1) Loans to deposits for a bank is a type of debt coverage ratio.
2) Cash flow per share can be viewed as a substitute for earnings per share in terms of a
firm’s profitability.
3) Cash flow per share is usually higher than earnings per share.
4) Accountants have not accepted the role of disclosing the firm’s capacity to make
distributions to stockholders.
5) The debt to tangible net worth ratio is a more conservative ratio than the debt ratio.
6) Operating revenue to operating property for a railroad is a turnover type ratio.
7) A review of the computational methodology used to compute the ratios for annual
reports indicated that there were wide differences of opinion on how many of the ratios
should have been computed.
8) Under generally accepted accounting principles, an item must clearly represent a
commitment to pay out funds in the future in order to be classified as a liability.
9) The direct write-off method frequently results in the bad debt expense being
recognized in the year subsequent to the sale, and thus results in a proper matching of
expense with revenue.
10) The responsibility for the preparation and integrity of financial statements rests with
management.
11) A potential significant liability is possible if the company withdraws from a
multi-employer pension plan.
12) The Sarbanes-Oxley Act has had an insignificant effect on the relationship between
the company and the internal auditor.
13) Under inflationary conditions, FIFO generally results in a lower profit than does
LIFO, and this difference can be substantial.
14) As with the debt ratio and the debt/equity ratio, from a long-term, debt-paying
ability view, the lower the debt to tangible net worth ratio, the better.
15) The price/earnings ratio expresses the relationship between selling prices of the
company’s products and the related earnings.
16) Comprehensive income is net income plus the periods change in accumulated other
comprehensive income.
17) With the Altman model, the higher the Z score, the more likely the firm will go
bankrupt.
18) Required:
For each of the following situations, give a likely reason or explanation.
a. For Jones Company, net cash provided by operating activities is significantly less
than net income.
b. Significant cash outflows were used for investing activities.
c. The ratio operating cash flow/total debt decreases, while the ratio operating cash
flow/current maturities of long-term debt and current notes payable increases.
19) Smith Company presents the following data for 2012 .
The number of days’ sales in inventory is:
a. 65.8
b. 60.8
c. 59.1
d. 58.1
e. 60.4
20) There are basically four types of insurance organizations. Which of the following is
not one of these four types?
a. Group
b. Stock companies
c. Mutual companies
d. Fraternal benefit societies
e. Assessment companies
21) Jordan Manufacturing reports the following capital structure:
What is the debt ratio?
a. 0.48
b. 0.49
c. 0.93
d. 0.96
e. None of the answers are correct
22) Which of the following is not a reason to interpret book value with caution?
a. Land may be worth more than it cost
b. Depreciable assets may be held
c. Investments may be worth more than their purchase price
d. Patents may have a high market value
e. All of the answers are correct
23) Which of the following is not a reporting requirement on interim reports?
a. Seasonal information
b. Major changes in income tax provision
c. Full balance sheet
d. Earnings per share
e. Significant changes in financial position
24) Aristocrats Art reported the following trend analysis to its bank as an attachment to
a loan application.
You have been asked to evaluate the long-term borrowing capacity. You know that a
rule of thumb for this industry for the debt/ equity ratio is 1 to 1.
Required:
25) Which of the following statements is not true?
a. A qualified opinion or an adverse opinion may bring into question the reliability of
the financial statements
b. A disclaimer of opinion indicates that one should not look to the auditor’s report as an
indication of the reliability of the statements
c. In some cases, outside accountants are associated with financial statements when
they have performed less than an audit
d. A review is substantially less in scope than an examination in accordance with
generally accepted auditing statements
e. The accountant’s report expresses an opinion on reviewed financial statements
26) Listed below are several ratios.
Required:
Match the ratio that goes with each formula.
a. times interest earned
b. fixed charge coverage
c. debt ratio
d. debt/equity ratio
e. debt to tangible net worth
1>
2>
3>
4>
5>
27) Return on investment measures:
a. return to all suppliers of funds
b. return to all long-term creditors
c. return to all long-term suppliers of funds
d. return to stockholders
e. return to all short-term suppliers of funds
28) Abbott Company presents the following data for 2012 .
The accounts receivable turnover in times per year is:
a. 6.9
b. 7.9
c. 10.7
d. 9.7
e. 11.0
29) For a statement of changes in net worth, which of the following would be an
unrealized decrease in net worth?
a. Decrease in value of furnishings
b. Salary
c. Income taxes
d. Increase in value of land
e. Interest income
30) Andromeda Industries had 300,000 shares of common stock with a $3 par value and
retained earnings of $180,000 at January 1, 2011 . In 2011, the stock was split 3 for 1.
In 2010, earnings per share were $1.80. Which of the following would not result from
the stock split?
a. The new shares would total 900,000
b. The total amount in the capital stock account would remain the same
c. The par value would become $1
d. Retained earnings would be reduced
e. The earnings per share for 20 years prior to the split would be reduced
31) By law, the setting of accounting standards is the responsibility of the:
a.
b. New York Stock Exchange
c. Accounting Principles Board
d. Securities and Exchange Commission
e. Financial Accounting Standards Board
32) Which of the following is not a purpose of the statement of cash flows?
a. To show cash flow from operations
b. To show cash flow from financing activities
c. To show cash flow from investing activities
d. To show all investing and financing transactions
e. To show operating expenses for a period of time
33) Required:
Comment on the usual influence from a switch to LIFO from FIFO on the following
variables during an inflationary period:
a. revenue
b. gross profit
c. cost of goods sold
d. profit
e. income taxes
f. cash flow
34) A summarized income statement for Leveraged Inc. is presented below.
The degree of financial leverage is:
a. $150,000/$30,000
b. $150,000/$120,000
c. $1,000,000/$400,000
d. $150,000/$80,000
e. $400,000/$120,000
35) Tom Copeland, Tim Keller, and Jack Morrin, on their book Valuation, Measuring
and Managing the Value of Companies, observed that acquirers paid too much for
companies because of all but one of the following reasons:
a. market potential greater than estimated
b. overoptimistic appraisal of market potential
c. overestimation of synergies
d. poor due diligence
e. overbidding
36) Which of the following would be included in operating income?
a. Interest income for a manufacturing firm
b. Rent income for a leasing subsidiary
c. Gain from sale of marketable securities for a retailer
d. Dividend income for a service firm
e. None of the answers are correct
37) Friendly Bookstore has experienced rapid growth since its formation in 2008 .
Following is selected data from its annual report.
Required:
38) Stable dividend policy would most commonly imply:
a. a high price/earnings ratio
b. a stable dividend yield
c. stable dividends per share
d. stable earnings per share
e. increasing dividends per share
39) Listed below are Concept Statements.
Required:
Match the letter of each Concept Statement with the Concept Statement title.
a. Statement of Financial Accounting Concepts No. 1
b. Statement of Financial Accounting Concepts No. 2
c. Statement of Financial Accounting Concepts No. 3
d. Statement of Financial Accounting Concepts No. 4
e. Statement of Financial Accounting Concepts No. 5
f. Statement of Financial Accounting Concepts No. 6
g. Statement of Financial Accounting Concepts No. 7
1>Objectives of Financial Reporting by nonbusiness
2>Elements of Financial Statements of Business Enterprises
3>Qualitative Characteristics of Accounting Information
4>Elements of Financial Statements (a replacement of No. 3)
5>Objective of Financial Reporting by Business Enterprises
6>Recognition and Measurement in Financial Statements of Business Enterprise
7>Using Cash Flow Information in Accounting Measurements
40) Which of the following ratios is given the highest significance rating by Certified
Public Accountants?
a. Quick Ratio
b. Debt/Equity
c. Net Profit Margin
d. Current Ratio
e. Times Interest Earned
41) Which of the following items on the income statement is not disclosed net of tax?
a. Unusual or infrequent item disclosed separately
b. Discontinued operations
c. Extraordinary loss
d. Cumulative effect of change in accounting principle
e. Unusual or infrequent item disclosed separately and discontinued operations are both
not disclosed net of tax
42) In a statement of cash flows (indirect method), depreciation expense should be
presented as:
a. a cash flow from financing activities
b. a cash flow from investing activities
c. a deduction from net income
d. an addition to net income
e. a financial activity
43) In accounting for governments, which of the following provides necessary
resources and the authority for their disbursements?
a. General fund
b. Encumbrances
c. Internal services
d. Appropriations
e. Special assessments
44) The most significant current source of generally accepted accounting principles is
the:
a. New York Stock Exchange
b. Accounting Principles Board
c. Accounting Research Studies
d.
e. Financial Accounting Standards Board
45) Net earnings before deducting noncontrolling share of earnings is utilized in the
following ratios, since noncontrolling interests are included in the base. Which ratio is
an exception to this statement?
a. Net profit margin
b. Return on assets
c. Return on equity
d. Return on investment
e. None of the answers are correct
46) Which of the following is not a typical cash flow under investing activities?
a. Cash inflow from receipt of loans
b. Cash inflow from sale of property, plant, and equipment
c. Cash outflow for payment of amounts borrowed
d. Cash outflow for loans to other entities
e. Cash outflow for purchase of property, plant, and equipment
47) A characteristic common to banks, utilities, and transportation is that they:
a. are all government owned
b. are not subject to the rules of the FASB
c. are monopolies
d. each have a uniform system of accounts established by a federal regulatory agency
e. never go bankrupt
48) Listed below are several ratios.
Require:
Match the ratio that goes with each formula.
a. Operating cash flow/current maturities of long-term debt and current notes payable
b. Operating cash flow/total debt
c. Operating cash flow per share
d. Operating cash flow/cash dividends
1>
2>
3>
4>
49) Which of the following can offer a type of comparison in financial statement
analysis?
a. Past ratios and figures
b. Industry averages
c. Statistics of competitors
d. All of the answers are correct
e. None of the answers are correct
50) In computing debt to tangible net worth, which of the following is not subtracted in
the denominator?
a. Copyrights
b. Goodwill
c. Patents
d. Investments
e. Trademarks
51) Under GASB Statement No. 34, the basic financial statements are to be preceded by
the management’s discussion and analysis (MD&A).
52) Laura Bella Company reports the following statement of income:
Note: Depreciation expense totals $300; preferred dividends total $60; operating lease
payments total $180. Assume that 1/3 of operating lease payments is for interest.
Required:
