1) Accounting Trends & Techniques is a compilation of data obtained by a survey of
annual reports to stockholders undertaken for the purpose of analyzing the accounting
information disclosed in such reports.
2) A firm might have a low dividend payout ratio if it were planning a major expansion.
3) When doing external analysis, many of the reasons why the days’ sales in receivables
is abnormally high or low cannot be determined without access to internal information.
4) The term primary analysis is used to describe consistent and conservative analysis.
5) A company must have majority voting shares of the other company in order to
consolidate.
6) Either a drop in net profit margin or a drop in total asset turnover, or both, can cause
return on assets to fall.
7) By reporting marketable equity securities under current assets, management picks up
a liquidity advantage.
8) Accepted accounting principles leave ample room for arriving at different results in
the short run.
9) With the expansion of international business and global capital markets, the business
community and governments have shown a decreased interest in the harmonization of
international accounting standards.
10) Regulation of insurance companies started at the federal level.
11) Profitability is the ability of the firm to generate earnings.
12) In the short run, a firm can often meet its interest obligations even when the times
interest earned is less than 1.00.
13) Deferred policy acquisition costs represent the cost of obtaining policies. Under
statutory accounting practices, these costs are charged to expense as they are incurred.
14) The principal asset of a bank is property and equipment.
15) Which of the following ratios represents dividends per common share in relation to
market price per common share?
a. Dividend payout
b. Dividend yield
c. Price/earnings
d. Book value per share
e. Percentage of earnings retained
16) Which of the following is not a category within accumulated other comprehensive
income?
a. Post retirement commitments on health plans
b. Foreign currency translation adjustments
c. Unrealized holding gains and losses on available-for-sale marketable securities
d. Changes to stockholders equity resulting from additional minimum pension liability
adjustments
e. Unrealized gains and losses from derivative instruments
17) Which of these measurement attributes is not currently used in practice?
a. Historical cost
b. Relevant cost
c. Current market value
d. Current cost
e. Present value
18) In terms of debits and credits, which of the following accounts have the same
normal balances?
a. Accounts payable, accounts receivable, notes payable
b. Dividends, accounts receivable, notes payable
c. Advertising expense, selling expense, accounts receivable
d. Land, building, accounts payable
e. Common stock, notes payable, land
19) The debt ratio indicates:
a. the ability of the firm to pay its current obligations
b. the efficiency of the use of total assets
c. the magnification of earnings caused by leverage
d. a comparison of liabilities with total assets
e. none of the answers are correct
20) Statements in which all items are expressed only in relative terms (percentages of a
base) are termed:
a. vertical Statements
b. horizontal Statements
c. funds Statements
d. common-Size Statements
e. None of the answers are correct
21) Classify items according to the most commonly preferred balance sheet
presentation.
Assets Liabilities and Stockholders’ Equity
a. Current Assets f. Current Liability
b. Tangible Assets g. Long-Term Liability
c. Investments h. Capital Stock
d. Intangibles i. Retained Earnings
e. Other j. Item Not Included on Balance Sheet
1>Land
2>Marketable Securities
3>Goodwill
4>Inventories
5>Premium on Preferred Stock
6>Cash
7>Depreciation Expense
8>Investment in another Company Bonds (long-term investment)
9>Accounts Payable
10>Bonds Payable
11>Equipment
12>Copyright
13>Unamortized Premium on Bonds Payable
22) Which of the following is a type of audit opinion that a firm would usually prefer?
a. Uqualified opinion
b. Qualified opinion
c. Adverse opinion
d. Clear opinion
e. None of the answers are correct
23) Listed below are several ratios.
Required:
Match the ratio that goes with each formula.
a. net profit margin
b. total asset turnover
c. return on assets
d. DuPont return on assets
e. operating income margin
f. operating asset turnover
g. return on operating assets
h. DuPont return on operating assets
i. sales to fixed assets
j. return on investment
k. return on total equity
l. return on common equity
m. gross profit margin
1>
2>
3>
4>
5>
6>
7>
8>
9>
10>Operating Income Margin Operating Asset Turnover
11>
12>Net Profit Margin Total Asset Turnover
13>
24) Edward I. Altman developed a multivariate model to predict bankruptcy. The model
produces an overall discriminant score called a Z value. Which of the following
statements is probably an unreasonable statement relating to the Z value?
a. The sales generating ability of the firm’s assets is one of the important considerations
in the Z value
b. The lack of a market value for a company’s stock will reduce the significance of the Z
value approach
c. Total assets is an important consideration in the Z value computation
d. Cumulative profitability over time is considered in the Z value computation
e. A Z score of 2.00 or below indicates a very healthy company
25) Which of the following organizations does not require that banks report to it?
a. Internal Revenue Service
b. Federal Reserve System
c. Comptroller of the Currency
d. Federal Deposit Insurance Corporation
e. Interstate Commerce Commission
26) Which of the following would be classified as an extraordinary item on the income
statement?
a. Loss from a strike
b. Correction of an error related to a prior period
c. Write-off of obsolete inventory
d. Loss on disposal of a segment of business
e. Loss from prohibition of a product
27) Which of the following is not a base against which profits are measured?
a. Owners’ equity
b. Owners’ and creditors’ funds provided
c. Intangibles
d. Revenues
e. Productive assets
28) The following is segment data for Audio-Visual Corporation.
Required:
a. Compute profit/revenues and profit/assets for the three divisions and in total for all
three years.
b. Discuss your findings.
c. Evaluate this firm’s capital expenditure policy, given the results in parts (a) and (b).
29) The following are extracted from the financial statements of Frem, Inc., for 2012,
2011, and 2010 .
Required:
30) Dorset Company began the year with total assets of $400,000 and total liabilities of
$300,000.
Required:
Using this information and the accounting equation, answer each of the following
independent questions.
a. What was Dorset’s stockholders’ equity at the beginning of the year?
b. Assuming Dorset Company’s assets increased by $50,000 and its total liabilities
increased by $30,000 during the year, what would be the amount of stockholders’ equity
at the end of the year?
c. Assuming Dorset’s total assets increased to $500,000 and its stockholders’ equity
increased to $150,000, what would be the amount of total liabilities at the end of the
year?
31) Which of the following will not affect retained earnings?
a. Declaration of a stock dividend
b. Payment of a cash dividend previously disclosed
c. Adjustment for an error of a prior period
d. Net income
e. Net loss
32) Which of the following would best indicate that the firm is carrying excess
inventory?
a. A decline in sales
b. A decline in the current ratio
c. A decline in days’ sales in inventory
d. A stable current ratio with declining quick ratios
e. A rise in total asset turnover
33) Which of the following reasons should not be considered in order to explain why
the receivables appear to be abnormally high?
a. Sales volume expanded materially late in the year
b. Receivables have collectibility problems and possibly some should have been written
off
c. The company seasonally dates invoices
d. Material amount of receivables are on the installment basis
e. Sales volume decreases materially late in the year
34) Which of the following is a false statement as it relates to analysis?
a. Profitability may not be a major consideration as long as the resources for repayment
can be projected
b. Equity capital provides creditors with a cushion against loss
c. There is a difference between the objectives that are sought by short-term grantors of
credit and those sought by long-term grantors of credit
d. If merchandise with a 20% markup is sold on credit, it would take ten successful
sales of the same amount to make up for one sale not collected
e. The financial structure of the entity is of interest to creditors
35) Operating assets equals:
a. cash, accounts receivable, and equipment
b. current assets plus tangible assets
c. total assets minus intangible assets
d. only long-term assets
e. only current assets
36) Conroy Company had sales of $50,000, increase in accounts payable of $4,000,
decrease in accounts receivable of $3,000, tax expense of $5,000, and an increase in
taxes payable of $1,000. What was the cash outflow for taxes?
a. $54,000
b. $4,000
c. $6,000
d. $53,000
e. $45,000
37) Which of the following is not a typical cash flow under operating activities?
a. Cash inflows from sale of goods or services
b. Cash inflows from interest
c. Cash outflows to employees
d. Cash outflows to suppliers
e. Cash inflows from sale of property, plant, and equipment
38) Valuing inventory at the lower of cost or market is an application of the:
a. time period assumption
b. realization principle
c. going concern principle
d. conservatism principle
e. None of the answers are correct
39) Which of the following transactions is not reflected in a statement of cash flows?
a. Sale of treasury stock
b. Declaration of a stock dividend
c. Purchase of foreign subsidiary with cash
d. Issuance of convertible bonds
e. Purchase of equipment with cash
40) Which of the following does not relate to The Public Company Accounting
Oversight Board (PCAOB)?
a. Two members of the board must be CPAs
b. In addition to appointing the five members of the PCAOB, the SEC is responsible for
the oversight and enforcement authority over the Board
c. The PCAOB consists of five members appointed by the SEC
d. The PCAOB is to adopt auditing standards
e. The PCAOB is to adopt accounting standards
41) If a firm has pledged its receivables and its inventory, then the best indicator of its
short-term liquidity may be indicated by:
a. working capital
b. current ratio
c. acid-test
d. cash ratio
e. days’ sales in receivables
42) Which suppliers of funds bear the greatest risk and should therefore earn the
greatest return?
a. Bondholders
b. Suppliers
c. General creditors such as banks
d. Preferred shareholders
e. Common shareholders
43) Which of the following is not an item added back to income in the operations
section of the statement of cash flows when using the indirect presentation?
a. Depreciation
b. Amortization of goodwill
c. Increase in deferred income taxes
d. Amortization of bond premium
e. Amortization of patents