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1) When the effective interest method of amortization is used, the amount of interest
expense for a given period is calculated by multiplying the face rate of interest by the
bonds carrying value at the beginning of the given period.
2) The ratio of income from operations to sales is termed the profit margin component
of the rate of return on investment.
3) Cost behavior refers to the manner in which a cost changes as the related activity
changes.
4) There is no difference between the recording of cash sales and the recording of
MasterCard or VISA sales.
5) Methods that ignore present value in capital investment analysis include the average
rate of return method.
6) The budget procedure that requires all levels of management to start from zero in
estimating sales, production, and other operating data is called zero-based budgeting.
7) On a common-sized income statement, all items are stated as a percent of total assets
or equities at year-end.
8) Ratios and various other analytical measures are not a substitute for sound judgment,
nor do they provide definitive guides for action.
9) When companies use a perpetual inventory system, the recording of the purchase of
inventory will include a debit to purchases.
10) Systems analysis is the final phase in the creation or revision of an accounting
system.
11) In computing the rate earned on total assets, interest expense is subtracted from net
income before dividing by average total assets.
12) Two factors that typically lead to ethical violations are relevance and timeliness of
accounting information.
