Archives: Quiz

1) Average rate of return equals average investment divided by estimated average annual income. 2) The declaration and issuance of a stock dividend would be reported on the statement of cash flows. Answer: FALSE 3) The cost of replacing an […]

1) The normal balance of a capital account is a debit. 2) Budget preparation is best determined in a top-down managerial approach. Answer: FALSE 3) The methods or procedures used to record and report financial data are called the accounting […]

1) In a perpetual inventory system, merchandise returned to vendors reduces the merchandise inventory account. 2) The job order costing system is not used by service organizations. Answer: FALSE 3) Accruals are needed when an unrecorded expense has been incurred […]

1) About 90% of the businesses in the United States are organized as corporations. 2) The process of recording a transaction in the journal is called journalizing. Answer: TRUE 3) A notation in the post reference column of the general […]

1) Capital expenditures are costs that are charged to Stockholders’ Equity accounts. 2) The seller records the sales tax as part of the sales amount. Answer: FALSE 3) The closing process is sometimes referred to as closing the books. Answer: […]

1) Comparing dividends per share to earnings per share indicates the extent to which the corporation is retaining its earnings for use in operations. 2) If a fire destroys the merchandise inventory, the gross profit method can be used to […]

1) Inventory errors, if not discovered, will self-correct in two years. 2) Direct materials cost that varies with the number of units produced is an example of a fixed cost of production. Answer: FALSE 3) Medicare taxes are withheld from […]

1) If a firm has a quick ratio of 1, the subsequent payment of an account payable will cause the ratio to increase. 2) The underlying principle of allocating operating expenses to departments is to assign to each department an […]

1) At the end of the fiscal period, prepaid expenses are reported on the income statement as expenses. 2) If a business sells two products, it is not possible to estimate the break-even point. Answer: FALSE 3) Services provided on […]

1) A controlling account is used to record the details of the individual accounts. 2) Purchasing supplies on account increases liabilities and decreases equity. Answer: FALSE 3) One reason a dollar today is worth more than a dollar 1 year […]

1) Preferred stockholders must receive their current year dividends before the common stockholders can receive any dividends. 2) If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the investment turnover is 5. […]

1) A qualitative characteristic that may impact upon capital investment analysis is manufacturing control. 2) Under the perpetual inventory system, when a sale is made, both the sale and cost of merchandise sold are recorded. Answer: TRUE 3) When a […]

1) An accounting system is the methods and procedures used to collect, classify, summarize, and report the businesses financial information 2) On the income statement, miscellaneous expenses are usually presented as the last item without regard to the dollar amount. […]

1) The FIFO method of process costing is simpler than the Average cost method. 2) If the adjustment for accrued salaries at the end of the period is inadvertently omitted, both liabilities and owner’s equity will be understated for the […]

1) Gross profit minus selling expenses equals net income. 2) The double-entry accounting system records each transaction twice. Answer: FALSE 3) Accounting systems evolve through a three-step process: analysis, design and feedback. Answer: FALSE 4) The master budget of a […]

1) Transactions must first be recorded into the general journal before they can be entered into specialized journals. 2) Purchases of merchandise are typically credited to the merchandise inventory account under the perpetual inventory system. Answer: FALSE 3) The present […]

1) One way to report revenue earned by a company is to present it by the different segments of business. 2) If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the annual interest […]

1) The profit center income statement should include only revenues and expenses that are controlled by the manager. 2) Proprietorships are owned by one owner and provide only services to their customers. Answer: FALSE 3) When accounting for uncollectible receivables […]

1) A business that requires all cash payments be made by check can not use a petty cash system. 2) The materials requisition serves as the source document for debiting the accounts in the materials ledger. Answer: FALSE 3) Many […]

1) The costs of materials and labor that do not enter directly into the finished product are classified as cost of goods sold. 2) The cost of production report reports the cost charged to production and the costs allocated to […]

1) The adjusting entry to record inventory shrinkage would generally include a debit to Cost of Merchandise Sold. 2) If the totals of the Income Statement debit and credit columns of a work sheet are $27,000 and $29,000, respectively, after […]

1) Liability accounts are increased by debits. 2) The updating of accounts is called the adjusting process. Answer: TRUE 3) The recording of cash payments from the cash account is done by entering the amount as a credit. Answer: TRUE […]

1) The ratio of net sales to assets measures how effectively a business is using its assets to generate sales. 2) Receiving a bill or otherwise being notified that an amount is owed is not recorded until the amount is […]

1) An account has three parts to it; a title, an increase side, and a decrease side. 2) The principal ledger that contains all the balance sheet and income statement accounts is the general ledger. Answer: TRUE 3) The direct […]

1) Cash outflows from financing activities include the payment of cash dividends, the acquisition of treasury stock, and the repayment of amounts borrowed. 2) The average rate of return method of capital investment analysis gives consideration to the present value […]

1) Period costs are costs that are incurred for the production requirements of a certain period. 2) The cash account will always be debited. Answer: FALSE 3) The effective interest method produces a constant dollar amount of interest expense to […]

1) The cash budget summarizes future plans for acquisition of fixed assets. 2) A company is planning to purchase a machine that will cost $24,000, have a six-year life, and have no salvage value. The company expects to sell the […]

1) Most large companies will use only one inventory costing methods for all of its different segments. 2) When a new partner is admitted by making an investment in the partnership, the old partners’ capital accounts are always credited. Answer: […]

1) The use of subsidiary ledgers is limited to Accounts Payable and Accounts Receivable. 2) An advantage of the current ratio is that it considers the makeup of the current assets. Answer: FALSE 3) Indirect costs can be specifically identified […]

1) When the rate of return on total assets ratio is greater than the rate of return on common stockholders’ equity ratio, the management of the company has effectively used leverage. 2) The excess of the cash flowing in from […]

1) The desired selling price for a product will be the same under both variable and total cost. 2) The equity method is usually more appropriate for accounting for investments where the purchaser does not have significant influence over the […]

1) Temporary investments are recorded at their cost which would include brokers commissions. 2) If the standard to produce a given amount of product is 600 direct labor hours at $15 and the actual was 600 hours at $17, the […]

1) The capital expenditures budget summarizes future plans for acquisition of fixed assets. 2) In preparing a bank reconciliation, the amount indicated by a credit memo for a note receivable collected by the bank is added to the balance per […]

1) Job order cost accounting systems may be used for planning and controlling a service business. 2) When merchandise inventory is shown on the balance sheet, both the method of determining the cost of the inventory and the method of […]

1) If 10,000 units which were 40% completed are in process at November 1, 80,000 units were completed during November, and 12,000 were 20% completed at November 30, the number of equivalent units of production for November was 75,600. (Assume […]

1) The doomsday ratio includes both cash and cash equivalents in the numerator. 2) The amount of depreciation expense for the first full year of use of a fixed asset costing $95,000, with an estimated residual value of $5,000 and […]

1) The amount of capital paid in by the stockholders of the corporation is called legal capital. 2) The trial balance prepared after all the closing entries have been posted is called a pre-closing trial balance. Answer: FALSE 3) One […]

1) A large public corporation normally uses registrars and transfer agents to maintain records of the stockholders. 2) Most companies who have several bank accounts, petty cash, and cash on hand, would list each separately on the balance sheet. Answer: […]

1) Conversion costs are generally added evenly throughout the process. 2) Cash flows from investing activities, as part of the statement of cash flows, include receipts from the issuance of bonds payable. Answer: FALSE 3) The controller’s staff consists of […]

1) Liabilities are increased with debits and decreased with credits. 2) If fixed costs are $450,000 and the unit contribution margin is $50, the sales necessary to earn an operating income of $50,000 are 10,000 units. Answer: TRUE 3) If […]

1) The report on internal control required by the Sarbanes-Oxley Act of 2002 may be prepared by either management or the companys auditors. 2) If ending inventory for the year is overstated, owner’s equity reported on the balance sheet at […]

1) An example of a general-purpose financial statement would be a report about projected price increases related to transportation costs. 2) The presence of a subsidiary ledger requires the presence of a summarizing controlling account. Answer: TRUE 3) The current […]

1) If employees accept a wage contract that decreases the unit contribution margin, the break-even point will decrease. 2) On the work sheet, the capital and drawing account balances are extended to the Balance Sheet columns. Answer: TRUE 3) A […]

1) If Division Q’s income from operations was $30,000 on invested assets of $200,000, the rate of return on investment is 15%. 2) The usual presentation of the statement of owner’s equity is (1) Beginning capital, (2) Net income or […]

1) At the end of the fiscal year, the variances from standard are usually transferred to the finished goods account. 2) The price of a bond is equal to the sum of the interest payments and the face amount of […]

1) In horizontal analysis, the current year is the base year. 2) A voucher is a written authorization to make a cash payment. Answer: TRUE 3) If the bonds are purchased between interest dates, the purchase price includes accrued interest […]

1) Under the cost method, when treasury stock is purchased by the corporation, the par value and the price at which the stock was originally issued are important. 2) The post-closing trial balance will generally have fewer accounts than the […]

1) When preparing an income statement vertical analysis, each revenue and expense is expressed as a percent of net income. 2) Employees view budgeting more positively when goals are established for them by senior management. Answer: FALSE 3) Money market […]

1) Twenty percent of all businesses in the United States are corporations and they account for 80% of the total business dollars generated. 2) Revenue recognition concept requires that the reporting of revenue be included in the period when cash […]

1) A cost object indicates how costs are related or identified. 2) Unearned Revenues account is an example of a liability. Answer: TRUE 3) Form W-2 is called the Wage and Tax Statement. Answer: TRUE 4) Even when a trial […]