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 inventory system, 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 be provided evenly throughout the year. 1/4 bought building, $240,000 ($40,000 cash down payment and a 10-year note payable for$200,000)1/5 bought inventory for $10,000 on credit, terms n/60.1/7 sold inventory costing $3,000 for $5,000 cash. 1/21 paid $4,000 for salaries incurred in January.Adjustments on January 31:1/31 one month's services provided.1/31 depreciated store building, $2,000.General JournalDATE ACCOUNT(S) DEBIT CREDIT1 point for each correct line item (they must have account, amount and db/cr correctProblem 3 - 17 points At the beginning of 2003, the Yorkshire Electronics Company had: 5,000 shares of 5%, $100 par preferred stock, and 20,000 shares of $10 par common stock outstanding. On October 1, 2003, the company issued 10,000 additional shares of common stock. On December 31, 2003, Yorkshire:paid the current dividend on the preferred stock, reported income from continued operations after tax expense of 180,000, and reported net income of $200,000 (the only difference with income from continuing operations was due to a discontinued operation)a a) Calculate the weighted average number of common