Acct 2037 Exam 3: Fall 2006 (150 points; 120 minutes)Name ____________________________ Lab Time_________________________Student ID#___________________ Lab Instructor: Instructions:1 This exam consists of 8 problems. (Problem 1 consists of 20 multiple choice questions.) You should use the template on the back of this page to show your answers to the multiple choice. There should not be any blank pages. If you are missing a problem or page, notify your TA before beginning this exam. Do not tear any pages out of this exam.1 This is a long test. Allocate your time wisely--do troublesome items last. Show and label all your work on the exam in the space provided. We cannot give ANY credit on the open-ended problems without seeing your work!1 When you are finished, turn the exam in to your TA. At this time, have your Student ID ready soit can be checked.Multiple Choice Answer Sheet1 1. ______1 2. ______1 3. ______1 4. ______1 5. ______1 6. ______1 7. ______1 8. ______1 9. ______1 10. ______1 11. ______1 12. ______1 13. ______1 14. ______1 15. ______1 16. ______1 17. ______1 18. ______1 19. ______1 20. ______Problem 1) Multiple Choice (40 points, 2 points each): Choose the best answer for each question. 1. The increase in total cost that would result from initiating a new product line is called:a. A sunk cost.b. An out-of-pocket cost.c. An opportunity cost.d. An incremental cost.2. Under conditions of scarce resources, the product that should be manufactured is the one that provides the highest:a. Sales price per unit of the product.b. Contribution margin per unit of the product.c. Contribution margin per unit of the resource.d. Gross profit per unit of the resource.3. If the actual quantity of materials used is less than the standard quantity, the entry to record the use of direct materials would include a decrease in:a. Raw Materials Inventory.b. Accounts Payable.c. Direct Materials Quantity Variance.d. Direct Materials Price Variance.4. Which of the following methods must be used for financial purposes, if it is used for tax purposes?a. FIFOb. LIFOc. Average costd. Specific identification5. When a company evaluates long-term investment proposals, which of the following should not be considered?a. The time value of moneyb. The past costsc. The amount of net cash flowsd. The timing of net cash flows6. Which of the following methods can not be used to account for investments in common stock?a. Consolidation methodb. Equity methodc. Amortized cost methodd. Market value method7. On August 12, 2003, McDongal Corporation purchased, as its only Available-for-Sale security, 1,000 shares of Ivy Company at $30 per share. The market price per share of the Ivy Company stock on December 31, 2003 and 2004 was $26 and $29, respectively. On the December 31, 2004 balance sheet, the investment in the Ivy Companystock would be carried at:a. $25,000.b. $26,000.c. $29,000.d. $30,000.8. Where is the cash paid to purchase bonds reported on the cash flow statement?a. Operating activitiesb. Financing activitiesc. Investing activitiesd. Investing and operating activities9. Under the equity method of accounting for an investment in stock, dividends received are recorded as:a. Revenue.b. A reduction in the investment account.c. An increase in the investment account.d. An expense.10. Which method of accounting for an investment in the stock of another company should be used if more than 50% of the outstanding common stock of the investee is acquired?a. Market methodb. Consolidation methodc. Equity methodd. Effective interest method11. The stockholders' equity section of a corporation's balance sheet is usually separated into what two components?a. Contributed capital and retained earningsb. Stock and retained earningsc. Common stock and preferred stockd. Capital stock and additional paid-in capital12. The right to maintain a proportionate percentage of ownership of a corporation by purchasing a proportionate (prorata) share of additional stock if it is issued is termed the:a. Preemptive right.b. Inherent right.c. Ownership privilege.d. First priority.13. The monetary amount that is designated as the legal capital per share of stock by the board of directors, and is printed on each stock certificate, is the stock's:a. Stated value.b. No-par value.c. Par value.d. Liquidation value.14. The number of shares of capital stock (both common and preferred) that the corporation may legally issue is termed:a. Authorized capital stock.b. Issued capital stock.c. Outstanding capital stock.d. Treasury capital stock.15. The effect of recording the issuance of 400 shares of $5 par common stock for $12 per share would include a(n):a. Decrease in Common Stock of $4,800.b. Increase in Common Stock of $4,800.c. Decrease in Cash of $4,800.d. Increase in Additional Paid-in Capital of $2,800.16. Revenue has a _________ balance and appears in the ______________, and Unearned Revenue has a ________ balance and appears in the _____________.a a) Debit, Balance Sheet, Credit, Income Statementb b) Credit, Balance Sheet, Debit, Income Statementc c) Debit, Income Statement, Credit, Balance Sheetd d) Credit, Income Statement, Credit, Balance Sheet17. When a company closes its temporary accounts, so it will be ready for the next accounting period, which accounts does it NOT close?a a) Revenue Accountsb b) Equity Accountsc c) Expense Accountsd d) Income Summary Account18. To determine the balance of a particular account at any point in time, you should refer to:a a) The general journalb b) The general ledgerc c) The chart of accountsd d) Source documents19. A company purchases $5000 of inventory on credit. In a separate transaction, the company sells inventory worth $2000 for $3500 for cash. Assuming the company uses a perpetual inventorysystem, which of the following will be part of the journal entries for these transactions?a a) $5000 credit to Cashb b) $2000 debit to Cashc c) $2000 credit to Inventoryd d) $3500 debit to Sales Revenue20. In an accounting system, expenses increase with a ______ entry, equity decreases with a _____ entry, and liabilities increase with a ______ entry.a a) Debit, credit, debitb b) Credit, debit, Creditc c) Credit, credit, debitd d) Debit, debit, creditProblem 2 - 17 points Whatchamacallit Company engaged in the following transactions and made the following adjustments in January, 2004. Prepare journal entries (including adjusting entries) 1/1 received $12,000 in advance for services to