Q. If a company switches from the straight-line method to the declining balance method, what is the impact on financial statements?
A.
Increased net income in the first year.
B.
Decreased net income in the first year.
C.
No impact on net income.
D.
Increased asset value.
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Solution
Switching to the declining balance method typically results in higher depreciation expenses in the early years, leading to decreased net income.
Correct Answer:
B
— Decreased net income in the first year.
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Q. If a company uses FIFO and the cost of inventory is rising, how will this affect the cost of goods sold?
A.
Increase
B.
Decrease
C.
Remain the same
D.
Cannot be determined
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Solution
Under FIFO, older, cheaper costs are used for cost of goods sold, leading to a lower cost of goods sold when prices are rising.
Correct Answer:
B
— Decrease
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Q. If a company uses FIFO during periods of inflation, what effect does it have on the balance sheet?
A.
Higher inventory values
B.
Lower inventory values
C.
No effect on inventory values
D.
Increased liabilities
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Solution
Using FIFO during periods of inflation results in higher inventory values on the balance sheet because older, cheaper costs are recorded.
Correct Answer:
A
— Higher inventory values
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Q. If a company uses FIFO for inventory valuation, how does it affect the ending inventory during inflation?
A.
Higher ending inventory
B.
Lower ending inventory
C.
No effect
D.
Depends on sales
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Solution
FIFO results in a higher ending inventory value during inflation as the most recent costs are not included in COGS.
Correct Answer:
A
— Higher ending inventory
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Q. If a company uses FIFO for inventory valuation, how will rising prices affect the financial statements?
A.
Higher ending inventory and lower cost of goods sold
B.
Lower ending inventory and higher cost of goods sold
C.
No effect on financial statements
D.
Higher cost of goods sold and lower net income
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Solution
Under FIFO, in times of rising prices, the ending inventory will be higher and the cost of goods sold will be lower.
Correct Answer:
A
— Higher ending inventory and lower cost of goods sold
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Q. If a company uses FIFO for inventory valuation, what effect does it have on the balance sheet during inflation?
A.
Assets are understated.
B.
Assets are overstated.
C.
Liabilities are understated.
D.
Equity is unaffected.
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Solution
Under FIFO during inflation, older, cheaper inventory costs remain on the balance sheet, leading to an overstatement of assets.
Correct Answer:
B
— Assets are overstated.
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Q. If a company uses FIFO, how does it affect the balance sheet during inflation?
A.
Assets are overstated
B.
Liabilities are overstated
C.
Equity is understated
D.
No effect
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Solution
Using FIFO during inflation can lead to an overstatement of assets on the balance sheet because older, cheaper inventory costs are recorded.
Correct Answer:
A
— Assets are overstated
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Q. If a company uses LIFO during a period of inflation, what effect does it have on taxes?
A.
Higher taxes due to higher profits.
B.
Lower taxes due to lower profits.
C.
No effect on taxes.
D.
Taxes are deferred indefinitely.
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Solution
LIFO results in lower profits during inflation, leading to lower taxes.
Correct Answer:
B
— Lower taxes due to lower profits.
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Q. If a company uses LIFO for tax purposes, what must it also use for financial reporting?
A.
FIFO
B.
Weighted Average
C.
LIFO
D.
Specific Identification
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Solution
If a company uses LIFO for tax purposes, it must also use LIFO for financial reporting due to the consistency principle.
Correct Answer:
C
— LIFO
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Q. If a company uses LIFO, what happens to the ending inventory valuation during a period of deflation?
A.
Increases
B.
Decreases
C.
Remains the same
D.
Cannot be determined
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Solution
Ending inventory valuation increases under LIFO during a period of deflation as older, cheaper costs remain in inventory.
Correct Answer:
A
— Increases
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Q. If a company uses the declining balance method and has a depreciation rate of 30%, what is the depreciation expense for the first year on an asset costing $5,000?
A.
$1,500
B.
$1,000
C.
$1,200
D.
$1,500
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Solution
Depreciation expense = Cost x Depreciation Rate = $5,000 x 30% = $1,500.
Correct Answer:
A
— $1,500
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Q. If a company uses the sum-of-the-years'-digits method, how is the depreciation calculated?
A.
Based on the asset's age
B.
Based on the asset's cost and salvage value
C.
Based on the total number of years of useful life
D.
Based on the asset's market value
Show solution
Solution
The sum-of-the-years'-digits method calculates depreciation based on the total number of years of useful life.
Correct Answer:
C
— Based on the total number of years of useful life
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Q. If a company uses the units of production method for depreciation, what factor is primarily considered?
A.
Time
B.
Usage
C.
Market Value
D.
Cost
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Solution
The units of production method bases depreciation on the actual usage or production output of the asset.
Correct Answer:
B
— Usage
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Q. If a company uses the units of production method, what factor primarily determines the depreciation expense?
A.
The asset's purchase price
B.
The estimated useful life
C.
The number of units produced
D.
The residual value
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Solution
In the units of production method, the depreciation expense is based on the actual number of units produced, making it variable.
Correct Answer:
C
— The number of units produced
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Q. If a company wants to achieve a 15% return on investment (ROI) and the total investment is $200,000, what is the expected profit?
A.
$25,000
B.
$30,000
C.
$35,000
D.
$40,000
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Solution
Expected profit is calculated as ROI * Total Investment. Here, 15% of $200,000 is $30,000.
Correct Answer:
B
— $30,000
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Q. If a company wants to achieve a profit of $10,000 and has fixed costs of $4,000, how much contribution margin is needed if the contribution margin per unit is $25?
A.
$400
B.
$600
C.
$800
D.
$1,000
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Solution
Required contribution margin = Fixed costs + Desired profit = $4,000 + $10,000 = $14,000. Number of units = $14,000 / $25 = 560 units.
Correct Answer:
D
— $1,000
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Q. If a company wants to achieve a profit of $10,000 and has fixed costs of $5,000 with a contribution margin of $10 per unit, how many units must be sold?
A.
1,000
B.
500
C.
1,500
D.
2,000
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Solution
Required sales = (Fixed costs + Desired profit) / Contribution margin per unit = ($5,000 + $10,000) / $10 = 1,500 units
Correct Answer:
A
— 1,000
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Q. If a company’s revenue increases by 15% from $200,000, what is the new revenue?
A.
$230,000
B.
$240,000
C.
$250,000
D.
$220,000
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Solution
Increase = 15% of 200,000 = 30,000. New Revenue = 200,000 + 30,000 = $230,000.
Correct Answer:
A
— $230,000
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Q. If a company’s revenue increases from $500,000 to $600,000, what is the percentage increase in revenue?
A.
20%
B.
25%
C.
15%
D.
10%
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Solution
Percentage Increase = ((New Revenue - Old Revenue) / Old Revenue) * 100 = ((600,000 - 500,000) / 500,000) * 100 = 20%.
Correct Answer:
A
— 20%
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Q. If a company’s revenue is $300,000 and its expenses are $250,000, what is its profit margin?
A.
10%
B.
20%
C.
15%
D.
5%
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Solution
Profit Margin = (Revenue - Expenses) / Revenue = (300,000 - 250,000) / 300,000 = 0.1667 or 16.67%.
Correct Answer:
B
— 20%
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Q. If a company’s sales increase from $1,000,000 to $1,200,000, what is the percentage increase in sales?
A.
10%
B.
15%
C.
20%
D.
25%
Show solution
Solution
Percentage increase is calculated as (new value - old value) / old value * 100. Thus, ($1,200,000 - $1,000,000) / $1,000,000 * 100 = 20%.
Correct Answer:
C
— 20%
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Q. If a company’s total assets are $1,000,000 and total liabilities are $600,000, what is its equity?
A.
$200,000
B.
$300,000
C.
$400,000
D.
$500,000
Show solution
Solution
Equity is calculated as total assets minus total liabilities. Thus, $1,000,000 - $600,000 = $400,000.
Correct Answer:
C
— $400,000
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Q. If a company’s total assets are $500,000 and total liabilities are $300,000, what is its equity?
A.
$200,000
B.
$300,000
C.
$500,000
D.
$100,000
Show solution
Solution
Equity = Total Assets - Total Liabilities = 500,000 - 300,000 = $200,000.
Correct Answer:
A
— $200,000
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Q. If a manager allocates 40% of their time to planning, 30% to organizing, 20% to leading, and 10% to controlling, how much time do they spend on leading?
A.
2 hours
B.
3 hours
C.
4 hours
D.
5 hours
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Solution
If the manager works 20 hours a week, 20% of 20 hours is 4 hours spent on leading.
Correct Answer:
C
— 4 hours
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Q. If a manager has a budget of $50,000 and spends 60% on marketing, how much is left for other expenses?
A.
$20,000
B.
$25,000
C.
$30,000
D.
$35,000
Show solution
Solution
60% of $50,000 is $30,000, leaving $20,000 for other expenses.
Correct Answer:
B
— $25,000
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Q. If a person is a resident in India, what is the basic condition for determining their residential status?
A.
Age
B.
Income
C.
Duration of stay
D.
Occupation
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Solution
The basic condition for determining residential status is the duration of stay in India.
Correct Answer:
C
— Duration of stay
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Q. If a product costs $80 to produce and is sold for $120, what is the markup percentage?
A.
25%
B.
33.33%
C.
40%
D.
50%
Show solution
Solution
Markup percentage is calculated as (selling price - cost) / cost * 100. Thus, ($120 - $80) / $80 * 100 = 50%.
Correct Answer:
B
— 33.33%
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Q. If a product has a contribution margin of $50 and fixed costs of $10,000, how many units need to be sold to achieve a target profit of $5,000?
A.
300 units
B.
200 units
C.
150 units
D.
100 units
Show solution
Solution
Required units = (Fixed Costs + Target Profit) / Contribution Margin = ($10,000 + $5,000) / $50 = 300 units.
Correct Answer:
B
— 200 units
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Q. If a product has a cost of $15 and is sold for $25, what is the markup percentage?
A.
40%
B.
50%
C.
60%
D.
70%
Show solution
Solution
Markup Percentage = ((Selling Price - Cost) / Cost) x 100 = (($25 - $15) / $15) x 100 = 66.67%.
Correct Answer:
B
— 50%
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Q. If a product has a selling price of $100, variable costs of $60, and fixed costs of $20, what is the contribution per unit?
A.
$40
B.
$20
C.
$60
D.
$100
Show solution
Solution
Contribution per unit = Selling Price - Variable Costs = $100 - $60 = $40.
Correct Answer:
A
— $40
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