1) In the retail inventory method of inventory valuation, the retail amount of inventory
refers to its dollar amount measured using selling prices of inventory items.
2) The Income Summary account is a permanent account that will be carried forward
period after period.
3) When a company bills a customer for $600 for services rendered, the journal entry to
record this transaction will include a $600 debit to Services Revenue.
4) Decision makers and other users of financial statements are especially interested in
evaluating a company’s ability to use its assets in generating sales.
5) Equity securities reflect a creditor relationship such as investments in notes, bonds,
and certificates of deposit.
6) A company’s debt-to-equity ratio was 1.0 at the end of Year 1. By the end of Year 2, it
had increased to 1.7. Since the ratio increased from Year 1 to Year 2, the degree of risk
in the firm’s financing structure decreased during Year 2.
7) When a company holds a large number of notes receivable it sometimes sets up a
controlling account and a subsidiary ledger for notes.
8) The use of debt financing insures an increase in return on equity.
9) An installment note is an obligation of the issuing company that requires a series of
periodic payments to the lender.
10) Two common ways of retiring bonds before maturity are to (1) exercise a call
option or (2) purchase them on the open market.
11) The cash flow on total assets ratio reflects actual cash flows and is therefore
affected by the accounting constraints of recognition and measurement for net income.
12) If two projects have the same risks, the same payback periods, and the same initial
investments, they are equally attractive.
13) With advanced technology there is no need to trace information that has been
entered into an accounting information system to its source.
14) Internal users of the statement of cash flows often use cash flow information to plan
day-to-day operating activities and make long-term investment and financing decisions.
15) The steps in the closing process are (1) close credit balances in revenue accounts to
Income Summary; (2) close credit balances in expense accounts to Income Summary;
(3) close Income Summary to Owner’s Capital; (4) close Withdrawals to Owner’s
Capital.
16) A promissory note is a written promise to pay a specified amount of money either
on demand or at a definite future date.
17) The price of one currency stated in terms of another currency is called a foreign
exchange rate.
18) Land and buildings are generally recorded in the same ledger account.
19) An error in the period-end inventory causes an offsetting error in the next period
and therefore:
A.Managers can ignore the error
B.It is sometimes said to be self-correcting
C.It affects only income statement accounts
D.If affects only balance sheet accounts
E.Is immaterial for managerial decision making
20) An exchange of value between two entities is called:
A.The accounting equation
B.Recordkeeping or bookkeeping
C.An external transaction
D.An asset
E.Net Income
21) Preferred stock with a feature allowing preferred stockholders to share with
common shareholders in any dividends in excess of the percent or dollar amount stated
on the preferred stock is called:
A.Cumulative preferred stock
B.Callable preferred stock
C.Participating preferred stock
D.Convertible preferred stock
E.Preferential preferred stock
22) A formal promise to pay (in the form of a promissory note) a future amount is a(n):
A.Unearned revenue
B.Prepaid expense
C.Credit account
D.Note payable
E.Account receivable
23) The number of days’ sales uncollected:
A.Measures how much time is likely to pass before the current amount of accounts
receivable is received in cash
B.Can be used for comparisons to other companies in the same industry
C.Can be used for comparisons between current and prior periods
D.Reflects the liquidity of receivables
E.All of these
24) Which of the following is the formula used to calculate the debt ratio?
A.Total Equity/Total Liabilities
B.Total Liabilities/Total Equity
C.Total Liabilities/Total Assets
D.Total Assets/Total Liabilities
E.Total Equity/Total Assets
25) Basic bank services include:
A.Bank accounts
B.Bank deposits
C.Checking
D.Electronic funds transfer
E.All of these
26) To compute equivalent units of production, one must be able to reasonably estimate:
A.The percentage of completion
B.Units completed
C.Units started and completed
D.Direct labor cost
E.Materials cost
27) The credit terms 2/10, n/30 are interpreted as:
A.2% cash discount if the amount is paid within 10 days, or the balance due in 30 days.
B.10% cash discount if the amount is paid within 2 days, or the balance due in 30 days.
C.30% discount if paid within 2 days.
D.30% discount if paid within 10 days.
E.2% discount if paid within 30 days.
28) Andrea Conaway opened Wonderland Photography on January 1 of the current year.
During January, the following transactions occurred and were recorded in the
company’s books:
1>Conaway invested $13,500 cash in the business.
2> Conaway contributed $20,000 of photography equipment to the business.
3> The company paid $2,100 cash for an insurance policy covering the next 24 months.
4> The company received $5,700 cash for services provided during January.
5> The company purchased $6,200 of office equipment on credit.
6> The company provided $2,750 of services to customers on account.
7> The company paid cash of $1,500 for monthly rent.
8> The company paid $3,100 on the office equipment purchased in transaction #5
above.
9> Paid $275 cash for January utilities.
Based on this information, the balance in the cash account at the end of January would
be:
A.$41,450
B.$12,225
C.$18,700
D.$15,250
E.$13,500
29) The current FUTA tax rate is 0.8%, and the SUTA tax rate is 5.4%. Both taxes are
applied to the first $7,000 of an employee’s pay. Assume that an employee earned
$8,900. What is the amount of total unemployment taxes the employer must pay on this
employee’s wages?
A.$322.00
B.$434.00
C.$480.60
D.$551.80
E.Zero, since the employee’s wages exceed the maximum of $7,000
30) A financial statement analysis report usually includes:
A.An executive summary
B.An analysis overview
C.Evidential matter
D.Assumptions
E.All of these
31) The difference between a company’s assets and its liabilities, or net assets is:
A.Net income
B.Expense
C.Equity
D.Revenue
E.Net loss
32) The current period’s ending inventory is:
A.The next period’s beginning inventory.
B.The current period’s cost of goods sold.
C.The prior period’s beginning inventory.
D.The current period’s net purchases.
E.The current period’s beginning inventory.
33) Wilton Company is analyzing two alternative methods of producing its product. The
production manager indicates that variable costs can be reduced 40% by installing a
machine that automates production, but fixed costs would increase. Alternative 1 shows
costs before installing the machine; Alternative 2 shows costs after the machine is
installed. (a) Compute the break-even point in units and dollars for both alternatives. (b)
Prepare a forecasted income statement for both alternatives assuming that 30,000 units
will be sold. The statements should report sales, total variable costs, contribution
margin, fixed costs, income before taxes, income taxes, and net income. Below the
income statement, compute the degree of operating leverage. Which alternative would
you recommend and why?
34) Annual cash dividends per share divided by market price per share is the:
A.Price-earnings ratio
B.Price-dividends ratio
C.Profit margin
D.Dividend yield ratio
E.Earnings per share
35) Which of the following accurately describes a debenture?
A.A legal contract between the bond issuer and the bondholders
B.A type of bond issued in the names and addresses of the bondholders
C.A type of bond which requires the bond issuer to create a sinking fund of assets set
aside at specified amounts and dates to repay the bonds
D.A type of bond which is not collateralized but backed only by the issuer’s general
credit standing
E.A type of bond that can be exchanged for a fixed number of shares of the issuing
corporation’s common stock
36) An approach that enters and processes data as soon as source documents are
available is called:
A.Date storage
B.Batch processing
C.Online processing
D.Computer programming
E.Web communications
37) Long-term investments:
A.Are current assets
B.Include funds earmarked for a special purpose such as bond sinking funds
C.Must be readily convertible to cash
D.Are expected to be converted into cash within one year
E.Include only equity securities
38) Bonds owned by investors whose names and addresses are recorded by the issuing
company, and for which interest payments are made with checks or cash transfers to the
bondholders, are called:
A.Callable bonds
B.Serial bonds
C.Registered bonds
D.Coupon bonds
E.Bearer bonds
39) The Johnson Manufacturing Company has the following job cost sheets on file.
They represent jobs that have been worked on during March of the current year. This
table summarizes information provided on each sheet:
(a) What is the cost of goods sold for the month of March?
(b) What is the cost of the goods in process inventory on March 31?
(c) What is the cost of the finished goods inventory on March 31?
40) Suze and Bess formed the Suzy B Company 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 Suze and $35,000 to Bess; 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?
41) The withdrawals account of each partner is:
A.Closed to that partner’s capital account with a credit
B.Closed to that partner’s capital account with a debit
C.A permanent account that is not closed
D.Credited with that partner’s share of net income
E.Debited with that partner’s share of net loss
42) A company’s balance sheet shows: cash $24,000, accounts receivable $30,000,
equipment $50,000, and equity $72,000. What is the amount of liabilities?
A.$104,000
B.$76,000
C.$32,000
D.$68,000
E.$176,000
43) Cabot Company collected the following data regarding production of one of its
products. Compute the direct labor cost variance.
A.$53,500 unfavorable
B.$40,500 favorable
C.$53,500 favorable
D.$13,000 unfavorable
E.$40,500 unfavorable
44) How do companies decide what allocation bases to use to allocate indirect costs to
departments?
45) Woods, Inc. budgeted the following overhead costs for the current year assuming
operations at 80% of capacity, or 40,000 units:
The standard cost per unit when operating at this same 80% capacity level is:
The actual production achieved in the current year was 60% of capacity, or 30,000
units. The actual costs were:
Calculate the following variances and indicate whether each is favorable or
unfavorable.
46) A corporation had the following stock outstanding when the company’s board of
directors declared a $95,000 cash dividend in the current year:
Allocate the cash dividend between the preferred and common stockholders assuming
the preferred stock is noncumulative and nonparticipating.
47) The internal document that is used to notify the appropriate person that ordered
goods have been received and to describe the quantities and condition of the goods is
the ___________________.
48) Describe how a cost-volume-profit analysis would be performed for a company that
sells more than one product. (Assume that the sales mix is known.)
49) A _______________ is a list of all the accounts used by a company and their
identification codes.
50) What is the segment return on assets ratio? What is it used for?
51) The production of one unit of Product BBB used $17.50 of direct materials and
$21.00 of direct labor. The unit sold for $56.00 and was assigned overhead at a rate of
30% of labor costs. What is the gross profit per unit on its sale?