1) Some industry practices lead to accounting reports that do not conform to the general
theory that underlies accounting.
2) Dividend yield relates dividends per share to market price per share.
3) The financial statements of legally separate entities may be issued to show the
financial position and income as they would appear if the companies were one legal
entity. Such statements reflect a legal, rather than an economic, concept of the entity.
4) The use of debt with high interest charges may cause the net profit margin to be low.
5) The use of financing with a fixed charge (such as interest) is termed financial
leverage.
6) A univariate model to predict financial failure uses a single variable in a prediction
model.
7) Under GASB Statement No. 34, a government entity will not continue to present
fund statements.
8) Under IFRS, reserves may result from upward revaluations of properties and
investments.
9) GASB Statement No. 34 calls for financial statements integrated with
government-wide reporting and enhanced fund reporting.
10) Other income and other expense are categories under which secondary activities of
the firm not directly related to the operations are classified.
11) Personal financial statements present assets at their historical cost.
12) Several accounts could be involved in a single transaction, but the debits and credits
must still be equal.
13) The XBRL approach is not unique with the SEC as it is used for many products and
many countries.
14) The percentage of earnings retained is computed by dividing retained earnings by
total stockholders’ equity.
15) The statement of cash flows became a required statement in which year?
a. 1995
b. 1978
c. 1971
d. 1987
e. 1993
16) The principal revenue source for a bank typically is:
a. gain on sale of real estate
b. sales
c. dividend income
d. interest income
e. interest expense
17) The stockholders’ equity of Anamanda Company at September 30, 2012, is
presented below:
On October 1, 2012, the Board of Directors of Anamanda declared a 10% stock
dividend to be distributed on November 10 . The market price of the common stock was
$15 on October 1 and $17 on November 10 . What is the amount of the charge to
retained earnings as a result of the declaration and distribution of this stock dividend?
a. $0
b. $200,000
c. $300,000
d. $340,000
e. $750,000
18) Changes in account balances of Multi-Plus Inc. during 2012 were:
Assuming that there were no charges to retained earnings other than dividends of
$62,000, the net income for 2010 was:
a. ($7,000)
b. $55,000
c. $117,000
d. $257,000
e. none of the answers are correct
19) Which of the following statements is not true relating to a defined contribution
pension plan?
a. A defined contribution plan defines the contributions of the company to the pension
plan
b. Once the defined contribution is paid, the company has no further obligation to the
pension plan
c. This type of plan shifts the risk to the employee as to whether the pension plan will
grow to provide for a reasonable pension payment upon retirement
d. There is no problem estimating the company’s pension expense
e. This type of plan presents substantial problems in estimating the pension liability
20) The assumption that deals with when to recognize the costs that are associated with
the revenue that is being recognized is:
a. matching
b. going concern
c. consistency
d. materiality
e. None of the answers are correct
21) Listed below are several terms related to financial statements.
Required:
Match the financial statement that goes with each term.
a. income statements
b. notes
c. balance sheet
d. statement of cash flows
e. statement of retained earnings (reconciliation of retained earnings)
1>Shows the financial condition of an accounting entity as of a particular date.
2>Details the inflows and outflows of cash during a specified period of time.
3>Summarizes the results of operations for a particular period of time.
4>Links the balance sheet to the income statement.
5>Used to present additional information on items included in the financial statements
and to present additional financial information.
22) Fisher Company has 1,000,000 share of common stock with a par value of $10.
Additional paid-in capital totals $10,000,000 and retained earnings is $12,000,000. The
directors declare a 6% stock dividend when the market value is $5. The reduction of
retained earnings as a result of the declaration will be:
a. $0
b. $300,000
c. $600,000
d. $500,000
e. None of the answers are correct
23) For a statement of changes in net worth, which of the following would be a realized
decrease in net worth?
a. Dividend income
b. Change in value of land
c. Decrease in value of boat
d. Personal expenditures
e. Salary
24) Gross profit margin is an important ratio of merchandising firms because:
a. their investments in real property are high
b. cost of goods sold is usually the largest expense
c. selling expenses, like advertising, are usually quite high
d. it measures their ability to collect receivables
e. it measures their ability to use total assets
25) Which of the following ratios is given the highest significance rating by commercial
loan officers?
a. Inventory Turnover In Days
b. Degree of Financial Leverage
c. Times Interest Earned
d. Fixed Charge Coverage
e. Debt/Equity
26) Which of the following is not a problem inherent in balance sheet presentation?
a. Most assets are valued at cost
b. Varying methods are used for asset valuation
c. Not all items of value to the firm are included as assets
d. Liabilities related to contingencies may not appear on the balance sheet
e. The owners’ interest will be indicated
27) The operating ratio of Cross America Airlines has increased. Which of the
following could not explain this rise?
a. Operating revenues have increased more slowly than expenses
b. Salary costs have risen substantially
c. Operating revenues have increased with stable operating expenses
d. Dues costs have risen substantially
e. None of the answers are correct
28) The following data were gathered from the annual report of Desk Products.
The book value per share is:
a. $30.00
b. $15.00
c. $14.00
d. $13.75
e. $13.50
29) Tiffin Company had retained earnings of $50,000 at the end of last year. For the
current year, income was $20,000 and dividends $15,000. What is the balance in
retained earnings at the end of the current year?
a. $85,000
b. $45,000
c. $55,000
d. $60,000
e. none of the answers are correct
30) Interest expense creates magnification of earnings through financial leverage
because:
a. the interest rate is variable
b. interest accompanies debt financing
c. the use of interest causes higher earnings
d. interest costs are cheaper than the required rate of return to equity owners
e. while earnings available to pay interest rise, earnings to residual owners rise faster
31) The current liability section of the balance sheet should include:
a. buildings
b. goodwill
c. land held for speculation purposes
d. accounts payable
e. None of the answers are correct
32) Searing, Inc., made several drills for oil in 2012 . The following data represent its
results.
Assume that each well cost the same amount to drill.
Required:
33) Which of the following is not an example of a not-for-profit institution?
a. University
b. Hospital
c. State government
d. Church
e. Nnone of the answers are correct
34) Which of the following could cause return on assets to decline when net profit
margin is increasing?
a. Sale of investments at year-end
b. Increased turnover of operating assets
c. Decline in book value
d. A stock split
e. Purchase of a new building at year-end
35) A reason that equity earnings create a problem in analyzing profitability is that
equity earnings are:
a. usually greater than the related cash flow
b. less than dividends declared
c. more than dividends declared
d. extraordinary
e. nonrecurring
36) Which of the following statements is not true?
a. The depreciation method and the period of time selected to depreciate an asset can
have a significant influence on income
b. There are many depreciation methods
c. The depreciation methods that recognize a large amount of depreciation in the later
years of an asset’s life are conservative
d. The straight-line depreciation method recognizes depreciation in equal amounts over
each year of the life of the asset
e. There is sometimes a material difference in the lives used for depreciation between
firms
37) If a parent has some control over a subsidiary but the subsidiary is not consolidated,
the subsidiary is accounted for as:
a. a marketable security
b. an investment
c. a liability
d. a fixed asset
e. None of the answers are correct
38) Which of the following is not an asset of a bank?
a. Bank building
b. Accrued interest receivable
c. Savings deposits
d. Loans
e. Investment securities
39) Which of the following is not a true statement relating to the Treadway
Commission?
a. The Treadway Commission is the popular name for the National Commission on
Fraudulent Reporting
b. The Treadway Commission has released reports detailing internal control systems
c. Managements Report on Internal Control over Financial Reporting and the
independent public accounting from report to the shareholders and board of directors
often refer to criteria established on internal control by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO)
d. The Treadway Commission has issued a number of recommendations for the
prevention of fraud on financial reports, ethics, and effective internal controls
e. The Treadway Commission is a voluntary-sector organization formed to support the
Sarbones-Oxley Act
40) If a firm has substantial capital or financing leases disclosed in the notes but not
capitalized in the financial statements, then:
a. the times interest earned ratio will be overstated, based upon the financial statements
b. the fixed charge ratio will be overstated, based upon the financial statements
c. the debt ratio will be understated
d. the working capital will be understated
e. None of the answers are correct
41) Which of the following will not cause the percent earned on operating property of a
utility to fall?
a. Sale of a fully depreciated asset at a loss
b. Building a new plant
c. Increase in operating expenses
d. Decrease in borrowing and interest expense
e. Decrease in revenue
42) Which of the following statements is not correct?
a. A ratio that indicates a firm’s long-term, debt-paying ability from the income
statement view is the times interest earned
b. Some of the items on the income statement that are excluded in order to compute
times interest earned are interest expense, income taxes, and unusual or infrequent
items
c. Capitalized interest should be included with interest expense when computing times
interest earned
d. Usually, the highest times interest coverage in the most recent five-year period is
used as the primary indication of the interest coverage
e. In the short run, a firm can often meet its interest obligations, even when the times
interest earned is less than 1.00
43) Accountants provide for inflation using which of the following accounting
principles?
a. Going concern
b. Time period
c. Conservatism
d. Materiality
e. None of the answers are correct
44) Fluctuation, Inc., recorded the following profit figures in 2010-2012.
Required:
a. Compute the net profit margin for 2010-2012.
b. Compute the gross profit margin for 2010-2012.
c. Describe the trend in profitability and pinpoint its causes.
45) For a utility, funded debt to operating property is a measure of:
a. profitability
b. return to shareholders
c. debt coverage
d. liquidity
e. asset turnover
46) Comparative data for Albers Automotive for the two-year period 2011-2012 are
presented below.
Required:
a. Compute the following ratios for both years.
1> net profit margin
2> total asset turnover (use year-end assets)
3> return on assets (use year-end assets)
4> operating income margin
5> operating asset turnover (use year-end assets)
6> return on operating assets (use year-end assets)
7> return on investment (use year-end, long-term debt and stockholders equity)
8> return on total equity (use year-end total equity)
9> basic earnings per share
10> degree of financial leverage
11> price/earnings ratio
12> dividend payout ratio
13> dividend yield
b. Perform a DuPont analysis for both years, using both net profit and operating
income. Comment on the results.
c. Comment on the trend in profitability as indicated by the ratios given.
d. Why is return on investment lower than return on equity?
e. Describe the firm’s dividend policy. Could this be related to market price?
47) Which of the following is not a source of industry statistics?
a. Annual Statement Studies
b. Mergent Dividend Record
c. Value Line
d. Standard and Poor’s Industry Surveys
e. The Department of Commerce Financial Report