If variable costs per unit increased because of an increase in hourly wage rates, the
breakeven point would:
a. decrease.
b. increase.
c. remain the same.
d. increase or decrease, depending upon the percentage increase in wage rates.
Depreciation on factory equipment is an example of a_____.
a. period cost
b. product cost
c. selling cost
d. prime cost
Which of the following provisions of the Internal Revenue Code can be used to reduce
the amount of the income tax expense arising from capital investment projects?
a. Interest deduction
b. Depreciation deduction
c. Minimum tax provision
d. Charitable contributions
Calculate the number of units that must be sold in order to realize an operating income
of $139,000 when fixed costs are $440,000 and unit contribution margin is $20.
a. 28,950 units
b. 29,650 units
c. 30,350 units
d. 31,550 units
The average rate of return method of capital investment analysis gives consideration to
the present value of future cash flows.
a. True
b. False
The ratio of sales to invested assets is termed investment turnover.
a. True
b. False
Flow Inc. received cash from fees earned. How does this transaction affect the
Statement of Cash Flows?
a. Increase cash from Operating Activities
b. Increase cash from Investing Activities
c. Increase cash from Financing Activities
d. No effect on the Statement of Cash Flows
Fixed assets are ordinarily presented on the balance sheet:
a. at its current market value.
b. at its replacement cost.
c. at its cost less accumulated depreciation.
d. under intangible assets.
HTMLENTITY#8203HTMLENTITYA company’s profit margin is 15.5%, its asset
turnover 0.72, and its financial leverage is 3.25. Determine the company’s return on
shareholders’ equity.
a. HTMLENTITY#8203HTMLENTITY42.5%
b. HTMLENTITY#8203HTMLENTITY36.3%
c. HTMLENTITY#8203HTMLENTITY51.7%
d. HTMLENTITY#8203HTMLENTITY28.4%
The declaration and issuance of a stock dividend does not affect the total amount of a
corporation’s assets, liabilities, or stockholders’ equity.
a. True
b. False
Responsibility accounting reports for profit centers will include:
a. only costs.
b. only revenues.
c. both expenses and fixed assets.
d. revenues, expenses, and net income or loss from operations.
Currently, fixed costs are $500,000 and the unit contribution margin is $40. What would
be the breakeven point in units if fixed costs are reduced by $80,000?
a. 14,500 units
b. 20,000 units
c. 10,500 units
d. 12,500 units
Which of the following is normally the result of cash being received or paid before the
revenue is earned or the expense is incurred?
a. A deferred expense
b. An accrued expense
c. A contra asset
d. An intangible asset
513
Machine A will generate net cash flow of $70,000 in each of the four years. Machine B
will generate $80,000 in year 1, $70,000 in year 2, $60,000 in year 3, and $40,000 per
year for the remaining 3 years of its useful life.
Which of the following statements portrays the most accurate analysis between the two
proposals?
a. Mars should invest in Machine A because the net present value of Machine A after 4
years is higher than the net present value of Machine B after 4 years.
b. Mars should invest in Machine B because the net present value of Machine A after 4
years is lower and the net present value of Machine B after 6 years.
c. Mars should invest in Machine B because the net present value of Machine A after 4
years is lower than the net present value of Machine B after 4 years.
d. Mars should invest in Machine A because the net present value of Machine A after 4
years is higher than the net present value of Machine B after 6 years.
Money orders are considered cash.
a. True
b. False
The _____ estimates the number of units to be manufactured to meet budgeted sales
and desired inventory levels.
a. capital expenditures budget
b. production budget
c. sales budget
d. cash budget
The management of Retz Corporation is considering the purchase of a new machine
costing $500,000. The company’s desired rate of return is 10%. The present value
factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826,
0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the
following data in determining the acceptability in this situation:
YearIncome from OperationsNet Cash Flow
1$100,000$200,000
2 80,000 170,000
3 50,000 130,000
4 10,000 80,000
5 10,000 80,000
The average rate of return for this investment is:
a. 18%.
b. 16%.
c. 5%.
d. 20%.
For EFG Co., the transaction “purchase of store equipment with cash” would:
a. increase total assets.
b. decrease total assets.
c. have no effect on total assets.
d. decrease stockholders’ equity.
A machine was purchased for $68,000. It has a useful life of 5 years and a residual
value of $8,000. Determine the annual depreciation expense using the straightline
method?
a. $20,000
b. $12,000
c. $60,000
d. $16,000
Merchandise not sold at the end of the period is reported as:
a. cost of goods sold.
b. old stock.
c. merchandise inventory.
d. net purchases.
The best measure of managerial efficiency in the use of investments in assets is:
a. rate of return on stockholders’ equity.
b. rate of return on investment.
c. operating income.
d. inventory turnover.
Favorable volume variances may be harmful when:
a. machine repairs cause work stoppages.
b. supervisors fail to maintain an even flow of work.
c. production in excess of normal capacity cannot be sold.
d. there are insufficient sales orders to keep the factory operating at normal capacity.
A 90day, 10% note for $10,000 dated March 15 is received from a customer on account.
The face value of the note is:
a. $10,250.
b. $9,000.
c. $9,750.
d. $10,000.
WFC Company paid wages of $50,000 and received interest of $60,000. As a result of
these transactions, the stockholders’ equity:
a. increases by $ 60,000.
b. decreases by $110,000.
c. increases by $10,000.
d. decreases by $50,000.
Max, Inc. can sell a large piece of machinery for $90,000. The machinery originally
cost $240,000 and has accumulated depreciation of $130,000. Max will have to pay a
5% sales commission on the sale. Rather than sell, Max is considering leasing the
machine. It can be leased for 4 years for $24,000 per year. Max has estimated future
operating expenses to be $3,000 per year, and Max will be responsible for those
expenses. Which of the following options most accurately describes the analysis and
decision for Max?
a. Lease because differential revenues are $6,000 if Max leases rather than sells
b. Lease because Max will lose $20,000 if it sells the equipment for less than its
$110,000 book value
c. Sell because differential income of selling rather than leasing is $6,000
d. Sell because differential income is $1,500 if Max sells rather than leases
The basic elements of a financial accounting system include a framework for preparing
financial statements.
a. True
b. False
June Co. is evaluating a project requiring a capital expenditure of $620,000. The project
has an estimated life of four years and no salvage value. The estimated net income and
net cash flow from the project are as follows:
YearNet Income Net Cash Flow
1$ 45,000 $200,000
285,000 240,000
35,000 160,000
4 15,000 170,000
$150,000 $770,000
The company’s minimum desired rate of return is 12%. The present value of $1 at
compound interest of 12% for 1, 2, 3, and 4 years is 0.893, 0.797, 0.712, and 0.636,
respectively.
Determine: (a) the average rate of return on investment, giving effect to depreciation on
the investment, and (b) the net present value.
Anna erroneously records a check drawn for $385 as $835. This error is adjusted on the
bank reconciliation as a(n):
a. $450 addition to the cash balance per books.
b. $385 addition to the cash balance per bank.
c. $835 deduction from the cash balance per bank.
d. $1,220 deduction from the cash balance per books.
If 50,000 shares are authorized, 35,000 shares are issued, and 1,000 shares are
reacquired, the number of outstanding shares is 36,000.
a. True
b. False
The direct labor time variance measures the efficiency of the direct labor force.
a. True
b. False
Interest receivable is an example of:
a. accrued revenue.
b. retained earnings.
c. deferred revenue.
d. a prepaid expense.
Calculate the contribution margin ratio of a company with sales of $180,000 and
operating income of $37,000. Variable costs of the company are 52% of sales.
a. 41%
b. 48%
c. 36%
d. 24%