Which of the following is true of rate of return on assets?
a. It is a measure of a company’s profitability.
b. It is used to evaluate a company’s ability to pay off its shortterm debts.
c. It is used to determine the financial leverage of a company.
d. It is a measure of the optimum capital structure.
For purpose of analysis, mixed costs can generally be separated into their variable and
fixed components.
a. True
b. False
A practical approach that is frequently used by managers when setting normal selling
price is the costplus approach.
a. True
b. False
Materials used by Boone Company in producing Division C’s product are currently
purchased from outside suppliers at a cost of $20 per unit. However, the same materials
are available from Division A. Division A has unused capacity and can produce the
materials needed by Division C at a variable cost of $17 per unit. A transfer price of $19
per unit is negotiated and 60,000 units of material are transferred, with no reduction in
Division A’s current sales.
How much would Division A’s operating income increase?
a. $0
b. $180,000
c. $60,000
d. $120,000
Vivi Corporation’s earnings per share of common stock was $1.50 and a market price of
$33.50, calculate the priceearnings ratio.
a. 50.6
b. 22.3
c. 44.0
d. 33.5
Service companies can effectively use activitybased costing to compute product
(service) costs.
a. True
b. False
The sales, operating income, and invested assets for each division of Garner Company
are as follows:
Operating Invested
Sales Income Assets
Division E$3,000,000$470,000$2,500,000
Division F3,600,000 430,0002,400,000
Division G6,000,000 560,0003,000,000
(a)Using the expanded expression, determine the profit margin, investment turnover,
and rate of return on investment for each division. Round to one decimal place.
(b)Which division is (are) the most profitable as per dollar invested?
The ability of a business to earn a reasonable amount of income is referred to as the
factor of:
a. profitability.
b. wealth.
c. leverage.
d. solvency.
Which of the following would be classified as direct materials for an auto
manufacturer?
a. Factory light bulbs
b. Material used for door panels
c. Drill bits
d. Steel
When evaluating whether to lease or sell an equipment, book value is considered to be
the cost of selling the equipment.
a. True
b. False
Which of the following is not a subsection in a multiplestep income statement?
a. Purchase discounts
b. Gross profit
c. Operating income
d. Income before taxes
Period costs are costs that are incurred for the production requirements of a certain
period.
a. True
b. False
The statement of cash flows is integrated with the balance sheet because:
a. the cash at the beginning of the period plus or minus the cash flows from operating,
investing, and financing activities equals the end of period cash reported on the balance
sheet.
b. the cash at the beginning of the period plus or minus the net income equals the end of
period cash reported on the balance sheet.
c. the cash at the beginning of the period plus or minus assets and liabilities equals the
end of period cash reported on the balance sheet.
d. the cash at the beginning of the period plus or minus the cash flows from operating
activities equals the end of period cash reported on the balance sheet.
One of the conditions for paying a cash dividend is sufficient retained earnings.
a. True
b. False
Which of the following statements is true about a limited liability company?
a. It is organized under state or federal statutes as a separate legal entity.
b. Many professional practices such as lawyers, doctors, and accountants are organized
as limited liability companies.
c. Its financial resources are limited to the individual owner’s resources.
d. The frequency of this form is due to the ease and low cost of organizing.
The product cost concept includes the selling and administrative expenses in the cost
amount to which the markup is added to determine product price.
a. True
b. False
The cost of removal of an old building to make the land ready for its intended use is
charged to:
a. land.
b. land improvements.
c. buildings.
d. operating expenses.
Based on the following information, calculate fixed costs per month using the highlow
method.
Cost Machine Hours
May$56,00022,000
June76,00032,000
July58,00026,000
August66,00024,000
a. $12,000
b. $11,000
c. $10,000
d. $9,000
FICA tax becomes a liability to the federal government at the time the employees are
paid.
a. True
b. False
Which of the following statements is prepared with various sections, subsections, and
captions?
a. A statement of current assets
b. A statement of stockholders’ equity
c. A pro forma contra asset statement
d. A classified balance sheet
The recording of the jobs shipped and customers billed would increase:
a. Accounts Payable.
b. Cash.
c. Finished Goods.
d. Cost of Goods Sold.
A canceled check for $1,900 was erroneously recorded by the bank as $9,100. How is
the error adjusted in a bank reconciliation?
a. The amount is deducted from the cash balance in the bank section of the
reconciliation.
b. The amount is deducted from the cash balance in the company section of the
reconciliation.
c. The amount is added to the cash balance in the bank section of the reconciliation.
d. The amount is added to the cash balance in the company section of the reconciliation.
When a firm uses internal auditors, it is adhering to which of the following internal
control elements?
a. Risk assessment
b. Control procedures
c. Monitoring
d. Information and communication
Merchandise inventory shrinkage will increase Merchandise Inventory.
a. True
b. False
Which of the following expenditures would be included in the cost of a fixed asset?
a. Uninsured theft
b. Vandalism
c. Sales taxes
d. Mistakes in installation
XYZ Co. received $3,000 in payments from clients for services billed in a previous
month. Which accounts will be affected and by what amounts under the accrual basis of
accounting?
a. Cash will increase by $3,000 and accounts receivable decrease by $3,000.
b. Cash will increase by $3,000 and revenues will increase $3,000.
c. Accounts receivable will increase by $3,000 and revenue will increase by $3,000.
d. Accounts receivable will increase by $3,000 and cash will increase by $3,000.
A voucher is the notification accompanying the check issued to a creditor that indicates
the specific invoice being paid.
a. True
b. False
Which of the following capital investment evaluation methods uses present values
while evaluating different projects?
a. The breakeven analysis method
b. The cash payback method
c. The annuity indexation method
d. The internal rate of return method
In preparing flexible budgets, the first step is to identify the fixed and variable
components of the various costs and expenses being budgeted.
a. True
b. False
XYZ Co. paid $1,000 in dividends to stockholders. How does this transaction affect the
accounts of XYZ?
a. Cash will decrease by $1,000 and retained earnings will decrease by $1,000.
b. Cash will decrease by $1,000 and expenses will increase $1,000.
c. Cash will decrease by $1,000 and revenues will decrease $1,000.
d. Net income will decrease by $1,000.
What adjustment is required in the depositor’s accounts to record outstanding checks?
a. None
b. Increase Cash; decrease Accounts Receivable
c. Increase Cash; increase Accounts Payable
d. Increase Accounts Receivable; decrease Cash
Based on the following data, calculate the amount of quick assets.
Accounts payable$ 68,000
Accounts receivable89,000
Accrued liabilities12,000
Cash58,500
Intangible assets38,000
Inventory61,000
Longterm investments250,000
Longterm liabilities66,000
Marketable securities59,000
Notes payable (shortterm)47,000
Property, plant, and equipment637,000
Supplies17,000
a. $205,600
b. $208,400
c. $206,500
d. $204,200