1 Which of the following is not an objective of financial reporting? Financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions. Financial reporting should provide information to help present and potential investors and creditors and other users in assessing the amounts, timing, and uncertainty of prospective cash receipts from dividends or interest and the proceeds from the sale, redemption, or maturity of securities or loans. Financial reporting should provide information about the economic resources of an enterprise, the claims against those resources, and the effects of transactions, events, and circumstances that change the resources and claims against those resources. Financial accounting is designed to measure directly the value of a business enterprise. 1.5 points Question 2 The primary current source of generally accepted accounting principles for non government operations is the New York Stock Exchange Financial Accounting Standards Board Securities and Exchange Commission American Institute of Certified Public Accountants 1.5 points Question 3 Which of the following indicates how revenue is usually recognized? Point of sale End of production Receipt of cash During production 1.5 points Question 4 Statement of Financial Accounting Concepts No. 1, Objectives of Financial Reporting by Business Enterprises, includes all of the following objectives, except one. Which objective does it not include? Financial accounting is designed to measure directly the value of a business enterprise. Investors, creditors, and others may use reported earnings and information about the elements of financial statements in various ways to assess the prospects for cash flows. The primary focus of financial reporting is information about earnings and its components. The primary focus of financial reporting is information about earnings and its components. 1.5 points Question 5 If assets are $ 40,000 and stockholders equity is $ 10,000, how much are liabilities? $50,000 $10,000 $30,000 $20,000 1.5 points Question 6 From the point of view of analysis, which classification of an audit opinion indicates that the financial statements carry the highest degree of reliability? disclaimer of opinion Unqualified opinion qualified opinion adverse opinion 1.5 points Question 7 Which of these is not a suggested problem caused by lack of harmonization of international accounting standards? Difficulties in reconciling local standards for access to other capital markets Difficulties in reconciling local standards for access to other capital markets A need for employment of key personnel in multinational companies to bridge the gap in accounting requirements between countries Positive effect on the international trade of accounting practice and services 1.5 points Question 8 Which party has the primary responsibility for the financial statements? Bookkeeper Auditor Management Cost accountant 1.5 points Question 9 Current assets typically include all but which of the following assets? Cash restricted for the retirement of bonds Unrestricted cash Marketable securities Inventories 1.5 points Question 10 Which of the following accounts would not be classified as an intangible? Goodwill Patent Accounts Receivable Trademarks 1.5 points Question 11 Growth Company had total assets of $ 100,000 and total liabilities of $ 60,000. What is the balance of the stockholders equity? $ 0 $ 40,000 $ 60,000 $ 100,000 1.5 points Question 12 The Current Assets section of the balance sheet should include Inventory Taxes Payable Land Patents 1.5 points Question 13 Which of the following is not a typical current liability? Accounts payable Bonds Payable Interest payable Wages payable 1.5 points Question 14 Which of the following would be classified as an extraordinary item? Loss from flood Selling expense Interest expense Gain on sale of marketable securities 1.5 points Question 15 If the investor company owns 30% of the stock of the investee company and the investee company reports profits of $ 150,000, then the investor company reports equity income of $25,000 $35,000 $45,000 $ 50,000. 1.5 points Question 16 The following relate to the income statement of Growth Company for the year ended 2008. What is the beginning inventory? Purchases $ 180,000 Purchase returns 5,000 Purchase returns is inventory the company bought (part of purchases, and then returned to their supplier). Sales 240,000 Cost of goods sold 210,000 Ending inventory 30,000 $6,000 $65,000 $50,000 $75,000 1.5 points Question 17 Using these results for a given ratio, compute the median, 14%, 13.5%, 13%, 11.8%, 10.5%, 9.5%, 9.3%, 9%, 7%. 10.5% 7% 14% 13.5% 1.5 points Question 18 Industry ratios should not be considered as absolute norms for a given industry because of all but which of the following? The firms have different accounting methods. Many companies have varied product lines. The financial services may be private independent firms. The fiscal year- ends of the companies may differ. 1.5 points Question 19 Use the information below to compute the acid test ratio. (The same company and numbers are used for questions 19 -22) SHARKEY CORPORATION Selected Financial Data As of December 31, .................... ..........................................2007....2006 Cash $ 8,000 $ 60,000 Marketable securities 32,000 8,000 Accounts receivable 40,000 110,000 Inventory 80,000 140,000 Net property, plant, and equipment 240,000 280,000 Accounts payable 60,000 100,000 Short- term notes payable 30,000 50,000 Credit sales 600,000 900,000 Cost of goods sold 1,260,000 1,403,000 0.63 0.70 0.89 0.99 1.5 points Question 20 Use the information below to compute the receivables turnover. (The same company and numbers are used for questions 19 -22) SHARKEY CORPORATION Selected Financial Data As of December 31, .... ....................................................2007.......... 2006 Cash $ 8,000 $ 60,000 Marketable securities 32,000 8,000 Accounts receivable 40,000 110,000 Inventory 80,000 140,000 Net property, plant, and equipment 240,000 280,000 Accounts payable 60,000 100,000 Short- term notes payable 30,000 50,000 Credit (AR)sales 600,000 900,000 Cost of goods sold 1,260,000 1,403,000 8 times 6 times 12 times 14 times 1.5 points Question 21 Use the information below to compute the inventory turnover. (The same company and numbers are used for questions 19 -22) SHARKEY CORPORATION Selected Financial Data As of December 31, .... ....................................................2007.......... 2006 Cash $ 8,000 $ 60,000 Marketable securities 32,000 8,000 Accounts receivable 40,000 110,000 Inventory 80,000 140,000 Net property, plant, and equipment 240,000 280,000 Accounts payable 60,000 100,000 Short- term notes payable 30,000 50,000 Credit sales 600,000 900,000 Cost of goods sold 1,260,000 1,403,000 11.45 times 10.5 times 9.85 times 8.45 times 1.5 points Question 22 Use the information below to compute the current ratio. (The same company and numbers are used for questions 19 -22) SHARKEY CORPORATION Selected Financial Data As of December 31, 2007 2006 Cash $ 8,000 $ 60,000 Marketable securities 32,000 8,000 Accounts receivable 40,000 110,000 Inventory 80,000 140,000 Net property, plant, and equipment 240,000 280,000 Accounts payable 60,000 100,000 Short- term notes payable 30,000 50,000 Credit sales 600,000 900,000 Cost of goods sold 1,260,000 1,403,000 1.40 2.60 1.90 1.78 1.5 points Question 23 Investment instruments used to invest temporarily idle cash balances should have which of the following characteristics? High expected return, readily marketable, and no maturity date Low default risk, low marketability, and a short term to maturity Low default risk, readily marketable, and a long term to maturity Low default risk, readily marketable, and a short term to maturity 1.5 points Question 24 The primary objective in the management of accounts receivable is To realize no bad debts because of the opportunity cost involved. To achieve a combination of sales volume, bad- debt experience, and receivables turnover that maximizes the profits of the corporation. To provide the treasurer of the corporation with sufficient cash to pay the companys bills on time. To coordinate the activities of manufacturing, marketing, and financing so that the corporation can maximize its profits. 1.5 points Question 25 Under the Employee Retirement Income Security Act, a company can be liable for its pension plan up to 30% of its net worth 30% of pension liabilities 30% of liabilities 40% of its net worth 1.5 points Question 26 Which of the following statements is correct? A ratio that indicates a firms long- term debt- paying ability from the balance sheet view is the times interest earned. Some of the items on the income statement that are excluded in order to compute times interest earned are interest expense, income taxes, and interest income. Usually, the highest times interest coverage in the most recent five- year period is used as the primary indication of the interest coverage. Capitalized interest should be included with interest expense when computing times interest earned. 1.5 points Question 27 Total asset turnover measures Net income dollars generated by each dollar of sales. The ability of the firm to generate sales through the use of the assets. The firms ability to make productive use of its property, plant, and equipment through generation of profits. Return to the common shareholders. 1.5 points Question 28 Net profit margin total asset turnover measures DuPont return on assets. Return on investment. Return on common equity Return on stockholders equity. 1.5 points Question 29 Previously there were 100,000 shares. In 2008, Zello Company declared a 10% stock dividend. In 2007, earnings per share was $ 1.00. When the 2007 earnings per share is disclosed in the 2008 annual report, it will be disclosed at $1.10 $1.00 $0.91 $0.81 1.5 points Question 30 The earnings per share ratio is computed for Convertible bonds Redeemable preferred Common Stock Nonredeemable preferred 1.5 points Question 31 Which of the following current asset or current liability accounts is not included in the computation of cash flows from operating activities? Change in AR Change in inventory Change in AP Change in notes payable to banks 1.5 points Question 32 How would revenue from services be classified Investing inflow Investing outflow Operating inflow Financing outflow 1.5 points Question 33 Working capital is defined as Total assets plus current liabilities Current assets less current liabilities Cash equivalent accounts less current liabilities Current assets less cash equivalent accounts 1.5 points Question 34 In regards to cash flow what type of account is inventory? Investing Financing Operating Noncash 1.5 points Question 35 The ratio of total cash, trade receivables, and marketable securities to current liabilities is The acid-test ratio The current ratio Significant if the result is 2 to 1 or below Meaningless 1.5 points Question 36 The times interest earned ratio is a primary measure of Liquidity Long term debt paying ability Activity Profitability