1) The legal contract between the issuing corporation and the bondholders is called the
bond indenture.
2) The cost of fees for insuring the title and any accrued property taxes are included in
the cost of land.
3) A sunk cost will change with a future course of action.
4) To be classified as a cash equivalent, the only criterion an item must meet is that it
must be readily convertible to a known amount of cash.
5) A company received dividends of $0.35 per share on 300 shares of stock it holds as
an investment. The journal entry to record this transaction would be to debit Cash for
$105 and credit Dividend Revenue for $105.
6) The payback period method, unlike the net present value method, does not ignore
cash flows after the point of cost recovery.
7) Larger, more complex organizations usually require a longer time to prepare their
budgets than smaller organizations because of the considerable effort to coordinate the
different units within the business.
8) The profit margin ratio is the same as the gross profit ratio.
9) The sales budget is derived from the production budget.
10) A job order costing system would best fit the needs of a company that makes:
A.Shoes and apparel.
B.Paint.
C.Cement.
D.Custom machinery.
E.Pencils and erasers.
11) Which of the following represents the correct formula for calculating raw materials
inventory turnover for a manufacturer?
A.Raw materials purchased/Average raw materials inventory.
B.Average raw materials inventory/Raw materials used.
C.Raw materials used/Average raw materials inventory.
D.Ending raw materials/Raw materials used * 365.
E.Raw materials used/Beginning raw materials inventory * 365.
12) A company uses the weighted average method for inventory costing. At the start of
a period the production department had 20,000 units in beginning Work in Process
inventory which were 40% complete; the department completed and transferred
165,000 units. At the end of the period, 22,000 units were in the ending Work in Process
inventory and are 75% complete. The production department had conversion costs in
the beginning goods is process inventory of $99,000 and total conversion costs added
during the period are $726,825. Compute the conversion cost per equivalent unit.
A.$4.40.
B.$4.76.
C.$4.19.
D.$4.55.
E.$4.61.
13) Dartford Company reported the following financial data for one of its divisions for
the year; average investment center total assets of $3,500,000; investment center
income $610,000; a target income of 12% of average invested assets. The residual
income for the division is:
A.$536,800.
B.$1,030,000.
C.$190,000.
D.$683,200.
E.$493,200.
14) Charger Company’s most recent balance sheet reports total assets of $27,000,000,
total liabilities of $15,000,000 and total equity of $12,000,000. The debt to equity ratio
for the period is (rounded to two decimals):
A.0.56
B.1.80
C.0.44
D.0.80
E.1.25
15) Division P of Launch Corporation has the capacity for making 75,000 wheel sets
per year and regularly sells 60,000 each year on the outside market. The regular sales
price is $100 per wheel set, and the variable production cost per unit is $65. Division Q
of Launch Corporation currently buys 30,000 wheel sets (of the kind made by Division
P) yearly from an outside supplier at a price of $90 per wheel set. If Division Q were to
buy the 30,000 wheel sets it needs annually from Division P at $87 per wheel set, the
change in annual net operating income for the company as a whole, compared to what it
is currently, would be:
A.$600,000
B.$225,000
C.$750,000
D.$135,000
E.$700,000
16) Comfort Mattresses, Inc. sold 26,000 shares of its $1 par value common stock at a
cash price of $12 per share. The entry to record this transaction would be:
A.Debit Cash $312,000; credit Common Stock $26,000; credit Paid-in Capital in
Excess of Par Value, Common Stock $286,000.
B.Debit Cash for $312,000; credit Common Stock $312,000.
C.Debit Common Stock $26,000; debit Paid-in Capital in Excess of Par Value,
Common Stock $286,000; credit Cash $312,000.
D.Debit Cash $312,000; credit Stock Liability $286,000; credit Common Stock
$26,000.
E.Debit Common Stock $26,000; credit Cash $26,000.
17) Sharon and Nancy formed a partnership by making capital contributions of
$130,000 and $195,000 respectively. They predict annual partnership income of
$230,000 and are considering the following alternative plans of sharing income and
loss: (a) in the ratio of their initial capital investments; or (b) salary allowances of
$40,000 to Sharon and $35,000 to Nancy; interest allowances of 12% on their initial
capital investments; and the balance shared equally. Assuming that both partners put
about the same amount of time into the business, which method of allocating income
would be best?
18) Match the following definitions with terms 1 through 10. Place the letter that
identifies the best definition in the blank space next to the term.
19) A company had net income of $2,660,000, net sales of $25,000,000, and average
total assets of $8,000,000. Its return on total assets equals:
A.3.01%.
B.10.64%.
C.32.00%.
D.33.25%.
E.300.75%.
20) A report that accumulates the actual expenses that a manager is responsible for and
their budgeted amounts is a:
A.Segmental accounting report.
B.Managerial cost report.
C.Controllable expense report.
D.Departmental accounting report.
E.Responsibility accounting performance report.
21) During January, the production department of a process operations system
completed and transferred to finished goods a total of 78,000 units. At the end of
January, 9,000 additional units were in process in the production department and were
65% complete with respect to labor. The beginning inventory included labor cost of
$37,100 and the production department incurred direct labor cost of $294,300 during
January. Compute the direct labor cost per equivalent unit for the department using the
weighted-average method.
A.$6.34.
B.$3.77.
C.$3.51.
D.$4.25.
E.$3.95.
22) Statements that show the financial statements as if proposed transactions had
already occurred are called:
A.Pro forma statements.
B.Professional statements.
C.Simplified statements.
D.Temporary statements.
E.Interim statements.
23) In horizontal analysis the percent change is computed by:
A.Subtracting the analysis period amount from the base period amount.
B.Subtracting the base period amount from the analysis period amount.
C.Subtracting the analysis period amount from the base period amount, dividing the
result by the base period amount, then multiplying that amount by 100.
D.Subtracting the base period amount from the analysis period amount, dividing the
result by the base period amount, then multiplying that amount by 100.
E.Subtracting the base period amount from the analysis amount, then dividing the result
by the analysis period amount.
24) Fontaine and Monroe are forming a partnership. Fontaine invests a building that has
a market value of $250,000; the partnership assumes responsibility for a $75,000 note
secured by a mortgage on the property. Monroe invests $100,000 in cash and equipment
that has a market value of $55,000. For the partnership, the amounts recorded for total
assets and for total capital account are:
A.Total assets $405,000; total capital $330,000.
B.Total assets $350,000; total capital $350,000.
C.Total assets $350,000; total capital $275,000.
D.Total assets $305,000; total capital $230,000.
E.Total assets $405,000; total capital $305,000.
25) A company purchased mining property for $4,875,000 containing an estimated
15,000,000 tons of ore. In Year 1, it mined 689,000 tons of ore and in Year 2, it mined
935,000 tons. Calculate the depletion expense for Year 1 and Year 2 and determine the
book value of the property at the end of Year 2 .
26) The collection of job cost sheets for all jobs in process makes up the subsidiary
ledger controlled by the _____________________ inventory.
27) How are partners’ investments in a partnership recorded?
28) Why are financial statements prepared in a specific order? What is the usual order
in which financial statements are prepared from the adjusted trial balance?
29) Suarez Company uses the straight-line method of depreciation. The company
purchased a computer system on January 1, Year 1, for $1,600,000 with an expected life
of six years and a salvage value of $130,000. Assuming the computer is sold on July 1,
Year 3 for $1,000,000 cash, prepare the journal entries to record depreciation for the
first 6 months of Year 3 and the sale of the computer.
30) Arkansas Toys, a retail store, has three sales departments supported by two service
departments. Cost and operational data for each department follow:
Determine the service department expenses to be allocated to Sales Department 1 for
(round answers to whole dollars):
Advertising ___________________
Purchasing ___________________
31) Todd Enterprises is preparing a cash budget for the second quarter of the coming
year. The following data have been forecasted:
Additional data:
(1) Sales are 40% cash and 60% credit. The collection pattern for credit sales is 50% in
the month following the sale and 50% in the month thereafter. Total sales in March
were $125,000.
(2) Purchases are all on credit, with 40% paid in the month of purchase and the balance
paid in the following month.
(3) Operating expenses are paid in the month they are incurred.
(4) A minimum cash balance of $25,000 is required at the end of each month.
(5) Loans are used to maintain the minimum cash balance. At the end of each month,
interest of 1% per month is paid on the outstanding loan balance as of the beginning of
the month. Repayments are made whenever excess cash is available.
Prepare the company’s cash budget for May. Show the ending loan balance at May 31.
32) Rhoads Corporation is authorized to issue 250,000 shares of $50 par, 10%,
noncumulative, nonparticipating preferred stock and 5,000,000 shares of no-par
common stock. Prepare journal entries to record the following selected transactions that
occurred during this year:
