ACCY 200 CQ 4-7

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When a firm buys land on which there is a building and the building is torn down so that an appropriate new building can be constructed on the land
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the total cost of the land and old building are capitalized as land cost.
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Expenditures capitalized as long-lived assets generally include those expenditures that
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are material in amount and that have an economic benefit to the entity that extends beyond the current year.
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Which of the following statements best describes the process of accounting for depreciation?
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A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset.
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The entry to record depreciation expense
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increases a contra asset and decreases net income.
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The net book value of a depreciable asset is
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the difference between the asset’s cost and accumulated depreciation
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When an accelerated depreciation method is used to calculate depreciation expense
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the net book value of the asset halfway through its useful life will be less than if straight-line depreciation is used.
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If there is a loss on the disposal of a depreciable asset
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in retrospect, the depreciation expense recognized over the asset’s life was too low.
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Depreciation
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in accounting, is a process that results in, spreading the cost of an asset over its useful life to the entity.
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Leasehold is an example of which of the following types of assets?
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intangible asset
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Noncurrent- intangible assets such as leasehold/ improvements/ patents and copyrights are all subject to
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amortization.
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When a depreciable asset is sold
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a gain arises if the sales proceeds exceed the net book value.
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Goodwill is an asset that arises because the present value of an acquired company’s estimated future earnings
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discounted at the acquiring firm’s ROI, is more than the fair value of the net assets of the acquired company
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The intangible asset goodwill
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may arise when one company purchases another company
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Many companies use accelerated depreciation for tax purposes because
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it results in lower taxable income than straight-line depreciation.
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When an accelerated depreciation method is used to calculate depreciation expense
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the net book value of the asset halfway through its useful life will be less than if straight-line depreciation is used.
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If there is a loss on the disposal of a depreciable asset
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in retrospect, the depreciation expense recognized over the asset’s life was too low.
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Depreciation
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in accounting, is a process that results in, spreading the cost of an asset over its useful life to the entity.
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Leasehold is an example of which of the following types of assets?
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intangible asset.
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When a depreciable asset is sold
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a gain arises if the sales proceeds exceed the net book value.
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Many companies use accelerated depreciation for tax purposes because
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it results in lower taxable income than straight-line depreciation.
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Expenditures capitalized as long-lived assets generally include those expenditures that
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are material in amount and that have an economic benefit to the entity that extends beyond the current year
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The net book value of a depreciable asset is
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the difference between the asset’s cost and accumulated depreciation.
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Goodwill is an asset that arises because the present value of an acquired company’s estimated future earnings discounted at the acquiring firm’s ROI
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is more than the fair value of the net assets of the acquired company, is more than the fair value of the net assets of the acquired company.
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Interest on a Note Payable is most appropriately accrued
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as of the end of each accounting period during which the note is a liability.
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The adjusting entry to accrue Interest Expense results in
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an increase in Interest Expense.
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Which of the following is not usually associated with bonds?
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Maturity rate
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The financial leverage characteristic of long-term debt results in
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a magnification of ROE relative to what it would be without long-term debt
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When a company issues a bond at a premium
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the company’s interest expense will be less than the interest paid each year
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If the market price of a bond exceeds its face amount
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the coupon rate is more than the market interest rate.
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Financial leverage refers to which of the following?
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The difference between the rate of return earned on assets (ROI) and the rate of return earned on stockholders’ equity (ROE).
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When a company issues a bond at a discount
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the company’s interest expense will be more than the interest paid each year
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When bonds are issued at a premium
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interest expense on the bonds will be less than the interest paid.
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Which of the following is(are) a true statement(s) pertaining to bonds?
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Bonds can be sold at a discount/ par/ or premium.
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Which of the following is true regarding bond discounts and/or premiums?
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Both bond discount and premium are amortized.
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The amortization of bond discount
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results in bond interest expense being greater than the interest paid to bondholders.
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Which of the following is not a stockholders’ equity account?
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Accumulated Depreciation
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another term frequently used to describe stockholders’ equity is
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net assets
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Retained earnings represents
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cumulative net income of the firm since its beginning that has not been distributed to its stockholders in the form of dividends.
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Factors that usually affect retained earnings directly include
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net income or loss, and dividends.
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The declaration of a cash dividend by the directors results in
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a decrease in retained earnings and an increase in current liabilities.
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When a firm purchases its own shares as treasury stock
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total stockholders’ equity is decreased.
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Performance analysis in the planning and control cycle relates to the act of
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controlling.
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Which of the following statements does not describe a characteristic of management accounting?
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Management accounting must conform to GAAP.
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Managerial accounting
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as compared to financial accounting, uses frequent and prompt control reports.
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Managerial accounting
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as opposed to financial accounting, is primarily concerned with, present and future planning and control.
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Managerial accounting can best be described as
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the preparation and use of accounting information within the organization
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Which of the following is another term for mixed costs?
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Semivariable Costs
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As the total volume of activity changes
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the total of variable costs changes
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Expressing fixed costs on a per unit basis of activity is misleading because
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fixed cost per unit decrease as activity increases.
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Knowledge about the behavior pattern of a cost is important to understanding the effect on net income of a change in sales volume because as sales volume changes
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the effect on net income will depend on the behavior pattern of various costs.
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As the level of activity increases
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fixed cost per unit decreases
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As the level of activity decreases
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fixed cost remains constant in total.
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An example of a cost that is likely to have a variable behavior pattern is
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production labor wages.
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An example of a cost likely to have a fixed behavior pattern is
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advertising cost
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Which of the following is the correct calculation for the contribution margin ratio?
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Contribution margin divided by sales revenue.
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The concept of operating leverage refers to which of the following?
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Operating income changes proportionately more than revenues for any given change in activity level.
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The scattergram allows cost-volume relationships to be visually scanned for outlier observations that should be
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ignored in the calculation of the cost formula of a mixed cost.
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An income statement organized by cost behavior does not include
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gross profit
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The contribution margin format income statement is organized by
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cost behavior classifications.
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ABU Co. has several products
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each with a different contribution margin ratio. If the same number of units were sold in July as in June, but the sales mix changed, total contribution margin in July would be different from that in June.
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A sunk cost is a cost that
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is a differential cost. has been incurred and cannot be estimated. is also never relevant in decision-making
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which of the following costs will not be relevant?
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Fixed manufacturing overhead that cannot be avoided.
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The Key to analyzing a sell as is or process further is to determine that
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incremental revenues exceed incremental costs
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In a make or buy decision which of the following costs would be considered relevant?
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avoidable costs
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Which of the following qualitative factors favors the buy option in the make or buy decision?
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Technical expertise of supplier.
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An example of a cost that is likely to have a variable behavior pattern is
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production labor wages.
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An example of a cost likely to have a fixed behavior pattern is
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advertising cost.
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An example of a cost likely to have a mixed behavior pattern is
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electricity cost for the manufacturing plant.
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Which of the following terms do not appear on the contribution margin format income statement
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gross profit.
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Each of a company’s two product lines has a different contribution margin ratio. If the company’s total sales remain the same but the sales mix shifts toward selling more of the product with the higher contribution ratio
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which of the following is true?, The average contribution margin ratio will increase, Operating income will increase, The break-even point will decrease. (ALL ARE TRUE)
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The term “cost” means
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the price for a raw material. the price charged by an entity for its services and the wages paid
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Cost accounting is primarily concerned with
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income measurement/inventory valuation- accumulation and determination of product or service cost- generally accepted accounting principles
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Which of the following costs would be classified as a period cost
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advertising expense for the product
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Direct costs pertain to costs that
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are traceable to a cost object
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The overhead component of product cost is
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an estimated amount based on labor hours/ machine hours or some other activity
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Product costs are inventoried and treated as assets until
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the period in which the products they relate to are sold.
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In the T-account cost flow diagram of balance sheet inventory accounts and the income statement cost of goods sold account
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cost of goods manufactured is debited to finished goods inventory.
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Cost of Goods Manufactured can be computed as
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beginning balance of work in process + raw materials used + direct labor costs incurred + manufacturing overhead costs applied ─ ending balance of work in process.
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Cost accounting is a subset of
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managerial accounting.
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An example of a cost that is likely to have a direct relationship with products being manufactured is
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production labor costs
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An example of a cost likely to have an indirect relationship with products being manufactured is
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electricity costs for packing equipment
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Common costs pertain to costs that
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are not directly traceable to a cost object
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The three components of product costs are
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direct material, direct labor, manufacturing overhead.
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Which of the following is NOT an inventory account for a manufacturing company?
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costs of goods sold
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Which of the following is NOT an account that over/under applied overhead is transferred to at the end of an accounting period?
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raw materials
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Which of the following is a true statement regarding absorption and/or direct costing?
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Absorption costing includes fixed overhead in product costs whereas direct costing does not
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A predetermined overhead rate is used to
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assign indirect costs to cost objects.
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Which of the following costs are included in the “for cost accounting purposes” classification?
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product cost and period cost
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Which of the following describes the correct sequence of flow of costs for a manufacturing firm?
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Raw materials- work-in-process,-finished goods and cost of goods sold
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The three sections of a statement of cost of goods manufactured include
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raw material, direct labor, manufacturing overhead
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Which of the following items would not be reported on the statement of cost of goods manufactured?
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contribution margin
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The primary difference between absorption costing and direct costing is the treatment of
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fixed manufacturing overhead
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Direct costing may be used for
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internal reporting purposes.
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In order to achieve higher quality cost information from the assignment of overhead costs to products manufactured
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the use of a predetermined overhead rate is being replaced by, activity-based costing.
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An activity-based costing system involves identifying the activity that causes the incurrence of a cost; this activity is known as a
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cost driver
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The use of activity-based costing information to support the decision-making process is known as
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activity-based management
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A budget that is prepared for several periods in the future
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then revised several times prior to the budget period is called a, rolling budget
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A standard cost or production standard that is achievable under actual operating conditions is called a(n)
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attainable standard
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Standards are most appropriately used to
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support the planning and control processes of the firm.
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Fixed costs classified according to the time frame perspective are known as
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committed cost andf discretionary cost
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Which of the following is NOT an inventory account for a manufacturing company?
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cost of goods sold
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Which of the following is NOT an account that over/under applied overhead is transferred to at the end of an accounting period?
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raw material
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Which of the following costs are included in the “for cost accounting purposes” classification?
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product cost cost and period cost
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An excess of cost of goods manufactured over cost of goods sold for the period represents
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an increase in finished goods inventory
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Which of the following will cause income determined with absorption costing to be higher than income determined with direct costing?
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units produced are greater than units sold.
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An activity-based costing system involves identifying the activity that causes the incurrence of a cost; this activity is known as a
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cost driver.
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hen a firm buys land on which there is a building
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and the building is torn down so that an appropriate new building can be constructed on the land, the total cost of the land and old building are capitalized as land cost.
question

Which of the following statements best describes the process of accounting for depreciation?
answer

A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset.
question

The entry to record depreciation expense
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increases a contra asset and decreases net income.
question

The net book value of a depreciable asset is
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the difference between the asset’s cost and accumulated depreciation.
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If there is a loss on the disposal of a depreciable asset
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in retrospect the depreciation expense recognized over the asset’s life was too low.

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