Question 2
Which of the following is an accurate statement regarding astatement of cash flows?
Answer Only cash items that affect the income statement areincluded.
Only material cash items that affect the income statement areincluded.
Material non-cash transactions are included.
Immaterial financing activities that affect cash do not need to beincluded.
None of the above.
.Question 3
Which of the following is(are) an example of a measure ofleverage?
Answer Debt yield.
Debt payout ratio.
Preferred dividend coverage ratio.
Debt/equity ratio.
All of the above.
Question 4
Asset turnover calculations:
Answer are made by dividing the average asset balance during theyear by the sales for the year.
are made by dividing sales for the year by the asset balance at theend of the year.
communicate information about how promptly the entity pays itsbills.
should be evaluated by observing the turnover trend over a periodof time.
Question 5
Book value per share of common stock of a manufacturingcompany:
Answer is not a very useful measure most of the time.
is calculated by dividing market value per share by earnings pershare.
reflects the fair market value of the company’s stock.
is the same as the total balance sheet asset value per share ofcommon stock.
Question 6
A higher P/E ratio means that:
Answer the stock is more reasonably priced.
the stock is relatively expensive.
investors are wary of the stock.
earnings are expected to decrease.
Question 7
Most entities satisfy the accounting criteria for recognizing anexpense when:
Answer a commitment is made to purchase a product orservice.
cash is paid to a supplier.
a cost is incurred in the revenue generating process.
a dividend is paid to stockholders.
Question 8
Which of the following is not a category of financial statementratios?
Answer Financial leverage.
Liquidity.
Profitability.
Prospectus.
The inventory turnover calculation:
Answer is wrong unless cost of goods sold is used in thenumerator.
is wrong unless sales is used in the numerator.
is an alternative way of expressing the number of days’ sales ininventory.
requires knowledge of the inventory cost flow assumption beingused.
The term, “earned,” in revenue recognition refers to which of thefollowing?
Answer The entity has completed, or substantially completed, theactivities it must perform to be entitled to the revenuebenefits.
The product or service has been exchanged for cash, claims to cash,or an asset that is readily convertible to a known amount of cashor claims to cash.
The entity has received an irrevocable order for goods orservices.
Cash has been received with an irrevocable order for goods orservices.
None of the above.
Question 11
The earnings per share of common stock calculation:
Answer is made by dividing net income by the number of shares ofcommon stock outstanding at the end of the year.
is complicated by the declaration of cash dividends during theyear.
includes gains or losses from treasury stocktransactions.
is complicated by the presence of preferred stock in the capitalstructure.
Question 12
An entity’s current ratio will be influenced by:
Answer the inventory cost flow assumption used.
writing off an overdue account receivable against the allowance foruncollectible accounts.
the depreciation method used.
issuance of a stock dividend.
Question 13
A leverage buyout refers to:
Answer one firm issues stock to take over another firm.
one firm trades its stock for the stock of another firm.
a firm goes heavily into debt in order to obtain the funds topurchase the shares of the public stockholders.
one firm pays cash for the shares of a takeover firm’sshares.
Question 14
The gross profit ratio is useful to the manager for each of thefollowing purposes except that:
Answer it can be used to determine the selling price to set for anitem.
it can be used to estimate the amount of inventory lost in afire.
it can be used to determine the amount available from a givenamount of revenue to cover operating expenses.
it can be used to estimate the amount of operating expenses for aperiod.
Question 15
The comparison of activity measures of different companies iscomplicated by the fact that:
Answer different inventory cost flow assumptions may beused.
dollar amounts of assets may be significantly different.
only one of the companies may have preferred stockoutstanding.
the number of shares of common stock issued may be significantlydifferent.
.
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