1) In activity-based costing, there are a number of activity cost pools, which consist of
activities that belong to the same process and/or are caused by the same cost driver.
2) When using the equity method, receipt of cash dividends increases the carrying
(book) value of an investment in equity securities.
3) The process of evaluating performance can be improved by using budgets.
4) Financial statement analysis lessens the need for expert judgment.
5) Feldt is a partner in Feldt & Dodson Company. Feldt’s share of the partnership
income is $18,600 and her average partnership equity is $155,000. Her partner return
on equity equals 8.33.
6) The financial statement that summarizes the changes in an owner’s capital account is
called the balance sheet.
7) Corporations avoid many of the state regulations and controls that proprietorships
and partnerships are subject to.
8) A discount on bonds payable occurs when a company issues bonds with an issue
price less than par value.
9) If overhead is underapplied, it means that individual jobs have not been charged
enough during the year and the cost of goods sold reported is too low.
10) Unearned revenues are classified as liabilities.
11) Investing activities are the means an organization uses to pay for resources like
land, buildings, and equipment to carry out its plans.
12) Profit margin is net sales divided by net income.
13) Financial analysis only refers to the communication of relevant financial
information to decision makers.
14) Treasury stock is classified as:
A.An asset account.
B.A contra asset account.
C.A revenue account.
D.A contra equity account.
E.A liability account.
15) An unincorporated association of two or more persons to pursue a business for
profit as co-owners is a:
A.Partnership.
B.Proprietorship.
C.Contractual company.
D.Mutual agency.
E.Voluntary organization.
16) Refer to the following selected financial information from McCormik, LLC.
Compute the company’s acid-test ratio for Year 2.
A.2.26.
B.1.98.
C.2.95.
D.3.05.
E.1.88.
17) Hull Company reported the following income statement information for 2015:
The beginning inventory balance for Year 1 is correct. However, the ending inventory
figure for Year 1 was overstated by $20,000. Given this information, the correct gross
profit figure for 2015 would be:
A.$149,000.
B.$169,000.
C.$129,000.
D.$142,000.
E.$112,000.
18) Portia Grant is an employee who is paid monthly. For the month of January of the
current year, she earned a total of $8,260. The FICA tax for social security is 6.2% and
the FICA tax rate for Medicare is 1.45%. The FUTA tax rate of 0.6% and the SUTA tax
rate of 5.4% are applied to the first $7,000 of an employee’s pay. The amount of federal
income tax withheld from her earnings was $1,325.17. What is the total amount of taxes
withheld from the Portia’s earnings?
A.$3,097.17
B.$2,443.21
C.$1,957.06
D.$1,722.00
E.$1,495.36
19) Assume that the custodian of a $450 petty cash fund has $64.50 in coins and
currency plus $382.50 in receipts at the end of the month. The entry to replenish the
petty cash fund will include:
A.A debit to Cash for $379.50.
B.A credit to Cash Over and Short for $3.00.
C.A debit to Petty Cash for $382.50.
D.A credit to Cash for $385.50.
E.A debit to Cash for $385.50.
20) Poe Company is considering the purchase of new equipment costing $80,000. The
projected net cash flows are $35,000 for the first two years and $30,000 for years three
and four. The revenue is to be received at the end of each year. The machine has a
useful life of 4 years and no salvage value. Poe requires a 10% return on its
investments. The present value of an annuity of 1 and present value of an annuity for
different periods is presented below. Compute the net present value of the machine.
A.$(15,731).
B.$(4,896).
C.$15,731.
D.$4,896.
E.$23,775.
21) A financial report that summarizes the amounts and types of costs that were
incurred in the manufacturing process during the period is a:
A.Materials statement.
B.Managerial statement.
C.Schedule of cost of goods manufactured.
E.General-purpose statement.
D.Merchandise schedule.
22) Holo Company reported the following financial numbers for one of its divisions for
the year; average total assets of $5,800,000; sales of $5,375,000; cost of goods sold of
$3,225,000; and operating expenses of $1,147,000. Assume a target income of 15% of
average invested assets. Compute residual income for the division:
A.$150,450.
B.$196,750.
C.$150,500.
D.$133,000.
E.$100,300.
23) The accounting concept that requires financial statement information to be
supported by independent, unbiased evidence is:
A.Business entity assumption.
B.Revenue recognition principle.
C.Going-concern assumption.
D.Time-period assumption.
E.Objectivity principle.
24) The hurdle rate is often set at:
A.The rate the company could earn if the investment were placed in the bank.
B.The company’s cost of capital.
C.10% above the IRR of current projects.
D.10% above the ARR of current projects.
E.The rate at which the company is taxed on income.
25) A company paid $150,000, plus a 7% commission and $5,000 in closing costs for a
property. The property included land appraised at $87,500, land improvements
appraised at $35,000, and a building appraised at $52,500. What should be the
allocation of this property’s costs in the company’s accounting records?
A.Land $75,000; Land Improvements, $30,000; Building, $45,000.
B.Land $75,000; Land Improvements, $30,800; Building, $46,200.
C.Land $82,750; Land Improvements, $33,100; Building, $49,650.
D.Land $80,250; Land Improvements, $32,100; Building, $48,150.
E.Land $77,500; Land Improvements; $31,000; Building; $46,500.
26) Amounts received in advance from customers for future products or services:
A.Are revenues.
B.Increase income.
C.Are liabilities.
D.Are not allowed under GAAP.
E.Require an outlay of cash in the future.
27) Preferred stock that the issuing corporation has the option to retire by paying a
specified amount to the preferred stockholders is called:
A.Convertible preferred stock.
B.Callable preferred stock.
C.Premium stock.
D.Cumulative preferred stock.
E.Participating preferred stock.
28) Flagstaff Company has budgeted production units of 7,900 for July and 8,100 for
August. The direct labor requirement per unit is 0.50 hours. Labor is paid at the rate of
$21 per hour. The total cost of direct labor for the month of August is:
A.$82,950.
B.$4,050.
C.$85,050.
D.$3,950.
E.$168,000.
29) All of the following statements regarding valuation of receivables under U.S.
GAAP and IFRS are true except:
A.Both require the allowance method for uncollectibles unless uncollectibles are
immaterial.
B.Both require that receivables be reported net of estimated collectibles.
C.Both require that the expenses for estimated collectibles be recorded in the same
period revenues generated from those receivables are recorded.
D.Both allow using percent of sales, percent of receivables, or aging of receivables to
estimate uncollectibles.
E.Both require that the expense related to uncollectibles be recorded when the
receivable is determined to be uncollectible.
30) Refer to the following selected financial information from Graceworks Corp.
Compute the company’s inventory turnover for Year 2.
A.1.79.
B.1.71.
C.1.85.
D.0.93.
E.1.75.
31) The following information is available on TGR Enterprises, a partnership, for the
most recent fiscal year:
There are three partners in TGR Enterprises: Tracey, Gregory and Rodgers. At the end
of the year, the partners’ capital accounts were in the ratio of 2:1:2, respectively.
Compute the ending capital balances of the three partners.
A.Tracey = $108,000; Gregory = $54,000; Rodgers = $108,000.
B.Tracey = $90,000; Gregory = $90,000; Rodgers = $90,000.
C.Tracey = $204,000; Gregory = $102,000; Rodgers = $204,000.
D.Tracey = $84,000; Gregory = $102,000; Rodgers = $84,000.
E.Tracey = $60,000; Gregory = $30,000; Rodgers = $60,000.
32) When analyzing the changes on a spreadsheet used to prepare a statement of cash
flows, the cash flows from operating activities generally affect:
A.Net income, current assets, and current liabilities.
B.Noncurrent assets.
C.Noncurrent liability and equity accounts.
D.Both noncurrent assets and noncurrent liabilities.
E.Equity accounts only.
33) A corporation reports the following year-end stockholders’ equity:
$18,600,000
Determine the following:
(1) Par value for the preferred stock.
(2) Book value per share for both preferred stock and common stock assuming a call
price per share of $52 for preferred and no dividends in arrears.
34) A company previously issued $2,000,000, 10% bonds, receiving a $120,000
premium. On the current year’s interest date, after the bond interest was paid and after
40% of the total premium had been amortized, the company purchased the entire bond
issue on the open market at 98 and retired it. Prepare the journal entry to record the
retirement of these bonds.
35) On January 1, a company issued 10-year, 10% bonds payable with a par value of
$500,000, and received $442,647 in cash proceeds. The market rate of interest at the
date of issuance was 12%. The bonds pay interest semiannually on July 1 and January
1. The issuer uses the straight-line method for amortization. Prepare the issuer’s journal
entry to record the first semiannual interest payment on July 1.
36) The ______________ aids continuous improvement by augmenting financial
measures with information on the drivers or indicators of future financial performance
along four dimensions: (1) financial, (2) customer, (3) internal business processes, and
(4) learning and growth.
37) Chumley Advertising Agency contracted with a company to prepare an ad
campaign. Chumley uses a job order costing system. Chumley estimates that the job
will take 140 designer hours at $90 per hour and 85 staff hours at $45 per hour.
Chumley uses two overhead rates in applying overhead to jobs: Designer-related at
$100 per designer hour and staff-related at $50 per staff hour. Determine the total
estimated cost for this job.
38) Compute Darling Company’s current ratio using the following information: