Archives: Quiz

1) Net profit margin reflects the percent of net income in each dollar of net sales. 2) A master budget refers to a company’s sales budget that includes all of its segments or departments. Answer: FALSE 3) Both U.S. GAAP […]

1) Accounting information systems are so accurate that decision makers in practice do not need a basic knowledge of how the systems work. 2) Revenue and expense balances are transferred from the adjusted trial balance to the income statement. Answer: […]

1) The accounting cycle refers to the sequence of steps in preparing the work sheet. 2) One difference between financial and managerial accounting is that the external users that use financial information must plan a company’s future, but the internal […]

1) Investment center managers are evaluated on their use of center assets to generate income. 2) The last step in the four-step accounting procedure for process costing is the calculation of equivalent units of production. Answer: FALSE 3) To prepare […]

1) The cash flow on total assets ratio is computed by dividing average total assets by operating income. 2) Inadequacy refers to the insufficient capacity of a company’s plant assets to meet the company’s growing productive demands. Answer: TRUE 3) […]

1) A graphic depiction of the break-even point is known as a cost-volume-profit (CVP) chart. 2) Callable bonds reduce the bondholder’s risk by requiring the issuer to create a sinking fund of assets set aside at specified amounts and dates […]

1) The first five steps in the accounting cycle include analyzing transactions, journalizing, posting, preparing an unadjusted trial balance, and recording adjusting entries. 2) A corporation can issue two kinds of stock – common and preferred. Answer: TRUE 3) Paid-in […]

1) Departmental contribution to overhead is the same as gross profit generated by that department. 2) Treasury stock is stock that has been authorized, issued, and is outstanding. Answer: FALSE 3) The contract rate on previously issued bonds changes as […]

1) It is acceptable to record cash received in advance of providing products or services to revenue accounts. 2) Retained earnings are not part of the stockholders’ claims on the company’s net assets. Answer: FALSE 3) Under the cash basis […]

1) Predetermined overhead rates are necessary because cost accountants use periodic inventory systems. 2) The use of process costing is of little benefit to a service type of operation. Answer: FALSE 3) Changes in accounting estimates are accounted for in […]

1) A capital deficiency exists when all partners have a credit balance in their capital accounts. 2) If the predetermined overhead allocation rate is 225% of direct labor cost, and the Mixing Department’s direct labor cost for the reporting period […]

1) Closing entries are required at the end of each accounting period to close all ledger accounts. 2) The payment of cash dividends never changes the balance of retained earnings. Answer: FALSE 3) Owner’s investments are increases in equity from […]

1) Management’s intent determines whether an available-for-sale security is classified as long-term or short-term. 2) A cost variance is the difference between actual cost and standard cost. Answer: TRUE 3) A good financial statement analysis report often includes the following […]

1) The margin of safety is the amount that sales can drop before the company incurs a loss. 2) Whether a cost is controllable or not controllable by an employee depends on the employee’s level of responsibility. Answer: TRUE 3) […]

1) Under a just-in-time manufacturing system, large quantities of inventory are accumulated throughout the factory to be certain that needed components are available each time that they are needed. 2) Standard costs provide a basis for assessing the reasonableness of […]

1) Working capital is computed as current liabilities minus current assets. 2) The Perk’s earnings per share is $3.11. Its common dividend is $0.36 per share and its stock price is $40 per share. Its dividend yield equals 0.9%. Answer: […]

1) Cost-volume-profit analysis can be used to predict the effects of reduced selling prices, increased fixed costs, and reduced variable costs on break-even points. 2) When the current value of a partnership is greater than the recorded amounts of equity, […]

1) The accounts receivable turnover is calculated by dividing net sales by average accounts receivable. 2) Sandra has a savings account that has accumulated to $50,000. She started with $28,225, and earned interest at 10% compounded annually. It took her […]

1) The equal total payments pattern for installment notes consists of changing amounts of interest but constant amounts of principal over the life of the note. 2) Receivables can be used to obtain cash by either selling them or using […]

1) A loss on disposal of a plant asset occurs if the cash proceeds received from the asset sale is less than the asset’s book value. 2) A company reports basic earnings per share of $3.50, cash dividends per share […]

1) Asset accounts normally have credit balances and revenue accounts normally have debit balances. 2) On a bank statement, deposits are listed as debits because the bank increases its cash account when the deposit is made. Answer: FALSE 3) Service […]

1) Two main accounting principles used in accrual accounting are matching and full closure. 2) Equivalent units of production are always the same as the total number of physical units finished during the period. Answer: FALSE[/cpmembership] 3) Companies can report […]

1) Accounting information systems are designed to capture information about a company’s transactions and events and to provide output including financial, managerial, and tax reports. 2) Generally, it does not matter how cost allocations are designed and explained, because most […]

1) Adjusting entries are made after the preparation of financial statements. 2) The management concept of customer orientation causes a company to spend large amounts on advertising to convince customers to buy the company’s standard products. Answer: FALSE 3) After […]

1) A bond’s par value is not necessarily the same as its market value. 2) Operating activities include long-term borrowing and repaying cash from lenders, and cash investments or withdrawals by the owner. Answer: FALSE 3) Managerial accounting assists in […]

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) A dishonored note receivable is usually reclassified as […]

1) Stockholders’ equity consists of paid-in capital and retained earnings. 2) The series of activities that add value to a company’s products or services is called a value chain. Answer: TRUE 3) When partners invest in a partnership, their capital […]

1) The flexibility principle prescribes that an accounting information system conform with a company’s activities, personnel, and structure and adapt to a company’s unique characteristics. 2) Newly completed units are combined with beginning finished goods inventory to make up total […]

1) Cost of goods sold is also called cost of sales. 2) Unearned revenues are liabilities. Answer: TRUE 3) When posting from special journals each debit and credit entry is entered as a separate amount in the general ledger. Answer: […]

1) Direct materials are not usually easily traced to a product. 2) Opportunities in accounting include auditing, consulting, market research, and tax planning. Answer: TRUE 3) If an asset is sold above its book value, the selling company records a […]

1) Cash withdrawn by the owner of a proprietorship should be treated as an expense of the business. 2) A leasehold refers to the rights the lessor grants to the lessee under the terms of the lease. Answer: TRUE 3) […]

1) In the retail inventory method of inventory valuation, the retail amount of inventory refers to its dollar amount measured using selling prices of inventory items. 2) The Income Summary account is a permanent account that will be carried forward […]

1) An advantage of common-size statements is that they reflect the dollar magnitude (size) of the different companies under analysis. 2) A company that finances a relatively large portion of its assets with liabilities is said to have a high […]

1) An example of a service department is the human resources department. 2) Operating leases are long-term or noncancelable leases in which the lessor transfers substantially all the risks and rewards of ownership to the lessee. Answer: FALSE 3) A […]

1) An ordinary annuity refers to a series of equal payments made or received at the end of each period. 2) When the contract rate on a bond issue is less than the market rate, the bonds will generally sell […]

1) A journal entry with a debit to cash of $980, a debit to Sales Discounts of $20, and a credit to Accounts Receivable of $1,000 means that a customer has taken a 10% cash discount for early payment. 2) […]

1) An investor presumed to have significant influence owns as least 20% but not more than 50% of another company’s voting stock. 2) The lower of cost or market rule for inventory valuation must be applied to each individual unit […]

1) When preparing the operating activities section of the statement of cash flows using the indirect method, a decrease in accounts receivable is subtracted from net income. 2) The FIFO inventory method assumes that costs for the earliest units purchased […]

1) If a partner is unable to cover a deficiency and the other partners absorb the deficiency, then the partner with the deficiency is thus relieved of all liability. 2) Controllable costs are the same as direct costs. Answer: FALSE […]

1) Significant sunk costs are relevant to decisions about the future. 2) A measure used to evaluate the manager of an investment center is return on total costs for the investment center. Answer: FALSE 3) Total depreciation expense over an […]

1) A sole proprietorship is a business owned by one or more persons. 2) Companies are allowed to use FIFO for financial reporting and LIFO for tax reporting, according to IRS requirements. Answer: FALSE 3) A reverse stock split reduces […]

1) The internal rate of return equals the rate that yields a net present value of zero for an investment. 2) Equivalent units of production need to be determined only if a processing department adds materials and labor to its […]

1) Purchase returns refer to merchandise a buyer acquires but then returns to the seller. 2) The times interest earned ratio is calculated by dividing income before interest expense and income taxes by interest expense. Answer: TRUE 3) The price-earnings […]

1) Sales Discounts and Sales Returns and Allowances are credited to close the accounts during the closing process. 2) Profit margin can also be called return on sales. Answer: TRUE 3) The percent of accounts receivable method for bad debts […]

1) Job order production systems would be appropriate for companies that produce compact disks or disposable cameras. 2) Horizontal analysis is used to reveal changes in the relative importance of each financial statement item. Answer: FALSE 3) Uncertainties from the […]

1) Par value per share is the price at which a share of stock is bought or sold. 2) Depreciation measures the decline in market value of an asset. Answer: FALSE 3) Depreciation expense for a period is the portion […]

1) A transfer agent keeps stockholder records and prepares official lists of stockholders and dividend payments. 2) The materiality constraint permits the use of the direct write-off method of accounting for uncollectible accounts when bad debts are very large in […]

1) A multiple-step income statement format shows detailed computations of net sales and other costs and expenses, and reports subtotals for various classes of items. 2) Liquidity refers to a company’s ability to pay its near-term obligations. Answer: TRUE 3) […]

1) Process cost accounting systems are used only by companies that manufacture physical products; meaning that companies and other organizations that provide services to their customers do not use process cost accounting. 2) In a periodic inventory system, cost of […]

1) The costs of goods purchased will vary under the different inventory methods of specific identification, FIFO, LIFO, and weighted average. 2) Long-term investments include investments in land or other assets not used in a company’s operations. Answer: TRUE 3) […]