1) The cash payback method of capital investment analysis is one of the methods
referred to as a present value method.
2) When a corporation issues stock at a premium, it reports the premium as an other
income item on the income statement.
3) Journalizing and posting closing entries must be completed before financial
statements can be prepared.
4) If a business sells four products, it is not possible to estimate the break-even point.
5) If income from operations for a division is $30,000, sales are $263,750, and invested
assets are $187,500, the investment turnover is 1.3.
6) When using the worksheet method to analyzing noncash accounts , no order of
analysis is required, but it is more efficient to start with Retained Earnings and proceed
upward in the account listing.
7) The methods of evaluating capital investment proposals can be grouped into two
general categories that can be referred to as (1) average rate of return and (2) cash
payback methods.
8) A qualitative characteristic that may impact upon capital investment analysis is
employee morale.
9) The effect of a sales return and allowance is a reduction in sales revenue and a
decrease in cash or accounts receivable.
10) A law firm would use a job order cost system to accumulate all of the costs
associated with a particular client engagement, such as lawyer time, copying charges,
filing fees, and overhead.
11) Long lived assets held for sale are classified as fixed assets.
12) When computing the rate earned on total common stockholders’ equity, preferred
stock dividends are subtracted from net income.
13) As we compare a merchandise business to a service business, the financial
statement that changes the most is the Balance Sheet.
14) Labor costs that are directly traceable to the product are part of factory overhead.
15) Revenues are equal to the difference between cash receipts and cash payments.
16) The amount of interest paid when buying a bond as an investment should be
credited to Interest Revenue.
17) Expense accounts are increased by credits.
18) The Other Accounts column in the Cash Payments journal is used for recording
debits to any account for which there is no specialized debit column.
19) Retained earnings represents past net incomes less past dividends, therefore any
balance in this account would be listed on the income statement.
20) On the basis of the following data, determine the value of the inventory at the lower
of cost or market. Apply lower of cost or market to each inventory item. Show your
work.
21) An employee earns $40 per hour and 1.5 times that rate for all hours in excess of 40
hours per week. Assume that the employee worked 60 hours during the week, and that
the gross pay prior to the current week totaled $58,000. Assume further that the social
security tax rate was 7.0% (on earnings up to $100,000), the Medicare tax rate was
1.5%, and the federal income tax to be withheld was $614.
Required:
(1) Determine the gross pay for the week.
(2) Determine the net pay for the week.
22) The Cavy Company estimates that the factory overhead for the following year will
be $1,470,000. The company has decided that the basis for applying factory overhead
should be machine hours, which is estimated to be 40,000 hours. The machine hours for
the month of April for all of the jobs was 4,780. Prepare the journal entry to apply
factory overhead.
23) Proposals M and N each cost $600,000, have 6-year lives, and have expected total
cash flows of $750,000. Proposal M is expected to provide equal annual net cash flows
of $125,000, while the net cash flows for Proposal N are as follows:
Determine the cash payback period for each proposal.
24) Comment on the validity of the following statements. “As an asset loses its ability
to provide services, cash needs to be set aside to replace it. Depreciation accomplishes
this goal.”
25) Jimmy Co. is considering a 12-year project that is estimated to cost $1,050,000 and
has no residual value. Jimmy Co. seeks to earn an average rate of return of 18% on all
capital projects. Determine the necessary average annual income (using straight-line
depreciation) that must be achieved on this project for this project to be acceptable to
Jimmy Co.
26) Describe a master budget and the sequence in which the individual budgets within
the master budget are prepared.