Every company must use the cash basis of accounting.
a. True
b. False
On the income statement in the singlestep form, the total of all expenses is deducted
from the total of all revenues.
a. True
b. False
Abe Inc’s Division A has a rate of return on investment of 18% and an investment
turnover of 1.1. What is the division’s profit margin?
a. 9.4%
b. 14.2%
c. 11.7%
d. 16.4%
In which of the following pricing methods is the markup added to manufacturing costs
and selling and expenses to determine the selling price?
a. Total cost method
b. Product cost method
c. Variable cost method
d. Fixed cost method
The percentage change in longterm liabilities between two balance sheet dates is an
example of:
a. profitability analysis.
b. solvency analysis.
c. horizontal analysis.
d. vertical analysis.
Anthony, Inc. buys land for $50,000 cash. The net effect on assets is:
a. $50,000 increase.
b. $0.
c. $50,000 decrease.
d. $25,000 increase.
The expected period of time that will elapse between the date of a capital investment
and the complete recovery in cash of the amount invested is called the discount period.
a. True
b. False
The revenue that is forgone from an alternative use of an asset, such as cash, is called
an opportunity cost.
a. True
b. False
Under the perpetual inventory system, the cost of merchandise sold is recorded when
sales are made.
a. True
b. False
Classify the following as either Current Assets (CA), Investments (I), or both (CA and
I).
(a)Trade Receivables
(b)Note Receivable due in 30 days
(c)Interest Receivable on note due in 30 days
(d)Note Receivable due in 2 years
(e)Fiveyear Note Receivable due in a series of equal annual payments
Average rate of return equals average investment divided by estimated average annual
income.
a. True
b. False
Surist, Inc.
Surist, Inc. purchased merchandise for $300,000, received credit for purchase returns of
$20,000, availed purchase discounts of $5,000, and paid transportation in of $12,000.
Refer to Surist, Inc. If Surist, Inc. had $30,000 in beginning inventory, and sold goods
costing $180,000, what is the ending inventory balance?
a. $150,000
b. $162,000
c. $90,000
d. $137,000
Use the following data to calculate the cost of ending inventory under the FIFO method.
September 1Beginning Inventory15 units at $20 each
September 10Purchase20 units at $25 each
September 20Purchase25 units at $28 each
September 30Ending Inventory30 units
a. $825
b. $750
c. $675
d. $840
The computations required for the net present value method are less than those the
computation required for the average rate of return method.
a. True
b. False
Which of the following formulas is used to calculate the present value index?
a. Total present value of net cash flow / Equal annual net cash flows
b. Amount to be invested / Total present value of net cash flow
c. Equal annual net cash flows / Total present value of net cash flow
d. Total present value of net cash flow / Amount to be invested
A patent was purchased for $585,000 with a legal life of 20 years. Management
estimates that the patent has a 12year economic life. The entry to record amortization
would include:
a. an increase in amortization expense for $29,250.
b. an increase in research and development expense for $585,000.
c. a decrease in patent for $48,750.
d. an increase in accumulated amortization for $585,000.
Division Z of Stark Inc. has a rate of return on investment of 17% and a profit margin
of 9%. What is its investment turnover?
a. 4.1
b. 2.3
c. 1.9
d. 3.5
The recording of the factory labor costs incurred for general factory use would include
a debit to:
a. Factory Overhead.
b. Wages Payable.
c. Wages Expense.
d. Cost of Goods Sold.
Which of the following is considered an asset until consumed?
a. Accounts payable
b. Prepaid expense
c. Accounts receivable
d. Stockholders’ equity
Direct materials costs are included in the conversion costs of a product.
a. True
b. False
When the allowance method for recognising uncollectible accounts receivable is used,
the allowance account will
have a positive balance at the end of the period if:
a. the writeoffs during the period exceed the beginning balance.
b. the writeoffs are equal to the balance of the account at the beginning of the period.
c. the writeoffs during the period are less than the beginning balance.
d. the writeoffs are equal to the difference between the beginning and the ending
balance of the account.
_____ is an example of a fixed asset.
a. A machine
b. A prepaid expense
c. Land held for investment
d. An accrued revenue
Under direct costing, only _____ manufacturing costs are included in the product cost.
a. variable
b. fixed
c. capitalized
d. notional
If the volume of sales is $6,000,000 and sales at the breakeven point amount to
$5,000,000, the margin of safety will be 20%.
a. True
b. False
If a firm has a quick ratio of 1, the subsequent payment of an account payable will
cause the ratio to increase.
a. True
b. False
A special cash fund used to make small payments that occur frequently is called a(n):
a. operating expenses fund.
b. change fund.
c. market fund.
d. petty cash fund.
The expired amount of a prepaid expense is recorded as:
a. accrued revenue.
b. a contra asset.
c. a liability.
d. an expense.
A written promise to pay a sum of money on demand or at a definite time is called a(n):
a. letter of credit.
b. deferred note.
c. credit memorandum.
d. promissory note.
It is beneficial for related companies to negotiate a transfer price when the supplying
company has unused capacity in its plant.
a. True
b. False
Direct labor cost is an example of a product cost.
a. True
b. False
When purchases of merchandise are made for cash, under the perpetual inventory
system, the transaction:
a. increases Cash; decreases Merchandise Inventory.
b. increases Merchandise Inventory; decreases Cash.
c. increases Merchandise Inventory; decreases Cash Discounts.
d. increases Merchandise Inventory; decreases Purchases.
Frank Co. is currently operating at 80% of capacity and is currently purchasing a part
used in its manufacturing operations for $25 unit. The unit cost for Frank Co. to make
the part is $30, which includes $3 of fixed costs. If 20,000 units of the part are normally
purchased each year but could be manufactured using unused capacity, what would be
the amount of differential cost increase or decrease for making the part rather than
purchasing it?
a. $60,000 decrease
b. $40,000 decrease
c. $40,000 increase
d. $60,000 increase