Ch03cost accounting test bank

Cost Accounting, 15e (Horngren/Datar/Rajan)Chapter 2 An Introduction to Cost Terms and PurposesObjective 2.11) An actual cost is ________.A) is the cost incurredB) is a predicted or forecasted costC) is anything for which a cost measurement is desiredD) is the collection of cost data in some organized way by means of an accounting system Answer: ADiff: 1Objective: 1AACSB: Analytical thinking2) Comparing budgeted costs to actual costs helps managers to improve ________.A) coordinationB) controlC) implementationD) planningAnswer: BDiff: 1Objective: 1AACSB: Analytical thinking3) Budgeted costs are ________.A) the costs incurred this yearB) the costs incurred last yearC) planned or forecasted costsD) competitor's costsAnswer: CDiff: 1Objective: 1AACSB: Analytical thinking4) Cost assignment ________.A) includes future and arbitrary costsB) encompasses allocating indirect costs to a cost objectC) is the same as cost accumulationD) is the difference between budgeted and actual costsAnswer: BDiff: 1Objective: 1AACSB: Analytical thinking5) A cost system determines the cost of a cost object by ________.A) accumulating and then assigning costsB) accumulating costsC) assigning and then accumulating costsD) assigning costsAnswer: ADiff: 1Objective: 1AACSB: Analytical thinking6) A cost object is anything for which a cost measurement is desired.Answer: TRUEDiff: 1Objective: 1AACSB: Analytical thinking7) Costs are accounted for in two basic stages: assignment followed by accumulation.Answer: FALSEExplanation: Costs are accounted for in two basic stages: accumulation followed by assignment.Diff: 1Objective: 1AACSB: Analytical thinking8) An actual cost is the cost incurred–a historical or past cost.Answer: TRUEDiff: 1Objective: 1AACSB: Analytical thinking9) Accountants define a cost as a resource to be sacrificed to achieve a specific objective.Answer: TRUEDiff: 1Objective: 1AACSB: Analytical thinking10) A cost is a resource sacrificed or forgone to achieve a specific objective.Answer: TRUEExplanation: A cost object could be anything management wishes to determine the cost of, for example, a department.Diff: 1Objective: 1AACSB: Analytical thinking11) Managers use cost accumulation data to make decisions and implement them.Answer: TRUEDiff: 1Objective: 1AACSB: Analytical thinking12) Lucas Manufacturing has three cost objects that it uses to accumulate costs for its manufacturing plants. They are:Cost object #1: The physical buildings and equipmentCost object #2: The use of buildings and equipmentCost object #3: The availability and use of manufacturing laborThe following manufacturing overhead cost categories are found in the accounting records:a. Depreciation on buildings and equipmentb. Lubricants for machinesc. Property insuranced. Supervisors salariese. Fringe benefitsf. Property taxesg. UtilitiesRequired:Assign each of the above costs to the most appropriate cost object.Answer:Cost object # 1 includes categories a, c, and f.Cost object # 2 includes categories b and g.Cost object # 3 includes categories d and e.Diff: 2Objective: 1AACSB: Application of knowledgeObjective 2.21) Which of the following factors affect the direct/indirect classification of a cost?A) the level of budgeted profit for the next yearB) the estimation of time required to complete the orderC) the ability to execute an order in the most cost-efficient mannerD) the design of the operationAnswer: DDiff: 1Objective: 2AACSB: Analytical thinking2) The general term used to identify both the tracing and the allocation of accumulated costs to a cost object is ________.A) cost accumulationB) cost assignmentC) cost tracingD) conversion costingAnswer: BDiff: 1Objective: 1AACSB: Analytical thinking3) Cost accumulation is ________.A) the collection of cost data in some organized way by means of an accounting systemB) anything for which a cost measurement is desiredC) anything for which a profit measurement is desiredD) the collection of profit data in some organized way by means of an accounting system Answer: ADiff: 2Objective: 1AACSB: Analytical thinking4) Which of the following statements about the direct/indirect cost classification is true?A) Indirect costs are always traced.B) Indirect costs are always allocated.C) The design of sales target affects the direct/indirect classification.D) The direct/indirect classification depends on the cost control measures.Answer: BDiff: 1Objective: 2AACSB: Analytical thinking5) Cost tracing is ________.A) the assignment of direct costs to the chosen cost objectB) a function of cost allocationC) the process of tracking both direct and indirect costs associated with a cost objectD) the process of determining the actual cost of the cost objectAnswer: ADiff: 1Objective: 2AACSB: Analytical thinking6) Cost allocation is ________.A) the process of tracking both direct and indirect costs associated with a cost objectB) the process of determining the opportunity cost of a cost object chosenC) the assignment of indirect costs to the chosen cost objectD) made based on material acquisition documentAnswer: CDiff: 1Objective: 2AACSB: Analytical thinking7) The determination of a cost as either direct or indirect depends upon the ________.A) accounting standardsB) tax system chosenC) inventory valuationD) cost object chosenAnswer: DDiff: 1Objective: 2AACSB: Analytical thinking8) Classifying a cost as either direct or indirect depends upon ________.A) the behavior of the cost in response to volume changesB) whether the cost is expensed in the period in which it is incurredC) whether the cost can be easily traced with the cost objectD) whether a cost is fixed or variableAnswer: CDiff: 1Objective: 2AACSB: Analytical thinking9) A manufacturing plant produces two product lines: golf equipment and soccer equipment. An example of direct costs for the golf equipment line is ________.A) beverages provided daily in the plant break roomB) monthly lease payments for a specialized piece of equipment needed to manufacture the golf driverC) salaries of the clerical staff that work in the company administrative officesD) overheads incurred in producing both golf and soccer equipmentAnswer: BDiff: 1Objective: 2AACSB: Application of knowledge10) A manufacturing plant produces two product lines: golf equipment and soccer equipment. An example of indirect cost for the soccer equipment line is the ________.A) material used to make the soccer ballsB) labor to shape the leather used to make the soccer ballC) material used to manufacture the soccer studsD) salary paid to plant supervisorAnswer: DDiff: 1Objective: 2AACSB: Application of knowledge11) Which one of the following items is a direct cost?A) Customer-service costs of a multiproduct firm; Product A is the cost object.B) Printing costs incurred for payroll check processing; payroll check processing is the cost object.C) The salary of a maintenance supervisor in a multiproduct manufacturing plant; Product B is the cost object.D) Utility costs of the administrative offices; the accounting department is the cost object.Answer: BDiff: 1Objective: 2AACSB: Application of knowledge12) Indirect manufacturing costs ________.A) can be traced to the product that created the costsB) can be easily identified with the cost objectC) generally include the cost of material and the cost of laborD) may include both variable and fixed costsAnswer: DDiff: 1Objective: 2AACSB: Application of knowledge13) Which of the following is true of indirect costs?A) Indirect costs are always considered sunk costs.B) All indirect costs are included in cost of goods sold.C) Indirect costs always vary in direct proportion to the level of production.D) Indirect costs cannot be traced to a particular cost object in an economically feasible way. Answer: DDiff: 1Objective: 2AACSB: Application of knowledge14) Which of the following statements is true?A) A direct cost of one cost object will always be a direct cost of another cost object.B) Because of a cost-benefit tradeoff, some direct costs may be treated as indirect costs.C) All fixed costs are indirect costs.D) All direct costs are variable costs.Answer: BDiff: 1Objective: 2AACSB: Analytical thinking15) Which of the following statements is true of direct costs?A) A direct cost of one cost object is a true sense of the budgeted costs.B) All variable costs are direct costs.C) A direct cost of one cost object can be an indirect cost of another cost object.D) All fixed costs are direct costs.Answer: CDiff: 1Objective: 2AACSB: Application of knowledge16) A cost may be direct for one cost object and indirect for another cost object.Answer: TRUEDiff: 1Objective: 2AACSB: Application of knowledge17) Assigning indirect costs is easier than assigning direct costs.Answer: FALSEExplanation: Tracing direct costs is quite straightforward, whereas assigning indirect costs to a number of different cost objects can be very challenging.Diff: 1Objective: 2AACSB: Application of knowledge18) Improvements in information-gathering technologies are making it possible to trace more costs as direct.Answer: TRUEDiff: 1Objective: 2AACSB: Analytical thinking19) The smaller the amount of a cost the more likely it is economically feasible to trace it to a particular cost object.Answer: FALSEExplanation: The smaller the amount of a cost the less likely it is economically feasible to trace it to a particular cost object.Diff: 1Objective: 2AACSB: Application of knowledge20) A direct cost of one cost object can be an indirect cost of another cost object.Answer: TRUEDiff: 1Objective: 2AACSB: Analytical thinking21) The cost of electricity used in the production of multiple products would be classified as a indirect cost.Answer: TRUEDiff: 1Objective: 2AACSB: Application of knowledge22) The broader the cost object definition, higher the proportion of direct costs are of total costs. Answer: TRUEDiff: 1Objective: 2AACSB: Analytical thinking23) The distinction between direct and indirect costs is clearly set forth in Generally Accepted Accounting Principles (GAAP).Answer: FALSEExplanation: The distinction between direct and indirect costs is not set forth in GAAP. Direct costs of a cost object are related to the particular cost object and can be traced to it in an economically feasible (cost-effective) way. Indirect costs of a cost object are related to the particular cost object but cannot be traced to it in an economically feasible (cost-effective) way.Diff: 1Objective: 2AACSB: Analytical thinking24) Archambeau Products Company manufactures office furniture. Recently, the company decided to develop a formal cost accounting system and classify all costs into three categories. Categorize each of the following items as being appropriate for (1) cost tracing to the finished furniture, (2) cost allocation of an indirect manufacturing cost to the finished furniture, or (3) as a nonmanufacturing item.Cost Cost Nonmanu-Item Tracing Allocation facturingCarpenter wages ________ ________ ________Depreciation - office building ________ ________ ________Glue for assembly ________ ________ ________Lathe department supervisor ________ ________ ________Lathe depreciation ________ ________ ________Lathe maintenance ________ ________ ________Lathe operator wages ________ ________ ________Lumber ________ ________ ________Samples for trade shows ________ ________ ________Metal brackets for drawers ________ ________ ________Factory washroom supplies ________ ________ ________Answer: Cost Cost Nonmanu-Item Tracing Allocation facturingCarpenter wages XDepreciation - office building XGlue for assembly XLathe department supervisor XLathe depreciation XLathe maintenance XLathe operator wages XLumber XSamples for trade shows XMetal brackets for drawers XFactory washroom supplies XDiff: 2Objective: 2AACSB: Application of knowledge25) What are the factors that affect the classification of a cost as direct or indirect?Answer: Several factors affect whether a cost is classified as direct or indirect:The materiality of the cost in question. The smaller the amount of a cost–that is, the more immaterial the cost is–the less likely it is economically feasible to trace it to a particular cost object.Available information-gathering technology. Improvements in information-gathering technology make it possible to consider more and more costs as direct costs.Design of operations. Classifying a cost as direct is easier if a company's facility (or some part of it) is used exclusively for a specific cost object, such as a specific product or a particular customer.Diff: 3Objective: 2AACSB: Analytical thinking26) What are the differences between direct costs and indirect costs? Give an example of each. Answer: Direct costs are costs that can be traced easily to the product manufactured or the service rendered. Examples of direct costs include direct materials and direct manufacturing labor used in a product. Indirect costs cannot be easily identified with individual products or services rendered, and are usually assigned using allocation formulas. In a plant that manufactures multiple products, examples of indirect costs include the plant supervisor's salary and the cost of machines used to produce more than one type of product.Diff: 2Objective: 2AACSB: Analytical thinkingObjective 2.31) Which of the following is true if the volume of sales increases?A) fixed cost increasesB) variable cost decreasesC) variable cost increasesD) fixed cost decreasesAnswer: CDiff: 1Objective: 3AACSB: Application of knowledge2) Which of the following is a fixed cost?A) monthly rent paymentB) electricity expensesC) travel expensesD) direct material costsAnswer: ADiff: 1Objective: 3AACSB: Application of knowledge3) Cost behavior refers to ________.A) how costs react to a change in the level of activityB) whether a cost is incurred in a manufacturing, merchandising, or service companyC) classifying costs as either perpetual or period costsD) whether a particular expense is expensed in the same or the following periodAnswer: ADiff: 1Objective: 3AACSB: Analytical thinking4) Which of the following is true if the production volume decreases?A) fixed cost per unit increasesB) average cost per unit decreasesC) variable cost per unit increasesD) variable cost per unit decreasesAnswer: ADiff: 1Objective: 3AACSB: Application of knowledge5) At a plant where a union agreement sets annual salaries and conditions, annual labor costs usually________.A) are considered a variable costB) are considered a fixed costC) depend on the scheduling of floor workersD) depend on the scheduling of production runsAnswer: BDiff: 1Objective: 3AACSB: Analytical thinking6) Variable costs ________.A) are always indirect costsB) increase in total when the actual level of activity increasesC) include most personnel costs and depreciation on machineryD) are never considered a part of prime costAnswer: BDiff: 1Objective: 3AACSB: Analytical thinking7) Maize Plastics manufactures and sells 50 bottles per day. Fixed costs are $30,000 and the variable costs for manufacturing 50 bottles are $10,000. Each bottle is sold for $1,000. How would the daily profit be affected if the daily volume of sales drop by 10%?A) profits are reduced by $4,000B) profits are reduced by $1,000C) profits are reduced by $5,000D) profits are reduced by $6,000Answer: AExplanation: A) Variable cost per unit = $10,000 / 50 = $200Profit for 50 bottles = ($1,000 × 50) - ($30,000 + $10,000) = $10,000Sales after 10% drop = 50 × (1 - 0.10) = 45Profit for 45 bottles = ($1,000 × 45) - ($30,000 + (45 × 200))= $6,000Change in profit = $10,000 - $6,000 = $4,000. Hence, the profit has decreased by $4,000.Diff: 3Objective: 3AACSB: Application of knowledge8) Fixed costs depend on the ________.A) amount of resources usedB) amount of resources acquiredC) volume of productionD) total number of units soldAnswer: BDiff: 1Objective: 3AACSB: Analytical thinking9) Which one of the following is a variable cost for an insurance company?A) rent of the buildingB) CEO's salaryC) electricity expensesD) property taxesAnswer: CDiff: 1Objective: 3AACSB: Application of knowledge10) Which of the following is a fixed cost for an automobile manufacturing plant?A) administrative salariesB) electricity used by assembly-line machinesC) sales commissionsD) tiresAnswer: ADiff: 1Objective: 3AACSB: Application of knowledge11) If each motorcycle requires a belt that costs $20 and 2,000 motorcycles are produced for the month, the total cost for belts is ________.A) considered to be a direct fixed costB) considered to be a direct variable costC) considered to be an indirect fixed costD) considered to be an indirect variable costAnswer: BDiff: 1Objective: 3AACSB: Application of knowledge12) The most likely cost driver of distribution costs is the ________.A) number of parts within the productB) number of miles drivenC) number of products manufacturedD) number of production hoursAnswer: BDiff: 1Objective: 3AACSB: Application of knowledge13) The most likely cost driver of direct labor costs is the ________.A) number of machine setups for the productB) number of miles drivenC) number of production hoursD) number of machine hoursAnswer: CDiff: 1Objective: 3AACSB: Application of knowledge14) Which of the following statements is true?A) There is a cause-and-effect relationship between the cost driver and the amount of cost.B) Fixed costs have cost drivers over the short run.C) Over the short run all costs have cost drivers.D) Volume of production is a cost driver of distribution costs.Answer: ADiff: 1Objective: 3AACSB: Analytical thinking15) A band of normal activity or volume in which specific cost-volume relationships are maintained is referred to as the ________.A) average rangeB) cost-allocation rangeC) cost driver rangeD) relevant rangeAnswer: DDiff: 1Objective: 3AACSB: Analytical thinking16) Within the relevant range, if there is a change in the level of the cost driver, then ________.A) total fixed costs and total variable costs will changeB) total fixed costs and total variable costs will remain the sameC) total fixed costs will remain the same and total variable costs will changeD) total fixed costs will change and total variable costs will remain the sameAnswer: CDiff: 2Objective: 3AACSB: Analytical thinking17) Outside the relevant range, variable costs, such as direct material costs ________.A) will decrease proportionately with changes in sales volumesB) will remain the same with changes in production volumesC) will not change proportionately with changes in production volumesD) will increase proportionately with changes in sales volumesAnswer: CDiff: 2Objective: 3AACSB: Analytical thinking18) Which of the following is a cost driver for a company's human resource costs?A) the number of employees in the companyB) the number of job applications processedC) the number of units soldD) the square footage of the office space used by the human resource departmentAnswer: BDiff: 1Objective: 3AACSB: Analytical thinkingAnswer the following questions using the information below:Zephyr Apparels is a clothing retailer. Unit costs associated with one of its products, Product DCT121, are as follows:Direct materials $ 70Direct manufacturing labor 20Variable manufacturing overhead 15Fixed manufacturing overhead 32Sales commissions (2% of sales) 5Administrative salaries 16Total $15819) What are the direct variable manufacturing costs per unit associated with Product DCT121?A) $142B) $90C) $105D) $110Answer: CExplanation: C) Direct variable manufacturing costs = $70 + $20 + $15 = $105Diff: 1Objective: 3AACSB: Application of knowledge20) What are the indirect nonmanufacturing variable costs per unit associated with Product DCT121?A) $5B) $21C) $90D) $142Answer: AExplanation: A) Indirect variable costs = Sales commissions = $5Diff: 1Objective: 3AACSB: Application of knowledgeAnswer the following questions using the information below:The East Company manufactures several different products. Unit costs associated with Product ORD210 are as follows:Direct materials $54Direct manufacturing labor 8Variable manufacturing overhead 11Fixed manufacturing overhead 25Sales commissions (2% of sales) 5Administrative salaries 12Total $11521) What is the percentage of the total variable costs per unit associated with Product ORD105 with respect to total cost?A) 72%B) 68%C) 75%D) 70%Answer: AExplanation: A) $60 + $10 + $15 + $5 = $90/125 = 72%Diff: 3Objective: 3AACSB: Application of knowledge22) What is the percentage of the total fixed costs per unit associated with Product ORD105 with respect to total cost?A) 32%B) 28%C) 26%D) 20%Answer: BExplanation: B) $25 + 10 = $35/125 = 28%Diff: 3Objective: 3AACSB: Application of knowledge23) A fixed cost is fixed only in relation to a given wide range of total activity or volume and only for a giventime span, usually a particular budget period.Answer: TRUEDiff: 2Objective: 3AACSB: Application of knowledge24) A cost driver is a variable, such as the level of activity or volume that causally affects costs over a given time span.Answer: TRUEDiff: 1Objective: 3AACSB: Analytical thinking25) Fixed cost per unit reduces with an increase in production volume.Answer: TRUEDiff: 2Objective: 3AACSB: Analytical thinking26) Variable costs per unit vary with the level of production or sales volume.Answer: FALSEExplanation: Variable costs per unit are constant with the level of production or sales volume.Diff: 2Objective: 3AACSB: Analytical thinking27) Wood used to manufacture chairs is considered a direct variable cost.Answer: TRUEDiff: 1Objective: 3AACSB: Analytical thinking28) Variable costs depend on the resources used.Answer: FALSEDiff: 1Objective: 3AACSB: Analytical thinking29) A fixed cost remains unchanged in total for a given time period, despite wide changes in the related levelof total activity or volume of output produced.Answer: TRUEDiff: 1Objective: 3AACSB: Analytical thinking30) An appropriate cost driver for shipping costs might be the number of units shipped.Answer: TRUEDiff: 1Objective: 3AACSB: Analytical thinking31) Butler Hospital wants to estimate the cost for each patient stay. It is a general health care facility offering only basic services and not specialized services such as organ transplants.Required:a. Classify each of the following costs as either direct or indirect with respect to each patient.b. Classify each of the following costs as either fixed or variable with respect to hospital costs per day.Direct Indirect Fixed VariableElectronic monitoring ________ ________ ________ ________Meals for patients ________ ________ ________ ________Nurses' salaries ________ ________ ________ ________Parking maintenance ________ ________ ________ ________Security ________ ________ ________ ________Answer: Direct Indirect Fixed VariableElectronic monitoring X XMeals for patients X XNurses' salaries X XParking maintenance X XSecurity X XDiff: 3Objective: 2, 3AACSB: Application of knowledge32) The list of representative cost drivers in the right column below are randomized with respect to the list of functions in the left column. That is, they do not match.Required:Match each business function with its representative cost driver.Objective: 3AACSB: Application of knowledge33) Describe a variable cost. Describe a fixed cost. Explain why the distinction between variable and fixed costs is important in cost accounting.Answer: Total variable costs increase with increased production or sales volumes. Fixed costs are not influenced by fluctuations in production or sales volumes. However, variable cost per unit remains the same at all levels of production and fixed cost per unit reduces with increase in production. Without the knowledge of cost behaviors, budgets and other forecasting tools will be inaccurate and unreliable. Understanding whether a cost behaves as a variable or a fixed cost is essential to estimating and planning for business success.Diff: 3Objective: 3AACSB: Analytical thinkingObjective 2.41) A unit cost is computed by ________.A) multiplying total cost by the number of units producedB) dividing total cost by the number of units producedC) dividing variable cost by the number of units producedD) dividing fixed cost by the number of units producedAnswer: BDiff: 1Objective: 4AACSB: Analytical thinking2) In making product mix and pricing decisions, managers should focus on ________.A) total costsB) unit costsC) variable costsD) manufacturing costsAnswer: ADiff: 2Objective: 4AACSB: Analytical thinking3) When 20,000 units are produced, fixed costs are $16 per unit. Therefore, when 16,000 units are produced, fixed costs will ________.A) increase to $20 per unitB) remain at $16 per unitC) decrease to $10 per unitD) total $160,000Answer: AExplanation: A) Fixed costs are $320,000 ($16 × 20,000 units). Dividing $320,000 by 16,000 units = $20. Diff: 3Objective: 4AACSB: Application of knowledge4) When 20,000 units are produced, variable costs are $8 per unit. Therefore, when 10,000 units are produced ________.A) variable costs will remain at $8 per unitB) variable costs will total $60,000C) variable unit costs will increase to $12 per unitD) variable unit costs will decrease to $3 per unitAnswer: ADiff: 2Objective: 4AACSB: Application of knowledge5) Eigen Manufacturing Corp. provided the following information for last month:Sales $40,000Variable costs 14,000Fixed costs 10,000Operating income $16,000If sales reduce to half of the amount in the next month, what is the projected operating income?A) $15,000B) $6,000C) $16,000D) $3,000Answer: DExplanation: D) Projected operating income = ($40,000 / 2) −($14,000 / 2) − $10,000 = $3,000 Diff: 3Objective: 4AACSB: Application of knowledge6) Genosis Metals provided the following information for last month:Sales $20,000Variable costs 8,000Fixed costs 4,000Operating income $8,000If sales reduce to half the amount in the next month, what is the projected operating income?A) $0B) $4,000C) $2,000D) $6,000Answer: CExplanation: C) Projected operating income = ($20,000 × 0.5) − ($8,000 × 0.5) − $4,000 = $2,000 Diff: 3Objective: 4AACSB: Application of knowledge。

CHAPTER 2 QUIZ1.Tanner Co. management desires cost information regarding their Rawhide brand.The Rawhide brand is a(n)a.cost object.b.cost driver.c.cost assignment.d.actual cost.2.The cost of replacement light bulbs on campus would be a direct cost to a collegebut would need to be allocated as an indirect cost toa.departments.b.buildings.c.schools.d.individual student instruction.3.What is the total fixed cost of the shipping department of EZ-Mail Clothing Co. if ithas the following information for 2002?Salaries $800,000 75% of employees on guaranteedcontractsPackaging $400,000 depending on size of item(s) shippedPostage $500,000 depending on weight of item(s) shippedRent of warehouse space $250,000 annual leasea. $850,000b. $900,000c. $1,050,000d. $1,950,0004.Morton Graphics successfully bid on a job printing standard notebook covers duringthe year using last year’s price of $0.27 per cover. This amount was calculated from prior year costs, noting that no changes in any costs had occurred from the past year to the current year. At the end of the year, the company manager was shocked todiscover that the company had suffered a loss. ―How could this be?‖ she exclaimed.―We had no increases in cost and our price was the same as last year. La st year wehad a healthy income.‖ What could explain the company’s loss in income thiscurrent year?a.Their costs were all variable costs and the amount produced and soldincreased.b.Their costs were mostly fixed costs and the amount produced this year wasless than last year.c.They used a different cost object this year than the previous year.d.Their costs last year were actual costs but they used budgeted costs to maketheir bids.5.Which type of company converts materials into finished products?a.Not-for-profitb.Servicec.Merchandisingd.Manufacturing6.The three categories of inventories commonly found in many manufacturingcompanies are:a.Direct materials, direct labor, and indirect manufacturing costs.b.Purchased goods, period costs, and cost of goods sold.c.Direct materials, work in process, and finished goods.d.LIFO, FIFO, and weighted average.7.Inventoriable costs area.only purchased goods for resale.b. a category of costs used only for manufacturing companies.c.recorded as expenses when incurred and later reclassified as assets.d.recorded as assets when incurred.8.Period costs area.all costs in the income statement other than cost of goods sold.b.defined as manufacturing costs incurred this period on the schedule of costof goods manufactured.c.always recorded as assets when first incurred.d.those costs that benefit future periods.9.The cost of a product can be measured as any of the following except as costa.gathered from all areas of the value chain.b.identified as period cost.c.designated as manufacturing cost only.d.explicitly defined by contract.10.The primary focus of cost management is toa.help managers make different decisions.b.calculate product costs.c.aid managers in budgeting.d.distinguish between relevant and irrelevant information.CHAPTER 2 QUIZ SOLUTIONS1. a2. d3. a4. b5. d6. c7. d8. a9. b10. aQuiz Question Calculations3. Fixed costs = (800,000) 75% + 250,000 = $850,000CHAPTER 3 QUIZ1.Which of the following is not a factor in cost-volume-profit analysis?a.Units soldb.Selling pricec.Total variable costsd.Fixed costs of a product2.Which of the following is not an assumption of cost-volume-profit analysis?a.The time value of money is incorporated in the analysis.b.Costs can be classified into variable and fixed components.c.The behavior of revenues and expenses is accurately portrayed as linearover the relevant range.d.The number of output units is the only driver.3.Contribution margin is calculated asa.total revenue – total fixed costs.b.total revenue – total manufacturing costs (CGS).c.total revenue – total variable costs.d.operating income + total variable costs.Questions 4-6 are based on the following data.Tee Times, Inc. produces and sells the finest quality golf clubs in all of ClayCounty.The company expects the following revenues and costs in 2004 for its Elite Qualitygolf club sets:Revenues (400 sets sold @ $600 per set) $240,000Variable costs 160,000Fixed costs 50,0004.How many sets of clubs must be sold for Tee Times, Inc. to reach their breakeven point?a. 400b. 250c. 200d. 1505.How many sets of clubs must be sold to earn a target operating income of $90,000?a. 700b. 500c. 400d. 3006.What amount of sales must Tee Times, Inc. have to earn a target net income of $63,000if they have a tax rate of 30%?a. $489,000b. $429,000c. $420,000d. $300,0007.One way for managers to cope with uncertainty in profit planning is toe CVP analysis because it assumes certainty.b.recommend management hire a futurist whose work is to predict businesstrends.c.wait to see what does happen and prepare a report based on actual amounts.e sensitivity analysis to explore various what-if scenarios in order toanalyze changes in revenues or costs or quantities.8.The Beta Mu Omega Chi (BMOC) fraternity is looking to contract with a local band toperform at its annual mixer. If BMOC expects to sell 250 tickets to the mixer at $10each, which of the following arrangements with the band will be in the best interest ofthe fraternity?a.$2500 fixed feeb.$1000 fixed fee plus $5 per person attendingc.$10 per person attendingd.$25 per couple attendingUse the following information for questions 9 and 10.LSB Company has the following income statement:Revenues $100,000Variable Costs 40,000Contribution Margin 60,000Fixed Costs 30,000Operating Income 30,0009. What is LSB’s DOL?a. 3.33b. 2.00c.0.50d. 1.0010. If LSB’s sales increase by $20,000, what will be the company’s operating profit?a.$42,000b.$12,000c.$50,000d.$30,00011.Twin Products Company produces and sells two products. Product M sells for $12and has variable costs of $6. Product W sells for $15 and has variable costs of $10.Twin predicted sales of 25,000 units of M and 20,000 of W. Fixed costs are $60,000 per month. Assume that Twin achieved its sales goal of $600,000 for September,but fell short of its expected operating income of $190,000. Which of the following descriptions best describes the actual results reported of revenue of $600,000 andoperating income of less than $190,000?a.Twin sold 50,000 of M and no product W.b.Twin sold more of both products M and W than expected.c.Twin sold more of product W and less of product M than expected.d.Twin sold more of product M and less of product W than expected.12.In the situation of multiple cost drivers, CVP analysis cana.be modified so that the various simple formulas can be used by applyingthem separately to each cost driver.b.apply the same formulas as that used for a single-cost driver.c.be changed by incorporating all of the cost drivers into the breakevenformula to calculate the unique point of output at which the company wouldbreak even.d.be adapted by incorporating the cost drivers into the calculation of thevariable costs.13.Which of the following statements is true?a.Gross margin is another term for contribution margin.b.Contribution margin is acceptable for use in external financial statements.c.Contribution margin is used to help managers in decision making.d.Gross margin is revenues minus variable cost.CHAPTER 3 QUIZ SOLUTIONS1. c2. a3. c4. b5. a6. c7. d8. b9. b10. b11. c12. b13. cQuiz Question Calculations4. Variable costs per unit = $160,000/400 units sold = $400Contribution Margin = $600 – 400 = $200 per unitBreakeven point = $50,000/$200 = 250 units5. TOI = $50,000 + $90,000/$200 = 700 units6. TNI = $50,000 + $63,000/(1 – .30)/$200 = 700 units × $600 = $420,0001.Cost of option a: $2,500 Profit = 0Cost of option b: $1,000 + 5(250) = $2,250 Profit = $250Cost of option c: $10 (250) = $2,500 Profit = 0Cost of option d: $25 (125) = $3,125 Loss ($625)2.DOL = $60,000/$30,000 = 2.03.$20,000/ $100,000 = 20%20% × 2 = 40%40% × $30,000 = $12,000 increaseCHAPTER 4 QUIZ1. A cost-allocation base may be any of the following except aa.cost driver.b.cost pool.c.way to link indirect costs to a cost object.d.nonfinancial quantity.2. A company that manufactures dentures for use by local dentists would usea.process costing.b.personal costing.c.operations costing.d.job costing.3.The first step in the seven-step approach to job costing is toa.select the cost-allocation base to use in assigning indirect costs to the job.b.identify the direct costs of the job.c.identify the job that is the chosen cost object.d.identify the indirect-cost pools associated with the job.ing normal costing rather than actual costing requires that the allocating ofindirect manufacturing costs to work-in-process bea.done on a more timely basis, such as every two weeks rather than everymonth.b.journalized only at year end when adjusting entries are normally made.c.calculated by using the budgeted rate times actual quantity of allocationbase.d.calculated by using the budgeted rate times the budgeted quantity ofallocation base.5.Manufacturing Overhead Controla.represents actual overhead costs incurred.b.has a normal debit balance.c.is a control account with a subsidiary ledger detailing the components ofmanufacturing overhead.d.All of the above6.Which of the following accounts is not classified as an asset?a.Manufacturing Overhead Controlb.Materials Controlc.Work-in-Process Controld.Finished Goods Control7.The costs incurred on jobs that are currently in production but are not yet completewould appear in thea.Materials Control account.b.Finished Goods Control account.c.Manufacturing Overhead Control account.d.Work-in-Process Control account.8.The Precision Widget Company had the following balances in their accounts at theend of the accounting period:Work-in-Process $ 5,000Finished Goods 20,000Cost of Goods Sold 200,000If their manufacturing overhead was overallocated by $8,000 and Precision Widget adjusts their accounts using a proration based on total ending balances, the revisedending balance for Cost of Goods Sold would bea. $192,880.b. $200,00.c. $207,120.d. $208,000.9.Liberty Box Company calculated an indirect-cost rate of $12.50 per labor hour forfringe benefits for use in their normal costing system. At the end of the year, theactual cost of fringe benefits was $980,000. The total of labor hours worked for the year was the same amount as budgeted, 70,000 hours. If Job #640 required the useof 15 labor hours and the company used the adjusted allocation rate approach, bywhat amount would the cost of Job #640 change?a.$560.00b.$281.25c.$22.50d.$20.5010.If each professional in a service company is paid on an annual salary basis, whymight the firm want to use a predetermined or budgeted rate for direct orprofessional labor?a. A predetermined or budgeted rate is easier to justify to a client who mightquestion a billing rate.b.Professional staff persons do not keep accurate records of the jobs on whichthey work.c.Professional staff incurs more client costs, such as travel, lodging, and out-of-town meals, while working on a job.d.Year-end bonuses paid to the professional staff are difficult to trace toindividual jobs.CHAPTER 4 QUIZ SOLUTIONS1. b2. d3. c4. c5. d6. a7. d8. a9. c10. dQuiz Question CalculationsWork in Process $5,000 / 225,000 2.2% ⨯ $8,000 = 176Finished Goods $20,000 /225,000 8.9% ⨯ $8,000 = 712Cost of Goods Sold $200,000 / 225,000 88.9% ⨯ $8,000 = 7,120200,000 – 7,120 = $192,8809. 980.000/70,000 = $14.00 (actual rate)$14,000 – $12.50 = $1.50 excess of actual over budget1.50 ⨯ 15 hours – $22.50 additional costCHAPTER 5 QUIZ1.Production-cost cross-subsidization results froma.allocating indirect costs to multiple products.b.assigning traced costs to each product.c.assigning costs to different products using varied costing systems within thesame organization.d.assigning broadly averaged costs across multiple products withoutrecognizing amounts of resources used by which products.2.In refining a cost systema.total direct costs are unchanged because they can be traced in aneconomically feasible way to the product and traced costs are more accurate.b.the costs are grouped in homogeneous pools of the same or similar amounts.c.the criterion of cause and effect is used to relate indirect costs to a factorthat systematically links to a cost object.d.the organization looks for cost-allocation bases that will provide a uniformspreading of indirect costs to each product.Question 3 is based on the following data.The average cost data are for In-Sync Fixtures Company’s (a retailer) only twoproduct lines, Marblette and Italian Marble.Marblette Italian MarblePurchase volume 20,000 1,000Purchase cost per unit $50 $50Shipments received 12 12Hours used per shipment * 5 3 *These data were accumulated after a careful activity analysis.Currently, In-Sync Fixtures uses a traditional costing system with indirect costsallocated using purchased cost of goods as a basis. In-Sync Fixtures is consideringrefining the allocation of their receiving costs of $40,000. They realize that the ItalianMarble is heavier and requires more care than the Marblette but that the Marblettecomes in larger volume.3.Which statement can be made using the results of the activity analysis performed byIn-Sync Fixtures?a.The use of this refined activity-based costing system will increase theaccuracy of the resulting product costs because a more appropriate cost driverwill be used as the allocation base.b.The traditional allocation method currently being used is causing product-costcross-subsidization with the product line Marblette being undercosted.c.The cost allocated to the Italian Marble product line under the currenttraditional system is more than the activity-based costing allocated cost.d.The use of this refined activity-based costing system will increase theaccuracy of the resulting product costs because it probably will cost less totrace the costs to the product lines.4.Advertising of a specific product is an example ofa.unit-level costs.b.batch-level costs.c.product-sustaining costs.d.facility-sustaining costs.5.The allocation of indirect costs in an activity-based costing systema.may require other costs to be allocated to activities before the costs of theactivities can be allocated to the products.b.is simplified because more costs are identified as direct costs.c.requires the use of heterogeneous cost pools.d.is simplified because a limited number of activities are identified as costobjects.Information for questions 6 and 7 is given below.Jackson Enterprises manufactures two products—A basic gizmo and an advancedmodel gizmo. The company is using an activity-based costing system. They haveidentified three activities for allocation of indirect costs.Activity Cost Driver Cost-Allocation RateMaterials receiving Number of parts $2.00 per partProduction setup Number of setups $500.00 per setupQuality inspection Inspection time $90 per hourA production run for the basic model is 250 units, for the advanced model, 100 units.Each unit of product consumes the following activities:Number of Parts Number of Setups Inspection Time Basic Gizmo 10 50 10 minutesAdvanced Gizmo 15 25 20 minutesDirect costs for the two products are as follows:Direct Materials Direct LaborBasic Gizmo $50.00 $ 75.00Advanced Gizmo $95.00 $125.006.The amount of overhead allocated to one unit of the basic model would bea.$592.b.$37.c.$162.d.$65.7.The total cost of an advanced model would bea.$162.b.$65.c.$200.d.$265.8.Evaluating customer reaction of the trade-off of giving up some features of aproduct for a lower price would best fit which category of management decisionsunder activity-based management?a.Pricing and product-mix decisionsb. Cost reduction decisionsc. Design decisionsd. Discretionary decisions9.Which of the following statements is more representative of activity-based costingin comparison to a department-costing system?a.The use of multiple cost-allocation basesb.The use of indirect-cost rates for significant resource usec.The use of activities having a cause-and-effect relationshipd.The use of multiple cost pools10. A significant limitation of activity-based costing is thea.attention given to indirect cost allocation.b.many necessary calculations.c.operations staff’s attitude to ward the accounting staff.e it makes of technology.CHAPTER 5 QUIZ SOLUTIONS1. d2. c3. a4. c5. a6. b7. d8. c9. c10. bQuiz Question Calculations6. (2 ⨯10) + ($500/250) + ($90/60 ⨯ 10) = $377. $75 + $125 + ($2 ⨯ 15) + ($500/100) + ($90/60 ⨯ 20)CHAPTER 7 QUIZ1.[CMA Adapted] Flexible budgetsa.accommodate changes in the inflation rate.b.accommodate changes in activity levels.c.are used to evaluate capacity utilization.d.are static budgets that have been revised for changes in price(s).2.[CMA Adapted] The following information is available for the Gabriel ProductsCompany for the month of July:Static Budget Actual Units 5,000 5,100Sales revenue $60,000 $58,650Variable manufacturing costs $15,000 $16,320Fixed manufacturing costs $18,000 $17,000Variable marketing and administrative expense $10,000 $10,500Fixed marketing and administrative expense $12,000 $11,000The total sales-volume variance for the month of July would bea. $2,550 unfavorable.b. $1,350 unfavorable.c. $700 favorable.d. $100 favorable.3.[CMA Adapted] Bartholomew Corporation’s master budget calls for the production of6,000 units of product monthly. The master budget includes indirect labor of$396,000 annually; Bartholomew considers indirect labor to be a variable cost.During the month of September, 5,600 units of product were produced, and indirect labor costs of $30,970 were incurred. A performance report utilizing flexiblebudgeting would report a flexible budget variance for indirect labor ofa. $170 unfavorable.b. $170 favorable.c. $2,030 unfavorable.d. $2,030 favorable.4.Which of the following is not an advantage for using standard costs for varianceanalysis?a.Standards simplify product costing.b.Standards are developed using past costs and are available at a relativelylow cost.c.Standards are usually expressed on a per-unit basis.d.Standards can take into account expected changes planned to occur in thebudgeted period.rmation on Pruitt Company’s direct-material costs for the month of July 2005 wasas follows:Actual quantity purchased 30,000 unitsActual unit purchase price $2.75Materials purchase-price variance—unfavorable (based on purchases) $1,500Standard quantity allowed for actual production 24,000 unitsActual quantity used 22,000 units[CPA Adapted] For July 2005 there was a favorable direct-materials efficiencyvariance ofa. $7,950.b. $5,500.c. $5,400.d. $5,600.rmation for Garner Company’s direct-labor costs for the month of September 2005was as follows:Actual direct-labor hours 34,500 hoursStandard direct-labor hours 35,000 hoursTotal direct-labor payroll $241,500Direct-labor efficiency variance—favorable $ 3,200[CPA Adapted] What is Garner’s direct-labor price (or rate) variance?a. $21,000 favorableb. $21,000 unfavorablec. $17,250 unfavorabled. $20,700 unfavorable7.Performance evaluation using variance analysis should guard againsta.emphasis on a single performance measure.b.emphasis on total company objectives.c.basing effect of a manager’s action on total costs of the company as a whole.d.highlighting individual aspects of performance.8.The basic principles and concepts of variance analysis can be applied to activity-basedcostinga.by application as to the levels of cost hierarchy.b.through careful classification of costs as direct and indirect as applied to theproduct or job.c.with use of standard costing systems only.d.only through those activities related to individual units of product or service.9.Benchmarking isa.relatively easy to do with the amount of available financial informationabout companies.b.best done with the best in their field regardless of type of company.c.simply reporting the magnitude of differences in costs or revenues acrosscompanies.d.making comparisons to direct attention to why differences in costs existacross companies.CHAPTER 7 QUIZ SOLUTIONS1. b2. c3. a4. b5. c6. d7. a8. a9. dQuiz Question Calculations2. 5,100 – 5,000 = 100 units ⨯ $7* = $700FUnit CM = 60,000 – 15,000 –10,000/35,000 = $73. Actual DL $30,970Flexible budget 5,600 ⨯ $5.50 30,800Flexible budget variance 170 U5. Actual price 30,000 ⨯ 2.75 82,500Minus unfavorable price variance 1,500Materials at standard 81,00081,000/30,000 = $2.70 standard price per unitActual quantity 22,000 unitsStandard quantity 24,000 unitsEfficiency variance 2,000 ⨯ 1.70 = $5,400 F6. Actual direct labor cost $241,500Standard 34,500 ⨯ 6.40 $220,800Price variance 20.700 UStandard rate = 3,200/(35,000 – 34,500) = $6.40FLEXIBLE-BUDGET AND SALES-VOLUME VARIANCE ANALYSISActual Results: Flexible Budget: Static Budget:Actual Units Sold Actual Units Sold Budgeted Units SoldX Actual Sales Mix X Actual Sales Mix X Budgeted Sales MixX Actual CM/unit X Budgeted CM/unit X Budgeted CM/unit| - - - - Flexible budget variance - - - - | - - - - Sales-volume variance - - - - || - - - - - - - - - - - - - - - - - - - Static budget variance - - - - - -- - - - - - - - - - |SALES-MIX AND SALES-QUANTITY VARIANCE ANALYSISFlexible Budget: Static Budget:Actual Units Sold Actual Units Sold Budgeted Units SoldX Actual Sales Mix X Budgeted Sales Mix X Budgeted Sales MixX Budgeted CM/unit X Budgeted CM/unit X Budgeted CM/unit| - - - - - - Sales mix variance - - - - - | - - - - Sales-quantity variance - - - - || - - - - - - - - - - - - - - - - - - - Sales-volume variance - - - - - - - - - - - - - - - |MARKET-SHARE AND MARKET-SIZE VARIANCE ANALYSISFlexible Budget: Static Budget:Actual Market Size Actual Market Size Budgeted Market SizeX Actual Market Share X Budgeted Market Share X Budgeted Market Share X Budgeted CM/unit X Budgeted CM/unit X Budgeted CM/unit| - - - - - - Market share variance - - - - - | - - - - Market size variance - - - - || - - - - - - - - - - - - - - - - - - - Sales-quantity variance - - - - - - - - - - - - - - - |INPUT PRICE AND EFFICIENCY VARIANCESActual Costs: Flexible Budget: Actual Input Actual Input Budgeted Input (for actual output)X Actual Price X Budgeted Price X Budgeted Price| - - - - - - - Price variance - - - - - - - | - - - - - - - Efficiency variance - - - - - - - || - - - - - - - - - - - - - - - - - - - Flexible budget variance - - - - - -- - - - - - ----- - - - |INPUT YIELD AND MIX VARIANCESActual Input/Actual Mix : Flexible Budget:Actual Inputs Used Actual Input Used Budgeted Input (for actual output)X Actual Input Mix X Budgeted Input Mix X Budgeted Input MixX Budgeted Price X Budgeted Price X Budgeted Price| - - - - - - - - Mix variance - - - - - - - - | - - - - - - - - - Yield variance - - - - - - - || - - - - - - - - - - - - - - - - - - - Efficiency variance - - - - - - - - - - - - - - - - - - - - |。

CHAPTER 8 QUIZ1.Which of the following pertains primarily to the planning of fixed overhead costs？a. A standard rate per output unit is developed。

b.Only essential activities are to be undertaken。

c.Activities are to be undertaken in the most efficient method。

d.Key decisions are made at the start of the budget period determining the level ofcosts。

2.In selecting a cost allocation base for variable overhead, what criteria for the base ispreferred？a.Ease of acquiring reliable information for accurate allocationsb. A cause—and-effect relationship between the cost and the activity levelc. A single base that will simplify the allocation processd.One that has been used in the pastThe following data apply to questions 3–9。

Sebastian Company, which manufactures electrical switches, uses a standard costsystem and carries all inventories at standard. The standard manufacturing overhead costs per switch are based on direct labor hours and are shown below：Variable overhead （5 hours @ ＄12 per direct manufacturing labor hour）$ 60Fixed overhead （5 hours @ $15＊ per direct manufacturing labor hour） 75Total overhead per switch ＄135＊Based on capacity of 200,000 direct manufacturing labor hours per month。

Cost Accounting, 14e (Horngren/Datar/Rajan)Chapter 9 Inventory Costing and Capacity AnalysisObjective 9.11) Which of the following cost(s) are inventoried when using variable costing?A) direct manufacturing costsB) variable marketing costsC) fixed manufacturing costsD) Both A and B are correct.Answer: ADiff: 1Terms: variable costingObjective: 1AACSB: Reflective thinking2) Which of the following cost(s) are inventoried when using absorption costing?A) direct manufacturing costsB) variable marketing costsC) fixed manufacturing costsD) Both A and C are correct.Answer: DDiff: 1Terms: absorption costingObjective: 1AACSB: Reflective thinking3) ________ is a method of inventory costing in which all variable manufacturing costs (direct and indirect) are included as inventoriable costs and all fixed manufacturing costs are excluded.A) Variable costingB) Mixed costingC) Absorption costingD) Standard costingAnswer: ADiff: 1Terms: absorption costingObjective: 1AACSB: Reflective thinking4) Absorption costing is required for all of the following except:A) generally accepted accounting principlesB) determining a competitive selling priceC) external reporting to shareholdersD) income tax reportingAnswer: BDiff: 2Terms: absorption costingObjective: 1AACSB: Reflective thinking5) Absorption costing:A) expenses marketing costs as cost of goods soldB) treats direct manufacturing costs as a period costC) includes fixed manufacturing overhead as an inventoriable costD) is required for internal reports to managersAnswer: CDiff: 3Terms: absorption costingObjective: 1AACSB: Reflective thinking6) Variable costing:A) expenses administrative costs as cost of goods soldB) treats direct manufacturing costs as a product costC) includes fixed manufacturing overhead as an inventoriable costD) is required for external reporting to shareholdersAnswer: BDiff: 3Terms: variable costingObjective: 1AACSB: Reflective thinking7) ________ method(s) expense(s) variable marketing costs in the period incurred.A) Variable costingB) Absorption costingC) Throughput costingD) All of these answers are correct.Answer: DDiff: 1Terms: variable costing, absorption costing, throughput costingObjective: 1AACSB: Reflective thinking8) ________ method(s) include(s) fixed manufacturing overhead costs as inventoriable costs.A) Variable costingB) Absorption costingC) Throughput costingD) All of these answers are correct.Answer: BDiff: 1Terms: absorption costingObjective: 1AACSB: Reflective thinking9) ________ method(s) expense(s) direct material costs as cost of goods sold.A) Variable costingB) Absorption costingC) Throughput costingD) All of these answers are correct.Answer: DDiff: 1Terms: variable costing, absorption costing, throughput costingObjective: 1AACSB: Reflective thinking10) ________ method(s) is required for tax reporting purposes.A) Variable costingB) Absorption costingC) Throughput costingD) All of these answers are correct.Answer: BDiff: 1Terms: absorption costingObjective: 1AACSB: Reflective thinking11) ________ is a method of inventory costing in which only variable manufacturing costs are included as inventoriable costs.A) Fixed costingB) Variable costingC) Absorption costingD) Mixed costingAnswer: BDiff: 1Terms: variable costingObjective: 1AACSB: Reflective thinking12) Variable costing regards fixed manufacturing overhead as a(n):A) administrative costB) inventoriable costC) period costD) product costAnswer: CDiff: 1Terms: variable costingObjective: 1AACSB: Reflective thinking13) The only difference between variable and absorption costing is the expensing of:A) direct manufacturing costsB) variable marketing costsC) fixed manufacturing costsD) Both A and C are correct.Answer: CDiff: 2Terms: variable costing, absorption costingObjective: 1AACSB: Reflective thinkingAnswer the following questions using the information below:Gloria's Decorating produces and sells a mantel clock for $80 per unit. In 2011, 50,000 clocks were produced and 40,000 were sold. Other information for the year includes:Direct materials $30.00 per unitDirect manufacturing labor $ 2.00 per unitVariable manufacturing costs $ 3.00 per unitSales commissions $ 5.00 per partFixed manufacturing costs $25.00 per unitAdministrative expenses, all fixed $15.00 per unit14) What is the inventoriable cost per unit using variable costing?A) $32B) $35C) $40D) $60Answer: BExplanation: B) $30.00 + $2.00 + $3.00 = $35.00Diff: 2Terms: variable costingObjective: 1AACSB: Analytical skills15) What is the inventoriable cost per unit using absorption costing?A) $32B) $35C) $60D) $80Answer: CExplanation: C) $30 + $2 + $3 + $25 = $60Diff: 2Terms: absorption costingObjective: 1AACSB: Analytical skillsAnswer the following questions using the information below:Kory's Auto produces and sells an auto part for $60.00 per unit. In 2011, 100,000 parts were produced and 75,000 units were sold. Other information for the year includes:Direct materials $24.00 per unitDirect manufacturing labor $ 4.50 per unitVariable manufacturing costs $ 1.50 per unitSales commissions $ 6.00 per partFixed manufacturing costs $750,000 per yearAdministrative expenses, all fixed $270,000 per year16) What is the inventoriable cost per unit using variable costing?A) $28.50B) $30.00C) $36.00D) $43.50Answer: BExplanation: B) $24.00 + $4.50 + $1.50 = $30.00Diff: 2Terms: variable costingObjective: 1AACSB: Analytical skills17) What is the inventoriable cost per unit using absorption costing?A) $30.00B) $36.00C) $37.50D) $43.50Answer: CExplanation: C) $24.00 + $4.50 + $1.50 + ($750,000 / 100,000) = $37.50Diff: 2Terms: absorption costingObjective: 1AACSB: Analytical skills18) Which of the following inventory costing methods shown below is required by GAAP (Generally Accepted Accounting Principles) for external financial reporting?A) absorption costingB) variable costingC) throughput costingD) direct costingAnswer: ADiff: 2Terms: absorption costingObjective: 1AACSB: Reflective thinking19) The two most common methods of costing inventories in manufacturing companies are variable costing and absorption costing.Answer: TRUEDiff: 1Terms: absorption costing, variable costingObjective: 1AACSB: Reflective thinking20) Absorption costing "absorbs" only fixed manufacturing costs.Answer: FALSEExplanation: Absorption costing "absorbs" all manufacturing costs, both fixed and variable.Diff: 1Terms: absorption costingObjective: 1AACSB: Reflective thinking21) Variable costing includes all variable costs both manufacturing and nonmanufacturing in inventory.Answer: FALSEExplanation: Variable costing includes only manufacturing variable costs in inventory.Diff: 1Terms: variable costingObjective: 1AACSB: Reflective thinking22) Under both variable and absorption costing, all variable manufacturing costs are inventoriable costs. Answer: TRUEDiff: 1Terms: variable costing, absorption costingObjective: 1AACSB: Reflective thinking23) The main difference between variable costing and absorption costing is the way in which fixed manufacturing costs are accounted for.Answer: TRUEDiff: 1Terms: absorption costing, variable costingObjective: 1AACSB: Reflective thinking24) Under absorption costing, all variable manufacturing costs and all fixed manufacturing costs are included as inventoriable costs.Answer: TRUEDiff: 1Terms: absorption costingObjective: 1AACSB: Reflective thinking25) For 2011, Nichols, Inc., had sales of 150,000 units and production of 200,000 units. Other information for the year included:Direct manufacturing labor $187,500Variable manufacturing overhead 100,000Direct materials 150,000Variable selling expenses 100,000Fixed administrative expenses 100,000Fixed manufacturing overhead 200,000There was no beginning inventory.Required:a. Compute the ending finished goods inventory under both absorption and variable costing.b. Compute the cost of goods sold under both absorption and variable costing.Answer:a. Absorption VariableDirect materials $150,000 $150,000Direct manufacturing labor 187,500 187,500Variable manufacturing overhead 100,000 100,000Fixed manufacturing overhead 200,000 0Total $637,500 $437,500Unit costs:$637,500/200,000 units $3.1875$437,500/200,000 units $2.1875Ending inventory:50,000 units × $3.1875 $159,37550,000 units × $2.1875 $109,375b. Cost of goods sold:150,000 × $3.1875 $478,125150,000 × $2.1875 $328,125Diff: 2Terms: variable costing, absorption costingObjective: 1AACSB: Analytical skills26) Charlassier Corporation manufactures and sells laptop computers and uses standard costing. For the month of September there was no beginning inventory, there were 3,000 units produced and 2,500 units sold. The manufacturing variable cost per unit is $385 and the variable operating cost per unit was $312.50. The fixed manufacturing cost is $450,000 and the fixed operating cost is $75,000. The selling price per unit is $925.Required:Prepare the income statement for Charlassier Corporation for September under variable costing. Answer:Revenues (2,500 × $925) $2,312,500Variable costsBeginning inventory $ 0Variable manufacturing costs (3,000 × $385) 1,155,000Cost of goods available 1,155,000Deduct ending inventory ( 500 × $385) (192,500)Variable cost of goods sold 962,500Variable operating costs (2,500 × $312.50) 781,250Total variable costs 1,743,750 Contribution margin 568,750Fixed costsFixed manufacturing costs 450,000Fixed operating costs 75,000Total fixed costs 525,000Operating income $ 43,750Diff: 2Terms: variable costingObjective: 1AACSB: Analytical skills27) a. Explain the difference between the variable and absorption costing methods.b. Which method(s) are required for external reporting? For internal reporting?Answer:a. Absorption costing includes both fixed and variable manufacturing costs as inventoriable costs, whereas variable costing only includes variable manufacturing costs as inventoriable costs.b. Absorption costing is required for external reporting to shareholders and for income tax reporting. A company may use whichever method it chooses for internal reporting purposes.Diff: 2Terms: variable costing, absorption costingObjective: 1AACSB: Analytical skillsObjective 9.21) The contribution-margin format of the income statement:A) is used with absorption costingB) calculates gross marginC) distinguishes between manufacturing and nonmanufacturing costsD) is used with variable costingAnswer: DDiff: 2Terms: variable costingObjective: 2AACSB: Reflective thinking2) The gross-margin format of the income statement:A) is used with variable costingB) is used with absorption costingC) calculates contribution marginD) distinguishes variable costs from fixed costsAnswer: BDiff: 2Terms: absorption costingObjective: 2AACSB: Reflective thinking3) The contribution-margin format of the income statement:A) is used with absorption costingB) highlights the lump sum of fixed manufacturing costsC) distinguishes manufacturing costs from nonmanufacturing costsD) calculates gross marginAnswer: BDiff: 3Terms: variable costingObjective: 2AACSB: Reflective thinking4) The gross-margin format of the income statement:A) distinguishes between manufacturing and nonmanufacturing costsB) distinguishes variable costs from fixed costsC) is used with variable costingD) calculates contribution marginAnswer: ADiff: 3Terms: absorption costingObjective: 2AACSB: Reflective thinking5) ________ are subtracted from sales to calculate contribution margin.A) Variable manufacturing costsB) Variable selling and administrative costsC) Fixed manufacturing costsD) Both A and B are correct.Answer: DDiff: 2Terms: variable costingObjective: 2AACSB: Reflective thinking6) ________ are subtracted from sales to calculate gross margin.A) Variable manufacturing costsB) Variable selling and administrative costsC) Fixed manufacturing costsD) Both A and C are correct.Answer: DDiff: 2Terms: absorption costingObjective: 2AACSB: Reflective thinkingAnswer the following questions using the information below:Peggy's Pillows produces and sells a decorative pillow for $75.00 per unit. In the first month of operation, 2,000 units were produced and 1,750 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes:Variable manufacturing costs $20.00 per unitVariable marketing costs $ 3.00 per unitFixed manufacturing costs $ 7.00 per unitAdministrative expenses, all fixed $15.00 per unitEnding inventories:Direct materials -0-WIP -0-Finished goods 250 units7) What is cost of goods sold per unit using variable costing?A) $20B) $23C) $30D) $45Answer: AExplanation: A) $20, only variable manufacturing costs are included when using variable costing. Diff: 1Terms: variable costingObjective: 2AACSB: Analytical skills8) What is cost of goods sold using variable costing?A) $35,000B) $40,000C) $47,250D) $54,000Answer: AExplanation: A) $20 × 1,750 units = $35,000Diff: 2Terms: variable costingObjective: 2AACSB: Analytical skills9) What is contribution margin using variable costing?A) $96,250B) $91,000C) $104,000D) $110,000Answer: BExplanation: B) ($75 × 1,750) - [($20 + $3) × 1,750 units] = $91,000Diff: 3Terms: variable costingObjective: 2AACSB: Analytical skills10) What is operating income using variable costing?A) $52,500B) $78,750C) $65,750D) $47,000Answer: DExplanation: D) Contribution margin of $91,000 - [($7 + $15) × 2,000 units] = $47,000 Diff: 3Terms: variable costingObjective: 2AACSB: Analytical skillsAnswer the following questions using the information below:Barry's Hobbies produces and sells a luxury animal pillow for $80.00 per unit. In the first month of operation, 3,000 units were produced and 2,250 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes:Variable manufacturing costs $38 per unitVariable marketing costs $ 2 per unitFixed manufacturing costs $60,000 per monthAdministrative expenses, all fixed $12,000 per monthEnding inventories:Direct materials -0-WIP -0-Finished goods 750 units11) What is cost of goods sold per unit when using absorption costing?A) $38B) $40C) $58D) $64Answer: CExplanation: C) $38 + ($60,000 / 3,000 units) = $58Diff: 2Terms: absorption costingObjective: 2AACSB: Analytical skills12) What is gross margin when using absorption costing?A) $95,000B) $109,500C) $154,500D) $49,500Answer: DExplanation: D) [$80 - $38 - ($60,000/3,000)] × 2,250 units = $49,500Diff: 2Terms: absorption costingObjective: 2AACSB: Analytical skills13) What is operating income when using absorption costing?A) $8,000B) $33,000C) ($23,500)D) $37,500Answer: BExplanation: B) [$80 - $38 - ($60,000/3,000)] × 2,250 units = gross margin - ($2 × 2,250) - $12,000 = $33,000Diff: 3Terms: absorption costingObjective: 2AACSB: Analytical skills14) An favorable production-volume variance occurs when:A) the denominator level exceeds productionB) production exceeds the denominator levelC) production exceeds unit salesD) unit sales exceed productionAnswer: BDiff: 2Terms: practical capacityObjective: 2AACSB: Reflective thinking15) If the unit level of inventory increases during an accounting period, then:A) less operating income will be reported under absorption costing than variable costingB) more operating income will be reported under absorption costing than variable costingC) operating income will be the same under absorption costing and variable costingD) the exact effect on operating income cannot be determinedAnswer: BDiff: 2Terms: absorption costingObjective: 2AACSB: Reflective thinking16) The difference between operating incomes under variable costing and absorption costing centers on how to account for:A) direct materials costsB) fixed manufacturing costsC) variable manufacturing costsD) Both B and C are correct.Answer: BDiff: 2Terms: variable costing, absorption costingObjective: 2AACSB: Reflective thinking17) One possible means of determining the difference between operating incomes for absorption costing and variable costing is by:A) subtracting sales of the previous period from sales of this periodB) subtracting fixed manufacturing overhead in beginning inventory from fixed manufacturing overhead in ending inventoryC) multiplying the number of units produced by the budgeted fixed manufacturing cost rateD) adding fixed manufacturing costs to the production-volume varianceAnswer: BDiff: 3Terms: variable costing, absorption costingObjective: 2AACSB: Reflective thinking18) When comparing the operating incomes between absorption costing and variable costing, and ending finished inventory exceeds beginning finished inventory, it may be assumed that:A) sales decreased during the periodB) variable cost per unit is more than fixed cost per unitC) there is a favorable production-volume varianceD) absorption costing operating income exceeds variable costing operating incomeAnswer: DDiff: 3Terms: variable costing, absorption costingObjective: 2AACSB: Reflective thinking19) Which of the following statements is FALSE?A) Absorption costing allocates fixed manufacturing overhead to actual units produced during the period.B) Nonmanufacturing costs are expensed in the future under variable costing.C) Fixed manufacturing costs in ending inventory are expensed in the future under absorption costing.D) Operating income under absorption costing is higher than operating income under variable costing when production units exceed sales units.Answer: BDiff: 3Terms: variable costingObjective: 2AACSB: Reflective thinking20) Heston Company has the following information for the current year:Beginning fixed manufacturing overhead in inventory $190,000Fixed manufacturing overhead in production 750,000Ending fixed manufacturing overhead in inventory 50,000Beginning variable manufacturing overhead in inventory $20,000Variable manufacturing overhead in production 100,000Ending variable manufacturing overhead in inventory 30,000What is the difference between operating incomes under absorption costing and variable costing?A) $140,000B) $100,000C) $80,000D) $10,000Answer: AExplanation: A) $190,000 - $50,000 = $140,000Diff: 3Terms: variable costing, absorption costingObjective: 2AACSB: Analytical skills21) The following information pertains to Brian Stone Corporation:Beginning fixed manufacturing overhead in inventory $60,000Ending fixed manufacturing overhead in inventory 45,000Beginning variable manufacturing overhead in inventory $30,000Ending variable manufacturing overhead in inventory 14,250Fixed selling and administrative costs $724,000Units produced 5,000 unitsUnits sold 4,800 unitsWhat is the difference between operating incomes under absorption costing and variable costing?A) $750B) $7,500C) $15,000D) $30,750Answer: CExplanation: C) $60,000 - $45,000 = $15,000Diff: 3Terms: variable costing, absorption costingObjective: 2AACSB: Analytical skillsAnswer the following questions using the information below:Stiller Corporation incurred fixed manufacturing costs of $12,000 during 2011. Other information for 2011 includes:The budgeted denominator level is 2,000 units.Units produced total 1,500 units.Units sold total 1,200 units.Beginning inventory was zero.The company uses absorption costing and the fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold.22) Fixed manufacturing costs expensed on the income statement (excluding adjustments for variances) total:A) $7,200B) $9,600C) $12,000D) 0Answer: AExplanation: A) $12,000 / 2,000 units = $6 × 1,200 = $7,200Diff: 3Terms: absorption costingObjective: 2AACSB: Analytical skills23) Fixed manufacturing costs included in ending inventory total:A) $2,400B) $3,000C) $1,800D) 0Answer: CExplanation: C) $12,000 / 2,000 units = $6 × 300 = $1,800Diff: 3Terms: absorption costingObjective: 2AACSB: Analytical skills24) The production-volume variance is:A) $4,000B) $3,000C) $4,800D) 0Answer: BExplanation: B) $12,000 / 2,000 units = $6 × 500 = $3,000Diff: 3Terms: absorption costingObjective: 2AACSB: Analytical skills25) Operating income using absorption costing will be ________ than operating income if using variable costing.A) $4,800 higherB) $4,800 lowerC) $1,800 higherD) $7,200 lowerAnswer: CExplanation: C) Different operating incomes are reported because the unit level of inve ntory increased during the accounting period by 300 units × $6 denominator rate = $1,800. Therefore, operating income is $1,800 higher under absorption costing because $1,800 of fixed manufacturing costs remains in inventory. Diff: 3Terms: absorption costingObjective: 2AACSB: Analytical skillsAnswer the following questions using the information below:Veach Corporation incurred fixed manufacturing costs of $6,000 during 2011. Other information for 2011 includes:The budgeted denominator level is 1,000 units.Units produced total 750 units.Units sold total 600 units.Beginning inventory was zero.The company uses variable costing and the fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold.26) Fixed manufacturing costs expensed on the income statement (excluding adjustments for variances) total:A) $3,600B) $4,800C) $6,000D) 0Answer: CExplanation: C) $6,000 of fixed manufacturing costs is expensed as a lump sum.Diff: 3Terms: variable costingObjective: 2AACSB: Analytical skills27) Fixed manufacturing costs included in ending inventory total:A) $1,200B) $1,500C) $900D) 0Answer: DExplanation: D) Under variable costing no fixed manufacturing costs are included in inventory, and all are expensed on the income statement as a lump sum.Diff: 3Terms: variable costingObjective: 2AACSB: Analytical skills28) The production-volume variance totals:A) $2,000B) $1,500C) $2,400D) 0Answer: DExplanation: D) Variable costing has no production-volume variance.Diff: 3Terms: variable costingObjective: 2AACSB: Analytical skills29) Operating income using variable costing will be ________ than operating income if using absorptio n costing.A) $2,400 higherB) $2,400 lowerC) $3,600 higherD) $900 lowerAnswer: DExplanation: D) Different operating incomes are reported because the unit level of inventory increased during the accounting period by 150 units × $6 denominator rate = $900. Therefore, operating income is $900 lower under variable costing because $900 of fixed manufacturing costs remains in inventory under absorption.Diff: 3Terms: variable costing, absorption costingObjective: 2AACSB: Analytical skillsAnswer the following questions using the information below:Tunney Corporation incurred fixed manufacturing costs of $7,200 during 2011. Other information for 2011 includes:The budgeted denominator level is 1,600 units.Units produced total 2,000 units.Units sold total 1,900 units.Beginning inventory was zero.The fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold.30) Under absorption costing, fixed manufacturing costs expensed on the income statement (excluding adjustments for variances) total:A) $8,550B) $9,000C) $7,200D) 0Answer: AExplanation: A) $7,200 / 1,600 units = $4,50 × 1,900 = $8,550Diff: 3Terms: absorption costingObjective: 2AACSB: Analytical skills31) Under absorption costing, the production-volume variance is:A) $450B) $1,350C) $1,800D) 0Answer: CExplanation: C) $7,200 / 1,600 units = $4.50 × 400 = $1,800Diff: 3Terms: absorption costingObjective: 2AACSB: Analytical skills32) Under variable costing, the fixed manufacturing costs expensed on the income statement (excluding adjustments for variances) total:A) $8,550B) $7,200C) $9,000D) 0Answer: BExplanation: B) $7,200 of fixed manufacturing costs is expensed as a lump sum.Diff: 2Terms: variable costingObjective: 2AACSB: Analytical skills33) Operating income using absorption costing will be ________ operating income if using variable costing.A) $450 higher thanB) $900 higher thanC) $1,350 lower thanD) the same asAnswer: AExplanation: A) Different operating incomes are reported because the unit level of inventory increased during the accounting period by 100 units × $4.50 denominator rate = $450. Therefore, operating income is $450 higher under absorption costing because $450 of fixed manufacturing costs remains in inventory under absorption costing.Diff: 3Terms: absorption costingObjective: 2AACSB: Analytical skills34) In general, if inventory increases during an accounting period,A) variable costing will report less operating income than absorption costing.B) absorption costing will report less operating income than variable costing.C) variable costing and absorption costing will report the same operating income.D) None of the above are correct.Answer: ADiff: 3Terms: absorption costingObjective: 2AACSB: Analytical skills35) At the end of the accounting period Bumsted Corporation reports operating income of $30,000. If Bumstead's inventory levels decrease during the accounting periodA) variable costing will report less operating income than absorption costing.B) absorption costing will report less operating income than variable costing.C) variable costing and absorption costing will report the same operating income.D) None of the above are correct.Answer: BDiff: 3Terms: variable costingObjective: 2AACSB: Analytical skills36) Given a constant contribution margin per unit and constant fixed costs, the period-to-period change in operating income under variable costing is driven solely by:A) changes in the quantity of units actually soldB) changes in the quantity of units producedC) changes in ending inventoryD) changes in sales price per unitAnswer: ADiff: 3Terms: variable costingObjective: 2AACSB: Reflective thinking。

FinancialAccounting7eLibbyTestbankch.1True / False Questions1. Accounting is a system that collects and processes financial information about an organization and reports that information to decision makers.TRUEAACSB Tag: CommunicationsDifficulty: EasyL.O.: 12. Assets on the balance sheet are recorded at market value or replacement cost.FALSEAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 13. In accounting and reporting for a business entity, the accounting and reporting for the business must be kept separate from other economic affairs of its owners.TRUEAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 14. The accounting period in which service revenue is recognized (i.e., revenue for services rendered) is generally the period in which the cash is collected.FALSEAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 15. Total assets are $70,000, total liabilities, $40,000 and contributed capital is $20,000; therefore, retained earnings are $15,000.FALSEAACSB Tag: AnalyticDifficulty: MediumL.O.: 16. The payment of a cash dividend to stockholders increases stockholders' equity.FALSEAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 17. The accounting model for the balance sheet is: Assets + Liabilities = Stockholders' Equity. FALSEAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 18. A decision maker who wants to understand a company's financial statements must carefully read the notes to the financial statements because the notes provide useful supplemental information.TRUEAACSB Tag: CommunicationsDifficulty: EasyL.O.: 19. The financial statement that shows an entity's economic resources and its liabilities is the statement of cash flows. FALSEAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 110. Companies prepare financial statements at the end of each year and more often as needed. TRUEAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 111. A note payable is a borrowing instrument that generally does not involve the payment of interest.FALSEAACSB Tag: Reflective ThinkingDifficulty: HardL.O.: 112. The amount of cash paid by a business for office utilities would be reported on the statement of cash flows as an operating activity.TRUEAACSB Tag: Reflective ThinkingDifficulty: HardL.O.: 113. The income statement equation is Expenses Revenues = Net Income.FALSEAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 114. Generally accepted accounting principles almost never change once created.FALSEAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 215. The Financial Accounting Standards Board (FASB) is an agency of the federal government that establishes generally accepted accounting principles for businesses. FALSEAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 216. Since 2002, there has been substantial movement to develop international financial reporting standards.TRUEAACSB Tag: DiversityDifficulty: MediumL.O.: 217. An audit guarantees that the financial statements are free of all misstatements.FALSEAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 318. An auditor who fails to detect a material misstatement of a business's financial statements may be sued by anyone who suffered a loss from relying on the financial statements. TRUEAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 419. In terms of economic importance, partnerships are the dominant form of organization in the U.S. because of their ease of formation.FALSEAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: Sup A20. One of the advantages of a corporation when compared to a partnership is the limited liability of the owners.TRUEAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: Sup AMultiple Choice Questions21. The primary purpose of the balance sheet is toA. measure the net income of a business up to a particular point in time.B. report the difference between cash inflows and cash outflows for the period.C. report the financial position of the reporting entity at a particular point in time.D. report the current value of the business.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 122. The Beta Corporation had 2009 revenues of $200,000, expenses of $140,000, and an income tax rate of 30 percent. Net income after taxes would beA. $60,000.B. $18,000.C. $42,000.D. $48,000.AACSB Tag: AnalyticDifficulty: HardL.O.: 123. Atlantic Corporation reported the following amounts at the end of the first year of operations: contributed capital $100,000; sales revenue $400,000; total assets $300,000; $20,000 dividends; and total liabilities $160,000. Retained earnings and total expenses would beA. retained earnings $40,000 and expenses $340,000.B. retained earnings $60,000 and expenses $320,000.C. retained earnings $140,000 and expenses $240,000.D. retained earnings $160,000 and expenses $220,000.AACSB Tag: AnalyticDifficulty: HardL.O.: 124. The financial statement that reports the financial position of a business is theA. income statement.B. balance sheet.C. statement of cash flows.D. footnotes to the financial statements.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 125. Which of the following reports the cash inflows, cash outflows, and change in cash for period?A. Income statement.B. Balance sheet.C. Statement of cash flows.D. Auditor's report.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 126. For a business, a supplierA. is a company or individual that owns shares of the business.B. is a company or individual to whom the business sells goods or services.C. provides goods and services used by the business.D. makes loans to the company to help finance its activities.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 127. For a business, an example of an internal decision maker isA. a loan officer at a bank.B. a supplier who sells goods to the company on account.C. one of the business's long-term customers.D. one of the business's managers.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 128. Financial accountingA. provides information primarily for external decision makers.B. is required for corporations but probably would not be done by other business entities.C. provides information primarily for the use of managers of the company.D. has been practiced in this country for approximately the last 15 years.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 129. Accounting information developed primarily for internal decision makers is calledA. management accounting.B. risk accounting.C. auditing.D. financial accounting.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 130. What financial statement would you look at to determine the dividends declared by a business?A. income statement.B. statement of retained earnings.C. statement of cash flows.D. balance sheet.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 131. Which of Chao's financial statements would you look at to determine whether Chao will be able to pay for the goods when payment is due in 30 days?A. income statement.B. balance sheet.C. statement of retained earnings.D. statement of cash flows.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 132. Which of the following is not considered to be a liability?A. accounts payableB. notes payableC. wages payableD. cost of goods soldAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 133. A business's assets areA. equal to liabilities minus stockholders' equity.B. the economic resources of the business.C. Reported at current cost.D. Reported on the income statement.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 134. Assets for a particular business might includeA. cash, accounts payable, and notes payable.B. cash, retained earnings, and accounts receivable.C. cash, accounts receivable, and inventory.D. inventories, property and equipment, and contributed capital.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 135. A business's balance sheet cannot be used to accurately predict what the business might be sold for becauseA. it identifies all the revenues and expenses of the business.B. assets are generally listed on the balance sheet at their historical cost, not their current value.C. it gives the results of operations for the current period.D. some of the assets and liabilities on the balance sheet may actually be those of another entity.AACSB Tag: Reflective ThinkingDifficulty: HardL.O.: 136. Liabilities and stockholders' equity areA. sources of financing for economic resources.B. economic resources used by a business entity.C. increases in assets resulting from profitable operations.D. shown on the income statement in calculating net income.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 137. The accounting equation (balance sheet equation) isA. Assets + Liabilities = Stockholders' equity.B. Assets + Stockholder's equity = Liabilities.C. Assets = Liabilities + Stockholders' equity.D. Revenues Expenses = Net income.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 138. Downard Bank, in deciding whether to make a loan to Rodney Company, would be interested in the amount of liabilities Rodney has on its balance sheet becauseA. the liabilities represent resources that could be used to repay the loan.B. if Rodney already has many other obligations, it might not be able to repay the loan.C. existing liabilities give an indication of how profitable Rodney has been in the past.D. Downard would be interested in the amount of Rodney's assets but not the amount of liabilities.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 139. The two categories of stockholders' equity usually found on the balance sheet of a corporation areA. contributed capital and long-term liabilities.B. contributed capital and property, plant, and equipment.C. retained earnings and notes payable.D. contributed capital and retained earnings.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 140. Which financial statement for a business would you look at to determine the company's earnings performance during an accounting period?A. balance sheet.B. statement of retained earnings.C. income statement.D. statement of cash flows.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 141. The income statement equation isA. Assets Liabilities = Stockholders' Equity.B. Assets + Stockholders' equity = Liabilities.C. Net income = Revenues Expenses.D. Expenses Net income = Revenues.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 142. Most businesses earn revenuesA. when they collect accounts receivable.B. through sales of goods or services to customers.C. by borrowing money from a bank.D. by selling shares of stock to stockholders.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 143. Accounts receivable represents:A. amounts which are owed to the company by its customers resulting from credit sales.B. amounts which are owed by the company to its suppliers for past purchases.C. amounts which have been borrowed to finance operations.D. amounts which are due to stockholders.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 144. InventoriesA. are an asset.B. result from paying for a product that has now been sold to a customer.C. will result in a liability being charged sometime in the future.D. are an expense.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 145. The amount of revenue recognized in the income statement by a company that sells goods to customers would beA. the cash collected from customers during the current period.B. total sales, both cash and credit sales, for the period.C. total sales minus beginning amount of accounts receivable.D. the amount of cash collected plus the beginning amount of accounts receivable.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 146. On January 1, 2009 Mammoth Corporation had retained earnings of $4,000,000. During 2009, they reported net income of $750,000 and dividends of $100,000. What is the amount of Mammoth's retained earnings at the end of 2009?A. $4,000,000B. $4,450,000C. $4,650,000D. $4,850,000AACSB Tag: AnalyticDifficulty: MediumL.O.: 147. What are the categories of cash flows that appear on a statement of cash flows?A. cash flows from investing, financing, and service activitiesB. cash flows from operating, production, and internal activitiesC. cash flows from financing, production, and growth activitiesD. cash flows from operating, investing, and financing activitiesAACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 148. On the statement of cash flows, an amount paid for utilities would be classified asA. an operating activity.B. an investing activity.C. a financing activity.D. a production activity.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 149. A company would report a net loss whenA. retained earnings decreased due to paying dividends to stockholders.B. its assets decreased during an accounting period.C. its liabilities increased during an accounting period.D. its expenses exceeded its revenues for an accounting period.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 150. The amount of insurance expense reported on the income statement isA. the amount of cash paid for insurance in the current period.B. the amount of cash paid for insurance in the current period less any unpaid insurance at the end of the period.C. the amount of insurance used up (incurred) in the current period to help generate revenue.D. an increase in net income.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 151. What events cause changes in a corporation's retained earnings?A. Net income or net loss and declaration of dividends.B. Declaration of dividends and issuance of stock to new stockholders.C. Net income, issuance of stock, and borrowing from a bank.D. Declaration of dividends and purchase of new machinery.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 152. The operating activities section is often believed to be the most important part of a statement of cash flows becauseA. it gives the most information about how operations have been financed.B. it shows the dividends that have been paid to stockholders.C. it indicates a company's ability to generate cash from sales to meet current cash payments for goods or services.D. it shows the net increase or decrease in cash during the period.AACSB Tag: Reflective ThinkingDifficulty: HardL.O.: 153. If you wanted to know what accounting rules a company follows related to its inventory, where would you look?A. the balance sheetB. the income statementC. the notes to the financial statementsD. the headings to the financial statementsAACSB Tag: CommunicationsDifficulty: EasyL.O.: 154. At the beginning of 2009, Buck Corporation had assets of $540,000 and liabilities of $320,000. During the year, assets increased by $50,000 and liabilities decreased by $10,000. What was the total amount of stockholders' equity at the end of 2009?A. $220,000B. $280,000C. $380,000D. $500,000AACSB Tag: AnalyticDifficulty: MediumL.O.: 155. The term used for economic resources owned by an entity as a result of past transactions isA. assets.B. liabilities.C. revenues.D. retained earnings.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 156. How are the differing claims of creditors and investors recognized by a corporation?A. The claims of creditors are liabilities; those of investors are assets.B. The claims of both creditors and investors are liabilities, but only the claims of investors are considered to be long term.C. The claims of creditors are liabilities; the claims of investors are recorded as stockholders' equity.D. The claims of creditors and investors are considered to be essentially equivalent.AACSB Tag: Reflective ThinkingDifficulty: EasyL.O.: 157. In what order would the items on the balance sheet appear?A. assets, retained earnings, liabilities, contributed capitalB. contributed capital, retained earnings, liabilities, assetsC. assets, liabilities, contributed capital, retained earningsD. contributed capital, assets, liabilities, retained earningsAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 158. Which of the following would increase retained earnings?A. an increase to an expenseB. an increase to a revenueC. a cash dividendD. issuance of additional common stockAACSB Tag: Reflective ThinkingDifficulty: HardL.O.: 159. The ending retained earnings balance of Juan's Mexican Restaurant chain increased by $3.2 million from the beginning of the year. The company had declared a dividend of $1.3 million during the year. What was the net income earned during the year?A. $1.9 millionB. $3.2 millionC. $4.5 billionD. There is not enough information given to determine net income.AACSB Tag: AnalyticDifficulty: HardL.O.: 160. Which of the following items is an expense?A. Accounts PayableB. Cost of Goods SoldC. Accounts ReceivableD. Sales RevenueAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 161. Which of the following activities would cause investors to overpay for the acquisition of a company from its current owners?A. Overstated accounts payable and understated inventoryB. Understated revenues and overstated expensesC. Understated assets and overstated expensesD. Overstated accounts payable and overstated inventoryAACSB Tag: Reflective ThinkingDifficulty: HardL.O.: 162. The government regulatory agency that has the legal authority to prescribe financial reporting requirements for corporations that sell their securities to the public is theA. FASB.B. FTC.C. SEC.D. APB.AACSB Tag: CommunicationsDifficulty: EasyL.O.: 263. The part of the federal government that has broad powers to determine measurement rules for financial statements of public companies isA. the Internal Revenue Service.B. the Securities and Exchange Commission.C. the General Accounting Office.D. the Supreme Court.AACSB Tag: CommunicationsDifficulty: EasyL.O.: 264. Identify the potential economic consequences of the public learning a company did not follow generally accepted accounting principles (GAAP).A. It could increase the stock price of the company.B. It could increase management and employee bonuses.C. It could result in legal liability for the company.D. It could increase a company's market share.AACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 265. The nature of generally accepted accounting principles (GAAP) is important to large corporations becauseA. a change in GAAP will not likely affect the selling price of the company's stock.B. a change in GAAP will not likely affect the amount of bonuses paid to managers and employees.C. a change in GAAP will not likely affect a corporation's competitive position.D. a change in GAAP will likely affect a company's financial statementsAACSB Tag: Reflective ThinkingDifficulty: MediumL.O.: 2。

CHAPTER 2CONCEPTUAL FRAMEWORK UNDERLYINGFINANCIAL ACCOUNTINGCHAPTER LEARNING OBJECTIVES1. Describe the usefulness of a conceptual framework.2. Describe efforts to construct a conceptual framework.3. Understand the objective of financial reporting.4. Identify the qualitative characteristics of accounting information.5. Define the basic elements of financial statements.6. Describe the basic assumptions of accounting.7. Explain the application of the basic principles of accounting.8. Describe the impact that constraints have on reporting accounting information.Test Bank for Intermediate Accounting: IFRS Edition2 - 2TRUE-FALSE—Conceptual1. The conceptual framework for accounting has been discovered through empirical research.2. A conceptual framework is a coherent system of interrelated objectives and fundamentalsthat can lead to consistent standards.3. The International Accounting Standards Board (IASB) uses a conceptual framework basedon individual concepts developed by each member of the standard-setting body.4. A soundly developed conceptual framework enables the International Accounting StandardsBoard (IASB) to issue more useful and consistent pronouncements over time.5. A soundly developed conceptual framework enables the International Accounting StandardsBoard (IASB) to quickly solve new and emerging practical problems by referencing basic theory.6. The IASB has issued a conceptual framework that is broadly consistent with that of theUnited States.7. The International Accounting Standards Board’s (IASB’s) Conceptual Framework includessupplementary information.8. The International Accounting Standards Board’s (IASB’s) Conceptual Framework includesthe elements of financial statements.9. The 2nd level of the IASB’s conceptual framework provides the qualitative characteristicsthat make accounting information useful and the elements of financial statements.10. One of the challenges in developing a common conceptual framework will be to agree onhow the framework should be organized since the FASB and IASB conceptual frameworks are organized in very different ways.11. The first level of the conceptual framework identifies the recognition and measurementconcepts used in establishing accounting standards.12. Decision usefulness is the underlying theme of the conceptual framework.13. Users of financial statements are assumed to have no knowledge of business and financialaccounting matters by financial statement preparers.14. The foundation of the International Accounting Standards Board’s (IASB’s) ConceptualFramework is found on the third level of the Framework and includes assumptions, principles, and constraints.15. An implicit assumption of the International Accounting Standards Board’s (IASB’s)Conceptual Framework is that users need to be experts in business and financial accounting matters to understand the information contained in financial statements.16. Relevance and reliability are the two primary qualities that make accounting informationuseful for decision making.Conceptual Framework Underlying Financial Accounting 2 - 3 17. The idea of consistency does not mean that companies cannot switch from one accountingmethod to another.18. Timeliness and neutrality are two ingredients of relevance.19. Verifiability and predictive value are two ingredients of reliability.20. The second level of the International Accounting Standards Board’s (IASB’s) ConceptualFramework serves as a bridge between the “why” of accounting and the “how” of accounting.21. In the International Accounting Standards Board’s (IASB’s) Conceptual Framew ork,qualitative characteristics are considered either relevant or prudent.22. In the International Accounting Standards Board’s (IASB’s) Conceptual Framework,qualitative characteristics distinguish better information from inferior information for decision-making purposes.23. In the International Accounting Standards Board’s (IASB’s) Conceptual Framework, anenhancing qualitative characteristic is predictive value.24. In the International Accounting Standards Board’s (IASB’s) Conceptual Framework,aningredient of a fundamental qualitative characteristic is understandability.25. To be a faithful representation as described by the International Accounting StandardsBoard’s (IASB’s) Conceptual Framework, information must be confirmatory.26. An enhancing quality as described by the International Accounting Standards Board’s(IASB’s) Conceptual Framework is comparability.27. Moon, Inc. applies different accounting treatments to similar events from period to period.Moon, Inc. is violating verifiability as described by the International Accounting Standards Board’s (IASB’s) Conceptual Framework.28. The International Accounting Standards Board’s (IASB) definition of retained earnings is“the residual interest in the assets of the entity after deducting all its liabilities.”29. The historical cost principle would be of limited usefulness if not for the going concernassumption.30. The economic entity assumption means that economic activity can be identified with aparticular legal entity.31. Materiality is one of the basic assumptions of accounting used by the InternationalAccounting Standards Board (IASB).32. Periodicity is one of the basic assumptions of accounting used by the InternationalAccounting Standards Board (IASB).33. Timeliness is one of the basic assumptions of accounting used by the InternationalAccounting Standards Board (IASB).Test Bank for Intermediate Accounting: IFRS Edition2 - 434. The periodicity basic assumptions of accounting (used by the International AccountingStandards Board) makes depreciation and amortization policies justifiable and appropriate.35. The IASB conceptual framework specifically identifies accrual basis accounting as one of itsfundamental assumptions.36. One of two assumptions made by the IASB conceptual framework is that the reporting entityis a going concern.37. The expense recognition principle states that debits must equal credits in each transaction.38. Revenues are realizable when assets received or held are readily convertible into cash orclaims to cash.39. Supplementary information may include details or amounts that present a differentperspective from that adopted in the financial statements.40. Companies consider only quantitative factors in determining whether an item is material.41. The International Accounting Standards Board has given companies the option of using fairvalue to report financial liabilities.42. Under International Financial Reporting Standards (IFRS) product costs are charged off inthe immediate period and period costs may be carried into future periods.43. Under International Financial Reporting Standards (IFRS) notes to the financial statementsmust qualify as an element.44. Under International Financial Reporting Standards (IFRS) supplementary information maybe information that is high in relevance but low in reliability.45. The cost-benefit constraint included in the International Accounting Standards Board’sconceptual framework states that financial information should be free from cost to users of the information.46. Th e International Accounting Standards Board’s (IASB) rule for materiality is any item under5% of net income is considered immaterial.47. The International Accounting Standards Board’s (IASB) conceptual framework includes theconcept of prudence or conservatism which means when in doubt, choose the solution that will be least likely to overstate assets or income and/or understate liabilities or expenses.48. Under International Financial Reporting Standards (IFRS) companies must consider bothquantitative and qualitative factors in determining whether an item is material.49. Under International Financial Reporting Standards (IFRS) companies need not reportimmaterial items within the body of the financial statements, but must disclose them in the notes or supplementary information that accompany the financial statements.50. The conceptual framework underlying U.S. GAAP is similar to that underlying IFRS.Conceptual Framework Underlying Financial Accounting 2 - 5MULTIPLE CHOICE—Conceptual51. A soundly developed conceptual framework of concepts and objectives shoulda. increase financial statement users' understanding of and confidence in financialreporting.b. enhance comparability among companies' financial statements.c. allow new and emerging practical problems to be more quickly solved.d. all of these.52. Which of the following (a-c) are not true concerning a conceptual framework in account-ing?a. It should be a basis for standard-setting.b. It should allow practical problems to be solved more quickly by reference to it.c. It should be based on fundamental truths that are derived from the laws of nature.d. All of the above (a-c) are true.53. What is a purpose of having a conceptual framework?a. To enable the profession to more quickly solve emerging practical problems.b. To provide a foundation from which to build more useful standards.c. Neither a nor b.d. Both a and b.S54. Which of the following is not a benefit associated with the FASB Conceptual Framework Project?a. A conceptual framework should increase financial statement users' understanding ofand confidence in financial reporting.b. Practical problems should be more quickly solvable by reference to an existingconceptual framework.c. A coherent set of accounting standards and rules should result.d. Business entities will need far less assistance from accountants because the financialreporting process will be quite easy to apply.Test Bank for Intermediate Accounting: IFRS Edition2 - 655. A soundly developed conceptual framework enables the International AccountingStandards Board (IASB) toI. Issue more useful and consistent pronouncements over time.II. More quickly solve new and emerging practical problems by referencing basic theory.a. I only.b. II only.c. Both I and II.d. Neither I nor II.56. In the conceptual framework for financial reporting, what provides "the why"--the goalsand purposes of accounting?a. Measurement and recognition concepts such as assumptions, principles, andconstraintsb. Qualitative characteristics of accounting informationc. Elements of financial statementsd. Objective of financial reporting57. The underlying theme of the conceptual framework isa. decision usefulness.b. understandability.c. reliability.d. comparability.58. What is the objective of financial reporting as indicated in the conceptual framework?a. provide information that is useful to those making investing and credit decisions.b. provide information that is useful to management.c. provide information about those investing in the entity.d. All of the above.59. The International Accounting Standards Board’s (IASB’s) Conceptual Framework includesall of the following except:a. Objective of financial reporting.b. Supplementary informationc. Elements of financial statements.d. Qualitative characteristics of accounting information.60. The second level in the International Accounting Standards Board’s (IASB’s) ConceptualFrameworka. Identifies the objective of financial reporting.b. Identifies recognition, measurement, and disclosure concepts used in establishing andapplying accounting standards.c. Provides the elements of financial statements.d. Includes assumptions, principles, and constraints.Conceptual Framework Underlying Financial Accounting 2 - 7 61. The objective of financial reporting in the Internatio nal Accounting Standards Board’s(IASB’s) Conceptual Frameworka. Is the foundation for the Framework.b. Includes the qualitative characteristics that make accounting information useful.c. Is found on the third level of the Framework.d. All of the choices are correct regarding the objective of financial reporting.62. An implicit assumption of the International Accounting Standards Board’s (IASB’s)Conceptual Framework is thata. Information must be decision-useful to all potential users of financial reporting.b. General-purpose financial reporting is the primary source of information for users offinancial reporting.c. Users need reasonable knowledge of business and financial accounting matters tounderstand the information contained in financial statements.d. All of the choices are correct.63. The overriding criterion by which accounting information can be judged is that ofa. usefulness for decision making.b. freedom from bias.c. timeliness.d. comparability.64. Which of the following is a fundamental quality of useful accounting information?a. Comparability.b. Relevance.c. Consistency.d. Materiality.65. Which of the following is a fundamental quality of useful accounting information?a. Conservatism.b. Comparability.c. Faithful representation.d. Consistency.66. What is meant by comparability when discussing financial accounting information?a. Information has predictive or feedback value.b. Information is reasonably free from error.c. Information that is measured and reported in a similar fashion across companies.d. Information is timely.67. What is meant by consistency when discussing financial accounting information?a. Information that is measured and reported in a similar fashion across points in time.b. Information is timely.c. Information is measured similarly across the industry.d. Information is verifiable.Test Bank for Intermediate Accounting: IFRS Edition2 - 868. Which of the following is an ingredient of relevance?a. Completeness.b. Representational faithfulness.c. Neutrality.d. Predictive value.69. Which of the following is an ingredient of faithful representation?a. Predictive value.b. Timeliness.c. Neutrality.d. Feedback value.70. Changing the method of inventory valuation should be reported in the financial statementsunder what qualitative characteristic of accounting information?a. Understandability.b. Verifiability.c. Timeliness.d. Comparability.71. Company A issuing its annual financial reports within one month of the end of the year isan example of which enhancing quality of accounting information?a. Neutrality.b. Timeliness.c. Predictive value.d. Representational faithfulness.72. What is the quality of information that enables users to better forecast future operations?a. Reliability.b. Materiality.c. Comparability.d. Relevance.73. Which of the following ingredients of fundamental qualities is part of faithful representation?a. Neutrality.b. Productive value.c. Confirmatory value.d. Timeliness.74. Decision makers vary widely in the types of decisions they make, the methods of decisionmaking they employ, the information they already possess or can obtain from other sources, and their ability to process information. Consequently, for information to be useful there must be a linkage between these users and the decisions they make. This link isa. relevance.b. reliability.c. understandability.d. materiality.Conceptual Framework Underlying Financial Accounting 2 - 9 75. The two fundamental qualities that make accounting information useful for decisionmaking area. comparability and consistency.b. materiality and timeliness.c. relevance and faithful representation.d. reliability and comparability.76. Accounting information is considered to be relevant when ita. can be depended on to represent the economic conditions and events that it isintended to represent.b. is capable of making a difference in a decision.c. is understandable by reasonably informed users of accounting information.d. is verifiable and neutral.77. The quality of information that gives assurance that it is reasonably free of error and biasa. relevance.b. faithful representation.c. verifiability.d. neutrality.78. Financial information does not demonstrate consistency whena. firms in the same industry use different accounting methods to account for the sametype of transaction.b. a company changes its estimate of the salvage value of a fixed asset.c. a company fails to adjust its financial statements for changes in the value of themeasuring unit.d. none of these.79. When information about two different enterprises has been prepared and presented in asimilar manner, the information exhibits the characteristic ofa. relevance.b. reliability.c. consistency.d. none of these.80. The second level of the International Accounting Standards Board’s (IASB’s) ConceptualFrameworka. provides conceptual building blocks that explain the qualitative characteristics ofaccounting information.b. defines the elements of financial statements.c. serves as a bridge between the “why” of accounting and the “how” of accounting.d. all of the choices are correct.81. In the Intern ational Accounting Standards Board’s (IASB’s) Conceptual Framework,qualitative characteristicsa. Are considered either fundamental or enhancing.b. Contribute to the decision-usefulness of financial reporting information.c. Distinguish better information from inferior information for decision-making purposes.d. All of the choices are correct.Test Bank for Intermediate Accounting: IFRS Edition2 - 1082. In the International Accounting Standards Board’s (IASB’s) Conceptual Framework, anenhancing qualitative characteristic isa. Predictive value.b. Free from error.c. Timeliness.d. Confirmatory value.83. In the International Accounting Standards Board’s (IASB’s) Conceptual Framework, aningredient of a fundamental qualitative characteristic isa. Neutrality.b. Verifiability.c. Timeliness.d. Understandability.84. In the International A ccounting Standards Board’s (IASB’s) Conceptual Framework, afundamental qualitative characteristic isa. Materiality.b. Faithful representation.c. Decision usefulness.d. Neutrality.85. To be a faithful representation as described by the International Accounting StandardsBoard’s (IASB’s) Conceptual Framework, information must be all of the following except:a. Complete.b. Free from error.c. Confirmatory.d. Neutral.86. Enhancing qualities as described by the International Accounting Standards Board’s(IASB’s) Conceptua l Framework, include all of the following except:a. Comparability.b. Neutrality.c. Understandability.d. Verifiability.87. Erin Company applies the same accounting treatment to similar events from period toperiod. Erin Company is exhibiting which of the following qualities as described by the International Accounting Standards Board’s (IASB’s) Conceptual Framework?a. Verifiability.b. Consistency.c. Predictive value.d. All of the choices are correct.S88. According to the IASB Conceptual Framework, the elements−assets, liabilities, and equity−describe amounts of resources and claims to resources at/during aMoment in Time Period of Timea. Yes Nob. Yes Yesc. No Yesd. No No89. Which of the following is not a basic element of financial statements?a. Assets.b. Statement of financial position.c. Equity.d. Income.90. Which of the following basic elements of financial statements is not associated with thestatement of financial position?a. Income.b. Equity.c. Liability.d. Asset.91. Issuance of common stock for cash affects which basic element of financial statements?a. Revenues.b. Losses.c. Liabilities.d. Equity.92. The International Accounting Standards Board (IASB) defines five interrelated elements offinancial statements. Which of the following is not one of those elements?a. Asset.b. Income.c. Equity.d. All of the choices are elements defined by the IASB.93. The International Accounting Standards Board (IASB) defines one of the 5 elements asfollows: “the residual interest in the assets of the entity after deducting all its liabilities”Which element matches this description?a. Retained earnings.b. Income.c. Equity.d. All of the choices match this definition.94. Which of the following is not a basic assumption underlying the financial accountingstructure?a. Economic entity assumption.b. Going concern assumption.c. Periodicity assumption.d. Historical cost assumption.95. Which basic assumption is illustrated when a firm reports financial results on an annualbasis?a. Economic entity assumption.b. Going concern assumption.c. Periodicity assumption.d. Monetary unit assumption.96. Which basic assumption may not be followed when a firm in bankruptcy reports financialresults?a. Economic entity assumption.b. Going concern assumption.c. Periodicity assumption.d. Monetary unit assumption.97. Which accounting assumption or principle is being violated if a company provides financialreports in connection with a new product introduction?a. Economic entity.b. Periodicity.c. Revenue recognition.d. Full disclosure.S98. Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the economy?a. Monetary unit assumption.b. Periodicity assumption.c. Going-concern assumption.d. Economic entity assumption.S99. During the lifetime of an entity accountants produce financial statements at artificial points in time in accordance with the concept ofObjectivity Periodicitya. No Nob. Yes Noc. No Yesd. Yes Yes100. Under current IFRS, inflation is ignored in accounting due to thea. economic entity assumption.b. going concern assumption.c. monetary unit assumption.d. periodicity assumption.101. The economic entity assumptiona. is inapplicable to unincorporated businesses.b. recognizes the legal aspects of business organizations.c. requires periodic income measurement.d. is applicable to all forms of business organizations.102. Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an example of thea. economic entity assumption.b. relevance characteristic.c. comparability characteristic.d. neutrality characteristic.103. During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in accordance with which basic accounting concept?a. Cost/benefit constraintb. Periodicity assumptionc. Materiality constraintd. Expense recognition principle104. The assumption that a business enterprise will not be sold or liquidated in the near future is known as thea. economic entity assumption.b. monetary unit assumption.c. materiality assumption.d. none of these.105. Which of the following is an implication of the going concern assumption?a. The historical cost principle is credible.b. Depreciation and amortization policies are justifiable and appropriate.c. The current-noncurrent classification of assets and liabilities is justifiable and signify-cant.d. All of these.106. The basic assumptions of accounting used by the International Accounting Standards Board (IASB) include all of the following except:a. Going concern.b. Periodicity.c. Accrual basis.d. Materiality.107. The basic assumptions of accounting used by the International Accounting Standards Board (IASB) includea. Neutrality.b. Periodicity.c. Understandability.d. Materiality.108. The basic assumptions of accounting used by the International Accounting Standards Board (IASB) includea. Monetary unit.b. Decision usefulnessc. Timeliness.d. All of the choices are basic assumptions of accounting.109. Which of the following basic assumptions of accounting (used by the International Accounting Standards Board) makes depreciation and amortization policies justifiable and appropriate?a. Periodicity.b. Decision usefulnessc. Monetary unit.d. Going concern.110. Proponents of historical cost ordinarily maintain that in comparison with all other valuation alternatives for general purpose financial reporting, statements prepared using historical costs are morea. verifiable.b. relevant.c. indicative of the entity's purchasing power.d. conservative.111. Valuing assets at their liquidation values rather than their cost is inconsistent with thea. periodicity assumption.b. matching principle.c. materiality constraint.d. historical cost principle.112. Revenue is generally recognized when a sale occurs. This statement describes thea. consistency characteristic.b. matching principle.c. revenue recognition principle.d. relevance characteristic.113. Generally, revenue from sales should be recognized at a point whena. management decides it is appropriate to do so.b. the product is available for sale to the ultimate consumer.c. the entire amount receivable has been collected from the customer and there remainsno further warranty liability.d. none of these.114. Revenue generally should be recognizeda. at the end of production.b. at the time of cash collection.c. when realized.d. when a sale occurs.115. Which of the following is not a time when revenue may be recognized?a. At time of saleb. At receipt of cashc. During productiond. All of these are possible times of revenue recognition.116. The Allowance for Doubtful Accounts, which appears as a deduction from Accounts Receivable on a statement of financial position and which is based on an estimate of bad debts, is an application of thea. consistency characteristic.b. expense recognition principle.c. materiality constraint.d. revenue recognition principle.117. The accounting principle of expense recognition is best demonstrated bya. not recognizing any expense unless some revenue is realized.b. associating effort (expense) with accomplishment (revenue).c. recognizing prepaid rent received as revenue.d. establishing an Appropriation for Contingencies account.118. Application of the full disclosure principlea. is theoretically desirable but not practical because the costs of complete disclosureexceed the benefits.b. is violated when important financial information is buried in the notes to the financialstatements.c. is demonstrated by the use of supplementary information presenting the effects ofchanging prices.d. requires that the financial statements be consistent and comparable.119. Which of the following is an argument against using historical cost in accounting?a. Fair values are more relevant.b. Historical costs are based on an exchange transaction.c. Historical costs are reliable.d. Fair values are subjective.120. When is revenue generally recognized?a. When cash is received.b. When the warranty expires.c. When production is completed.d. When the sale occurs.121. Which of the following are the two components of the revenue recognition principle?a. Cash is received and the amount is material.b. It is probable that future economic benefits will flow to the company and it is possibleto reliably measure the amount.c. Production is complete and there is an active market for the product.d. Cash is realized or realizable and production is complete.122. Which of the following practices may not be an acceptable deviation from recognizing revenue at the point of sale?a. Upon receipt of cash.b. During production.c. Upon receipt of order.d. End of production.。