Questions

1. The major difference between the indirect and the direct method of a statement of cash flows appears in which of the following activities section(s)?

Group of answer choices

• The investing activities and financing activities sections.
• The operating activities and financing activities sections.
• The investing activities section only.
• The operating activities section only.

2. In the statement of cash flows, an increase in the accounts receivable balance from the beginning of the period to the end of the period would:

Group of answer choices

• be subtracted from net income because this represents earned revenue provided by operating earnings.
• be added to net income because this means that revenues were less than cash collected.
• be subtracted from net income because this means that revenues were more than cash collected.
• be added to net income because this represents earned revenues that have not been collected.

3. The most accurate requirements to recognize revenue is:

Group of answer choices

• cash must have been received.
• the revenue must be realized or realizable, and earned.
• the entity must have paid for all expenses incurred in generating the revenue.
• the entity must expect to receive cash in the future.

4. If an item cost $180, and then the item is sold for $240. What is the gross profit ratio?

Group of answer choices

• 20%
• 60%
• 33.3%
• 25%

5. Why are depreciation and amortization expense amounts added back to net income in a statement of cash flow?

Group of answer choices

• these expenses affect investing activities, not operating activities.
• these expenses are recognized for accounting purposes, but they do not represent economic costs.
• these expenses do not affect cash, but were subtracted in the determination of net income.
• the cash disbursements for these accrued expenses will be made in a future period.

6. Identify the best way to evaluate a company's profitability.

Group of answer choices

• calculate the company's ROI for the most recent year.
• compare the company's ROI for the most recent year with the industry average ROI for the most recent year.
• review the trend of working capital for several years.
• review the trend of the company's ROI for several years.

7. How does a company increase financial leverage?

Group of answer choices

• try to increase its ROI by increasing asset turnover.
• use excess cash to purchase preferred stock for the treasury.
• raise additional capital by selling fixed interest rate long-term bonds.
• raise additional capital by selling common stock.

8. The comparison of activity measures of different companies is complicated by the fact that:

Group of answer choices

• only one of the companies may have preferred stock outstanding.
• different inventory cost flow assumptions may be used.
• the number of shares of common stock issued may be significantly different.
• dollar amounts of assets may be significantly different.

9. When a firm has financial leverage:

Group of answer choices

• the firm will always have a higher ROE than it would without leverage.
• ROI will be greater than ROE.
• ROI will usually be less than it would be without leverage.
• risk is greater than if there isn't any leverage.

10. The price/earnings ratio:

Group of answer choices

• does not usually change by more than 1.0 (e.g. 8.2 to 9.2) during the year.
• is a measure of the relative expensiveness of a firm's common stock.
• can be used to determine the cash dividend to be received during the year.
• is calculated by dividing the earnings multiple by net income.

11. When a corporation has both common stock and preferred stock outstanding:

Group of answer choices

• dividends on preferred stock are paid only if dividends are to be paid on the common stock.
• dividends on preferred stock are paid only if the company has current earnings.
• preferred stockholders receive the same dividend per share as common stockholders.
• dividends on preferred stock must be paid before dividends on common stock can be paid.

12. What does a common sized income statement do?

Group of answer choices

• makes comparisons between years more difficult.
• expresses items as a percentage of revenues.
• uses the same dollar amount of revenues for each year.
• is useful in estimating the impact of inflation.

13. Jiffy Clean, Inc. has the following information for the fiscal year ending December 31, 2018.

• Net Income of $516,050
• Preferred stock of 24,000 shares, 8%, $50 par value
• Common stock of 135,500 shares

Determine the basic earnings per share of common stock for the 2018.

Group of answer choices

• 3.21
• 3.10
• 3.47
• 3.81

14. The information contained below is for the fiscal year ending December 31, 2018.

Cost of goods sold	$117,000
General and administrative expenses	48,000
Net cash provided by financing activities	69,000
Dividends paid	16,000
Extraordinary loss from a flood, net of tax savings of $32,000	74,000
Income tax expense	11,000
Other selling expenses	26,000
Net sales	278,000
Advertising expenses	39,000
Accounts payable	33,000

Calculate the operating income for 2018.

Group of answer choices

• (26,000)
• 48,000
• 87,000
• 32,000

15. The concept of matching revenue and expense refers to the fact that:

Group of answer choices

• expenses for a period equal the revenues for the period.
• costs incurred in the process of earning revenue during a period are deferred and expensed in a future period.
• all costs incurred in the process of earning revenue during a period are recorded as an expense in that period.
• all cash disbursements during a period are subtracted from all cash receipts during the period.

16. Which of the following accounts is not included in the calculation for Gross Profit?

Group of answer choices

• Revenue.
• General and selling expenses.
• Net sales.
• Cost of goods sold.

17. Recognition of revenue in accrual accounting requires:

Group of answer choices

• that cash be received.
• that the revenue be realized or realizable, and earned.
• only that the amount of cash to be received from the sale of a product or service be known.
• only that a product be delivered or a service be performed.

18. Which of the following is not a category of financial statement ratios?

Group of answer choices

• Prospectus.
• Liquidity.
• Financial leverage.
• Profitability.

19. Management's use of resources can best be evaluated by focusing on measures of:

Group of answer choices

• book value.
• leverage.
• activity.
• liquidity.