A+ Answers

Which of the following is an advantage of corporations relative to partnerships and sole proprietorships?

Reduced legal liability for investors.

 Most common form of organization.

Harder to transfer ownership.

Lower taxes.

The group of users of accounting information charged with achieving the goals of the business is its





Which of the following financial statements is concerned with the company at a point in time?

Balance sheet.

Income statement.

Statement of cash flows.

Retained Earnings statement.

An income statement

reports the assets, liabilities, and stockholders’ equity at a specific date.

presents the revenues and expenses for a specific period of time.

summarizes the changes in retained earnings for a specific period of time.

reports the changes in assets, liabilities, and stockholders’ equity over a period of time.

The most important information needed to determine if companies can pay their current obligations is the

relationship between current assets and current liabilities.

net income for this year.

projected net income for next year.

relationship between short-term and long-term liabilities.

A liquidity ratio measures the

short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash.

percentage of total financing provided by creditors.

income or operating success of a company over a period of time.

ability of a company to survive over a long period of time.

The convention of consistency refers to consistent use of accounting principles

throughout the accounting periods.

within industries.

among firms.

among accounting periods.

Horizontal analysis is also known as

common size analysis.

vertical analysis.

trend analysis.

linear analysis.

Horizontal analysis is a technique for evaluating a series of financial statement data over a period of time

to determine the amount and/or percentage increase or decrease that has taken place.

that has been arranged from the highest number to the lowest number.

that has been arranged from the lowest number to the highest number.

to determine which items are in error.

Vertical analysis is a technique that expresses each item in a financial statement

starting with the highest value down to the lowest value.

as a percent of a base amount.

as a percent of the item in the previous year.

in dollars and cents.

Process costing is used when

production is aimed at filling a specific customer order.

the production process is continuous.

costs are to be assigned to specific jobs.

dissimilar products are involved.

An important feature of a job order cost system is that each job

consists of one unit of output.

must be completed before a new job is accepted.

must be similar to previous jobs completed.

has its own distinguishing characteristics.

In a process cost system, product costs are summarized:

after each unit is produced.

on job cost sheets.

on production cost reports.

when the products are sold.

An activity that has a direct cause-effect relationship with the resources consumed is a(n)

cost driver.

overhead rate.

cost pool.

product activity.

Activity-based costing

accumulates overhead in one cost pool, then assigns the overhead to products and services by means of a cost driver.

assigns activity cost pools to products and services, then allocates overhead back to the activity cost pools.

allocates overhead directly to products and services based on activity levels.

allocates overhead to multiple activity cost pools, and it then assigns the activity cost pools to products and services by means of cost drivers.

A cost which remains constant per unit at various levels of activity is a

manufacturing cost.

fixed cost.

variable cost.

mixed cost.

The break-even point is where

total sales equal total fixed costs.

total sales equal total variable costs.

contribution margin equals total fixed costs.

total variable costs equal total fixed costs

Fixed costs are $600,000 and the contribution margin per unit is $150. What is the break-even point?


4,000 units

1,500 units


When a company assigns the costs of direct materials, direct labor, and both variable and fixed manufacturing overhead to products, that company is using

variable costing.

operations costing.

absorption costing.

product costing.

If a division manager’s compensation is based upon the division’s net income, the manager may decide to meet the net income targets by increasing production when using

variable costing, in order to increase net income.

absorption costing, in order to increase net income.

absorption costing, in order to decrease net income.

variable costing, in order to decrease net income.

An unrealistic budget is more likely to result when it

has been developed in a top down fashion.

is developed with performance appraisal usages in mind.

has been developed in a bottom up fashion.

has been developed by all levels of management.

A major element in budgetary control is

the comparison of actual results with planned objectives.

approval of the budget by the stockholders.

the preparation of long-term plans.

the valuation of inventories.

The purpose of the sales budget report is to

control sales commissions.

control selling expenses.

determine whether income objectives are being met.

determine whether sales goals are being met.

The accumulation of accounting data on the basis of the individual manager who has the authority to make day-to-day decisions about activities in an area is called

static reporting.

flexible accounting.

master budgeting.

responsibility accounting.

Variance reports are

(a) external financial reports.

(b) SEC financial reports.

(c) internal reports for management.

(d) all of these.

Internal reports that review the actual impact of decisions are prepared by

factory workers.

department heads.

management accountants.

the controller.

The process of evaluating financial data that change under alternative courses of action is called

incremental analysis.

contribution margin analysis.

cost-benefit analysis.

double entry analysis.

Seasons Manufacturing manufactures a product with a unit variable cost of $100 and a unit sales price of $176. Fixed manufacturing costs were $480,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at $140 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows:

Income would increase by $140,000.

Income would increase by $40,000.

Income would decrease by $8,000.

Income would increase by $8,000.

Carter, Inc. can make 100 units of a necessary component part with the following costs:

Direct Materials


Direct Labor


Variable Overhead


Fixed Overhead


If Carter can purchase the component externally for $220,000 and only $10,000 of the fixed costs can be avoided, what is the correct make-or-buy decision?

Make and save $30,000

Buy and save $10,000

Buy and save $30,000

Make and save $10,000

A company has a process that results in 15,000 pounds of Product A that can be sold for $16 per pound. An alternative would be to process Product A further at a cost of $200,000 and then sell it for $28 per pound. Should management sell Product A now or should Product A be processed further and then sold? What is the effect of the action?

Process further, the company will be better off by $20,000.

Sell now, the company will be better off by $20,000.

Process further, the company will be better off by $180,000.

Sell now, the company will be better off by $200,000.