1. Property, plant, and equipment are categorized as ________.
Answer
Correct Answer:
Fixed assets
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2. Which of the following transactions does NOT result in an inflow of cash?
Answer
Correct Answer:
Acquisition of additional equipment
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3. Which of the following ratios measures how many times Accounts Receivable is turned over during each period?
Answer
Correct Answer:
Accounts Receivable Turnover Ratio
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4. ____________ is/are the excess of expenses over revenue for a given period.
Answer
Correct Answer:
Net loss
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5. The ________________ generally includes cash, marketable securities, and accounts receivable in its numerator.
Answer
Correct Answer:
Quick Ratio
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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?
Answer
Correct Answer:
It would increase the debt-equity ratio.
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7. Which of the following is NOT used to assess short-term liquidity risk?
Answer
Correct Answer:
Accounts Receivable Turnover
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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?
Answer
Correct Answer:
It would decrease the current ratio.
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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.
Answer
Correct Answer:
Fixed Charges Coverage Ratio
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10. Which of the following would NOT be used to evaluate a firm's operating cycle?
Answer
Correct Answer:
Current Ratio
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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?
Answer
Correct Answer:
$62 million
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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
Answer
Correct Answer:
$180,000
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13. Which of the following is NOT a current liability?
Answer
Correct Answer:
Mortgage Payable
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14. The _______________is supposed to indicate the ability of the firm to meet its current obligations.
Answer
Correct Answer:
Current Ratio
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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.
Answer
Correct Answer:
Interest Coverage Ratio
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16. Which of the following ratios uses sales in its numerator?
Answer
Correct Answer:
Both a & c
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17. Revenues are a measure of the inflows of assets (or reductions in liabilities) from selling goods and providing services to customers. Which of the following is NOT a revenue transaction?
Answer
Correct Answer:
Borrowing money from a local bank to be used in the business
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18. Which of the following is NOT a measure of profitability?
Answer
Correct Answer:
Accounts Payable Turnover Ratio
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19. Financial statements that are prepared using a particular set of assumptions are called ___________________.
Answer
Correct Answer:
Pro-Forma Financial Statements
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20. Outflows of assets used up in generating revenue are called ______________.
Answer
Correct Answer:
Expenses
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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.
Answer
Correct Answer:
Operating Cycle
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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?
Answer
Correct Answer:
21 percent
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23. The Rate of Return on Assets can be disaggregated into two other ratios. Which of the following is one of the two ratios?
Answer
Correct Answer:
Inventory Turnover Ratio
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24. Financial leverage can increase the return to common shareholders as long as ______________.
Answer
Correct Answer:
the rate of return earned on assets exceeds the rate paid for the capital used to acquire those assets
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25. Which of the following represents a measure of the assets provided by the original shareholder in exchange for an ownership interest in the firm?
Answer
Correct Answer:
Shareholders' Equity
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26. Which of the following ratios measures the firm's performance in generating earnings that are assignable to the common shareholders' equity?
Answer
Correct Answer:
Rate of Return on Common Shareholders' Equity
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27. Which of the following would NOT appear on an Income Statement?
Answer
Correct Answer:
Salaries Payable
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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.
Answer
Correct Answer:
Retained Earnings
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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.
Answer
Correct Answer:
Cash Flow from Operations to Total Liabilities Ratio
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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?
Answer
Correct Answer:
$122,500
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31. Which of the following ratios would probably NOT be used to analyze the Total Assets Turnover Ratio?
Answer
Correct Answer:
Long-Term Debt Ratio
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32. The _______________ is the financial statement that presents the results of earnings activity over time.
Answer
Correct Answer:
Income Statement
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33. In computing the rate of return on common shareholders' equity, do dividends on preferred stock have to be added to net income?
Answer
Correct Answer:
No
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34. In the _____________, earnings per share amount are compared with the market price of the stock.
Answer
Correct Answer:
Pricing Earnings Ratio
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35. Which of the following transactions does NOT result in an outflow of cash?
Answer
Correct Answer:
Issuance of long-term debt
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36. Which of the following ratios provides a measure of the sales generated for each dollar invested in assets?
Answer
Correct Answer:
Total Assets Turnover Ratio
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37. The ________________ indicates the number of times that the average inventory has been sold during a particular period.
Answer
Correct Answer:
Inventory Turnover Ratio
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38. A creditor's claim on the resources of the company is called ____________.
Answer
Correct Answer:
a liability
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39. During the year, XYZ Company issued additional common stock. This transaction is an example of which of the following?
Answer
Correct Answer:
A financing activity
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40. Which of the following is NOT a current asset?
Answer
Correct Answer:
Accounts Receivable
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41. Economic resources that have the potential or ability to provide future services or benefits to the firm are called _________________.
Answer
Correct Answer:
assets
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42. A __________________ involves comparing the changes in a firm's ratios over a multiple-year period.
Answer
Correct Answer:
Time-Series Analysis
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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?
Answer
Correct Answer:
$155,000 and $85,000
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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?
Answer
Correct Answer:
IASC
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45. Which of the following terms refers to the practice of using debt and preferred stock for financing in order to increase the return to the common shareholders
Answer
Correct Answer:
Financial Leverage
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46. The phenomenon of common shareholders trading at extra risk for a potentially higher return is called __________________.
Answer
Correct Answer:
financial leverage
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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?
Answer
Correct Answer:
12 times
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48. The primary source of cash for most firms should be _______________.
Answer
Correct Answer:
operating activities
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49. The ______________ is a private sector group that has been given the responsibility of establishing acceptable accounting standards in the United States.
Answer
Correct Answer:
FASB
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50. Which of the following ratios assesses the firm's operating performance independently of financing decisions?
Answer
Correct Answer:
Answers: Rate of Return on Assets
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51. The ______________ is computed by dividing cash flow from operations by average current liabilities.
Answer
Correct Answer:
Cash Flow from Operations to Current Liabilities Ratio
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52. A ______________ involves comparing a given firm's ratios with those of other firms for a particular period.
Answer
Correct Answer:
Cross-Section Analysis
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53. Which of the following approaches does the Financial Accounting Standards Board follow in establishing generally accepted accounting principles?
Answer
Correct Answer:
Both b and c
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54. Which of the following 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"?
Answer
Correct Answer:
Liabilities
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55. The ______________ is a useful measure for assessing a firm's performance in using assets to generate earnings.
Answer
Correct Answer:
Rate of Return on Assets
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56. Which of the following terms refers to the "nearness of cash" of a firm
Answer
Correct Answer:
Liquidity
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57. In computing the quick ratio, which of the following items is customarily excluded from the numerator?
Answer
Correct Answer:
Inventory
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58. The ________________ indicates the length of the period between the purchase of inventory on account and the payment of cash to suppliers.
Answer
Correct Answer:
Accounts Payable Turnover Ratio
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59. Which of the following ratios indicates the proportion of a firm's long term capital that is provided by creditors
Answer
Correct Answer:
Long-Term Debt Ratio
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60. The ____________ is an agency of the federal government and has the legal authority to set acceptable accounting standards in the United States.
Answer
Correct Answer:
SEC
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61. Which of the following would not appear on a Balance Sheet?
Answer
Correct Answer:
Cost of Goods Sold
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62. The ____________ is the financial statement that presents an overall view of a company's financial position as of a given date.
Answer
Correct Answer:
Balance Sheet
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63. Which of the following equations is incorrect?
Answer
Correct Answer:
All of the above equations are correct.
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64. Which of the following does NOT describe an expense?
Answer
Correct Answer:
Dividends paid to shareholders
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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 ________________ .
Answer
Correct Answer:
unqualified opinion
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66. Which of the following ratios would NOT be used to assess a firm's long-term liquidity risk?
Answer
Correct Answer:
Current Ratio
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67. Which of the following transactions does NOT result in an inflow of cash?
Answer
Correct Answer:
Distribution of dividends to shareholders
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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?
Answer
Correct Answer:
4
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69. The ______________ is computed by dividing net income attributable to common stock by the average number of common shares outstanding during the period.
Answer
Correct Answer:
Earnings Per Share
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70. Comparisons of a given firm's ratios with those of other firms for a particular period is referred to as ____________________.
Answer
Correct Answer:
Cross-Section Analysis
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71. The _______________ provides a measure of the sales generated for each dollar invested in fixed assets.
Answer
Correct Answer:
Fixed Asset Turnover Ratio
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72. The _______________ is a measure of a firm's ability to control the level of costs, or expenses, relative to sales.
Answer
Correct Answer:
Profit Margin Ratio
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73. Which of the following financial statements provides information about inflows and outflows of cash?
Answer
Correct Answer:
Statement of Cash Flows
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74. The _______________ reports the net cash flows relating to operating, investing, and financing activities for a particular period of time.
Answer
Correct Answer:
Cash Flow Statement
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75. Which of the following financial statements provides information about economic resources and claims on those resources?
Answer
Correct Answer:
Balance Sheet
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76. Where should purchased machinery appear on the statement of cash flows?
Answer
Correct Answer:
Under cash flows from investing activities
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77. Where would an entry be made for the purchase of delivered goods or completed services?
Answer
Correct Answer:
Under liabilities as accounts payable
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78. True or false? A declared dividend reduces shareholders’ equity.
Answer
Correct Answer:
True
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79. On a balance sheet, which of the following is not subject to depreciation or amortization?
Answer
Correct Answer:
land
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80. Which four components are contained in a financial statement?
Answer
Correct Answer:
Balance sheet, income statement, statement of retained earnings, statement of cash flow
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81. Which of the following is NOT a possible indication that a lease should be considered a Capital lease?
Answer
Correct Answer:
The lease term encompasses half of the useful life of the asset
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82. Which of the following R&D costs should NOT be expensed?
Answer
Correct Answer:
Reimbursed costs
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83. Accumulated Depreciation falls under which of the following categories?
Answer
Correct Answer:
Contra-asset
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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?
Answer
Correct Answer:
$85,000
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85. Which of the following journals entries correctly records the disposal of a fully depreciated piece of machinery from which no proceeds were received?
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86. True or false? Freight-out is classified as an operating expense.
Answer
Correct Answer:
True
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87. What does a company's Days Sales Outstanding (DSO) reveal?
Answer
Correct Answer:
The average number of days it takes a company to convert its account receivables to cash.
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88. According to SOX, an audit committee must have AT LEAST how many members?
Answer
Correct Answer:
3
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89. How should a customer overpayment be classified in the financial statements?
Answer
Correct Answer:
Liability
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90. A deferred tax asset would result from which of the following situations:
Answer
Correct Answer:
A firm overpaid taxes in the current year
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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?
Answer
Correct Answer:
4,000
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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?
Answer
Correct Answer:
$30,000
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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?
Answer
Correct Answer:
No gain will be recorded in the financial statements
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94. Which of the following is a contra-asset?
Answer
Correct Answer:
Bad Debt Reserve
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95. According to the Financial Accounting Standards Board (FASB), what are UTPs?
Answer
Correct Answer:
Uncertain Tax Positions
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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:
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99. How is the acid-test ratio calculated?
Answer
Correct Answer:
(Cash + AR + Short Term Investments) / Current Liabilities
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100. What is the appropriate exchange rate to use when translating the income statement from functional to reporting currency?
Answer
Correct Answer:
The average rate for the reporting period
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101. On a classified Balance Sheet, the asset line items appear in which order?
Answer
Correct Answer:
Current Assets; Long-term Investments; Property, Plant, and Equipment; Intangible Assets; Other Assets
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102. In which section of cash flow statement ,loss on sale of assets is dealt.
Answer
Correct Answer:
Operating section
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103. In preparing consolidated financial statements, which type of transaction is NOT wholly or partially eliminated?
Answer
Correct Answer:
Parent company stock repurchases
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104. Which of the following is NOT a potential off-balance-sheet liability?
Answer
Correct Answer:
(none of these)
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105. Which of the following activities would be regarded as a financing activity on the Statement of Cash Flows?
Answer
Correct Answer:
Dividend distributions
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106. Using the financial statements, how is Free Cash Flow calculated?
Answer
Correct Answer:
EBIT(1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditures
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107. What are the two basic formats of the Income Statement?
Answer
Correct Answer:
Single-Step and Multi-Step
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108. A financial statement is a smaller piece of a much larger annual document submitted to the Securities Exchange Commission. What is the name of the document?
Answer
Correct Answer:
10K
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109. On which Financial Statement(s) are Discontinued Operations reported?
Answer
Correct Answer:
Income Statement
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110. In the DuPont system, what is the Return On Equity equal to?
Answer
Correct Answer:
Profit Margin times Total Asset Turnover times Equity Multiplier
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111. True or false? A declared dividend decreases shareholders’ equity.
Answer
Correct Answer:
True
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112. Which of the following does NOT increase cash flows?
Answer
Correct Answer:
Increase in accounts receivable
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113. Two figures must be transferred to the balance sheet before the final result can be calculated. What are they, and where are they transferred from?
Answer
Correct Answer:
Retained earnings from the statement of retained earnings, and cash from the statement of cash flows.
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114. Which entity is primarily responsible for setting accounting standards?
Answer
Correct Answer:
the FASB
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115. Why would a creditor heavily scrutinize a company's statement of retained earnings?
Answer
Correct Answer:
Every dollar that is paid to the stockholders as dividends is a dollar not available to pay back its debt.
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116. What does a company’s debt-to-equity ratio describe?
Answer
Correct Answer:
The nature of the company’s capitalization
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117. When you have finished calculating your statement of cash flows, where is the final result transferred to?
Answer
Correct Answer:
The balance sheet.
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118. Which value appears on all three components of financial statements?
Answer
Correct Answer:
Net profits
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119. What is the final line of the statement of operations?
Answer
Correct Answer:
Net after-tax profits
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120. Gross profit equals
Answer
Correct Answer:
Net revenues minus cost of sales
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121. Where would an entry be made for the purchase of goods or services without a contract or note?
Answer
Correct Answer:
Under liabilities as accounts payable
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122. Which of the following is not an element included in the statement of retained earnings?
Answer
Correct Answer:
Stockholder equity
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123. Which items are traditionally disclosed separately on an Income Statement?
Answer
Correct Answer:
Extraordinary items, changes in accounting principles and discontinued operations
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124. Within the context of stockholders equity, what are cash and other assets considered?
Answer
Correct Answer:
Contributed capital
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125. Which of the following is NOT one of the four GAAP principles?
Answer
Correct Answer:
Market value principle
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126. The Dividend Payout Ratio is calculated by dividing total dividends by:
Answer
Correct Answer:
Net Income
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127. What does it mean when a company's change in cash is negative?
Answer
Correct Answer:
The company did not make enough money to repay creditors, pay dividends for the next year.
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128. Which of the following is NOT a method of calculating depreciation?
Answer
Correct Answer:
Mechanical valuation method
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129. Cost of Goods Sold is calculated using which of the following?
