financal policy tonight

7/24/2019 Financal Policy Tonight

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AACSB

Chapter 081. The production budget is typically prepared prior to the sales budget.FALSE

2. One beneft o budgeting is that it coordinates the activities o the entire organization.TRUE

3. oth planning and control are needed or an e!ective budgeting syste".TRUE

#. One di$culty %ith sel&i"posed budgets is that they are not sub'ect to any type o revie%.FALSE

(. The "aster budget is a net%or) consisting o "any separate budgets that are interdependent.TRUE*. +lanning and control are essentially the sa"e thing.FALSE

,. -ales orecasts are dra%n up ater the cash budget has been co"pleted because only then are the undsavailable or "ar)eting )no%n.FALSE

8. sales budget is a detailed schedule sho%ing the e/pected sales or the budget period typically it is e/pressedin both dollars and units oproduct.TRUE

. oth variable and f/ed "anuacturing overhead costs are included in the "anuacturing overhead budget.TRUE

10. n the selling and ad"inistrative budget the non&cash charges 4such as depreciation5 are added to the totalbudgeted selling andad"inistrative e/penses to deter"ine the e/pected cash disburse"ents or selling and ad"inistrative e/penses.

When a liability is initially recorded, it is recorded at the future amount of all payments.FALSE

Liabilities are initially recorded in terms of their current cash equivalent.AACSB: Reflective ThinkingAICPA BB: Critical Thinking

AICPA FN: Reporting

Blooms: Remember

Difficlt!: "as!

#earning $b%ective: &'(&) Define* measre* an+ report crrent liabilities#ibb! ( Chapter &' ,)

Topic Area: #iabilities Define+ An+ Classifie+

2. A current liability is always a short-term obligation expected to be paid within one year of thebalancesheet date.FALSE


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A current liability is due within one year or the operating cycle, whichever is longer.AACSB: Reflective Thinking

AICPA BB: Critical Thinking

AICPA FN: Reporting

Blooms: RememberDifficlt!: "as!

#earning $b%ective: &'(&) Define* measre* an+ report crrent liabilities

#ibb! ( Chapter &' ,-


. A quic! ratio that is high according to an industry average might mean the company may haveexcessive inventory levels or slow moving inventory items.FALSE

"nventory is not a quic! asset.AACSB: Reflective Thinking


AICPA FN: .easrement


#earning $b%ective: &'(&- /se the 0ick ratio1

#ibb! ( Chapter &' ,2


#. $he quic! ratio can be manipulated by management through paying off current liabilities

before the endof the accounting period.TRUE

$he quic! ratio can be manipulated through transactions involving quic! assets and currentliabilities.

AACSB: Reflective Thinking

AICPA BB: Critical ThinkingAICPA FN: .easrement

Blooms: Remember

Difficlt!: "as!


#ibb! ( Chapter &' ,3Topic Area: #iabilities Define+ An+ Classifie+

%. &any strong companies intentionally create low quic! ratios.TRUE

&any strong companies use sophisticated management techniques to minimi'e their current assetinvestment, and as a result, have low quic! ratios.



AICPA FN: .easrementBlooms: Remember

Difficlt!: "as!




(. )uic! assets include cash, accounts receivable, and inventory.FALSE

)uic! assets include cash, mar!etable securities, and accounts receivable.AACSB: Reflective ThinkingAICPA BB: Critical Thinking


Blooms: Remember

Difficlt!: "as!#earning $b%ective: &'(&- /se the 0ick ratio1



*. +elling inventory on account increases the quic! ratio.TRUE


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)uic! assets include cash, mar!etable securities, and accounts receivable. +elling inventory onaccountincreases accounts receivable and therefore increases the numerator of the quic! ratio.

AACSB: Reflective ThinkingAICPA BB: Critical Thinking


Blooms: /n+erstan+




. urchasing inventory on account decreases the quic! ratio.FALSE

urchasing inventory on account increases current liabilities the denominator/ and thereforedecreasesthe quic! ratio.




Blooms: /n+erstan+

Difficlt!: "as!

#earning $b%ective: &'(&- /se the 0ick ratio1#ibb! ( Chapter &' ,7


0. A current liability is created when a customer pays cash for services to be provided in thefuture.TRUE

1urrent liabilities include unearned deferred/ revenues.AACSB: Reflective ThinkingAICPA BB: Critical Thinking

AICPA FN: Reporting

Blooms: Remember

Difficlt!: "as!

#earning $b%ective: &'(&) Define* measre* an+ report crrent liabilities#ibb! ( Chapter &' ,'


3. urchasing inventory on account increases the accounts payable turnover ratio.FALSE

urchasing inventory on account increases accounts payable, the accounts payable turnover ratiodenominator, which therefore decreases the ratio.



Blooms: /n+erstan+

Difficlt!: "as!

#earning $b%ective: &'(&2 Anal!8e the acconts pa!able trnover ratio1#ibb! ( Chapter &' ,)&


. $he choice of inventory method has an impact on the accounts payable turnover ratio.

FALSE$he accounts payable turnover numerator ratio is cost of goods sold, which is impacted by thechoice ofinventory method.



Blooms: /n+erstan+

Difficlt!: "as!

#earning $b%ective: &'(&2 Anal!8e the acconts pa!able trnover ratio1


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#ibb! ( Chapter &' ,))


2. $he accounts payable turnover ratio is calculated by dividing accounts payable by cashpayments tosuppliers.FALSE

$he accounts payable turnover ratio is cost of goods sold divided by average accounts payable.AACSB: Reflective Thinking



Blooms: /n+erstan+

Difficlt!: "as!#earning $b%ective: &'(&2 Anal!8e the acconts pa!able trnover ratio1

#ibb! ( Chapter &' ,)-


. "ncome taxes payable is an example of an accrued liability.TRUE

An accrued liability is created by an expense that has been incurred, but has yet to be paid.AACSB: Reflective Thinking


AICPA FN: Reporting



#ibb! ( Chapter &' ,)2


#. $he accounts payable turnover ratio is difficult to manipulate.FALSE

$he accounts payable turnover ratio can be manipulated by paying accounts payable at year-endand canalso be manipulated by the choice of inventory method.


AICPA BB: Critical ThinkingAICPA FN: .easrement

Blooms: /n+erstan+

Difficlt!: "as!#earning $b%ective: &'(&2 Anal!8e the acconts pa!able trnover ratio1

#ibb! ( Chapter &' ,)3Topic Area: #iabilities Define+ An+ Classifie+

%. $he accrual of interest on a short-term note payable decreases both the quic! ratio andcurrent assets.FALSE

$he interest accrual increases current liabilities and therefore decreases the quic! ratio. $heinterestaccrual does not affect current assets.



AICPA FN: Reporting9 .easrement

Blooms: /n+erstan+


#earning $b%ective: &'(&3 Report notes pa!able an+ eplain the time vale of mone!1



(. $he 4"1A social security/ tax is a matching tax with a portion paid by both the employer andtheemployee.TRUE


5/8

$he social security tax is equally shared by the employer and employee.AACSB: Reflective Thinking



Blooms: /n+erstan+Difficlt!: "as!




*. A company borrowed 533,333 at (6 interest on +eptember , 2330. Assuming no ad7ustingentrieshave been made during the year, the entry to record interest accrued on 8ecember , 2330wouldinclude a debit to interest expense and a credit to interest payable for 52,333.TRUE

"nterest expense 52,333/ 9 Amount borrowed 533,333/ : "nterest rate (6/ : ;umber ofmonthsborrowed relative to a year # < 2/AACSB: Reflective Thinking


AICPA FN: .easrementBlooms: Appl!

Difficlt!: "as!



. An estimated liability can=t be reported on the balance sheet.FALSE

>stimated liabilities, such as warranty liabilities, are reported on the balance sheet.AACSB: Reflective Thinking


AICPA FN: Reporting




0. A contingent liability is reported on the balance sheet if it is probable and can be estimated.TRUE

1ontingent liabilities are reported on the balance sheet when they are both probable and can beestimated.



AICPA FN: Reporting

Blooms: /n+erstan+

Difficlt!: "as!#earning $b%ective: &'(&4 Report contingent liabilities

#ibb! ( Chapter &' ,)'


23. A contingent liability is disclosed in a note to the financial statements when the liability isreasonablypossible and can be estimated.TRUE

1ontingent liabilities are disclosed via a note when they are reasonably possible.AACSB: Reflective Thinking


AICPA FN: Reporting



6/8

#earning $b%ective: &'(&4 Report contingent liabilities

#ibb! ( Chapter &' ,-&


2. $he 7ournal entry to record a contingent liability creates an accrued liability on the balancesheet and aloss on the income statement.TRUE

$he recording of a contingent liability debits a loss account and credits accrued contingencyliability.



AICPA FN: ReportingBlooms: /n+erstan+

Difficlt!: "as!

#earning $b%ective: &'(&4 Report contingent liabilities

#ibb! ( Chapter &' ,-)


22. A contingent liability can=t be disclosed in a note to the financial statements unless it can beestimated.FALSE

1ontingent liabilities are disclosed via a note when they are reasonably possible, regardless ofwhetherthey can be estimated.


AICPA FN: Reporting

Blooms: /n+erstan+

Difficlt!: "as!

#earning $b%ective: &'(&4 Report contingent liabilities#ibb! ( Chapter &' ,--


2. Wor!ing capital is a measure of short-run liquidity and is measured by dividing current assetsby currentliabilities.

FALSE

Wor!ing capital is current assets minus current liabilities.AACSB: Reflective Thinking



Blooms: /n+erstan+

Difficlt!: "as!#earning $b%ective: &'(&5 "plain the importance of ;orking capital an+ its impact on cash flo;s1

#ibb! ( Chapter &' ,-2

Topic Area: Focs $n Cash Flo;s

2#. Wor!ing capital decreases when accrued wages expense is recorded at year-end.TRUE

Wor!ing capital is current assets minus current liabilities. Accruing wages expense at year-endincreases current liabilities and therefore decreases wor!ing capital.



Blooms: /n+erstan+

Difficlt!: "as!

#earning $b%ective: &'(&5 "plain the importance of ;orking capital an+ its impact on cash flo;s1#ibb! ( Chapter &' ,-3


2%. Wor!ing capital decreases when a company pays taxes payable.FALSE


7/8

Wor!ing capital is current assets minus current liabilities. aying taxes payable decreases bothcurrentassets and current liabilities, therefore wor!ing capital remains the same.



Blooms: /n+erstan+

Difficlt!: "as!#earning $b%ective: &'(&5 "plain the importance of ;orking capital an+ its impact on cash flo;s1



2(. Wor!ing capital increases when a company accrues revenues at year-end.TRUE

Wor!ing capital is current assets minus current liabilities. Accruing revenues increases currentassets,therefore wor!ing capital increases.




Blooms: /n+erstan+

Difficlt!: "as!

#earning $b%ective: &'(&5 "plain the importance of ;orking capital an+ its impact on cash flo;s1#ibb! ( Chapter &' ,-5


2*. Long-term liabilities are reported on the balance sheet at an amount equal to the future cashflows.FALSE

Long-term liabilities are reported on the balance sheet at the present value of the future cashflows.





#earning $b%ective: &'(&6 Report long(term liabilities1

#ibb! ( Chapter &' ,-6Topic Area: #ong(Term #iabilities

2. ?perating leases are reported on the balance sheet at an amount equal to the present value ofthe futurecash flows.FALSE

?perating leases do not meet the criteria to be included on the balance sheet.AACSB: Reflective Thinking


AICPA FN: .easrementBlooms: /n+erstan+

Difficlt!: "as!

#earning $b%ective: &'(&6 Report long(term liabilities1


Topic Area: #ong(Term #iabilities

20. 4or the present value of a single amount, the compounding period may only be once a year.FALSE

1ompounding can be many times during a year when finding the present value of a single sum.

3. An annuity is a series of consecutive payments, each one increasing by a fixed dollar amountover thepayment amount of the prior year.


8/8

FALSE

An annuity has equal payments over equal time intervals.

. Which of the following statements is correct@A. 1urrent liabilities are initially recorded at the amount of their principal plus interest.. 1urrent liabilities are those liabilities due within one year.1. Liquidity refers to the ability to pay all debts within one year.D. 1urrent liabilities affect both the quic! ratio and wor!ing capital.

1urrent liabilities are the denominator in the quic! ratio and are deducted from current

assets when

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