Archives: Quiz

1) The decision to accept an additional volume of business should be based on a comparison of the revenue from the additional business with the sunk costs of producing that revenue. 2) If all columns of a completed work sheet […]

1) Most managers stress the importance of understanding and predicting cash flows for business decisions. 2) When computing payback period, the year in which a capital investment is made is year 1. Answer: FALSE 3) Stocks with a price-earnings ratio […]

1) Direct costs are incurred for the benefit of more than one cost object. 2) An example of a controllable cost is equipment depreciation expense. Answer: FALSE 3) The responsibility for coordinating the preparation of a master budget should be […]

1) If Department L uses $53,000 of direct labor and Department M uses $21,000 of direct labor, the following journal entry would be recorded using a process costing system: 2) If Grayson Manufacturing incurred $17,400 for direct labor in the […]

1) In activity-based costing, there are a number of activity cost pools, which consist of activities that belong to the same process and/or are caused by the same cost driver. 2) When using the equity method, receipt of cash dividends […]

1) Process costing is applied to operations with repetitive production and customized products. 2) A company’s history indicates that 20% of its sales are for cash and the remaining 80% are on credit. Collections on credit sales are 30% in […]

1) A proxy is a document that gives a designated agent the right to vote a shareholder’s stock. 2) A noncash investing transaction should be disclosed in either a footnote or at the bottom of the statement of cash flows. […]

1) The payback period method of evaluating an investment fails to consider cash inflows after the point where an investment’s costs are fully recovered. 2) A purchase of land in exchange for shares of stock is disclosed at the bottom […]

1) The FIFO method of computing equivalent units focuses on production activity in the current period only. 2) Additions to land that increase the usefulness of the land such as parking lots, fences, and lighting are not depreciated. Answer: FALSE […]

1) Factory overhead is often collected and summarized in a subsidiary factory overhead ledger. 2) If at the time of partnership liquidation, a partner has a $5,000 capital deficiency and pays the partnership $5,000 out of personal assets to cover […]

1) Period costs for a manufacturing company, such as selling and administrative expenses, are recorded directly to Work In Process Inventory when they are incurred. 2) Even if the end of an accounting period occurs between the signing of a […]

1) A common rule of thumb is that a company’s acid-test ratio should have a value near or higher than 1 to conclude that a company is unlikely to face near-term liquidity problems. 2) Since the process cost summary describes […]

1) The direct method for computing and reporting net cash flows from operating activities involves adjusting the net income figure to obtain net cash provided or used by operating activities. 2) Incremental costs should be considered in a make or […]

1) Debt guarantees are usually disclosed as a contingent liability. 2) An owner’s withdrawal account normally has a debit balance. Answer: TRUE 3) One application of internal control when taking a physical count of inventory is the use of pre-numbered […]

1) Comparative financial statements are reports that show financial amounts in side by side columns on a single statement for analysis purposes. 2) A cash-based measure to help business decision makers estimate the amount and timing of cash flows is […]

1) The task of preparing a budget should be the sole task of the most important department in an organization. 2) Separation of duties involves dividing responsibility for a transaction or a series of related transactions between two or more […]

1) Manufacturers usually have three inventories: raw materials, work in process, and finished goods. 2) Notes receivable are classified as current liabilities regardless of the time to maturity. Answer: FALSE 3) Debt securities are recorded at cost when purchased. Answer: […]

1) Any cash dividends received from equity securities are recorded as Dividend Expense. 2) If net present values are used to evaluate two investments that have equal costs and equal total cash flows, the one with more cash flows in […]

1) Outstanding checks, deposits in transit, deductions for bank fees, additions for interest, and errors are all factors that can cause the bank statement balance for a checking account to be different from the company’s checking account balance. 2) A […]

1) Payroll is an example of a contingent liability for the employer. 2) Working capital is computed as current liabilities minus current assets. Answer: FALSE 3) While companies strive to achieve ideal standards, reality implies that some loss of materials […]

1) The equity method with consolidation is used to account for long-term investments in equity securities with controlling influence. 2) Owner’s withdrawals are not reported on a business’s income statement. Answer: TRUE 3) If a company is comparing its financial […]

1) Dividing stockholders’ equity applicable to common shares by the number of common shares outstanding yields the book value per common share. 2) Part of the decision to accept additional business should be based on a comparison of the incremental […]

1) The lower of cost or market requiring inventory to be reported at market value if it is lower than cost is an example of applying the conservatism constraint. 2) The internal rate of return method of evaluating capital investments […]

1) A trademark is an exclusive right granted to its owner to publish and sell a musical, literary, or artistic work during the life of the creator plus 70 years. 2) When the contract rate is above the market rate, […]

1) Callable preferred stock gives a corporation the option of exchanging preferred shares into common shares at a specified rate. 2) When no-par stock is not assigned a stated value, the total amount received is recorded in the Common Stock […]

1) Incidental costs for acquiring merchandise inventory, such as import duties, freight, storage, and insurance, should not be added to the cost of inventory. 2) In a make or buy decision, management should focus on costs that are the same […]

1) A stock dividend does not reduce a corporation’s assets or its stockholders’ equity. 2) When the number of withholding allowances claimed on Form W-4 increases, the amount of income tax withheld decreases. Answer: TRUE 3) If two projects have […]

1) For legal reasons, it is not advisable to accept a note receivable in exchange for an overdue account receivable. 2) As a general rule, revenues should not be recognized in the accounting records when earned, but rather when cash […]

1) Changes in accounting estimates are accounted for in current and future periods. 2) Material amounts of under- or overapplied factory overhead are always closed entirely to Cost of Goods Sold at the end of an accounting period. Answer: FALSE […]

1) Another name for a static budget is a variable budget. 2) A corporation is a legal entity separate from its owners. Answer: TRUE 3) It is acceptable to record prepayment of expenses as debits to expense accounts if an […]

1) Both the direct and indirect methods yield the identical net cash flow amount provided or used by operating activities. 2) Planning involves defining an organization’s ideas, goals, and actions. Answer: TRUE 3) Direct expenses require allocation across departments because […]

1) When a partner leaves a partnership, the present partnership ends, but the business can still continue to operate. 2) A pension plan is a contractual agreement between an employer and its employees to provide benefits to employees after they […]

1) A procedure called direct posting of sales invoices involves posting sales directly to the customer accounts in the accounts receivable ledger, making a period end journal entry, and avoiding the use of the sales journal. 2) FUTA requires employers […]

1) Activity cost pools are not a necessary part of the allocation of overhead costs using activity-based costing. 2) If a U.S. company’s credit sale to an international customer allows payment to be made in a foreign currency, the sale […]

1) The time period assumption assumes that an organization’s activities can be divided into specific time periods such as months, quarters, or years. 2) The inventory turnover ratio is computed by dividing cost of goods sold by average merchandise inventory. […]

1) Promissory notes cannot be transferred from party to party because they are nonnegotiable. 2) Total asset cost plus depreciation expense equals book value. Answer: FALSE 3) A note payable can be used to extend the payment due on an […]

1) A patent is an exclusive right granted to its owner to manufacture and sell a patented device or to use a process for 20 years. 2) When using the equity method for investments in equity securities, the investor records […]

1) When the attitude of continuous improvement exists throughout an organization, every manager and employee is challenged to continuously experiment with new and improved business practices. 2) Activity-based costing can be especially effective in situations where many different types of […]

1) When preparing the operating activities section of the statement of cash flows using the indirect method, non-operating gains are added to net income. 2) Participating preferred stock has a feature that allows its holders to share with common shareholders […]

1) In a process costing system, factory labor costs incurred in a reporting period are presented on the income statement as Factory Labor Expense. 2) Graphical analysis of the balance sheet can be useful in assessing sources of financing. Answer: […]

1) The purchases journal is used to record purchases of merchandise on credit. 2) Both financial and managerial accounting rely on accepted principles that are enforced through an extensive set of rules and guidelines. Answer: FALSE 3) Product costs can […]

1) Joint costs can be allocated either using a physical basis or a value basis. 2) The payment of cash dividends to shareholders is classified as a financing activity. Answer: TRUE 3) Both financial and managerial accounting affect user’s decisions […]

1) Departmental contribution to overhead is the same as gross profit generated by that department. 2) Stated value stock is no-par stock that is assigned a value per share by the corporation’s board of directors. Answer: TRUE 3) Vertical analysis […]

1) The cost of an intangible asset is systematically allocated to depreciation expense over its estimated useful life. 2) Equity securities giving an investor significant influence over an investee are always considered short-term investments. Answer: FALSE 3) Raw materials that […]

1) Sales Discounts is added to the Sales account when computing a company’s net sales. 2) The file of job cost sheets for completed but undelivered jobs equals the balance in the Work in Process Inventory account. Answer: FALSE 3) […]

1) Part of the budgeting process is summarizing the financial statement effects on the budgeted income statement and the budgeted balance sheet. 2) Personnel who will have performance evaluated according to the budget standards should not be consulted and involved […]

1) Companies with many employees rarely use a special payroll bank account from which to pay employees. 2) If a long-term investment in an equity security gives the investor significant influence over the investee, the investment is classified as available-for-sale. […]

1) In a job order costing system, indirect labor costs are debited to the Factory Overhead account. 2) A premium on bonds occurs when bonds carry a contract rate greater than the market rate at issuance. Answer: TRUE 3) Accounting […]

1) One of the major benefits of formal budgeting is the positive effect it can have on employee attitudes if applied correctly. 2) A Company had net sales of $23,000 million, and its average account receivables were $5,700 million. Its […]

1) Cash equivalents are investments that are readily converted to known amounts of cash and mature within three months. 2) Vertical analysis is the comparison of a company’s financial condition and performance across time. Answer: FALSE 3) A rolling budget […]