1) Par value per share is the price at which a share of stock is bought or sold.
2) Depreciation measures the decline in market value of an asset.
3) Depreciation expense for a period is the portion of a plant asset’s cost that is
allocated to that period.
4) Just-in-time manufacturing is a system where companies manufacture products only
after the orders have been received from customers.
5) Debt guarantees are not usually disclosed as a contingent liability.
6) An opportunity cost is the potential benefit that is lost by taking a specific action
when two or more alternative choices are available.
7) Dividing a mixed cost into its separate fixed and variable cost components makes it
more difficult to perform cost-volume-profit analysis.
8) The reasoning behind the retail inventory method is that if we can get a good
estimate of the cost-to-retail ratio, we can multiply ending inventory at retail by this
ratio to estimate ending inventory at cost.
9) Current assets and current liabilities are expected to be used up or come due within
one year or the company’s operating cycle whichever is longer.
10) An out-of-pocket cost requires a current and/or future outlay of cash.
11) 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
total interest expense on the bond over its eight-year life is $400,000.
12) The Institute of Management Accountants Statement of Ethical Professional
Practice requires that management accountants be competent and act with integrity.
13) A cost variance equals the sum of the quantity variance and the price variance.
14) A basic present value concept is that cash paid or received in the future is worth less
than the same amount of cash today.
15) A bank that is authorized to accept deposits of amounts payable to the federal
government is a:
A.Credit union
B.FDIC insured bank
C.Federal depository bank
D.National bank
E.Federal Reserve Bank
16) Classify each of the following items as either:
1>Contingent liability A.Lawsuit against the company
2>Estimated liability B.Warranty on products sold this year
3>Current liability that is neither a nor b C.Accounts payable
4>Estimated liability D.Income taxes payable
5>Contingent liability E.Vacation benefits
6>Current liability that is neither a nor b F.Accrued wages payable
7>Estimated liability G.Debt guarantees
8>Current liability that is neither a nor b H.Property taxes payable
9>Current liability that is neither a nor b I.Payroll taxes payable
10>Estimated liability J.Unearned revenues
17) On December 1, Gates Company borrowed $45,000 cash from FirstBank by signing
a 90-day, 9% note payable.
a. Prepare Gate’s journal entry to record the issuance of the note payable.
b. Prepare Gate’s journal entry to record the accrued interest due at December 31.
c. Prepare Gate’s journal entry to record the payment of the note on March 1 of the next
year.
18) Fixed expenses:
A.Create risk
B.Can be an advantage when a company is growing
C.Include interest expense
D.Do not fluctuate with changes in sales
E.All of these
19) Revenues, expenses, and withdrawals accounts, which are closed at the end of each
accounting period are:
A.Real accounts
B.Temporary accounts
C.Closing accounts
D.Permanent accounts
E.Balance sheet accounts
20) Identify the financial analysis building block most appropriately associated with
each ratio listed below by placing the letter of the building block a through d beside
each ratio 1 through 10. Each building block may be used more than once.
1>Liquidity and Efficiency A. Equity Ratio
2>Profitability B. Dividend Yield
3>Solvency C. Accounts Receivable Turnover
4>Solvency D. Days’ Sales in Inventory
5>Solvency E. Return on Total Assets
6>Liquidity and Efficiency F. Price Earnings Ratio
7>Market Prospects G. Debt Ratio
8>Profitability H. Times Interest Earned
9>Liquidity and Efficiency I. Basic Earnings per Share
10>Market Prospects J. Inventory Turnover
21) Hancock Manufacturing allocates overhead to production on the basis of direct
labor costs. At the beginning of the year, Hancock estimated total overhead of
$396,000; materials of $410,000 and direct labor of $220,000. During the year Hancock
incurred $418,000 in materials costs, $413,200 in overhead costs and $224,000 in direct
labor costs. Compute the overhead application rate.
A.180%
B.55.6%
C.186%
D.184%
E.96.6%
22) On January 1, a company issued and sold a $400,000, 7%, 10-year bond payable,
and received proceeds of $396,000. Interest is payable each June 30 and December 31.
The company uses the straight-line method to amortize the discount. The journal entry
to record the first interest payment is:
A.Debit Bond Interest Expense $14,000; credit Cash $14,000
B.Debit Bond Interest Expense $28,000; credit Cash $28,000
C.Debit Bond Interest Expense $14,200; credit Cash $14,000; credit Discount on Bonds
Payable $200
D.Debit Bond Interest Expense $13,800; debit Discount on Bonds Payable $200; credit
Cash $14,000
E.Debit Bond Interest Expense $14,000; debit Discount on Bonds Payable $200; credit
Cash $14,200
23) Phil Phoenix is paid on a monthly basis. For the month of January of the current
year, he earned a total of $8,288. FICA tax for Social Security is 6.2% and the FICA tax
for Medicare is 1.45%. The FUTA tax rate is 0.8%, and the SUTA tax rate is 5.4%. Both
unemployment taxes are applied to the first $7,000 of an employee’s pay. The amount of
Federal Income Tax withheld from his earnings was $1,375.17. What is the amount of
the employer’s annual payroll taxes expenses for this employee?
A.$56.00
B.$120.18
C.$378.00
D.$513.86
E.$1,068.04
24) Employers’ responsibilities for payroll include:
A.Providing each employee with an annual report of his or her wages subject to FICA
and federal income taxes along with the amount of these taxes withheld
B.Filing Form 941, the Employer’s Quarterly Federal Tax Return
C.Filing Form 940, the Annual Federal Unemployment Tax Return
D.Maintaining individual earnings records for each employee
E.All of these
25) Dunkin Company manufactures and sells a single product that sells for $480 per
unit; variable costs are $300. Annual fixed costs are $990,000. Current sales volume is
$4,200,000. Compute the current margin of safety in dollars for Dunkin Company.
A.$3,210,000
B.$2,640,000
C.$1,560,000
D.$2,440,000
E.$3,500,000
26) Record the following transactions of a company in general journal form:
(a) Reacquired 8,000 of its own $10 par value common stock at $40 cash per share. The
stock was originally issued at $15 per share.
(b) Sold 2,000 shares of the stock reacquired under part (a) at $43 cash per share.
(c) Sold 3,000 shares of the stock reacquired under part (a) at $39 cash per share.
27) Joseph Co. has three products A, B, and C, and its fixed costs are $69,000. The
sales mix for its products are 3 units of A, 4 units of B, and 1 unit of C. Information
about the three products follows:
(a) Calculate the company’s break-even point in composite units and sales dollars.
(b) Calculate the number of units of each individual product to be sold at the break-even
point.
28) Badger and Fox are forming a partnership. Badger invests a building that has a
market value of $350,000; the partnership assumes responsibility for a $125,000 note
secured by a mortgage on the property. Fox invests $100,000 in cash and equipment
that has a market value of $75,000. For the partnership, the amounts recorded for the
building and for Badger’s Capital account are:
A.Building $350,000; Badger, Capital $350,000
B.Building $225,000; Badger, Capital $225,000
C.Building $225,000; Badger, Capital $125,000
D.Building $350,000; Badger, Capital $225,000
E.Building $350,000; Badger, Capital $300,000
29) Refer to the following information about the Dipping Department of the Indiana
Factory for the month of August. Indiana Factory uses the FIFO method of inventory
costing.
The cost per equivalent unit of materials is $10.00, and the cost per equivalent unit of
labor and overhead is $22.00. Compute the cost that should be assigned all units that
were completed and transferred during August.
30) Social responsibility:
A.Is a concern for the impact of our actions on society
B.Is a code that helps in dealing with confidential information
C.Is required by the SEC
D.Requires that all businesses conduct social audits
E.Is limited to large companies
31) The consistency concept:
A.Prescribes a company to consistently apply the same accounting method of inventory
valuation, an exception being when a change from one method to another will improve
its financial reporting
B.Requires a company to use one method of inventory valuation exclusively
C.Requires that all companies in the same industry use the same accounting methods of
inventory valuation
D.Is also called the full disclosure principle
E.Is also called the matching principle
32) 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.None of these. This is not reported on the statement of cash flows
33) The materiality constraint:
A.States that an amount can be ignored if its effect on financial statements is
unimportant to user’s business decisions
B.Requires use of the allowance method for bad debts
C.Requires use of the direct write-off method
D.States that bad debts not be written off
E.Requires that expenses be reported in the same period as the sales they helped
produce
34) The special account used only in the closing process to temporarily hold the
amounts of revenues and expenses before the net difference is added to (or subtracted
from) the owner’s capital account is the:
A.Income Summary account
B.Closing account
C.Balance column account
D.Contra account
E.Nominal account
35) Preferred stock on which the right to receive dividends is forfeited for any year that
the dividends are not declared is referred to as:
A.Participating preferred stock
B.Callable preferred stock
C.Cumulative preferred stock
D.Convertible preferred stock
E.Noncumulative preferred stock
36) A product has a contribution margin per unit of $17 and sells at $25 per unit. If the
break-even point is 82,000 units, calculate (a) the variable costs per unit and (b) the
total fixed costs.
37) Crowe Company has acquired a building with a loan that requires payments of
$20,000 every six months for 5 years. The annual interest rate on the loan is 12%. What
is the present value of the building?
A.$72,096
B.$113,004
C.$147,202
D.$86,590
E.$200,000
38) Of the following errors, which one by itself will cause the trial balance to be out of
balance?
A.A $200 cash salary payment posted as a $200 debit to Cash and a $200 credit to
Salaries Expense
B.A $100 cash receipt from a customer in payment of his account posted as a $100
debit to Cash and a $10 credit to Accounts Receivable
C.A $75 cash receipt from a customer in payment of his account posted as a $75 debit
to Cash and a $75 credit to Cash
D.A $50 cash purchase of office supplies posted as a $50 debit to Office Equipment and
a $50 credit to Cash
E.An $800 prepayment from a customer for services to be rendered in the future was
posted as an $800 debit to Unearned Revenue and an $800 credit to Cash
39) Magee Windows manufactures two standard size windows, F and M, in the ratio of
5:3. F has a selling price of $150 and M has a selling price of $200. The variable cost of
F is $75.00 and the variable cost of M is $90.00. Fixed costs are $352,500. Compute the
(a) weighted average contribution margin, (b) break-even point in units, (c) number of
units of each product that will be sold at the break-even point.
40) A credit sale of $3,275 to a customer would result in:
A.A debit to the Accounts Receivable account in the general ledger and a debit to the
customer’s account in the accounts receivable subsidiary ledger
B.A credit to the Accounts Receivable account in the general ledger and a credit to the
customer’s account in the accounts receivable subsidiary ledger
C.A debit to the Accounts Receivable account in the general ledger and a credit to the
customer’s account in the accounts receivable subsidiary ledger
D.A credit to the Accounts Receivable account in the general ledger and a debit to the
customer’s account in the accounts receivable subsidiary ledger
E.A credit to Sales and a credit to the customer’s account in the accounts receivable
subsidiary ledger
41) The financial statement that reports whether the business earned a profit and also
lists the revenues and expenses is called:
A.A Balance sheet
B.A Statement of owner’s equity
C.A Statement of cash flows
D.An Income statement
E.A Statement of financial position
42) Salta Company installs a manufacturing machine in its factory at the beginning of
the year at a cost of $87,000. The machine’s useful life is estimated to be 5 years, or
400,000 units of product, with a $7,000 salvage value. During its second year, the
machine produces 84,500 units of product. Determine the machines’ second year
depreciation under the double-declining-balance method.
A.$16,900
B.$16,000
C.$17,400
D.$18,379
E.$20,880
43) The first line item in the operating activities section of a spreadsheet for a statement
of cash flows prepared using the indirect method is:
A.Cash
B.Cash received from customers
C.Increase (decrease) in accounts receivable
D.Net income
E.Adjustments to net income
44) A company recorded 2 days of accrued salaries of $1,400 for its employees on
January 31. On February 9, it paid its employees $7,000 for these accrued salaries and
for other salaries earned through February 9. The January 31 and February 9 journal
entries are:
A.
B.
C.
D.
E.
45) Each December 31, Davis Company ages its accounts receivable to determine the
amount of its adjustment for bad debts. At the end of the current year, management
estimated that $16,900 of the accounts receivable balances would be uncollectible. The
Allowance for Doubtful Accounts account had a debit balance of $3,200 before any
year-end adjustment for bad debts. Prepare the adjusting journal entry that Davis
Company should make on December 31, of the current year, to estimate bad debts
expense.
46) How is a classified balance sheet different from an unclassified balance sheet? List
the order of the usual classifications on a classified balance sheet.
47) A company has 2 employees. The company’s total salaries for the month of January
were $8,000. The federal income tax rate for both employees is 15%. The FICA-social
security tax rate is 6.2% and the FICA-Medicare tax rate is 1.45%. Calculate the
amount of employee taxes withheld and prepare the company’s journal entry to record
the January payroll assuming these were the only deductions.
48) Individual transactions in the sales journal are posted regularly to customers’
accounts in the _______________________________________.
49) Kathleen Reilly and Ann Wolf decide to form a partnership on August 1. Reilly
invested the following assets and liabilities in the new partnership:
The note payable is associated with the building and the partnership will assume
responsibility for the loan. Wolf invested $60,000 in cash and $105,000 in equipment in
the new partnership. Prepare the journal entries to record the two partners’ original
investments in the new partnership.