Multiple Choice Questions
1. The computation of a company’s third-quarter provision for income taxes should be based on earnings
a. For the quarter at an expected annual effective income tax rate
b. For the quarter at the statutory rate
c. To date at an expected annual effective income tax rate less prior quarters’ provisions
d. To date at the statutory rate less prior quarters’ provisions
2. Which of the following ratios measures short-term solvency?
a. Current ratio
b. Age of receivables
c. Creditors’ equity to total assets
d. Return on investment
3. Kaycee Corporation’s revenues for the current year were as follows:
Consolidated revenue per income statement ... $1,200,000
Intersegment sales .............. 180,000
Intersegment transfers ............ 60,000
Combined revenues of all operating segments ... $1,440,000
Kaycee has a reportable segment if that operating segment’s revenues exceed
a. $6,000
b. $24,000
c. $120,000
d. $144,000
4. An inventory loss from a market decline occurred in the first quarter that was not expected to be restored in the fiscal year. For interim financial reporting purposes, how would the dollar amount of inventory in the balance sheet be affected in the first and fourth quarters?
First Quarter Fourth Quarter
a. Decrease .......No effect
b. Decrease .......Increase
c. No effect .......Decrease
d. No effect .......No effect
5. Barr Corporation’s capital stock at December 31, 2007 consisted of the following: Common stock, $2 par value; 100,000 shares authorized, issued, and outstanding 10% noncumulative, nonconvertible preferred stock, $100 par value; 1,000 shares authorized, issued, and outstanding Barr’s common stock, which is listed on a major stock exchange, was quoted at $4 per share on December 31, 2007. Barr’s net income for the year ended December 31, 2007 was $50,000. The 2007 preferred dividend was declared. No capital stock transactions occurred during 2007. What was the price/earnings ratio on Barr’s common stock at December 31, 2007?
a. 8 to 1
b. 10 to 1
c. 16 to 1
d. 20 to 1
6. In August 2007, Ella Company spent $150,000 on an advertising campaign for subscriptions to the magazine it sells on getting ready for the skiing season. There are only two issues: one in October and one in November. The magazine is only sold on a subscription basis and the subscriptions started in October 2007. Assuming Ella’s fiscal year ends on March 31, 2008, what amount of expense should be included in Ella’s quarterly income statement for the three months ended December 31, 2007 as a result of this expenditure?
a. $37,500
b. $50,000
c. $75,000
d. $150,000
7. When a company reports the profit (or loss) for a reportable operating segment, it also must disclose the segments
a. Revenues
b. Interest revenue and interest expense
c. Depreciation, depletion, and amortization expense
d. All of the above
8. Utica Company’s net accounts receivable were $250,000 at December 31, 2006 and $300,000 at December 31, 2007. Net cash sales for 2007 were $100,000. The accounts receivable turnover for 2007 was 5.0. What were Utica’s total net sales for 2007?
a. $1,475,000
b. $1,500,000
c. $1,600,000
d. $2,750,000
9. During 2007, Red, Incorporated purchased $2,000,000 of inventory. The cost of goods sold for 2007 was $2,200,000, and the ending inventory at December 31, 2007 was $400,000. What was the inventory turnover for 2007?
a. 4.0
b. 4.4
c. 5.5
d. 11.0
10. The following data pertain to Cowl, Inc. for the year ended December 31, 2007:
Net sales ............. $ 600,000
Net income ............ 150,000
Total assets, January 1, 2007 ..... 2,000,000
Total assets, December 31, 2007 ... 3,000,000
What was Cowl’s rate of return on assets for 2007?
a. 5%
b. 6%
c. 20%
d. 24%