1) A lease is a contractual agreement between a lessor and a lessee that grants the lessee
the right to use the asset for a period of time in return for cash payment(s) to the lessor.
2) The sales commission incurred based on units of product sold during the month is an
example of a product cost.
3) Financial statement analysis is the application of analytical tools to general-purpose
financial statements and related data for making business decisions.
4) The cash flow on total assets ratio is computed by dividing average total assets by
operating income.
5) A shorter payback period reduces the company’s ability to respond to unanticipated
changes and increases the risk of having to keep an unprofitable investment.
6) A cost variance equals the difference between the quantity variance and the price
variance.
7) The simple rule for inventory turnover is that a low ratio is preferable.
8) When a company constructs a building, the cost of the building includes materials
and labor but not design fees, building permits, or insurance during construction.
9) Equivalent units of production for direct materials and direct labor are usually the
same.
10) The statement of cash flows explains how transactions and events impact the
end-of-period cash balance to produce the end-of-period net income.
11) The budget process rarely coincides with the accounting period.
12) Mortgage bonds are backed only by the good faith and credit of the issuing
company.
13) The schedule of cost of goods manufactured is also known as a manufacturing
statement.
14) A company has earnings per share of $6.50. Its dividend per share is $0.50, and its
market price per share is $80. Its price-earnings ratio equals 13.
15) Partners in a partnership are taxed on the partnership income, not the amounts they
withdraw from the partnership.
16) If accrued salaries were recorded on December 31 with a debit to Salaries Expense
and a credit to Salaries Payable, the entry to record payment of these wages on the
following January 5 would include:
A.A debit to Cash and a credit to Salaries Payable.
B.A debit to Cash and a credit to Prepaid Salaries.
C.A debit to Salaries Payable and a credit to Cash.
D.A debit to Salaries Payable and a credit to Salaries Expense.
E.No entry would be necessary on January 5
17) The characteristics below apply to at least one of the forms of business
organization.
a. Is a separate legal entity.
b. Is allowed to be owned by one person only.
c. Owner or owners are personally liable for debts of the business.
d. Is a separately taxable entity.
e. Is a business entity.
f. May have a contract specifying the division of profits among the owners.
g. Has an unlimited life
Use the following format to indicate (with a “yes” or “no”) whether or not a
characteristic applies to each type of business organization.
Proprietorship Partnership Corporation
a.
b.
c.
d.
e.
f.
g.
18) Peters and Chong are partners and share equally in income or loss. Peters’ current
capital balance is $140,000 and Chong’s is $130,000. Peters and Chong agree to accept
Aaron with a 30% interest in the partnership. Aaron invests $98,000 in the partnership.
The amount credited to Aaron’s capital account is:
A.$81,000.
B.$102,600.
C.$110,400.
D.$98,000.
E.$114,533.
19) A company uses a process costing system. Its Weaving Department completed and
transferred out 120,000 units during the current period. The ending inventory in the
Weaving Department consists of 40,000 units (20% complete with respect to direct
materials and 60% complete with respect to conversion costs).
Determine the equivalent units of production for the Weaving Department for direct
materials and conversion costs assuming the weighted average method.
A.120,000; 120,000
B.120,000; 160,000
C.128,000; 120,000
D.128,000; 144,000
E.128,000; 184,000
20) A company had the following purchases during the current year:
On December 31, there were 26 units remaining in ending inventory. Using the LIFO
inventory valuation method, what is the cost of the ending inventory?
A.$3,280.
B.$3,200.
C.$3,445.
D.$3,540.
E.$3,640.
21) Ready Company has two operating (production) departments: Assembly and
Painting. Assembly has 150 employees and occupies 44,000 square feet; Painting has
100 employees and occupies 36,000 square feet. Indirect factory expenses for the
current period are as follows:
Administration is allocated based on workers in each department; maintenance is
allocated based on square footage. The total amount of indirect factory expenses that
should be allocated to the Assembly Department for the current period is:
A.$48,000.
B.$55,000.
C.$103,000.
D.$104,000.
E.$110,000.
22) The following information is available for Soda Station, Inc. (all amounts are in
millions):
a. Determine the segment return on assets for each geographic segment.
b. Comment on the results. How do the segments compare with respect to profitability?
c. What measures could be taken to improve segment return?
23) An estimate of an asset’s value to the company, calculated by discounting the future
cash flows from the investment at the project’s required rate of return and then
subtracting the initial amount of the investment, is known as:
A.Annual net cash flows.
B.Rate of return on investment.
C.Net present value.
D.Payback period.
E.Unamortized carrying value.
24) Contingent liabilities are recorded or disclosed unless they are:
A.Probable and estimable.
B.Remote.
C.Reasonably possible.
D.Probable and not estimable.
E.Possible and estimable.
25) Brownley Company has two service departments and two operating (production)
departments. The Payroll Department services all three of the other departments in
proportion to the number of employees in each. The Maintenance Department costs are
allocated to the two operating departments in proportion to the floor space used by
each. Listed below are the operating data for the current period:
The total cost of operating the Maintenance Department for the current period is:
A.$14,280.
B.$15,912.
C.$25,500.
D.$29,580.
E.$22,412.
26) Triston Vale is paid on a monthly basis. For the month of January of the current
year, he earned a total of $5,210. FICA tax for Social Security is 6.2% and the FICA tax
for Medicare is 1.45%. The FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both
unemployment taxes are applied to the first $7,000 of an employee’s pay. The amount of
Federal Income Tax withheld from his earnings was $885.70. What is the amount of the
employer’s payroll taxes expenses for this employee?
A.$1,284.27
B.$312.60
C.$398.57
D.$711.17
E.$1,596.87
27) Which of the following is not true regarding the unemployment insurance program?
A.It requires withholding from the employee wages.
B.It is administered by each state.
C.It provides unemployment benefits to qualified workers.
D.It adjusts rates paid by employers based on their merit rating.
E.It is a joint federal and state program.
28) Increases in equity from a company’s sales of products or services are:
A.Assets.
B.Revenues.
C.Liabilities.
D.Owner’s Equity.
E.Expenses.
29) A source document that an employee uses to report how much time was spent
working on a job or on overhead activities and that is used to determine the amount of
direct labor to charge to the job or to determine the amount of indirect labor to charge to
factory overhead is called a:
A.Payroll Register.
B.Factory payroll record.
C.General Ledger.
D.Time ticket.
E.Factory Overhead Ledger.
30) Revenue expenditures:
A.Are additional costs of plant assets that do not materially increase the asset’s life or
its productive capabilities.
B.Are known as balance sheet expenditures because they relate to plant assets.
C.Extend the asset’s useful life.
D.Substantially benefit future periods.
E.Are debited to asset accounts when incurred.
31) Prepare the required general journal entry to record the following transactions for
the O’Harra Company.
a. Used $78,000 of direct labor in the production department.
b. Used $17,000 of indirect labor.
32) Use the following financial statements and additional information to (1) prepare a
statement of cash flows for the year ended December 31, 2015 using the indirect
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.
33) Akron Company purchased merchandise inventory costing $10,000 with credit
terms of 2/10, n/30 on March 7. On March 15, the company paid 1/2 of the amount due.
The remaining balance was paid on April 7
Required:
a. Record the journal entries related to this transaction using the gross method of
recording purchases.
b. Record the journal entries related to this transaction using the net method of
recording purchases.
34) A company borrowed cash from the bank by signing a 5-year, 8% installment note.
The present value of an annuity factor at 8% for 5 years is 3.9927. Each annual
payment equals $75,000. The present value of the note is:
A.$56,352.84.
B.$93,921,41.
C.$375,000.
D.$299,452.50.
E.$187,842.81.
35) The ______________ ratio is used to assess the risk of a company’s financing
structure.
36) A company holds $150,000 par value of bonds with a carrying value of $147,950.
The company calls the bonds at $151,000. Prepare the journal entry to record the
retirement of the bonds.
37) Describe the flow of overhead costs in a process costing system, including accounts
used.
38) Explain the present value concept as it applies to long term liabilities.
39) The _________________________ method of amortizing a bond discount allocates
an equal portion of the total bond interest expense to each interest period.
40) Explain the options a company may use to convert its receivables to cash before
they are due.
41) Farmers’ net income was $740,000 and its net sales were $8,000,000. Calculate its
profit margin ratio.
42) Sutton Company uses a process costing system. In May, 80,000 units were finished
and transferred to finished goods. Ending Work in Process included 20,000 unfinished
units 30% complete. Calculate the equivalent units of production for the year using the
weighted average method.
43) Relevant costs are also known as ___________________.