If the standard to produce a given amount of product is 2,000 units of direct materials at
$12 and the actual was 1,600 units at $13, the direct materials quantity variance was
$4,800 favorable.
a. True
b. False
A company’s assets are comprised of the following: Cash, $25,000; Receivables,
$5,600; Marketable Securities, $7,200; and Equipment, $65,000. The total of quick
assets is $37,800.
a. True
b. False
Materials inventory consists of the costs of direct and indirect materials that have not
yet entered the manufacturing process.
a. True
b. False
In August, Falcon Inc. received cash in advance of rendering services to its clients. If
only a few of those services were provided by December 31, the yearend adjustment
would:
a. increase unearned revenue and decrease revenue.
b. increase accounts payable and decrease revenue.
c. increase cash and decrease accounts receivable.
d. decrease unearned revenue and increase revenue.
Which of the following refers to the arrangements between buyers and sellers regarding
the payments for merchandise?
a. Credit terms
b. Operating cycle
c. Accounting cycle
d. Markup terms
Operating expenses directly traceable to or incurred for the sole benefit of a specific
department and usually subject to the control of the department manager are termed:
a. miscellaneous administrative expenses.
b. indirect expenses.
c. direct expenses.
d. variable expenses.
For years one through five, a proposed expenditure of $250,000 for a fixed asset with a
5year life has expected net income of $40,000, $35,000, $25,000, $25,000, and
$25,000, respectively, and net cash flows of $90,000, $85,000, $75,000, $75,000, and
$75,000, respectively. The cash payback period is 2.5 years.
a. True
b. False
Flexible budgeting builds the effect of changes in level of activity into the budget
system.
a. True
b. False
The return on total assets is one of the measures of profitability.
a. True
b. False
If the standard to produce a given amount of product is 1,000 units of direct materials at
$11 and the actual was 800 units at $12, the direct materials price variance was $1,000
favorable.
a. True
b. False
In credit terms of 1/10, n/30, the “10” represents the:
a. number of days in the discount period.
b. full amount of the invoice.
c. number of days when the entire amount is due.
d. percent of the cash discount.
Which of the following intangible assets are amortized over their useful life?
a. Trademarks
b. Goodwill
c. Patents
d. All of the above
The expected average rate of return for a proposed investment of $900,000 in a fixed
asset, with a useful life of five years, recognition is given to the effect of straightline
depreciation on the investment, no residual value, and an expected total net income of
$360,000 for the 5 years, is:
a. 18.5%.
b. 40%.
c. 12.5%.
d. 16%.
Calculate breakeven sales (in units) when fixed cost is $216,000, unit selling price is
$120, and unit variable cost is $60.
a. 4,100 units
b. 2,300 units
c. 3,400 units
d. 3,600 units
If merchandise inventory is being valued at cost and the price level is consistently
rising, which method of costing will yield the highest inventory?
a. Average cost
b. LIFO
c. FIFO
d. All methods will generate the same gross profit.
If merchandise inventory is being valued at cost and the price level is steadily falling,
which method of costing will yield the largest gross profit?
a. Average cost
b. LIFO
c. FIFO
d. All methods will generate the same gross profit.
At the end of the fiscal year, the following adjusting entries were omitted:
(a)No adjusting entry was made to transfer the $3,000 of prepaid insurance from the
asset account to the expense account.
(b)No adjusting entry was made to record accrued fees of $500 for services provided to
customers.
Assuming that financial statements are prepared before the errors are discovered,
indicate the effect of each error, considered individually, by inserting the dollar amount
in the appropriate spaces. Insert “0” if the error does not affect the item.
Error (a)Error (b)
OverstatedUnderstatedOverstatedUnderstated
(1)Assets at December 31 would be
$
$
$
$
(2)Liabilities at Dec. 31 would be
$
$
$
$
(3)Net income for the year would be
$
$
$
$
(4)Retained earnings at Dec. 31 would be
$
$
$
$
When a notes payable account is paid in cash, the stockholders’ equity in the business
increases.
a. True
b. False
The cost of materials entering directly into the manufacturing process is classified as
factory overhead cost.
a. True
b. False
In using the variable cost concept of applying the costplus approach to product pricing,
what is included in the markup?
a. Total variable manufacturing costs, total variable selling and administrative expenses,
and desired profit
b. Opportunity costs plus desired profit
c. Total sunk costs plus desired profit
d. Total fixed manufacturing costs, total fixed selling and administrative expenses, and
desired profit
The rate of return on investment can be computed by dividing investment turnover by
the profit margin.
a. True
b. False
A transaction in which a company sells its receivables and immediately receives cash
for operating and other needs is called _____.
a. adjusting
b. assigning
c. factoring
d. discounting
One issue to consider when investing in assets in foreign countries is:
a. that local currency may weaken to the dollar causing adverse effects on the
investment’s return.
b. that the dollar may weaken to the local currency causing adverse effects on the
investment’s return.
c. that local currency may be difficult to exchange into dollars causing problems in
receiving a return on the investment.
d. that dollars may be difficult to exchange into local currency causing problems in
receiving any return on investment.
The declaration of a cash dividend decreases a corporation’s stockholders’ equity and
increases its liabilities.
a. True
b. False
If the standard to produce a given amount of product is 900 units of direct materials at
$11 and the actual was 800 units at $12, the direct materials quantity variance was
$1,100 unfavorable.
a. True
b. False
Which of the following items would be classified as a part of prime cost?
a. Direct labor cost
b. Factory overhead cost
c. Selling cost
d. Administrative cost
Care must be taken while making capital investment decisions since it involves a
longterm commitment of funds and affects operations for several years.
a. True
b. False
The financial performance of responsibility centers is evaluated in the balanced
scorecard under the financial section of the scorecard.
a. True
b. False
If the ownership of merchandise passes to the buyer when the seller delivers the
merchandise for shipment, the terms are stated as FOB destination.
a. True
b. False
Materials used by Ford Company in producing Division A’s product are currently
purchased from outside suppliers at a cost of $30 per unit. However, the same materials
are available from Division B. Division B has unused capacity and can produce the
materials needed by Division A at a variable cost of $20 per unit.
(a)If a transfer price of $25 per unit is established and 60,000 units of material are
transferred with no reductions in Division B’s current sales, how much would Ford
Company’s total operating income increase?
(b)How much would the operating income of Division A increase?
(c)How much would the operating income of Division B increase?
(d)If the negotiated price approach is used, what would be the range of acceptable
transfer prices?
Controllable expenses are those that can be influenced by the decisions of the profit
center management.
a. True
b. False
Rico Inc. issues a 90day, 4%, $3,000 note on account. This transaction:
a. increases net assets and earnings per share of the company.
b. decreases net assets and increases earnings per share of the company.
c. has no effect on net assets and earnings per share of the company.
d. decreases net assets and earnings per share of the company.