1) The cost of an intangible asset is systematically allocated to depreciation expense
over its estimated useful life.
2) Equity securities giving an investor significant influence over an investee are always
considered short-term investments.
3) Raw materials that become part of a product and are identified with specific units or
batches of a product are called direct materials.
4) Revenue accounts are temporary accounts that should begin each accounting period
with zero balances.
5) A company’s cost of inventory was $219,500. Due to phenomenal demand the market
value of its inventory increased to $221,700. This company should write up the value of
its inventory according to the conservatism constraint.
6) Capital budgeting decisions are risky because the outcome is uncertain, large
amounts of money are usually involved, the investment involves a long-term
commitment, and the decision could be difficult or impossible to reverse.
7) Decision makers and other users of financial statements are especially interested in
evaluating a company’s ability to use its assets in generating sales.
8) If a department that applies process costing starts the reporting period with 40,000
physical units that were 80% complete with respect to direct materials and 50%
complete with respect to direct labor, it must add 8,000 equivalent units of direct
materials and 20,000 equivalent units of direct labor to complete them.
9) Debt securities are recorded at cost when purchased, and interest revenue for
investments in debt securities is recorded when earned.
10) A company must disclose any change in its inventory costing method in its financial
statements.
11) Partner return on equity can be used by each partner to help decide whether
additional investment or withdrawal of resources is best for that partner.
12) In process costing there is never a balance remaining in Factory Overhead that
needs to be closed at period end.
13) A department can never be considered to be a profit center.
14) Retained earnings generally consist of a company’s cumulative net income less any
net losses and dividends declared since its inception.
15) Profitability is the ability to generate future revenues and meet long-term
obligations.
16) Which of the following cash flows is not considered when using the net present
value method?
A.Future cash inflows.
B.Future cash outflows.
C.Past cash outflows.
D.Non-uniform cash inflows.
E.Future year-end cash flows.
17) A company’s income before interest expense and income taxes is $350,000 and its
interest expense is $100,000. Its times interest earned ratio is:
A.0.29
B.3.50
C.2.50
D.1.75
E.0.50
18) Porter Co. is analyzing two projects for the future. Assume that only one project can
be selected.
If the company is using the payback period method and it requires a payback of three
years or less, which project should be selected?
A.Project Y.
B.Project X.
C.Both X and Y are acceptable projects.
D.Neither X nor Y is an acceptable project.
E.Project Y because it has a lower initial investment.
19) Ratchet Manufacturing anticipates total sales for August, September, and October of
$200,000, $210,000, and $220,500 respectively. Cash sales are normally 25% of total
sales and the remaining sales are on credit. All credit sales are collected in the first
month after the sale. Compute the amount of cash received for September.
A.$150,000.
B.$202,500.
C.$157,500.
D.$102,500.
E.$307,500.
20) Long-term investments are reported in the:
A.Current asset section of the balance sheet.
B.Intangible asset section of the balance sheet.
C.Non-current section of the balance sheet called long-term investments.
D.Plant assets section of the balance sheet.
E.Equity section of the balance sheet.
21) Wallace and Simpson formed a partnership with Wallace contributing $60,000 and
Simpson contributing $40,000. Their partnership agreement calls for the income (loss)
division to be based on the ratio of capital investments. Wallace sold one-half of his
partnership interest to Prince for $55,000 when his capital balance was $78,000. The
partnership would record the admission of Prince into the partnership as:
A.Debit Wallace, Capital $55,000; credit Prince, Capital $55,000.
B.Debit Wallace, Capital $39,000; credit Prince, Capital $39,000.
C.Debit Prince, Capital $55,000; credit Wallace, Capital $55,000.
D.Debit Wallace, Capital $30,000; credit Prince, Capital $30,000.
E.Debit Wallace, Capital $39,000; debit Cash $16,000; credit Prince, Capital $55,000.
22) Design Services is organized as a limited partnership, with Miko Toori as one of its
partners. Miko’s capital account began the year with a balance of $35,000. During the
year, Miko’s share of the partnership income was $7,500, and Miko received $4,000 in
distributions from the partnership. What is Miko’s partner return on equity?
A.10.2%
B.22.7%
C.19.5%
D.20.4%
E.21.4%
23) The Dark Chocolate Division of Yummy Snacks, Inc. had the following operating
results last year:
Dark Chocolate expects identical operating results this year. The Dark Chocolate
Division has the ability to produce and sell 200,000 pounds of chocolate annually.
Assume that the Peanut Butter Division of Yummy Snacks wants to purchase an
additional 20,000 pounds of chocolate from the Dark Chocolate Division. Assume that
the Dark Chocolate Division is currently operating at its capacity of 200,000 pounds of
chocolate. Also assume again that the Peanut Butter Division wants to purchase an
additional 20,000 pounds of chocolate from Dark Chocolate. Under these conditions,
what amount per pound of chocolate would Dark Chocolate have to charge Peanut
Butter in order to maintain its current profit?
A.$0.40 per pound
B.$0.08 per pound
C.$0.15 per pound
D.$0.25 per pound
E.$0.30 per pound
24) Stocks that pay relatively large cash dividends on a regular basis are called:
A.Small capital stocks.
B.Mid capital stocks.
C.Growth stocks.
D.Large capital stocks.
E.Income stocks.
25) The potential benefits lost by taking a specific action when two or more alternative
choices are available is known as a(n):
A.Alternative cost.
B.Sunk cost.
C.Out-of-pocket cost.
D.Differential cost.
E.Opportunity cost.
26) Stock not assigned a value per share by the corporate charter, allowing it to be
issued at any price without the possibility of a minimum legal capital deficiency, is
called _________________.
27) Prepare a December 31 balance sheet in proper form for Smokey River Supplies
from the following list of the accounts:
28) Calculate the total amount of FICA withholding for an employee whose pay is
$2,400 for the first pay period of the year. The tax rate for FICA’Social Security is 6.2%
and the tax rate for FICA’Medicare is 1.45%.
29) There are three major types of business activities. ______________ activities
involve using resources to research, develop, purchase, produce, distribute, and market
products and services and receiving amounts from selling products and services.
30) A company is trying to decide which of two new product lines to introduce in the
coming year. The company requires a 12% return on investment. The predicted revenue
and cost data for each product line follows:
The company has a 30% tax rate and it uses the straight-line depreciation method. The
present value of an annuity of 1 for 5 years at 12% is 3.6048. Compute the net present
value for each piece of equipment under each of the two product lines. Which, if either
of these two investments is acceptable?
31) The following account balances are taken from Everest Events at December 31.
Calculate the number of days’ sales uncollected for both years. According to this
analysis, is the company’s collection of receivables improving? Explain.
32) Describe the accounting for natural resources, including their acquisition, cost
allocation, and account titles.