Question 1: State which of the following is True (T) and which is False (F) {30 Marks}

1) Scarcity means that there is less of a good or resource available than people wish to have. True

2) If an economy can produce more of one good without giving up any of another good, then the economy's current
production point is inefficient. True

3) Economic growth causes the PPF to shift outward . True

4) If something happens to alter the quantity supplied at any given price, then we move on along the fixed supply
curve to a new quantity supplied. False

5) the actions of buyers and sellers naturally move markets away from equilibrium. false

6) If a firm is facing elastic demand, then the firm should decrease price to increase revenue. True

7) The midpoint method is used to calculate elasticity between two points because it gives the same answer
regardless of the direction of the change. True

8) Economists and accountants usually disagree in the inclusion of implicit costs into the cost analysis of a firm. True

9) The average fixed cost curve is constant. False

10) A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the
100th unit costs the firm $5. The firm can sell the 100th unit for $4.75. The firm should continue to produce 100
units in order to maximize its profits (or minimize its losses). False

11) A transaction that causes an increase in an asset may also cause a decrease in another asset, an increase in a
liability, or an increase in owners' equity. True

12) When a business borrows money from a bank, the immediate effect is an increase in the total assets and a
decrease in the liabilities or owners' equity. False

13) increases in owner's equity are recorded by credits increase in assets and in liabilities are recorded by debits .
False

14) Revenues increase owners’ equity, and are, therefore, recorded by crediting the revenues account. True

15) ROE -return on equity is measured by dividing net income by average number of shares outstanding. False

16) Working capital is the excess of current assets over current liabilities. True

17) A company's liquidity refers to its ability to remain profitable. False

18) Inventory is an example of a quick asset. False

19) The lower the current ratio, the more liquid the company appears. False

20) From a creditor's point of view, the lower the debt ratio; the safer the creditor's position. True

21) The current ratio may be less than, equal to, or greater than the quick ratio. False

22) The inventory turnover rate indicates how quickly inventory sells. False
23) Costs which increase in total amount in direct proportion to an increase in output are called variable costs. True

24) With variable costs, the cost per unit varies with changes in volume. False

25) The volume of output that causes fixed costs to be equal in amount to total revenue is called the break-even
point. False

26) The contribution margin is the difference between total revenue and fixed costs. False

27) In a cost-volume-profit graph, the dollar amount by which actual sales exceed break-even sales volume is called
the margin of safety. False

28) With fixed costs, the cost per unit varies with changes in volume. True

29) Contribution margin is total revenue less variable costs. True

30) Contribution margin ratio is equal to contribution margin per unit divided by unit sales price. True

Question 2 : Choose the correct answer {30 Marks}

5) Rocky industries received its telephone bill in the amount of $300 and immediately paid it. Rocky's journal entry to
record this transaction will include a:
A. Debit to Telephone Expense for $300.
B. Credit to Accounts Payable for $300.
C. Debit to Cash for $300.
D. Credit to Telephone Expense for $300.

6) Management Services, Inc. provides services to clients. On May 1, a client prepaid Management Services $60,000
for a 6-months Services in advance. Management Services' general journal entry to record this transaction will
include a:

A. Debit to Unearned Management Fees for $60,000.

B. Credit to Management Fees Earned for $60,000.
C. Credit to Cash for $60,000.
D. Credit to Unearned Management Fees for $60,000.
E. Debit to Management Fees Earned for $60,000.

7) Wisconsin Rentals purchased office supplies on credit. The general journal entry made by Wisconsin Rentals will
include a:

a. Debit to Accounts Payable

b. Debit to Accounts Receivable
c. Credit to Cash
d. Credit to Accounts Payable

8) Robert Haddon contributed $70,000 in cash and land worth $130,000 to open a new business, RH Consulting.
Which of the following general journal entries will RH consulting make to record this transaction?

A. Debit Assets $200,000; credit Haddon, Capital, $200,000.

B. Debit Cash and Land, $200,000; credit Haddon, Capital, $200,000.
C. Debit Cash $70,000; debit Land $130,000; credit Haddon, Capital, $200,000.
D. Debit Haddon, Capital, $200,000; credit Cash $70,000, credit Land, $130,000.

9) On September 30, the Cash account of Value Company had a normal balance of 5,000. During September, the
account was for a total of $ 12,200 and credited for a total of $ 11,500.
What was the balance in the Cash account at the beginning of September?

A. A $0 balance.
B. A $4,300 debit balance.
C. A $4,300 credit balance.
D. A $5,700 debit balance.

10) On April 30, Holden Company had an Accounts Receivable balance of $18,000. During the month of May, total
credits to Accounts Receivable were $52,000 from customer payments. The May 31 Accounts Receivable balance
was $13,000. What was the amount of credit sales during May?

A. $5,000.
B. $47,000.
C. $52,000.
D. $57,000.

11) At the beginning of the current year, Taunton Company's total assets were $248,000 and its total liabilities were
$175,000. During the year, the company reported total revenues of $93,000, total expenses of $76,000 and owner
withdrawals of $5,000. There were no other changes in owner's capital during the year and total assets at the end of
the year were $260,000. Taunton Company's debt ratio at the end of the current year is:

A. 70.6%.
B. 67.3%.
C. 32.7%.
D. 48.6%.

12) An accountant has debited an account for $3,500 and credited a liability account for $2,000.
Which of the following would be an incorrect way to complete the recording of this transaction?

A, Credit another asset account for $1,500.

B. Credit another liability account for $1,500.
C. Credit an expense account for $1,500.
D. Debit another asset account for $1,500.

13) While in the process of posting from the journal to the ledger a company failed to post a $500 debit to the Office
Supplies account. The effect of this error will be that:

A. The Office Supplies account balance will be overstated.

B. The trial balance will not balance.
C. The error will overstate the debits listed in the journal.
D. The total debits in the trial balance will be larger than the total credits.

14) In which of the following situations would the trial balance be disclosed (not balance)?

A. A $1,000 collection of an account receivable was erroneously posted as a debit to Accounts Receivable and a
credit to Cash.
B. The purchase of office supplies on account for $3,250 was erroneously recorded in the journal as $2,350 debit to
Office Supplies and credit to Accounts Payable.
C. The cash payment of a $750 account payable was posted as a debit to Accounts Payable and a debit to Cash for
$750.
D. A $50 cash receipt for the performance of a service was not recorded at all

15) The credit purchase of a delivery truck for $4,700 was posted to Delivery Trucks as a $4,700 debit and to
Accounts Payable as a $4,700 debit. What effect would this error have on the trial balance?

A. The total of the Debit column of the trial balance will exceed the total of the Credit column by $4,700.
B. The total of the Credit column of the trial balance will exceed the total of the Debit column by $4,700.
C. The total of the Debit column of the trial balance will exceed the total of the Credit column by $9,400.
D. The total of the Credit column of the trial balance will exceed the total of the Debit column by $9,400.

16) A trial balance taken at year-end showed total credits exceed total debits by $4,950. This discrepancy could have
been caused by:

A. An error in the general journal where a $4,950 increase in Accounts Receivable was recorded as an increase in
Cash.
B. A net income of $4,950.
C. The balance of $49,500 in Accounts Payable being entered in the trial balance as $4,950.
D. The balance of $5,500 in the Office Equipment account being entered on the trial balance as a debit of $550.

17) A $15 credit to Sales was posted as a $150 credit. By what amount is Sales error?

A. $150 understated.
B. $135 overstated.
C. $150 overstated.
D. $135 understated.

21) The phenomenon of scarcity stems from the fact that

A. most economies' production methods are not very good.

B. in most economies, wealthy people consume disproportionate quantities of goods and services.
C. governments restrict production of too many goods and services.
D. resources are limited.

22) Economists use the word equality to describe a situation in which

A. each member of society has the same income.

B. each member of society has access to abundant quantities of goods and services, regardless of his or her income.
C. society is getting the maximum benefits from its scarce resources.
D. society's resources are used efficiently.

23) In the circular-flow diagram, which of the following is not a factor of production?
A. labor
B. land
C. capital
D. money
24) Any point on a country's production possibilities frontier represents a combination of two goods that an
economy
A. will never be able to produce.
B. can produce using all available resources and technology.
C. can produce using some portion, but not all, of its resources and technology-
D. may be able to produce in the future with more resources and/or superior technology.

25) The two words most often used by economists are

A. prices and quantities.

B. resources and allocation.
C. supply and demand.
D. efficiency and equity.

26) The law of demand states that, other things equal,

A. an increase in price causes quantity demanded to increase.

B. an increase in price causes quantity demanded to decrease.
C. an increase in quantity demanded causes price to increase.
D. an increase in quantity demanded causes price to decrease.

27) If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?

A. immediately after the price increase

B. one month after the price increase
C. three months after the price increase
D. one year after the price increase

28) Rana sells 200 glasses of lemonade at $0.50 each. Her total costs are $25. Her profits are

A. $25.
B. $75.
C. $100.
D. $175.