["","$18"] Text[1357]=["","3,000"] Text[1358]=["","5,000"] Text[1359]=["","$3"] Text[1360]=["","$26,000"] Text[1361]=["","scorecard"] Text[1362]=["","benchmarking"] Text[1363]=["","purchase"] Text[1364]=["","$16"] Text[1365]=["","$60"] Text[1366]=["","$331,500"] Text[1367]=["","$23,500"] Text[1368]=["","unfavorable"] Text[1369]=["","$318,500"] Text[1370]=["","$13,000"] Text[1371]=["","favorable"] Text[1372]=["","$36,500"] Text[1373]=["","unfavorable"] Text[1374]=["","Yes"] Text[1375]=["","$306,000"] Text[1376]=["","$11,000"] Text[1377]=["","favorable"] Text[1378]=["","$300,000"] Text[1379]=["","$6,000"] Text[1380]=["","favorable"] Text[1381]=["","$5,000"] Text[1382]=["","favorable"] Text[1383]=["","Yes"] Text[1384]=["","False"] Text[1385]=["","driver"] Text[1386]=["","irrelevant"] Text[1387]=["","unfavorable"] Text[1388]=["","unfavorable"] Text[1389]=["",""] Text[1390]=["","FICA (FICA is the acronym for Federal Insurance Contribution Act.)"] Text[1391]=["","6.2%"] Text[1392]=["","7.65%"] Text[1393]=["","$9,521.60
Social Security tax of $6,621.60 ($106,800 X 0.062)
PLUS
Medicare tax of $2,900 ($200,000 X 0.0145)"] Text[1394]=["Wrong.",""] Text[1395]=["Wrong.",""] Text[1396]=["Wrong.",""] Text[1397]=["Right!","$3,825 of employee withholding ($50,000 X 0.0765)
PLUS
$3,825 of employer matching
EQUALS a total of $7,650 that needs to be remitted. "] Text[1398]=["","wages"] Text[1399]=["","salary or salaries"] Text[1400]=["Wrong.","Exempt salaried employees are often paid for their work right up to payday. Hence, no need to accrue any salaries."] Text[1401]=["Right!","Hourly-paid employees have their paydays approximately one week after their workweeks and generally the workweek does not end on the last calendar day of the month."] Text[1402]=["","W-4"] Text[1403]=["","garnishment or child support"] Text[1404]=["","net"] Text[1405]=["","federal unemployment"] Text[1406]=["","worker compensation"] Text[1407]=["Wrong.","Try another answer."] Text[1408]=["Wrong.","Try another answer."] Text[1409]=["Wrong.","Try another answer."] Text[1410]=["Right!","[40 hours X $10] plus [10 hours X $15] = $550
OR
[50 hours X $10] plus [10 hours X $5] = $550"] Text[1411]=["Wrong.",""] Text[1412]=["Wrong.",""] Text[1413]=["Right!","The entry to record vacations earned in 2008 will affect Vacation Expense on the 2008 income statement and Vacation Payable, a liability on the 2008 balance sheet."] Text[1414]=["Wrong.",""] Text[1415]=["","$0. The cost of the vacation pay will be an expense on the 2008 income statement."] Text[1416]=["Wrong.","This account would be credited for the amount paid."] Text[1417]=["Wrong.","The expense is recorded on the 2008 income statement."] Text[1418]=["Right!",""] Text[1419]=["Right!",""] Text[1420]=["Wrong.",""] Text[1421]=["Wrong.","Try another answer."] Text[1422]=["Wrong.","Try another answer."] Text[1423]=["Right!","Gross wages of $500 less withholdings of $38.25 for FICA and income tax withholdings of $80."] Text[1424]=["Wrong.","Try another answer."] Text[1425]=["Wrong.","Try another answer."] Text[1426]=["Right!","Gross wages of $500 + FICA matching of $38.25 + unemployment tax of $24 + worker comp insurance of $5."] Text[1427]=["Wrong.","Try another answer."] Text[1428]=["",""] Text[1429]=["",""] Text[1430]=["Right!",""] Text[1431]=["Wrong.",""] Text[1432]=["Wrong.",""] Text[1433]=["Right!",""] Text[1434]=["Wrong.",""] Text[1435]=["Wrong.",""] Text[1436]=["Wrong.",""] Text[1437]=["Right!",""] Text[1438]=["Wrong.",""] Text[1439]=["","The expected selling price in the ordinary course of business minus the costs of completion and disposal."] Text[1440]=["Right!",""] Text[1441]=["Wrong.",""] Text[1442]=["Wrong.","This would cause the inventory to be reported at an amount greater than cost and thereby violate the cost principle."] Text[1443]=["Wrong.",""] Text[1444]=["Right!",""] Text[1445]=["Wrong.","This would cause the inventory to be reported at an amount greater than cost and thereby violate the cost principle."] Text[1446]=["$11.10","Expected selling price of $12.50 minus $1.40 of costs to complete and dispose."] Text[1447]=["$11.10","The net realizable value determined in #7."] Text[1448]=["$8.60","The net realizable value of $11.10 minus the normal profit of $2.50 (20% of $12.50)."] Text[1449]=["$9.50","The replacement cost. Replacement cost is used because it is between the ceiling of $11.10 and the floor of $8.60."] Text[1450]=["$9.00","$9.00 is the answer because it is the lower of $9.00 (cost) vs. the constrained replacement cost of $9.50. (The replacement cost of $9.50 was used as the market because it was between the ceiling of $11.10 and the floor of $8.60.)
The answer can also be found by arranging the four relevant amounts in descending order and then selecting the third highest amount, unless cost is lower. If cost is lower than the third number, select cost:

$11.10 NRV (ceiling for replacement cost)
$ 9.50 Replacement cost
$ 9.00 Cost
$ 8.60 NRV - profit (floor for replacement cost)"] Text[1451]=["$10.60","Expected selling price of $12.00 minus $1.40 of costs to complete and dispose."] Text[1452]=["$10.60","The net realizable value determined in #12."] Text[1453]=["$8.20","The net realizable value of $10.60 minus the normal profit of $2.40 (20% of $12.00)."] Text[1454]=["$8.20","Replacement cost of $8.00 cannot be the market because it is lower than the floor amount of $8.20."] Text[1455]=["$8.20","$8.20 is the answer because it is the lower of $9.00 (cost) vs. the constrained replacement cost of $8.20. (The replacement cost of $8.00 could not be used as the market because of the floor of $8.20.)
The answer can also be found by arranging the four relevant amounts in descending order and then selecting the third highest amount, unless cost is lower. If cost is lower than the third number, select cost:

$10.60 NRV (ceiling for replacement cost)
$ 9.00 Cost
$ 8.20 NRV - profit (floor for replacement cost)
$ 8.00 Replacement cost"] Text[1456]=["$8.60","Expected selling price of $10.00 minus $1.40 of costs to complete and dispose."] Text[1457]=["$8.60","The net realizable value determined in #17."] Text[1458]=["$6.60","The net realizable value of $8.60 minus the normal profit of $2.00 (20% of $10.00)."] Text[1459]=["$8.60","Replacement cost of $8.75 cannot be the market because it is higher than the ceiling of $8.60."] Text[1460]=["$8.60","$8.60 is the answer because it is the lower of $9.00 (cost) vs. the constrained replacement cost of $8.60. (The replacement cost of $8.75 could not be used as the market because of the ceiling of $8.60.)
The answer can also be found by arranging the four relevant amounts in descending order and then selecting the third highest amount, unless cost is lower. If cost is lower than the third number, select cost:

$ 9.00 Cost
$ 8.75 Replacement cost
$ 8.60 NRV (ceiling for replacement cost)
$ 6.60 NRV - profit (floor for replacement cost)"] Text[1461]=["$9.60","Expected selling price of $11.00 minus $1.40 of costs to complete and dispose."] Text[1462]=["$9.60","The net realizable value determined in #22."] Text[1463]=["$7.40","The net realizable value of $9.60 minus the normal profit of $2.20 (20% of $11.00)."] Text[1464]=["$8.00","The replacement cost. Replacement cost is used as the market because it is between the ceiling of $9.60 and the floor of $7.40."] Text[1465]=["$8.00","$8.00 is the answer because it is the lower of $9.00 (cost) vs. the constrained replacement cost of $8.00. (The replacement cost of $8.00 was used as the market because it is between the ceiling of $9.60 and the floor of $7.40.)
The answer can also be found by arranging the four relevant amounts in descending order and then selecting the third highest amount, unless cost is lower. If cost is lower than the third number, select cost:

$ 9.60 NRV (ceiling for replacement cost)
$ 9.00 Cost
$ 8.00 Replacement cost
$ 7.40 NRV - profit (floor for replacement cost)"] Text[1466]=["$10.60","Expected selling price of $12.00 minus $1.40 of costs to complete and dispose."] Text[1467]=["$10.60","The net realizable value determined in #27."] Text[1468]=["$8.20","The net realizable value of $10.60 minus the normal profit of $2.40 (20% of $12.00)."] Text[1469]=["$8.20","Replacement cost of $8.10 cannot be used as the market because it is lower than the floor of $8.20."] Text[1470]=["$8.00","$8.00 is the answer because it is the lower of $8.00 (cost) vs. the constrained replacement cost of $8.20. (The replacement cost of $8.10 could not be used as the market because it is below the floor of $8.20.)
The answer can also be found by arranging the four relevant amounts in descending order and then selecting the third highest amount, unless cost is lower. If cost is lower than the third number, select cost:

$10.60 NRV
$ 8.20 NRV - profit (floor for replacement cost)
$ 8.10 Replacement cost
$ 8.00 Cost. The answer is $8.00 because it is the cost and it is lower than the third amount."] Text[1471]=["Wrong.",""] Text[1472]=["Right!",""] Text[1473]=["Wrong.",""] Text[1474]=["Right!",""] Text[1475]=["Wrong.",""] Text[1476]=["Wrong.",""] Text[1477]=["",""] Text[1478]=["",""] Text[1479]=["",""] Text[1480]=["",""] Text[1481]=["","articles of incorporation"] Text[1482]=["","ownership"] Text[1483]=["","Stockholders' Equity"] Text[1484]=["","outstanding"] Text[1485]=["","common"] Text[1486]=["","preferred"] Text[1487]=["","common"] Text[1488]=["","common"] Text[1489]=["","par value"] Text[1490]=["","more"] Text[1491]=["","Common Stock"] Text[1492]=["","paid-in capital"] Text[1493]=["","retained earnings"] Text[1494]=["","Retained Earnings"] Text[1495]=["","retained earnings"] Text[1496]=["Wrong.","Dividends are a distribution of earnings, they are not an expense."] Text[1497]=["Right!",""] Text[1498]=["Wrong.","Dividends become liabilities only if the board of directors declares them."] Text[1499]=["Right!",""] Text[1500]=["","declaration"] Text[1501]=["","record"] Text[1502]=["","Retained Earnings"] Text[1503]=["","50%"] Text[1504]=["","treasury stock"] Text[1505]=["","debit"] Text[1506]=["","Paid-in Capital from Treasury Stock"] Text[1507]=["Wrong.","A corporation cannot report a loss (or a gain) on its income statement from the sale of its treasury stock."] Text[1508]=["Right!",""] Text[1509]=["","participating"] Text[1510]=["","cumulative"] Text[1511]=["","notes or footnotes"] Text[1512]=["","convertible"] Text[1513]=["","call price"] Text[1514]=["","arrears"] Text[1515]=["","common stock"] Text[1516]=["","deficit or accumulated deficit"] Text[1517]=["","board of directors"] Text[1518]=["","officers"] Text[1519]=["","market"] Text[1520]=["","accumulated other comprehensive income"] Text[1521]=["","present"] Text[1522]=["","compounding"] Text[1523]=["","interest"] Text[1524]=["","cash"] Text[1525]=["","market"] Text[1526]=["","present"] Text[1527]=["Wrong.","This would violate the revenue recognition principle."] Text[1528]=["Right!",""] Text[1529]=["Wrong.","This would violate accrual accounting and the revenue recognition principle."] Text[1530]=["Wrong.","This would violate the revenue recognition principle."] Text[1531]=["Right!",""] Text[1532]=["Wrong.","This would violate accrual accounting and the revenue recognition principle."] Text[1533]=["","interest rate"] Text[1534]=["Right!",""] Text[1535]=["Wrong.",""] Text[1536]=["","interest rate"] Text[1537]=["Wrong.","Interest rates are a function of time and risk. The risk is whether Corp. Y will be able to pay when the note comes due."] Text[1538]=["Right!",""] Text[1539]=["","20.
5 years times 4 quarters per year"] Text[1540]=["","3%.
12% divided by 4 quarters per year"] Text[1541]=["","120.
10 years times 12 months per year"] Text[1542]=["","0.5%.
6% divided by 12 months per year"] Text[1543]=["","$16,000"] Text[1544]=["","None"] Text[1545]=["","$16,000
Face amount of $20,000 minus the discount of $4,000"] Text[1546]=["","$2,000"] Text[1547]=["","effective interest rate"] Text[1548]=["","$681.
(PV of 1 factor for n = 5; i = 8%) times $1,000"] Text[1549]=["","$728.
(PV of 1 factor for n = 16; i = 2%) times $1,000"] Text[1550]=["","$788.
(PV of 1 factor for n = 24; i = 1%) times $1,000"] Text[1551]=["","12%.
Go to the row, n = 10, and search that row until you find a factor close to 0.322 ($322 divided by $1,000). The factor 0.322 appears in the 12% column. "] Text[1552]=["","annually"] Text[1553]=["","10.
Go to the 8% column and search for the factor 0.463 ($463 divided by $1,000). The factor appears in the row where n = 10."] Text[1554]=["",""] Text[1555]=["",""] Text[1556]=["",""] Text[1557]=["",""] Text[1558]=["",""] Text[1559]=["",""] Text[1600]=["",""] Text[1601]=["","present"] Text[1602]=["","compound"] Text[1603]=["","discount"] Text[1604]=["","cash"] Text[1605]=["","market"] Text[1606]=["","present"] Text[1607]=["Wrong.","This would violate the revenue recognition principle."] Text[1608]=["Right!",""] Text[1609]=["Wrong.","This would violate accrual accounting and the revenue recognition principle."] Text[1610]=["","expense"] Text[1611]=["Right!",""] Text[1612]=["Wrong.","This would violate accrual accounting and the revenue recognition principle."] Text[1613]=["","interest rate"] Text[1614]=["Right!",""] Text[1615]=["Wrong.",""] Text[1616]=["","interest rate"] Text[1617]=["Wrong.","Interest rates are a function of time and risk. The risk is whether Corp. Y will be able to pay when the note comes due."] Text[1618]=["Right!",""] Text[1619]=["","20.
5 years times 4 quarters per year"] Text[1620]=["","3%.
12% divided by 4 quarters per year"] Text[1621]=["","120.
10 years times 12 months per year"] Text[1622]=["","0.5%.
6% divided by 12 months per year"] Text[1623]=["","$17,000."] Text[1624]=["","None."] Text[1625]=["","$17,000.
Face amount of $20,000 minus the discount of $3,000."] Text[1626]=["","$1,500."] Text[1627]=["","effective interest rate"] Text[1628]=["","$3,993.
(PVOA factor for n = 5; i = 8%) times $1,000."] Text[1629]=["","$13,578.
(PVOA factor for n = 16; i = 2%) times $1,000"] Text[1630]=["","$11,255.
(PVOA factor for n = 12; i = 1%) times $1,000"] Text[1631]=["","12%.
Go to the row, n = 10, and search that row until you find a factor close to 5.650 ($5,650 divided by $1,000). The factor 5.650 appears in the 12% column."] Text[1632]=["","annually"] Text[1633]=["","15.
Go to the 8% column and search for the factor 8.559 ($8,559 divided by $1,000). The factor appears in the row where n = 15."] Text[1634]=["","2023."] Text[1635]=["","amortization"] Text[1636]=["",""] Text[1637]=["",""] Text[1638]=["",""] Text[1639]=["",""] Text[1640]=["",""] Text[1641]=["",""] Text[1642]=["",""] Text[1643]=["",""] Text[1644]=["",""] Text[1645]=["",""] Text[1646]=["",""] Text[1647]=["",""] Text[1648]=["",""] Text[1649]=["",""] /* Please refer to readme.html for full Instructions Text[...]=[title,text] Style[...]=[TitleColor,TextColor,TitleBgColor,TextBgColor,TitleBgImag,TextBgImag,TitleTextAlign,TextTextAlign, TitleFontFace, TextFontFace, TipPosition, StickyStyle, TitleFontSize, TextFontSize, Width, Height, BorderSize, PadTextArea, CoordinateX , CoordinateY, TransitionNumber, TransitionDuration, TransparencyLevel ,ShadowType, ShadowColor] */ Style[0]=["white","black","#000099","#E8E8FF","","","","","","","","","","",200,"",2,2,10,10,51,1,0,"",""] Style[1]=["white","black","#cc0000","#f8f8f8","","","","","","","center","",2,2,350,"",2,2,10,15,"","","","",""] Style[2]=["white","black","#cc0000","#f8f8f8","","","","","","","center","",2,2,590,"",2,2,10,10,"","","","",""] Style[3]=["white","black","#cc0000","#f8f8f8","","","","","","","center","",2,2,100,"",2,2,0,15,"","","","",""] Style[4]=["white","black","#cc0000","#f8f8f8","","","","","","","center","",2,2,700,"",2,2,10,10,"","","","",""] Style[5]=["white","black","#cc0000","#f8f8f8","","","","center","","","","",2,2,250,"",2,2,5,15,"","","","",""] Style[6]=["white","black","#cc0000","#f8f8f8","","","","center","","","","",2,2,150,"",2,2,5,5,"","","","",""] Style[7]=["white","black","#cc0000","#f8f8f8","","","","","","","","",2,2,350,"",4,8,0,20,"","","","",""] Style[8]=["white","black","#cc0000","#f8f8f8","","","","","","","","",2,2,350,"",2,2,5,20,"","","","",""] Style[9]=["white","black","#cc0000","#f8f8f8","","","","","","","center","",2,2,100,"",2,2,10,10,"","","","",""] Style[10]=["white","black","#cc0000","#f8f8f8","","","","center","","","","",2,2,175,"",2,2,5,15,"","","","",""] Style[11]=["white","black","#cc0000","#f8f8f8","","","","center","","","","",2,2,350,"",2,2,5,15,"","","","",""] Style[12]=["white","black","#000099","#E8E8FF","","","","","","","","","","",200,"",2,2,40,10,"","","","",""] Style[13]=["white","black","#cc0000","#f8f8f8","","","","","","","center","",2,2,350,"",2,2,"","","","","","",""] applyCssFilter()