1) The amount of federal income tax withheld from employee pay depends on the
employee’s annual earnings rate and the number of withholding allowances claimed by
the employee.
2) The full disclosure principle requires that noncash investing and financing activities
be disclosed in the financial statements.
3) Experience shows that the default rate on liabilities increases sharply when times
interest earned falls below 1.5 to 2.0 and remains at that level or lower for several time
periods.
4) Equivalent units of production is an engineering term used to describe the process by
which one company attempts to manufacture units of a product that are equivalent to
the product manufactured by a competitor.
5) Sales Discounts and Sales Returns and Allowances are contra revenue accounts that
are debited to close the accounts during the closing process.
6) In a limited partnership the general partner has unlimited liability.
7) A corporation may be authorized to issue both common and preferred stock.
8) Uncertainties from the development of new competing products are not contingent
liabilities.
9) A basic present value concept is that cash paid or received in the future has less value
now than the same amount of cash today.
10) A capital expenditures budget is prepared before the operating budgets.
11) A company had net sales of $545,000 and cost of goods sold of $345,000. Its gross
margin equals $890,000.
12) Closing entries result in the owner’s capital account being transferred into net
income or net loss for the period ending.
13) Equipment costing $100,000 with accumulated depreciation of $40,000 is sold at a
loss of $10,000. This implies that $40,000 cash was received from the sale.
14) Dracor Company is considering the purchase of equipment that would allow the
company to add a new product to its line. The equipment is expected to cost $280,000
with a 7-year life, no salvage value, and will be depreciated using straight-line
depreciation. The expected annual income related to this equipment follows. Compute
the (a) payback period and (b) accounting rate of return for this equipment.
15) Labor costs that are clearly associated with specific units of product because the
labor is used to convert raw materials into finished products are called:
A.Contracted labor.
B.Direct labor.
C.Indirect labor.
D.Finished labor.
E.All labor.
16) Match each of the following terms with the appropriate definitions.
A. Statement of partners’ equity
B. Limited partnership
C. Limited liability partnership
D. Unlimited liability of partners
E. Partnership contract
F. Partnership
G. General partner
H. Mutual agency
I. C corporation
J. S corporation
17) Peavey Enterprises purchased a depreciable asset for $22,000 on April 1, Year 1.
The asset will be depreciated using the straight-line method over its four-year useful
life. Assuming the asset’s salvage value is $2,000, Peavey Enterprises should recognize
depreciation expense in Year 2 in the amount of:
A.$10,000
B.$5,000
C.$5,500
D.$20,000
E.$9,250
18) The appropriate section in the statement of cash flows for reporting the purchase of
equipment for cash is:
A.Operating activities.
B.Financing activities.
C.Investing activities.
D.Schedule of noncash investing or financing activity.
E.This is not reported on the statement of cash flows.
19) On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common
stock at $28.53 per share plus a brokerage fee of $400. The stock is classified as
available-for-sale securities. On March 15, Marcelo declares a dividend of $1.15 per
share payable to stockholders of record on April 15. Jewel received the dividend on
April 15 and ultimately sells half of the Marcelo stock on November 17 of the current
year for $29.30 per share less a brokerage fee of $250. The journal entry to record the
purchase on February 15 is:
A.Debit Long-Term Investments-HTM $199,710; credit Cash $199,710.
B.Debit Long-Term Investments-AFS $199,710; credit Cash $199,710.
C.Debit Long-Term Investments-Trading $199,710; credit Cash $199,710.
D.Debit Long-Term Investments-Trading $200,110; credit Cash $200,110.
E.Debit Long-Term Investments-AFS $200,110; credit Cash $200,110.
20) The master budget of a merchandising company includes a:
A.Production budget.
B.Direct labor budget.
C.Factory overhead budget.
D.Direct materials budget.
E.Purchases budget.
21) On March 31 a company needed to estimate its ending inventory to prepare its first
quarter financial statements. The following information is available:
Beginning inventory, January 1: $4,000
Net sales: $80,000
Net purchases: $78,000
The company’s gross margin ratio is 25%. Using the gross profit method, the cost of
goods sold would be:
A.$60,000.
B.$20,000.
C.$58,500.
D.$63,000.
E.$19,500.
22) The employer should record deductions from employee pay as:
A.Employee receivables.
B.Payroll taxes.
C.Current liabilities.
D.Wages payable.
E.Employee payables.
23) In a partnership agreement, if the partners agreed to an interest allowance of 10%
annually on each partner’s investment, the interest allowance:
A.Is ignored when earnings are not sufficient to pay interest.
B.Can make up for unequal capital contributions.
C.Is an expense of the business.
D.Must be paid because the partnership contract has unlimited life.
E.Legally becomes a liability of the general partner.
24) A controlling influence over the investee is based on the investor owning voting
stock exceeding:
A.10%.
B.20%.
C.30%.
D.40%.
E.50%.
25) Use the following data to find the direct labor rate variance if the company
produced 3,500 units during the period.
A.$6,125 unfavorable.
B.$7,000 unfavorable.
C.$7,000 favorable.
D.$12,250 favorable.
E.$6,125 favorable.
26) Using the following accounts and an overhead rate of 130% of direct labor cost,
compute the amount of applied overhead.
A.$78,000.
B.$60,000.
C.$138,000.
D.$71,890.
E.$90,500.
27) A discount on bonds payable:
A.Occurs when a company issues bonds with a contract rate less than the market rate.
B.Occurs when a company issues bonds with a contract rate more than the market rate.
C.Increases the Bond Payable account.
D.Decreases the total bond interest expense.
E.Is not allowed in many states to protect creditors.
28) When making capital budgeting decisions, companies usually prefer shorter
payback periods. Explain why shorter payback periods are desirable.
29) What is the purpose of a responsibility accounting system?
30) The ________________________________ account is used to record the effects of
cash overages and shortages from errors in making change or managing a petty cash
fund.
31) Define and discuss the differences between operating, investing, and financing
activities.
32) At December 31 of the current year, a company reported the following:
Total sales for the current year: $980,000 includes $160,000 in cash sales
Accounts receivable balance at Dec. 31, end of current year: $160,000
Allowance for Doubtful Accounts balance at January 1, beginning of current year:
$7,300 credit
Bad debts written off during the current year: $5,800.
Prepare the necessary adjusting entries to record bad debts expense assuming this
company’s bad debts are estimated to equal 5% of accounts receivable.
33) ________________________________ explains changes in the owner’s claim on
the business’s assets from net income or loss, owner investments, and owner
withdrawals over a period of time.
34) Match the following terms with the formulas.
35) Sharma Company’s balance sheet reflects total assets of $250,000 and total
liabilities of $150,000. Calculate the company’s debt-to-equity ratio.