Leasing assets may be a favorable alternative to purchasing assets if the asset has a high
risk of becoming obsolete.
a. True
b. False
When a corporation issues bonds, it executes a contract with the bondholders known as
a bond indenture.
a. True
b. False
When cash is received in payment of an account receivable, 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 _____ is an economic event that under generally accepted accounting principles
affects an element of the financial statements and must be recorded.
a. framework
b. control
c. set of rules
d. transaction
There are two alternatives to reporting cash flows from operating activities in the
statement of cash flows: (1) the direct method and (2) the indirect method.
a. True
b. False
Currently, fixed costs are $540,000, the unit selling price is $95, and the unit variable
cost is $60. What would be the breakeven sales (in units), if the unit selling price is
increased by $10?
a. 5,294 units
b. 9,000 units
c. 12,857 units
d. 12,000 units
The effect of recording a capital expenditure as a revenue expenditure is that:
a. expenses are overstated, and owners’ equity is understated.
b. net profit is understated, and owners’ equity is overstated.
c. expenses are understated, and accumulated depreciation is overstated..
d. assets are overstated, and expenses are understated.
The data needed to adjust a depositor’s books are shown in the “adjustments to the
depositor’s records” section of a bank reconciliation.
a. True
b. False
It is possible for a transaction to change the makeup of assets, but to not affect assets in
total.
a. True
b. False
The systematic examination of the relationships among selling prices, volume of sales
and production, costs, expenses, and profits is termed as:
a. contribution margin analysis.
b. costvolumeprofit analysis.
c. budgetary analysis.
d. gross profit analysis.
If $1,000,000 of 10% bonds are issued at 98, the amount of cash received from the sale
is:
a. $980,000.
b. $975,000.
c. $987,500.
d. $1,000,000.
In case of merchandise return, the inventory account is increased by the amount of cost
of the goods returned, and:
a. the customer refunds payable account is increased by the same amount.
b. the estimated returns inventory account is decreased by the same amount.
c. the accounts receivable account is increased by the same amount.
d. retained earnings are decreased by the same amount.
Average rate of return equals estimated average annual income divided by average
investment.
a. True
b. False
The graph of the variable costs when plotted against the activity level appears as a line
parallel to horizontal axis.
a. True
b. False
Expressing financial data as if a business will continue operating for an indefinite
period time refers to which concept?
a. Business entity concept
b. Going concern concept
c. Objectivity concept
d. Adequate disclosure concept
A payment of dividends decreases which section on the statement of cash flows?
a. Operating activities
b. Investing activities
c. Financing activities
d. None of these
The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and
no residual value, is expected to yield total net income of $300,000 for 5 years. The
expected average rate of return is 30%.
a. True
b. False
Physical depreciation occurs when changes in customer needs causes a fixed asset to no
longer provide services for which it was intended.
a. True
b. False
The cost incurred to extend an asset’s useful life is recorded as:
a. accrued expenditures.
b. maintenance expenditures.
c. routine expenditures.
d. capital expenditures.
If Johnson, Inc. sold $800,000 worth of merchandise, had $100,000 returned, and then
the balance paid during the 1% discount period, how much was Johnson’s net sales?
a. $700,000
b. $800,000
c. $693,000
d. $692,000
The unearned rent account has a balance of $60,000. If $4,000 of the $60,000 is
unearned at the end of the accounting period, the amount of the adjusting entry is:
a. $64,000.
b. $56,000.
c. $60,000.
d. $4,000.
The relative distribution of sales among the various products sold by a business is
termed as:
a. business’s basket of goods.
b. contribution margin mix.
c. sales mix.
d. product portfolio.
Differential revenue is the amount of increase or decrease in revenue expected from a
particular course of action as compared to an alternative.
a. True
b. False
Using a perpetual inventory system, the return of merchandise purchased on account
includes a(n):
a. increase in Sales.
b. increase in Merchandise Inventory.
c. decrease in Merchandise Inventory.
d. decrease in Sales.
Recording direct labor costs in a job order cost accounting system:
a. increases Factory Overhead and decreases WorkinProcess.
b. increases Finished Goods and increases Wages Payable.
c. increases WorkinProcess and increases Wages Payable.
d. increases Factory Overhead and increases Wages Payable.
Which of the following statements is a correct representation of the effect of the
reinstatement of an accounts receivable account previously written off?
a. Days’ sales in receivables increases by the reinstatement of the account.
b. Return on sales decreases by the reinstatement of the account.
c. Days’ sales in receivables is not affected by the reinstatement of the account.
d. Return on sales is not affected by the reinstatement of the account.
The sales discount account is a contra account to Sales.
a. True
b. False
The _____ indicates the percentage of each sales dollar available to cover fixed costs
and to provide operating income.
a. fixed cost ratio
b. volume ratio
c. operating ratio
d. contribution margin ratio
For each of the following procedures, indicate whether it is an internal control strength
or a weakness. Also, for each weakness, explain why it is a weakness and how it can be
corrected.
(a)Only the best accounting graduates are hired to eliminate the need for training.
(b)The person responsible for order supplies also records the receipt of the supplies.
(c)Company policy mandates that all employees take vacation time.
(d)Internal auditors constantly monitor the internal control system.
(e)The accountant deposits cash at least once each day.
Which of the following would be a period costs for a textbooks printing company?
a. Wages of a press operator
b. Utility costs of the factory
c. Advertising expenses
d. Paper costs
The product with the highest contribution margin per scarce resource is the most
profitable.
a. True
b. False