Financial Statements MCQ Questions Answers

1. Property, plant, and equipment are categorized as ________.

2. Which transaction does NOT result in an inflow of cash?

3. Which ratio measure how many times Accounts Receivable is turned over during each period?

4. ____________ is/are the excess of expenses over revenue for a given period.

5. The ________________ generally includes cash, marketable securities, and accounts receivable in its numerator.

6. Assume that the debt-equity ratio of XYZ Company is .5 to 1. If the company issued a long-term note in the purchase of some land, what effect would this transaction have on the debt-equity ratio?

7. Which is NOT used to assess short-term liquidity risk?

8. Assume that the current ratio of XYZ Company is 2.5:1. What effect would an equal dollar increase in current assets and current liabilities have on the current ratio?

9. The _____________ states that if bond indentures require periodic repayments of principal on long-term liabilities, the denominator of the interest coverage ratio might include such repayments.

10. Which would NOT be used to evaluate a firm's operating cycle?

11. In computing the rate of return on assets, interest expense net of income tax savings is added to net income. Assume that XYZ Company has interest expense of $20 million and net income of $50 million. Assume that the income tax rate is 40 percent. In computing the rate of return on assets, what would the numerator be?

12. XYZ Company reports total assets and total liabilities of $425,000 and $200,000, respectively, at the conclusion of its first year of business. The company earned $95,000 during the first year and distributed $50,000 in dividends. What was the firm's contributed capital?

13. Which is NOT a current liability?

14. The _______________is supposed to indicate the ability of the firm to meet its current obligations.

15. The _______________ is used to indicate the relative protection of bondholders and to assess the probability of a firm's failing to meet required interest payments.

16. Which ratio use sales in its numerator?

17. Revenues are a measure of the inflows of assets (or reductions in liabilities) from selling goods and providing services to customers. Which is NOT a revenue transaction?

18. Which is NOT a measure of profitability?

19. Financial statements that are prepared using a particular set of assumptions are called ___________________.

20. Outflows of assets used up in generating revenue are called ______________.

21. The ______________ is the sequence of activities in which inventory is purchased on account from suppliers, inventory is sold on account to customers, customers pay the amounts due, and suppliers are paid the amounts due to them.

22. A company wants to increase its rate of return on assets from 8 percent to 14 percent. It is believed that the firm's total assets turnover of .667 cannot be easily increased at the present time. What must the profit margin percentage be to achieve the desired 14 percent rate of return on assets?

23. The Rate of Return on Assets can be disaggregated into two other ratios. Which is one of the two ratios?

24. Financial leverage can increase the return to common shareholders as long as ______________.

25. Which represent a measure of the assets provided by the original shareholder in exchange for an ownership interest in the firm?

26. Which of the following ratios measures the firm's performance in generating earnings that are assignable to the common shareholders' equity?

27. Which would NOT appear on an Income Statement?

28. The _______________ represent/s the earnings, or profits, in excess of dividends distributed to shareholders that have been realized by the firm since its formation.

29. The _____________ considers the availability of liquid assets to cover various levels of debt. For a financially healthy firm, the ratio should be 20 percent or more.

30. XYZ Company's retained earnings increased by $100,000 during the year. Also during the year, dividends totaling $22,500 were declared and paid to shareholders. What was XYZ Company's net income for the year?

31. Which ratio would probably NOT be used to analyze the Total Assets Turnover Ratio?

32. The _______________ is the financial statement that presents the results of earnings activity over time.

33. In computing the rate of return on common shareholders' equity, do dividends on preferred stock have to be added to net income?

34. In the _____________, earnings per share amount are compared with the market price of the stock.

35. Which transactions does NOT result in an outflow of cash?

36. Which ratio provide a measure of the sales generated for each dollar invested in assets?

37. The ________________ indicates the number of times that the average inventory has been sold during a particular period.

38. A creditor's claim on the resources of the company is called ____________.

39. During the year, XYZ Company issued additional common stock. This transaction is an example of which of the following?

40. Which is NOT a current asset?

41. Economic resources that have the potential or ability to provide future services or benefits to the firm are called _________________.

42. A __________________ involves comparing the changes in a firm's ratios over a multiple-year period.

43. XYZ Company reports total assets and total shareholders' eQuity of $375,000 and $220,000, respectively, at the end of its first year of business. The company reported earnings of $100,000 and distributed $40,000 in dividends during its first year. Also during the year, the company issued additional shares of stock for $75,000. What are the firm's liabilities at year end and the firm's contributed capital at the beginning of the year, respectively?

44. Which of the following organizations, despite the fact that it has no legal authority, has played a role in developing acceptable accounting principles worldwide?

45. Which term refer to the practice of using debt and preferred stock for financing in order to increase the return to the common shareholders' equity?

46. The phenomenon of common shareholders trading at extra risk for a potentially higher return is called __________________.

47. XYZ Company sells on credit with terms of Net 30 days. If the company's credit policy and collection activity are working efficiently, how many times should the company's Accounts Receivable turn in a year?

48. The primary source of cash for most firms should be _______________.

49. The ______________ is a private sector group that has been given the responsibility of establishing acceptable accounting standards in the United States.

50. Which ratio assess the firm's operating performance independently of financing decisions?

51. The ______________ is computed by dividing cash flow from operations by average current liabilities.

52. A ______________ involves comparing a given firm's ratios with those of other firms for a particular period.

53. Which of the following approaches does the Financial Accounting Standards Board follow in establishing generally accepted accounting principles?

54. Which can be described as 'claims on resources that result from benefits previously received by the company, and which require that a specified amount be paid on a specified date'?

55. The ______________ is a useful measure for assessing a firm's performance in using assets to generate earnings.

56. Which term refers to the 'nearness of cash' of a firm

57. In computing the quick ratio, which item is customarily excluded from the numerator?

58. The ________________ indicates the length of the period between the purchase of inventory on account and the payment of cash to suppliers.

59. Which ratio indicate the proportion of a firm's long term capital that is provided by creditors

60. The ____________ is an agency of the federal government and has the legal authority to set acceptable accounting standards in the United States.

61. Which would not appear on a Balance Sheet?

62. The ____________ is the financial statement that presents an overall view of a company's financial position as of a given date.

63. Which equation is incorrect?

64. Which does NOT describe an expense?

65. When an auditor feels that an opinion cannot be expressed as to the fairness of a company's financial statements as a whole, he issues a/an ________________ .

66. Which ratio would NOT be used to assess a firm's long-term liquidity risk?

67. Which transaction does NOT result in an inflow of cash?

68. If a company's rate of return on assets is 20 percent and the profit margin percentage is 5 percent, the company's total assets turnover must be which of the following?

69. The ______________ is computed by dividing net income attributable to common stock by the average number of common shares outstanding during the period.

70. Comparisons of a given firm's ratios with those of other firms for a particular period is referred to as ____________________.

71. The _______________ provides a measure of the sales generated for each dollar invested in fixed assets.

72. The _______________ is a measure of a firm's ability to control the level of costs, or expenses, relative to sales.

73. Which financial statement provide information about inflows and outflows of cash?

74. The _______________ reports the net cash flows relating to operating, investing, and financing activities for a particular period of time.

75. Which financial statement provide information about economic resources and claims on those resources?

76. Where should purchased machinery appear on the statement of cash flows?

77. Where would an entry be made for the purchase of delivered goods or completed services?

78. True or false? A declared dividend reduces shareholders’ equity.

79. On a balance sheet, which of the following is not subject to depreciation or amortization?

80. Which four components are contained in a financial statement?

81. Which of the following is NOT a possible indication that a lease should be considered a Capital lease?

82. Which of the following R&D costs should NOT be expensed?

83. Accumulated Depreciation falls under which of the following categories?

84. A company lost a building with a book value of $65,000 and fair value of $80,000 to a flood. $20,000 was paid for removal and clean-up. What is the loss on this involuntary conversion?

85. Which of the following journals entries correctly records the disposal of a fully depreciated piece of machinery from which no proceeds were received?

86. True or false? Freight-out is classified as an operating expense.

87. What does a company's Days Sales Outstanding (DSO) reveal?

88. According to SOX, an audit committee must have AT LEAST how many members?

89. How should a customer overpayment be classified in the financial statements?

90. A deferred tax asset would result from which of the following situations:

91. An employer grants each of its two employees 10 sick days to be used throughout the year or carried into the next year. Both employees are paid $200 per day. If neither employee used any sick days in Year 1, what amount should be accrued as compensated absence liability at the end of the year?

92. If a company is using the installment method of accounting for a project with a gross profit of 30%, how much revenue will be recorded when the initial $100,000 payment is received?

93. A US company invoiced a German company in USD in January and received payment in February. The Euro weakened from January to February. In which section of the financial statements will the US company record the foreign currency gain?

94. Which of the following is a contra-asset?

95. According to the Financial Accounting Standards Board (FASB), what are UTPs?

96. If a share of common stock with a par value of $.01 is issued for $5 the journal entry to record the transaction would be:

97. Which basic accounting principle directs accountants to disclose anticipated losses but not anticipated gains?

98. Which components are necessary to compute a company's break-even point?

99. How is the acid-test ratio calculated?

100. What is the appropriate exchange rate to use when translating the income statement from functional to reporting currency?