1) A stock dividend does not reduce a corporation’s assets or its stockholders’ equity.
2) When the number of withholding allowances claimed on Form W-4 increases, the
amount of income tax withheld decreases.
3) If two projects have the same risks, the same payback periods, and the same initial
investments, they are equally attractive.
4) The predetermined overhead rate based on direct labor cost is the ratio of estimated
overhead cost to estimated direct labor cost for the period.
5) Departmental information is usually distributed to the public as part of the company’s
annual report and footnotes.
6) A variable or flexible budget is so named because it only focuses on variable costs.
7) If a corporation is authorized to issue 1,000 shares of $5 common stock, it is said to
have $5,000 of stock outstanding.
8) The formula for computing interest on a note is: Principal of the note x Annual
interest rate x Time expressed in fraction of year.
9) The cash basis of accounting commonly increases the comparability of financial
statements from period to period.
10) The accounting rate of return is based on cash flows rather than net income in its
calculation.
11) The price of one currency stated in terms of another currency is called a foreign
exchange rate.
12) A spreadsheet can help organize the information needed to prepare a statement of
cash flows.
13) Under a just-in-time manufacturing system, large quantities of inventory are
accumulated throughout the factory to be certain that components are available each
time that they are needed.
14) When using the indirect method to calculate and report net cash provided or used by
operating activities, which of the following is subtracted from net income?
A.Decrease in income taxes payable.
B.Depreciation expense.
C.Amortization of intangible assets.
D.Bad debts expense.
E.Decrease in merchandise inventory.
15) Farmer and Taylor formed a partnership with capital contributions of $200,000 and
$250,000, respectively. Their partnership agreement calls for Farmer to receive a
$70,000 per year salary. The remaining income or loss is to be divided equally. If the
net income for the current year is $135,000, then Farmer and Taylor’s respective shares
are:
A.$67,500; $67,500.
B.$130,000; $5,000.
C.$106,140; $28,860.
D.$90,000; $45,000.
E.$102,500; $32,500.
16) Use the following financial statements and additional information to (1) prepare a
complete statement of cash flows for the year ended December 31, 2013. The cash
provided or used by operating activities should be reported using the direct method, and
(2) compute the company’s cash flow on total assets ratio for 2015.
Additional Information
a. A $20,000 note payable is retired at its carrying value in exchange for cash.
b. The only changes affecting retained earnings are net income and cash dividends paid.
c. New equipment is acquired for $120,000 cash.
d. Received cash for the sale of equipment that had cost $85,000, yielding a gain of
$4,700.
e. Prepaid expenses relate to Other Expenses on the income statement.
f. All purchases and sales of merchandise inventory are on credit.
17) Comet Company accumulated the following account information for the year:
Using the above information, total factory overhead costs would be:
A.$9,800.
B.$16,800.
C.$15,800.
D.$13,000.
E.$7,800.
18) Refer to the following selected financial information from Marston Company.
Compute the company’s accounts receivable turnover for Year 2.
A.8.36.
B.8.37.
C.4.78.
D.8.59.
E.8.54.
19) All of the following are true of financial statement analysis report, except:
A.Contains ambiguities and qualifications.
B.Forces preparers to organize their reasoning and to verify the logic of analysis.
C.Serves as a method of communication to users.
D.Helps users and preparers to refine conclusions based on evidence from key building
blocks.
E.Enables readers to see the process and rationale of analysis.
20) The Accounts Payable controlling account:
A.Is not included in a company’s chart of accounts.
B.Stores the transaction data of individual supplies.
C.Reduces the number of entries in the general journals.
D.Equals the sum of all balances of supplier accounts.
E.Increases the number of columns in the journals.
21) Prior to May 1, Fortune Company has never had any treasury stock transactions. A
company repurchased 100 shares of its common stock on May 1 for $5,000. On July 1,
it reissued 50 of these shares at $52 per share. On August 1, it reissued the remaining
treasury shares at $49 per share. What is the balance in the Paid-in Capital, Treasury
Stock account on August 2?
A.$5,050.
B.$2,600.
C.$100.
D.$50.
E.$0.
22) Athena Company’s salaried employees earn two weeks of vacation per year. It pays
$858,000 in total employee salaries for 52 weeks but its employees work only 50.
Record Athena Company’s weekly journal entry to record the vacation expense:
A.Debit Vacation Benefits Expense $16,500; credit Vacation Benefits Payable $16,500.
B.Debit Vacation Benefits Expense $17,160; credit Vacation Benefits Payable $17,160.
C.Debit Vacation Benefits Expense $17,875; credit Vacation Benefits Payable $17,875.
D.Debit Vacation Benefits Payable $17,160; credit Vacation Benefits Expense $17,160.
E.Debit Vacation Benefits Payable $16,500; credit Vacation Benefits Expense $16,500.
23) Cameroon Corp. manufactures and sells electric staplers for $16 each. If 10,000
units were sold in December, and management forecasts 4% growth in sales each
month, the number of electric stapler sales budgeted for March should be:
A.10,000
B.11,249
C.10,400
D.10,816
E.11,000
24) A company had average total assets of $3,216,000, total cash flows of $1,320,000,
cash flows from operations of $554,000, and cash flows for plant assets of $850,000.
The cash flow on total assets ratio equals:
A.41.04%.
B.41.97%.
C.26.43%.
D.17.23%.
E.64.39%.
25) Identify the account below that impacts the Equity of a business:
A.Utilities Expense
B.Accounts Payable
C.Accounts Receivable
D.Cash
E.Unearned Revenue
26) A company purchased a tract of land for its natural resources at a cost of
$1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value
of the land is expected to be $250,000. If 150,000 tons of ore are mined during the first
year, the journal entry to record the depletion is:
A.Debit Depletion Expense $93,750; credit Natural Resources $93,750.
B.Debit Cash $112,500; credit Natural Resources $112,500.
C.Debit Depletion Expense $93,750; credit Accumulated Depletion $93,750.
D.Debit Cash $93,750; credit Accumulated Depletion $93,750.
E.Debit Depletion Expense $112,500; credit Accumulated Depletion $112,500.
27) Torino Company has 10,000 shares of $5 par value, 4% cumulative and
nonparticipating preferred stock and 100,000 shares of $10 par value common stock
outstanding. The company paid total cash dividends of $1,000 in its first year of
operation. The cash dividend that must be paid to preferred stockholders in the second
year before any dividend is paid to common stockholders is:
A.$1,000.
B.$2,000.
C.$3,000.
D.$4,000.
E.$0.
28) Match the following terms with the appropriate definition.
1>The required method of reporting inventory at market when market is lower than
cost. A. Consignor
2>The method of assigning costs to inventory where the purchase cost of each item in
inventory is identified and used to determine the cost of inventory. B. Gross profit
method
3>A procedure for estimating inventory where the past gross profit rate is used to
estimate the cost of goods sold, which is then subtracted from the cost of goods
available for sale to determine the estimated ending inventory. C. Consistency concept
4>An owner of goods who ships them to another party who will then sell the goods for
the owner. D. Days’ sales in inventory
5>One who receives and holds goods owned by another for purposes of selling the
goods for the owner. E. Consignee
6>The principle that aims to select the less optimistic estimate when two or more
estimates are about equally likely. F. Specific identification method
7>The number of times a company’s average inventory is sold during an accounting
period. G. Inventory turnover
8>An estimate of days needed to convert the inventory available at the end of the period
into receivables or cash. H. Lower of cost or market
9>A method for estimating inventory based on the ratio of the amount of goods for sale
at cost to the amount of goods for sale at retail prices. I. Retail inventory method
10>The accounting principle that a company use the same accounting methods period
after period so that the financial statements of succeeding periods will be comparable. J.
Conservatism principle
29) Lemming makes an $18,750, 120-day, 8% cash loan to Notions Co. on November
2. Lemming’s end-of-period adjusting entry on December 31 should be:
A.Debit Cash for $250; credit Notes Receivable $250.
B.Debit Interest Revenue $500; credit Notes Receivable $500.
C.Debit Interest Receivable $250; credit Interest Revenue $250.
D.Debit Interest Receivable $500; credit Interest Revenue $500.
E.Debit Notes Receivable $500; credit Interest Revenue $500.
30) Sanchez Company’s output for the current period was assigned a $400,000 standard
direct labor cost. The direct labor variances included a $10,000 unfavorable direct labor
rate variance and a $4,000 favorable direct labor efficiency variance. What is the actual
total direct labor cost for the current period?
A.$414,000.
B.$386,000.
C.$394,000.
D.$406,000.
E.$410,000.
31) The difference between a profit center and an investment center is
A.an investment center incurs costs, but does not directly generate revenues.
B.an investment center incurs no costs but does generate revenues.
C.an investment center is responsible for investments made in operating assets.
D.an investment center provides services to profit centers.
E.There is no difference; investment center and profit center are synonymous.
32) Chandler Company purchased merchandise on credit from Lighting Supply for
$5,600. Chandler would record this sale in the:
A.General journal.
B.Cash receipts journal.
C.Cash disbursements journal.
D.Purchases journal.
E.Accounts Payable controlling account.
33) Dazzle, Inc. produces beads for jewelry making use. The following information
summarizes production operations for June. The journal entry to record June production
activities for direct labor usage is:
A.Debit Factory Payroll Payable $160,000; credit Cash $160,000.
B.Debit Work in Process Inventory $160,000; credit Factory Payroll Payable $160,000.
C.Debit Cost of Goods Sold $160,000; credit Factory Payroll Payable $160,000.
D.Debit Work in Process Inventory $160,000; credit Raw Materials Inventory
$160,000.
E.Debit Work in Process Inventory $160,000; credit Cash $160,000.
34) Describe what source documents are and the purpose they serve in a business.
35) Discuss the reasons companies make investments.
36) What is the purpose of a departmental accounting system?
37) The gross margin ratio, return on total assets, and basic earnings per share are all
_____________ ratios.
38) Describe the recording procedures for the issuance, retirement, and paying of
interest for installment notes.
39) A company made the following expenditures in connection with the construction of
a new building:
2,500
Prepare a schedule showing the amounts to be recorded as Land, Buildings, and
Machinery.
40) On April 1 of the current year, a company disposed of a truck that had cost $20,000.
The truck had a salvage value of $2,000, and a useful life of 5 years. The accounting
records showed accumulated depreciation for this truck of $8,100 as of April 1 of the
current year. The asset was discarded after an accident, and $10,500 cash was received
from an insurance claim. Prepare the journal entry to record the disposal of the truck.