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| 1 | |
A company is presenting five years worth of comparative financial statements from 2010 through 2015. In the years 2010 and 2011, the company used the LIFO method of costing its inventory. Then, at the beginning of 2012 it switched to the FIFO method which it used for all of 2012, 2013, and 2014. If the company leaves its financial statements as they were originally prepared, it has violated which of the following principles? |
| | A) | The historical cost principle. |
| | B) | The monetary unit principle. |
| | C) | The entity principle. |
| | D) | The conservatism principle. |
| | E) | The consistency principle. |
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| 2 | |
Which of the following is an extraordinary item? |
| | A) | The complete destruction of a company's warehouse by fire. |
| | B) | Hurricane damage in Florida which destroys a fruit grower's fruit orchards. |
| | C) | A court-determined settlement paid by a company because it lost a product liability lawsuit filed against it. |
| | D) | A gain on the sale of machinery used in the company's factory. |
| | E) | A loss on the sale of a company car used by one its sales personnel to make calls on the company's customers. |
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| 3 | |
Which of the following group or groups of people are not considered to be the external users of accounting information? |
| | A) | The Internal Revenue Service. |
| | B) | The bank loan officers. |
| | C) | The corporation's shareholders. |
| | D) | The firm's customers. |
| | E) | The internal auditors. |
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| 4 | |
Which statement about comparative financial statements is true? |
| | A) | Although it is possible to present comparative balances sheets, it is not possible to present comparative income statements. |
| | B) | It is only possible to present two comparative time periods on the same set of financial statements. |
| | C) | If any particular item, such as Accounts Receivable, appears in one set of financial statements but does not appear in another set of financial statements, then the company may not use these two sets of financial statements as comparative financial statements. |
| | D) | It is possible to present comparative financial statements that span more than two years. |
| | E) | None of these statements are true. |
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| 5 | |
Generally speaking, which type of financial ratio is more stable over time? |
| | A) | One where both the numerator and the denominator come from the balance sheet. |
| | B) | One where both the numerator and the denominator come from the income statement. |
| | C) | One where the numerator comes from the balance sheet and the denominator comes from the income statement. |
| | D) | One where the numerator comes from the income statement and the denominator comes from the balance sheet. |
| | E) | All of the above are equally stable over time. |
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| 6 | |
Net sales were $900,000. The cost of goods sold was $720,000. Operating expenses were $90,000. The ending balance of the Accounts Receivable account was $35,000. The inventory turnover ratio was 12.0. What was the profit margin ratio? |
| | A) | 10.00%. |
| | B) | 12.50%. |
| | C) | 18.75%. |
| | D) | 24.00%. |
| | E) | None of the above. |
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| 7 | |
Net sales were $405,000, and the accounts receivable turnover was 7.5 times. What was the average accounts receivable? |
| | A) | $ 55,000. |
| | B) | $ 467,500. |
| | C) | $3,037,500. |
| | D) | $ 54,000. |
| | E) | None of the above. |
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| 8 | |
The cost of goods sold was $1,350,000. Beginning and ending inventory balances were $100,000 and $125,000, respectively. What was the inventory turnover? |
| | A) | 12.0 times. |
| | B) | 8.0 times. |
| | C) | 7.5 times. |
| | D) | 6.0 times. |
| | E) | None of the above. |
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| 9 | |
Days' sales in inventory was 73.0. The cost of goods sold was $900,000. The net sales were $1,160,000. The beginning inventory was $150,000. What was the ending inventory? |
| | A) | $320,000. |
| | B) | $180,000. |
| | C) | $118,000. |
| | D) | $126,000. |
| | E) | None of the above. |
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| 10 | |
The balance of the Common Stock account was $350,000 for the entire fiscal year. Net income for the year was $227,500, of which 15% was distributed to common stockholders as a cash dividend. The market price of the stock on the last day of the year was $24.50 per share. The par value of the stock is $10 per share. What was the price earnings ratio? |
| | A) | 16.47. |
| | B) | 14.00. |
| | C) | 21.00. |
| | D) | 3.77. |
| | E) | None of the above. |
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| 11 | |
Which is true of common-size comparative statements? |
| | A) | Each item is shown as a percentage of some total of which it is a part. |
| | B) | Dollar amounts are generally not shown on these statements. |
| | C) | The net change in each item, on a year-to-year basis, is always shown. |
| | D) | Total liabilities are used as a total against which all liabilities are measured. |
| | E) | Retained earnings are shown as a percentage of total liabilities. |
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| 12 | |
Total asset turnover is a component of which of the following of the building blocks of financial analysis? |
| | A) | Market Prospects. |
| | B) | Solvency. |
| | C) | Comparability. |
| | D) | Profitability. |
| | E) | Efficiency. |
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| 13 | |
Which of the following tools can be used in financial analysis? |
| | A) | Ratio analysis. |
| | B) | Vertical analysis. |
| | C) | Horizontal analysis. |
| | D) | All of the above. |
| | E) | None of the above. |
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| 14 | |
Which of the following ratios would be considered a measurement of short-term liquidity? |
| | A) | Acid-test ratio. |
| | B) | Times interest earned. |
| | C) | Debt ratio. |
| | D) | Return on equity. |
| | E) | Earnings per share. |
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| 15 | |
If a bank was considering a long-term loan for Peabody Company, which of the following ratios would be of the least interest to the loan committee of the bank? |
| | A) | Current ratio |
| | B) | Times interest earned |
| | C) | Debt ratio. |
| | D) | Working capital ratio. |
| | E) | Price-earnings ratio. |
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