Archives: Quiz

1) An extraordinary loss of $300,000 that results in income tax savings of $90,000 should be reported as an extraordinary loss (net of tax) of $210,000 on the income statement. 2) The price of a bond is equal to the […]

1) Budgetary slack can be avoided if lower and mid-level managers are requested to support all of their spending requirements with specific operational plans. 2) After the sales budget is prepared, the production budget is normally prepared next. Answer: TRUE […]

1) Make-to-order companies produce mainly to stock inventory. 2) The current year’s advertising costs are normally considered period costs. Answer: TRUE 3) Variable costs are costs that vary in total in direct proportion to changes in the activity level. Answer: […]

1) One of the advantages of decentralization is that delegating authority to managers closest to the operation always results in better decisions. 2) In the absorption costing income statement, deduction of the cost of goods sold from sales yields net […]

1) Twenty percent of all businesses in the United States are corporations and they account for 80% of the total business dollars generated. 2) Most large companies will use only one inventory costing methods for all of its different segments. […]

1) Both callable and non-callable bonds can be purchased by the issuing corporation in the open market. 2) A post-closing trial balance contains only asset and liability accounts. Answer: TRUE 3) In a perpetual inventory system, merchandise returned to vendors […]

1) If the unit selling price is $40, the volume of sales is $3,000,000, sales at the break-even point amount to $2,500,000, and the maximum possible sales are $3,300,000, the margin of safety is 11,500 units. 2) The product cost […]

1) The major advantage of residual income as a performance measure is that it gives consideration to not only a minimum rate of return on investment but also the total magnitude of income from operations earned by each division. 2) […]

1) If the profit margin for a division is 8% and the investment turnover is 1.20, the rate of return on investment is 9.6%. 2) Unearned revenues that will be earned in a relatively short period of time are listed […]

1) The lowest contribution margin per scarce resource is the most profitable. 2) A bottleneck begins when demand for the companys product exceeds the ability to produce the product. Answer: TRUE 3) When using the direct write-off method off accounting […]

1) The profit margin component of rate of return on investment analysis focuses on profitability by indicating the rate of profit earned on each sales dollar. 2) For paying their payroll, most employers use payroll checks drawn on a special […]

1) Merchandise is sold for $3,600, terms FOB destination, 2/10, n/30, with prepaid freight costs of $150. If $500 of the merchandise is returned prior to payment and the invoice is paid within the discount period, the amount of the […]

1) The interest on a 6%, 60-day note for $5,000 is $300. 2) Factory overhead is applied to production using a predetermined overhead rate. Answer: TRUE 3) The payback method can be used only when net cash inflows are the […]

1) Prime costs are the combination of direct materials and direct labor costs. 2) The accounting for defined benefit plans is usually very easy and straight forward. Answer: FALSE 3) Separating the responsibilities for purchasing, receiving, and paying for equipment […]

1) Multiple production department factory overhead rates are less accurate and less costly than are plantwide factory overhead rates. 2) An account receivable is a claim against a customer arising from a sale on account. Answer: TRUE 3) Goods that […]

1) The ratio of fixed assets to long-term liabilities provides a measure of a firms ability to pay dividends. 2) Labor costs that are directly traceable to the product are part of factory overhead. Answer: FALSE 3) Paying an account […]

1) Using the job order cost system, service organizations are able to bill customers on a weekly or monthly basis, even when the job has not been completed. 2) Large batch sizes increase lead time. Answer: TRUE 3) Variable costs […]

1) If the liabilities owed by a business total $300,000 and stockholders equity is equal to $300,000, then the assets also total $300,000. 2) Free cash flow is the measure of operating cash flow available for corporate purposes after providing […]

1) A work sheet heading is dated for a period of time. 2) Factors which reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred to as solvency and profitability. Answer: […]

1) During periods of decreasing costs the use of the LIFO method of costing inventory will result in a lower amount of net income than would result from the use of the FIFO method. 2) A large retained earnings account […]

1) After net income or loss is entered on the work sheet, the debit column total must equal the credit column total of the Balance Sheet columns. 2) If the adjustment for accrued salaries at the end of the period […]

1) The minimum amount of desired divisional income from operations is set by top management by establishing a minimum rate of return considered acceptable for invested assets. 2) A business that requires all cash payments be made by check can […]

1) A manager in a cost center also has responsibility and authority over the revenues and the costs. 2) When a business receives a bill from the utility company, no entry should be made until the invoice is paid. Answer: […]

1) Vertical analysis refers to comparing the financial statements of a single company for several years. 2) Liabilities are debts owed by the business entity. Answer: TRUE 3) In most business organizations, the chief accountant is called the treasurer. Answer: […]

1) Closing entries are entered directly on to the work sheet. 2) The balance in a bond discount account should be reported on the balance sheet as a deduction from the related bonds payable. Answer: TRUE 3) Zero-coupon bonds do […]

1) Before a stock dividend can be declared or paid, there must be sufficient cash. 2) Purchasing equipment by issuing a six-month note should be shown on the statement of cash flows under the investing activities section. Answer: FALSE 3) […]

1) For a construction contractor, the wages of carpenters would be classified as factory overhead cost. 2) The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and no residual value, is expected to […]

1) The matching concept requires expenses be recorded in the same period that the related revenue is recorded. 2) To determine the balance in a prepaid expense account, subtract credits from debits. Answer: FALSE 3) The amortization of a premium […]

1) Revising depreciation estimates does affect the amounts of depreciation expense recorded in past periods. 2) Both process and job order cost systems maintain perpetual inventory accounts with subsidiary ledgers. Answer: TRUE 3) The Financial Accounting Standards Board (FASB) is […]

1) The market rate of interest is affected by a variety of factors, including investors’ assessment of current economic conditions. 2) A primary difference between the direct write-off and allowance method is whether or not bad debts is based on […]

1) In calculating the net present value of an investment in equipment, the required investment and its terminal residual value should be subtracted from the present value of all future cash inflows. 2) For a period during which the quantity […]

1) The seller records the sales tax as part of the sales amount. 2) If 800 shares of $40 par common stock are sold for $43,000, the $43,000 would be reported in the cash flows from financing activities section of […]

1) Under the perpetual inventory system, a company purchases merchandise on terms 2/10, n/30. If payment is made within 10 days of the purchase, the entry to record the payment will include a credit to Cash and a credit to […]

1) Bonds may be purchased directly from the issuing corporation or through one of the bond exchanges. 2) Period costs are operating costs that are expensed in the period in which the goods are sold. Answer: FALSE 3) In a […]

1) The DuPont formula uses financial and nonfinancial information to measure the performance of a business. 2) For short-run production planning, information in the variable costing format is more useful to management than is information in the absorption costing concept […]

1) The normal balance of an expense account is a credit. 2) If, prior to the last weekly payroll period of the calendar year, the cumulative earnings for an employee are $98,800, earnings subject to social security tax are $100,000, […]

1) Investments in stocks that are expected to be held for the long term are listed in the stockholders equity section of the balance sheet. 2) The three inventory costing methods will normally each yield different amounts of net income. […]

1) If merchandise costing $3,500, terms FOB destination, 2/10, n/30, with prepaid freight costs of $125, is paid within 10 days, the amount of the purchases discount is $70. 2) If 100 shares of treasury stock were purchased for $50 […]

1) Control is the process of monitoring operating results and comparing actual results with the expected results. 2) For short-run production planning, information in the absorption costing format is more useful to management than is information in the variable costing […]

1) Activity-based costing is much easier to apply than single plantwide factory overhead allocation. 2) Safeguarding inventory and proper reporting of the inventory in the books are the reasons for controlling the inventory. Answer: TRUE 3) A receiving report is […]

1) The direct labor and overhead costs of providing services to clients are accumulated in a work-in-process account. 2) Once journal entries are posted to accounts, each account will show a new balance after each entry. Answer: TRUE 3) Changes […]

1) Manufacturers use labor, plant, and equipment to convert direct materials into finished products. 2) Purchasing supplies on account increases liabilities and decreases equity. Answer: FALSE 3) Make or buy options often arise when a manufacturer has excess productive capacity […]

1) Average inventory is computed by adding the inventory at the beginning of the period to the inventory at the end of the period and dividing by two. 2) A check for $342 was erroneously charged by the bank as […]

1) The just-in-time (JIT) philosophy views inventory as a necessary buffer to protect against process problems. 2) In a push manufacturing system, raw materials are released to production based on forecasted demand. Answer: TRUE 3) The T account got its […]

1) Generally, the lower the number of days’ sales in inventory, the better. 2) The acquisition of land in exchange for common stock is an example of noncash investing and financing activity. Answer: TRUE 3) Entries required to close the […]

1) The total interest expense over the entire life of a bond is equal to the sum of the interest payments plus the total discount or minus the total premium related to the bond. 2) The difference between the balance […]

1) The normal balance of the dividends account is a debit. 2) In contribution margin analysis, the effect of a difference in the number of units sold, assuming no change in unit sales price or cost, is termed the unit […]

1) The declaration and issuance of a stock dividend does not affect the total amount of a corporation’s assets, liabilities, or stockholders’ equity. 2) Depreciation on factory plant and equipment is an example of factory overhead cost. Answer: TRUE 3) […]

1) Sales to customers who use bank credit cards, such as MasterCard and VISA, are generally treated as credit sales. 2) In contribution margin analysis, the effect of a difference in unit sales price or unit cost on the number […]

1) The trial balance prepared after all the closing entries have been posted is called a pre-closing trial balance. 2) The accounting rate of return is a measure of profitability computed by dividing the average annual cash flows from an […]