1) The lower of cost or market requiring inventory to be reported at market value if it is
lower than cost is an example of applying the conservatism constraint.
2) The internal rate of return method of evaluating capital investments cannot be used
with uneven cash flows.
3) A cost variance is the difference between actual cost and standard cost.
4) The issue price of bonds is found by computing the future value of the bond’s cash
payments, discounted at the market rate of interest.
5) A good financial report does not link interpretations and conclusions of analysis with
the underlying information.
6) A cash coverage of growth ratio of less than 1 indicates cash inadequacy to meet
asset growth.
7) If a company resells treasury stock below the acquisition cost, a loss from the sale of
treasury stock is recorded.
8) Assets tied up in inventory are not considered productive assets.
9) Debentures always have specific assets of the issuing company pledged as collateral.
10) Unrealized gains and losses on trading securities are reported on the income
statement.
11) Insuring assets and requiring all accounting personnel to have CPA licenses are two
important principles of internal control.
12) A company’s file of job cost sheets jobs not yet completed equals the balance in the
Finished Goods Inventory account.
13) Overapplied or underapplied overhead should be removed from the Factory
Overhead account at the end of each accounting period.
14) The building blocks of financial statement analysis include (1) liquidity, (2)
salability, (3) solvency, and (4) profitability.
15) When a partnership is liquidated, its business is ended.
16) Giga Company uses a weighted average process cost system. The department
started and finished 129,000 units during the current period. The ending inventory
consists of 60,000 units that are 75% complete with respect to direct labor and
overhead. All direct materials are added at the beginning of the process. The department
incurred direct labor costs of $262,500 and overhead costs of $126,000.
(a) Compute the equivalent cost per unit for direct labor.
(b) Compute the equivalent cost per unit for overhead.
17) A company is considering a 5-year project. The company plans to invest $60,000
now and it forecasts cash flows for each year of $16,200. The company requires a
hurdle rate of 12%. Calculate the internal rate of return to determine whether it should
accept this project. Selected factors for a present value of an annuity of 1 for five years
are shown below:
A.The project should be accepted.
B.The project should be rejected because it earns less than 10%.
C.The project earns more than 10% but less than 12%. At a hurdle rate of 12%, the
project should be rejected.
D.Only 9% is acceptable.
E. Only 10% is acceptable.
18) Jasper Company is a wholesaler that buys merchandise in large quantities. Its
supplier’s catalog indicates a list price of $500 on merchandise Jasper intends to
purchase, and offers a 30% trade discount for large quantity purchases. The cost of
shipping for the merchandise is $7 per unit. Jasper’s total purchase price per unit will
be:
A.$507
B.$350
C.$357
D.$343
E.$493
19) The 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.
20) Tara Westmont, the proprietor of Tiptoe Shoes, had annual revenues of $185,000,
expenses of $103,700, and withdrew $18,000 from the business during the current year.
The owner’s capital account before closing had a balance of $297,000. The ending
owner’s capital balance after closing is:
A.$185,000
B.$63,300
C.$81,300
D.$360,300
E.$378,300
21) The full disclosure principle:
A.Prescribes that the notes to the financial statements report the change from one
inventory valuation method to another.
B.Requires that companies use the same accounting method for inventory valuation
period after period.
C.Is not subject to the consideration of materiality.
D.Is only applied to retailers and manufacturers.
E.Is also called the consistency principle.
22) A company purchased a weaving machine for $190,000. The machine has a useful
life of 8 years and a residual value of $10,000. It is estimated that the machine could
produce 75,000 bolts of woven fabric over its useful life. In the first year, 15,000 bolts
were produced. In the second year, production increased to 19,000 units. Using the
units-of-production method, what is the book value of the machine at the end of the
second year?
A.$108,400.
B.$144,400.
C.$81,600.
D.$190,000.
E.$180,000.
23) A company would use which of the following journals to record cash payments?
A.General journal.
B.Cash receipts journal.
C.Cash disbursements journal.
D.Purchases journal.
E.Sales journal.
24) Wheadon, Davis, and Singer formed a partnership with Wheadon contributing
$60,000, Davis contributing $50,000 and Singer contributing $40,000. Their partnership
agreement called for the income (loss) division to be based on the ratio of capital
investments. If the partnership had income of $75,000 for its first year of operation,
what amount of income (rounded to the nearest thousand) would be credited to Singer’s
capital account?
A.$20,000.
B.$25,000.
C.$30,000.
D.$40,000.
E.$75,000.
25) A company’s income statement showed the following: net income, $134,000;
depreciation expense, $30,000; and gain on sale of plant assets, $4,000. An examination
of the company’s current assets and current liabilities showed the following changes as
a result of operating activities: accounts receivable decreased $9,400; merchandise
inventory increased $18,000; prepaid expenses increased $6,200; accounts payable
increased $3,400. Calculate the net cash provided or used by operating activities.
A.$156,600.
B.$141,000.
C.$96,600.
D.$148,600.
E.$88,600.
26) Which of the following products is least likely to be produced in a process
operations system?
A.Compact disks
B.Slacks for casual wear
C.Baseball hats
D.Calculators
E.Custom cabinets
27) Using the information below for Laurels Company; determine the manufacturing
costs added during the current year:
A.$12,000.
B.$16,100.
C.$17,100.
D.$18,100.
E.$13,600.
28) A period’s beginning inventory is equal to the prior period’s ___________________.
29) The __________ is a report of the amount of sales less direct expenses for a
department.
30) The following special journal is taken from a merchandising company that uses the
perpetual inventory system:
1> What is the name of the journal shown above?
2> Write an explanation for each entry in this journal.
3> What do the numbers in parentheses at the bottom of the journal indicate?
31) What is a sales budget? How is the sales budget prepared?
32) A company issued 10%, 5-year bonds with a par value of $2,000,000, on January 1.
Interest is to be paid semiannually each June 30 and December 31. The bonds were sold
at $2,162,290 based on an annual market rate of 8%. The company uses the effective
interest method of amortization.
(1) Prepare an amortization table for the first two semiannual payment periods using the
format shown below.
(2) Prepare the journal entry to record the first semiannual interest payment.
