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| 1 | |
Consider the following:
| Year 3 | Year 2 | Year 1 | | Cash | $12,000 | $8,000 | $10,000 | | Prepaid expenses | $300 | $800 | $00 | | Accounts payable | $3,000 | $2,000 | $4,000 | | Notes payable | $00 | $50,000 | $00 | | Sales | $82,000 | $98,000 | $45,000 | | Cost of goods sold | $52,000 | $60,000 | $21,000 |
Which of the following statements is FALSE? |
| | A) | Sales increased 117.8% between Year 1 and Year 2. |
| | B) | Notes payable decreased 100.0% between Year 2 and Year 3. |
| | C) | Cash decreased 20.0% between Year 1 and Year 2. |
| | D) | Prepaid expenses increased 100.0% between Year 1 and Year 2. |
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| 2 | |
Consider the following:
| Year 3 | Year 2 | Year 1 | | Cash | $12,000 | $8,000 | ($1,000) | | Prepaid expenses | $300 | $800 | $00 | | Accounts payable | $3,000 | $2,000 | $4,000 | | Notes payable | $00 | $50,000 | $00 | | Sales | $82,000 | $98,000 | $45,000 | | Cost of goods sold | $52,000 | $60,000 | $21,000 |
Which of the following statements is FALSE? |
| | A) | Sales increased 117.8% between Year 1 and Year 2. |
| | B) | Notes payable decreased 100.0% between Year 2 and Year 3. |
| | C) | Cash increased 800% between Year 1 and Year 2. |
| | D) | Prepaid expenses decreased 62.5% between Year 2 and Year 3. |
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| 3 | |
Consider the following:
| Dollars | Component Percentage | | 2006 | 2005 | 2006 | 2005 | | Sales | $450,000 | $500,000 | 100.0% | 100.0% | | Cost of goods sold | 300,000 | 380,000 | 66.7% | 76.0% | | Operating expenses | 80,000 | 65,000 | 17.8% | 13.0% | | Income taxes | 30,000 | 25,000 | 6.7% | 5.0% | | Net income | $40,000 | $30,000 | 8.8% | 6.0% |
Which of the following statements false? |
| | A) | The increase in operating expenses was 4.8%. |
| | B) | Income taxes increased 20.0%. |
| | C) | The component percentage is the relative size of the item compared to sales. |
| | D) | The company's profitability in 2006 was greater than in 2005. |
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| 4 | |
Consider the following:
| Dollars | Component Percentage | | 2006 | 2005 | 2006 | 2005 | | Sales | $450,000 | $500,000 | 100.0% | 100.0% | | Cost of goods sold | 300,000 | 380,000 | A | 76.0% | | Operating expenses | 80,000 | 60,000 | 17.8% | B | | Income taxes | 30,000 | 25,000 | 6.7% | 5.0% | | Net income | $40,000 | $35,000 | 8.8% | 7.0% |
Calculate the component percentages of (A) and (B). |
| | A) | 66.7% and 13.0%, respectively |
| | B) | 66.7% and 12.0%, respectively |
| | C) | 84.4% and 12.0%, respectively |
| | D) | 66.7% and 16.0%, respectively |
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| 5 | |
Consider the following:
| Dollars | Component Percentage | | 2006 | 2005 | 2006 | 2005 | | Sales | $450,000 | $500,000 | 100.0% | 100.0% | | Cost of goods sold | 300,000 | 380,000 | A | 76.0% | | Operating expenses | 80,000 | 60,000 | 17.8% | B | | Income taxes | 30,000 | 25,000 | 6.7% | 5.0% | | Net income | $40,000 | $35,000 | 8.8% | 7.0% |
The schedule presented above is a condensed example of which of the following? |
| | A) | Abbreviated income statement |
| | B) | Comparable income statement |
| | C) | Common size income statement |
| | D) | Standardized income statement |
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| 6 | |
Which of the following answers is the basic distinction between horizontal analysis and vertical or static analysis? |
| | A) | Horizontal analysis is a comparison of data over time, vertical analysis is not |
| | B) | Horizontal analysis is comparison of component percentages, vertical analysis is not. |
| | C) | Horizontal analysis is of significance to managers, vertical analysis is not |
| | D) | Horizontal analysis does not use benchmarks, vertical analysis does |
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| 7 | |
The quality of earnings can be affected by which of the following? |
| | A) | The condition and liquidity of assets |
| | B) | The accounting principles and methods selected by management |
| | C) | Profitability versus ability to pay obligations |
| | D) | All of the above |
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| 8 | |
Consider the following account balances presented in no particular order:
| Cash | $50,000 | | Accounts Payable | $20,000 | | Mortgage Note Payable (due in 5 years) | $200,000 | | Accounts Receivable | $16,000 | | Merchandise Inventory | $80,000 | | Wages Payable | $35,000 | | Income Taxes Payable | $20,000 | | Marketable Securities | $15,000 |
Calculate the working capital. |
| | A) | $86,000 |
| | B) | $66,000 |
| | C) | $6,000 |
| | D) | ($114,000) |
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| 9 | |
Consider the following account balances of current assets and current liabilities:
| Cash | $50,000 | | Accounts Receivable | $16,000 | | Merchandise Inventory | $81,000 | | Accounts Payable | $20,000 | | Wages Payable | $35,000 | | Income Taxes Payable | $20,000 |
Assume all of the accounts receivable will be collected in the current period, and that merchandise inventory is sold at 200% of cost. What percentage of the dollar amount of merchandise inventory must be sold and cash collected from the sales of the merchandise inventory during the current period for this company to meets its current liabilities? |
| | A) | 5.5% |
| | B) | 10.0% |
| | C) | 15.5% |
| | D) | None |
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| 10 | |
Working capital was $42,000. The company subsequently collected an account receivable previously written off against the Allowance for Doubtful Accounts account. Assuming no other transactions occurred, the current ratio: |
| | A) | decreased. |
| | B) | remained unchanged. |
| | C) | increased. |
| | D) | became less than 1 to 1. |
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| 11 | |
Working capital is $45,000. If the firm borrows $18,000 by issuing common stock, the current ratio will: |
| | A) | decrease. |
| | B) | remain unchanged. |
| | C) | increase. |
| | D) | become less than 1 to 1. |
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| 12 | |
Consider the following:
| Cash | $12,000 | | Accounts receivable | 8,000 | | Marketable securities | 4,000 | | Inventories | 15,000 | | Prepaid expenses | 1,000 | | Other current assets | 1,500 | | Total current assets | $41,500 | | Total current liabilities | $10,000 |
What is the quick ratio? |
| | A) | 4.15 to 1 |
| | B) | 3.9 to 1 |
| | C) | 2.0 to 1 |
| | D) | 2.4 to 1 |
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| 13 | |
Consider the following account balances presented in no particular order:
| Cash | $50,000 | | Accounts Payable | $20,000 | | Plant and Equipment | $300,000 | | Mortgage Note Payable (due in 5 years) | $200,000 | | Accounts Receivable | $16,000 | | Merchandise Inventory | $80,000 | | Wages Payable | $35,000 | | Income Taxes Payable | $20,000 | | Marketable Securities | $15,000 |
There are no other assets or liabilities. Calculate the debt ratio to the nearest tenth. |
| | A) | 65.1% |
| | B) | 66.7% |
| | C) | 59.7% |
| | D) | 61.8% |
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| 14 | |
Consider the following:
| Year 3 | Year 2 | Year 1 | | Net income | $90,000 | $98,000 | $48,000 | | Net sales | $870,000 | $900,000 | $700,000 |
Which of the following statements is false? |
| | A) | The percentage of net sales increased between Year 1 and Year 2. |
| | B) | The percentage of net income to net sales was 10.0% in Year 2. |
| | C) | The percentage of net income to net sales was 10.3% in Year 3. |
| | D) | Both (A) and (C) are false. |
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| 15 | |
Which of the following would most likely remain relatively constant on a year-to-year basis? |
| | A) | Net sales |
| | B) | Selling expenses |
| | C) | General and administrative expenses |
| | D) | Operating income |
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| 16 | |
The earnings per share is which of the following? |
| | A) | The most widely used of accounting ratios. |
| | B) | Stockholders' equity divided net income. |
| | C) | Net income divided by the average total of stockholders' equity. |
| | D) | A ratio that is not used to calculate any other financial ratios. |
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| 17 | |
The price-earnings (P/E) ratio is 5. The earnings per share over the last twelve months was $5.20. Common stock has a par value of $1 per share and was issued at $9 per share. What is the current market price of the stock? |
| | A) | $46.80 |
| | B) | $45.00 |
| | C) | $5.00 |
| | D) | $26.00 |
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| 18 | |
Consider the following:
| Year 3 | Year 2 | Year 1 | | Total assets | $90,000 | $98,000 | $48,000 | | Total liabilities | $30,000 | $40,000 | $5,000 | | Total stockholders' equity | $60,000 | $58,000 | $53,000 | | Net sales | $96,000 | $80,000 | $40,000 | | Operating income | $32,000 | $25,000 | $10,000 | | Net income | $30,000 | $21,000 | $8,000 |
What was the return on assets (ROA) for Year 2? |
| | A) | 29.2% |
| | B) | 34.2% |
| | C) | 26.6% |
| | D) | 22.3% |
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| 19 | |
Consider the following:
| Year 3 | Year 2 | Year 1 | | Total assets | $90,000 | $98,000 | $48,000 | | Total liabilities | $30,000 | $40,000 | $5,000 | | Total equity | $60,000 | $58,000 | $53,000 | | Net sales | $96,000 | $80,000 | $40,000 | | Operating income | $32,000 | $25,000 | $10,000 | | Net income | $30,000 | $21,000 | $8,000 |
What was the return on equity (ROE) for Year 3? |
| | A) | 50.8% |
| | B) | 54.2% |
| | C) | 54.05% |
| | D) | 57.7% |
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| 20 | |
Consider the following:
| Year 3 | Year 2 | Year 1 | | Total assets | $90,000 | $98,000 | $48,000 | | Total liabilities | $30,000 | $40,000 | $5,000 | | Total equity | $60,000 | $58,000 | $53,000 | | Net sales | $96,000 | $80,000 | $40,000 | | Operating income | $32,000 | $25,000 | $10,000 | | Net income | $30,000 | $21,000 | $8,000 |
What was the return on equity (ROE) for Year 2? |
| | A) | 50.8% |
| | B) | 54.1% |
| | C) | 14.4% |
| | D) | 37.8% |
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| 21 | |
Consider the following:
| Year 3 | Year 2 | Year 1 | | Net income | $450,000 | $480,000 | $360,000 | | Preferred dividends | $10,000 | $12,000 | $6,000 | | Average number of shares of common stock outstanding | 15,000 | 12,000 | 10,000 |
Calculate the earnings per share for Year 2. |
| | A) | $40.00 |
| | B) | $39.00 |
| | C) | $43.64 |
| | D) | $42.00 |
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| 22 | |
Which of the following is of particular interest to stockholders? |
| | A) | Interest coverage ratio |
| | B) | Price earnings ratio |
| | C) | Operating cycle |
| | D) | Working capital |
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| 23 | |
Consider the following:
| Date | Market Value per Share | Earnings Per Share | Price-earnings Ratio | Dividends Per Share | Dividend Yield | | Dec. 31, 05 | $45.00 | $12.50 | 3.6 | $1.00 | (A) | | Dec. 31, 06 | $36.00 | $11.25 | 3.2 | $0.80 | (B) |
Calculate the values of (A) and (B). |
| | A) | 27.8% and 31.3%, respectively |
| | B) | 2.2% and 2.2%, respectively |
| | C) | 8.0% and 7.1 %, respectively |
| | D) | 3.6% and 2.6%, respectively |
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| 24 | |
Consider the following:
| Year 3 | Year 2 | Year 1 | | Total assets | $90,000 | $98,000 | $48,000 | | Total liabilities | $30,000 | $40,000 | $5,000 | | Total stockholders' equity | $60,000 | $58,000 | $53,000 | | Net sales | $96,000 | $80,000 | $40,000 | | Operating income | $32,000 | $25,000 | $10,000 |
Calculate the return on assets (ROA) for Year 3, to the nearest tenth. |
| | A) | 35.6% |
| | B) | 32.7% |
| | C) | 10.2% |
| | D) | 34.0% |
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| 25 | |
Consider the following:
| Year 3 | Year 2 | Year 1 | | Net income | $32,000 | $25,000 | $10,000 | | Preferred dividends | $2,000 | $2,000 | $1,000 | | Common stockholder's equity, year-end | $660,000 | $658,000 | $653,000 |
Calculate the return on common stockholders' equity for Year 3 to the nearest tenth. |
| | A) | 4.60% |
| | B) | 4.55% |
| | C) | 4.86% |
| | D) | 9.10% |
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| 26 | |
Applying leverage means using borrowed money to do which of the following? |
| | A) | Earn a return greater than the cost of borrowing |
| | B) | Earn a return less than the cost of borrowing |
| | C) | Earn a return equal to the cost of borrowing |
| | D) | Retire other long-term debt, such as bonds |
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| 27 | |
Long-term creditors have a primary interest in which of following tools of analysis? |
| | A) | Operating expense ratio |
| | B) | Interest coverage ratio |
| | C) | Free cash flow |
| | D) | Operating income |
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| 28 | |
Which of the following is true about the yield rate of bonds? |
| | A) | It varies inversely with changes in the bond's market price. |
| | B) | It is the bond rate at bond maturity. |
| | C) | It is computed in the same manner as the dividend yield on stocks. |
| | D) | A and B |
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| 29 | |
Consider the following year-end balances:
| Year 3 | Year 2 | Year 1 | | Cash | $12,000 | $8,000 | $10,000 | | Inventories | $18,000 | $16,800 | $15,000 | | Accounts payable | $3,000 | $2,000 | $4,000 | | Long-term debt | $13,000 | $10,000 | $2,000 | | Net sales | $82,000 | $98,000 | $45,000 | | Operating income | $22,000 | $24,000 | $12,000 | | Net income | $20,000 | $19,500 | $11,000 |
What is the inventory turnover rate for Year 3? |
| | A) | 1.15 |
| | B) | 1.26 |
| | C) | 1.38 |
| | D) | Cannot be calculated with the information provided. |
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| 30 | |
Consider the following:
| Year 3 | Year 2 | Year 1 | | Ending cash balances | $12,000 | $8,000 | $10,000 | | Beginning merchandise inventories | $18,000 | $16,800 | $15,000 | | Total purchases during period | $38,000 | $42,000 | $44,000 |
The company uses a periodic inventory system. What was the inventory turnover rate for Year 2? |
| | A) | 2.43 |
| | B) | 2.34 |
| | C) | 2.27 |
| | D) | 1.11 |
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| 31 | |
Consider the following:
| Year 3 | Year 2 | Year 1 | | Cash | $12,000 | $8,000 | $10,000 | | Inventories | $18,000 | $16,800 | $15,000 | | Accounts receivable | $23,000 | $27,000 | $24,000 | | Net sales | $453,000 | $410,000 | $432,000 | | Cost of goods sold | $282,000 | $298,000 | $245,000 | | Net income | $22,000 | $24,000 | $12,000 |
Calculate the accounts receivable turnover for Year 3. |
| | A) | 18.1 |
| | B) | 19.7 |
| | C) | 16.8 |
| | D) | 11.3 |
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| 32 | |
Consider the following:
| Year 3 | Year 2 | Year 1 | | Cash | $12,000 | $8,000 | $10,000 | | Inventories | $18,000 | $16,800 | $15,000 | | Accounts receivable | $23,000 | $27,000 | $24,000 | | Net sales | $453,000 | $408,000 | $432,000 | | Cost of goods sold | $282,000 | $286,200 | $245,000 | | Net income | $22,000 | $24,000 | $12,000 |
Calculate the number of days in the operating cycle for Year 2. |
| | A) | 43.1 days |
| | B) | 40.7 days |
| | C) | 46.7 days |
| | D) | 42.3 days |
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| 33 | |
The measure that provides evidence of the company's ability to cover its current obligations from normal operations is which of the following? |
| | A) | Current ratio. |
| | B) | Cash flows from operations to current liabilities ratio. |
| | C) | Quick ratio. |
| | D) | Unused lines of credit. |
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| 34 | |
Which of the following is calculated by a formula that uses net sales as the denominator? |
| | A) | Operating expense ratio |
| | B) | Gross profit rate |
| | C) | Return on assets |
| | D) | Both (A) and (B) |
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| 35 | |
Which ratio is a measure of productivity of assets, regardless of how they are financed? |
| | A) | Debt ratio |
| | B) | Return on assets |
| | C) | Return on equity |
| | D) | Working capital |
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| 36 | |
Which of the following is not a measure of short-term liquidity? |
| | A) | Quick ratio |
| | B) | Free cash flow |
| | C) | Working capital |
| | D) | Operating income |
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| 37 | |
Which of the following is not a measure of profitability? |
| | A) | Return on equity |
| | B) | Interest coverage ratio |
| | C) | Operating income |
| | D) | Operating expense ratio |
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| 38 | |
Which of the following is not a measure for evaluating the current market price of common stock? |
| | A) | Return on equity |
| | B) | Dividend yield |
| | C) | Book value per share |
| | D) | Price-earnings ratio |
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| 39 | |
Income before interest and taxes divided by the annual interest expense will result in which of the following? |
| | A) | Gross profit rate |
| | B) | Operating expense ratio |
| | C) | Interest coverage ratio |
| | D) | Return on equity |
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| 40 | |
To compute the days to sell the average inventory, the numerator is 365 days and the denominator is which of the following? |
| | A) | Total assets. |
| | B) | Inventory turnover rate. |
| | C) | Average inventory. |
| | D) | Net sales. |
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| 41 | |
To compute free cash flow, reduce net cash from operating activities by the cash used for investing activities and which of the following? |
| | A) | Dividends. |
| | B) | Interest expense. |
| | C) | Taxes expense. |
| | D) | Both (B) and (C). |
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| 42 | |
The dividend yield is equal to the annual dividend divided by which of the following? |
| | A) | Earnings per share. |
| | B) | Net sales. |
| | C) | Shares of common stock outstanding. |
| | D) | Current stock price. |
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| 43 | |
To determine the earnings per share, divide the average number of common shares outstanding into which of the following? |
| | A) | Net income. |
| | B) | Net income + interest expense. |
| | C) | Net income - preferred dividends. |
| | D) | Met sales. |
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| 44 | |
Which of the following indicates a company's ability to cover currently maturing obligations from recurring operations? |
| | A) | Quick ratio |
| | B) | Free cash flow |
| | C) | Working capital |
| | D) | Cash flow from operations to current liabilities |
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| 45 | |
Which of the following is a measure of the ability of management to control costs? |
| | A) | Operating expense ratio |
| | B) | Operating income |
| | C) | Net income as a percentage of sales |
| | D) | Gross profit rate |
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| 46 | |
The current stock price divided by the earnings per share results in which of the following? |
| | A) | Book value per share |
| | B) | Dividend yield |
| | C) | Price-earnings ratio |
| | D) | Market value of financial instruments |
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| 47 | |
Your manager is insisting that merchandise inventory for which a purchase order has been issued by a seller and is being shipped FOB destination should be included in the ending merchandise inventory. Which of the following financial ratios or measurements is she trying to positively affect? |
| | A) | Current ratio |
| | B) | Quick ratio |
| | C) | Gross profit rate |
| | D) | None of the above |
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| 48 | |
Your manager is insisting that the total amount of dollars in contracts for work that is only partially completed should be included as revenue for the current period. Which financial ratio or measurement is he trying to positively affect? |
| | A) | Operating expense ratio |
| | B) | Earnings per share |
| | C) | Return on equity |
| | D) | All of the above |
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| 49 | |
As manager of the sporting goods department within a department store, your year-end bonus is based on measures of profitability. Which of the following financial ratios or measurements is of the most interest to you? |
| | A) | Net cash provided by operating activities |
| | B) | Operating cycle |
| | C) | Operating expense ratio |
| | D) | Receivables turnover rate |
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