1) If the market rate of interest is 8% and a corporation’s bonds bear interest at 7%, the
bonds will sell at a premium.
2) If income from operations for a division is $6,000, invested assets are $25,000, and
sales are $30,000, the investment turnover would be 1.2 .
3) Assets are acquired through investing activities when resources are purchased.
4) A 10% stock dividend will increase the book value per share.
5) Variable cost per unit remains the same regardless of activity level.
6) In preparing a bank reconciliation, the amount of deposits in transit is deducted from
the cash balance per books.
7) Medicare taxes are withheld from an employee’s pay only till the employee has
earned a specific amount each year.
8) Variable costs as a percentage of sales is equal to 100% minus the contribution
margin ratio.
9) For years one through five, a proposed expenditure of $250,000 for a fixed asset with
a 5-year life has expected net income of $40,000, $35,000, $25,000, $25,000, and
$25,000, respectively, and net cash flows of $90,000, $85,000, $75,000, $75,000, and
$75,000, respectively. The cash payback period is 2.5 years.
10) The fixed cost per unit varies with changes in the level of activity.
11) 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 cash
payback period.
12) Sales to customers who use bank credit cards, such as MasterCard and VISA, are
generally treated as credit sales.
13) Bank customers are considered owners of the bank, so the bank shows their
accounts as an asset on the bank’s records.
14) Under the cash basis of accounting, expenses are recorded when paid.
15) Monthly rent on a factory building is an example of a fixed cost.
16) The costs of materials and labor that do not enter directly into the finished product
are classified as cost of goods sold.
17) When choosing whether or not to replace an equipment, the analysis normally
focuses on the costs of continuing to use the old equipment versus replacing the
equipment.
18) When capital stock is issued by a corporation for cash, both the income statement
and the balance sheet are affected.