1) The predetermined overhead allocation rate based on direct labor cost is the ratio of
estimated overhead cost for the period to estimated direct labor cost for the period.
2) Credits always increase account balances.
3) 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.
4) The third closing entry is to close Owner’s Capital to the Owner’s Withdrawals
account.
5) In producing oat bran, the joint cost of milling the oats into bran, oatmeal, and
animal feed is considered a direct cost to the oat bran, because the oat bran cannot be
produced without incurring the joint cost.
6) On January 1, a company issued a $500,000, 10%, 8-year bond payable, and received
proceeds of $487,000. Interest is payable each June 30 and December 31. The company
uses the straight-line method to amortize the discount. The amount of interest expense
to be recorded on June 30 is $25,000.
7) On a typical cost-volume-profit graph, unit sales are shown on the horizontal axis
and both dollars of sales and dollars of costs are represented on the vertical axis.
8) The use of internal controls provides guaranteed protection against losses due to
operating activities.
9) The full disclosure principle requires the reporting of contingent liabilities that are
reasonably possible.
10) The evaluation of company performance and financial condition includes evaluation
of (1) past and current performance, (2) current financial position, and (3) future
performance and risk.
11) A balance sheet covers a period of time such as a month or year.
12) A company had net sales of $340,500, its cost of goods sold was $257,000, and its
net income was $13,750. The company’s gross margin ratio equals 24.5%.
13) A company had cash sales of $24,000 (cost is $13,000). Identify the journal the
transaction would be recorded in.
A.Cash disbursements journal
B.Sales journal
C.Cash receipts journal
D.Purchase journal
E.General journal
14) A company has 500 shares of $50 par value preferred stock outstanding, and the call
price of its preferred stock is $60 per share. It also has 20,000 shares of common stock
outstanding, and the total value of its stockholders’ equity is $680,000. The company’s
book value per common share equals:
A.$31.71
B.$32.50
C.$32.75
D.$33.17
E.$60.00
15) A balance sheet that places the assets above the liabilities and equity is called a(n):
A.Report form balance sheet
B.Account form balance sheet
C.Classified balance sheet
D.Unadjusted balance sheet
E.Unclassified balance sheet
16) The building blocks of financial statement analysis include:
A.Liquidity and efficiency
B.Solvency
C.Profitability
D.Market prospects
E.All of these
17) A company received cash proceeds of $206,948 on a bond issue with a par value of
$200,000. The difference between par value and issue price for this bond is recorded as
a:
A.Credit to Interest Income.
B.Credit to Premium on Bonds Payable
C.Credit to Discount on Bonds Payable
D.Debit to Premium on Bonds Payable
E.Debit to Discount on Bonds Payable
18) Total contribution margin in dollars divided by pretax income is the:
A.Degree of operating leverage
B.Contribution margin ratio
C.Margin of safety
D.Sales mix
E.Break-even point in units
19) To include the personal assets and transactions of a business’s owner in the records
and reports of the business would be in conflict with the:
A.Objectivity principle
B.Monetary unit assumption
C.Business entity assumption
D.Going-concern assumption
E.Revenue recognition principle
20) The description of the relation between a company’s assets, liabilities, and equity,
which is expressed as Assets = Liabilities + Equity, is known as the:
A.Income statement equation
B.Accounting equation
C.Business equation
D.Return on equity ratio
E.Net income
21) Adjusting entries:
A.Affect only income statement accounts
B.Affect only balance sheet accounts
C.Affect both income statement and balance sheet accounts
D.Affect only cash flow statement accounts
E.Affect only equity accounts
22) The account used to record the transfers of assets from a business to its owner is:
A.A revenue account
B.The owner’s withdrawals account
C.The owner’s capital account
D.An expense account
E.A liability account
23) A depreciation method in which a plant asset’s depreciation expense for a period is
determined by applying a constant depreciation rate to the asset’s beginning-of-period
book value is called:
A.Book value depreciation
B.Declining-balance depreciation
C.Straight-line depreciation
D.Units-of-production depreciation
E.Modified accelerated cost recovery system (MACRS) depreciation
24) Eagle Company is considering the purchase of an asset for $100,000. It is expected
to produce the following net cash flows. The cash flows occur evenly throughout each
year. Compute the payback period for this investment. (Round to two decimal places.)
A.2.85 years
B.2.57 years
C.3.00 years
D.2.50 years
E.3.62 years
25) During a period of steadily rising costs, the inventory valuation method that yields
the lowest reported net income is:
A.Specific identification method
B.Average cost method
C.Weighted-average method
D.FIFO method
E.LIFO method
26) Refer to the following selected financial information from Fennie’s, LLC. Compute
the company’s working capital for Year 2.
A.$232,700
B.$220,600
C.$147,200
D.$111,700
E.$142,700
27) Analysis reveals that a company had a net decrease in cash of $4,000 for the current
year. Net cash provided by operating activities was $18,000; net cash used in investing
activities was $10,000 and net cash used in financing activities was $12,000. If the
year-end cash balance is $21,000, the beginning cash balance was:
A.$3,000
B.$7,000
C.$17,000
D.$25,000
E.$39,000
28) Revenue is properly recognized:
A.When the customer’s order is received
B.Only if the transaction creates an account receivable
C.At the end of the accounting period
D.Upon completion of the sale or when services have been performed and the business
obtains the right to collect the sales price
E.When cash from a sale is received
29) Reston had income of $150 million and average invested assets of $1,800 million.
Its return on assets is:
A.8.3%
B.83.3%
C.12%
D.120%
E.16.7%
30) The cash flow on total assets ratio:
A.Is the same as return on assets
B.Is the same as profit margin
C.Can be an indicator of earnings quality
D.Is highly affected by accounting principles of income recognition and measurement
E.Is average net assets divided by cash flows from operations
31) Merchandise with an invoice price of $2,000 was purchased on October 3, terms
1/15, n/60. The company uses the net method to record purchases. The entry to record
the cash payment of this purchase obligation on October 17 is:
A.Debit Accounts Payable $1,980; credit Cash $1,980
B.Debit Accounts Payable $2,000; credit Cash $2,000
C.Debit Accounts Payable $1,980; credit Discounts Lost $20; credit Cash $2,000
D.Debit Accounts Payable $2,000; credit Merchandise Inventory $20; credit Cash
$1,980
E.Debit Accounts Payable $2,000; credit Merchandise Inventory $40; credit Cash
$1,960
32) Select the appropriate financial statement for each of the following items.
(Note: some items may appear on more than one financial statement.)
1>Balance sheet A. Supplies
2>Statement of cash flows B. Cash withdrawals by owner.
3>Statement of owner’s equity, Balance sheet C. Ahmad Khan, Capital
4>Statement of owner’s equity, Statement of cash flows D. Advertising Expense
5>Statement of owner’s equity, Statement of cash flows E. Cash payments to purchase
equipment
6>Statement of cash flows F. Cash investments by owner
7>Income statement G. Consulting Revenue
8>Income statement H. Cash proceeds from a long-term loan
33) An expense that does not require allocation between departments is a(n):
A.Common expense
B.Indirect expense
C.Direct expense
D.Administrative expense
E.All of these
34) Trend analysis is also called:
A.Financial analysis
B.Ratio analysis
C.Index number trend analysis
D.Industry analysis
E.Output analysis
35) Georgia Peach Company reported net sales in June of the current year of
$1,000,000. At the beginning of June, the company reported beginning inventory of
$368,000. Cost of goods purchased during June amounted to $217,500. The company
reported ending inventory at the end of June of $226,750.
The company’s gross profit rate for June of the current year was:
A.35.9%
B.18.8%
C.81.2%
D.64.1%
E.Impossible to determine from the information provided
36) The accounting principle that requires important noncash financing and investing
activities be reported on the statement of cash flows or in a footnote is the:
A.Historical cost principle
B.Materiality principle
C.Full disclosure principle
D.Going concern principle
E.Business entity principle
37) Regardless of the system used in departmental cost analysis:
A.Direct costs are allocated, indirect costs are not
B.Indirect costs are allocated, direct costs are not
C.Both direct and indirect costs are allocated
D.Neither direct nor indirect costs are allocated
E.Total departmental costs will always be the same
38) The employer should record payroll deductions as:
A.Employee receivables
B.Payroll taxes
C.Current liabilities
D.Wages payable
E.Employee payables
39) The future value of an ________________ annuity is the accumulated value of each
annuity payment with interest as of the date of the final payment.
40) What is treasury stock? How is the purchase and sale of treasury stock recorded?
41) The following schedule reflects shows the first month’s transactions of the Bill Blue
Real Estate Company:
Provide descriptions for each transaction.
42) A _______________________ is a written promise to pay a specified amount on a
definite future date within one year or the company’s operating cycle, whichever is
longer.
43) A company reported net income of $850,000 for the current year. The year-end
market price per common share was $12 and there were 425,000 weighted-average
shares of common stock outstanding. Calculate the company’s price-earnings ratio.