1) Revising an estimate of the useful life or salvage value of a plant asset is referred to
as a change in accounting estimate and is reflected in the current, and future financial
statements.
2) Assume that the M & L partnership agreement gave March 60% and Ludwig 40% of
partnership income and losses. The partnership lost $27,000 in the current period. This
implies that March’s share of the loss equals $16,200, and Ludwig’s share equals
$10,800.
3) Additional business in the form of a special order of goods or services should be
accepted when the incremental revenue equals the incremental costs.
4) Special rights often granted to preferred stock include a preference for receiving
dividends and additional voting privileges.
5) When a partner leaves a partnership, the withdrawing partner is entitled to a bonus if
the recorded equity is overstated.
6) In a process operation, all labor that is used exclusively by a single production
department is considered to be direct labor.
7) Partners can invest assets but not liabilities into a partnership.
8) On January 1 of Year 1, Congo Express Airways issued $3,500,000 of 7% bonds that
pay interest semiannually on January 1 and July 1. The bond issue price is $3,197,389
and the market rate of interest for similar bonds is 8%. The bond premium or discount
is being amortized at a rate of $10,087 every six months.
The amount of interest expense recognized by Congo Express Airways on the bond
issue in Year 1 would be:
A.$132,500.
B.$225,000.
C.$265,174.
D.$245,000.
E.$224,826.
9) The depreciation method that charges the same amount of expense to each period of
the asset’s useful life is called:
A.Accelerated depreciation.
B.Declining-balance depreciation.
C.Straight-line depreciation.
D.Units-of-production depreciation.
E.Modified accelerated cost recovery system (MACRS) depreciation.
10) Alvez reports net income of $305,000 for the year ended December 31. It also
reports $93,700 depreciation expense and a $10,000 loss on the sale of equipment. Its
comparative balance sheet reveals a $40,200 increase in accounts receivable, a $10,200
decrease in prepaid expenses, a $15,200 increase in accounts payable, a $12,500
decrease in wages payable, a $75,000 increase in equipment, and a $100,000 decrease
in notes payable. Calculate the net increase in cash for the year.
A.$216,400.
B.$281,400.
C.$381,400.
D.$206,400.
E.$406,400.
11) A company had net cash flows from operations of $120,000, cash flows from
financing of $330,000, total cash flows of $500,000, and average total assets of
$2,500,000. The cash flow on total assets ratio equals:
A.4.8%.
B.5.0%.
C.20.0%.
D.20.8%.
E.24.0%.
12) A company has bonds outstanding with a par value of $100,000. The unamortized
discount on these bonds is $4,500. The company retired these bonds by buying them on
the open market at 97. What is the gain or loss on this retirement?
A.$0 gain or loss.
B.$1,500 gain.
C.$1,500 loss.
D.$3,000 gain.
E.$3,000 loss.
13) Which of the following costs would not be classified as factory overhead?
A.Property taxes on maintenance machinery.
B.Insurance on factory building.
C.Wages of the factory janitor.
D.Rubber for the soles of shoes produced.
E.Small tools used in production.
14) Walters manufactures a specialty food product that can currently be sold for $22 per
unit and has 20,000 units on hand. Alternatively, it can be further processed at a cost of
$12,000 and converted into 12,000 units of Deluxe and 6,000 units of Super. The selling
price of Deluxe and Super are $30 and $20, respectively. The incremental net income of
processing further would be:
A.$40,000.
B.$28,000.
C.$18,000.
D.$44,000.
E.$12,000.
15) The partnership agreement for Wilson, Pickett & Nelson, a general partnership,
provided that profits be shared between the partners in the ratio of their financial
contributions to the partnership. Wilson contributed $100,000, Pickett contributed
$50,000 and Nelson contributed $50,000. In the partnership’s first year of operation, it
incurred a loss of $110,000. What amount of the partnership’s loss, rounded to the
nearest dollar, should be absorbed by Nelson?
A.$50,000
B.$27,500
C.$36,667
D.$0
E.$40,000
16) A company issued 70 shares of $30 par value preferred stock for $4,000 cash. The
journal entry to record the issuance is:
A.Debit Cash $2,100; credit Preferred Stock $2,100.
B.Debit Investment in Preferred Stock $2,100; credit Cash $2,100.
C.Debit Cash $4,000; credit Preferred Stock $4,000.
D.Debit Preferred Stock $2,100, debit Investment in Preferred Stock $1,900; credit
Cash $4,000.
E.Debit Cash $4,000; credit Paid-in Capital in Excess of Par Value, Preferred Stock
$1,900, credit Preferred Stock $2,100.
17) Marwick Corporation issues 8%, 5 year bonds with a par value of $1,000,000 and
semiannual interest payments. On the issue date, the annual market rate for these bonds
is 6%. What is the bond’s issue (selling) price, assuming the Present Value of $1 factor
for 3% and 10 semi-annual periods is .7441 and the Present Value of an Annuity factor
for the same rate and period is 8.5302?
A.$1,000,000
B.$789,244
C.$1,341,208
D.$1,085,308
E.$658,792
18) When reimbursing the petty cash fund:
A.Cash is debited.
B.Petty Cash is credited.
C.Petty Cash is debited.
D.Appropriate expense accounts are debited.
E.No expenses are recorded.
19) The assets of a company total $700,000; the liabilities, $200,000. What are the net
assets?
A.$900,000.
B.$700,000.
C.$500,000.
D.$200,000.
E.It is impossible to determine unless the amount of this owners’ investment is known.
20) Refer to the following selected financial information from Shakley’s Incorporated.
Compute the company’s profit margin for Year 2.
A.14.1%.
B.11.7%.
C.9.6%.
D.16.7%.
E.33.9%.
21) A company shows a $600 balance in Prepaid Rent in the Unadjusted Trial Balance
columns of the work sheet. The Adjustments columns show expired rent of $200. This
adjusting entry results in:
A.$200 decrease in net income.
B.$200 increase in net income.
C.$200 difference between the debit and credit columns of the Unadjusted Trial
Balance.
D.$200 of prepaid insurance.
E.An error in the financial statements.
22) On January 3, Kostansas Corporation purchased 5,000 shares of Morton, Inc. for
$40 per share plus $700 in broker commissions. These shares represent a 40%
ownership in Morton, Inc. Prepare the journal entry Kostansas Corporation should
record for the investment transaction.
23) Use the following income statement and information about changes in noncash
current assets and liabilities to (1) prepare only the cash flows from operating activities
section of the statement of cash flows using the indirect method and (2) compute the
company’s cash flow on total assets ratio for the year assuming that average total assets
are $525,250.
Changes in current asset and current liability accounts for the year that relate to
operations follow.
24) On May 31, a company had a balance in its accounts receivable of $103,200.
Prepare journal entries to record the following transactions for June.
25) The liquidity of a company can be measured using the current ratio and the
____________________, which only includes the most liquid current assets in its
calculation.
26) __________________ processing of transactions accumulates source documents for
a period of time and then processes them all at once such as daily, weekly, or monthly.
28) A company produces two joint products (called 301 and 302) in a single operation
that uses one raw material called Fruge. Four hundred gallons of Fruge were purchased
at a cost of $800 and were used to produce 150 gallons of Product 301, selling for $5
per gallon, and 75 gallons of Product 302, selling for $15 per gallon. How much of the
$800 cost should be allocated to each product, assuming that the company allocates cost
based on sales revenue?
