MCQ for Admission test

Chapter 01

1. Communication consists of keeping a systematic, chronological diary of events, measured in dollars and cents.

A. True B. False

2. Financial accounting provides internal reports to help users make decisions about their companies.

A. True B. False

3. The first step in analyzing ethics cases is to recognize an ethical situation and the ethical issues involved.

A.True B. False

4. The cost principle dictates that companies record assets at their cost.

A.True B.False

5. The economic entity assumption applies to corporations but not proprietorships or partnerships.

A. True B.False

6. Expenses are decreases in owner's equity that result from operating the business.

A. True B. False

7. The receipt of cash on account will increase total assets.

A.True B.False

8. A balance sheet is prepared as of a specific date.

A.True B.False

9. The statement of cash flows provides information on the cash receipts and payments for a specific period of time.

A. True B.False

10. Cost accounting is an activity in public accounting.

A. True B.False

11. The first activity of the accounting process is

A. communication. B. identification. C. processing. D. recording.

12. Keeping a systematic, chronological diary of events, measured in dollars and cents is called:

A. communicating. B. identifying. C. processing. D. recording

13. Internal users of accounting information include all of the following except:

A. company officers. B. investors. C. marketing managers. D. production supervisors.

14. Bookkeeping, as opposed to accounting, usually involves only:

A. identifying. B. recording. C. communicating. D. reporting.

15. Ethics are the standards of conduct by which one's actions are judged as:

A. right or wrong. B .honest or dishonest. C. fair or not fair.

D. all of these options.

16. The primary accounting standard-setting body in the United States is the

A. Financial Accounting Standards Board. B. International Accounting Standards Board.

C. Internal Revenue Service. D. Securities and Exchange Commission.

17. Combining the activities of Kellogg and General Mills would violate the

A. cost principle. B. economic entity assumption.

C. monetary unit assumption. D. ethics principle.

18. A business organized as a separate legal entity under state corporation law having ownership divided into transferable shares of stock is a

A. proprietorship. B. partnership. C.corporation. D.sole proprietorship.

19. The resources a business owns are called

A. revenues. B. owner's equity. C. liabilities. D. assets.

20. Net income results when

A.investments exceed drawings. B. revenues exceed drawings.

C. revenues exceed expenses. D. expenses exceed revenues.

21. An example of an internal transaction is the

A. purchase of an asset. B. payment of a liability.

C. performance of services. D. use of office supplies.

22. The investment of cash by the owner

A. increases revenues. B. increases owner's equity.

C. decreases expenses. D. decreases assets.

23. Revenues and expenses are reported on the

A. balance sheet. B.income statement. C. owner's equity statement.

D. statement of cash flows.

24. The ending owner's equity amount is shown on the

A. balance sheet only. B. owner's equity statement only.

C. statement of cash flows. D. both the balance sheet and the owner's equity statement.

25. Which of the following financial statements is prepared as of a specific date?

A. Balance sheet. B. Income statement.

C. Owner's equity statement. D. Statement of cash flows.

26. Which of the following is not one of the career opportunities in accounting?

A. Public accounting B. Personal accounting

C. Governmental accounting D. Private accounting


Chapter -2

1. The normal balance of an account is on the side where a decrease in the account is recorded.

A. True B. False

2. The drawing account decreases owner's equity and is an income statement account like expenses.

A. True B. False

3. When a company earns revenues, owner's equity increases.

A. True B. False

4. The first step in the recording process is to enter the transaction information in a journal.

A. True B. False

5. Companies initially record transactions in the general journal in chronological order.

A. True B. False

6. An entry that requires more than two accounts is a compound entry.

A. True B. False

7. The entire group of accounts maintained by a company is the ledger.

A. True B. False

8. Transferring journal entries to the ledger accounts is called journalizing.

A. True B. False

9. Companies prepare a trial balance at the end of an accounting period and it is useful in preparing financial statements.

A. True B. False

10. Dollar signs do not appear in journal or ledgers.

A. True B. False

11. A credit to a liability account indicates a(n)

A. debit was made to an asset account. B. decrease in the liability.

C. increase in the liability. D. error.

12. A debit is not the normal balance for which of the following?

A. Asset account. B. Drawing account. C. Expense account. D. Capital account.

13. An account will have a debit balance if the

A. number of debits exceeds the number of credits. B. first transaction posted was a debit.

C. total of the debit amounts exceeds the credits. D. last transaction posted was a debit.

14. Which of the following statements is false?

A. Revenues increase owner's equity. B. Revenues have normal credit balances.

C. Credits to revenue accounts should exceed debits. D. Revenues are increased by debits.

15. A credit to a revenue account

A. indicates an increase in revenues earned. B. indicates a decrease in revenues earned.

C. must be accompanied by a debit to an expense account. D. is an error.

16. Entering transaction data in the journal is known as

A. posting. B. journalizing. C. balancing. D. recording.

17. The first step in the recording process is to

A. enter the transaction information in a journal.

B. transfer journal information to appropriate ledger accounts. C. prepare the trial balance.

D. analyze each transaction.

18. A list of accounts and their balances at a given point in time is called a

A. chart of accounts. B. general journal. C. general ledger. D. trial balance.

19. Which of the following is incorrect regarding a trial balance?

A. It proves that the debits equal the credits after posting.

B. It proves that the company has recorded all transactions.

C. A trial balance uncovers errors in journalizing and posting.

D. A trial balance is useful in the preparation of financial statements.

20. Dollar signs are typically used only in the

A. journals. B. ledgers. C. financial statements.

D. financial statements and trial balance.

21. A complete journal entry includes all of the following except

A. the date of the transaction. B. a brief explanation of the transaction.

C. the balance of the accounts in the entry.

D. the accounts and amounts to be debited and credited.

22. The primary purpose of a trial balance is to

A. prove that all transactions have been recorded.

B. prove that the debits equal the credits after posting.

C. uncover errors in journalizing and posting. D. determine the net income for the year.

23. Which of the following is false about a journal?

A. It discloses in one place the complete effects of a transaction.

B. It provides a chronological record of transactions.

C. It helps to prevent or locate errors because debit and credit amounts for each entry can be easily compared.

D. It keeps in one place all the information about changes in specific account balances.

24. Posting of journal entries should be performed in

A. account number order. B. alphabetical order.

C. chronological order. D. dollar amount order.

25. The Unearned Revenue account is a(n)

A. asset. B. liability. C. revenue. D. expense.


Chapter 03

1. Accountants divide the economic life of a business into artificial time periods because of the time period assumption.

A. True B. False

2. The revenue recognition principle dictates that companies recognize revenue in the accounting period before it is earned.

A. True B. False

3. A company must make adjusting entries every time it prepares financial statements.

A. True B. False

4. Prior to adjustment for prepaid expenses, assets are understated and expenses are overstated.

A. True B. False

5. Accumulated Depreciation is an asset account.

A. True B. False

6. Prior to adjustment for unearned revenues, liabilities are understated and revenues are overstated.

A. True B. False

7. An adjusting entry for accrued expenses increases an expense and also increases a liability account.

A. True B. False

8. Every adjusting entry affects one balance sheet account and one income statement account.

A. True B. False

9. Companies can prepare financial statements directly from an adjusted trial balance.

A. True B. False

10. The use of alternative adjusting entries does not apply to accrued revenues and accrued expenses.

A. True B. False

11. An accounting time period that is one year in length is

A. a calendar year. B. a fiscal year C. an interim period. D. a quarterly period.

12. The revenue recognition principle dictates that companies recognize revenue in the accounting period

A. before it is earned. B. after it is earned. C. in which it is earned. D. in which it is collected.

13. Expenses paid in cash and recorded as assets before they are used are called

A. accrued expenses. B. interim expenses. C. prepaid expenses. D. unearned expenses.

14. Revenues earned but not yet received in cash or recorded are called

A. unearned revenues. B. prepaid revenues. C. interim revenues. D. accrued revenues.

15. The adjusting entry for unearned revenues affects

A. assets and expenses. B. liabilities and revenues. C. assets and revenues. D. expenses and liabilities.

16. The adjusting entry for accrued expenses affects

A. assets and expenses. B. liabilities and revenues. C. assets and revenues. D. expenses and liabilities.

17. Which of the following statements related to the adjusted trial balance is incorrect?

A. It shows the balances of all accounts at the end of the accounting period.

B. It is prepared before adjusting entries have been made.

C. It proves the equality of the total debit balances and the total credit balances in the ledger.

D. Companies can prepare financial statements directly from the adjusted trial balance.

18. Each adjusting entry affects

A. balance sheet accounts only. B. income statement accounts only.

C. expense accounts only. D. both balance sheet and income statement accounts.

19. An adjusting entry that debits an asset and credits a revenue is necessary for

A. prepaid expenses. B. unearned revenues. C. accrued revenues.

D. accrued expenses.

20. An adjusting entry that debits an expense and credits an asset is necessary for

A. prepaid expenses. B. unearned revenues. C. accrued revenues.

D. accrued expenses.

21. Under cash-basis accounting, companies record revenue only when

A. services are performed. B. it is earned. C. cash is received. D. it is incurred.

22. Companies record an expense under cash-basis accounting only when

A. services are performed. B. it is earned. C. they pay out cash. D. it is incurred

23. The Accumulated Depreciation account is a(n)

A. asset. B. liability. C. expense. D. contra asset.

24. If an adjusting entry for depreciation is not made

A. assets will be understated. B.owner's equity will be understated.

C. net income will be understated. D. expenses will be understated.

25. If the adjusting entry for unearned revenues is not made

A.assets will be overstated. B.liabilities will be overstated.

C. revenues will be overstated. D. net income will be overstated.

26. If unearned revenues are initially recorded as revenues, the adjusting entry to recognize unearned revenues at the end of an accounting period will include a:

A. debit to a revenue account. B. credit to an expense account.

C. debit to an unearned revenue account. D. credit to an asset account.


Chapter o4

1. A worksheet is a device that eliminates the need to prepare financial

statements.

A. True B. False

2. Companies journalize the adjustments after they complete the worksheet but before preparing the financial statements.

A. True B. False

3. A worksheet is not a journal, and it cannot be used as a basis for posting to ledger accounts.

A. True B. False



4. In closing the books, all temporary accounts are closed.

A. True B. False

5. The Owner's Drawing account is closed through the Income Summary account.

A. True B. False

6. The post-closing trial balance will contain only permanent accounts.

A. True B. False

7. Use of reversing entries is not a required step in the accounting cycle.

A. True B. False

8. Correcting entries are only made at the end of an accounting period.

A. True B. False

9. On the balance sheet, companies usually list current assets in the order of largest to smallest.

A. True B. False

10. Current liabilities are obligations that are reasonably expected to be paid from existing current assets or through the creation of other current liabilities.

A. True B. False

11. A worksheet is a:

A. permanent accounting record. B. part of the general ledger.

C. required part of the accounting cycle. D. device used in preparing financial statements.

12. Net income is shown on a worksheet in the:

A. income statement debit column only. B.balance sheet debit column only.

C. income statement credit column and balance sheet debit column.

D. income statement debit column and balance sheet credit column.

13. The owner's drawing account appears in which column(s) of the worksheet?

A. Adjusted trial balance and balance sheet columns only.

B. Trial balance and adjusted trial balance columns only.

C. Balance sheet column only.

D. Trial balance, adjusted trial balance, and balance sheet columns.

14. Which of the following accounts is not closed?

A. Income statement accounts

B. Nominal accounts

C. Real accounts

D. Temporary accounts

15. Companies generally prepare closing entries directly from the:

A. adjusted balances in the ledger.

B. income statement columns of the worksheet.

C. income statement.

D. trial balance columns of the worksheet.

16. A post-closing trial balance will contain only:

A. income statement accounts.

B. nominal accounts.

C. permanent accounts.

D. temporary accounts.

17. Which of the following is an optional step in the accounting cycle?

A. Adjusting entries

B. Closing entries

C. Correcting entries

D. Reversing entries

18. Correcting entries are made:

A. at the beginning of an accounting period.

B. at the end of an accounting period.

C. whenever an error is discovered.

D. after closing entries.

19. Assets that a company expects to convert to cash or use up within one year are called:

A. current assets.

B. intangible assets.

C. long-term investments.

D. property, plant, and equipment.

20. Patents and copyrights are

A. current assets.

B. intangible assets.

C. long-term investments.

D. property, plant, and equipment.

21. Wages and salaries payable are classified as a:

A. current liability.

B. long-term liability.

C. non-current liability.

D. intangible liability.

22. Within the current liabilities section, companies usually list _________ first.

A. accounts payable

B. current maturities of long-term debt

C. interest payable

D. notes payable

23. Which of the following is not a long-term liability?

A. Bonds payable

B. Current maturities of long-term debt

C. Long-term notes payable

D. Mortgages payable

24. All of the following are owner's equity accounts except:

A. the capital account.

B. Capital Stock.

C. Investment in Stock.

D. Retained Earnings.

25. The use of reversing entries:

A. is a required step in the accounting cycle.

B. changes the amounts reported in the financial statements.

C. simplifies the recording of subsequent transactions.

D. is required for all adjusting entries.

1. Sales revenue less cost of goods sold is called net profit.

A. True

B. False

2. In a perpetual inventory system, a company determines the cost of goods sold each time a sale occurs.

A. True B. False

3. In a periodic inventory system, companies keep detailed inventory records of the goods on hand throughout the period.

A. True B. False

4. FOB destination means that the seller places the goods free on board the common carrier and the buyer pays the freight costs.

A. True B. False

5. Sales Returns and Allowances is a contra revenue account to Sales and has a normal debit balance.

A. True B. False

6. A merchandiser using a perpetual system will require one additional adjusting entry to make the records agree with the actual inventory on hand.

A. True

B.

False



7. The income statement for retailers contains one expense category just like the income statement of a service company.

A.

True

B.

False



8. A multiple-step income statement distinguishes between operating and non-operating activities.

A.

True

B.

False



9. Under a periodic system, the company uses separate accounts to record freight costs, returns, and discounts.

A.

True

B.

False



10. There are more steps involved in preparing a worksheet for a merchandising company than for a service company.

A.

True

B.

False



11. Gross profit is:

A.

sales revenue less operating expenses.

B.

sales revenue less cost of good sold.

C.

net income less operating expenses.

D.

net income less cost of goods sold.



12. A company determines the cost of goods sold each time a sale occurs in:

A.

periodic inventory system only.

B.

a perpetual inventory system only.

C.

both a periodic and perpetual inventory system.

D.

neither a periodic nor perpetual inventory system.



13. In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting:

A.

Purchases

B.

Purchase Returns

C.

Purchase Allowance

D.

Merchandise Inventory



14. Which of the following is not part of the journal entries made when merchandise is sold on credit?

A.

Credit the Cost of Goods Sold account.

B.

Credit the Sales account.

C.

Credit the Merchandise Inventory account.

D.

Debit the Accounts Receivable account.



15. FOB shipping point means that the:

A.

goods are placed free on board to the buyer's place of business.

B.

buyer pays the freight.

C.

seller pays the freight.

D.

common carrier pays the freight.



16. The account Sales Discounts is a(n):

A.

revenue account.

B.

contra revenue account.

C.

liability account.

D.

expense account.



17. Net sales is sales less:

A.

sales returns.

B.

sales discounts.

C.

sales returns and allowances.

D.

sales returns & allowances and sales discounts.



18. Selling expenses include all of the following except:

A.

advertising expense.

B.

freight-out.

C.

insurance expense.

D.

store salaries expense.



19. Which of the following is shown for both merchandising and service companies?

A.

Cost of goods sold.

B.

Gross profit.

C.

Operating expenses.

D.

Sales revenue.



20. In a perpetual inventory system, which of the following would be debited when goods are purchased with the intent of being resold?

A.

Cost of Goods Sold.

B.

Merchandise Inventory.

C.

Purchases.

D.

Accounts Payable.



21. Which of the following accounts is not closed to Income Summary?

A.

Cost of Goods Sold.

B.

Merchandise Inventory.

C.

Sales.

D.

Sales Discounts.



22. All of the following items would be reported as other revenues and gains

except:

A.

gain on sale of equipment.

B.

interest revenue.

C.

rent revenue.

D.

sales revenue.



23. Income from operations is:

A.

net sales less cost of goods sold.

B.

net sales less operating expenses.

C.

gross profit less other expenses and losses.

D.

gross profit less operating expenses.



24. Which of the following is shown on both a multiple-step and a single-step income statement?

A.

Gross profit

B.

Net sales

C.

Income from operations

D.

Other expenses and losses



25. Income from operations appears on:

A.

both a multiple-step and a single-step income statement.

B.

neither a multiple-step nor a single-step income statement.

C.

a multiple-step income statement only.

D. a single-step income statement only.



26. In a periodic inventory system the entry to record the credit sale of merchandise affects which of the following accounts?

A.

Cost of Goods Sold.

B.

Purchases.

C.

Merchandise Inventory.

D.

Sales.



1. Manufacturing companies usually classify inventory into three categories.

A.

True

B.

False



2. When the terms of sale are FOB shipping point, ownership of the goods remains with the seller until the goods reach the buyer.

A.

True

B.

False



3. There is an accounting requirement that the cost flow assumption be consistent with the physical movement of the goods.

A.

True

B.

False



4. The FIFO method assumes that the earliest goods purchased are the first to be sold.

A.

True

B.

False



5. Under LIFO, companies obtain the cost of the ending inventory by taking the cost of the latest goods available for the sale and working backward until all the units have been costed.

A.

True

B.

False



6. Some argue that the use of FIFO in a period of inflation enables a company to avoid reporting paper (phantom) profit as economic gain.

A.

True

B.

False



7. Under the lower-of-cost-or-market basis, market is defined as current replacement cost.

A.

True

B.

False



8. An error in the ending inventory of the current period will have no effect on net income of the next accounting period.

A.

True

B.

False



9. Days in inventory measures the average number of days inventory is held.

A.

True

B.

False



10. The results under FIFO in a perpetual system are the same as in a periodic system.

A.

True

B.

False



11. All of the following would be classified as inventory except:

A.

merchandise inventory.

B.

raw materials.

C.

supplies.

D.

work in process.



12. Companies using a periodic inventory system take a physical inventory for each of the following purposes except to determine the:

A.

cost of goods sold for the period.

B.

inventory on hand at the balance sheet date.

C.

amount of inventory lost due to shoplifting or employee theft

D.

All of the above are correct.



13. Goods in transit should be included in the inventory of the buyer when the:

A.

public carrier accepts the goods from the seller.

B.

goods reach the buyer.

C.

terms of sale are FOB destination.

D.

terms of sale are FOB shipping point.



14. When the terms of sale are FOB destination, ownership of the goods remains with the seller until the goods:

A.

are accepted by the public carrier.

B.

are shipped.

C.

reach the buyer.

D.

are paid for by the buyer.



15. The cost flow method that often parallels the actual physical flow of merchandise is the:

A.

FIFO method.

B.

LIFO method.

C.

average-cost method.

D.

gross profit method.



16. The first costs assigned to ending inventory are the costs of the beginning inventory under the:

A.

FIFO method.

B.

LIFO method.

C.

average-cost method.

D.

gross profit method.



17. In a period of inflation, which cost flow method produces the highest net income?

A.

FIFO method.

B.

LIFO method.

C.

Average-cost method.

D.

Gross profit method.



18. In a period of inflation, the cost flow method that results in the lowest income taxes is the:

A.

FIFO method.

B.

LIFO method.

C.

average-cost method.

D.

gross profit method.



19. When the current replacement cost of inventory is less than its cost, it is written down to:

A.

FIFO value.

B.

LIFO value.

C.

market value.

D.

average-cost value.



20. Under the LCM approach market value is defined as:

A.

FIFO cost.

B.

LIFO cost.

C.

current replacement cost.

D.

selling price.



21. Overstating beginning inventory will overstate:

A.

assets.

B.

cost of goods sold.

C.

net income.

D.

owner's equity.



22. Understating ending inventory will overstate:

A.

assets.

B.

cost of goods sold.

C.

net income.

D.

owner's equity.



23. The inventory turnover ratio is computed by dividing cost of goods sold by:

A.

beginning inventory.

B.

ending inventory.

C.

average inventory.

D.

365 days.



24. Which of the following is used to estimate the cost of ending inventory?

A.

Net profit method.

B.

Wholesale inventory method

C.

Perpetual inventory method

D.

Retail inventory method.



1. There are two principles of an efficient and effective accounting information system.

A.

True

B.

False



2. General ledger accounting systems integrate the various accounting functions related to sales, purchases, receivables, payables, and payroll.

A.

True

B.

False



3. A subsidiary ledger is a group of accounts with a common characteristic.

A.

True

B.

False



4. An advantage of using subsidiary ledgers is they eliminate errors in individual accounts.

A.

True

B.

False



5. In the sales journal, companies record all sales of merchandise.

A.

True

B.

False



6. The company does not post the total of the Other Accounts column in the cash receipts journal.

A.

True

B.

False



7. Companies record all purchases on account in the purchases journal.

A.

True

B.

False



8. In a cash payments journal, all column totals are posted at the end of the period to the general ledger.

A.

True

B.

False



9. Only transactions that cannot be entered in a special journal are recorded in the general journal.

A.

True

B.

False



10. When a general journal entry involves a subsidiary account, there must be a dual posting: once to the control account and once to the subsidiary account.

A.

True

B.

False



11. Each of the following is a common benefit of entry-level software packages except:

A.

audit trail.

B.

customization.

C.

network-compatibility.

D.

all of these options are benefits.



12. Principles of an efficient and effective accounting information system include all of the following except:

A.

cost effectiveness.

B.

flexibility.

C.

useful output.

D.

all of these options are principles.



13. Each of the following is a subsidiary ledger except the:

A.

accounts receivable ledger.

B.

accounts payable ledger.

C.

customer's ledger.

D.

general ledger.



14. Which one of the following accounts is a control account?

A.

Accounts Payable.

B.

Cash.

C.

Owner's Capital.

D.

Sales.



15. All of the following are advantages of using subsidiary ledgers except they:

A.

show in a single account transactions affecting one customer or one creditor.

B.

free the general ledger of excessive details.

C.

eliminate errors in individual accounts.

D.

make possible a division of labor.



16. Closing entries are recorded in the:

A.

cash receipts journal.

B.

general journal.

C.

purchases journal.

D.

sales journal.



17. Cash sales of merchandise are recorded in the:

A.

cash payments journal.

B.

cash receipts journal.

C.

general journal.

D.

sales journal.



18. Credit sales of assets other than merchandise are recorded in the:

A.

cash payments journal.

B.

cash receipts journal.

C.

general journal.

D.

sales journal.



19. Postings from the sales journal to the general ledger are done:

A.

daily.

B.

monthly.

C.

weekly.

D.

yearly.



20. The individual amounts in the accounts receivable column of the cash receipts journal

are posted to the subsidiary ledger:

A.

daily.

B.

monthly.

C.

weekly.

D.

yearly.



21. Companies record credit purchases of equipment or supplies in the:

A.

cash payments journal.

B.

cash receipts journal.

C.

general journal.

D.

one-column purchases journal.



22. Companies post the individual amounts in the purchases journal to the accounts payable ledger:

A.

daily.

B.

weekly.

C.

monthly.

D.

yearly.



23. Cash purchases of merchandise are entered in the:

A.

cash receipts journal.

B.

cash payments journal.

C.

general journal.

D.

purchases journal.



24. The totals in the cash payments journal are posted:

A.

daily.

B.

weekly.

C.

monthly.

D.

yearly.



25. Which of the following is not one of the credit columns in the cash receipts journal?

A.

Other Accounts.

B.

Accounts Payable.

C.

Accounts Receivable.

D.

Sales.



1. Internal control consists of all the related methods and measures adopted within an organization to safeguard its assets and to enhance the accuracy and reliability of its accounting records.

A.

True

B.

False



2. Control is most effective when two people are responsible for a given task.

A.

True

B.

False



3. Few internal control systems provide for independent internal verification.

A.

True

B.

False



4. Cash is the asset most susceptible to improper diversion and use.

A.

True

B.

False



5. Internal control over cash disbursements is more effective when companies pay by check, rather than by cash.

A.

True

B.

False



6. Companies use a petty cash fund to pay relatively small amounts.

A.

True

B.

False



7. There are two parties to a check: the maker and the payee.

A.

True

B.

False



8. A bank issues a debit memorandum when it collects a note receivable for a depositor.

A.

True

B.

False



9. The lack of agreement between the bank balance and the book balance is due to time lags and errors.

A.

True

B.

False



10. A company records each reconciling item used to determine the adjusted cash balance per books.

A.

True

B.

False



11. The principles of internal control include all of the following except:

A.

establishment of responsibility.

B.

combining of duties.

C.

physical, mechanical, and electronic controls.

D.

independent internal verification.



12. Controls that relate primarily to the safeguarding of assets are:

A.

physical controls.

B.

mechanical controls.

C.

electronic controls.

D.

automated controls.



13. Large companies often assign independent internal verification to the:

A.

bookkeeper.

B.

controller.

C.

internal auditors.

D.

treasurer.



14. All of the following are classified as cash except:

A.

checks.

B.

money orders.

C.

money on hand.

D.

postdated checks.



15. Having different individuals receive cash, record cash receipts, and hold the cash is an example of:

A.

establishment of responsibility.

B.

segregation of duties.

C.

documentation procedures.

D.

independent internal verification.



16. Using pre-numbered checks and having an approved invoice for each check is an example of:

A.

establishment of responsibility.

B.

segregation of duties.

C.

documentation procedures.

D.

independent internal verification.



17. A disbursement system that uses wire, telephone, or computers to transfer cash balances from one location to another is called a(n):

A.

automated system.

B.

electronic funds transfer system.

C.

internal system.

D.

voucher system.



18. Making payments from a petty cash fund requires:

A.

a credit to Cash.

B.

a credit to Petty Cash.

C.

a debit to various expense accounts.

D.

no accounting entry to record a payment when it is made from petty cash.



19. A company reports a debit balance in Cash Over and Short as a(n):

A.

liability.

B.

miscellaneous expense.

C.

miscellaneous revenue.

D.

asset.



20. The party who issues a check is the:

A.

payee.

B.

payer.

C.

maker.

D.

bank.



21. All of the following would involve a debit memorandum except:

A.

a bank service charge.

B.

an NSF check.

C.

the cost of printing checks.

D.

interest earned.



22. On a bank reconciliation, outstanding checks are:

A.

added to the bank balance.

B.

deducted from the bank balance.

C.

added to the book balance.

D.

deducted from the book balance.



23. On a bank reconciliation, collection of a note receivable by the bank is:

A.

added to the bank balance.

B.

deducted from the bank balance.

C.

added to the book balance.

D.

deducted from the book balance.



24. Journal entries are required by the depositor for all of the following except:

A.

collection of a note receivable.

B.

an NSF check.

C.

bank service charges.

D.

bank errors.



25. Cash equivalents include all of the following except:

A.

money market funds.

B.

bank certificates of deposit.

C.

U.S. Treasury bills.

D.

restricted cash.


1. Notes and accounts receivable that result from sales transactions are often called trade receivables.

A.

True

B.

False



2. The opportunity to receive a cash discount usually occurs when a retailer sells to customers.

A.

True

B.

False



3. Cash (net) realizable value is the net amount the company expects to receive in cash.

A.

True

B.

False



4. The percentage-of-receivables basis results in a better matching of expenses with revenues than the percentage-of-sales basis.

A.

True

B.

False



5. Under the percentage-of-receivables basis, the amount of bad debt expense is the difference between the required balance and the existing balance in the allowance account.

A.

True

B.

False



6. Retailers consider sales from the use of national credit cards as credit sales.

A.

True

B.

False



7. In a promissory note, the party making the promise to pay is called the maker.

A.

True

B.

False



8. To determine the maturity date of a note, you need to include the date the note is issued but omit the due date.

A.

True

B.

False



9. Companies report short-term notes receivable at their cash (net) realizable value.

A.

True

B.

False



10. A dishonored note receivable is no longer negotiable and the payee has no claim against the maker of the note.

A.

True

B.

False



11. Accounting issues associated with accounts receivable include all of the following except:

A.

recognizing accounts receivable.

B.

valuing accounts receivable.

C.

disposing of accounts receivable.

D.

analyzing accounts receivable.



12. Companies report accounts receivable on the balance sheet at:

A.

cost.

B.

cash (net) realizable value.

C.

gross realizable value.

D.

face value.



13. Allowance for Doubtful Accounts is:

A.

closed at the end of the fiscal year.

B.

an operating expense.

C.

a contra asset account.

D.

added to Accounts Receivable on the balance sheet.



14. Under the allowance method, estimated uncollectible receivables are credited to:

A.

Bad Debts Expense.

B.

Accounts Receivable.

C.

Allowance for Doubtful Accounts.

D.

Uncollectible Accounts Expense.



15. Writing off an uncollectible account under the allowance method requires a debit to:

A.

Accounts Receivable.

B.

Allowance for Doubtful Accounts.

C.

Bad Debts Expense.

D.

Uncollectible Accounts Expense.



16. The percentage-of-sales basis of estimating uncollectibles:

A.

produces a better estimate of cash realizable value.

B.

results in a better matching of expenses with revenues.

C.

emphasizes balance sheet relationships.

D.

considers the existing balance in Allowance for Doubtful Accounts.



17. The percentage-of-receivables basis of estimating uncollectibles:

A.

produces a better estimate of cash realizable value.

B.

results in a better matching of expenses with revenues.

C.

emphasizes income statement relationships.

D.

ignores the existing balance in Allowance for Doubtful Accounts.



18. The direct write-off method:

A.

is acceptable for financial reporting purposes.

B.

debits Allowance for Doubtful Accounts to record write-offs of accounts.

C.

shows only actual losses from uncollectible accounts.

D.

estimates bad debt losses.



19. In recording the sale of accounts receivable, the commission charged by a factor is recorded as:

A.

Bad Debts Expense.

B.

Commission Expense.

C.

Loss on Sale of Receivables.

D.

Service Charge Expense.



20. Sales resulting from the use of Visa and MasterCard credit cards are considered:

A.

cash sales.

B.

credit sales.

C.

credit card sales.

D.

card sales.



21. The maturity date of a 60-day note dated April 12 is:

A.

June 10.

B.

June 11.

C.

June 12.

D.

June 13.



22. The interest rate specified in a note is for a:

A.

day.

B.

month.

C.

week.

D.

year.



23. For an interest-bearing note, the amount due at maturity is the:

A.

face value of the note.

B.

face value of the note plus interest.

C.

maturity value plus interest.

D.

cash (net) realizable value.



24. The entry to record the dishonor of a note receivable assuming the payee expects eventual collection includes a debit to:

A.

Notes Receivable.

B.

Cash.

C.

Allowance for Doubtful Accounts.

D.

Accounts Receivable.



25. The accounts receivable turnover ratio is computed by dividing:

A.

total sales by average net accounts receivable.

B.

net credit sales by average net accounts receivable.

C.

total sales by ending net accounts receivable.

D.

net credit sales by ending net accounts receivable.



1. The cost of land includes closing costs such as title and attorney's fees.

A.

True

B.

False



2. The cost of equipment consists of the cash purchase price, freight charges, motor vehicle licenses and accident insurance on company vehicles.

A.

True

B.

False



3. Recognizing depreciation on an asset results in an accumulation of cash for replacement of the asset.

A.

True

B.

False



4. The units-of-activity method can be used for airplanes, buildings, and furniture.

A.

True

B.

False



5. The declining-balance method is considered an accelerated-depreciation method.

A.

True

B.

False



6. The Internal Revenue Service (IRS) requires the taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements.

A.

True

B.

False



7. To determine the revised depreciation expense, the company computes the asset's depreciable cost at the time of the revision and divides it by the asset's remaining useful life.

A.

True

B.

False



8. Companies generally use the units-of-activity method to compute depletion.

A.

True

B.

False



9. Goodwill is the excess of cost over the fair market value of the net assets acquired.

A.

True

B.

False



10. The gain or loss on exchange of plant assets is the difference between the fair market value and the cost of the asset given up.

A.

True

B.

False



11. Plant assets decline in service potential over their useful lives except for:

A.

buildings.

B.

equipment.

C.

land.

D.

land improvements.



12. The cost of land includes all of the following except:

A.

real estate brokers' commissions.

B.

closing costs.

C.

accrued property taxes.

D.

parking lots.



13. Factors that affect the computation of depreciation include all of the following except:

A.

cost.

B.

book value.

C.

salvage value.

D.

useful life.



14. Depreciable cost is the:

A.

book value of an asset less its salvage value.

B.

cost of an asset less its salvage value.

C.

cost of an asset less accumulated depreciation.

D.

book value of an asset.



15. The depreciation method that produces a decreasing annual depreciation expense over an asset's useful life is the:

A.

straight-line method.

B.

units-of-activity method.

C.

declining-balance method.

D.

None of these options.



16. The method that ignores salvage value in determining the amount of depreciation is the:

A.

straight-line method.

B.

units-of-activity method.

C.

declining-balance method.

D.

None of these options.



17. When a change in estimated useful life is required, the company makes the change in:

A.

current and prior years.

B.

current and future years.

C.

current year only.

D.

prior years only.



18. Ordinary repairs are expenditures to maintain the operating efficiency of a plant asset and are referred to as:

A.

capital expenditures.

B.

expense expenditures.

C.

improvements.

D.

revenue expenditures.



19. A gain on sale of a plant asset occurs when the proceeds of the sale exceed the:

A.

salvage value of the asset sold.

B.

market value of the asset sold.

C.

book value of the asset sold.

D.

accumulated depreciation on the asset sold.



20. Natural resources include all of the following except:

A.

mineral deposits.

B.

oil and gas deposits.

C.

standing timber.

D.

land improvements.



21. Companies amortize the cost of a patent over its:

A.

useful life.

B.

legal life.

C.

legal life or its useful life, whichever is shorter.

D.

legal life or its useful life, whichever is longer.



22. All of the following are intangible assets except:

A.

copyrights.

B.

goodwill.

C.

patents.

D.

research and development costs.



23. The asset turnover ratio is computed by dividing:

A.

net income by average total assets.

B.

net sales by average total assets.

C.

net income by ending total assets.

D.

net sales by ending total assets.



24. In exchanges of plant assets that have commercial susbstance:

A.

both gains and losses are recognized.

B.

neither gains nor losses are recognized.

C.

gains are recognized but not losses.

D.

losses are recognized but not gains.



25. In an exchange of plant assets that has commercial substance, a gain on disposal is:

A.

deducted from the cost of the new asset.

B.

ignored completely.

C.

recognized immediately.

D.

offset against the cost of the old asset.



1. A current liability is a debt that the company reasonably expects to pay from existing current assets.

A.

True

B.

False



2. Notes Payable due for payment within one year of the balance sheet date are usually classified as current liabilities.

A.

True

B.

False



3. Companies report any balance in an unearned revenue account as a current liability in the balance sheet.

A.

True

B.

False



4. Current liabilities are usually listed in the order of maturity on the balance sheet.

A.

True

B.

False



5. If a contingent liability is reasonably possible and the amount can be reasonably estimated, it should be recorded in the accounts.

A.

True

B.

False



6. The cost of honoring product warranty contracts should be recognized as an expense in the period in which the repair costs are incurred.

A.

True

B.

False



7. Determining the payroll involves computing gross earnings, payroll deductions, and net pay.

A.

True

B.

False



8. Companies determine net pay by subtracting payroll deductions from gross earnings.

A.

True

B.

False



9. The employee earnings record is a cumulative record of each employee's gross earnings, deductions and net pay during the year.

A.

True

B.

False



10. Payroll tax expense for businesses consists of FICA tax, federal unemployment tax, and state unemployment tax.

A.

True

B.

False



11. A current liability is a debt the company reasonably expects to pay from existing current assets within:

A.

one year.

B.

the operating cycle.

C.

one year or the operating cycle, whichever is longer.

D.

one year or the operating cycle, whichever is shorter.



12. The amount of sales tax collected by a retailer is recorded as:

A.

Sales Taxes Expense.

B.

Sales Taxes Payable.

C.

Sales Taxes Revenue.

D.

Sales.



13. All of the following are current liabilities except:

A.

sales taxes payable.

B.

unearned rental revenue.

C.

current maturities of long-term debt.

D.

All of these options are current liabilities.



14. The current ratio is current assets:

A.

less current liabilities.

B.

plus current liabilities.

C.

divided by current liabilities.

D.

multiplied by current liabilities.



15. Companies report current liabilities on the balance sheet in:

A.

alphabetical order.

B.

order of maturity.

C.

random order.

D.

order of magnitude.



16. A contingent liability is recorded when the likelihood of the contingency is:

A.

remote.

B.

reasonably possible.

C.

probable.

D.

unlikely to occur.



17. Employee pay expressed in terms of a specified amount per month or per year is called:

A.

bonuses.

B.

fees.

C.

salaries.

D.

wages.



18. Determining the payroll involves computing all of the following except:

A.

employer payroll taxes.

B.

gross earnings.

C.

payroll deductions.

D.

net pay.



19. Payroll deductions include all of the following except:

A.

FICA taxes.

B.

federal income taxes.

C.

health insurance.

D.

unemployment taxes.



20. A payroll record that accumulates the gross earnings, deductions, and net pay by employee for each pay period is the:

A.

withholding tax table.

B.

employee earnings record.

C.

payroll register.

D.

Wage and Tax Statement.



21. The sum of the individual checks the employees will receive is recorded as:

A.

Salaries Expense.

B.

Wages Expense.

C.

Salaries and Wages Payable.

D.

Employee Pay Payable.



22. Employer payroll taxes include all of the following except:

A.

FICA taxes.

B.

federal unemployment taxes.

C.

state unemployment taxes.

D.

federal income taxes.



23. Every employer is required to annually provide each employee with a(n):

A.

employee earnings record.

B.

withholding tax table.

C.

payroll register.

D.

Wage and Tax Statement.



24. Post-retirement benefits include all of the following except:

A.

health care.

B.

life insurance.

C.

pensions.

D.

vacation benefits.



1. Mutual association means that the act of any partner is binding on all other partners.

A.

True

B.

False



2. Partnership dissolution occurs whenever a partner withdraws or a new partner is admitted.

A.

True

B.

False



3. Many states allow professionals to form a limited liability partnership.

A.

True

B.

False



4. The partnership should record each partner's investment at the book value of the assets at the date of their transfer to the partnership.

A.

True

B.

False



5. Salaries to partners and interest on partners' capital are expenses of the partnership.

A.

True

B.

False



6. The owner's equity statement for a partnership is called the partners' statement.

A.

True

B.

False



7. Liquidation of a partnership involves selling the assets of the firm, paying liabilities, and distributing any remaining assets to the partners.

A.

True

B.

False



8. Partnerships should not distribute remaining cash to partners on the basis of their income-sharing ratios in a partnership liquidation.

A.

True

B.

False



9. A new partner may only be admitted to a partnership by investing assets in the partnership.

A.

True

B.

False



10. A bonus may be paid to a retiring partner when the fair market value of partnership assets is more than their book value.

A.

True

B.

False



11. All of the following are characteristics of partnerships except:

A.

co-ownership of property.

B.

mutual agency.

C.

limited life.

D.

limited liability.



12. Which of the following is not an advantage of a partnership?

A.

ease of formation.

B.

ease of decision making.

C.

freedom from governmental regulations.

D.

mutual agency.



13. Under which of the following business organization forms do limited partners have little, if any, active role in the management of the business?

A.

Limited liability partnership.

B.

Limited partnership.

C.

Limited liability companies.

D.

None of the above.



14. Which of the following is not a disadvantage of the partnership form of business organization?

A.

Mutual agency.

B.

Limited life.

C.

Unlimited liability.

D.

Taxable entity.



15. The written agreement between partners specifying the rights and duties of all partners is called the:

A.

articles of incorporation.

B.

articles of co-partnership.

C.

articles of responsibility.

D.

articles of limitation.



16. When a partner invests noncash assets in a partnership, the assets should be recorded

at their:

A.

book value.

B.

carrying value.

C.

fair market value.

D.

original cost.



17. How many closing entries are required for a partnership?

A.

4

B.

3

C.

5

D.

2



18. Which of the following statements is correct?

A.

Salaries to partners and interest on partners' capital are expenses of the partnership.

B.

Salaries to partners are an expense of the partnership but not interest on partners' capital.

C.

Interest on partners' capital is an expense of the partnership but not salaries to partners.

D.

Neither salaries to partners nor interest on partners' capital are expenses of the partnership.



19. Partnership income ratios can be expressed as a:

A.

proportion.

B.

percentage.

C.

fraction.

D.

Any of these options.



20. Which section of a partnership's balance sheet is different from a proprietorship's balance sheet?

A.

Current assets.

B.

Current liabilities.

C.

Long-term liabilities.

D.

Owner's equity.



21. The first step in the liquidation of a partnership is to:

A.

allocate gain/loss on realization to the partners.

B.

distribute remaining cash to partners.

C.

pay partnership liabilities.

D.

sell noncash assets and recognize a gain or loss on realization.



22. When a partnership is liquidated, cash should be distributed to partners:

A.

equally.

B.

on the basis of their income ratios.

C.

on the basis of their capital balances.

D.

on the basis of their original investments.



23. If a partner with a capital deficiency is unable to pay the amount owed to the partnership, the deficiency is allocated to the partners with credit balances:

A.

equally.

B.

on the basis of their income ratios.

C.

on the basis of their capital balances.

D.

on the basis of their original investments.



24. The admission of a partner by purchase of an existing partner's interest in the firm:

A.

increases total partnership assets.

B.

increases total partnership capital.

C.

is a personal transaction between an existing partner and the new partner.

D.

does not require an entry in the partnership records.



25. When a new partner's capital credit is less than his/her investment in the firm, the difference is allocated to the old partners:

A.

equally.

B.

on the basis of their income ratios.

C.

on the basis of their original investments.

D.

in proportion to their capital balances.



26. A bonus may be paid to a retiring partner when the:

A.

recorded assets are overvalued.

B.

partnership has a poor earnings record.

C.

partner is anxious to leave the partnership.

D.

partnership has unrecorded goodwill.



27. A retiring partner may give a bonus to the remaining partners when the:

A.

fair market value of partnership assets is more than their book value.

B.

recorded assets are undervalued.

C.

partnership has a poor earnings record.

D.

remaining partners are anxious to remove the partner from the firm.


0% (0 out of 24 correct)


1. A privately held corporation usually has only a few stockholders, and does not offer its stock for sale to the general public.

A.

True

B.

False



2. Advantages of a corporation compared to a proprietorship include limited liability of stockholders and lower taxes.

A.

True

B.

False



3. The stockholders' equity section of a corporation's balance sheet consists of only common stock and retained earnings.

A.

True

B.

False



4. When no-par stock does not have a stated value, the corporation credits the entire proceeds to Common Stock.

A.

True

B.

False



5. Treasury stock is a corporation's own stock that has been issued and reacquired by the corporation but not retired.

A.

True

B.

False



6. When the selling price of treasury stock is greater then its cost, the company credits the difference to Gain on Disposal of Treasury Stock.

A.

True

B.

False



7. Preferred stockholders have a priority as to earnings (dividends) but not to assets in the event of liquidation.

A.

True

B.

False



8. Common stockholders have the right to share in the distribution of corporate income before preferred stockholders.

A.

True

B.

False



9. Published annual reports often combine and report as a single amount the individual sources of additional paid-in capital.

A.

True

B.

False



10. Book value per share of common stock may not equal market value per share.

A.

True

B.

False



11. A corporation that may have thousands of stockholders and whose stock is traded on a national securities market is a:

A.

closely held corporation.

B.

nonprofit corporation.

C.

privately held corporation.

D.

publicly held corporation.



12. The chief accounting officer of a corporation is the:

A.

president.

B.

vice-president of finance.

C.

controller.

D.

treasurer.



13. Stockholders have all of the following rights except to:

A.

share corporate earnings through receipt of dividends.

B.

vote for the corporate officers.

C.

keep the same percentage ownership when new shares of stock are issued.

D.

share in assets upon liquidation.



14. Capital stock to which the charter has assigned a value per share is called:

A.

par value stock.

B.

no-par value stock.

C.

stated value stock.

D.

authorized value stock.



15. The stockholders' equity section of a corporation's balance sheet consists of:

A.

paid-in capital and common stock.

B.

paid-in capital and retained earnings.

C.

common stock and retained earnings.

D.

paid-in capital only.



16. When companies acquire noncash assets in exchange for common stock, they record the assets at the:

A.

par value of the stock.

B.

stated value of the stock.

C.

market value of the stock.

D.

authorized value of the stock.



17. Capital stock that has been issued and is being held by stockholders is called:

A.

authorized stock.

B.

issued stock.

C.

treasury stock.

D.

outstanding stock.



18. When the selling price of treasury stock is greater than its cost, the company credits the difference to:

A.

Gain on Sale of Treasury Stock.

B.

Paid-in Capital from Treasury Stock.

C.

Paid-in Capital in Excess of Par Value.

D.

Treasury Stock.



19. When a company sells treasury stock below its cost, it usually debits the excess of cost over selling price to:

A.

Loss on Sale of Treasury Stock.

B.

Retained Earnings.

C.

Paid-in Capital from Treasury Stock.

D.

Paid-in Capital in Excess of Par Value.



20. Preferred stockholders have a priority over common stockholders as to:

A.

dividends only.

B.

assets in the event of liquidation only.

C.

voting rights.

D.

both dividends and assets in the event of liquidation.



21. Dividends in arrears relate to:

A.

preferred stock with liquidation preference.

B.

preferred treasury stock.

C.

preferred stock with a cumulative dividend feature.

D.

no-par preferred stock.



22. Additional paid-in capital includes all of the following except the amounts paid in:

A.

over par value.

B.

over stated value.

C.

from selling treasury stock for more than cost.

D.

for the par value of common stock.



23. Book value per share is computed by dividing:

A.

total paid-in capital by the number of common shares outstanding.

B.

total paid-in capital by common stock issued.

C.

total stockholders' equity by the number of common shares outstanding.

D.

total stockholders' equity by the number of common shares issued.



24. The equity a common stockholder has in the net assets of a corporation from owning one share of stock is the:

A.

par value per share.

B.

market value per share.

C.

stated value per share.

D.

book value per share


1. On the declaration date, the board of directors formally declares the cash dividend and announces it to the stockholders.

A.

True

B.

False



2. The declaration of a stock dividend results in a decrease in retained earnings and an increase in a liability account.

A.

True

B.

False



3. Prior period adjustments are added to the ending retained earnings balance.

A.

True

B.

False



4. Companies generally disclose retained earnings restrictions in the retained earnings statement.

A.

True

B.

False



5. Companies prepare the retained earnings statement from the Retained Earnings account.

A.

True

B.

False



6. The change in each stockholders' equity account and in total for the year is presented in the stockholders' equity section of the balance sheet.

A.

True

B.

False



7. The return on common stockholders' equity shows how many dollars of net income the company earned for each dollar invested by the stockholders.

A.

True

B.

False



8. Income tax expense is reported in a separate section of the income statement.

A.

True

B.

False



9. Earnings per share indicate the net income earned by each share of issued common stock.

A.

True

B.

False



10. Companies report earnings per share only for common stock.

A.

True

B.

False



11. Dividends are generally:

A.

reported annually as a dollar amount per share.

B.

reported quarterly as a percentage of par value.

C.

reported annually as a percentage of par value.

D.

reported quarterly as a dollar amount per share.



12. For a cash dividend to occur, a corporation must have all of the following except:

A.

adequate cash.

B.

a declaration of dividends.

C.

net income.

D.

retained earnings.



13. The date a cash dividend becomes a binding legal obligation to a corporation is the:

A.

declaration date.

B.

earnings date.

C.

payment date.

D.

record date.



14. On which of the following dates is a journal entry required in connection with a cash dividend?

A.

Declaration date and payment date.

B.

Declaration date and record date.

C.

Record date and payment date.

D.

Record date only.



15. When a cash dividend is declared and the company has both cumulative preferred stock and common stock, which of the following must be paid first?

A.

Current dividend, preferred stock.

B.

Dividends in arrears, preferred stock.

C.

Current dividend, common stock.

D.

Dividends in arrears, common stock.



16. Corporations issue stock dividends for which of the following reasons?

A.

To satisfy stockholders' dividend expectations.

B.

To increase the marketability of its stock.

C.

To emphasize that part of stockholders' equity has been permanently reinvested.

D.

Corporations issue stock dividends for all of these reasons.



17. In a small stock dividend, Retained Earnings is debited for the:

A.

par value of the stock issued.

B.

market value of the stock issued.

C.

stated value of the stock issued.

D.

par or stated value of the stock issued.



18. The dividing line between a small stock dividend and a large stock dividend is:

A.

20 – 25 % of a corporation's issued stock.

B.

15 – 20% of a corporation's issued stock.

C.

25 – 30% of a corporation's issued stock.

D.

10 – 15% of a corporation's issued stock.



19. Total assets will be decreased by:

A.

stock dividends.

B.

stock splits.

C.

cash dividends.

D.

all of the above.



20. Both a stock dividend and a stock split will:

A.

decrease total retained earnings.

B.

increase total paid-in-capital.

C.

increase the number of shares outstanding.

D.

decrease total retained earnings and increase total paid-in-capital.



21. Retained earnings can be decreased by all of the following except for:

A.

prior period adjustments.

B.

stock dividends.

C.

some disposals of treasury stock.

D.

stock splits.



22. Prior period adjustments:

A.

may only increase retained earnings.

B.

may only decrease retained earnings.

C.

may either increase or decrease retained earnings.

D.

do not affect retained earnings.



23. Retained earnings restrictions result from all of the following except:

A.

legal restrictions.

B.

dividend restrictions.

C.

contractual restrictions.

D.

voluntary restrictions.



24. The return on common stockholders' equity is computed by dividing:

A.

net income by ending common stockholders' equity.

B.

net income by average common stockholders' equity.

C.

net income minus preferred dividends by ending common stockholders' equity.

D.

net income minus preferred dividends by average common stockholders' equity.



25. When a corporation has both preferred and common stock outstanding, earnings per share is computed by dividing net income:

A.

by ending common shares outstanding.

B.

by weighted average common shares outstanding.

C.

less preferred dividends by ending common shares outstanding.

D.

less preferred dividends by weighted average common shares outstanding.


1. Secured bonds, also called debenture bonds, are issued against the general credit of the borrower.

A.

True

B.

False



2. The market interest rate is the rate used to determine the amount of cash interest the borrower pays.

A.

True

B.

False



3. The amount that must be invested today at a given interest rate over a specified time is called present value.

A.

True

B.

False



4. If the market rate of interest is lower than the contractual interest rate, the bonds will sell at a premium.

A.

True

B.

False



5. The sale of bonds above face value causes the total cost of borrowing to be more than the bond interest paid.

A.

True

B.

False



6. When the issuing company records a conversion of bonds into common stock, no gain or loss is recognized.

A.

True

B.

False



7. The interest on a mortgage note decreases each period, while the portion applied to the loan principal increases.

A.

True

B.

False



8. Operating leases transfer substantially all the benefits and risks of ownership to the lessee.

A.

True

B.

False



9. The debt to total assets ratio is computed by dividing long-term liabilities by total assets.

A.

True

B.

False



10. The times interest earned ratio provides an indication of the company's ability to meet interest payments as they come due.

A.

True

B.

False



11. All of the following are advantages of bond financing over common stock except:

A.

stockholder control is not affected.

B.

tax savings.

C.

possibly higher earnings per share.

D.

higher net income.



12. Bonds that mature at a single specified future date are called:

A.

callable bonds.

B.

registered bonds.

C.

term bonds.

D.

serial bonds.



13. The interest rate investors demand for loaning funds to a corporation is the:

A.

contractual interest rate.

B.

face value rate.

C.

market interest rate.

D.

stated interest rate.



14. The market value (present value) of a bond is a function of all of the following except the:

A.

dollar amounts to be received.

B.

length of time until the amounts are received.

C.

market rate of interest.

D.

length of time until the bond is sold.



15. Discount on Bonds Payable:

A.

has a credit balance.

B.

is a contra account.

C.

is added to bonds payable on the balance sheet.

D.

increases over the term of the bonds.



16. When a company retires bonds before maturity, the gain or loss on redemption is the difference between the cash paid and the:

A.

carrying value of the bonds.

B.

face value of the bonds.

C.

original selling price of the bonds.

D.

maturity value of the bonds.



17. When the issuing company records a conversion of bonds into common stock:

A.

a gain or loss is recognized.

B.

the company transfers the carrying value of the bonds to paid-in capital accounts.

C.

the market price of the stock is considered in the entry.

D.

the market price of the bonds is transferred to paid-in capital.



18. The major disadvantages resulting from the use of bonds are that:

A.

interest is not tax deductible and the principal must be repaid.

B.

the principal is tax deductible and interest must be paid.

C.

neither interest nor principal is tax deductible.

D.

interest must be paid and the principal must be repaid.



19. All of the following are long-term liabilities except:

A.

Bonds Payable.

B.

Mortgage Notes Payable.

C.

Lease Liabilities.

D.

All of these options are long-term liabilities.



20. Each payment on a mortgage note payable consists of:

A.

interest on the original balance of the loan.

B.

reduction of loan principal only.

C.

interest on the original balance of the loan and a reduction of loan principal.

D.

interest on the unpaid balance of the loan and a reduction of loan principal.



21. The renting of an apartment is an example of a(n):

A.

capital lease.

B.

lease liability.

C.

operating lease.

D.

lessor lease.



22. The lessee must record a lease as an asset if the lease:

A.

transfers ownership of the property to the lessor.

B.

contains any purchase option.

C.

term is 75% or more of the economic life of the leased property.

D.

payments equal or exceed 90% of the fair market value of the leased property.



23. The debt to total assets ratio is computed by dividing:

A.

long-term liabilities by total assets.

B.

total debt by total assets.

C.

total assets by total debt.

D.

total assets by long-term liabilities.



24. The times interest earned ratio is computed by dividing interest expense into:

A.

income before income taxes.

B.

income before interest expense.

C.

income before income taxes and interest expense.

D.

net income.



25. The amortization of the bond premium decreases:

A.

interest expense only.

B.

bond carrying value only.

C.

interest paid.

D.

both interest expense and bond carrying value.



1. Businesses invest in other companies for two reasons—to house excess cash until needed and to generate earnings.

A.

True

B.

False



2. When bonds are sold, any difference between the net proceeds and the cost of the bonds is recorded as a gain or loss.

A.

True

B.

False



3. Under the cost method, companies record the investment at cost, and recognize revenue when the investee reports net income.

A.

True

B.

False



4. In accounting for stock investments of more than 50%, the equity method is used.

A.

True

B.

False



5. The entity whose stock is owned by a parent company is called the subsidiary company.

A.

True

B.

False



6. Available-for-sale securities are securities bought and held primarily for sale in the near term.

A.

True

B.

False



7. Companies report the unrealized loss on trading securities under “Other expenses and losses” in the income statement.

A.

True

B.

False



8. Both the adjusting entry and the reporting of the unrealized gain/loss for available-for-sale securities are the same as for trading securities.

A.

True

B.

False



9. Short-term investments are readily marketable and intended to be converted into cash within the next year or operating cycle, whichever is longer.

A.

True

B.

False



10. Companies report long-term investments in a separate section of the balance sheet immediately below current assets.

A.

True

B.

False



11. All of the following are reasons corporations purchase investments in debt or equity securities except to:

A.

house excess cash until needed.

B.

generate earnings.

C.

meet strategic goals.

D.

avoid a takeover by disgruntled investors.



12. Pension funds and banks regularly invest in debt and stock securities to:

A.

house excess cash until needed.

B.

generate earnings.

C.

meet strategic goals.

D.

avoid a takeover by disgruntled investors.



13. An event related to an investment in debt securities that does not require a journal entry is:

A.

acquisition of the debt investment.

B.

receipt of interest revenue from the debt investment.

C.

a change in the name of the firm issuing the debt securities.

D.

sale of the debt investment.



14. Debt investments are recorded at the:

A.

face value of the bonds purchased.

B.

price paid for the bonds plus interest.

C.

price paid for the bonds plus brokerage fees.

D.

face value of the bonds purchased plus interest.



15. When bonds are sold, the gain or loss on sale is the difference between the:

A.

sales price and the cost of the bonds.

B.

net proceeds and the cost of the bonds.

C.

sales price and the market value of the bonds.

D.

net proceeds and the market value of the bonds.



16. In accounting for stock investments of less than 20%, companies use the:

A.

consolidated financial statement method.

B.

cost method.

C.

equity method.

D.

controlling interest method.



17. Under the equity method, the investor records dividends received by crediting:

A.

Dividend Revenue.

B.

Investment Income.

C.

Revenue from Investment.

D.

Stock Investments.



18. The investor records its share of the investee's net income under the:

A.

cost method.

B.

equity method.

C.

fair value method.

D.

controlling interest method.



19. A company that owns more than 50% of the common stock of another entity is known as the:

A.

affiliated company.

B.

investor company.

C.

parent company.

D.

subsidiary company.



20. Many people argue that investments should be valued at:

A.

cost.

B.

fair or market value.

C.

lower of cost or market.

D.

amortized cost.



21. Securities bought and held primarily for sale in the near term are classified as:

A.

available-for-sale securities.

B.

held-to-maturity securities.

C.

stock securities.

D.

trading securities



22. All of the following are reported at fair value except:

A.

trading securities.

B.

held-to-maturity securities.

C.

available-for-sale securities.

D.

All of these options are reported at fair value.



23. An unrealized loss on available-for-sale securities is:

A.

reported under Other Expenses and Losses in the income statement.

B.

closed-out at the end of the accounting period.

C.

reported as a separate component of stockholders' equity.

D.

deducted from the cost of the investment.



24. Short-term investments are securities held by a company that are:

A.

readily marketable.

B.

intended to be converted into cash within the next year.

C.

readily marketable and intended to be converted into cash within the next year or operating cycle, whichever is longer.

D.

readily marketable and intended to be held until maturity.



25. Short-term investments are reported in:

A.

a separate section of the balance sheet after current assets.

B.

the current assets section of the balance sheet after Cash.

C.

the current assets section of the balance sheet before Cash.

D.

a separate section of the balance sheet before current assets.


0% (0 out of 25 correct)


1. The information in a statement of cash flows should help investors and creditors assess the entity's ability to pay dividends and meet obligations.

A.

True

B.

False



2. The statement of cash flows classifies cash receipts and payments into four activity categories.

A.

True

B.

False



3. Investing activities usually involve long-term liability and stockholders' equity accounts.

A.

True

B.

False



4. Noncash activities are not reported in the body of the statement of cash flows.

A.

True

B.

False



5. The statement of cash flows is not prepared from an adjusted trial balance like the other financial statements are.

A.

True

B.

False



6. Under the indirect method, depreciation expense is added to net income.

A.

True

B.

False



7. Companies must eliminate from net income all gains and losses to arrive at cash provided by operating activities.

A.

True

B.

False



8. Declaration of cash dividends is a cash outflow that companies report as a financing activity.

A.

True

B.

False



9. Free cash flow describes the cash remaining from operations after deducting capital expenditures.

A.

True

B.

False



10. Cash receipts from customers, under the direct method, are equal to sales plus the increase in accounts receivable.

A.

True

B.

False



11. Which of the following would be classified as an operating activity?

A.

Payment of a cash dividend

B.

Sale of equipment

C.

Making a loan to another entity

D.

Payment of interest



12. Which of the following is not an operating activity?

A.

Payment of taxes

B.

Dividends received

C.

Payment of a cash dividend

D.

Payment to suppliers



13. Cash flow activities that include acquiring and disposing of investments and property, plant, and equipment are classified as:

A.

operating activities.

B.

investing activities.

C.

financing activities.

D.

noncash activities.



14. Cash flow activities that include obtaining cash from issuing debt and repaying the amounts borrowed are classified as:

A.

operating activities.

B.

investing activities.

C.

financing activities.

D.

non-cash activities.



15. Operating activities include cash outflows to:

A.

purchase property and equipment.

B.

purchase debt or equity securities.

C.

make loans to other entities.

D.

suppliers for inventory.



16. The information to prepare the statement of cash flows usually comes from all of the following except:

A.

comparative balance sheet.

B.

retained earnings statement.

C.

additional information.

D.

current income statement.



17. Companies do not report significant noncash activities in:

A.

the body of the statement of cash flows.

B.

a separate schedule at the bottom of the statement of cash flows.

C.

a separate note to the financial statements.

D.

a supplementary schedule to the financial statements.



18. Which of the following is not a reason that companies favor the indirect method of preparing the statement of cash flows?

A.

It is easier to prepare.

B.

It requires less information

C.

It is less costly to prepare.

D.

It focuses on the differences between net income and the cash flows from operating activities.



19. The indirect method of preparing the statement of cash flows begins with

A.

collections from customers.

B.

cash sales.

C.

net income.

D.

adjustments to reconcile net income to net cash provided by operating activities.



20. Under the indirect method of preparing the statement of cash flows, an increase in accounts receivable is

A.

added to net sales.

B.

deducted from net sales.

C.

added to net income.

D.

deducted from net income.



21. Under the indirect method of preparing the statement the cash flows, which of the following is added to net income in the operating activities section?

A.

Gain on sale of equipment

B.

Depreciation expense

C.

Increase in accounts receivable

D.

Decrease in accounts payable



22. Under the indirect method of preparing the statement of cash flows, which of the following is deducted from net income in the operating activities section?

A.

Gain on sale of land

B.

Amortization expense

C.

Decrease in inventory

D.

Increase in wages payable



23. Assume a company sold a piece of equipment for $3,000. The original cost was $15,000 and the accumulated depreciation prior to the sale was $10,000. What amount, if any, would appear in the operating activities section of the statement of cash flows using the indirect method?

A.

$0

B.

$2,000

C.

$3,000

D.

$15,000



24. Free cash flow is equal to cash provided by operations:

A.

plus capital expenditures plus cash dividends.

B.

less capital expenditures less cash dividends.

C.

less capital expenditures plus cash dividends.

D.

plus capital expenditures less cash dividends.



25. If Sales are $130,000, beginning Accounts Receivable $12,000, and ending Accounts Receivable $15,000, what is the amount of the cash receipts from customers?

A.

$127,000

B.

$133,000

C.

$130,000

D.

$142,000


1. A long-term creditor looks to profitability and solvency measures that indicate the company's ability to survive over a long period of time.

A.

True

B.

False



2. Vertical analysis is a technique for evaluating a series of financial statement data over a period of time.

A.

True

B.

False



3. The purpose of horizontal analysis is to determine the increase or decrease that has taken place, expressed as an amount or a percentage.

A.

True

B.

False



4. Vertical analysis is also called trend analysis.

A.

True

B.

False



5. Solvency ratios measure the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash.

A.

True

B.

False



6. The acid-test ratio is a measure of a company's immediate short-term liquidity.

A.

True

B.

False



7. The inventory turnover ratio and the profit margin ratio are profitability ratios.

A.

True

B.

False



8. The asset turnover ratio measures how efficiently a company uses its assets to generate sales.

A.

True

B.

False



9. Extraordinary items are events and transactions that are unusual in nature or infrequent in occurrence.

A.

True

B.

False



10. Pro forma income usually excludes items that the company thinks are unusual or nonrecurring.

A.

True

B.

False



11. A short-term creditor, such as a bank, is primarily interested in the borrower's:

A.

liquidity.

B.

profitability.

C.

solvency.

D.

growth potential.



12. Comparisons can be made on all of the following bases except:

A.

industry averages.

B.

intercompany basis.

C.

intracompany basis.

D.

All of these options are bases for comparison.



13. A technique for evaluating a series of financial statement data over a period of time is:

A.

horizontal analysis.

B.

ratio analysis.

C.

vertical analysis.

D.

common size analysis.



14. A technique for evaluating financial statements that expresses the relationship among selected items of financial statement data is:

A.

horizontal analysis.

B.

ratio analysis.

C.

vertical analysis.

D.

common-size analysis.



15. Horizontal analysis is also called:

A.

common-size analysis.

B.

ratio analysis.

C.

trend analysis.

D.

vertical analysis.



16. In vertical analysis, the base amount for each income statement item is:

A.

gross profit.

B.

net income.

C.

net sales.

D.

sales.



17. A ratio can be expressed in terms of a:

A.

percentage.

B.

rate.

C.

simple proportion.

D.

All of these options.



18. Ratios that measure the short-term ability of the company to pay its maturing obligations are:

A.

liquidity ratios.

B.

profitability ratios.

C.

solvency ratios.

D.

trend ratios.



19. A ratio that is a measure of a company's immediate short-term liquidity is the:

A.

acid-test ratio.

B.

current ratio.

C.

debt to total assets ratio.

D.

receivables turnover ratio.



20. An overall measure of profitability is the:

A.

asset turnover.

B.

profit margin.

C.

return on assets.

D.

return on common stockholders' equity.



21. When a company has preferred stock, the return on common stockholders' equity is computed by dividing:

A.

net income by ending common stockholders' equity.

B.

net income by average common stockholders' equity.

C.

net income less preferred dividends by ending common stockholders' equity.

D.

net income less preferred dividends by average common stockholders' equity.



22. Which of the following is a solvency ratio?

A.

Inventory turnover ratio.

B.

Times interest earned.

C.

Profit margin.

D.

Price-earnings ratio.



23. Times interest earned is computed by dividing interest expense into:

A.

net income.

B.

income before income taxes.

C.

income before interest expense.

D.

income before income taxes and interest expense.



24. Which of the following includes all changes in stockholders' equity during a period except those resulting from investments by stockholders and distributions to stockholders?

A.

Net income.

B.

Gross income.

C.

Continuing operations income.

D.

Comprehensive income.



25. Extraordinary items include each of the following except the:

A.

effects of major natural casualties if rare in the area.

B.

effects of a newly enacted law or regulation.

C.

expropriation of property by a foreign government.

D.

write-down of inventories.



1. Managerial accounting applies to all types of business--service, merchandising, and manufacturing and to all forms of business organizations.

A.

True

B.

False



2. Planning is the process of keeping the company's activities on track.

A.

True

B.

False



3. Indirect materials may not physically become part of the finished product.

A.

True

B.

False



4. Manufacturing overhead consists of costs that are indirectly associated with the manufacture of the finished product.

A.

True

B.

False



5. Product costs are costs that are a necessary and integral part of producing the finished product.

A.

True

B.

False



6. Manufacturers compute cost of goods sold by adding the beginning finished goods inventory to the cost of goods purchased and subtracting the ending finished goods inventory.

A.

True

B.

False



7. The costs assigned to beginning work in process inventory are based on the manufacturing costs incurred in the prior period.

A.

True

B.

False



8. The cost of the beginning work in process plus the total manufacturing costs for the current period is the cost of goods manufactured.

A.

True

B.

False



9. Companies generally list manufacturing inventories in the order of completion—raw materials, work in process, and finished goods.

A.

True

B.

False



10. Under the just-in-time method, goods are manufactured or purchased just-in-time for use.

A.

True

B.

False



11. All of the following are distinguishing features of managerial accounting except:

A.

internal users.

B.

independent audits.

C.

reports pertaining to subunits of the entity.

D.

to provide special-purpose information.



12. The management function that requires management to look ahead and establish objectives is:

A.

controlling.

B.

directing

C.

evaluating.

D.

planning.



13. The process of keeping the company's activities on track is:

A.

controlling.

B.

directing.

C.

evaluating.

D.

planning.



14. Manufacturing overhead includes all of the following except:

A.

depreciation.

B.

direct materials.

C.

indirect labor.

D.

maintenance.



15. On average, the smallest component of total manufacturing cost is:

A.

direct materials.

B.

direct labor.

C.

manufacturing overhead.

D.

factory overhead.



16. Product costs include each of the following except:

A.

direct labor.

B.

direct materials.

C.

manufacturing overhead.

D.

selling and administrative expenses.



17. Each of the following is a period cost except:

A.

administrative expenses.

B.

indirect labor.

C.

nonmanufacturing costs.

D.

selling expenses.



18. For a manufacturing firm, cost of goods available for sale is computed by adding the beginning finished goods inventory to:

A.

cost of goods purchased.

B.

cost of goods manufactured.

C.

net purchases.

D.

total manufacturing costs.



19. The principal difference between a merchandising and a manufacturing income statement is the:

A.

cost of goods sold section.

B.

extraordinary item section.

C.

operating expense section.

D.

revenue section.



20. The sum of the direct materials costs, direct labor costs, and manufacturing overhead incurred is the:

A.

cost of goods manufactured.

B.

total manufacturing overhead.

C.

total manufacturing costs.

D.

total cost of work in process.



21. Companies compute cost of goods manufactured by subtracting ending work in process inventory from:

A.

cost of goods available for sale.

B.

total manufacturing overhead.

C.

total manufacturing costs.

D.

total cost of work in process.



22. The cost applicable to units that have been started into production but not completed is shown as:

A.

finished goods inventory.

B.

merchandise inventory.

C.

raw materials inventory.

D.

work in process inventory.



23. Many companies have significantly lowered inventory levels and costs using:

A.

the value chain.

B.

total quality management systems.

C.

just-in-time inventory methods.

D.

activity-based costing



24. All activities associated with providing a product or service is referred to as:

A.

the value chain.

B.

total quality management systems.

C.

just-in-time inventory methods.

D.

activity-based costing.



1. Under a job order cost system, costs are assigned to each job or to each batch of goods.

A.

True

B.

False



2. A process cost system is used when a company manufactures a large volume of unique products.

A.

True

B.

False



3. The two major steps in the job order cost flow are accumulating the manufacturing costs incurred and assigning the accumulated costs to the work done.

A.

True

B.

False



4. Labor costs are debited to Work in Process Inventory when they are incurred.

A.

True

B.

False



5. Each entry to Work in Process Inventory must be accompanied by a corresponding posting to one or more job cost sheets.

A.

True

B.

False



6. Requisitions for direct materials are posted monthly to the individual job cost sheets.

A.

True

B.

False



7. The predetermined overhead rate is based on the relationship between actual annual overhead costs and expected annual operating activity.

A.

True

B.

False



8. Finished Goods Inventory is a control account that controls individual finished goods records in a finished goods subsidiary ledger.

A.

True

B.

False



9. The cost of goods manufactured schedule shows actual overhead costs rather than applied manufacturing overhead.

A.

True

B.

False



10. Underapplied overhead means that the overhead assigned to work in process is less than the overhead incurred.

A.

True

B.

False



11. Cost accounting involves each of the following except the:

A.

measuring of product costs.

B.

recording of product costs.

C.

reporting of product costs.

D.

processing of product costs.



12. A process cost system would be used for all of the following except the:

A.

manufacture of cereal.

B.

refining of petroleum.

C.

printing of wedding invitations.

D.

production of automobiles.



13. When a job is completed in a job order cost accounting system, the cost of the job is transferred to:

A.

Cost of Goods Sold.

B.

Finished Goods Inventory.

C.

Manufacturing Overhead.

D.

Work in Process Inventory.



14. In a manufacturing company, the cost of factory labor consists of all of the following except:

A.

employer payroll taxes.

B.

fringe benefits incurred by the employer.

C.

net earnings of factory workers.

D.

gross earnings of factory workers.



15. Assigning manufacturing costs to work in process results in credits to all of the following except:

A.

Raw Materials Inventory.

B.

Manufacturing Overhead.

C.

Finished Goods Inventory.

D.

Factory Labor.



16. Job cost sheets constitute the subsidiary ledger for:

A.

Cost of Goods Sold.

B.

Finished Goods Inventory.

C.

Manufacturing Overhead.

D.

Work in Process Inventory.



17. When the company assigns factory labor costs to jobs, the direct labor cost is debited to:

A.

Direct Labor.

B.

Factory Labor.

C.

Manufacturing Overhead.

D.

Work in Process Inventory.



18. Companies assign manufacturing overhead to work in process on an estimated basis through the use of a(n):

A.

actual overhead rate.

B.

previous year's overhead rate.

C.

assigned overhead rate.

D.

predetermined overhead rate.



19. The predetermined overhead rate may be based on any of the following bases except:

A.

direct labor costs.

B.

direct labor hours.

C.

machine hours.

D.

Any of the options may be used.



20. In recent years, as production has become more automated, there has been a significant trend toward use of _______________as the activity base in assigning overhead.

A.

direct labor costs.

B.

direct labor hours.

C.

machine hours.

D.

units produced.



21. When a completed job is sold an entry is made crediting:

A.

Work in Process Inventory.

B.

Finished Goods Inventory.

C.

Cost of Goods Sold.

D.

Accounts Receivable.



22. All of the following are control accounts except:

A.

Finished Goods Inventory.

B.

Raw Materials Inventory.

C.

Work in Process Inventory.

D.

All of the options are control accounts.



23. Work in Process Inventory is debited for all of the following except:

A.

raw materials used.

B.

manufacturing overhead incurred.

C.

manufacturing overhead applied.

D.

factory labor used.



24. Companies debit under applied overhead to:

A.

Cost of Goods Sold.

B.

Finished Goods Inventory.

C.

Manufacturing Overhead.

D.

Work in Process Inventory.



25. Usually, under- or over applied overhead is considered to be an adjustment to:

A.

work in process.

B.

finished goods.

C.

finished goods and cost of goods sold.

D.

cost of goods sold.



1. Process cost systems are used to apply costs to unique products produced individually.

A.

True

B.

False



2. The accumulation of the costs of materials, labor, and overhead is similar in job order and process costing.

A.

True

B.

False



3. Fewer materials requisitions are generally required in a process cost system than in a job order cost system.

A.

True

B.

False



4. Equivalent units are the actual units to be accounted for during a period irrespective of any work performed.

A.

True

B.

False



5. In computing equivalent units, the beginning work in process is part of the equivalent units of production formula.

A.

True

B.

False



6. Units started into production plus units in process at the beginning of the period is referred to as the total units available.

A.

True

B.

False



7. Unit production costs are costs expressed in terms of equivalent units of production.

A.

True

B.

False



8. The cost reconciliation schedule shows that the total costs accounted for equal the cost of units transferred out.

A.

True

B.

False



9. Managers can use the cost data in production cost reports to assess whether unit costs and total costs are reasonable.

A.

True

B.

False



10. Companies often use a combination of a process cost and a job order cost system, called operations costing.

A.

True

B.

False



11. A process cost system would be used by all of the following except a(n):

A.

chemical company.

B.

advertising company.

C.

oil company.

D.

computer chip company.



12. The basic similarities between job order cost and process cost systems include all of the following except the:

A.

manufacturing cost elements.

B.

flow of costs.

C.

point at which costs are totaled.

D.

accumulation of the costs of materials, labor, and overhead.



13. In a process cost system:

A.

only one work in process account is used.

B.

the unit cost is total manufacturing costs for the period divided by the units produced during the period.

C.

total costs are determined when the job is completed.

D.

costs are summarized in a job cost sheet.



14. A primary driver of overhead costs in continuous manufacturing operations is:

A.

direct labor hours.

B.

direct labor costs.

C.

machine hours.

D.

number of units.



15. In computing equivalent units, __________________________________ is not part of the equivalent units of production formula.

A.

units transferred out

B.

beginning work in process

C.

ending work in process

D.

None of the options are correct.



16. In process cost accounting, the first step in preparing a production cost report is to:

A.

compute equivalent units of production.

B.

compute the physical unit flow.

C.

prepare a cost reconciliation schedule.

D.

compute unit production costs.



17. The final step in preparing a production cost report is to:

A.

compute equivalent units of production.

B.

compute unit production costs.

C.

compute the physical unit flow.

D.

prepare a cost reconciliation schedule.



18. The total units to be accounted for is computed by adding:

A.

beginning units in process to units transferred out.

B.

ending units in process to units started into production.

C.

beginning units in process to units started into production.

D.

ending units in process to total units accounted for.



19. In determining the units completed and transferred out, the units in ending work in process are:

A.

added to total units to be accounted for.

B.

deducted from total units to be accounted for.

C.

ignored.

D.

added to units started into production.



20. Equivalent units are computed for:

A.

materials only.

B.

conversion costs only.

C.

labor and overhead only.

D.

materials and conversion costs.



21. When equivalent units of production are different for materials and conversion costs, companies compute unit costs for:

A.

materials.

B.

conversion cost.

C.

total manufacturing cost.

D.

All of these options.



22. The cost reconciliation schedule shows that the total:

A.

units to be accounted for equal the total units accounted for.

B.

costs accounted for equal the total costs to be accounted for.

C.

units to be accounted for equal the total costs to be accounted for.

D.

costs accounted for equal the total units accounted for.



23. In a cost reconciliation schedule, costs accounted for is computed by adding the cost of the:

A.

beginning work in process and the cost of units transferred out.

B.

ending work in process and the cost of units started into production.

C.

beginning work in process and the cost of ending work in process.

D.

ending work in process and the cost of units transferred out.



24. The total costs accounted for in a production cost report equal the:

A.

cost of units completed and transferred out only.

B.

cost of units started into production.

C.

cost of units completed and transferred out plus the cost of ending work in process.

D.

cost of beginning work in process plus the cost of units completed and transferred out.



25. The production cost report has all of the following sections except:

A.

quantities.

B.

cost reconciliation schedule.

C.

costs.

D.

All of these options are sections.



1. Fixed costs are costs that remain the same per unit regardless of changes in the activity level.

A.

True

B.

False



2. The range over which a company expects to operate during a year is called the relevant range of the activity index.

A.

True

B.

False



3. Mixed costs change proportionately with changes in the activity level.

A.

True

B.

False



4. Cost-volume-profit analysis assumes that changes in activity are the only factors that affect costs.

A.

True

B.

False



5. The contribution margin ratio is computed by dividing contribution margin by unit selling price.

A.

True

B.

False



6. At the break-even point, contribution margin equals total variable costs.

A.

True

B.

False



7. The amount of income or loss at each level of sales can be derived from the total sales and total cost lines in a CVP graph.

A.

True

B.

False



8. Target net income is an income objective for individual product lines set by management.

A.

True

B.

False



9. Margin of safety is the difference between actual sales and sales at the break-even point.

A.

True

B.

False



10. When companies prepare a detailed CVP income statement, they provide more detail about specific variable costs but not fixed-cost items.

A.

True

B.

False



11. A cost that remains the same per unit at every level of activity is a:

A.

fixed cost.

B.

mixed cost.

C.

semivariable cost.

D.

variable cost.



12. Costs that change in total but not proportionately with changes in the activity level are:

A.

fixed costs.

B.

mixed costs.

C.

semifixed costs.

D.

variable costs.



13. An example of a mixed cost is:

A.

direct materials.

B.

supervisory salaries.

C.

utility costs.

D.

property taxes.



14. Cost-volume-profit analysis includes all of the following assumptions except:

A.

the behavior of costs is curvilinear throughout the relevant range.

B.

costs can be classified accurately as either variable or fixed.

C.

changes in activity are the only factors that affect costs.

D.

all units produced are sold.



15. CVP analysis considers the interrelationships among all of the following components except:

A.

volume/level of activity.

B.

variable cost per unit.

C.

unit selling prices.

D.

fixed costs per unit.



16. Contribution margin is:

A.

the amount of revenue remaining after deducting fixed costs.

B.

the amount available to cover fixed costs and contribute to income for the company.

C.

sales less fixed costs.

D.

unit selling price less unit fixed costs.



17. The break-even point can be:

A.

computed from a mathematical equation.

B.

computed by using contribution margin.

C.

derived from a cost-volume-profit graph.

D.

All of the options are correct.



18. The break-even point in dollars is computed by dividing:

A.

fixed costs by contribution margin per unit.

B.

variable costs by contribution margin per unit.

C.

fixed costs by contribution margin ratio.

D.

variable costs by contribution margin ratio.



19. At the break-even point:

A.

sales equal total variable costs.

B.

contribution margin equals total variable costs.

C.

contribution margin equals total fixed costs.

D.

sales equal total fixed costs.



20. The margin of safety ratio is computed by dividing:

A.

actual sales by break-even sales.

B.

margin of safety in dollars by actual sales.

C.

margin of safety in dollars by break-even sales.

D.

break-even sales by margin of safety in dollars.



21. Required sales in dollars to meet a target net income is computed by dividing:

A.

fixed costs plus target net income by contribution margin per unit.

B.

variable costs plus target net income by contribution margin per unit.

C.

fixed costs plus target net income by contribution margin ratio.

D.

total costs plus target net income by contribution margin ratio.



22. Morgan Company had actual sales $1,000,000 and its break-even sales were $800,000. Morgan's margin of safety ratio is

A.

20%.

B.

25%.

C.

75%.

D.

80%.



23. Williams Company expects to sell 500,000 units for $6 per unit. The contribution margin ratio is 30%. If Williams will break even at this level of sales, fixed costs are:

A.

$150,000.

B.

$300,000.

C.

$900,000.

D.

$2,100,000.



24. Hampton Company has total fixed costs of $300,000 and a contribution margin ratio of 40%. Hampton's target net income is $240,000. Sales in dollars to meet the target net income would be

A.

$600,000.

B.

$750,000.

C.

$900,000.

D.

$1,350,000.



25. A company has required sales of $1,700,000 to meet its target net income. It has fixed costs of $300,000 and the contribution margin ratio is 30%. The company's target net income is

A.

$90,000.

B.

$210,000.

C.

$420,000.

D.

$510,000.



1. In making business decisions, management ordinarily considers only financial information.

A.

True

B.

False



2. The process used to identify the financial data that changes under alternative courses of action is called incremental analysis.

A.

True

B.

False



3. Opportunity cost is a cost that cannot be changed by any present or future decision.

A.

True

B.

False



4. The sell-or-process further decision should be made on the basis of incremental analysis.

A.

True

B.

False



5. Sunk costs are not relevant in incremental analysis.

A.

True

B.

False



6. The decision to eliminate an unprofitable segment is based solely on the bottom line—net loss.

A.

True

B.

False



7. When a company has limited resources, management must decide which products to make and sell in order to maximize sales.

A.

True

B.

False



8. The annual rate of return technique indicates the profitability of a capital expenditure.

A.

True

B.

False



9. The discounted cash flow technique is generally recognized as the best conceptual approach to making capital budgeting decisions.

A.

True

B.

False



10. The internal rate of return method finds the interest yield of the potential investment.

A.

True

B.

False



11. Accounting's contribution to the decision-making process occurs in all of the following steps except to:

A.

identify the problem and assign responsibility.

B.

determine and evaluate possible courses of action.

C.

make a decision.

D.

review results of the decision.



12. Which of the following types of decisions involve incremental analysis?

A.

Make or buy.

B.

Allocate limited resources.

C.

Sell or process further.

D.

All of these options.



13. Relevant costs in accepting an order at a special price include all of the following except:

A.

direct materials.

B.

direct labor.

C.

fixed manufacturing overhead.

D.

variable manufacturing overhead.



14. In a make or buy decision, opportunity costs are:

A.

added to the make total cost.

B.

deducted from the make total cost.

C.

added to the buy total cost.

D.

ignored.



15. The basic rule in a sell or process further decision is to process further as long as the incremental revenue is:

A.

equal to the incremental processing costs.

B.

less than the incremental processing costs.

C.

more than the incremental processing costs.

D.

more than the manufacturing cost per unit.



16. In a retain or replace equipment decision, all of the following are considered except the:

A.

salvage value of the old asset.

B.

book value of the old asset.

C.

cost of the new asset.

D.

decrease in variable manufacturing costs.



17. All of the following are relevant in deciding whether to eliminate an unprofitable segment except the segment's:

A.

sales.

B.

variable expenses.

C.

contribution margin.

D.

fixed expenses.



18. A cost that cannot be changed by any present or future decision is a(n):

A.

fixed cost.

B.

opportunity cost.

C.

sunk cost.

D.

variable cost.



19. When a company has limited resources, the product to make and sell is the one with the highest:

A.

contribution margin per unit.

B.

contribution margin per unit of limited resource.

C.

contribution margin rate.

D.

markup.



20. The process of making capital expenditure decisions in business is known as:

A.

incremental analysis.

B.

capital spending.

C.

capital budgeting.

D.

capital analysis.



21. The rate of return that management expects to pay on all borrowed and equity funds is the:

A.

cost of capital.

B.

cutoff rate.

C.

hurdle rate.

D.

minimum rate.



22. The cash payback period is computed by dividing the:

A.

average capital investment cost by the net annual cash flow.

B.

average capital investment cost by the net income.

C.

cost of the capital investment by the net annual cash flow.

D.

cost of the capital investment by the net income.



23. Net present value is the difference between the:

A.

net cash flows and the capital investment.

B.

net cash flows and the present value of the capital investment.

C.

present value of net cash flows and the capital investment.

D.

present value of net income and the capital investment.



24. The interest rate that will cause the present value of the proposed capital expenditure to equal the present value of the expected net annual cash flows is the:

A.

cost of capital.

B.

internal rate of return.

C.

minimum rate of return.

D.

annual rate of return.



25. All of the following methods use net cash flows except the:

A.

annual rate of return method.

B.

cash payback method.

C.

net present value method.

D.

internal rate of return method.



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Md. Hossen,
Feb 1, 2010, 3:21 AM
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