Financial Accounting
Final Test Solutions
Course Introduction
Financial Accounting introduces students to the fundamental principles and practices involved in measuring, recording, and reporting the financial transactions of businesses. The course explores the conceptual framework underlying financial statements, including the preparation and analysis of the balance sheet, income statement, and cash flow statement. Emphasis is placed on generally accepted accounting principles (GAAP), the accounting cycle, and the ethical responsibilities of accountants. By the end of the course, students will develop the skills necessary to interpret financial information and make informed economic decisions in a business context.
Recommended Textbook
Horngrens Accounting Global Edition 10th Edition by Tracie L. Nobles
Available Study Resources on Quizplus
26 Chapters
3881 Verified Questions
3881 Flashcards
Source URL: https://quizplus.com/study-set/3454
Page 2
Chapter 1: Accounting and the Business Environment
Available Study Resources on Quizplus for this Chatper
144 Verified Questions
144 Flashcards
Source URL: https://quizplus.com/quiz/68609
Sample Questions
Q1) Which of the following formulae is used to calculate average total assets for the return on assets ratio?
A) Average total assets = (Beginning total assets + Ending total assets) × 2
B) Average total assets = (Beginning total assets - Ending total assets) × 2
C) Average total assets = (Beginning total assets - Ending total assets) ÷ 2
D) Average total assets = (Beginning total assets + Ending total assets) ÷ 2
Answer: D
Q2) Scott's Camera Shop started the year with total assets of $100,000 and total liabilities of $50,000. During the year, the business earned revenues of $200,000 and incurred expenses of $60,000. Scott made no capital contributions during the year, but did make withdrawals of $75,000. Calculate the amount of increase/decrease in Scott's equity for the year.
A) $65,000 increase
B) $115,000 increase
C) $50,000 decrease
D) $75,000 increase
Answer: A
To view all questions and flashcards with answers, click on the resource link above.
Page 3
Chapter 2: Recording Business Transactions
Available Study Resources on Quizplus for this Chatper
155 Verified Questions
155 Flashcards
Source URL: https://quizplus.com/quiz/68608
Sample Questions
Q1) Which of the following sequences states the order in which a trial balance lists accounts?
A) Equity Assets Liabilities
B) Liabilities Assets Equity
C) Assets Equity Liabilities
D) Assets Liabilities Equity
Answer: D
Q2) According to the above transactions. What is the ending balance in the Service Revenue account?
A) $19,000
B) $9,000
C) $10,000
D) $8,000
Answer: C
Q3) The system of accounting in which every transaction affects at least two accounts is called the double-entry system.
A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: The Adjusting Process
Available Study Resources on Quizplus for this Chatper
152 Verified Questions
152 Flashcards
Source URL: https://quizplus.com/quiz/68607
Sample Questions
Q1) The entry to record depreciation includes a debit to:
A) the Equipment account.
B) the Cash account.
C) the Accumulated Depreciation account.
D) the Depreciation Expense account.
Answer: D
Q2) Which of the following is a contra account?
A) Depreciation Expense
B) Accumulated Depreciation
C) Unearned Revenue
D) Earned Revenue
Answer: B
Q3) If an adjusting entry includes a debit to Rent Expense, that would indicate that the payment of rent had been previously recorded as a(n):
A) prepaid expense.
B) depreciation.
C) accrued expense.
D) accrued revenue.
Answer: A
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: Completing the Accounting Cycle
Available Study Resources on Quizplus for this Chatper
156 Verified Questions
156 Flashcards
Source URL: https://quizplus.com/quiz/68606
Sample Questions
Q1) The current ratio shows the profitability of a firm.
A)True
B)False
Q2) Where does Net Income appear on a worksheet?
A) Net income appears only in the income statement debit column.
B) Net income appears in the balance sheet credit column and in the income statement debit column.
C) Net income appears in the income statement credit column and in the balance sheet debit column.
D) Net income appears only in the balance sheet credit column.
Q3) Refer to the table above.What are the total long-term assets that would be shown on the balance sheet?
A) $120,000
B) $152,200
C) $155,000
D) $158,000
Q4) The Salaries Expense account is a temporary account.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: Merchandising Operations
Available Study Resources on Quizplus for this Chatper
160 Verified Questions
160 Flashcards
Source URL: https://quizplus.com/quiz/68605
Sample Questions
Q1) The discount amount is calculated on the amount of the invoice minus the returns and allowances.
A)True
B)False
Q2) The following information relates to Nebula Inc. \[\begin{array} { | l | r | }
\hline \text { Sales Revenue } & \$ 230,000 \\
\hline \text { Cost of Goods Sold } & 150,000 \\
\hline \text { Interest Revenue } & 10,000 \\
\hline \text { Operating Expenses } & 42,500 \\
\hline \text { Sales Discounts } & 20,000 \\
\hline \text { Sales Returns and Allowances } & 5,000 \\
\hline
\end{array}\] Calculate the net income of Nebula.
A) $12,500
B) $22,500
C) $67,500
D) $230,000
Q3) An invoice is also known as a bill.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Merchandise Inventory
Available Study Resources on Quizplus for this Chatper
155 Verified Questions
155 Flashcards
Source URL: https://quizplus.com/quiz/68604
Sample Questions
Q1) The ending inventory of a company was $450,000 as per the perpetual inventory records. The current replacement cost for the ending inventory is $410,000. Prepare the journal entry to adjust inventory.
Q2) Which of the following inventory costing methods yields the highest net income during a period of rising inventory costs?
A) Specific identification
B) Weighted-average
C) Last-in, first-out
D) First-in, first-out
Q3) Changing from the LIFO (Last-In, First-Out) to the specific identification method of valuing inventory ignores the principle of:
A) conservatism.
B) consistency.
C) disclosure.
D) materiality.
Q4) Perez Company purchased 500 units of inventory at $25 per unit by payment of cash. Provide the journal entry to record the purchase of inventory. (Assume a perpetual inventory system)
To view all questions and flashcards with answers, click on the resource link above.
8
Chapter 7: Accounting Information Systems
Available Study Resources on Quizplus for this Chatper
137 Verified Questions
137 Flashcards
Source URL: https://quizplus.com/quiz/68603
Sample Questions
Q1) Tangent Corporation sold a product for $7,150 to Michael on credit. The cost of goods sold is $5,650.Assuming that the firm is following a perpetual inventory system and using a sales journal, it will record $5,650 in the:
A) Accounts Receivable DR, Sales Revenue CR column.
B) Cost of Goods Sold DR, Merchandise Inventory CR column.
C) Merchandise Inventory DR, Cost of Goods Sold CR column.
D) Sales Revenue DR, Accounts Receivable CR column.
Q2) Which of the following is true of an effective accounting information system?
A) It has little influence in improving a company's internal control activities.
B) The cost of using an accounting information system is the same for both small and large businesses.
C) A compatible accounting information system works smoothly with the business's employees and organizational structure.
D) Large private companies prefer a manual accounting information system since their financial statements are not audited.
Q3) Cash purchases are recorded in the purchases journal.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
9
Chapter 8: Internal Control and Cash
Available Study Resources on Quizplus for this Chatper
160 Verified Questions
160 Flashcards
Source URL: https://quizplus.com/quiz/68602
Sample Questions
Q1) Which of the following is a requirement of the Sarbanes-Oxley Act?
A) An outside auditor must issue an internal control report for each public company.
B) The Public Company Oversight Board must conduct audits of public companies.
C) The accounting firm that audits a public client must also provide consulting services for the same client.
D) The Public Company Oversight Board must create new accounting standards.
Q2) Which of the following statements describes an invoice from a supplier?
A) It is an order to purchase goods from a supplier.
B) It is a statement from the supplier showing the goods purchased and the amount due.
C) It is a report showing that the goods have been received in good condition, as ordered.
D) It is a document authorizing a payment to a supplier.
Q3) A document authorizing a cash payment is a(n):
A) check.
B) invoice.
C) voucher.
D) bill of lading.
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Receivables
Available Study Resources on Quizplus for this Chatper
138 Verified Questions
138 Flashcards
Source URL: https://quizplus.com/quiz/68601
Sample Questions
Q1) From the following details, calculate the acid-test ratio. (Round to two decimal places.) \[\begin{array} { | l | r | }
\hline \text { Cash } & \$ 120,000 \\
\hline \text { Short-term investments } & 150,000 \\
\hline \text { Net current receivables } & 280,000 \\
\hline \text { Inventory } & 290,000 \\
\hline \text { Total current liabilities } & 790,000 \\
\hline \end{array}\]
A) 0.91
B) 0.94
C) 1.06
D) 0.70
Q2) The percent-of-receivables method computes bad debts expense as a percentage of accounts receivable.
A)True
B)False
Q3) The acid-test ratio is also known as the quick ratio.
A)True B)False
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Plant Assets, Natural Resources, and Intangibles
Available Study Resources on Quizplus for this Chatper
152 Verified Questions
152 Flashcards
Source URL: https://quizplus.com/quiz/68600
Sample Questions
Q1) Acer Inc. plans to develop a shopping center. In the first quarter, they spent the following amounts: \[\begin{array} { | l | r | }
\hline \text { acquisition of land } & \$ 15,000 \\
\hline \text { Surveys and legal fees } & 600 \\
\hline \text { Land clearing } & 200 \\
\hline \text { Fencing } & 1,000 \\
\hline \text { Install lighting and signage } & 860 \\
\hline
\end{array}\] What amount should be recorded as the land improvements cost?
A) $1,200
B) $1,800
C) $1,860
D) $800
Q2) Briyanne Company purchased a computer for $5,000. During 2015 and 2016, the company recorded total depreciation of $4,000 on the computer. On January 1, 2017, the company traded in the computer for a new one, paying $4,000 cash. The fair market value of the new computer is $6,000. Journalize the company's exchange of computers. Assume the exchange had commercial substance.
Q3) Give journal entry to record the acquisition of a plant asset for cash.
Page 12
To view all questions and flashcards with answers, click on the resource link above.
Chapter 11: Current Liabilities and Payroll
Available Study Resources on Quizplus for this Chatper
162 Verified Questions
162 Flashcards
Source URL: https://quizplus.com/quiz/68599
Sample Questions
Q1) A certain contingent liability was evaluated at year-end, and considered to have a remote possibility of becoming an actual liability. If the accountant decided not to report it on the balance sheet or in the notes to the financial statements, this could be considered a violation of generally accepted accounting principles.
A)True
B)False
Q2) The information related to interest expense of Stereo Music is given below:
\[\begin{array} { | l | r | }
\hline \text { Net income } & \$ 255,000 \\
\hline \text { Income tax expense } & 102,000 \\
\hline \text { Interest expense } & 65,000 \\
\hline
\end{array}\] Based on the above data, which of the following is the interest coverage ratio?
A) 4.14 times
B) 3.92 times
C) 6.49 times
D) 4.92 times
To view all questions and flashcards with answers, click on the resource link above.
Page 13
Chapter 12: Partnerships
Available Study Resources on Quizplus for this Chatper
161 Verified Questions
161 Flashcards
Source URL: https://quizplus.com/quiz/68598
Sample Questions
Q1) Shaun and Rick are partners. Shaun has a capital balance of $10,000 and Rick has a capital balance of $8,000. Edwin invests a building with a current market value of $6,000 to acquire an interest in the new partnership. Which of the following is true of the effect of the transaction on the balance sheet? (Assume no bonus to any partner.)
A) Both assets and equity will increase by $6,000.
B) Both assets and liabilities will decrease by $6,000.
C) Both assets and equity will decrease by $6,000.
D) Both assets and liabilities will increase by $6,000.
Q2) A firm has two partners: Jim and Bill. Jim owns 60% of the partnership and Bill owns 40%. In which of the following transactions will the partnership be responsible for the partners' actions?
A) Jim signing the contract as a guarantor for Bill's personal loan
B) Jim buying a laptop on credit for personal use
C) Bill signing a contract to buy furniture for official use in the partnership
D) Bill defaulting on payment of his credit card bill
Q3) An S corporation is a corporation with 100 or fewer stockholders that can elect to be taxed as a partnership.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 14
Chapter 13: Corporations
Available Study Resources on Quizplus for this Chatper
158 Verified Questions
158 Flashcards
Source URL: https://quizplus.com/quiz/68597
Sample Questions
Q1) Occidental Produce Company has 40,000 shares of common stock outstanding and 2,000 shares of preferred stock outstanding. The common stock is $0.01 par value; the preferred stock is 4% noncumulative, with $100 par value. On October 15, 2015, the company declares a total dividend payment of $40,000. How much dividend will be paid to the preferred shareholders?
A) $40,000
B) $2,000
C) $8,000
D) $4,500
Q2) On November 1, 2014, Oster Company declared a dividend of $3.00 per share. Oster Company has 20,000 shares of common stock outstanding and no preferred stock. Please provide the journal entry for the declaration of dividends.
Q3) Which of the following represents one of the basic rights of stockholders?
A) Stockholders may sell their stock back to the company if they wish.
B) Stockholders may authorize a business contract on behalf of the corporation.
C) Stockholders may receive dividends from corporate earnings.
D) Stockholders may determine at what price the company issues stock.
Q4) Rick Co. purchases 8,500 shares of the company's $6 par common stock for $8 per share. Journalize the transaction.
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Long-Term Liabilities
Available Study Resources on Quizplus for this Chatper
151 Verified Questions
151 Flashcards
Source URL: https://quizplus.com/quiz/68596
Sample Questions
Q1) On December 31, 2013, Clark Sales has a Bonds Payable Balance of $89,000 and a Discount on Bonds Payable of $2,350. On the balance sheet, how will this information be shown?
A) $89,000 less Discount of $2,350 for a Net Balance of $86,650
B) $89,000 plus Discount for a total balance of $91,350
C) $89,000
D) $89,000 less one-tenth of $2,350 for a Net Balance of $88,765
Q2) On June 1, 2015, Smith Services issued $36,000 of 8% bonds that mature in five years for $45,000. The bonds pay semiannual interest payments on June 30 and December 31 of each year. On December 31, 2015, how much is the total interest paid to bondholders?
A) $1,440
B) $2,880
C) $1,800
D) $3,600
Q3) Garotia Company buys a building on a plot of land for $115,000, paying $30,000 cash and signing a 30-year mortgage note for $85,000 at 11%. The payment will be made in equal monthly installments of $809. Provide the journal entry for the first monthly payment. (Round your answers to nearest whole dollar number).
To view all questions and flashcards with answers, click on the resource link above.
Page 16
Chapter 15: Investments
Available Study Resources on Quizplus for this Chatper
135 Verified Questions
135 Flashcards
Source URL: https://quizplus.com/quiz/68595
Sample
Questions
Q1) ________ are equity securities in which the investor owns 20% or more, but less than 50%, of the investee's voting stock.
A) Held-to-maturity investments
B) Significant interest investments
C) Controlling interest investments
D) Available-for-sale investments
Q2) Investment income may come from interest earned from debt investments, dividends earned from stock investments, and/or increases in the market value of the security.
A)True
B)False
Q3) Maurice Corporation invested $100,000 to acquire 20,000 shares of Delta Technologies on March 1, 2015. Delta pays a cash dividend of $0.25 per share on July 2, 2015. The investment is classified as an available-for-sale investment. Based on the information provided, which of the following is true of the balance sheet as of July 2, 2015?
A) Total assets in the balance sheet will remain unchanged.
B) Current assets in the balance sheet will remain unchanged.
C) Equity in the balance sheet will increase.
D) Total liabilities in the balance sheet will increase.
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: The Statement of Cash Flows
Available Study Resources on Quizplus for this Chatper
154 Verified Questions
154 Flashcards
Source URL: https://quizplus.com/quiz/68594
Sample Questions
Q1) Avatar Company uses the direct method to prepare its statement of cash flows. Refer to the following information reported for the year 2015: 1) Sales Revenue, $515,000
2) Accounts Receivable, beginning balance, $92,000
3) Accounts Receivable, ending balance, $57,000
In the operating activities section of the statement of cash flows, what amount will be shown for collections from customers?"
A) $550,000
B) $458,000
C) $149,000
D) $366,000
Q2) Which of the following are the three major categories included on the statement of cash flows?
A) investing, operating and financing activities
B) investing, capital and financing activities
C) investing, operating and contracting activities
D) financial, operating and internal control activities
To view all questions and flashcards with answers, click on the resource link above.
18
Chapter 17: Financial Statement Analysis
Available Study Resources on Quizplus for this Chatper
113 Verified Questions
113 Flashcards
Source URL: https://quizplus.com/quiz/68593
Sample Questions
Q1) The price/earnings ratio indicates the:
A) dividend yield of the company.
B) market price of $1 of earnings.
C) proportion of total assets financed by debt.
D) ease of selling merchandise inventory.
Q2) If an analyst wants to see how gross profit of a company has changed from one year to the next, vertical analysis would be used.
A)True
B)False
Q3) Benchmarking is the practice of comparing a company with other leading companies.
A)True
B)False
Q4) Zebra Inc. cost of goods sold for the year is $1,900,000 and average merchandise inventory for the year is $129,000. Calculate the inventory turnover ratio of the company.
A) 16.78 times
B) 14.73 times
C) 33.8 times
D) 65.5 times
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 18: Introduction to Managerial Accounting
Available Study Resources on Quizplus for this Chatper
179 Verified Questions
179 Flashcards
Source URL: https://quizplus.com/quiz/68592
Sample Questions
Q1) The IMA standards of ethical practice require managerial accountants to maintain their professional competence.
A)True
B)False
Q2) For external reporting purposes, GAAP requires companies to treat period costs as assets.
A)True B)False
Q3) Nurix Inc. is a business consulting firm. During the month of February, Nurix earned $55,400 of revenues by providing services to 45 clients. Operating expenses for February were $8,500 and non-operating expenses were $4,500. What is the cost per service?
A) $100.00
B) $188.88
C) $942.22
D) $288.00
Q4) Cost per service is calculated by dividing total costs by total number of services provided.
A)True B)False
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: Job Order Costing
Available Study Resources on Quizplus for this Chatper
152 Verified Questions
152 Flashcards
Source URL: https://quizplus.com/quiz/68591
Sample Questions
Q1) When goods are transferred from the Finished Goods Inventory account to the Cost of Goods Sold account, the product costs move from the balance sheet to the income statement.
A)True
B)False
Q2) Forsyth Company uses estimated direct labor hours of 175,000 and estimated manufacturing overhead costs of $350,000 in establishing its 2014 predetermined overhead allocation rate. Actual results showed: \[\begin{array} { | l | l | }
\hline \text { Actual manufacturing overhead } & \$ 346,500 \\ \hline \text { Allocated manufacturing overhead } & \$ 320,000 \\ \hline \end{array}\] The number of direct labor hours worked during the period was:
A) 175,000 hours.
B) 160,000 hours.
C) 173,250 hours.
D) 191,406 hours.
Q3) Pandora Manufacturing purchased $95,000 of raw materials on account and $5,000 raw materials for cash. The materials will be used to produce furniture. Provide the journal entry for the purchase of materials.
To view all questions and flashcards with answers, click on the resource link above.
Page 21
Chapter 20: Process Costing
Available Study Resources on Quizplus for this Chatper
143 Verified Questions
143 Flashcards
Source URL: https://quizplus.com/quiz/68590
Sample Questions
Q1) Which of the following businesses is most likely to use a process costing system?
A) an accounting firm
B) a law firm
C) a soda manufacturer
D) a construction company
Q2) Nexus Inc. uses a process costing system. It prepares a production cost report for each processing department. How will the managers of Nexus use these production cost reports to prepare the balance sheet at the end of an accounting period?
A) to determine the amount of current liabilities of the period
B) to determine the balance of inventory accounts
C) to determine the cost of goods sold during the period
D) to determine the amount of revenues generated during the period
Q3) When indirect materials are issued to production, the Manufacturing Overhead account is credited.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 21: Cost-Volume-Profit Analysis
Available Study Resources on Quizplus for this Chatper
172 Verified Questions
172 Flashcards
Source URL: https://quizplus.com/quiz/68589
Sample Questions
Q1) Identify the breakeven point in the graph given above.
A) O
B) E
C) D
D) B
Q2) Porterhouse Company incurs both fixed and variable production costs. Assuming the production is within the relevant range, if volume goes up by 20%, then the total fixed costs would:
A) increase by 20%.
B) remain the same.
C) increase by an amount less than 20%.
D) decrease by 20%.
Q3) Gould Enterprises sells computer disks for $1.50 per disk. Unit variable expenses total $0.90. The breakeven point in units is 3,000 and expected sales in units are 4,300. What is the margin of safety in dollars?
A) $4,500
B) $1,950
C) $3,870
D) $6,450
To view all questions and flashcards with answers, click on the resource link above.
Page 23
Chapter 22: Master Budgets
Available Study Resources on Quizplus for this Chatper
107 Verified Questions
107 Flashcards
Source URL: https://quizplus.com/quiz/68588
Sample Questions
Q1) Budgets provide a benchmark that motivates employees and helps managers evaluate performance.
A)True
B)False
Q2) While preparing the budgeted income statement of a merchandiser, the amount of cost of goods sold can be taken from:
A) the budgeted balance sheet.
B) the budgeted cash flow statement.
C) the inventory, purchases and COGS budget.
D) the payment for cost of goods sold.
Q3) Which of the following is an example of the coordination and communication function of a budget?
A) A budget demands integrated input from different business units and functions.
B) Employees are motivated to achieve the goals set by the budget.
C) Budget figures are used to evaluate the performance of managers.
D) The budget outlines a specific course of action for the coming period.
Q4) The cash budget is the prerequisite for the master budget.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 24
Chapter 23: Flexible Budgets and Standard Cost Systems
Available Study Resources on Quizplus for this Chatper
173 Verified Questions
173 Flashcards
Source URL: https://quizplus.com/quiz/68587
Sample Questions
Q1) Which of the following statements would be a correct interpretation of the flexible budget variance for fixed expenses?
A) decrease in price per unit
B) increase in variable cost per unit
C) increase in sales volume
D) increase in fixed costs
Q2) The fixed overhead volume variance is essentially a cost variance.
A)True
B)False
Q3) A company is setting its direct materials and direct labor standards for its leading product. Materials cost from the supplier are $5 per square foot, net of purchase discount. Freight-in amounts to $0.10 per square foot. Basic wages of the assembly line personnel are $10 per hour. Payroll taxes are approximately 20% of wages. Benefits amount to $2 per hour. How much is the direct material cost standard (per square foot)?
A) $5.10 per square foot
B) $5.00 per square foot
C) $12.00 per square foot
D) $17.10 per square foot
To view all questions and flashcards with answers, click on the resource link above.
25
Chapter 24: Cost Allocation and Responsibility Accounting
Available Study Resources on Quizplus for this Chatper
130 Verified Questions
130 Flashcards
Source URL: https://quizplus.com/quiz/68586
Sample Questions
Q1) WAX-D Inc. has a division that manufactures a component that sells for $150 and has a variable cost of $45. Another division of the company wants to purchase the component. Fixed cost per unit of component is $25. What is the minimum transfer price if the division is operating below its capacity?
A) $50
B) $45
C) $30
D) $40
Q2) The responsibility report of Keith Paul, a manager of one of the divisions of a manufacturing company, includes profits as well as return on investment and residual income. Keith is most likely to the manager of a(n):
A) investment center.
B) profit center.
C) cost center.
D) revenue center.
Q3) Performance evaluation systems provide top management with a framework for maintaining control over the entire organization.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 26
Chapter 25: Short-Term Business Decisions
Available Study Resources on Quizplus for this Chatper
160 Verified Questions
160 Flashcards
Source URL: https://quizplus.com/quiz/68585
Sample Questions
Q1) A company produces 100 microwave ovens per month, each of which includes one electrical circuit. The company currently manufactures circuit in-house but is considering outsourcing the circuits at a contract price of $28 each. Currently, the cost of producing circuits in-house includes variable costs of $26 per circuit and fixed costs of $5,000 per month. Assume the company could not reduce any fixed costs by outsourcing, and that there is no alternative use for the facilities presently being used to make circuits. How will it affect monthly operating income, if the company outsources?
A) Operating income will go up by $4,800.
B) Operating income will go down by $2,800.
C) Operating income will go down by $200.
D) Operating income will stay the same.
Q2) Which of the following is the most important key to short-term business decision making?
A) focus on costs which do not change under two alternatives and on historic costs
B) focus on qualitative data only and ignore future cash flows
C) focus on sunk costs and quantitative data
D) focus on relevant costs and use the contribution margin approach
To view all questions and flashcards with answers, click on the resource link above. Page 27
Chapter 26: Capital Investment Decisions
Available Study Resources on Quizplus for this Chatper
122 Verified Questions
122 Flashcards
Source URL: https://quizplus.com/quiz/68584
Sample Questions
Q1) To determine the investment's net cash inflows, the inflows are netted against the investment's initial cash outflow.
A)True
B)False
Q2) When evaluating a potential investment, managers should use more than one measure for making a sound investment decision.
A)True
B)False
Q3) The payback method is the most thorough and comprehensive way to choose the best investment among alternatives, than any other capital budgeting methods.
A)True
B)False
Q4) Which of the following best describes the term sensitivity analysis?
A) setting the budgets of an investment
B) analyzing the effect of an investment on workers' morale
C) evaluating different investment options
D) testing the results of an investment analysis with varying assumptions
To view all questions and flashcards with answers, click on the resource link above.