Archives: Quiz

1) In 2007, banks across the world revealed huge losses in the U.S. subprime mortgage market. Investors shrank from illiquid securities and there was a “flight to quality.” 2) A two-for-one stock split results in a doubling of the number […]

1) In a two-for-one stock split, each investor would receive one additional share for each share already held. 2) Financial planning requires accurate and consistent forecasting. Answer: TRUE 3) Management’s perceived signals to investors form an important component of pecking […]

1) The S&P 500 accounts for nearly 75% of the total value of stocks traded in the United States. 2) The degree of operating leverage (DOL) shows the relationship between sales and pretax profits. Answer: TRUE 3) In the United […]

1) The WACC is the rate of return that the firm must expect to earn on its average-risk investments in order to provide an acceptable return to its security holders. 2) The inputs that are most worth refining before you […]

1) Whenever there is uncertainty, investors might be interested in trading, either to speculate or to lay off their risks, and a market may rise to meet the trading demand. 2) A project that breaks even in accounting terms will […]

1) Dividends are likely to shift up and down as earnings fluctuate so that managers can maintain a stable payout ratio. 2) With a line of credit, a firm can borrow and repay whenever it wants so long as the […]

1) How does the number of times interest is earned ratio help in evaluating a company’s financial risk? 2) What type of financial statement matches sales revenue items with related expense items and distinguishes between recurring operating activities and nonoperating […]

1) Based on the information given for a variance, indicate whether the variance is favorable or unfavorable. 2) What benefits may result from use of a just-in-time system? Answer: A just-in-time system reduces the amount of inventory that a business […]

1) Fair Price, Inc. has two divisions, and their most recent financial statements are shown below: The Tiling Division has incurred losses for the past five years, and management believes that the company will be better off maintaining and growing […]

1) In relation to inventory, differentiate between flow of cost and physical flow of goods. 2) Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each […]

1) Total quality management involves assessing a company’s value chain to eliminate non-value-added activities 2) As of December 31, 2012, Walton Corporation had a current ratio of 1.84, quick ratio of 1.45, and working capital of $18,000. The company uses […]

1) Indicate whether each of the following statements is true or false for a company that uses the allowance method to account for uncollectible accounts. 1>The entry to recognize uncollectible accounts expense does not affect the net realizable value of […]

1) For 2012, an investment center of Lawson Company reported operating income of $420,000 on total operating assets of $2,600,000. The company has established a target ROI of 14% for the investment center. Last year, the investment center’s ROI was […]

1) How is residual income calculated? What potential disadvantage is there in using residual income to evaluate and compare divisions of a company? 2) Indicate whether each of the following statements is true or false. 1>A cost driver causes a […]

1) Indicate whether each of the following statements about responsibility centers is true or false. 1>A responsibility center controls identifiable revenue or expense items 2> The manager of a profit center is evaluated based primarily on his/her ability to control […]

1) Indicate whether each of the following statements is true or false. 1>A budget formalizes managerial plans 2>A master budget often provides information about plans and expectations for each month of the coming year 3>A company that uses a perpetual […]

1) Explain how the equity section of a balance sheet differs among sole proprietorships, partnerships and corporations. 2) Indicate which of the budgets and pro forma financial statements the given item appears on by placing X’s in the appropriate column […]

1) Matching. Select the term from the list provided that best matches each of the following descriptions. The first is done for you. 2) Indicate whether each of the following statements about decentralization is true or false. Answer: 1>Investment centers […]

1) What are responsibility centers? What are the three levels of responsibility centers commonly found in organizations? 2) A business should minimize the amount of cash that it keeps on hand Answer: 1>T, 2>F, 3>T, 4>T, 5>T 3) How do […]

1) Indicate whether each of the following statements about contingent liabilities is true or false. 1>If the likelihood of a future obligation from a contingent liability is remote, a company does not report it on the financial statements or disclose […]

1) Present value factors The present value of an annuity of $1 at 8% has a factor for 3 periods of 2.577097; for 5 periods at 8% the factor is 3.992710 . For 10% at 5 periods the factor is […]

1) What is the reason for allocating fixed overhead costs to products? 2) Custom Quilters makes decorative comforters, quilted garments, and other products in a small sewing factory. In 2012, the company expects to make 2,000 comforters. Indicate whether the […]

1) When a credit card sale is recorded, what is the effect on the accounting equation? 2) Indicate whether each of the following statements about internal control and ethics is true or false. 1>The use of safety deposit boxes is […]

1) Indicate whether each of the following statements is true or false. 1>The required rate of return on a capital investment is also referred to as the hurdle rate or discount rate 2>The return on investment measures the compensation a […]

1) Indicate which of the following items is added to or subtracted from a company’s unadjusted book balance to calculate the true cash balance in preparing a bank reconciliation. Place a + by those items that are added to the […]

1) Give two examples of natural resources. 2) Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. […]

1) What are unit-level costs? Give two examples. 2) Distinguish between static and flexible budgets. Give an example of how flexible budgets might be used by a business. Answer: Static budgets are based on a single estimate of volume, whereas […]

1) Assume that wages expense is a variable cost and that the relevant range is 10,000 to 15,000 labor hours. Within that range, the cost is $14 per hour. What can you assume about wages expense outside this range? 2) […]

1) Explain the major difference between a merchandising business and a service business. 2) Discuss three practical implications of misclassifying product and/or period costs. Answer: The temporary effects on the financial statements can have important implications with respect to the […]

1) Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. On December 31, 2012, Stuart Co. estimated […]

1) Harker Company manufactures DVD players and other similar electronic products. Indicate whether the cost is a product cost or period (selling, general, and administrative) cost AND whether its cost behavior is fixed, variable, or mixed by placing X’s in […]

1) What is stockholders’ equity? 2) Indicate whether each of the following statements is true or false. 1>In decision making, all quantitative information that differs among the alternatives under consideration is relevant 2>Costs that cannot be changed are not relevant […]

1) The Ainlay Corporation accepted a credit card for a sale of $2,000 on December 16, 2012 . The credit card company charges a fee of 4%. On January 5, 2013, Ainlay received payment from the credit card company. Indicate […]

1) Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. An asset purchased for $14,000 that had […]

1) How would you decide, based on the net present value of the project, whether a capital investment project is an acceptable investment or not? 2) Discuss a few common reasons for decreases in the market price of a corporation’s […]

1) Pecos Company is considering the purchase of new equipment that will cost $125,000. The equipment will save the company $42,000 per year in cash operating costs. The equipment has an estimated useful life of five years, annual depreciation expense […]

1) What are the key elements of total quality management? 2) Martha Hanson operates a small gift shop that sells various antiques, such as glassware. She employs two clerks who make sales to customers, accept returns when a customer is […]

1) What internal control procedures should a business adopt with respect to cash payments? 2) In 2012, Ohio Company sold 50,000 of its only product at a selling price of $30 per unit. Variable costs were $16 per unit, and […]

1) What are the types of claims to a business’s assets? 2) What is the lever that results in (causes) operating leverage? Answer: Fixed costs 3) Why do companies try to eliminate non-value-added activities? Answer: Non-value-added activities do not contribute […]

1) How does a decrease in variable costs affect the break-even volume of sales? 2) In an inflationary period, which cost flow method, LIFO or FIFO, will result in the larger amount of assets on the balance sheet? Explain. Answer: […]

1) Describe the budgeting process and the benefits it provides. 2) Fill in the missing information by identifying dollar amounts a, b, c, and d. All transactions were for cash. Answer: a = $40,800; b = $5,800; c = $5,800; […]

1) Indicate whether each of the following statements is true or false. 1>Pro forma financial statements must be prepared near the end of the budgeting process because they are affected by each of a company’s budgets 2>Budgets are not easy […]

1) Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. On January 1, 2012, Washta Company issued […]

1) The following information was gathered for Company W, a manufacturing company with three departments, A, B, and C: Manufacturing supplies cost is expected to be $500,000. Possible cost drivers are direct labor hours, direct materials cost, and number of […]

1) What is the effect on the accounting equation of a cash payment to creditors? 2) What is a balanced scorecard? How is the balanced scorecard used in performance evaluation? Answer: A balanced scorecard includes several different performance measures that […]

1) Indicate whether each of the following statements is true or false. 1>A decision to eliminate a segment of a business is likely to have long-term consequences because re-establishing the segment might be difficult 2>In making a decision to eliminate […]

1) What are cost objects? Define and give examples. 2) In October 2012, Simpson Company loaned $20,000 to Warren Corporation, receiving Warren’s 6-month, 6% promissory note. Indicate whether each of the following statements about the note is true or false. […]

1) How would a company estimate the percentage of its sales that will be uncollectible? 2) Anstendig Corp. has 250,000 shares of common stock authorized. It has issued 75,000 shares and has reacquired 12,000 of these shares as treasury stock. […]

1) Thomas Corp. has the following number of shares of stock outstanding: Thomas will distribute $44,000 to the two classes of stockholders this year. Not counting the current year, the preferred stock dividends are two years in arrears. Indicate whether […]

1) Kogan Company has two divisions whose most recent financial statements are shown below: Required: 1) Compute the impact on profit if the Residential Division is eliminated. 2) Do you recommend that Kogan eliminate the Residential Division? 2) What is […]