Archives: Quiz

1) A bank reconciliation is generally prepared by the bank and sent to the depositor along with cancelled checks. 2) Long-term investments would appear in the property, plant, and equipment section of the balance sheet. Answer: F 3) A budget […]

1) When bonds are converted into common stock, the carrying value of the bonds is transferred to paid-in capital accounts. 2) The terms 2/10, n/30 state that a 2% discount is available if the invoice is paid within the first […]

1) In preparing a statement of cash flows, an increase in the Common Stock and Treasury Stock accounts during a period would be an investing activity. 2) A debit to the Overhead Volume Variance account indicates that the standard hours […]

1) The budget is developed within the framework of a sales forecast. 2) The flow of costs is essentially the same in job order and process cost accounting. Answer: T 3) Financing activities include the obtaining of cash from issuing […]

1) A company that produces motion pictures would likely use a process cost system. 2) Transactions are recorded in alphabetic order in a journal. Answer: F 3) The owner’s drawings account is a permanent account whose balance is carried forward […]

1) Gross profit rate is computed by dividing cost of goods sold by net sales. 2) Allowance for Doubtful Accounts is debited under the direct write-off method when an account is determined to be uncollectible. Answer: F 3) The admission […]

1) A company may use more than one inventory costing method concurrently. 2) Organizational costs are capitalized by debiting an intangible asset entitled Organization Costs. Answer: F 3) A ratio can be expressed as a percentage, a rate, or a […]

1) The periodicity assumption states that the business will remain in operation for the foreseeable future. 2) Restricted retained earnings are available for preferred stock dividends but unavailable for common stock dividends. Answer: F 3) Cash which is restricted for […]

1) Under a periodic inventory system, the acquisition of inventory is charged to the Purchases account. 2) The drawing account is a subdivision of the owner’s capital account and appears as an expense on the income statement. Answer: F 3) […]

1) If the ending work in process inventory is greater than the beginning work in process inventory, then the cost of goods manufactured will be less than total manufacturing costs for the period. 2) The adjusted trial balance is the […]

1) Companies record a gain or loss on the exchange of plant assets because most exchanges have commercial substance. 2) A major advantage of the partnership form of organization is that the partners have unlimited liability. Answer: F 3) The […]

1) In general, adjusting entries are required each time financial statements are prepared. 2) A cost item is considered to be controllable if there is not a large difference between actual cost and budgeted cost for that item. Answer: F […]

1) A loss on the exchange of plant assets occurs when the fair market value of the old asset is less than its book value. 2) Setting standard costs is relatively simple because it is done entirely by accountants. Answer: […]

1) A liabilityrevenue account relationship exists with an unearned rent revenue adjusting entry. 2) Treasury stock purchased for $35 per share that is reissued at $31 per share, results in a Loss on Sale of Treasury Stock being recognized on […]

1) Receivables are valued and reported in the balance sheet at their gross amount less any sales returns and allowances and less any cash discounts. 2) A deposit ticket is a negotiable instrument that can be transferred to another party […]

1) A static budget is one that is geared to one level of activity. 2) The reconciling entry for depreciation expense in a worksheet is a credit to Accumulated Depreciation and a debit to Operating-Depreciation Expense. Answer: T 3) Dividends […]

1) Activity-based costing (ABC) eliminates arbitrary assignments of overhead. 2) The starting point for determining the causes of an unfavorable materials price variance is the purchasing department. Answer: T 3) A static budget is most useful for evaluating a manager’s […]

1) A corporation must be incorporated in each state in which it does business. 2) The trial balance will not balance when incorrect account titles are used in journalizing or posting. Answer: F 3) The chart of accounts is a […]

1) A hurdle rate is the rate of return set by applying ideal standards. 2) When plant assets are exchanged, the cost of the new asset is the book value of the old asset plus any cash paid. Answer: F […]

1) The holder of a convertible bond can convert an interest payment received into a cash dividend paid on common stock if the dividend is greater than the interest payment. 2) The percentage of receivables basis of estimating expected uncollectible […]

1) The budgeted balance sheet is prepared entirely from the budgets for the current year. 2) When an asset is purchased during the year, it is not necessary to record depreciation expense in the first year under the declining-balance depreciation […]

1) The assignment of the three manufacturing cost elements to Work in Process in a process cost system is the same as in a job order cost system. 2) The par value of stock issued for noncash assets is never […]

1) Use of the LIFO inventory valuation method enables a company to report paper or phantom profits. 2) If bonds are issued at a discount, the issuing corporation will pay a principal amount less than the face amount of the […]

1) A debenture bond is an unsecured bond which is issued against the general credit of the borrower. 2) Allowance for Doubtful Accounts is a contra asset account. Answer: T 3) The book value of a plant asset is always […]

1) As soon as a corporation is authorized to issue stock, an accounting journal entry should be made recording the total value of the shares authorized. 2) Neither corporate bond interest nor dividends are deductible for tax purposes. Answer: F […]

1) Under the indirect method, retained earnings is adjusted for items that affected reported net income but did not affect cash. 2) The withdrawal of a partner legally dissolves the partnership. Answer: T 3) Preferred stock has contractual preference over […]

1) Accrued revenues are revenues which have been received but not yet recognized. 2) The time period assumption is often referred to as the expense recognition principle. Answer: F 3) The adjustments on a worksheet can be posted directly to […]

1) Retained earnings are a part of stockholders’ equity. 2) The accounts receivable turnover is computed by dividing total sales by the average net receivables during the year. Answer: F 3) Unit contribution margin is the amount that each unit […]

1) Equivalent units of production must be calculated before the unit production costs can be computed. 2) The process of determining the present value is referred to as discounting the future amount. Answer: T 3) The amounts appearing in the […]

1) To grant a customer a sales return, the seller credits Sales Returns and Allowances. 2) The operating cycle of a company is the average time required to collect the receivables resulting from producing revenues. Answer: F 3) Meaningful analysis […]

1) If an acquired franchise or license has an indefinite life, the cost of the asset is not amortized. 2) An assumption of CVP analysis is that all costs can be classified as either variable or fixed. Answer: T 3) […]

1) At the break-even point, total contribution margin is equal to total fixed costs. 2) A highly automated computerized system of accounting eliminates the need for internal control. Answer: F 3) The extent of internal control features adopted by a […]

1) A corporation that issues bonds at a discount will recognize interest expense at a rate which is greater than the market interest rate. 2) The expense recognition principle requires that efforts be matched with accomplishments. Answer: T 3) During […]

1) The future value is the value now of a given amount to be paid or received in the future, assuming compound interest. 2) The accounting cycle begins at the start of a new accounting period. Answer: T 3) The […]

1) A flexible budget is a series of static budgets at different levels of activities. 2) The cost of goods available for sale consists of the beginning inventory plus the cost of goods purchased. Answer: T 3) If the unit […]

1) Research and development costs can be classified as a property, plant, and equipment item or as an intangible asset. 2) A statement of cash flows indicates the sources and uses of cash during a period. Answer: T 3) A […]

1) Closing entries are unnecessary if the business plans to continue operating in the future and issue financial statements each year. 2) A corporation is not an entity which is separate and distinct from its owners. Answer: F 3) Operating […]

1) Earnings per share is reported for both preferred and common stock. 2) An aging of accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will […]

1) A corporation acts under its own name rather than in the name of its stockholders. 2) Bonds are a form of interest-bearing notes payable. Answer: T 3) In using variance reports, top management normally looks carefully at every variance. […]

1) A lower discount rate produces a higher present value. 2) The more inventory a company has in stock, the greater the company’s profit. Answer: F 3) A merchandiser has a merchandise purchases budget rather than a production budget. Answer: […]

1) The difference between the costs at the high and low levels of activity represents the fixed cost element of a mixed cost. 2) The annual rate of return technique requires dividing a project’s annual cash inflows by the economic […]

1) A variable cost remains constant per unit at various levels of activity. 2) When goods are sold, the Cost of Goods Sold account is debited and Work in Process Inventory account is credited. Answer: F 3) Partnership income or […]

1) Using the units-of-activity method of depreciating factory equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight-line method had been used. 2) Every adjusting entry affects one balance sheet […]

1) Under the double-declining-balance method, the depreciation rate used each year remains constant. 2) A solvency ratio measures the income or operating success of an enterprise for a given period of time. Answer: F 3) Gains and losses are not […]

1) A periodic inventory system requires a detailed inventory record of inventory items. 2) The book value of a depreciable asset is always equal to its market value because depreciation is a valuation technique. Answer: F 3) A dividend based […]

1) A detailed listing of all the assets invested by a partner in a partnership appears on the Partners’ Capital Statement. 2) Under the equity method, the investment in common stock is initially recorded at cost, and the Stock Investments […]

1) Retailers and wholesalers are both considered merchandisers. 2) Unless the partnership agreement specifically indicates an income ratio, partnership net income or loss is not allocated to the partners. Answer: F 3) Using special journals can save time in posting […]

1) Under the double-entry system, revenues must always equal expenses. 2) Under the equity method, the receipt of dividends from the investee company results in an increase in the Stock Investments account. Answer: F 3) Checks from customers who pay […]

1) A note payable must always be paid before an account payable. 2) The cash payback method is frequently used as a screening tool but it does not take into consideration the profitability of a project. Answer: T 3) Owners’ […]

1) Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs. 2) A loss on disposal of a plant asset can only occur if the cash proceeds received from the asset sale are […]