The declaration of a cash dividend decreases a corporation’s stockholders’ equity and
decreases its assets.
a. True
b. False
The accounting term depreciation measures:
a. the decline in an asset’s market value.
b. the amount of cash a company sets aside for asset replacement.
c. the amount of asset cost allocated to expense over periods benefited.
d. the anticipated loss if asset is sold in the usedasset market.
The difference between the budgeted fixed overhead at 100% of normal capacity and
the standard fixed cost for the actual units produced is termed volume variance.
a. True
b. False
Property tax expense for a department store’s store equipment is an example of a direct
expense.
a. True
b. False
If operating income for a division is $120,000, sales are $975,000, and invested assets
are $750,000, the investment turnover would be 6.3.
a. True
b. False
The reduction of par or stated value of stock by issuance of a proportionate number of
additional shares is termed a:
a. stock dividend.
b. stock split.
c. stock option.
d. preferred dividend.
The inventory turnover measures how efficiently a company is using its operating assets
to generate sales.
a. True
b. False
For EFG Co., the transaction “payment of quarterly taxes” would:
a. increase total assets.
b. decrease total assets.
c. have no effect on total assets.
d. increase stockholders’ equity.
Rooney Inc. had $375,000 in invested assets, sales of $735,000, operating income
amounting to $105,000, and a minimum acceptable rate of return of 12% on its invested
assets. The residual income for Rooney is:
a. $42,500.
b. $20,500.
c. $60,000.
d. $37,500.
A manufacturing business converts materials into finished products through the use of
machinery and labor.
a. True
b. False
In the rate of return on investment analysis, the investment turnover component focuses
on the efficiency in the use of assets and indicates the number of sales dollar generated
for each dollar of invested assets.
a. True
b. False
Materials used by MeetaProducts Inc. in producing Division A’s product are currently
purchased from outside suppliers at a cost of $12 per unit. However, the same materials
are available from Division B. Division B has unused capacity and can produce the
materials needed by Division A at a variable cost of $7 per unit. A transfer price of $9
per unit is established, and 35,000 units of material are transferred with no reduction in
Division B’s current sales.
How much would Division A’s operating income increase?
a. $175,000
b. $70,000
c. $105,000
d. $75,000
Nyt Garments Co.’s static budget at 10,000 units of production includes $30,000 for
direct material and $5,000 for electric power. Total fixed costs are $31,000. At 12,000
units of production, a flexible budget would show:
a. variable costs of $40,000 and $35,000 of fixed costs.
b. variable costs of $44,000 and $23,000 of fixed costs.
c. variable costs of $42,000 and $31,000 of fixed costs.
d. variable costs of $41,000 and $30,000 of fixed costs.
The due date of a 60day note dated July 12 is:
a. September 11.
b. September 8.
c. September 9.
d. September 10.
Given below are two independent scenarios.
(a)Dream Co. has budgeted sales of $500,000, fixed costs are $240,000, and variable
costs are $375,000. What is its contribution margin ratio?
(b)Pearl Company has sales of $825,000, variable costs are 30% of sales, and fixed
costs are $360,000? What is its operating profit?
What cost concept used in applying the costplus approach to product pricing includes
only total manufacturing costs in the “cost” amount to which the markup is added?
a. Variable cost concept
b. Total cost concept
c. Product cost concept
d. Opportunity cost concept
The revenue that is forgone from an alternative use of an asset is called a(n):
a. opportunity cost.
b. differential revenue.
c. sunk cost.
d. differential income.
For EFG Co., the transaction “payment of interest expense” would:
a. increase total assets.
b. decrease total assets.
c. have no effect on total assets.
d. increase stockholders’ equity.
Which of the following items is subtracted from sales to arrive at net sales?
a. Desired sales
b. Sales commission
c. Customer refunds and allowances
d. Cost of after sales services
When the market rate of interest on bonds is equal to the contract rate, the bonds will
sell at:
a. a premium.
b. their face value.
c. a discount.
d. a discount or a premium.
Which of the following should be added to net income in calculating net cash flow from
operating activities using the indirect method?
a. An increase in inventory
b. A decrease in accounts payable
c. Preferred dividends declared and paid
d. A decrease in accounts receivable
Under the cost price approach, the transfer price is the price at which the product or
service transferred could be sold to outside buyers.
a. True
b. False
Before a stock dividend can be declared or paid, there must be sufficient cash.
a. True
b. False
Lowerofcostormarket is a method of inventory valuation.
a. True
b. False
Calculate the following:
(a)Determine the cash receipts for May based on the following data:
Cash payments during May$42,500
Cash account balance, May 13,750
Cash account balance, May 316,000
(b)Determine the cash received from customers on account during May based on the
following data:
Accounts receivable account balance, May 1$11,500
Accounts receivable account balance, May 318,250
Fees billed to customers during May28,000
A company purchased an oil well for $10 million. It is estimated that 5 million barrels
can be extracted from the well. Determine depletion expense assuming 4 million barrels
are extracted and sold during the year.
a. $1,250,000
b. $8,000,000
c. $12,500,000
d. $8,750,000
Due to various fraudulent business practices and accounting coverups in the early
2000s, Congress enacted the SarbanesOxley Act of 2002. The act was responsible for
establishing a new oversight board for public accountants called the:
a. Generally Accepted Accounting Practices for Public Accountants Board.
b. Public Company Accounting Oversight Board.
c. Congressional Accounting Oversight Board.
d. Financial Accounting Standards Board.
A business stakeholder has an interest in the economic performance of a business.
a. True
b. False
If the cost of an item of inventory is $70, the current replacement cost is $65, and the
sales price is $85, the amount included in inventory according to the
lowerofcostormarket method is:
a. $65.
b. $70.
c. $85.
d. $160.
Zync Inc. had $1,150,000 in invested assets, sales of $1,300,000, operating income
amounting to $185,000, and a minimum acceptable rate of return of 15% on its invested
assets. Zync’s profit margin is:
a. 26.0%.
b. 18.8%.
c. 16.5%.
d. 14.2%.
Merchandise Inventory is presented on the balance sheet in the current assets section.
a. True
b. False
Following is the summary of the balance sheet of AWR Company:
Total Assets Total Liabilities
Beginning of the year $250,000 $180,000
End of the year $500,000 $370,000
Determine the net income (or loss) for the year, assuming no common stock was issued
and no dividends were paid during the year?
a. $70,000
b. $200,000
c. $60,000
d. $130,000