The document issued by the seller that informs the buyer of the details of customer
refund is called a debit memorandum.
a. True
b. False
Net income or loss may appear on the income statement of both a service business and
a retail business.
a. True
b. False
The net realizable value is used for purposes of valuing out of date merchandise in
inventory.
a. True
b. False
Which of the following factors results in an unfavorable fixed factory overhead volume
variance?
a. A budgeted increase in sales that requires more advertising expenses
b. The payment of longterm debt payments
c. An unexpected increase in the cost of utilities
d. Work stoppages caused by lack of materials
Merchandise which is not sold at the end of the year is reported on the balance sheet as
_____.
a. accounts receivable
b. capital stock
c. inventory
d. operating income
Federal unemployment compensation taxes that are collected by the federal government
are not paid directly to the unemployed but are allocated among the states for use in
state programs.
a. True
b. False
Zorro Inc. has the following cash register data for December 31:
Cash register total for cash sales $23,500
Cash receipts from cash sales$23,480
How should the difference be recorded?
a. $20 cash overage as miscellaneous operating expense
b. $20 cash overage as revenue
c. $20 cash shortage as normal operating expense
d. $20 cash shortage as other revenue
A sales invoice included the following information: merchandise price, $6,000; terms
2/10, n/eom. Assuming that a credit for merchandise returned of $600 is granted prior to
payment, and that the invoice is paid within the discount period, what is the amount of
cash received by the seller?
a. $5,880
b. $5,292
c. $5,586
d. $5,592
The integrated financial statement approach has builtin controls to ensure that all
transactions are correctly analyzed, recorded, and summarized.
a. True
b. False
The underlying principle of allocating operating expenses to departments is to assign
each department an amount of expense proportional to the revenues of that department.
a. True
b. False
To determine cash payments for operating expenses for the cash flow statement using
the direct method, depreciation expense is added to net income.
a. True
b. False
When merchandise that was sold is returned, the seller decreases accounts payable.
a. True
b. False
The difference between the total receivables and the balance in Allowance for Doubtful
Accounts at the end of a period is referred to as the net realizable value of the
receivables.
a. True
b. False
The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and
a $40,000 residual value, is expected to yield total net income of $200,000 for 5 years.
The expected average rate of return on investment is 18.2%.
a. True
b. False
To calculate operating income, total service department charges are:
a. subtracted from operating income before service department charges.
b. subtracted from operating expenses.
c. added to operating income before service department charges.
d. subtracted from gross profit margin.
A cost that has been incurred in the past and is irrelevant is termed a(n):
a. variable cost.
b. opportunity cost.
c. differential cost.
d. sunk cost.
A corporation is a business that is legally separate and distinct from its owners.
a. True
b. False
Net sales is calculated by _____.
a. subtracting cost of goods sold from total sales
b. subtracting customer refunds from total sales
c. adding ending inventory to total sales
d. adding cost of goods sold to total sales
For EFG Co., the transaction “receipt of interest income” would:
a. increase total assets.
b. decrease total assets.
c. have no effect on total assets.
d. decrease total liabilities.
The two methods that consider the time value of money concept to analyze capital
investment proposals are:
a. the net present value method and the internal rate of return method.
b. the net present value method and the average rate of return method.
c. the internal rate of return method and the average rate of return method.
d. the cash payback method and the net present value method.
Separating the custody of assets from accounting for assets is a part of which element of
internal control?
a. Information and communication
b. Monitoring
c. Control environment
d. Control procedures
Fixed factory overhead volume variance is the difference between:
a. the budgeted fixed overhead at 100% of normal capacity and the standard fixed
overhead for the actual units produced.
b. the budgeted fixed overhead for actual units produced and the standard fixed
overhead for the actual units produced.
c. the budgeted fixed overhead for actual units produced and the actual fixed overhead
for the actual units produced.
d. the budgeted fixed overhead at 100% of normal capacity and the actual fixed
overhead for the actual units produced.
Days’ sales in inventory estimates the average number of days it takes to:
a. convert inventory to sales.
b. convert raw materials to finished inventory.
c. collect cash from inventory sold.
d. pay suppliers for inventory purchased.
The following assets are included in Fortible Auto Parts, Inc.’s December 31, 2016,
balance sheet.
Accounts Receivable
(net of Allowance for Uncollectible Accounts)$ 65,000
Accumulated Depreciation, Building32,000
Building150,000
Cash80,000
Land160,000
Merchandise Inventory90,000
Trademark125,500
The total dollar amount of assets classified as property, plant, and equipment on
Fortible Auto Part’s December 31, 2016, classified balance sheet is:
a. $250,000.
b. $310,000.
c. $278,000.
d. $375,000.
Zygot Inc. had $650,000 invested in assets, sales of $1,250,000, operating income
amounting to $140,000, and a minimum acceptable rate of return of 12% on its invested
assets. The rate of return on investment for Zygot is:
a. 16.2%.
b. 21.5%.
c. 14.5%.
d. 25.0%.
When cash is paid to suppliers on account, which section of the Statement of Cash
Flows is affected?
a. Cash Flow from Operating Activities.
b. Cash Flow from Investing Activities.
c. Cash Flow from Financing Activities
d. There is no effect on the Statement of Cash Flows.
A sale of $600 on account subject to a sales tax of 5% would increase account
receivable by $570.
a. True
b. False
The fixed cost per unit varies with changes in the level of activity.
a. True
b. False
Cost of Merchandise Sold is used in accounting for transactions by sellers of
merchandise.
a. True
b. False
A check drawn by a depositor for $810 in payment of a liability was recorded by the
depositor as $180. The $630 difference would be included on the bank reconciliation as
a(n):
a. addition to the cash balance per books.
b. addition to the cash balance per bank.
c. deduction from the cash balance per bank.
d. deduction from the cash balance per books.
For a retail firm, the inventory sold is shown on the income statement as:
a. cost of goods sold.
b. purchases.
c. purchases returns and allowances.
d. net purchases.
If liabilities have a balance of $10,000 and stockholders’ equity has a balance of
$60,000, then assets must have a balance of:
a. $50,000.
b. $60,000.
c. $70,000.
d. $10,000.
Eagle Eye, Inc., a corporation, received an additional investment of $6,000 cash in
exchange for shares of common stock. How does this transaction affect Eagle Eye’s
accounts?
a. Increase in stock expense and decrease cash by $6,000 each
b. Increase common stock and increase cash by $6,000 each
c. Increase common stock and increase revenue by $6,000 each
d. Increase common stock and decrease retained earnings by $6,000 each