The profit center income statement should include only those revenues and expenses
that can be controlled by the manager.
a. True
b. False
_____ occurs due to obsolescence that causes an asset to no longer provide services for
which it was intended.
a. Physical depreciation
b. Effective depreciation
c. Accelerated depreciation
d. Functional depreciation
ONI, Inc. purchased $60,000 of equipment for cash. How does this transaction impact
the statement of cash flows?
a. Decreases the cash flow from operating activities by $60,000
b. Decreases equipment by $60,000
c. Decreases the cash flow from investing activities section by $60,000
d. This transaction would not affect the statement of cash flows.
Joy Co.’s recorded inventory information for the month of August is as follows:
Beginning Inventory22 units at $15 each
First Purchase25 units at $18 each
Second Purchase21 units at $20 each
Sales48 units
Determine the total cost of ending inventory according to (a) FIFO method and (b)
LIFO method.
On which of the following dates, a company incurs liability for a dividend?
a. The date of record
b. The date of payment
c. The date of liquidation
d. The date of declaration
If the market rate of interest is 9% and a corporation’s bonds bear interest at 7%, the
bonds will sell at a premium.
a. True
b. False
What is the effect of declaring a stock dividend on the liabilities and stockholders’
equity section of the balance sheet?
a. A decrease in total liabilities and an increase in total stockholders’ equity
b. No effect on total liabilities and total stockholders’ equity
c. An increase in total liabilities and a decrease in total stockholders’ equity
d. No effect on total liabilities and a decrease in total stockholders’ equity
Assuming that the quantities of inventory on hand during the current year were
sufficient to meet all demands for sales, a decrease in the inventory turnover for the
current year when compared with the turnover for the preceding year indicates an
improvement in the management of inventory.
a. True
b. False
A company with working capital of $600,000 and a current ratio of 3.25 pays a
$200,000 shortterm liability. The amount of working capital immediately after payment
is:
a. $400,000.
b. $800,000.
c. $600,000.
d. $200,000.
If the profit margin for a division is 8% and the investment turnover is 1.20, the rate of
return on investment computed would be 6.7%.
a. True
b. False
In an investment center, the manager has the responsibility for and the authority to
make decisions that affect:
a. the assets invested in the center but not costs and revenues.
b. costs and assets invested in the center but not revenues.
c. both costs and revenues for the department or division.
d. not only costs and revenues but also assets invested in the center.
Which of the following manufacturing costs is an indirect cost of producing a product?
a. Oil lubricants used for factory machinery
b. Commissions for sales personnel
c. Hourly wages of an assembly worker
d. Memory chips for a microcomputer manufacturer
Standards are more widely used for nonmanufacturing expenses than for manufacturing
costs.
a. True
b. False
Which of the following is true about the changes in fixed cost?
a. An increase in production will result in an increase in per unit fixed cost.
b. A decrease in fixed cost will result in an increase in variable cost.
c. An increase in production will result in a decrease in per unit fixed cost.
d. A decrease in production will result in an increase in total fixed cost.
The relationship of each asset item as a percent of total assets is an example of
horizontal analysis.
a. True
b. False
Illustrate the effects on the accounts and financial statements of each of the following
transactions for a company using a job order cost system:
(a)Materials purchased on account$186,000
(b)Materials requisitioned:
For production orders161,500
For general factory use8,700
(c)Factory labor used:
On production orders139,800
For general factory purposes9,000
(d)Depreciation on factory equipment40,000
(e)Factory overhead applied, based on machine hours97,650
(f)Jobs finished406,000
(g)Jobs shipped to customers: cost, $394,000; selling price580,000
Cape Corporation sells a single product. Budgeted sales for the year are anticipated to
be 640,000 units, estimated beginning inventory is 98,000 units, and desired ending
inventory is 80,000 units. The quantities of direct materials expected to be used for each
unit of finished product are given below.
Material A .50 lb. per unit@ $0.60 per pound
Material B1.00 lb. per unit@ $1.70 per pound
Material C1.20 lb. per unit@ $1.00 per pound
The amount of direct material B purchased during the year is:
a. $1,224,000.
b. $1,390,600.
c. $1,088,000.
d. $1,057,400.
Identify the classification of following items as:
a.accrued asset
b.unearned revenue
c.accrued liability
d.prepaid expense
(1)Three months’ interest on notes payable paid in advance
(2)Subscription fees for six months received in advance
(3)Services rendered but not yet billed at monthend
(4)Interest payable accrued on an accounts payable, but not yet paid
(5)Salaries payable owed but not yet paid
(6)Two year’s premium on building paid in advance
From the following data for David ProElecticals, calculate the quick ratio.
Cash$ 68,500
Accounts receivable130,000
Inventories213,000
Prepaid expenses 25,000
Total current assets$436,500
Less current liabilities 275,000
Working capital$161,500
a. 1.6
b. 0.7
c. 0.3
d. 1.5
The direct writeoff method records uncollectible accounts expense in the year the
specific account receivable is determined to be uncollectible.
a. True
b. False
Johnson, Inc. purchased land for cash. What effect does this transaction have?
a. Increase in Cash and decrease in Land
b. Decrease in Cash and decrease in Land
c. Increase in Cash and increase in Land
d. Decrease in Cash and increase in Land
Which of the following is not an example of a capital market stakeholder?
a. Banks
b. Owners
c. Suppliers
d. Stockholders
The internal rate of return method of analyzing capital investment proposals uses the
present value concept to compute the rate of return expected from the proposals.
a. True
b. False
A business received an offer from an exporter for 10,000 units of product at $13.50 per
unit. The acceptance of the offer will not affect normal production or domestic sales
prices. The following data are available:
Domestic unit sales price$21
Unit manufacturing costs:
Variable12
Fixed5
What is the amount of the gain or loss from acceptance of the offer?
a. $75,000 loss
b. $40,000 gain
c. $15,000 gain
d. $85,000 gain
Of the three widely used inventory costing methods (FIFO, LIFO, and average), the
FIFO method of costing inventory is based on the assumption that costs are charged
against revenues in the order in which they were incurred.
a. True
b. False
In a job order cost system, materials and supply costs for a service business are
normally included as part of overhead cost.
a. True
b. False
Manufacturers implement the philosophy of justintime processing to produce products
with high quality, low cost, and instant availability.
a. True
b. False
Which of the following doesn’t result in an unfavorable fixed overhead volume
variance?
a. Sales orders at a low level
b. Machine breakdowns
c. Employee inexperience
d. Increase in utility costs
If a revenue expenditure is treated as a capital expenditure, then:
a. expenses are overstated and owners’ equity is understated.
b. expenses are overstated and assets are overstated.
c. expenses are understated and owners’ equity is overstated.
d. net income is overstated and owners’ equity is understated.
Most employers are levied a tax on payrolls for:
a. sales tax.
b. medical insurance premiums.
c. federal unemployment compensation tax.
d. union dues.
The sum of the face amount and the interest that must be paid at the due date of the note
is called maturity value.
a. True
b. False
The straightline method of depreciation is appropriate if usage of the asset varies
considerably from year to year.
a. True
b. False
Which of the following is an advantage of the internal rate of return method?
a. It takes into account cash flows occurring only till the time the initial investment is
completely paid back.
b. It does not use present value concepts in valuing cash flows occurring in different
periods because this concept can give incorrect results.
c. It ranks proposals based upon the cash flows over their complete useful life, even if
the project lives are not the same.
d. It assumes the cash received from a proposal can be reinvested at the minimum
desired rate of return.
A criticism of the singlestep income statement is that gross profit and income from
operations are not readily available for analysis.
a. True
b. False