1) The debt ratio helps to assess the risk a company has of failing to pay its debts and is
helpful to both its owners and creditors.
2) An advantage of the weighted average inventory method is that it tends to smooth out
erratic changes in costs.
3) Because sellers assume that their customers will pay within the discount period, the
seller usually records the discount at the time of the sale.
4) A selling department is usually evaluated as a profit center.
5) Consolidated financial statements show the financial position, results of operations,
and cash flows of all entities under the parent’s control.
6) A large stock dividend only occurs when a distribution of more than 50% of
previously outstanding shares is issued.
7) Product costs are expenditures necessary and integral to finished products.
8) Under LIFO, the most recent costs are assigned to ending inventory.
9) A single liability can be divided between current and noncurrent liabilities.
10) Technology such as cash registers, check protectors, time clocks and personal
identification scanners can improve internal control.
11) Period costs are incurred by purchasing merchandise or manufacturing finished
goods.
12) When a company has no reportable nonoperating activities, its income from
operations is simply labeled net income.
13) A service company earns net income by buying and selling merchandise.
14) Accrued revenues at the end of one accounting period are expected to result in cash
payments in a future period.
15) Purchasing treasury stock reduces the corporation’s assets and stockholders’ equity
by equal amounts.
16) Profit margin is net sales divided by net income.
17) If obsolete or damaged goods can be sold, they will be included in inventory at their
net realizable value.
18) Part of the decision to accept additional business should be based on a comparison
of the incremental (differential) costs of the added production with the additional
revenues to be received.
19) A merchandising company:
A.Earns net income by buying and selling merchandise.
B.Receives fees only in exchange for services.
C.Earns profit from commissions only.
D.Earns profit from fares only.
E.Buys products from consumers.
20) When originally purchased, a vehicle had an estimated useful life of 8 years. The
vehicle cost $23,000 and its estimated salvage value is $1,500. After 4 years of
straight-line depreciation, the asset’s total estimated useful life was revised from 8 years
to 6 years and there was no change in the estimated salvage value. The depreciation
expense in year 5 equals:
A.$5,375.00
B.$2,687.50
C.$5,543.75
D.$10,750.00
E.$2,856.25
21) A system of accounting in which the costs of each process are accumulated and then
assigned to the units of product that passed through the process is a:
A.General cost accounting system
B.Process cost accounting system
C.Job order cost accounting system
D.Manufacturing cost accounting system
E.Goods in process accounting system
22) A cost that remains the same in total even when volume of activity varies is a:
A.Fixed cost
B.Curvilinear cost
C.Variable cost
D.Step-wise variable cost
E.Standard cost
23) How would the accounting equation of Boston Company be affected by the billing
of a client for $10,000 of consulting work completed?
A.+$10,000 accounts receivable, -$10,000 accounts payable
B.+$10,000 accounts receivable, +$10,000 accounts payable
C.+$10,000 accounts receivable, +$10,000 cash
D.+$10,000 accounts receivable, +$10,000 revenue
E.+$10,000 accounts receivable, -$10,000 revenue
24) A sawmill bought a shipment of logs for $40,000. When cut, the logs produced a
million board feet of lumber in the following grades. Compute the cost to be allocated
to Type 1 and Type 2 lumber, respectively, if the value basis is used.
Type 1 – 400,000 bd. ft. priced to sell at $0.12 per bd. ft.
Type 2 – 400,000 bd. ft. priced to sell at $0.06 per bd. ft.
Type 3 – 200,000 bd. ft. priced to sell at $0.04 per bd. ft.
A.$16,000; $16,000
B.$13,333; $4,444
C.$40,000; $24,000
D.$24,000; $12,000
E.$24,000; $8,000
25) A company purchased a cash register on January 1 for $5,400. This register has a
useful life of 10 years and a salvage value of $400. What would be the depreciation
expense for the second year of its useful life using the double-declining-balance
method?
A.$500
B.$800
C.$864
D.$1,000
E.$1,080
26) A trial balance taken at year-end showed total credits exceed total debits by $4,950.
This discrepancy could have been caused by:
A.An error in the general journal where a $4,950 increase in Accounts Receivable was
recorded as an increase in Cash
B.A net income of $4,950
C.The balance of $49,500 in Accounts Payable being entered in the trial balance as
$4,950
D.The balance of $5,500 in the Office Equipment account being entered on the trial
balance as a debit of $550
E.An error in the general journal where a $4,950 increase in Accounts Payable was
recorded as a decrease in Accounts Payable
27) The model whose goal is to eliminate waste while satisfying the customer and
providing a positive return to the company is:
A.Total quality management
B.Managerial accounting
C.Customer orientation
D.Continuous improvement
E.Lean business model
28) When two clerks share the same cash register it is a violation of which internal
control principle?
A.Establish responsibilities
B.Maintain adequate records
C.Insure assets
D.Bond key employees
E.Apply technological controls
29) Match the following types of adjustments (a though d) with the transactions (1
through 4).
1>Accrued revenue A. Used to record revenue received in advance.
2>Accrued expense B. Used to record expiration of prepaid insurance.
3>Unearned revenue C. Used to record revenue earned but not received.
30) Expenses that are not easily associated with a specific department, and which are
incurred for the benefit of more than one department, are:
A.Fixed expenses
B.Indirect expenses
C.Direct expenses
D.Uncontrollable expenses
E.Variable expenses
31) Which of the following statements is incorrect?
A.An income statement reports revenues earned less expenses incurred
B.An unadjusted trial balance shows the account balances after they have been revised
to reflect the effects of end-of-period adjustments
C.Interim financial reports can be based on one-month or three-month accounting
periods
D.The fiscal year is any 12 consecutive months (or 52 weeks) used by a business as its
annual accounting period
E.Property, plant, and equipment are referred to as plant assets
32) Nick’s had income of $350 million and average invested assets of $2,000 million.
Its ROA is:
A.1.8%
B.35%
C.17.5%
D.5.7%
E.3.5%
33) Tart Company’s most recent balance sheet reports total assets of $42,000,000, total
liabilities of $16,000,000 and stockholders’ equity of $26,000,000. Management is
considering using $3,000,000 of excess cash to prepay $3,000,000 of outstanding
bonds. What effect, if any, would prepaying the bonds have on the company’s
debt-to-equity ratio?
A.Prepaying the debt would cause the firm’s debt-to-equity ratio to improve from .62
to .50
B.Prepaying the debt would cause the firm’s debt-to-equity ratio to improve from .62
to .57
C.Prepaying the debt would cause the firm’s debt-to-equity ratio to worsen from .62 to .
50
D.Prepaying the debt would cause the firm’s debt-to-equity ratio to worsen from .62 to .
57
E.Prepaying the debt would cause the firm’s debt-to-equity ratio to remain unchanged
34) Phil Phoenix is paid monthly. For the month of January of the current year, he
earned a total of $8,288. The FICA tax rate for social security is 6.2% and the FICA tax
rate 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
total amount of taxes withheld from the Phoenix’s earnings?
A.$3,097.17
B.$2,443.21
C.$2,009.21
D.$1,722.00
E.$1,495.36
35) A company had $43 missing from petty cash that was not accounted for by petty
cash receipts. The correct procedure is to:
A.Debit Cash Over and Short for $43
B.Credit Cash Over and Short for $43
C.Debit Petty Cash for $43
D.Credit Petty Cash for $43
E.Credit Cash for $43
36) Seamark buys $300,000 of Eider’s 8% five-year bonds payable at par value on
September 1. Interest payments are made semiannually on March 1 and September 1.
The journal entry to accrue interest earned at year-end December 31 is:
A.Debit Interest Receivable $8,000, credit Interest Revenue $8,000
B.Debit Interest Receivable $12,000, credit Interest Revenue $12,000
C.Debit Cash $8,000, credit Interest Revenue $8,000
D.Debit Cash $12,000, credit Interest Revenue $12,000
E.Debit Interest Revenue $8,000, credit Interest Receivable $8,000
37) A company uses the percent of sales method to determine its bad debts expense. At
the end of the current year, the company’s unadjusted trial balance reported the
following selected amounts:
All sales are made on credit. Based on past experience, the company estimates 0.6% of
credit sales to be uncollectible. What amount should be debited to Bad Debts Expense
when the year-end adjusting entry is prepared?
A.$1,275
B.$1,775
C.$4,500
D.$4,800
E.$5,500
38) The following is a list of selected users of accounting information. Match the
appropriate user to the following information needs.
1>Production Managers A. Monitor costs and ensure quality.
2>Lenders B. Judge the soundness of a customer before making sales on credit.
3>Shareholders C. Assessing employment opportunities.
4>Employees D. Measuring risk and return of loans.
5>Suppliers E. Assessing the risk and return of acquiring shares.
39) On August 25, a company purchased $5,000 worth of merchandise on terms 2/10,
n/30; on September 4, the amount due was paid. Using the net method of recording
purchases, prepare general journal entries to record (a) the purchase on August 25, and
(b) the cash payment on September 4.
40) Which of the following is the correct interpretation of a degree of operating
leverage of 5?
A.Operating leverage of 5 means that sales can decrease by 5% before the firm’s current
level of sales will hit the break-even point
B.Operating leverage of 5 means that if sales increase by 5% the firm will hit its
break-even point
C.Operating leverage of 5 means that if sales increase by 5%, there will be a 25%
increase in the firm’s pretax profit
D.Operating leverage of 5 measures the degree of debt employed by the firm’s debt
structure
E.Operating leverage of 5 means that the company would need to increase sales by 5
times in order to hit its break-even point
41) 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. Dunkin company management targets an annual after-tax income of
$843,750. The company is subject to a 25% income tax rate. Compute the dollar sales
to earn the target after-tax net income.
A.$4,890,000
B.$5,640,000
C.$4,327,500
D.$5,043,750
E.$5,050,000
42) A bank statement includes:
A.A list of outstanding checks
B.A list of petty cash amounts
C.The beginning and the ending balance of the depositor’s account
D.A listing of deposits in transit
E.All of these
43) The special journals of many accounting systems include the:
A.Sales journal
B.Purchases journal
C.Cash receipts journal
D.Cash disbursements journal
E.General Ledger
44) A payment to an owner is called a(n):
A.Liability
B.Withdrawal
C.Expense
D.Contribution
E.Investment
45) On January 1, a company issues bonds dated January 1 with a par value of
$400,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid
semiannually on June 30 and December 31. The market rate is 8% and the bonds are
sold for $383,793. The journal entry to record the issuance of the bond is:
A.Debit Cash $400,000; debit Discount on Bonds Payable $16,207; credit Bonds
Payable $416,207
B.Debit Cash $383,793; debit Discount on Bonds Payable $16,207; credit Bonds
Payable $400,000
C.Debit Bonds Payable $400,000; debit Interest Expense $16,207; credit Cash
$416,207
D.Debit Cash $383,793; debit Premium on Bonds Payable $16,207; credit Bonds
Payable $400,000
E.Debit Cash $383,793; credit Bonds Payable $383,793
46) ____________________ refers to a plant asset that is no longer useful in producing
goods or services with a competitive advantage because of new inventions and
improvements.
47) A ___________________ cost has already been incurred and cannot be avoided or
changed, so it irrelevant to decision making.
48) Describe the flow of materials in a process cost accounting system, including
accounts used.
49) On December 31, Connelly Company had performed $5,000 of management
services for clients that had not yet been billed. Prepare Connelly’s adjusting entry to
record these fees earned.
50) A common characteristic of __________ is their ability to provide expected future
benefits to a business.
51) A company had the following stockholders’ equity on January 1:
On January 10, the company declared a 40% stock dividend to holders of record on
January 25, to be distributed January 31. The market value of the stock on January 10
prior to the dividend was $20 per share. What is the book value per common share on
February 1?
52) A company’s predetermined overhead allocation rate is 130% based on direct labor
cost. How much overhead would be allocated to Job No. 105 if it required total direct
labor costs of $60,000?
53) A __________ cost is one that includes both fixed and variable cost components; a
______________ cost is one that reflects a step pattern.
54) Explain how to record the sale of trading securities.