Accounting Final

Consistency demands that a cost that is relevant in one decision be regarded as relevant in other decisions as well.

False

Future costs that do not differ between the alternatives in a decision are avoidable costs.

False

In the statement of cash flows, collecting cash from customers is treated as a cash inflow in the financing activities section.

False

Land held for possible plant expansion would be included as an operating asset when computing return on investment (ROI).

False

Opportunity costs represent costs that can be reduced by effective management of operations.

False

Purchasing inventory on credit increases the book value per share of a retailer.

False

Sunk costs and future costs that do not differ between the alternatives may or may not be relevant in a decision.

False

Suppose a company evaluates divisional performance using both ROI and residual income. The company's minimum required rate of return for the purposes of residual income calculations is 12%. If a division has a residual income of $6,000, then its ROI is less than 12%.

False

Variable costs are always relevant costs in decisions.

False

Which of the following would be considered a cash inflow in the financing activities section of the statement of cash flows?

Issuing bonds payable.

Which of the following would be an argument for using the gross cost of plant and equipment as part of operating assets in return on investment computations?

It eliminates the age of equipment as a factor in ROI computations.

Which of the following will not result in an increase in return on investment (ROI), assuming other factors remain the same?

An increase in operating assets.

In a sell or process further decision, consider the following costs: A variable production cost incurred prior to split-off. A variable production cost incurred after split-off. An avoidable fixed production cost incurred after split-off. Which of the above costs is (are) not relevant in a decision regarding whether the product should be processed further?

Only I

Which one of the following transactions should be classified as a financing activity on the statement of cash flows?

Purchase of the company's own stock.

Which of the following would be classified as a financing activity on the statement of cash flows?

Repurchasing capital stock from owners.

In a statement of cash flows, which of the following would be classified as an investing activity?

The sale of equipment.

Acquiring land by taking out a long-term mortgage will not affect the current ratio.

True

All other things the same, an increase in unit sales will normally result in an increase in the return on investment.

True

An increase in the number of shares of common stock outstanding will increase a company's price-earnings ratio if the market price per share remains unchanged.

True

Collecting the principal on a loan to another company would be reported on the investing activities section of the statement of cash flows.

True

If a company contains a number of investment centers of differing sizes, return on investment (ROI) should be used rather than residual income to rank the financial performance of the divisions.

True

If a retailer sells a product whose contribution margin equals the gross margin percentage, the gross margin percentage will be unaffected by the transaction.

True

It may be a good decision to replace an asset before its original cost has been fully recovered through increased revenues or decreased costs.

True

Money received from issuing bonds payable would be included as part of a company's financing activities on the statement of cash flows.

True

Paying taxes to governmental bodies is considered a cash outflow in the operating activities section on the statement of cash flows.

True

Residual income should be used to evaluate an investment center rather than a cost or profit center.

True

The collection of a loan made to a supplier would be treated as an investing activity on a statement of cash flows.

True

The times interest earned ratio is based on net income because that is the amount of earnings that is available for making interest payments. Interest expense is deducted before taxes are determined; creditors have first claim on the earnings before taxes are paid.

True

The use of return on investment (ROI) as a performance measure may lead managers to reject a project that would be favorable for the company as a whole.

True

When a company pays cash to repurchase its own common stock, this is reported as a cash outflow in the financing activities section of the statement of cash flows.

True

Accounts receivable turnover will normally decrease as a result of:

a change in credit policy to lengthen the period for cash discounts.

In a statement of cash flows, the sale of a long-term investment would ordinarily be classified as:

an investing activity.

The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is:

zero.

The gross margin percentage is equal to:

(Net operating income + Selling and administrative expenses)/Sales

The Jabba Corporation manufactures the "Snack Buster" which consists of a wooden snack chip bowl with an attached porcelain dip bowl. Which of the following would be relevant in Jabba's decision to make the dip bowls or buy them from an outside supplier? Fixed overhead cost that can be eliminated if the bowls are purchased from the outside supplier The variable selling cost of the Snack Buster A) Yes Yes B) Yes No C) No Yes D) No No

Choice B

Zack Company has a current ratio of 2.5. What will be the effect of a purchase of inventory with cash on the acid-test ratio and on working capital? Acid-Test RatioWorking Capital A) decrease decrease B) decrease no effect C) no effect decrease D) no effect no effect

Choice B

Adah Corporation prepares its statement of cash flows using the indirect method. Which of the following would be subtracted from net income in the operating activities section of the statement? Decrease in AccountsReceivable? Decrease in Inventory? A) Yes Yes B) Yes No C) No Yes D) No No

Choice D

When computing the net cash provided by operating activities using the indirect method on the statement of cash flows, which item below would NOT be added to net income?

Decrease in accounts payable.

All other things equal, which of the following would increase a division's residual income?

Decrease in average operating assets.

Which of the following items would not be classified as an operating activity on the statement of cash flows?

Dividends paid to the company's own stockholders.

If current assets exceed current liabilities, prepaying an expense on the last day of the year will:

decrease the acid-test ratio.

In a statement of cash flows, issuing bonds payable affects the:

financing activities section.

In a statement of cash flows, a change in an income taxes payable account would be recorded in the:

operating activities section.

Some investment opportunities that should be accepted from the viewpoint of the entire company may be rejected by a manager who is evaluated on the basis of:

return on investment.