1. Julie’s auto insurance policy has a collision deductible of $300.
If she has two accidents during the coverage period, with a total
of $12,000 damage to her car, how much will her insurer pay
her for this damage?
A. $11,400 C. $12,000
B. $11,700 D. $12,600
2. Nick has a revolving department store credit card account with an annual percentage rate
of 15%. Last month’s balance on the account was $423.78. During the current month, he
made purchases totaling $123.42 and made a payment of $100. The store uses the
unpaid balance method. According to this information, what must be the amount of the
finance charge? Round your answer to the nearest cent.
A. $5.30 C. $6.36
B. $5.59 D. $6.71
3. Using the information provided in Question 2, what is Nick’s current account balance?
A. $380.12 C. $452.50
B. $441.61 D. $453.56
4. On a balance sheet, the accounts of notes payable, salaries payable, and taxes payable
would fall under the category of
A. current liabilities. &n bsp; C. current assets.
B. investments and other assets. D. long-term liabilities.
5. A company purchased an air conditioning system for $10,200. The shipping charges on
the system were $875, and the setup costs were $1,250. The system is expected to last
for five years and has a residual value of $2,000. If you use the straight-line method to
calculate the depreciation for this air conditioning system, what would be the annual
A. $2,000 C. $2,065
B. $2,040 D. $2,465
6. Dwayne’s business carries fire insurance with two companies, a $90,000 policy with
Allstate and a $150,000 policy with Travelers. Calculate Allstate’s percent of Dwayne’s
A. 37.5% C. 62.5%
B. 60% D. 90%
7. Imagine that you’re the manager of an auto parts store. Figure A-2 contains your records
of annual inventory figures for windshield wipers. Using the FIFO method of inventory pricing,
what is the dollar value of ending inventory if there were 300 units on hand on
December 31? Round your answer to the nearest dollar.
A. $3,188 C. $3,350
B. $3,219 D. $3,600
Art’s Auto Parts—Annual Inventory of Windshield Wipers
January 1 Beginning Inventory 300 units @ $11.00
March 15 &nb sp; Purchase 150 units @ $10.50
June 10 &nb sp; Purchase 200 units @ $10.75
September 22 Purchase &nb sp; 175 units @ $10.00
December 10 Purchase 100 units @ $12.00
FIGURE A-2—Use this illustration to answer Questions 7 and 8.
8. Using the information shown in Figure A-2, suppose that the ending inventory on
December 31 was 500 units. What would be the dollar value of the ending inventory using
the LIFO method of inventory pricing? Round your answer to the nearest dollar.
A. $5,450 C. $5,363
B. $5,413 D. $5,225
9. Which of the following is known as the accounting equation?
A. assets = liability + owner’s equity
B. profit = revenue – total expenses
C. return on investment = net income _ owner’s equity
D. gross profit margin = gross profit _ net sales
10. Using the 2003 Corporate Tax Rate Schedule (Exhibit 18-6 on page 643 of your textbook),
calculate the net income after taxes for a corporation with taxable income of $85,000.
A. $13,750 C. $67,850
B. $17,150 D. $85,000
11. Wallace and Sarah have decided to purchase furniture for their new home. They have two
payment options. The first option is to pay a cash payment of $4,200. The second option
is to finance the furniture with a two-year installment loan. The loan requires a 12% down
payment and 24 equal monthly payments of $195. According to this information, what
would be the finance charge on the loan?
A. $3,696 C. $504
B. $984 D. $175
12. Using the information in Question 11, what is the total deferred payment price of
A. $4,200 C. $5,184
B. $4,680 D. $5,664
13. SXXXXX XXXXXves in a city that has a state sales tax of 6% and a city sales tax of 1.5%. If she
purchases a stereo system for $249.50, what will Sandy pay in state sales tax?
A. $18.71 C. $12.48
B. $14.97 D. $3.74
14. What total purchase price does Sandy pay for the stereo system in Question 13?
A. $268.71 C. $264.47
B. $268.21 D. $253.24
15. When you’re preparing an income statement, to calculate gross margin, you must subtract
A. sales discounts and sales returns and allowances from gross sales.
B. cost of goods sold from net sales.
C. income tax from income before taxes.
D. total operating expenses from net sales.
16. Figure A-3 lists financial information for the month of September for a large clothing store.
Using the retail method of inventory, estimate the value of the ending inventory at cost on
A. $12,283 C. $140,432
B. $115,000 D. $143,750
FIGURE A-3—Use this illustration to answer Question 16.
& nbsp; &nb sp;
Financial Highlights for September 1–September 30
&nb sp; Cost Retail
Beginning Inventory $575,000 $718,750
Net Purchases (September) $60,000 $75,000
Net Sales (September) &nb sp; $650,000
17. The method used to calculate depreciation for federal income tax purposes is the
A. sum-of-the-years’ digits method.
B. declining-balance method.
C. units-of-production method.
D. modified accelerated cost recovery system method.
18. A company purchased a lathe with a useful life of 4 years and a salvage value of $5,000.
If the lathe cost $45,000, what is the lathe’s first-year depreciation using the sum-of-theyears’
A. $20,000 C. $16,000
B. $18,000 D. $12,000
19. Brenda bought a swimming pool by obtaining an 8% add-on interest installment loan from
the bank. The pool cost $2,400, and the bank required a 15% down payment and equal
monthly payments for two years. How much is Brenda’s monthly payment?
A. $85.00 C. $98.60
B. $86.36 D. $116.00
20. Which of the following methods used in financial reporting would not involve salvage value
until the last year of an asset’s useful life?
A. Declining-balance method C. Units-of-production method
B. Sum-of-the-years’ digits method D. Depletion
21. Which of the following is the botXXXXX XXXXXne on the income statement?
A. The gross margin C. The total operating expenses
B. The final sales D. The net income (or loss)
22. A party supplies store recorded net sales of $423,400 for the year. The store’s beginning
inventory at retail was $105,850 and its ending inventory at retail was $127,020. What
would be the inventory turnover at retail, rounded to the nearest tenth?
A. 1.8 C. 3.6
B. 3.3 D. 4.0
23. Brill Enterprises bought a computer system with a total cost of $6,750. If the system has a
useful life of 5 years and a residual value of $1,000, what is the annual depreciation for
this computer using the straight-line method?
A. $1,350 C. $1,200
B. $1,250 D. $1,150
24. What is the book value of the computer system in Question 23 after two full years of
A. $5,600 C. $4,000
B. $4,450 D. $3,700
25. Cassandra is repaying an installment loan of $3,500 with 20 equal monthly payments of
$196 each. What is the annual percentage rate of the loan?
A. 7.55% C. 12%
B. 11.16% D. 13.25%
26. The LaGuardia family’s total living expenses are $63,000 a year. After the death of the
insured, the total family income would be $55,000. How much life insurance is required to
cover the dependents’ income shortfall, if the prevailing interest rate is 4%?
A. $137,500 C. $200,000
B. $157,500 D. $295,000
27. Last month, Bob took a cruise from Florida to the Bahamas. The cost of his round-trip
ticket was $832. The federal excise tax on the cruise was 8%, and Florida has a sales tax
rate of 6%. What was the total purchase price of Bob’s ticket?
A. $832.00 C. $898.56
B. $881.92 D. $948.48
29. A company’s bank inventory is confirmed by
A. the specific identification method. C. a physical count.
B. a periodic inventory system. D. the lower-of-cost-or-market rule.
30. If the costs of a retailer’s merchandise are rising, which of the following statements is true?
A. Using FIFO will lower taxes. C. Using LIFO will attract investors.
B. Using FIFO will attract investors. D. Using LIFO will increase taxes.
33. Sam bought a stereo for a total of $676.24, including state sales tax. The state sales tax
rate is 7%. What was the total amount of sales tax on the stereo?
A. $632.00 C. $47.34
B. $85.59 D. $44.24
34. A company’s balance sheet shows total assets of $450,991, total current liabilities of
$47,342, and total long-term liabilities of $150,509. Its total stockholder equity must be
A. $197,851. C. $300,482.
B. $253,140. D. $450,991.
36. If Edsel Corporation had a loss on its income statement for the year 2007, which of the
following must be greater than net sales?
A. Cost of goods sold C. Income tax
B. Depreciation D. Total expenses
37. A street vendor recorded the following hot dog sales for the week: 100 on Monday, 87 on
Tuesday, 95 on Wednesday, 125 on Thursday, 210 on Friday, 250 on Saturday, and 57 on
Sunday. What is the mean sales per day?
A. 210 C. 132
B. 185 D. 57?
38. Leona Merchandising had beginning inventory of $300,000 and ending inventory of
$250,000 in the year 2006. If Leona’s cost of goods sold was $1,240,000 in 2006, its
inventory turnover was
A. 4.51 times. C. 2.25 times.
B. 4.13 times. D. 1.85 times.
39. A property insurance policy has an annual premium of $780. What is the regular refund if
the policy is canceled by the insurance company after five months?
A. $455.00 C. $156.00
B. $325.00 D. $111.43
40. What is the total amount of tax due on a property with an assessed value of $315,200?
The property tax rate is 53.7 mills.
A. $169,262.40 C. $5,869.65
B. $16,926.24 D. $315.00
41. Determine the median of the following numbers: 25, 28, 22, 27, 25, 20, 30, 23, 27, and 29.
A. 25 C. 27
B. 26 D. 28
42. Which type of financial ratio would most interest potential creditors wanting to know a
company’s prospects of declaring bankruptcy?
A. Leverage ratios C. Profitability ratios
B. Liquidity ratios D. Efficiency ratios
43. Which of the following is a type of vehicle insurance that covers damage sustained by the
insured’s vehicle in an accident?
A. Collision C. Comprehensive
B. Liability D. Deductible
44. Martha Stevens has a tax liability of $6,420 and owes additional taxes amounting to $235.
She is entitled to one tax credit of $374 and another credit of $563. If her employer withholds
$260 every two weeks from her pay, Martha will
A. receive a refund of $340.
B. receive a refund of $1,042.
C. owe taxes amounting to $340.
D. owe taxes amounting to $1,042.
45. Find the range of the following set of numbers: 247, 562, 498, 149, 568, 327, and 470.
A. 498 C. 419
B. 470 D. 403
46. A life insurance policy that pays whether the policyholder lives or dies is called
A. premium insurance. C. term insurance.
B. face value insurance. D. permanent insurance.
47. A frequency distribution is obtained by
A. listing the values in sets of data individually.
B. taking the difference between the highest and the lowest value in each set of data.
C. summing the values of a set of data and dividing by the number of values in the set.
D. dividing a set of data into equal-size classes.
48. Manuel Juarez has a revolving credit account that uses the average daily balance to calculate
finance charges. During April 2007 (a month with 30 days), Manuel had an unpaid
balance of $445.12 for 18 days and an unpaid balance of $221.38 for 12 days. Calculate
his average daily balance for April 2007.
A. $445.12 C. $333.25
B. $355.62 D. $221.38
49. Find the mode of the following list of prices: $1.67, $1.29, $0.79, $1.29, $0.89, $0.89,
$0.79, $1.67, $0.79, $0.57, and $0.79.
A. $0.57 C. $0.89
B. $0.79 D. $1.67
50. If you buy eight bottles of soda that cost $1.29 each and the sales tax rate is 6%, what will
be the total amount of your purchase? Round your answer to the nearest cent.
A. $9.71 C. $10.94
B. $10.32 D. $16.32