1) Employers must pay FICA taxes twice the amount of the FICA taxes withheld from
their employees.
2) In a process costing system, factory overhead costs can be allocated to production
departments by using a predetermined overhead allocation rate.
3) Long-term investments are usually held as an investment of cash for use in current
operations.
4) Two investments with exactly the same payback periods are not equally valuable to
an investor because the timing of net cash flows may be different.
5) In a job order costing system, any immaterial underapplied overhead at the end of the
period can be charged entirely to Cost of Goods Sold.
6) On January 1, a company issued a $500,000, 10%, 8-year bond payable, and received
proceeds of $473,845. Interest is payable each June 30 and December 31. The company
uses the straight-line method to amortize the discount. The amount of discount
amortized each period is $1,634.69.
7) Cost variances are ignored under management by exception.
8) Efficiency refers to how productive a company is in using its assets, and is usually
measured relative to how much revenue is generated from a certain level of assets.
9) Ulrich had cost of goods sold of $6.7 million, ending inventory of $2.2 million, and
average inventory of $1.9 million. Its days’ sales in inventory equals:
A.120
B.104
C.60
D.35
E.180
10) Use the following information and the indirect method to calculate the net cash
provided or used by operating activities:
A.$69,900.
B.$108,900.
C.$93,900.
D.$85,700.
E.$81,600.
11) Information for Jersey Metalworks as of December 31 follows. Prepare (a) the
company’s schedule of cost of goods manufactured for the year ended December 31; (b)
prepare the company’s income statement that reports separate categories for selling and
general and administrative expenses.
12) Using the information below, calculate gross profit for the period.
A.$714,000.
B.$482,000.
C.$1,022,000.
D.$187,000.
E.$727,000.
13) Obligations to be paid within one year or the company’s operating cycle, whichever
is longer, are:
A.Current assets.
B.Current liabilities.
C.Earned revenues.
D.Operating cycle liabilities.
E.Bills.
14) A company provided the following direct materials cost information. Compute the
cost variance.
A.$2,500 Favorable.
B.$78,250 Favorable.
C.$78,250 Unfavorable.
D.$80,750 Favorable.
E.$80,750 Unfavorable.
15) A budget is best described as:
A.A formal statement of a company’s future plans usually expressed in monetary terms.
B.A master control device.
C.An informal statement of company’s future plans usually expressed in monetary
terms.
D.The most crucial component of a company’s evaluation process.
E.The minimum acceptable performance level.
16) Carmel Corporation is considering the purchase of a machine costing $36,000 with
a 6-year useful life and no salvage value. Carmel uses straight-line depreciation and
assumes that the annual cash inflow from the machine will be received uniformly
throughout each year. In calculating the accounting rate of return, what is Carmel’s
average investment?
A.$6,000.
B.$7,000.
C.$18,000.
D.$21,000.
E.$36,000.
17) The ending inventory of finished goods has a total cost of $9,000 and consists of
600 units. If the overhead applied to these goods is $3,000, and the overhead rate is
75% of direct labor, how much direct materials cost was incurred in producing these
units?
A.$3,750.
B.$2,000.
C.$4,000.
D.$6,000.
E.$9,000.
18) A partner can withdraw from a partnership by any of the following means except:
A.Selling his/her interest to another person for cash.
B.Selling his/her interest to another person in exchange for assets.
C.Receiving cash from the partnership in the amount of his/her interest.
D.Receiving assets from the partnership in the amount of his/her interest.
E.Close the business and liquidate the assets under the mutual agency principle.
19) All of the following statements regarding equity securities are true except:
A.Equity securities should be recorded at cost when acquired.
B.Equity securities are valued at fair value if classified as trading securities.
C.Equity securities are valued at fair value if classified as significant influence
securities.
D.Equity securities are valued at fair value if classified as available-for-sale securities.
E.Equity securities classified as available-for-sale record the dividend revenue when
received.
20) A company has net sales of $752,000 and cost of goods sold of $543,000. Its net
income is $17,530. The company’s gross margin and operating expenses, respectively,
are:
A.$209,000 and $191,470
B.$191,470 and $209,000
C.$525,470 and $227,000
D.$227,000 and $525,470
E.$734,000 and $191,470
21) Tower, Knight, and Spears are partners who share income and loss in a 4:2:2 ratio.
The partnership’s capital balances are as follows: Tower, $292,000; Knight, $114,000;
and Spears, $194,000. Damsel is admitted to the partnership on March 1 with a 25%
equity. Prepare the journal entries to record Damsel’s entry into the partnership under
each of the following separate assumptions: Damsel invests (a) $200,000; (b) $180,000;
and (c) $240,000.
22) The debt-to-equity ratio:
A.Is calculated by dividing book value of secured liabilities by book value of pledged
assets.
B.Is a means of assessing the risk of a company’s financing structure.
C.Is not relevant to secured creditors.
D.Can always be calculated from information provided in a company’s income
statement.
E.Must be calculated from the market values of assets and liabilities.
23) Vextra Corporation is considering the purchase of new equipment costing $35,000.
The projected annual cash inflow is $11,000, to be received at the end of each year. The
machine has a useful life of 4 years and no salvage value. Vextra requires a 12% return
on its investments. The present value of an annuity of $1 for different periods follows:
What is the net present value of the machine (rounded to the nearest whole dollar)?
A.$(33,410).
B.$(3,100).
C.$35,000.
D.$3,410.
E.$(1,590).
24) On December 1, Victoria Company signed a 90-day, 6% note payable, with a face
value of $15,000. What amount of interest expense is accrued at December 31 on the
note?
A.$0
B.$75
C.$900
D.$225
E.$300
25) The background on a company, its industry, and its economic setting is usually
included in which of the following sections of a financial statement analysis report?
A.Executive summary.
B.Analysis overview.
C.Evidential conclusions.
D.Factor analysis.
E.Inferences.
26) Marshall Corporation incurred costs for materials and labor needed to manufacture
its products. These costs are an example of:
A.Period costs.
B.Product costs.
C.General costs.
D.Balance sheet costs.
E.Capitalized costs.
27) All of the following statements regarding leases are true except:
A.For a capital lease the lessee records the leased item as its own asset.
B.For a capital lease the lessee depreciates the asset acquired under the lease, but for an
operating lease the lessee does not.
C.Capital leases create a long-term liability on the balance sheet, but operating leases
do not.
D.Capital leases do not transfer ownership of the asset under the lease, but operating
leases often do.
E.For an operating lease the lessee reports the lease payments as rental expense.
28) The statement of cash flows cannot help address questions such as:
A.How is the increase in investments financed?
B.What is the source of cash for new plant assets?
C.How much cash is generated from or used in operations?
D.How much of the company’s revenues have been retained as profit?
E.Why is cash flow from operations different from income?
29) A company has the following unadjusted account balances at December 31, of the
current year; Accounts Receivable of $185,700 and Allowance for Doubtful Accounts
of $1,600 (credit balance). The company uses the aging of accounts receivable to
estimate its bad debts. The following aging schedule reflects its accounts receivable at
the current year-end:
1> Calculate the amount of the Allowance for Doubtful Accounts that should appear on
the December 31, of the current year, balance sheet.
2> Prepare the adjusting journal entry to record bad debts expense for the current year.
30) What are the components of the schedule of cost of goods manufactured? Describe
each component.
31) If actual price per unit of materials is greater than the standard price per unit of
materials, the direct materials price variance is _______________________.
32) Calculate the current ratio for each of the following companies and identify the
company with the strongest liquidity position.
33) Explain the reason a company might use gross profit inventory method for valuing
inventory.
34) The payroll records of a company provided the following data for the current
weekly pay period ended March 12.
Assume that the Social Security portion of the FICA taxes is 6.2% on the first $117,000
and the Medicare portion is 1.45% of all wages paid to each employee for this pay
period. The federal and state unemployment tax rates are 0.8% and 5.4%, respectively,
on the first $7,000 paid to each employee. Calculate the net pay for each employee.
35) A relatively new form of business organization that protects partners with limited
liability, allows limited partners to assume an active management role, and is taxed as a
partnership is a ______________________________.