1) Select the correct statement from the following:
A.Profit margin reflects a company’s ability to produce net sales from total assets.
B.Total asset turnover reflects the percent of net income in each dollar of net sales.
C.Return on total assets can be separated into gross margin ratio and price-earnings
ratio.
D.High returns on total assets are desirable.
E. Return on total assets analysis is beneficial in evaluating a company but is not useful
for competitor analysis.
2) A cash equivalent is:
A.An investment readily convertible to a known amount of cash.
B.Close to its maturity date but its market value may still be affected by interest rate
changes.
C.Generally is within 12 months of its maturity date.
D.Is not considered highly liquid.
E.Another name for cash.
3) The appropriate section in the statement of cash flows for reporting the receipt of
cash dividends from investments in securities is:
A.Operating activities.
B.Financing activities.
C.Investing activities.
D.Schedule of noncash investing or financing activity.
E.This is not reported on the statement of cash flows.
4) Capital budgeting decisions are generally based on:
A.Tentative and potentially unreliable predictions of future outcomes.
B.Predictions of future outcomes where risk is eliminated.
C.Results from past outcomes only.
D.Results from current outcomes only.
E.Speculation of interest rates and economic performance only.
5) Calculate the cost of goods sold using the following information:
A.$680,500.
B.$701,900.
C.$687,100.
D.$674,600.
E.$772,600.
6) On April 12, Hong Company agrees to accept a 60-day, 10%, $4,500 note from
Indigo Company to extend the due date on an overdue account. What is the journal
entry needed to record the payment of the note by Indigo Company on the maturity
date?
A.Debit Notes Payable $4,500; debit Interest Expense $75; credit Cash $4,575.
B.Debit Notes Payable $4,500; credit Interest Expense $75, credit Cash $4,425.
C.Debit Cash $4,575; credit Interest Revenue $75; credit Notes Payable $4,500.
D.Debit Notes Payable $4,500; debit Interest Expense $112; credit Cash $4,612.
E.Debit Cash $4,575; credit Interest Revenue $75; credit Notes Receivable $4,500.
7) A machine costing $75,000 is purchased on September 1, Year 1. The machine is
estimated to have a salvage value of $10,000 and an estimated useful life of 4 years.
Double-declining-balance depreciation is used. If the machine is sold on December 31,
Year 3 for $13,000, the journal entry to record the sale will include:
A.A credit to gain on sale for $8,000.
B.A debit to loss on sale for $2,625.
C.A credit to accumulated depreciation for $59,375.
D.A debit to loss on sale for $3,042.
E.A credit to gain on sale for $4,979.
8) Which of the following budgets is not an operating budget?
A.Sales budget.
B.Cash budget.
C.General and administrative expense budget.
D.Selling expenses budget.
E.Merchandise purchases.
9) A company has the choice of either selling 600 defective units as scrap or rebuilding
them. The company could sell the defective units as they are for $2.00 per unit.
Alternatively, it could rebuild them with incremental costs of $0.60 per unit for
materials, $1.00 per unit for labor, and $0.80 per unit for overhead, and then sell the
rebuilt units for $5.00 each. What should the company do?
A.Sell the units as scrap.
B.Rebuild the units.
C.It does not matter because both alternatives have the same result.
D.Since both alternatives produce a loss, store the units in hopes of a better price later.
E.Throw the units away.
10) The following present value factors are provided for use in this problem.
Xavier Co. wants to purchase a machine for $37,000 with a four year life and a $1,000
salvage value. Xavier requires an 8% return on investment. The expected year-end net
cash flows are $12,000 in each of the four years. What is the machine’s net present
value (round to the nearest whole dollar)?
A.$3,480.
B.$2,745.
C.$40,480.
D.$(3,480).
E.$(2,745).
11) On May 22, Jarrett Company borrows $7,500 from Fairmont Financing, signing a
90-day, 8%, $7,500 note. What is the journal entry needed to record the payment of the
note by Jarrett Company on the maturity date?
A.Debit Notes Payable $7,500; credit Interest Expense $150; credit Cash $7,350.
B.Debit Notes Payable $7,500; credit Cash $7,500.
C.Debit Notes Payable $7,650; credit Cash $7,650.
D.Debit Notes Payable $7,500; debit Interest Expense $150; credit Cash $7,650.
E.Debit Cash $7,650; credit Interest Revenue $150; credit Notes Receivable $7,500.
12) The ___________________________ shows the budgeted costs for factory
overhead that will be needed to complete the estimated production for the period, often
separated into variable and fixed costs.
13) A company has $200,000 of 10% noncumulative, nonparticipating, preferred stock
outstanding, and $150,000 of common stock outstanding. In the company’s first year of
operation, no dividends were paid, but during the second year, it paid cash dividends of
$25,000. Compute the dividends to be distributed to (1) preferred shares and (2)
common shares.
14) _______________________, or customized production, produces products in
response to customer orders.
15) Weston Company had the following long-term available-for-sale securities in its
portfolio at December 31, Year 1. Weston had several long-term investment transactions
during the next year. After analyzing the effects of each transaction, (1) determine the
amount Weston should report on its December 31, Year 1 balance sheet for its long-term
investments in available-for-sale securities, (2) determine the amount Weston should
report on its December 31, Year 2 balance sheet for its long-term investments in
available-for-sale securities, (3) prepare the necessary adjusting entry to record the fair
value adjustment at December 31, Year 2.
16) How is the cost principle applied to plant asset acquisitions, including lump-sum
purchases?
17) The ____________________ is computed by dividing a project’s annual after-tax
net income by the annual average amount invested.