Internal control is enhanced by combining the control of a transaction with the
recordkeeping function.
a. True
b. False
Costs incurred to earn revenue are referred to as _____.
a. common stock
b. expenses
c. liabilities
d. retained earnings
Based on the following information, calculate the direct materials quantity variance.
Actual quantity2,500 pounds at $6.00
Standard quantity2,900 pounds at $5.50
a. $2,250 unfavorable
b. $2,200 favorable
c. $2,500 favorable
d. $2,700 unfavorable
If Division Inc. expects to sell 200,000 units in 2016, desires ending inventory of
24,000 units, and has 22,000 units on hand as of the beginning of the year, the budgeted
volume of production for 2016 is 198,000 units.
a. True
b. False
The FICA tax withheld from employees contributes to:
a. federal and state unemployment compensation.
b. Social Security and federal unemployment compensation.
c. Social Security and Medicare.
d. Medicare only
ABC Inc. borrows $50,000 from a bank to finance its operations. Which of the
following statements regarding the effect of this transaction on the company’s liquidity
and profitability metric is true?
a. The transaction decreases the liquidity and increases the profitability of ABC Inc.
b. The transaction increases the liquidity and decreases the profitability of ABC Inc.
c. The transaction has no effect on the liquidity and profitability of ABC Inc.
d. The transaction increases the liquidity and has no effect on the profitability of ABC
Inc.
The units of Product YY2 available for sale during the year were as follows:
Apr. 1Inventory16 unitsat$30 each
Jun. 16Purchase30 unitsat$33 each
Sep. 28Purchase45 unitsat$37 each
There are 17 units of the product in the physical ending inventory at March 31. The
periodic inventory system is used. Determine the ending inventory cost by (a) FIFO, (b)
LIFO, and (c) average cost methods.
Division Y has generated sales revenue of $260,000 and achieved operating income of
$18,500 using $20,000 of invested assets. If management desires a minimum rate of
return of 10%, the profit margin would be:
a. 19.5%.
b. 14.4%.
c. 10.2%.
d. 7.1%.
A project analysis using the net present value method indicates that the present value of
cash inflows is $120,000, and the total amount of investment required at the start of the
project is $100,000. Which of the following statements best describes the results of the
project analysis?
a. The project should be accepted because the actual rate of return expected from the
project is more than the minimum desired rate of return.
b. The project should be accepted because the actual rate of return expected from the
project is less than the minimum desired rate of return.
c. The project should be rejected because the actual rate of return expected from the
project is more than the minimum desired rate of return.
d. The project should be rejected because the actual rate of return expected from the
project is less than the minimum desired rate of return.
What additional information is needed to find the rate of return on investment if
operating income is known?
a. Invested assets
b. Residual income
c. Direct expenses
d. Sales
The payment of utilities expense in cash would affect the operating activities in the
statement of cash flows and the income statement but not the balance sheet.
a. True
b. False
An employee receives an hourly rate of $27, with time and a half for all hours worked
in excess of 40 during a week. Payroll data for the current week are as follows: hours
worked, 46; federal income tax withheld, $350; cumulative earnings for year prior to
current week, $99,700; social security tax rate, 6.0% on maximum of $106,800; and
Medicare tax rate, 1.5% on all earnings. What is the net pay for the employee?
a. $798.85
b. $873.77
c. $953.16
d. $1,223.77
Which of the following is the effect of recording a depletion expense on the profitability
and liquidity metrics of a company?
a. Its free cash flow and asset turnover remains unaffected.
b. Its asset turnover decreases.
c. Its asset turnover increases.
d. Its free cash flow decreases.
The following information is available for the first month of operations for Bluemoon,
Inc.:
Sales$850,000
Gross profit330,000
Indirect labor35,000
Indirect materials14,000
Other factory overhead9,000
Materials purchased360,000
Total manufacturing costs670,000
Materials inventory, end of period20,000
Based on the information provided for Bluemoon, Inc., calculate the cost of goods sold.
a. $670,000
b. $418,000
c. $520,000
d. $650,000
The excess of cash flowing in from revenues over the cash flowing out for expenses is
termed net cash flow.
a. True
b. False
A criticism of a singlestep income statement is that net income is not available for
analysis.
a. True
b. False
Which of the following conditions would cause the breakeven point to increase?
a. Decrease in total fixed costs
b. Increase in unit selling price
c. Decrease in unit variable cost
d. Increase in unit variable cost
Depreciable cost is computed as:
a. cost less accumulated depreciation.
b. book value less residual value.
c. cost less residual value.
d. market value less residual value.
A primary disadvantage of corporations is that the financial resources available to them
are limited.
a. True
b. False
A company with $60,000 in current assets and $40,000 in current liabilities pays a
$1,000 current liability. As a result of this transaction, the current ratio and working
capital will:
a. remain the same and decrease, respectively.
b. increase and remain the same, respectively.
c. both increase.
d. both decrease.
Which of the following is true of a capital expenditures budget?
a. It summarizes plans for acquiring fixed assets.
b. It indicates all the estimated cash receipts and cash payments for a period of time.
c. It records all shortterm expenses for a period.
d. It lists all the transactions related to capital stock.
Two divisions of Crowson Company (Divisions X and Y) have the same profit margins.
Division X’s investment turnover is larger than that of Division Y (1.2 to 1.0). Which of
the following statements is true?
a. Division Y will have a higher return on investment as it is using its assets more
efficiently in generating sales.
b. Division X will have a higher return on investment as it is generating more operating
income.
c. Division X will have a higher return on investment as it is using its assets more
efficiently in generating sales.
d. Division Y will have a higher return on investment as it is generating more operating
income.
A company acquired a truck for $79,000 at the beginning of the fiscal year. It has a
useful life of 5 years and a residual value of $9,000. The company uses the straightline
method of depreciation. After owning the truck for two years, the company sold it for
$34,000. (a) Determine depreciation expense for each of the first two years, and (b)
determine the gain or loss resulting from the sale.
Which of the following is an example of an administrative expense?
a. Cost of goods sold
b. Office supplies expense
c. Loss from disposing of fixed assets
d. Advertising expense
Operating income of the Commercial Aviation Division is $3,300,000. If operating
income before service department charges is $3,900,000:
a. operating expenses are $600,000.
b. total service department charges are $600,000.
c. noncontrollable charges are $7,200,000.
d. direct manufacturing charges are $3,900,000.
A company issues 5,000 shares of $15 par common stock. As a result, the earnings per
share of the company _____.
a. increases
b. remains unchanged
c. decreases
d. equals to $15
When a company reports negative net cash flows from operations _____.
a. ratio of equity to annual cash expenses helps in assessing the survival of the company
b. ratio of equity to monthly cash expenses helps in assessing the survival of the
company
c. ratio of cash to monthly cash expenses helps in assessing the survival of the company
d. ratio of accounts payable to annual financing expenses helps in assessing the survival
of the company
Current position analysis indicates a company’s ability to liquidate current liabilities.
a. True
b. False
The primary purpose of a stock split is to reduce the number of shares outstanding in
order to encourage more investors to enter the market for the company’s shares.
a. True
b. False
Paidin capital and retained earnings are the two major categories of stockholders’ equity
for a corporation.
a. True
b. False
_____ is reported as a current asset on balance sheet.
a. Operating income
b. Cost of goods sold.
c. Merchandise inventory
d. Accounts payable