1.the useful life of a plant asset is: the length of time it is

1.The useful life of a plant asset is: ÿ
ÿ ÿ ÿ ÿThe length of time it is used productively in a company’s operations
ÿ ÿ ÿ ÿNever related to its physical life
ÿ ÿ ÿ ÿIts productive life, but not to exceed one year
ÿ ÿ ÿ ÿDetermined by the FASB
ÿ ÿ ÿ ÿDetermined by law
ÿ
2. ÿDepreciation:ÿ
ÿ
ÿ ÿ ÿ ÿMeasures the decline in market value of an asset
ÿ ÿ ÿ ÿMeasures physical deterioration of an asset
ÿ ÿ ÿ ÿIs the process of allocating to expense the cost of a plant asset
ÿ ÿ ÿ ÿIs an outflow of cash from the use of a plant asset
ÿ ÿ ÿ ÿIs applied to land
ÿ
3. Plant assets are
ÿ ÿ ÿ ÿTangible assets used in the operation of a business that have a useful life of more than one accounting period
ÿ ÿ ÿ ÿCurrent assets
ÿ ÿ ÿ ÿHeld for sale
ÿ ÿ ÿ ÿIntangible assets used in the operations of a business that have a useful life of more than one accounting period
ÿ ÿ ÿ ÿTangible assets used in the operation of business that have a useful life of less than one accounting period
ÿ
4. ÿ A company has net sales of $870,000 and average accounts receivable of $174,000. What is its accounts receivable turnover for the period?ÿ
ÿ
ÿ ÿ ÿ ÿ0.20
ÿ ÿ ÿ ÿ5.00 ÿ ÿ
ÿ ÿ ÿ ÿ20.0
ÿ ÿ ÿ ÿ73.0
ÿ ÿ ÿ ÿ1,825
ÿ
5. ÿFICA taxes include:
ÿ
ÿ ÿ ÿ ÿSocial Security taxes
ÿ ÿ ÿ ÿCharitable giving
ÿ ÿ ÿ ÿEmployee income taxes
ÿ ÿ ÿ ÿUnemployment taxes
ÿ
6. ÿ Times interest earned is calculated by:ÿ
ÿ
ÿ ÿ ÿ ÿMultiplying interest expense times income
ÿ ÿ ÿ ÿDividing interest expense by income before interest expense
ÿ ÿ ÿ ÿDividing income before interest expense and any income tax by interest expense
ÿ ÿ ÿ ÿDividing interest and income tax expense by income before interest and income tax expense
ÿ
7. ÿ Amortization:ÿ
ÿ
ÿ ÿ ÿ ÿIs the systematic allocation of the cost of an intangible asset to expense over its estimated useful life
ÿ ÿ ÿ ÿIs the process of allocating to expense the cost of a plant asset to the accounting periods benefiting from its use
ÿ ÿ ÿ ÿIs the process of allocating the cost of natural resources to periods when they are consumed
ÿ ÿ ÿ ÿIs an accelerated form of expensing an asset’s cost
ÿ ÿ ÿ ÿIs the same as depletion
ÿ
8. ÿ A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and their length of time past is the:ÿ
ÿ
ÿ ÿ ÿ ÿDirect write-off method
ÿ ÿ ÿ ÿAging of accounts receivable method
ÿ ÿ ÿ ÿPercentage of sales method
ÿ ÿ ÿ ÿAging of investments method
ÿ ÿ ÿ ÿPercent of accounts receivable method
ÿ
9. ÿ A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. The depletion expense per ton of ore is:ÿ
ÿ
ÿ ÿ ÿ ÿ$0.75
ÿ ÿ ÿ ÿ$0.625 ÿÿ
ÿ ÿ ÿ ÿ$0.875
ÿ ÿ ÿ ÿ$6.00
ÿ ÿ ÿ ÿ$8.00
ÿ
10. The matching principle requires:ÿ
ÿ
ÿ ÿ ÿ ÿThat expenses be ignored if their effect on the financial statements are less important than revenues to the financial statement user
ÿ ÿ ÿ ÿThe use of the direct write-off method for bad debts
ÿ ÿ ÿ ÿThe use of the allowance method of accounting for bad debts
ÿ ÿ ÿ ÿThat bad debts be disclosed in the financial statements
ÿ ÿ ÿ ÿThat bad debts not be written off
ÿ
11. Liabilities:ÿ
ÿ
ÿ ÿ ÿ ÿMust be certain
ÿ ÿ ÿ ÿMust sometimes be estimated
ÿ ÿ ÿ ÿMust be for a specific amount
ÿ ÿ ÿ ÿMust always have a definite date for payment
ÿ ÿ ÿ ÿMust involve an outflow of cash
ÿ
12. ÿ In the accounting records of a defendant, lawsuits:ÿ
ÿ
ÿ ÿ ÿ ÿAre estimated liabilities
ÿ ÿ ÿ ÿShould always be recorded
ÿ ÿ ÿ ÿShould always be disclosed
ÿ ÿ ÿ ÿShould be recorded if payment for damages is probable and the amount can be reasonably estimated
ÿ
13. A contingent liability:ÿ
ÿ ÿ ÿÿ
ÿ ÿ ÿ ÿIs always of a specific amount
ÿ ÿ ÿ ÿIs a potential obligation that depends on a future event arising out of a past transaction or event
ÿ ÿ ÿ ÿIs an obligation not requiring future payment
ÿ ÿ ÿ ÿIs an obligation arising from the purchase of goods or services on credit
ÿ ÿ ÿ ÿIs an obligation arising from a future event
ÿ
14. Total asset turnover is calculated by dividing:
ÿ
ÿ ÿ ÿ ÿGross profit by average total assets
ÿ ÿ ÿ ÿAverage total assets by gross profit
ÿ ÿ ÿ ÿNet sales by average total assets
ÿ ÿ ÿ ÿAverage total assets by net sales
ÿ ÿ ÿ ÿNet assets by total assets
ÿ
15. If the times interest ratio:ÿ
ÿ
ÿ ÿ ÿ ÿIncreases, then risk increases
ÿ ÿ ÿ ÿIncreases, then risk decreases
ÿ ÿ ÿ ÿIs greater than 1.5, then the company is in default
ÿ ÿ ÿ ÿIs less than 1.5, the company is carrying too little debt
ÿ
16. Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are:ÿ
ÿ
ÿ ÿ ÿ ÿDebentures
ÿ ÿ ÿ ÿDiscounted notes
ÿ ÿ ÿ ÿInstallment notes
ÿ ÿ ÿ ÿIndentures
ÿ ÿ ÿ ÿInvestment notes
ÿ
17. A company borrowed $300,000 cash from the bank by signing a 5-year, 8% installment note. The present value factor for an annuity at 8% for 5 years is 3.9927. Each annuity payment equals $75,137. The present value of the note is:ÿ
ÿ
ÿ ÿ ÿ ÿ$75,137
ÿ ÿ ÿ ÿ$94,013
ÿ ÿ ÿ ÿ$300,000 ÿ ÿÿ
ÿ ÿ ÿ ÿ$375,685
ÿ
18. A bond traded at 102 « means that:
ÿ
ÿ ÿ ÿ ÿThe bond pays 2.5% interest
ÿ ÿ ÿ ÿThe bond traded at $1,025 per $1,000 bond ÿÿ
ÿ ÿ ÿ ÿThe market rate of interest is 2.5%
ÿ ÿ ÿ ÿThe bonds were retired at $1,025 each
ÿ
19. ÿDividend yield is the percent of cash dividends paid to common shareholders relative to the:
ÿ
ÿ ÿ ÿ ÿCommon stock’s market value
ÿ ÿ ÿ ÿEarnings per share
ÿ ÿ ÿ ÿInvestors’ purchase price of the stock
ÿ ÿ ÿ ÿAmount of retained earnings
ÿ ÿ ÿ ÿAmount of cash
ÿ
20. A bondholder that owns a $1,000, 10%, 10-year bond has:
ÿ
ÿ ÿ ÿ ÿOwnership rights
ÿ ÿ ÿ ÿThe right to receive $10 per year until maturity
ÿ ÿ ÿ ÿThe right to receive $1,000 at maturity
ÿ ÿ ÿ ÿThe right to receive $10,000 at maturity
ÿ
21. A company issues at 9% bonds at par with a par value of $100,000 on April 1, which is 4 months after the most recent interest date. How much total cash interest is received on April 1 by the bond issuer?ÿ
ÿ
ÿ ÿ ÿ ÿ$750
ÿ ÿ ÿ ÿ$5,250
ÿ ÿ ÿ ÿ$1,500
ÿ ÿ ÿ ÿ$3,000 ÿ ÿÿ
ÿ ÿ ÿ ÿ$6,000
ÿ
22. Bonds owned by investors whose names and addresses are recorded by the issuing company and for which interest payments are made with checks to the bondholders, are called:ÿ
ÿ
ÿ ÿ ÿ ÿCallable bonds
ÿ ÿ ÿ ÿSerial bonds
ÿ ÿ ÿ ÿRegistered bonds
ÿ ÿ ÿ ÿCoupon bonds
ÿ
23. The right of common shareholders to protect their proportionate interest in a corporation by having the first opportunity to buy additional proportionate shares of common stock issued by the corporationÿ
is called a:
ÿ
ÿ ÿ ÿ ÿPreemptive right
ÿ ÿ ÿ ÿProxy right
ÿ ÿ ÿ ÿRight to call
ÿ ÿ ÿ ÿFinancial leverage
ÿ
24. Owners of preferred stock often do not have:ÿ
ÿ
ÿ ÿ ÿ ÿOwnership rights to assets of the corporation
ÿ ÿ ÿ ÿVoting rights
ÿ ÿ ÿ ÿPreference to dividends
ÿ ÿ ÿ ÿThe right to sell their stock on the open market
ÿ ÿ ÿ ÿPreference to assets at liquidation
ÿ
25. The dividend yield is computed by dividing:
ÿ
ÿ ÿ ÿ ÿCash dividends per share by earnings per share
ÿ ÿ ÿ ÿEarnings per share by cash dividends per share
ÿ ÿ ÿ ÿCash dividends per share by the market price per share
ÿ ÿ ÿ ÿMarket price per share by cash dividends per share
ÿ ÿ ÿ ÿCash dividends per share by retained earnings
ÿ
26. A company issues 9%, 20-year bonds with a par value of $750,000. The current market rate is 9%. The amount of interest owed to the bondholders for each semiannual interest payment is.
ÿ
ÿ ÿ ÿ ÿ$0
ÿ ÿ ÿ ÿ$33,750 ÿÿ
ÿ ÿ ÿ ÿ$67,500
ÿ ÿ ÿ ÿ$750,000
ÿ ÿ ÿ ÿ$1,550,000
ÿ
27. Secured bonds:
ÿ
ÿ ÿ ÿ ÿAre also referred to as debentures
ÿ ÿ ÿ ÿHave specific assets of the issuing company pledged as collateral
ÿ ÿ ÿ ÿAre backed by the issuer’s bank
ÿ ÿ ÿ ÿAre subordinated to those of other unsecured liabilities
ÿ ÿ ÿ ÿAre the same as sinking fund bonds
ÿ
28. Bonds with a par value of less than $1,000 are known as:
ÿ
ÿ ÿ ÿ ÿJunk bonds
ÿ ÿ ÿ ÿBaby bonds
ÿ ÿ ÿ ÿCallable bonds
ÿ ÿ ÿ ÿUnsecured bonds
ÿ ÿ ÿ ÿConvertible bonds
ÿ
29. A corporation’s distribution of additional shares of its own stock to its stockholders without the receipt of any payment in return is called a:
ÿ
ÿ ÿ ÿ ÿStock dividend
ÿ ÿ ÿ ÿStock subscription
ÿ ÿ ÿ ÿPremium on stock
ÿ ÿ ÿ ÿDiscount on stock
ÿ ÿ ÿ ÿTreasury stock
ÿ
30. A premium on common stock:ÿ
ÿ
ÿ ÿ ÿ ÿIs the amount paid in excess of par by purchasers of newly issued stock
ÿ ÿ ÿ ÿIs the difference between par value and issue price when the amount paid is below par
ÿ ÿ ÿ ÿRepresents profit from issuing stock
ÿ ÿ ÿ ÿRepresents capital gain on sale of stock
ÿ ÿ ÿ ÿIs prohibited in most states
ÿ
31. A company had a market price of $83.12 per share, earnings per share of $4.87 and dividends per share of $5.40. Its price-earnings ratio is equal to:
ÿ
ÿ ÿ ÿ ÿ.056
ÿ ÿ ÿ ÿ.065
ÿ ÿ ÿ ÿ8.09
ÿ ÿ ÿ ÿ15.39
ÿ ÿ ÿ ÿ17.07 ÿÿ
ÿ
32. Reporting of discontinued segments includes:
ÿ
ÿ ÿ ÿ ÿIncome or loss from operating the discontinued segment net of tax and gain or loss from disposal of the segment’s net assets net of tax
ÿ ÿ ÿ ÿExtraordinary items
ÿ ÿ ÿ ÿChanges in accounting principle
ÿ ÿ ÿ ÿItems that are both unusual and infrequent
ÿ ÿ ÿ ÿWriting off of receivables
ÿ
33. One of several ratios that reflects solvency includes the:ÿ
ÿ
ÿ ÿ ÿ ÿAcid-test ratio
ÿ ÿ ÿ ÿCurrent ratio
ÿ ÿ ÿ ÿTimes interest earned ratio
ÿ ÿ ÿ ÿTotal asset turnover
ÿ ÿ ÿ ÿDays’ sales in inventory
ÿ
34. The ability to meet short-term obligations and to efficiently generate revenues is called:
ÿ ÿ ÿÿ
ÿ ÿ ÿ Liquidity and efficiency
ÿ ÿ ÿ ÿSolvency
ÿ ÿ ÿ ÿProfitability
ÿ ÿ ÿ ÿMarket prospects
ÿ ÿ ÿ ÿCreditworthiness
ÿ
35. A company’s transactions with its creditors to borrow money and/or to repay the principal amounts of loans are reported as cash flows from:ÿ
ÿ
ÿ ÿ ÿ ÿOperating activities
ÿ ÿ ÿ ÿInvesting activities
ÿ ÿ ÿ ÿFinancing activities
ÿ ÿ ÿ ÿDirect activities
ÿ ÿ ÿ ÿIndirect activities
ÿ
36. A company had net cash flows from operations of $120,000, total cash flows of $500,000 and average total assets of $2,500,000. The cash flow on total assets ratio equals:ÿ
ÿ
ÿ ÿ ÿ ÿ4.8%
ÿ ÿ ÿ ÿ5.0%
ÿ ÿ ÿ ÿ20.0% ÿ ÿ
ÿ ÿ ÿ ÿ20.8%
ÿ ÿ ÿ ÿ24.0%
ÿ
37. Net sales divided by average accounts receivable is equal to the:ÿ
ÿ
ÿ ÿ ÿ ÿDays’ sales uncollected
ÿ ÿ ÿ ÿAverage accounts receivable ratio
ÿ ÿ ÿ ÿCurrent ratio
ÿ ÿ ÿ ÿProfit margin
ÿ ÿ ÿ ÿAccounts receivable turnover ratio
ÿ
38. The comparison of a company’s financial condition and performance across time is known as:
ÿ
ÿ ÿ ÿ ÿHorizontal analysis
ÿ ÿ ÿ ÿVertical analysis
ÿ ÿ ÿ ÿPolitical analysis
ÿ ÿ ÿ ÿFinancial reporting
ÿ ÿ ÿ ÿInvestment analysis
ÿ
39. Selected information from Doodle Company’s for 2010 is below (in millions):
ÿ
Inventory decreased ÿ ÿ$6.0ÿ
Accounts Payable increased by ÿ$7.0ÿ
Cost of goods sold ÿ $36.50ÿ
Salaries Expense ÿ ÿ ÿ$24.0ÿ
Salaries Payable decreased ÿ$6.0ÿ
Accounts Receivable increased by ÿ$10.0ÿ
Sales ÿ ÿ$56.4
ÿ
What is the amount of cash paid for salaries by Doodle during 2010?ÿ
ÿ
ÿ ÿ ÿ ÿ$4.0
ÿ ÿ ÿ ÿ$6.0
ÿ ÿ ÿ ÿ$24.0
ÿ ÿ ÿ ÿ$30.0 ÿÿ
ÿ ÿ ÿ ÿ$18.0
ÿ
40. A company has sales of $5,417,000, a gross profit ratio of 35%, ending merchandise inventory of $201,425, and total current assets of $1,539,600. What is the days sales’ in inventory ratio for the year?
ÿ
ÿ ÿ ÿ ÿ6.10
ÿ ÿ ÿ ÿ20.88 ÿ
ÿ ÿ ÿ ÿ26.15
ÿ ÿ ÿ ÿ22.67
ÿ ÿ ÿ ÿ15.77
ÿ
41. Financial statements with data for two or more successive accounting periods placed in columns side by side, sometimes with changes shown in dollar amounts and percents, are referred to as:ÿ
ÿ
ÿ ÿ ÿ ÿPeriod-to-period statements
ÿ ÿ ÿ ÿControlling statements
ÿ ÿ ÿ ÿSuccessive statements
ÿ ÿ ÿ ÿComparative statements
ÿ ÿ ÿ ÿSerial statements
ÿ
42. The average number of times a company’s inventory is sold during an accounting period, calculated by dividing cost of goods sold by the average inventory balance is equal to the:ÿ
ÿ
ÿ ÿ ÿ ÿAccounts receivable turnover
ÿ ÿ ÿ ÿInventory turnover
ÿ ÿ ÿ ÿDays’ sales uncollected
ÿ ÿ ÿ ÿCurrent ratio
ÿ
43. Which of the following items is not likely to be considered an extraordinary item?ÿ
ÿ
ÿ ÿ ÿ ÿLoss from an unexpected union strike
ÿ ÿ ÿ ÿCondemnation of property by the city government
ÿ ÿ ÿ ÿLoss of use of property to a new and unexpected environmental regulation
ÿ ÿ ÿ ÿLoss to an earthquake in Florida
ÿ ÿ ÿ ÿExpropriation of property by a foreign government
ÿ
44. Net income divided by net sales is equal to the:ÿ
ÿ
ÿ ÿ ÿ ÿReturn on total assets
ÿ ÿ ÿ ÿProfit margin
ÿ ÿ ÿ ÿCurrent ratio
ÿ ÿ ÿ ÿTotal asset turnover
ÿ ÿ ÿ ÿDays’ sales in inventory
ÿ
45. Comparative financial statements in which each amount is expressed as a percentage of a base amount and in which the base amount is expressed as 100%, are called:ÿ
ÿ
ÿ ÿ ÿ ÿComparative statements
ÿ ÿ ÿ ÿCommon-size comparative statements
ÿ ÿ ÿ ÿGeneral-purpose financial statements
ÿ ÿ ÿ ÿBase line statements
ÿ ÿ ÿ ÿIndex statements
ÿ
46. The reporting of net cash provided or used by operating activities that lists the major items of operating cash receipts, such as receipts from customers and subtracts the major items of operating cash disbursements, such as cash paid for merchandise is referred to as the:ÿ
ÿ
ÿ ÿ ÿ ÿDirect method of reporting net cash provided or used by operating activities
ÿ ÿ ÿ ÿCash basis of accounting
ÿ ÿ ÿ ÿClassified statement of cash flows
ÿ ÿ ÿ ÿIndirect method of reporting net cash provided or used by operating activities
ÿ ÿ ÿ ÿNet method of reporting cash flows from operating activities
ÿ
47. The indirect method for the preparation of the operating activities section of the statement of cash flows:ÿ
ÿ
ÿ ÿ ÿ ÿSeparately lists each major item of operating cash receipts
ÿ ÿ ÿ ÿSeparately lists each major item of operating cash payments
ÿ ÿ ÿ ÿReports net income and then adjusts it for items necessary to determine net cash provided or used by operating activities
ÿ ÿ ÿ ÿIs required if the company is a merchandiser
ÿ
48. A company has a profit margin of 5%. If net income is equal to $83,000 and average total assets is equal to $45,000, how much are net sales?ÿ
ÿ
ÿ ÿ ÿ ÿ$4,150
ÿ ÿ ÿ ÿ$2,250
ÿ ÿ ÿ ÿ$1,660,000 ÿ ÿ
ÿ ÿ ÿ ÿ$6,400
ÿ ÿ ÿ ÿ$128,000
ÿ
49. A component of operating efficiency and profitability, calculated by expressing net income as a percent of net sales is equal to the:ÿ
ÿ
ÿ ÿ ÿ ÿAcid-test ratio
ÿ ÿ ÿ ÿMerchandise turnover
ÿ ÿ ÿ ÿPrice earnings ratio
ÿ ÿ ÿ ÿAccounts receivable turnover
ÿ ÿ ÿ ÿProfit margin ratio
ÿ
ÿ50. ÿAn investment that is readily convertible to a known amount of cash and that is sufficiently close to its maturity date so that its market value is relatively insensitive to interest rate changes is a(n):ÿ
ÿ
ÿ ÿ ÿ ÿShort-term marketable equity security
ÿ ÿ ÿ ÿOperating activity
ÿ ÿ ÿ ÿCommon stock
ÿ ÿ ÿ ÿCash equivalent
ÿ ÿ ÿ ÿFinancing activity