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1) The amount of capital paid-in by the stockholders of the corporation is called legal capital. 2) If the proceeds from a sale of equipment is greater than the book value of the equipment as on the date of sale, […]

1) DeGiaimo Co. has an operating leverage of 5. If next year’s sales are expected to increase by 10%, then the company’s operating income will increase by 50%. 2) When a corporation issues bonds, it executes a contract with the […]

1) If income from operations for a division is $30,000, sales are $243,750, and invested assets are $187,500, the investment turnover would be 1.3 . 2) A qualitative characteristic that influences capital investment analysis is manufacturing productivity. Answer: TRUE 3) […]

1) Fees earned and received in cash will increase cash flows from operating activity as well as retained earnings. 2) A job order cost system accumulates costs for each of the departments or processes within the factory. Answer: FALSE 3) […]

1) Sales discounts is used in accounting for transactions with customers. 2) Total fixed costs remain constant as the level of activity changes within the relevant range. Answer: TRUE 3) In a transaction where purchased merchandise has been returned, the […]

1) Both accounts receivable and notes receivable represent claims that are expected to be collected in cash. 2) The excess of cash flowing in from revenues over the cash flowing out for expenses is termed net cash flow. Answer: TRUE […]

1) The document issued by the seller that informs the buyer of the details of sales returns is called a debit memorandum. 2) All bank memorandums reported on the bank reconciliation require entries in the depositor’s accounts. Answer: TRUE 3) […]

1) The product cost concept includes the selling and administrative expenses in the cost amount to which the markup is added to determine product price. 2) During deflationary periods, the use of the LIFO method of costing inventory will result […]

1) Goal conflict can be avoided if budget goals are carefully designed for consistency across all areas of the organization. 2) The basic type of stock issued to owners is called common stock. Answer: TRUE 3) The percentage analysis of […]

1) Manufacturers implement the philosophy of just-in-time processing to produce products with high quality, low cost, and instant availability. 2) The amount of details presented in a budget performance report for a cost center depends upon the level of management […]

1) The theory of constraints is a manufacturing strategy that focuses on reducing the influence of bottlenecks on production processes. 2) If fixed costs are $220,000 and the unit contribution margin is $25, the sales necessary to earn an operating […]

1) If merchandise costing $2,500, terms FOB destination, 2/10, n/30, with prepaid transportation costs of $100, is paid within 10 days, the amount of the purchases discount is $48. 2) Under the perpetual inventory system, the cost of merchandise sold […]

1) If a business has several bank accounts, it will have a separate record for each of them. 2) If the profit margin for a division is 11% and the investment turnover is 1.5, the rate of return on investment […]

1) The internal control environment is enhanced by the hiring and retention of competent, honest employees. 2) All merchandising businesses are organized as corporations. Answer: FALSE 3) A voucher system is an example of an internal control procedure over cash […]

1) If the standard to produce a given amount of product is 500 direct labor hours at $15 and the actual was 600 hours at $17, the time variance was $1,500 favorable. 2) Depletion is the process of transferring the […]

1) If a business sells two products, it is not possible to estimate the break-even point. 2) If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the profit margin calculated would be […]

1) The depositor reconciles the bank’s statement to the depositor’s records. 2) An unfavorable cost variance occurs when budgeted cost at actual volumes exceeds actual cost. Answer: FALSE 3) Qualitative considerations in capital investment decisions are most appropriate for strategic […]

1) Most employers are required to withhold federal unemployment taxes from employee earnings. 2) Paid-in capital and retained earnings are the two major categories of stockholders’ equity for a corporation. Answer: TRUE 3) FICA tax is a payroll tax that […]

1) In preparing a bank reconciliation, the amount of a canceled check omitted from the depositor’s records is deducted from the cash balance per books. 2) The current year’s advertising costs are normally considered as product costs. Answer: FALSE 3) […]

1) When the seller offers a sales discount, even if borrowing has to be done, it is generally advantageous for the buyer to pay within the discount period. 2) One of the qualitative characteristics that influence capital investment analysis is […]

1) The data needed to adjust a depositor’s books are shown in the “adjustments to the depositor’s records” section of a bank reconciliation. 2) The accounting equation is expressed as follows: Assets = Liabilities + Stockholders’ Equity. Answer: TRUE 3) […]

1) Treasury stock is a contra-equity account. 2) Net income is reduced when a specific receivable is written off under the analysis of receivables method. Answer: FALSE 3) A change in fixed costs as a result of increase in the […]

1) If the market rate of interest is 8% and a corporation’s bonds bear interest at 7%, the bonds will sell at a premium. 2) If income from operations for a division is $6,000, invested assets are $25,000, and sales […]

1) Leasing assets may be a favorable alternative to purchasing assets if the asset has a high risk of becoming obsolete. 2) Before a stock dividend can be declared or paid, there must be sufficient cash. Answer: FALSE 3) Under […]

1) Lower-of-cost-or-market is a method of inventory valuation. 2) Obligations that depend on future events and are based on past transactions are contingent liabilities. Answer: TRUE 3) If Division Inc. expects to sell 300,000 units in 2012, desires ending inventory […]

1) FICA tax is a payroll tax that is paid only by employers. 2) When a corporation issues bonds, it executes a contract with the bondholders known as a bond indenture. Answer: TRUE 3) If the standard to produce a […]

1) It is possible for a transaction to change the makeup of assets, but to not affect assets in total. 2) A corporation has 10,000 shares outstanding of $25 par value and a current market value of $100 per share. […]

1) A criticism of a single-step income statement is that net income is not available for analysis. 2) Managerial accounting reports information primarily for stakeholders that are external to the company. Answer: FALSE 3) The merchandise inventory account is found […]

1) The main source of paid-in capital is from issuing stock. 2) The interest at 6%, on a 60-day note for $5,000 is $50. (Assume 360 days in a year) Answer: TRUE 3) The average rate of return method of […]

1) The process by which management allocates available investment funds among competing capital investment proposals is termed present value analysis. 2) The relevant range is useful for analyzing cost behavior for management decision-making purposes. Answer: TRUE 3) When a product […]

1) The sales budget is the starting point for preparation of the direct labor cost budget. 2) If sales total $2,000,000, fixed costs total $600,000, and variable costs are 60% of the sales, the contribution margin ratio is 40%. Answer: […]

1) A credit memorandum received with a bank statement means the company’s bank account has been increased. 2) Current position analysis indicates a company’s ability to liquidate current liabilities. Answer: TRUE 3) The person who is to be paid when […]

1) On the income statement, sales returns and allowances and sales discounts are added to gross sales to yield net sales. 2) Purchases of merchandise increase the merchandise inventory account under the perpetual inventory system. Answer: TRUE 3) If the […]

1) If the unit selling price is $50, the volume of sales is $450,000, sales at the break-even point amount to $375,000, and the maximum possible sales are $550,000, the margin of safety will be 2,000 units. 2) A corporation […]

1) The excess of current liabilities over quick assets is referred to as working capital. 2) If a firm has an quick ratio of 1, the subsequent payment of an account payable will cause the ratio to increase. Answer: FALSE […]

1) The par value of common stock is rarely equal to its market value on the date the stock is issued. 2) The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and a […]

1) The point in operations at which revenues and expenses are exactly equal is called the break-even point. 2) One of the conditions for paying a cash dividend is formal action by the board of directors. Answer: TRUE 3) On […]

1) If a company sells a fixed asset for an amount which is less than its book value, a gain must be recognized. 2) The payment of utilities expense in cash would affect the operating activities in the statement of […]

1) Investment turnover (as used in determining the rate of return on investment) focuses on the rate of profit earned on each sales dollar. 2) Activity-based costing is a method of accumulating and allocating costs by department. Answer: FALSE 3) […]

1) The computations required for the net present value method are less than those the computation required for the average rate of return method. 2) The underapplied factory overhead amount may be transferred to cost of goods sold at the […]

1) Differential analysis can aid management in making decisions on a variety of alternatives, including whether to discontinue an unprofitable segment and whether to replace fixed assets. 2) Fixed assets are reported at their book value on the balance sheet. […]