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A stock dividend exceeding 20 to 25 percent is properly treated as a stock split. The weighted-average contribution margin is computed by multiplying each product’s unit contribution margin by the sales mix percentage of each product. Answer: TRUE It is […]

Direct materials cost is a fixed cost because it always occurs in a production process. In order to use a process costing system, products produced should be homogenous in nature. Answer: FALSE The price/earnings (P/E) ratio is an indication of […]

A performance report should contain cost or revenue items that the manager receiving the report can control. Cost of capital information is necessary to establish the minimum rate of return on investments. Answer: TRUE Costs can also be classified as […]

Valuation of inventory on the balance sheet impacts cost of goods sold on the income statement. All organizations use same performance measures in their day-to-day business operations. Answer: FALSE Receipt of stock dividends, depreciation, and amortization expense will not be […]

When there is an ethical conflict, the management accountant should resign if the immediate supervisor is involved in the conflict. If a bond with a face value of $1,000 and a face interest rate of 7 percent is issued for […]

In calculating the depletion of a natural resource, its useful life in years is irrelevant. Taking a physical inventory refers to making a count of all merchandise on hand at a particular time. Answer: TRUE Cost-volume-profit analysis assumes costs and […]

Using bar codes to take a physical inventory is considered poor accounting practice. Return on assets is a measure of liquidity. Answer: FALSE Full product cost includes both nonproduction costs and production costs required to satisfy customers. Answer: TRUE Incremental […]

The accounting rate-of-return method considers the time value of money. Net present value analysis is based on a project’s cash flows. Answer: TRUE The three techniques used to evaluate capital investment alternatives use the project’s expected net income. Answer: FALSE […]

Using or not using the contribution margin for cost-volume-profit computations will not change the resulting amount of breakeven units in a given situation. Bonding provides a guarantee against theft. Answer: FALSE Under the perpetual inventory system, the return of goods […]

Overhead costs are not recorded in the Work in Process Inventory account. The primary purpose of an expense is to generate revenue. Answer: TRUE In a job order costing system, indirect labor costs incurred are debited to the Overhead account. […]

Wages are compensation of employees at a yearly or monthly rate. Damaged goods that can be sold at a reduced price should be included in a company’s merchandise inventory. Answer: TRUE Payables turnover is measured in number of days. Answer: […]

Write-downs and restructurings increase current operating income and decrease future income by shifting future costs to the future periods. The death of a partner dissolves the partnership. Answer: TRUE Trend analysis requires the establishment of a base year for comparison […]

The amount of cost of goods manufactured is transferred from the Work in Process Inventory account to the Finished Goods Inventory account. A just-in-time operation would attempt to eliminate inspection time. Answer: TRUE Managers at all levels are evaluated in […]

Since the balance of the Accumulated Depreciation account will appear on the asset side of the balance sheet, it is placed on the debit side of the work sheet’s Balance Sheet columns. The callable feature of a bond can be […]

Return on assets is a combination of the profit margin and the asset turnover. To increase their levels of inventory, many merchandisers and manufacturers use supply-chain management in conjunction with a just-in-time operating environment. Answer: FALSE One example of a […]

Reports and analyses prepared in traditional management settings will match the requirement of the new manufacturing environment. When an asset lasts longer than its estimated useful life, depreciation no longer should be recorded. Answer: TRUE The average costing method matches […]

The replacement of tires on a truck is considered an ordinary repair. For tax purposes, small businesses may expense the first $250,000 of equipment expenditures, rather than having to allocate their costs over a number of years. Answer: TRUE Management […]

As long as the action is within the scope of the partnership, any partner can bind the partnership. When the balance of a petty cash fund is increased, the entry would contain a credit to Petty Cash. Answer: FALSE Intangible […]

If insured goods are shipped FOB destination, the seller should file a claim for goods damaged in transit. Periodic and perpetual are examples of inventory costing systems. Answer: TRUE If a management accountant gives information about a future merger of […]

Partial-year depreciation may be rounded to the nearest whole month or the half-year convention may be used. When preparing a statement of cash flows using the indirect method, an increase in accounts receivable is added to net income. Answer: FALSE […]

The cost of debt, the cost of preferred stock, the cost of common stock, and the cost of retained earnings are the components of cost of capital. For accounting purposes, stated value is treated the same way as par value. […]

Operating budgets are limited to service organizations. In moving toward the just-in-time continuous work flow concept, a key objective is the reduction in the use of raw materials for manufacturing a product. Answer: FALSE The Income Summary account appears in […]

Managerial accounting primarily provides information on past performance. Separation of duties relates to a control activity in the accounting system. Answer: TRUE In verifying a claim for a loss of inventory, an insurance company might use the gross profit method. […]

Because accounting measures should be verifiable, liabilities should not be estimated. Once the products are completed, packaged, and ready for sale, their costs are transferred to the Finished Goods Inventory account. Answer: FALSE A U.S. Treasury bill with an original […]

Which of the following statements isTRUE of the just-in-time operating environment? A.Simplicity and quality are good, but inventories and nonvalue-adding activities are not. B.Inventories are necessary to support the production function. C.Just-in-time is based on push-through production concepts. D.Just-in-time is […]

A stock dividend will cause a decrease in the total number of shares issued and outstanding. The main differences among the balance sheets of the sole proprietorship, the partnership, and the corporation are found in the current assets and current […]

Merchandising companies do not need as good a system of internal control as service companies. Cash inflows and outflows are easier to manipulate than earnings. Answer: FALSE A check authorization would be prepared after a receiving report. Answer: TRUE Permanent […]

The information needed to record the adjusting entries can be copied from the work sheet. Expected obligations arising from programs, such as frequent flyer miles, are usually recorded as a reduction in sales (in a contra-sales account) with a related […]

Dividends in arrears are disclosed as liabilities of a corporation. The heading of an adjusted trial balance might contain the line ‘For the Month Ended May 31, 20xx.’ Answer: FALSE A tractor held by a farm equipment company for sale […]

To analyze a capital investment using the accounting rate-of-return method, one can use an estimated amount for the annual net income. One of the drawbacks of full product cost is that it is relevant only for companies providing services. Answer: […]

Static budgets are prepared on quarterly basis and require frequent change during the annual budget period. The quick ratio and the current ratio are measures of short-term debt-paying ability. Answer: TRUE In a job order costing system, when the goods […]

Entering transactions into the journal is called posting. It is not necessary to ascertain the portion of ending Work in Process Inventory applicable to direct materials costs versus conversion costs. Answer: FALSE Noncash investing and financing transactions, such as the […]

Depending on the mixture of sources of capital, a company’s cost of capital will vary. When no-par common stock has a stated value, the stated value of the shares issued normally is considered the legal capital of the corporation. Answer: […]

A company with a low debt to equity ratio is in a more vulnerable position during poor economic times than a company with a high debt to equity ratio. A manufacturing chain is a path that leads from the suppliers […]

Compensation expense related to employee stock options is a tax-deductible expense for the corporation. The Income Statement columns of the work sheet show all the accounts that need to be closed, except for the Withdrawals account. Answer: TRUE Direct materials […]

WinLaw is a legal services provider. It is planning to extend its operations by providing tax consultancy services. Which of the following statements will beTRUE if the company extends its operation as planned? A.The cost of providing legal services is […]

The use of salaries in the allocation of income or loss allows for the differences in the services that partners provide the business. Under the perpetual inventory system, inventory losses can be identified more easily than under the periodic inventory […]

Unrealized Loss (Gain) on Short-Term Investments is a contra-asset account that will appear on the balance sheet. Assets are converted to revenues as they benefit the company. Answer: FALSE The portion of cost of goods available for sale that is […]

Partnership liquidation is not the same as partnership dissolution. When the effective interest method of amortization is used for a bond premium, the amount of premium to be amortized for a period is calculated by subtracting the amount of bond […]

On a bank reconciliation, interest income would be added to the balance per bank. In a process costing system, the equivalent units of production must be computed after determining the value of ending inventory. Answer: FALSE The ending balance in […]

The price/earnings (P/E) ratio is a measure of investors’ confidence in a company’s future. Under the successful efforts method, the costs of both successful and unsuccessful exploration for oil and gas are recorded as assets. Answer: FALSE An organization chart […]

A patent has a legal life of 20 years. The direct materials quantity variance is the difference between the actual quantity used and the standard quantity times the actual price. Answer: FALSE Buying and selling goods and services are examples […]

The practice of off-balance-sheet financing is illegal. A new partner must have the consent of all the partners before being admitted into the partnership. Answer: TRUE The payables turnover is the number of times, on average, that a company pays […]

The cost to defend a patent successfully should be expensed in the period incurred. Margin of safety is the excess of actual sales over break even sales. Answer: TRUE The alignment of an organization’s strategy with all the perspectives of […]

If applied overhead exceeds actual overhead, cost of goods sold must be increased by the amount of the overapplied overhead in a job order costing system. The amount of property tax payable is usually an estimated liability for a portion […]

Managerial accounting’s main emphasis is on full and accurate accounting for and disclosure of a company’s operating results. Computation of a partial year’s depreciation is often required for the proper determination of net income. Answer: TRUE The personal resources of […]

Managers prepare process cost reports in the evaluating stage of the management process. Dividends declared but unpaid are reflected in the financing activities section of the statement of cash flows. Answer: FALSE Accounting information contains numerous estimates, classifications, summarizations, judgments, […]

The account Common Stock Distributable is classified as a current liability. The accrual basis of accounting results in a more accurate measurement of net income for the period than does the cash basis of accounting. Answer: TRUE The costs of […]

On the income statement, freight-in is treated as an operating expense. In a liquidation, one partner may have to make up the deficit in another partner’s account. Answer: TRUE One argument in favor of accelerated depreciation is that the asset’s […]

Cost hierarchy includes only value-adding activities. Residual value is relevant when calculating double-declining-balance depreciation. Answer: TRUE Supply-chain management helps companies maintain lower levels of inventory. Answer: TRUE An overstatement of ending inventory in a period will result in an understatement […]

In a small business, active involvement by the owner can be a practical substitute for the separation of some duties. Information that is the same for all alternatives is considered relevant to the decision process. Answer: FALSE Purchase requests and […]

When a withdrawing partner withdraws assets less than his or her capital balance, the excess is treated as a bonus to the remaining partners. Interim financial statements report data for a period of less than one year. Answer: TRUE Operating […]

A commitment is a legal obligation that meets the technical requirements for recognition as a liability. The interest coverage ratio and the debt to equity ratio are measures of profitability. Answer: FALSE The purpose of establishing a desired rate of […]

Rule-of-thumb measures are the most precise and best standards of comparison in financial performance evaluation. The inventory turnover measures the relative size of the inventory and the effectiveness of credit policies. Answer: FALSE Contribution margin is calculated by deducting total […]

Specific identification is a very popular inventory method because it is very easy to apply. An organization’s normal capacity is the average annual level of operating capacity needed to meet its expected sales demand. Answer: TRUE The Allowance for Uncollectible […]

The JIT operating philosophy requires a push-through production system. There is no limit to the amount of income subject to the FUTA tax. Answer: FALSE Corporate earnings are subject to double taxation. Answer: TRUE Budgets identify potential constraints before they […]

On a statement of cash flows prepared using the direct method, if certain expenses do not require a current outlay of cash, those expenses must be subtracted from operating expense to arrive at cash payments for operating expenses. A temporary […]

Closing entries can be prepared by referring solely to the Income Statement columns of the work sheet. When customers pay with bank credit cards, cash sales are considered to have taken place. Answer: TRUE Net income can be used to […]

Another name for a flexible budget is a variable budget. Depreciation calculated using the straight-line method is an example of a fixed cost. Answer: TRUE Cost traceability is decreased in a just-in-time operating environment. Answer: FALSE ‘Breakeven’ is the point […]

The existence of uncollectible accounts is evidence of poor credit policies. Bill Pierce owns several ice cream shops all within 50 miles of his home. He has plans to expand the number of shops he owns. This planned expansion will […]

When bonds are converted to stock, no gain or loss is recognized. One reason for preparing a process cost report for a particular department is to determine the amount of costs to transfer to the next department or to the […]

In periods of rising inventory prices, the LIFO method will result in a higher inventory valuation than will the average-cost method. A proper heading for the income statement could include ‘For the Year Ended December 31, 20–.’ Answer: TRUE One […]

The matching rule dictates that both the accrued interest and the amortization of a premium or discount be recorded at the year end. Costs that vary among alternatives are irrelevant for decision making. Answer: FALSE Any proposal that fails to […]

A partnership is an accounting entity separate and apart from its owners. Under the partnership form of business, it may be difficult to raise large amounts of capital. Answer: TRUE Profitability is the ability to pay bills when due and […]

Proper journal form is a way of recording a transaction with the date, debit account, and debit amount shown on one line, and the credit account (indented) and credit amount shown on the next line. Another term for short-term investments […]

The contribution margin equals zero at the breakeven point. Preparing the work sheet and recording closing entries are important steps that save money and prevent mistakes. Answer: TRUE Management accounting complements each stage of the management process. Answer: TRUE Only […]

While performing an incremental analysis for outsourcing decision, information such as depreciation is not relevant. Fair value is the exchange price of an actual or potential business transaction between market participants. Answer: TRUE Capital investment decisions are decisions about when […]

The calculation of cash for interest to be paid each interest period in connection with a bond payable is not influenced by any premium or discount upon issuance. A company’s acceptance of credit cards, like MasterCard, is an example of […]

Unrealized gains and losses on available-for-sale securities are reported on the balance sheet. Activity-based costing applies only to production-related activities. Answer: FALSE The annual interest earned on an amount deposited into a bank account will be the same each year […]

The heading for a balance sheet might include the line ‘For the Month Ended December 31, 20–.’ Materials costs flow from the Materials Inventory account to the Work in Process Inventory account to the Finished Goods Inventory account. Answer: TRUE […]

Income or loss can be allocated to partners based solely on average capital balances. Neither the amount of detail nor the format of a management accounting report is affected by those to whom the report is sent. Answer: FALSE Standard […]

An informational tax return must be filed for a partnership. Tying compensation incentives to performance targets decreases the likelihood that the goals of responsibility centers, managers, and the entire organization will be well coordinated. Answer: FALSE Lubrication used for machines […]

Equity is reduced when owner’s withdrawals exceed net income. A process costing system first accumulates the costs of direct materials, direct labor, and overhead for each process and then assigns those costs to the products produced during a particular period. […]

A cash flow yield of 2.5 times is considered better than one of 3.0 times. When a business hires a new employee, a recordable transaction has occurred. Answer: FALSE Generally accepted accounting principles state that all business transactions should be […]

Regardless of beginning inventory levels, beginning inventory is always ignored while computing the equivalent units of production. When a partner leaves a partnership, it is possible that total assets will be unaffected. Answer: TRUE A decrease in the balance of […]

Trading securities are valued on the balance sheet at market value. A job order cost card can be used to record all product costs incurred during production. Answer: TRUE A promissory note may be issued for an amount to be […]

To understand accounting information, users must be familiar with the accounting conventions, or rules of thumb, used in preparing financial statements. Unlike ROI, residual income is expressed in dollars. Answer: TRUE The Sarbanes-Oxley Act of 2002 does not require any […]

When there is no direct connection between revenues and costs, the costs are systematically allocated among the periods benefited. Ending merchandise inventory is not included in the calculation of cost of goods available for sale. Answer: TRUE Once in a […]

If bonds are retired by an issuer by purchase on the open market at a price below the bonds’ carrying value, a loss will result. When a job has been completed, all of the costs assigned to that job are […]

Misleading financial reports are not considered fraudulent if they are the result of the misapplication of accounting principles. The flexible budget formula is an equation that determines budgeted costs for any level of output. Answer: TRUE Like job order costing […]

Gross earnings minus deductions equal take-home pay. With the periodic inventory system, cost of goods available for sale must be calculated after cost of goods sold. Answer: FALSE When presenting decreases in long-term investments in the investing activities section of […]

On the income statement, freight-out is included as part of cost of goods sold. After selling all the assets and paying the liabilities in a liquidation of a partnership, the partners share any remaining cash according to the stated ratios. […]

The reporting format of financial accounting information is based on generally accepted accounting principles. Lean uses ABC to assign overhead costs to the product by using appropriate cost drivers. Answer: FALSE If management wants specific information on individual items, a […]

Financing a business means obtaining funds so the business can begin and continue operating. If a 20-year bond pays interest of 8 percent semiannually, the present value of the bond is calculated based upon (1) 4 percent and 40 periods […]

A stock split normally increases total stockholders’ equity. One way of stating the accounting equation is: Assets – Liabilities = Owner’s Equity. Answer: TRUE The two primary types of cost behavior are fixed and variable. Answer: TRUE Net income results […]

In a journal entry, the Post. Ref. column is left blank until the entry has been posted. In a job order costing system, when overhead costs are applied, they decrease the Work in Process Inventory account. Answer: FALSE Which of […]

The acceptable proposals are ranked in order of net present value, payback period, or rate of return in capital investment decisions. The valuation issue deals with how the components of a transaction should be categorized. Answer: FALSE Free cash flow […]

Each partner has a separate Capital, Withdrawals, and Income or Loss account. In a process cost report, accounting for physical units excludes the physical units in beginning inventory to arrive at ‘units to be accounted for.’ Answer: FALSE It is […]

Freight paid on goods shipped to customers is classified as a selling expense. Terms of ‘2/10, n/30’ are an example of a sales discount. Answer: TRUE The value chain is the sequence of business activities in which usefulness is added […]

For a manufacturer, the final customer is part of the supply chain and customer service is part of the value chain. Because noncash investing and financing transactions do not affect cash, they should not be reflected in the body of […]

A check authorization is a document that permits the issuance of a check to pay an invoice. In a common-size income statement, each item is expressed as a percentage of net income. Answer: FALSE The faster goods are sold and […]

A company that factors its receivables will have a less favorable receivable turnover than a company that does not factor. Companies that produce custom-made products usually use a process costing system. Answer: FALSE Indirect product costs incurred are charged directly […]

Goods held on consignment should be included in the consignee’s ending inventory. Adding freight-out expenses to net purchases gives net cost of purchases. Answer: FALSE The FIFO inventory method does not produce the most up-to-date figure for ending inventory. Answer: […]

A flexible budget is derived by dividing actual unit costs by the standard unit costs. A project breaks even when total revenues less variable costs equals fixed costs. Answer: TRUE The basis used in computing equivalent unit cost under process […]

U.S. Treasury bills are considered equity securities. Ordinary repairs usually result in a debit to the appropriate Accumulated Depreciation account. Answer: FALSE Job order cost cards and cost flows through the inventory accounts form the core of a job order […]

When a bond issue is converted into common stock, total contributed capital is increased by the fair market value of the bonds converted. Since investing activities center on the long-term assets shown on the balance sheet, they do not include […]

A trade discount is the same as a sales discount. Income and losses are divided equally among the partners unless the partnership agreement specifies otherwise. Answer: TRUE Which of the following isTRUE of the net present value method? A.It measures […]

Normally, depreciation calculations are based on the exact number of days the asset is held during the period. Reporting format of managerial accounting is flexible and driven by user’s needs. Answer: TRUE Depreciation Expense’“Equipment is an example of a contra […]

When common stock with a par value is sold for a price that exceeds par value, the Common Stock account is credited for the cash proceeds received from the sale of the shares. A positive free cash flow means that […]

Owner’s withdrawals should appear on the statement of owner’s equity. In accounting, depreciation refers to the decline in fair value of a plant asset. Answer: FALSE The interest coverage ratio is expressed as a percentage. Answer: FALSE The evaluation and […]

The terms total manufacturing costs and total cost of goods manufactured are synonymous. When the present value of a bond issue is calculated, both the present value of a single sum and the present value of an annuity must be […]

Which of the following statements isTRUE about successful efforts accounting? A.It is a depreciation method B.All costs are recorded as assets and then depleted over the resource’s useful life. C.The cost of a dry well would be written off immediately […]

The salary, interest, and stated ratio method of allocation can still be applied when a net loss has occurred. A manufacturer’s inventory consists of raw materials, work in process, and finished goods. Answer: TRUE Bond certificates are issued to creditors […]

Regardless of whether the straight-line method or the effective interest method is used, the carrying value of a term bond issued at a discount will increase continually over the life of the bond. The purchase of treasury stock qualifies as […]

The cost of a previously purchased machine is an example of a sunk cost. If an accrued liability for salaries is not recorded, income for the following period will be overstated. Answer: FALSE Interest on debt is tax-deductible to the […]

A scatter diagram helps to determine if a linear relationship exists between a cost item and its related activity measure. To assess the quality of a company’s reported earnings, it is necessary to know the estimates and methods it uses […]

When bonds are converted to stock, any excess carrying value of the bonds over the par value of the stock is to be recorded as Additional Paid-in Capital. Breakeven sales in dollars can be obtained without knowing the dollar value […]

Cash equivalents are usually listed as short-term investments on the balance sheet. The Income Statement columns of the work sheet show all the accounts that need to be closed. Answer: FALSE Avoidable costs are the direct variable costs and direct […]

Small expenditures for what ordinarily are considered capital expenditures frequently are treated as revenue expenditures. The acquisition of treasury stock with cash is shown as a financing activity on the statement of cash flows. Answer: TRUE After all closing entries […]

Total variable costs remain constant within a defined time period or range of activity. Both public accountants and management accountants are required to adhere to a code of professional conduct. Answer: TRUE Managers prepare financial statements to communicate the company’s […]

The higher the receivables turnover, the lower the days’ sales uncollected. A company with a current ratio of 1.0 is considered more liquid than a company with a current ratio of 2.0. Answer: FALSE Which of the following is Answer: […]

A partnership is dissolved when any partner leaves the business or dies. If the carrying value of goodwill is more than its fair value, an impairment loss must be recorded. Answer: TRUE The recognition of an expense does not depend […]

The customer’s perspective governs whether an activity adds value to a product or service. An adjustment must be made at the end of an accounting period to accrue the interest expense on bonds payable and to amortize any related premium […]

The payment of taxes would be included in the operating activities section of the statement of cash flows. ROI is a performance measure, which uses information only from a company’s income statement. Answer: FALSE In a just-in-time environment, a manager […]

Consistency requires that a company use the same accounting procedures as other companies in the same industry. Cash equivalents include money market accounts, commercial paper, and U.S. Treasury bills. Answer: TRUE Customer lists are classified as intangible assets. Answer: TRUE […]

A bill of activities is used to compute both the costs assigned to activities and the product unit cost. Trading securities are always short-term investments. Answer: TRUE Financing a business with common stock is more risky than financing it with […]

A job order costing system is used by companies that manufacture large amounts of similar products or liquid products. The taking of a physical inventory is an example of periodic independent verification. Answer: TRUE The purchasing process begins with a […]

If any portion of a long-term debt is to be paid in the next year, that portion should be classified as a current liability. A petty cash fund is established for small payments for which writing a check would be […]

The heading of a work sheet might contain the line ‘As of February 28, 20×5.’ Segment profitability analysis includes the preparation of a segmented income statement. Answer: TRUE Budgeting is the process of identifying, gathering, summarizing, and communicating financial and […]

One application of accrual accounting is adjusting the accounts. Performance measurement is the use of quantitative tools to gauge an organization’s performance in relation to a specific goal or an expected outcome. Answer: TRUE A report for a responsibility center […]