Par value per share is the price at which a share of stock is bought or sold. True False Authorized stock is the total number of shares outstanding. True False 3 If a corporation is authorized to issue 1,000 shares of $50 common stock, it is said to have $50,000 of stock outstanding. True False 4 A corporation can issue two kinds of stock – common and preferred. True False 5 Retained earnings generally consist of a company’s cumulative net income less any net losses and dividends declared since its inception. True False 6 Changes in accounting estimates are accounted for in current and future periods. True False 7 Earnings per share is the amount of income earned per share of a company’s outstanding (weighted-average) common stock. True False 8 The price-earnings ratio reveals information about the stock market’s expectations for a company’s future growth in earnings. True False 9A liability for dividends exists: When cumulative preferred stock is sold. On the date of declaration. On the date of record. On the date of payment. For dividends in arrears on cumulative preferred stock. 10 A stock dividend: Is not a liability on the balance sheet. Does not reduce a corporation’s assets and stockholders’ equity. Transfers a portion of equity from retained earnings to contributed capital. Does not affect total equity, but does affect the components of equity. All of the options are correct. 11 A stock dividend transfers: Contributed capital to retained earnings. Retained earnings to contributed capital. Retained earnings to assets. Contributed capital to assets. Assets to contributed capital. 12 The legal contract between the issuing corporation and the bondholders is called the bond indenture. True False 13 A bond is a written promise to pay an amount identified as the par value of the bond along with interest. True False 14 Interest payments on bonds are determined by multiplying the par value of the bond by the stated contract rate. True False The use of debt financing insures an increase in return on equity. True False 16 The issue price of bonds is found by computing the future value of the bond’s cash payments, discounted at the market rate of interest. True False 17. The effective interest method yields increasing amounts of bond interest expense and decreasing amounts of premium amortization over the bond’s life for bonds issued at a premium. True False 18. When convertible bonds are converted to a company’s stock, the carrying value of the bonds is transferred to equity accounts and no gain or loss is recorded. True False Bonds can be issued: At par. At a premium. At a discount. Between interest payment dates. All of the choices are correct. 20. A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring equal annual payments each December 31 of $32,136. What journal entry would the issuer record for the first payment? Debit Interest Expense $7,136; debit Notes Payable $25,000; credit Cash $32,136. Debit Notes Payable $32,136; debit Interest Payable $11,250; credit Cash $43,386. Debit Interest Expense $11,250; debit Notes Payable $20,886; credit Cash $32,136. Debit Notes Payable $32,136; credit Cash $32,136. Debit Notes Payable $11,250; credit Cash $11,250. 21. All of the following statements regarding accounting treatments for liabilities under U.S. GAAP and IFRS are true except: Accounting for bonds and notes under U.S. GAAP and IFRS is similar. Both U.S. GAAP and IFRS require companies to distinguish between operating leases and capital leases. The criteria for identifying a lease as a capital lease are more general under IFRS. Both U.S. GAAP and IFRS require companies to record costs of retirement benefits as employees work and earn them. Use of the fair value option to account for bonds and notes is not acceptable under U.S. GAAP or IFRS. 22. Long-term investments are usually held as an investment of cash for use in current operations. True False Equity securities reflect a creditor relationship such as investments in notes, bonds, and certificates of deposit. True False 24. Long-term investments include investments in land or other assets not used in a company’s operations. True False 25. Debt securities are recorded at cost when purchased. True False 26. The equity method with consolidation is used in accounting for long-term investments in equity securities with controlling influence. True False Return on total assets can be separated into the profit margin ratio and total asset turnover. True False 28. Trading securities are always reported as current assets. True False 29. Held-to-maturity securities are equity securities a company intends and is able to hold until maturity. True False 30. Long-term investments include: Investments in bonds and stocks that are not readily convertible to cash. Investments in marketable stocks that are intended to be converted into cash in the short-term. Investments in marketable bonds that are intended to be converted into cash in the short-term. Only investments readily convertible to cash. Investments intended to be converted to cash within one year. 31. The primary purpose of the statement of cash flows is to report all major cash receipts (inflows) and cash payments (outflows) during a period. True False 32. To be classified as a cash equivalent, the only criterion an item must meet is that it must be readily convertible to a known amount of cash. True False 33. Business activities that generate or use cash are classified as operating, investing, or financing activities on the statement of cash flows. True False 34. Financing activities include (a) the purchase and sale of long-term assets, (b) the purchase and sale of short-term investments, and (c) lending and collecting on loans. True False 35. The full disclosure principle requires that noncash investing and financing activities be disclosed in the financial statements. True False 36. Accounting standards require companies to include a statement of cash flows in a complete set of financial statements. True False 37. A cash coverage ratio of less than 1 indicates cash inadequacy to meet asset growth. True False 38. The direct method for preparing and reporting the statement of cash flows reports net income and then adjusts it for items necessary to calculate net cash provided or used by operating activities. True False 39. The indirect method separately lists each major item of operating cash receipts and cash payments. True False 40. Which of the following transactions or events should be reported as a source of cash from operating activities when using the direct method? Credit sales. Cash collections from customers. Depreciation expense. Cash received from the sale of a building. Cash received from the sale of treasury stock. 41. Profitability is the ability to generate future revenues and meet long-term obligations. True False Liquidity and efficiency are considered to be building blocks of financial statement analysis. True False 43. The building blocks of financial statement analysis include (1) liquidity, (2) salability, (3) solvency, and (4) profitability. True False 44. Standards for comparison are necessary when making judgments about a company’s performance. True False 45. Intra-company analysis is based on comparisons with competitors. True False 46. Horizontal analysis is the comparison of a company’s financial condition and performance to a base amount. True False 47. Vertical analysis is used to reveal patterns in data covering successive periods. True False 48. Trend analysis is a form of horizontal analysis that can reveal patterns in data across successive periods. True False 49. Vertical analysis is a tool to evaluate individual financial statement items or groups of items in terms of a specific base amount. True False 50. Horizontal analysis is used to reveal changes in the relative importance of each financial statement item. True False 51. Managerial accounting provides financial and nonfinancial information to an organization’s managers and other internal decision makers. True False 52. One of the usual differences between financial and managerial accounting is the time dimension of the information reported. True False 53. Financial accounting relies on accepted principles that are enforced through an extensive set of rules and guidelines; on the other hand, managerial accounting systems are flexible. True False Just-in-time manufacturing is a system where companies manufacture products only after the orders have been received from customers. True False 55. When the attitude of continuous improvement exists throughout an organization, every manager and employee seeks to continuously experiment with new and improved business practices. True False 56. The main goal of the lean business model is the elimination of waste while satisfying the customer and providing a positive return to the company. True False 57. Direct materials are not usually easily traced to a product. True False 58. Whether a cost is controllable or not controllable by an employee is dependent on the employee’s level of responsibility. True False 59. Direct costs are incurred for the benefit of more than one cost object. True False 60. The model whose goal is to eliminate waste while satisfying the customer and providing a positive return to the company is: Total quality management. Managerial accounting. Customer orientation. Continuous improvement. Lean business model. 61. Cost accounting systems accumulate costs and then assign them to products or services. True False 62. A company that uses a cost accounting system normally has only two inventory accounts: Finished Goods Inventory and Goods in Process Inventory. True False 63. Cost accounting information is helpful to management in controlling costs but has no effect on pricing decisions. True False 64. There are two basic types of cost accounting systems: job order costing and periodic costing. True False 65. A company that produces a large number of standardized units would normally use a job order cost accounting system. True False 66. When a job is finished, its job cost sheet is completed and moved from the file of jobs in process to the file of finished jobs that are yet to be delivered to customers. True False 67. Service firms, unlike manufacturing firms, should only use actual costs when determining a selling price for their services. True False 68. Job order costing is applicable to manufacturing firms only and not service firms. True False 69. Cost accounting systems used by manufacturing companies are based on the: Periodic inventory system. Perpetual inventory system. Finished goods inventories. Weighted average inventories. LIFO inventory system. 70. Job order costing systems normally use: Periodic inventory systems. Perpetual inventory systems. Real inventory systems. General inventory systems. All of inventory systems normally use job order costing. 71. Process manufacturing usually reflects a manufacturer that produces large quantities of identical products. True False 72. To determine unit cost under a process cost accounting system, equivalent units produced must be calculated if the company has goods in process inventories. True False 73. Equivalent units of production refer to the number of units that would be completed if all effort during a period had been applied only to those units that were started and completed in a period. True False 74. Equivalent units of production are always the same as the total number of physical units finished during the period. True False 75. The last step in the four-step accounting procedure for process costing is the calculation of equivalent units of production. True False 76. A process cost summary is an accounting report that describes the costs charged to a department, the equivalent units of production by the department, and how the costs were assigned to the output. True False 77. The FIFO method separates prior period costs from costs incurred during the current period. True False 78. Direct costs in process cost accounting include only those costs that can be readily identified with individual product units. True False 79. Which of the following characteristics applies to process cost accounting but not to job order cost accounting? Use of a predetermined overhead rate. Identifiable lots of production. Equivalent units of production. Labor time ticket for each employee. Use of a single Goods in Process Inventory account. 80. Equivalent units of production are equal to: The number of units that could have been completed if all effort had been applied to units that were started and completed during a period. The number of finished units actually produced during a period. The number of units introduced into the process during a period. The number of units still in process at the end of a period. Physical units that were started and completed during a period. 81. Variable costs per unit increase proportionately with increases in output activity. True False 82. The relevant range of operations includes extremely high and low levels of production that are unlikely to occur. True False 83. Cost-volume-profit analysis is frequently based on the assumption that the production level is the same as the sales level. True False 84. Cost-volume-profit analysis can be used to predict the effects of reduced selling prices, increased fixed costs, and reduced variable costs on break-even points. True False 85. Contribution margin is the amount of sales that exceeds total variable costs. True False 86. Break-even analysis is a special case of cost-volume-profit analysis. True False 87. The contribution margin per unit is the price at which a unit must be sold in order for the company to break even. True False 88. A cost that remains the same in total even when volume of activity varies is a: Fixed cost. Curvilinear cost. Variable cost. Step-wise variable cost. Standard cost. 89. A cost that changes in proportion to changes in volume of activity is a(n): Differential cost. Fixed cost. Incremental cost. Variable cost. Product cost. 90. A budget can be an effective means of communicating management’s plans to the employees of a business. True False 91. Budgets are normally more effective when all levels of management are involved in the budgeting process. True False 92. A budget is a formal statement of future plans, usually expressed in monetary terms. True False 93. Past performance is the best overall basis for evaluating current performance and assessing the need for corrective action. True False 94. Continuous budgeting is the practice of preparing a new budget for a selected number of future periods and replacing budgets for periods that have lapsed. True False 95. The task of preparing a budget should be the sole task of the most important department in an organization. True False 96. A rolling budget is a specific budget application relevant only to a merchandising company. True False 97. The budgets within the master budget must be prepared in a definite sequence as dictated by GAAP. True False 98. For budgets to be effective: Goals should be attainable. Employees affected by a budget should be consulted when it is prepared. Evaluations should be made carefully with opportunities to explain any failures. They should be properly applied to avoid negative effects. All of the options are correct. 99. Standard material, labor, and overhead costs can be obtained from standard cost tables published by the Institute of Management Accountants. True False 100. When standard costs are used, factory overhead is assigned to products with a predetermined standard overhead rate. True False 101. Companies promoting continuous improvement strive to achieve practical standards rather than ideal standards. True False 102. A cost variance is the difference between actual cost and standard cost. True False 103. A budget performance report that includes variances can have variances caused by both price differences and quantity differences. True False 104. When computing a price variance, the price is held constant. True False 105. Another name for a static budget is a variable budget. True False 106. Standard costs are: Actual costs incurred to produce a specific product or perform a service. Preset costs for delivering a product or service under normal conditions. Established by the IMA. Rarely achieved. Uniform among companies within an industry. 107. The difference between actual and standard cost caused by the difference between the actual quantity and the standard quantity is called the: Controllable variance. Standard variance. Budget variance. Quantity variance. Price variance. 108. Evaluation of the performance of managers of profit centers assumes that the managers can control or influence both costs and revenue generation. True False 109. Investment center is another name for profit center. True False 110. A cost center does not directly generate revenues. True False A department that is responsible for maximizing revenues is known as a profit center. True False 112. Indirect expenses should be allocated to departments based upon the benefits received by each department. True False 113. Departmental wage expenses are direct expenses of that department. True False 114. An example of a service department is the human resources department. True False 115. A cost center is a unit of a business that incurs costs but does not directly generate revenues. All of the following are considered cost centers except: Accounting department. Purchasing department. Research department. Advertising department. All of these could be considered cost centers. 116. A profit center: Incurs costs, but does not directly generate revenues. Incurs costs and directly generates revenues. Has a manager who is evaluated solely on efficiency in controlling costs. Incurs only indirect costs and directly generates revenues. Incurs only indirect costs and generates revenues. 117. Capital budgeting decisions are risky because the outcome is uncertain, large amounts are usually involved, the investment involves a long-term commitment, and the decision could be difficult or impossible to reverse. True False 118. If the internal rate of return (IRR) of an investment is below the hurdle rate, the project should be accepted. True False 119. An opportunity cost is the potential benefit that is lost by taking a specific action when two or more alternative choices are available. True False 120. The concept of incremental cost is the same as the concept of differential cost. True False 121. In a make or buy decision, management should focus on costs that are constant under the two alternatives. True False 122. An advantage of the break-even time (BET) method over the payback period method is that it recognizes the time value of money. True False 123. If the straight-line depreciation method is used, the annual average investment amount used in calculating rate of return is calculated as (beginning book value + ending book value)/2. True False 124. Capital budgeting decisions usually involve analysis of: Cash outflows only. Short-term investments. Long-term investments. Investments with certain outcomes only. Operating revenues. 125. The process of analyzing alternative investments and deciding which assets to acquire or sell is known as: Planning and control. Capital budgeting. Variance analysis. Master budgeting. Managerial accounting.