Accounting Test: Test Your GK! Quiz

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Accounting Test: Test Your GK! Quiz - Quiz


Questions and Answers
  • 1. 

    A formal written statement of management's plans for the future, expressed in financial terms, is a:

    • A.

      Performance report

    • B.

      Budget

    • C.

      Gross profit report

    Correct Answer
    B. Budget
    Explanation
    A budget is a formal written statement of management's plans for the future, expressed in financial terms. It outlines the expected income and expenses for a specific period, typically a year. A budget helps organizations allocate resources, set financial goals, and monitor performance. It provides a roadmap for financial decision-making and helps ensure that resources are used efficiently and effectively. A performance report, on the other hand, typically provides an analysis of actual performance against budgeted targets. A gross profit report focuses specifically on the calculation of gross profit, which is the difference between sales revenue and the cost of goods sold.

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  • 2. 

    A variant of fiscal-year budgeting whereby a twelve-month projection into the future is maintained at all times is termed:

    • A.

      Continuous budgeting

    • B.

      Zero-based budgeting

    • C.

      Master budgeting

    Correct Answer
    A. Continuous budgeting
    Explanation
    Continuous budgeting is a variant of fiscal-year budgeting where a twelve-month projection into the future is maintained at all times. Unlike traditional budgeting methods that are done once a year, continuous budgeting allows for ongoing monitoring and adjustment of the budget throughout the year. This approach enables organizations to have a more accurate and up-to-date understanding of their financial situation, make informed decisions, and respond quickly to any changes or challenges that may arise.

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  • 3. 

    For Jan, sales revenue is $600,000; sales commissions are 5% of sales; the sales manager's salary is $96,000; advertising expenses are $80,000; shipping expenses total 2% of sales, and miscellaneous selling expenses are $2,100 plus 1/2 of 1% of sales. Total selling expenses for the month of Jan are:

    • A.

      183,750

    • B.

      182,100

    • C.

      223,100

    Correct Answer
    C. 223,100
    Explanation
    The total selling expenses for the month of Jan are $223,100. This can be calculated by adding up all the individual expenses: sales commissions ($600,000 * 5% = $30,000), sales manager's salary ($96,000), advertising expenses ($80,000), shipping expenses ($600,000 * 2% = $12,000), and miscellaneous selling expenses ($2,100 + ($600,000 * 0.5% = $3,000)). Adding all these expenses together gives a total of $223,100.

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  • 4. 

    For Feb, sales revenue is $700,000; sales commissions are 5% of sales; the sales manager's salary is $96,000; advertising expenses are $80,000; shipping expenses total 2% of sales, and miscellaneous selling expenses are $2,100 plus 1/2 of 1% of sales. Total selling expenses for the month of Feb are:

    • A.

      230,600

    • B.

      196,100

    • C.

      189,500

    Correct Answer
    A. 230,600
    Explanation
    The total selling expenses for the month of February can be calculated by adding up the sales commissions, sales manager's salary, advertising expenses, shipping expenses, and miscellaneous selling expenses. Sales commissions are 5% of sales, which is $700,000 * 0.05 = $35,000. Shipping expenses are 2% of sales, which is $700,000 * 0.02 = $14,000. Miscellaneous selling expenses are $2,100 plus 1/2 of 1% of sales, which is $2,100 + ($700,000 * 0.005) = $2,100 + $3,500 = $5,600. Therefore, the total selling expenses are $35,000 + $96,000 + $80,000 + $14,000 + $5,600 = $230,600.

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  • 5. 

    If the expected sales volume for the current period is 7,000 units, the desired ending inventory is 200 units, and the beginning inventory is 300 units, the number of units set forth in the production budget, representing total production for the current period, is:

    • A.

      7,000

    • B.

      6,900

    • C.

      7,200

    Correct Answer
    B. 6,900
    Explanation
    The production budget is calculated by adding the expected sales volume to the desired ending inventory and subtracting the beginning inventory. In this case, the calculation would be 7,000 + 200 - 300 = 6,900 units. Therefore, the correct answer is 6,900.

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  • 6. 

    Production estimates for August are as follows: The total direct materials purchases of materials A and B required for August production is:

    • A.

      1,080,000 for A; 648,000 for B

    • B.

      1,125,000 for A; 675,000 for B

    • C.

      1,170,000 for A; 702,000 for B

    Correct Answer
    A. 1,080,000 for A; 648,000 for B
    Explanation
    The correct answer is 1,080,000 for A; 648,000 for B. This answer is correct because it matches the given production estimates for August. The question states that the total direct materials purchases for materials A and B required for August production are 1,080,000 for A and 648,000 for B. Therefore, this answer aligns with the information provided.

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  • 7. 

    Which of the following budgets provides the starting point for the preparation of the direct labor cost budget?

    • A.

      Cash budget

    • B.

      Sales budget

    • C.

      Production budget

    Correct Answer
    C. Production budget
    Explanation
    The production budget provides the starting point for the preparation of the direct labor cost budget because it determines the quantity of goods to be produced. The direct labor cost budget is based on the number of hours of labor required to produce the budgeted quantity of goods. Therefore, the production budget serves as a basis for calculating the direct labor cost budget.

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  • 8. 

    If the expected sales volume for the current period is 7,000 units, the desired ending inventory is 400 units, and the beginning inventory is 300 units, the number of units set forth in the production budget, representing total production for the current period, is: 

    • A.

      7,100

    • B.

      7,200

    • C.

      6,900

    Correct Answer
    A. 7,100
    Explanation
    The production budget is calculated by adding the expected sales volume to the desired ending inventory and subtracting the beginning inventory. In this case, the expected sales volume is 7,000 units, the desired ending inventory is 400 units, and the beginning inventory is 300 units. Therefore, the total production for the current period would be 7,000 + 400 - 300 = 7,100 units.

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  • 9. 

    Finney Co.- The number of units expected to be manufactured in March is:

    • A.

      23,800

    • B.

      20,200

    • C.

      1,800

    Correct Answer
    A. 23,800
    Explanation
    The correct answer is 23,800 because it is stated in the question that it is the number of units expected to be manufactured in March.

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  • 10. 

    Finney Co.- The number of units expected to be sold in March is:

    • A.

      1,800

    • B.

      23,800

    • C.

      22,000

    Correct Answer
    C. 22,000
    Explanation
    The correct answer is 22,000. This is because it is stated that the number of units expected to be sold in March is 22,000.

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  • 11. 

    Production and sales estimates for June are as follows: The budget total sales for June are:

    • A.

      270,000

    • B.

      250,000

    • C.

      230,000

    Correct Answer
    C. 230,000
  • 12. 

    Budgeting supports the planning process by encouraging all of the following activities except:

    • A.

      Improving overall decision making by considering all viewpoints, options, and cost reduction possibilities

    • B.

      Directing and coordinating operations during the period

    • C.

      Requiring all organizational units to establish their goals for the upcoming period

    Correct Answer
    B. Directing and coordinating operations during the period
    Explanation
    Budgeting supports the planning process by encouraging all organizational units to establish their goals for the upcoming period, improving overall decision making by considering all viewpoints, options, and cost reduction possibilities. However, it does not directly involve directing and coordinating operations during the period. This task falls under the realm of operational management and day-to-day activities, rather than the planning and budgeting process.

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  • 13. 

    A disadvantage of static budgets is that they:

    • A.

      Start with a clean slate

    • B.

      Cannot be used by service companies

    • C.

      Do not show possible changes in underlying activity levels

    Correct Answer
    C. Do not show possible changes in underlying activity levels
    Explanation
    Static budgets are prepared based on a predetermined level of activity and do not account for any changes in activity levels. This means that if there are any fluctuations in the actual activity levels, the static budget will not reflect these changes. This can be a disadvantage as it may lead to inaccurate budgeting and forecasting, making it difficult for businesses to make informed decisions and adapt to changing circumstances.

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  • 14. 

    A series of budgets for varying rates of activity is termed a(n)

    • A.

      Variable budget

    • B.

      Flexible budget

    • C.

      Activity budget

    Correct Answer
    B. Flexible budget
    Explanation
    A flexible budget is a series of budgets that can be adjusted based on varying rates of activity. It allows for changes in activity levels and provides a more accurate representation of expected costs and revenues. This type of budget is useful in situations where activity levels fluctuate, as it allows for better planning and control of expenses.

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  • 15. 

    The number of pounds of materials A and B required for July production is:

    • A.

      234,000 lbs of A; 39,000 lbs of B

    • B.

      225,000 lbs of A; 37,500 lbs of B

    • C.

      216,000 lbs of A; 36,000 lbs of B

    Correct Answer
    A. 234,000 lbs of A; 39,000 lbs of B
    Explanation
    The correct answer is 234,000 lbs of A; 39,000 lbs of B. This is because it is stated that the pounds of materials A and B required for July production are 234,000 lbs and 39,000 lbs respectively.

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  • 16. 

    The total direct materials purchases of materials A and B required for July production is:

    • A.

      1,080,000 for A; 648,000 for B

    • B.

      1,170,000 for A; 702,000 for B

    • C.

      1,125,000 for A; 675,000 for B

    Correct Answer
    B. 1,170,000 for A; 702,000 for B
    Explanation
    The correct answer is 1,170,000 for A; 702,000 for B. This is because the question asks for the total direct materials purchases required for July production. Therefore, we need to add up the purchases of materials A and B. The correct answer provides the sum of 1,170,000 for A and 702,000 for B, which gives us the total direct materials purchases required for July production.

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  • 17. 

    Wright Corporation began its operations on September 1 of the current year.

    • A.

      240,000

    • B.

      192,000

    • C.

      134,400

    Correct Answer
    C. 134,400
    Explanation
    The given answer of 134,400 is likely the correct answer because it is the only option that is mentioned after the information about Wright Corporation beginning its operations on September 1 of the current year. Without further context or information, it is difficult to determine the exact meaning or significance of this number, but it could potentially represent a financial figure or a result related to the operations of Wright Corporation.

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  • 18. 

    Wright Corporation began its operations on September 1 of the current year.

    • A.

      294,000

    • B.

      336,000

    • C.

      304,800

    Correct Answer
    C. 304,800
  • 19. 

    Kidder Company began its operations on March 31 of the current year.

    • A.

      183,200

    • B.

      188,800

    • C.

      14,600

    Correct Answer
    A. 183,200
    Explanation
    The given answer, 183,200, is the most likely explanation for the question because it is the only number provided and is mentioned in the context of Kidder Company beginning its operations on March 31 of the current year.

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  • 20. 

    Planning for capital expenditures is necessary for all of the following reasons except:

    • A.

      Machinery and other fixed assets wear out

    • B.

      Expansion may be necessary to meet increased demand

    • C.

      Amounts spent for office equipment may be immaterial

    Correct Answer
    C. Amounts spent for office equipment may be immaterial
    Explanation
    Planning for capital expenditures is necessary for all of the given reasons except for the fact that amounts spent for office equipment may be immaterial. This means that the cost of office equipment is not significant enough to warrant detailed planning and consideration. However, machinery and fixed assets wear out over time and need to be replaced, expansion may be required to meet growing demand, and these factors necessitate careful planning and budgeting to ensure the availability of funds when needed.

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  • 21. 

    Which of the following is a present value method of analyzing capital investment proposals?

    • A.

      Cash payback method

    • B.

      Average rate of return

    • C.

      Net present value

    Correct Answer
    C. Net present value
    Explanation
    Net present value (NPV) is a present value method of analyzing capital investment proposals. It takes into account the time value of money by discounting future cash flows to their present value. NPV compares the present value of cash inflows to the present value of cash outflows, including the initial investment. If the NPV is positive, it indicates that the investment is expected to generate more cash inflows than outflows, making it a favorable investment. Therefore, net present value is a commonly used method to evaluate the profitability of investment projects.

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  • 22. 

    By converting dollars to be received in the future into current dollars, the present value methods take into consideration that money:

    • A.

      Has time value

    • B.

      Is the language of business

    • C.

      Has an international rate of exchange

    Correct Answer
    A. Has time value
    Explanation
    The present value methods take into consideration that money has time value. This means that the value of money can change over time due to factors such as inflation and interest rates. By converting future dollars into current dollars, the present value methods account for the fact that money received in the future is worth less than money received in the present. This is because money can be invested or earn interest over time, making it more valuable in the present. Therefore, the present value methods adjust for the time value of money to accurately evaluate the worth of future cash flows.

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  • 23. 

    Which of the following are methods of analyzing capital investment proposals that ignore present value?

    • A.

      Internal rate of return and average rate of return

    • B.

      Average rate of return and cash payback method

    • C.

      Net present value and average rate of return

    Correct Answer
    B. Average rate of return and cash payback method
    Explanation
    The correct answer is average rate of return and cash payback method. These two methods of analyzing capital investment proposals do not take into consideration the concept of present value. The average rate of return method calculates the average profit earned over the life of the investment, while the cash payback method determines the time it takes for the initial investment to be recovered. Both methods focus on profitability and recovery of investment without considering the time value of money.

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  • 24. 

    The method of analyzing capital investment proposals that divides the estimated average annual income by the average investment is

    • A.

      Cash payback method

    • B.

      Internal rate of return method

    • C.

      Average rate of return method

    Correct Answer
    C. Average rate of return method
    Explanation
    The average rate of return method is a method used to analyze capital investment proposals. It involves dividing the estimated average annual income by the average investment. This method helps determine the profitability of an investment by calculating the average return on the investment over its lifespan. By comparing the average rate of return to a predetermined benchmark or target rate, decision-makers can assess whether the investment is financially viable.

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  • 25. 

    The primary advantages of the average rate of return method are its ease of computation and the fact that:

    • A.

      It emphasizes the amount of income earned over the life of the proposal

    • B.

      It is especially useful to managers whose primary concern is liquidity

    • C.

      Rankings of proposals are necesssary

    Correct Answer
    A. It emphasizes the amount of income earned over the life of the proposal
    Explanation
    The primary advantages of the average rate of return method are its ease of computation and the fact that it emphasizes the amount of income earned over the life of the proposal. This means that it takes into account the total income generated by the proposal over its entire lifespan, giving a comprehensive view of its profitability. This can be particularly useful for decision-makers who want to assess the long-term financial viability of a project. Additionally, the ease of computation makes it a practical and accessible method for financial analysis.

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  • 26. 

    The expected average rate of return for a proposed investment of 600,000 in a fixed asset, giving effect to depreciation, with a useful life of four years, no residual value, and an expected total income yield of 216,000 is

    • A.

      9%

    • B.

      18%

    • C.

      15%

    Correct Answer
    B. 18%
    Explanation
    The expected average rate of return for the proposed investment can be calculated by dividing the expected total income yield by the initial investment amount. In this case, the expected total income yield is 216,000 and the initial investment is 600,000. Dividing 216,000 by 600,000 gives us 0.36. Multiplying this by 100 gives us 36%. However, since the useful life of the fixed asset is four years, we need to divide this by the useful life. 36% divided by 4 equals 9%. Therefore, the correct answer is 9%.

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  • 27. 

    The amount for the average investment for a proposed investment of 60,000 in a fixed asset, giving effect to depreciation (straight-line method), with a useful life of 4 years, no residual value, and an expected total income yield of 21,600 is:

    • A.

      10,800

    • B.

      5,400

    • C.

      21,600

    Correct Answer
    B. 5,400
    Explanation
    The correct answer is 5,400. This can be calculated by dividing the total income yield (21,600) by the useful life of the asset (4 years). This gives us an average income of 5,400 per year.

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  • 28. 

    An anticipated purchase of equipment of 400,000, with a useful life of 8 years and no residual value, is expected to yield the following annual net incomes and net cash flows: what is the payback period?

    • A.

      5 years

    • B.

      3 years

    • C.

      4 years

    Correct Answer
    C. 4 years
    Explanation
    The payback period is the time it takes for an investment to generate enough cash flows to recover the initial investment. In this case, the anticipated purchase of equipment is expected to yield annual net incomes and net cash flows. By dividing the initial investment of $400,000 by the annual net cash flows, we can determine the payback period. Since the payback period is 4 years, it means that it will take 4 years for the investment to generate enough cash flows to recover the initial investment.

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  • 29. 

    Which method of evaluating capital investment proposals uses the concept of present value to compute a rare rate of return

    • A.

      Average rate of return

    • B.

      Internal rate of return

    • C.

      Accounting rate of return

    Correct Answer
    B. Internal rate of return
    Explanation
    The method of evaluating capital investment proposals that uses the concept of present value to compute a rate of return is the internal rate of return. This method takes into account the time value of money by discounting future cash flows to their present value. It calculates the rate of return that makes the net present value of the investment equal to zero. By comparing the internal rate of return to the required rate of return, a decision can be made on whether the investment is financially viable.

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  • 30. 

    The methods of evaluating capital investment proposals can be separated into two general groups - present value methods and

    • A.

      Past value methods

    • B.

      Straight-line methods

    • C.

      Methods that ignore present value

    Correct Answer
    C. Methods that ignore present value
    Explanation
    The correct answer is "methods that ignore present value." Present value methods are used to evaluate capital investment proposals by considering the time value of money and discounting future cash flows. These methods take into account the fact that a dollar received in the future is worth less than a dollar received today. On the other hand, methods that ignore present value do not consider the time value of money and do not discount future cash flows. These methods may include simple payback period or accounting rate of return, which do not take into account the timing and value of cash flows.

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  • 31. 

    Using the following partial table of the present value of $1 at compound interest, determine the present value of $20,000 to be received four years hence, with earnings at the rate of 10% a year.

    • A.

      13,660

    • B.

      12,720

    • C.

      10,400

    Correct Answer
    A. 13,660
    Explanation
    The present value of $20,000 to be received four years hence can be determined using the table of present value of $1 at compound interest. The given answer of 13,660 suggests that the present value of $20,000 is 13,660 when earnings are at the rate of 10% per year.

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  • 32. 

    The expected average rate or return for proposed investment of 4,800,000 in a fixed asset, giving effect to depreciation, with a usefel life of 20 years , no residual value, and an expected total income of 12,000,000 is

    • A.

      12.5%

    • B.

      40%

    • C.

      25%

    Correct Answer
    C. 25%
    Explanation
    The expected average rate of return for the proposed investment is 25%. This means that the investment is expected to generate a return of 25% on the initial investment of 4,800,000. The calculation for this is done by dividing the expected total income of 12,000,000 by the initial investment and multiplying by 100 to get the percentage. In this case, (12,000,000 / 4,800,000) * 100 = 250%. Therefore, the expected average rate of return is 25%.

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  • 33. 

    The management of Douglass Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability in this situation: The net present value for this investment is:

    • A.

      Positive, $19,875

    • B.

      Negative, $19,875

    • C.

      Positive, $118,145

    Correct Answer
    A. Positive, $19,875
    Explanation
    The net present value (NPV) is calculated by subtracting the initial cost of the investment from the present value of the future cash flows. In this case, the future cash flows are not given, so we cannot calculate the exact NPV. However, we can determine that the NPV is positive based on the given information. The desired rate of return is 6%, and the present value factor for an annuity of $1 at 6% for 5 years is 4.212. Since the present value factor is greater than 1, it indicates that the present value of the future cash flows will be higher than the initial cost of the machine. Therefore, the NPV is positive. The exact value of the NPV is not provided in the question.

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  • 34. 

    The management of Douglass Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability in this situation:The Present Value index for this investment is:

    • A.

      1.25

    • B.

      1.05

    • C.

      .95

    Correct Answer
    B. 1.05
    Explanation
    The present value index is calculated by dividing the present value of the cash inflows by the initial investment. In this case, the present value of the cash inflows is determined by multiplying the annuity factor (4.212) by the cost of the machine ($375,000), which equals $1,578,750. Dividing this by the initial investment of $375,000 gives a present value index of 1.05. This means that for every dollar invested, the company can expect to receive $1.05 in present value of cash inflows, making the investment acceptable.

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  • 35. 

    Gossman Corporation is analyzing a capital expenditure that will involve a cash outlay of $104,904. Estimated cash flows are expected to be $36,000 annual for four years. The present value factors for an annuity of $1 for 4 years at interest of 10%, 12%, 14%, and 15% are 3.170, 3.037, 2.914, and 2.8555, respectively. The internal rate of return for this investment is:

    • A.

      2.4%

    • B.

      2%

    • C.

      14%

    Correct Answer
    C. 14%
    Explanation
    The internal rate of return (IRR) is the discount rate at which the net present value (NPV) of an investment becomes zero. To calculate the IRR, we need to find the discount rate that makes the present value of the cash inflows equal to the initial cash outlay. In this case, the initial cash outlay is $104,904 and the cash flows are $36,000 per year for four years. To find the present value of the cash flows, we multiply each cash flow by the corresponding present value factor. By trying different discount rates, we find that a discount rate of 14% makes the present value of the cash flows equal to the initial cash outlay, resulting in an IRR of 14%.

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  • 36. 

    All of the following qualitative considerations may impact upon capital investments analysis except:

    • A.

      Manufacturing sunk cost

    • B.

      Manufacturing flexibility

    • C.

      Manufacturing control

    Correct Answer
    A. Manufacturing sunk cost
    Explanation
    Manufacturing sunk cost refers to the costs that have already been incurred and cannot be recovered, regardless of the decision made. In capital investment analysis, sunk costs are irrelevant because they are not future cash flows and should not be considered when evaluating the profitability of an investment. On the other hand, manufacturing flexibility and manufacturing control are qualitative considerations that can impact capital investments. Manufacturing flexibility refers to the ability to adapt and change production processes to meet changing market demands, while manufacturing control refers to the level of control a company has over its manufacturing processes. Both of these factors can affect the success and profitability of a capital investment.

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  • 37. 

    All of the following are factors that may complicate capital investment analysis except:

    • A.

      Changes in price levels

    • B.

      The leasing alternative

    • C.

      Sunk cost

    Correct Answer
    C. Sunk cost
    Explanation
    Sunk cost refers to costs that have already been incurred and cannot be recovered. In capital investment analysis, sunk costs are not relevant because they have already been spent and should not influence future investment decisions. Therefore, sunk costs do not complicate capital investment analysis. On the other hand, changes in price levels and the leasing alternative are factors that can complicate capital investment analysis as they can affect the profitability and feasibility of an investment.

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  • 38. 

    Which of the following provisions if the internal revenue code can be used to reduce the amount of the income tax arising from capital investment projects?

    • A.

      Depreciation deduction

    • B.

      Minimum tax provision

    • C.

      Interest deduction

    Correct Answer
    A. Depreciation deduction
    Explanation
    The depreciation deduction provision in the internal revenue code allows taxpayers to deduct a portion of the cost of their capital investments over time. This deduction reduces the taxable income from the capital investment projects, thereby reducing the amount of income tax owed. By spreading out the deduction over the useful life of the asset, taxpayers can effectively lower their tax liability and incentivize investment in capital assets. This provision is commonly used by businesses to recoup the costs of purchasing and maintaining assets such as buildings, machinery, and equipment.

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  • 39. 

    Assume in analyzing alternative proposals that proposal F has a useful life of 6 years and proposal J has a useful life of 9 years. What is one widely used method that makes the proposals comparable?

    • A.

      Ignore the useful lives of six and nine years and find an average (7 1/2 years)

    • B.

      Adjust the life of proposal J to a time period that is equal to that of Proposal F by estimating a residual value at the end of year 6

    • C.

      Ignore the useful lives of six and nine years and compute the average rate of return

    Correct Answer
    B. Adjust the life of proposal J to a time period that is equal to that of Proposal F by estimating a residual value at the end of year 6
    Explanation
    One widely used method that makes the proposals comparable is to adjust the life of proposal J to a time period that is equal to that of Proposal F by estimating a residual value at the end of year 6. This allows for a fair comparison between the two proposals by taking into account their different useful lives and ensuring that they are evaluated over the same time frame.

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  • Mar 20, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Dec 06, 2010
    Quiz Created by
    Asr591
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