A bookkeeper posted the same journal entry twice. Will this error cause the trial balance to be out of balance. Yes or no? Explain your answer.

• Yes (explain)
• No (explain)

2. A key generally accepted accounting principle is conservatism (i.e., the process of opting for accounting methods and processes that strive not to overstate assets or firm profits). A firm can choose to capitalize or expense certain fixed asset acquisitions.

What would be the conservative approach in this situation?

Explain your answer.

• Capitalization is the conservative approach (explain)
• Expensing would be the conservative approach (explain)

3. A firm is considering acquiring additional fixed assets. They have cash on hand to acquire the assets if they choose to but have been offered a very attractive interest rate on a 5 year note payable. Company management is very concerned that their accounting fundamentals remain healthy in particular their debt/equity ratio and earnings per share.

Which option should they choose given managements concerns? Explain

• Use cash on hand (explain)
• Use 5 year note payable (explain)

4. Management is considering enhancing their job costing process.

Explain some reasons management might consider this to be an important strategic goal.

5. A firms operations are in a state that has a very low unemployment rate and concerns about a severe labor shortage are being raised across industries in that state. Each year as part of the budgeting process for the firm, management estimates its labor costs using prior year data.

What impact might this recent labor shortage have on the firm as it relates to managements forecasts and current year operations?

6. For most businesses, inventory is carried on a firms balance sheet as a current asset. Because of supply-chain issues, inflation is hitting the cost of inventory acquisitions.

If management wants to show the highest earnings per share, current ratio (current assets/current liabilities) and working capital (current assets-current liabilities), which method of inventory should it choose First in, first out (FIFO) or last in, first out (LIFO)? Explain.

• FIFO
• LIFO
• Neither

7. In the business environment, it is common for firms to provide products and/or services. Explain how a performance obligation might be met by a firm providing a product as opposed to a firm providing a service.

8. If a firm is able to refinance an existing loan to take advantage of a lower interest rate with no closing costs, what impact will this refinance have on the firms debt/equity ratio and earnings per share? Explain.

9. Under the accrual basis of accounting, explain the balance sheet and income statement impact if a company fails to record a sale on account.