Accounting 201 final exam

is concerned with determining which of several acceptable alternatives is best.

. A preference decision in capital budgeting:

an addition to net income of $1,000 in order to arrive at net cash provided by operating activities.

. An increase in accrued liabilities of $1,000 during a year would be shown on the company's statement of cash flows prepared under the indirect method as:

True

. An increase in the expected salvage value at the end of a capital budgeting project will increase the internal rate of return for that project.

False

. Free cash flow is net cash provided by operating activities less capital expenditures.

True

. Free cash flow will increase if a company increases its accounts payable balance by delaying payments to suppliers.

False

. If the internal rate of return is less than the required rate of return for a project, then the net present value of that project is positive.

False

. If the salvage value of equipment at the end of a project is highly uncertain, the salvage value should be ignored in capital budgeting decisions..

False

. In preference decisions, the profitability index and internal rate of return methods will rank projects in the same order of preference.

True

. The net cash provided by operating activities on the statement of cash flows does not include any dividends paid to the company's own shareholders.

False

. The salvage value of new equipment should not be considered when using the internal rate of return method to evaluate a project.

True

. Under the indirect method of determining the net cash provided by operating activities on the statement of cash flows, a decrease in inventory would be added to net income.

True

. Under the indirect method of determining the net cash provided by operating activities on the statement of cash flows, an increase in accounts receivable would be subtracted from net income.

False

. When computing the net cash provided by operating activities under the indirect method on the statement of cash flows, an increase in prepaid expenses would be added to net income.

True

. When the net cash inflow is the same every year for a project after the initial investment, the internal rate of return of a project can be determined by dividing the initial investment required in the project by the annual net cash inflow. This computation yields a factor that can be looked up in a table of present values of annuities to find the internal rate of return.

have no effect on the break-even volume

A $2.00 increase in a product's variable expense per unit accompanied by a $2.00 increase in its selling price per unit will:

a net present value greater than zero.

A company has unlimited funds to invest at its discount rate. The company should invest in all projects having:

where manufacturing involves a single, homogeneous product that flows evenly through the production process on a continuous basis.

A process costing system is employed in those situations where:

True

A shorter payback period does not necessarily mean that one investment is more desirable than another.

a deduction from net income of $1,000 in order to arrive at net cash provided by operating activities.

An increase in accounts receivable of $1,000 over the course of a year would be shown on the company's statement of cash flows prepared under the indirect method as:

False

An investment project with a project profitability index of 0.04 has an internal rate of return that is less than the discount rate.

Unit variable expense is constant

Break-even analysis assumes that:

True

Buying property, plant, or equipment would be reported as a cash outflow on the investing activities section of the statement of cash flows.

False

Cash equivalents on the statement of cash flows consist of any investment that can be converted into cash within one year.

True

Cash payments to insurers and utility providers are considered operating activities on the statement of cash flows.

False

Cash payments to repay the principal amount of debt are reported as a cash outflow in the investing activities section of the statement of cash flows.

False

Cash received from the sale of equipment the company had used in its own operations would be considered an operating activity on a statement of cash flows.

True

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

Prime costs

Direct Materials + Direct Labor

True

Discounted cash flow techniques automatically take into account recovery of the initial investment.

mixed cost

Factory overhead is typically a(n):

True

Free cash flow decreases when a company issues common stock for cash.

not change

If a company increases its selling price by $2 per unit due to an increase in its variable labor cost of $2 per unit, the break-even point in units will:

True

If investment funds are limited, the net present value of one project should not be compared directly to the net present value of another project unless the initial investments in these projects are equal.

the amount of manufacturing overhead cost applied to Work in Process is less than the actual manufacturing overhead cost incurred.

If manufacturing overhead is underapplied, then:

margin of safety will increase

If sales volume increases and all other factors remain constant, then the:

a loss occurs

If the contribution margin is not sufficient to cover fixed expenses:

net operating income

If the degree of operating leverage is 4, then a one percent change in quantity sold should result in a four percent change in:

equal to 16%

If the net present value of a project is zero based on a discount rate of 16%, then the internal rate of return is:

manufacturing overhead

In a job-order costing system, indirect labor cost is usually recorded as a debit to:

Work in process inventory

In a job-order costing system, manufacturing overhead applied is recorded as a debit to:

operating activities section

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

financing activities section

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

an investing activity

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

the sale of equipment

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

False

In calculating the "investment required" for the project profitability index, the amount invested should not be reduced by any salvage recovered from the sale of old equipment.

True

In calculating the payback period where new equipment is replacing old equipment, any salvage value to be received on disposal of the old equipment should be deducted from the cost of the new equipment.

Purchases of raw materials

In the Schedule of Cost of Goods Manufactured and Cost of Goods Sold, the "Total raw materials available" is computed by adding together the "Beginning raw materials inventory" and:

Cost of beginning work in process inventory

In the cost reconciliation report under the weighted-average method, the "Costs to be accounted for" section contains which of the following items?

Cost of ending work in process inventory + Cost of units transferred out

In the cost reconciliation report under the weighted-average method, the "Total cost accounted for" equals:

True

In the payback method, depreciation is added back to net operating income when computing the annual net cash flow

False

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

False

Investing activities on the statement of cash flows generate cash inflows and outflows related to borrowing from and repaying principal to creditors and completing transactions with the company's owners such as selling or repurchasing shares of common stocks and paying dividends.

units in beginning work in process and the units started

Malcolm Company uses a weighted-average process costing system. All materials at Malcolm are added at the beginning of the production process. The equivalent units for materials at Malcolm would be the sum of:

all manufacturing costs except direct labor and direct materials

Manufacturing overhead includes:

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

Negative free cash flow does not automatically signal poor performance

False

Negative free cash flow suggests that the company generated enough cash flow from its operating activities to fund its capital expenditures and dividend payments.

False

Neither the net present value method nor the internal rate of return method can be used as a screening tool in capital budgeting decisions.

manufacturing overhead costs incurred were less than manufacturing overhead costs charged to production.

Overapplied manufacturing overhead would result if:

True

Paying interest to lenders is classified as an operating activity 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

Paying wages and salaries to employees is classified as a cash outflow in the operating activities section of the statement of cash flows.

cost of goods sold

Product costs that have become expenses can be found in:

product cost

Property taxes on a company's factory building would be classified as a(n):

both an initial cash outflow and a future cash inflow

Some investment projects require that a company increase its working capital. Under the net present value method, the investment and eventual recovery of working capital should be treated as:

False

The amount of depreciation added to net income equals the sum of the debits to the Accumulated Depreciation account.

only the net present value method

The assumption that the cash flows from an investment project are reinvested at the company's discount rate applies to:

True

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

False

The cost of capital is the average rate of return that the company earns on its investments.

indirect material cost

The cost of lubricants used to grease a production machine in a manufacturing company is an example of a(n):

True

The direct method of preparing the statement of cash flows will show the same increase or decrease in cash as the indirect method.

True

The internal rate of return is computed by finding the discount rate that equates the present value of a project's cash outflows with the present value of its cash inflows.

True

The internal rate of return is the rate of return of an investment project over its useful life.

internal rate of return

The internal rate of return method assumes that a project's cash flows are reinvested at the:

False

The internal rate of return method assumes that the cash flows generated by the project are immediately reinvested elsewhere at a rate of return that equals the company's cost of capital.

False

The minimum required rate of return is the discount rate that makes the net present value of the project equal to zero.

False

The net present value method assumes that cash flows from a project are immediately reinvested at a rate of return equal to the internal rate of return.

True

The payback method is most appropriate for projects whose cash flows do not extend far into the future.

will sometimes result in different preference rankings for investment projects.

The project profitability index and the internal rate of return:

False

The required rate of return is the maximum rate of return that an investment project must yield to the acceptable.

False

The simple rate of return focuses on cash flows rather than on accounting net operating income.

True

The simple rate of return is computed by dividing the annual net operating income generated by a project by the initial investment in the project.

False

The statement of cash flows relies on a fundamental principle of double-entry bookkeeping; namely, the change in the cash balance must equal the change in total liabilities and stockholders' equity.

(Fixed expenses + Target net profit)/Contribution margin ratio

To obtain the dollar sales volume necessary to attain a given target profit, which of the following formulas should be used?

completed during the period

Under a job-order costing system, the dollar amount transferred from Work in Process to Finished Goods is the sum of the costs charged to all jobs

True

Under the indirect method of determining the net cash provided by operating activities on the statement of cash flows, a loss on the sale of an asset would be added to net income.

False

Under the indirect method of determining the net cash provided by operating activities on the statement of cash flows, an increase in property, plant, and equipment is subtracted from net income.

False

When a company pays a supplier for inventory it has purchased, the cash outflow is recorded in the investing activities section of the statement of cash flows.

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.

Gross margin will increase

When closing overapplied manufacturing overhead to Cost of Goods Sold, which of the following would be true?

costs incurred during the current period plus cost of beginning work in process inventory

When computing the cost per equivalent unit, the weighted-average method of process costing considers:

False

When computing the net cash provided by operating activities under the indirect method on the statement of cash flows, a decrease in common stock would be subtracted from net income.

Decrease in accounts payable

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?

False

When computing the project profitability index of an investment project, the investment required should exclude any investment made in working capital at the beginning of the project.

True

When discounted cash flow methods of capital budgeting are used, the working capital required for a project is ordinarily counted as a cash outflow at the beginning of the project and as a cash inflow at the end of the project.

the Work in Process account

When manufacturing overhead is applied to production, it is added to:

True

When the internal rate of return method is used to rank investment proposals, the higher the internal rate of return, the more desirable the investment.

increase

When the level of activity decreases within the relevant range, the fixed cost per unit will:

Unit fixed costs and total variable costs

Which costs will change with a decrease in activity within the relevant range?

Direct labor

Which of the following costs is classified as both a prime cost and a conversion cost?

In multiproduct companies, the sales mix is constant.

Which of the following is an assumption underlying standard CVP analysis?

Advertising cost for a new line of clothing.

Which of the following is an example of a period cost in a company that makes clothing?

total contribution margin equals total fixed expenses

Which of the following is correct? The break-even point occurs on the CVP graph where:

The contribution margin ratio multiplied by the selling price per unit equals the contribution margin per unit.

Which of the following is true regarding the contribution margin ratio of a company that produces only a single product?

Dividends paid to the company's own stockholders

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

Product costs associated with unsold finished goods and work in process appear on the balance sheet as assets.

Which of the following statements about product costs is true?

It is often overly simplistic and incorrect to assume that direct labor-hours is a company's only

Which of the following statements about using a plantwide overhead rate based on direct labor is correct?

Whether a particular cost is classified as direct or indirect does not depend on the cost object.

Which of the following statements concerning direct and indirect costs is NOT true?

Manufacturing overhead consists of all manufacturing cost except for prime cost

Which of the following statements is correct in describing manufacturing overhead?

A CVP graph shows the break-even point as the intersection of the total sales revenue line and the total expense line

Which of the following statements is correct with regard to a CVP graph?

A breakfast cereal manufacturer

Which of the following types of companies would typically use process costing rather than job-order costing?

a decrease in accounts receivable.

Which of the following would be added to net income in the operating activities section of a statement of cash flows prepared using the indirect method?

Repurchasing capital stock from owners

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

issuing bonds payable

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

The amount paid to the individual who stains a chair.

Which of the following would most likely NOT be included as manufacturing overhead in a furniture factory?

number of units sold

Which of the following would not affect the break-even point?

Purchase of the company's own stock

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