1) The statement of cash flows is used for _____.
A. showing the relationship of net income to changes in current assets
B. determining a company’s acceptable level of debt financing
C. revealing commitments that may restrict future courses of action
D. evaluating the creditworthiness of the organization
2) Nonoperating items on the income statement _____.
A. are revenues and expenses arising from adjusting entries
B. include interest income and expense
C. appear only on corporate income statements
D. appear on the income statement immediately after gross profit
3) The difference between a single-step and multiple-step income statement is that a single-step income statement _____.
A. groups all revenues together and all expenses together, whereas a multiple-step income statement separates certain revenues and expenses from each other and presents subtotals
B. calculates net income using one method, whereas a multiple-step income statement calculates net income using two or more methods
C. calculates gross profit and operating income, whereas a multiple-step income statement does not
D. shows only 1 year’s net income, whereas a multiple-step income statement shows multiple years’ net income
4) Which one of the following statements is true?
A. The statement of cash flows reports the cash receipts but not cash payments of an entity over a period of time.
B. Both the statement of cash flows and the income statement determine the net income for a company.
C. Transactions affecting the sale and the purchase or production of goods and services are reported in the financing activities section of the statement of cash flows.
D. Investing activities in the statement of cash flows include acquiring and selling long-term assets.
5) The _____ accounting convention uses the acquisition cost minus depreciation in valuing an asset on the balance sheet.
6) A new corporation issuing a common, no-par value stock for cash would include a journal entry a debit to _____.
A. paid-in capital and a credit to retained earnings.
B. cash and a credit to common stock.
C. retained earnings and a credit to cash.
D. cash and a credit to retained income.
7) Which type of organization would most likely have work-in-process inventory?
A. A retail store
B. A manufacturing company
C. A service organization
D. A real-estate investment trust
8) _____ is a measure of income or profit divided by the investment required to obtain that income or profit.
A. Return on sales
B. Capital turnover
C. Return on investment
D. Residual income
9) The following information is available for the Peter Company:
Invested capital: $156,250
The return on sales is _____.
10) The following information is available for the Peter Company:
Invested capital: $312,500
The return on sales is _____.
11) Company A’s revenues are $300 on invested capital of $240. Expenses are currently 70% of sales. If Angelo Company can reduce its capital investment by 20% in Company A, return on investment will be _____.
12) When the variable costing method is used, fixed factory overhead appears on the income statement as a _____.
A. component of cost of goods sold
B. fixed expense
C. production-volume variance
D. component of gross profit
13) In absorption costing, costs are separated into the major categories of _____.
A. manufacturing and nonmanufacturing
B. manufacturing and fixed
C. fixed and variable
D. variable and nonmanufacturing
14) _____ is another term for variable costing.
A. Full costing
B. Direct costing
C. Traditional costing
D. Absorption costing
15) Budgeted service department cost rates protects the user departments from _____.
A. service department efficiencies
B. price fluctuations
C. service outages
D. employee control
16) _____ is an example of the external financial-reporting purpose of the cost management systems.
A. The cost of a manufacturing process
B. The product mix to optimize profitability
C. The amount of inventory that should appear on the balance sheet
D. Budget reporting
17) The level of sales at which revenues equal expenses and net income is zero is called the _____.
A. margin of safety
B. contribution margin
C. break-even point
D. marginal income point
18) Output measures of both resources and activities are _____.
A. cost drivers
B. stages of production
C. fixed activities
D. variable activities
19) The break-even point is where _____.
A. total sales revenue equals total cost plus desired profit.
B. the contribution margin equals net income plus fixed costs.
C. total sales revenue equals total cost.
D. the variable cost equals total cost.
20) _____ budgeting is when budgets are formulated with the active participation of all affected employees.
21) _____ is the logical integration of management accounting tools to gather and report data and to evaluate performance.
A. An internal control system
B. A quality control system
C. A financial-reporting system
D. A management control system
22) _____ are components of a master budget.
A. A strategic plan and an operating budget
B. An operating budget and a capital budget
C. A continuous budget and a static budget
D. A cash budget and an activity budget
23) An important factor considered by sales forecasters is _____.
A. production employee requirements.
B. expectations of the board of directors.
C. competitors’ activities.
D. the desired level of sales.
24) _____ models are mathematical models of the master budget that can react to any set of assumptions about sales, costs, and product mix.
A. Variance analysis
B. Financial planning
25) Which of the following is an objective of budgeting?
A. Budgeting provides benchmarks against which performance can be measured.
B. Budgeting provides a fixed fiscal plan that should not be changed during the year.
C. Budgeting helps managers build favorable variances into the performance-evaluation process.
D. Budgeting is done exclusively by the chief fiscal officer for control purposes.
26) An organization’s budget program should be used
A. to have power over employees.
B. to assign blame to managers that do not meet budgetary goals.
C. to help managers plan and control the organization’s performance.
D. to help the chief fiscal officer to allocate resources to the favored projects of the executives.
27) The activity-based costing may reveal _________, whereas traditional costing cannot.
A. high-volume products are overcosted
B. low-volume products are overcosted
C. both high- and low-volume products are overcosted
D. both high- and low-volume products are undercosted
28) _____ is a method of approximating cost functions.
A. Cost-driver analysis
B. Transaction analysis
C. Product analysis
D. Account analysis
29) In relation to a cost function, the term reliability refers to _____.
A. whether the costs and activities can be easily observed
B. whether the cost function conforms to a given mathematical model
C. how well the cost function predicts future costs
D. how well the cost function explains past cost behavior
30) One of the simplest methods to measure a linear cost function from past data is the _____.
A. regression analysis method
B. high–low method
C. least squares regression method
D. visual-fit method