Financial Statement Analysis

 

1. What items probably the lease useful when analyzing financial statements?

 

a. Management discussion and analysis

b. The notes to the financial statements

c. The statement of cash flows

d. Public relations materials

 

2. What types of information CANNOT be found in the financial statements?

 

a. Details about officer and employee retirement, pension, and stock option plans.

b. Pending legal proceedings

c. Reputation of the firm, morale of employees and prestige in the community

d. Disclosures about segments of an enterprise

 

3. using ___________ during a period of inflation would result in net income being overstated relative to the LIFO method.

 

a. LIFO

b. FIFO

c. gross sales

d. net sales

 

4. ______________ is (are) short-term obligations that arise from credit extended by suppliers for the purchase of goods and services.

 

a. Accounts receivable

b. Accounts payable

c. Equity

d. Cash

 

5. Which of the following statements about a common-size balance sheet is true?

 

a. Each item on a common-size balance sheet is expressed as a percentage of sales.

b. The common-size balance sheet reveals the composition of expenses relative to revenues.

c. The common-size balance sheet reveals the capital and debt structure of the firm.

d. Each item on a common-size balance sheet is expressed as a percentage of net income.

 

6. Which of the items would be analyzed separate from operating profit?

 

a. Salaries, interest expense, and equity losses

b. Equity earnings, discontinued operations, and interest income

c. Research and development, dividend income, and interest expense

d. Advertising, cost of goods sold, and selling and administrative expenses

 

7. Per FASB rules, firms may use the ________ method or the ________ method to calculate and present cash flow from operating activities.

 

a. direct; indirect

b. before tax; after tax

c. operational; financial

d. accounting; financial

 

8. Reading the “Commitments and Contingencies” note to financial statements is important when assessing the quality of the:

 

a. balance sheet.

b. income summary.

c. statement of owner’s equity.

d. double contingency statement.

 

9. The following categories of ratios are used in financial statement analysis: liquidity, Operating efficiency (also referred to as Activity), Leverage, Profitability, and Market measures. Classify the following ratios according to these categories.

 

a. Earnings per share - operating efficiency; fixed asset turnover - liquidity

b. Earnings per share - leverage; fixed asset turnover - profitability

c. Earnings per share - market measures; fixed asset turnover - operating efficiency

d. Earnings per share - market measures; fixed asset turnover - profitability

 

10. The average collection period of accounts receivable is the:

 

a. average number of days required to convert receivables into write offs/bad debts.

b. average number of days required to convert receivables into cash.

c. total number of days required to convert receivables into write offs/bad debts.

d. total number of days required to convert receivables into cash.

 

 

Investments

 

1. Stocks are a(n) ______ investment representing _______ of a business.

 

a. direct; ownership

b. direct; debt

c. indirect; ownership

d. indirect; debt

 

2. If a security is traded on the New York Stock Exchange and on a regional exchange, the security is said to be:

 

a. dual listed.

b. multiple listed.

c. traded in the second and third markets.

d. geographically diversified.

 

3. The type of information which will NOT be found in major urban newspapers is:

 

a. price quotations for stocks of local interest.

b. stories concerning local business leaders.

c. interest rates offered by local and national banks.

d. real time price quotes for widely held stocks and exchange traded funds.

 

4. Kelly bought a stock at a price of $22.50. She received a $1.75 dividend and sold the stock for $24.75. Kelly’s capital gain on their investment is:

 

a. $4.00.

b. $3.75

c. $2.25

d. $1.75

 

5. The closest approximation to the real, risk-free rate of interest is the:

 

a. short-term Treasury bill rate plus the inflation rate.

b. short-term Treasury bill rate minus the inflation rate.

c. 10- year Treasury bond rate minus the inflation rate.

d. 10-year treasury bond rate minus the 1-year Treasury bill rate.

 

6. Over the period 1956-2011, stocks have provided investors with annual returns between:

 

a. 6% to 8%.

b. 8% to 10%.

c. 10% to 12%.

d. 12% to 14%.

 

7. Lindor Inc.’s $100 par value preferred stock pays a dividend fixed at 8% of par. To earn 12% on an investment in this stock, you need to purchase the shares at a per share price of:

 

a. $9.60.

b. $66.67.

c. $96.00.

d. $150.00

 

8. The bond market is considered bearish when:

 

a. market interest rates are low of falling.

b. market interest rates are high or rising.

c. the risk-free rate of return exceeds the required rate of return.

d. more bonds are called than issued over a given period of time.

 

9. One drawback of investing in mutual funds is the:

 

a. annual management fee.

b. lack of liquidity of fund shares.

c. amount required for the initial investment.

d. lack of information on the performance of the fund.

 

10. The writer of a put:

 

a. accepts the obligation to sell a predetermined number of shares at a predetermined price.

b. is betting the price of the underlying security will increase in value.

c. is hoping that the put will be in-the-money prior to expiration.

d. will pay the premium whether or not the option is exercised.

 

PRINCIPLES OF ACCOUNTING 1

 

1. The journal entry to record a purchase of inventory on credit under the perpetual system include:

 

a. a debit to Merchandise Inventory.

b. a debit to Purchases.

c. a credit to Accounts Payable.

d. Both A & C.

 

2. The Allowance for Doubtful Accounts is listed on the balance sheet under the caption:

 

a. owner’s equity.

b. current liabilities.

c. current assets.

d. fixed assets.

 

3. Which of the following is an operating expense?

 

a. Salaries expense

b. Payroll tax expense

c. Purchases

d. Both A & B

 

4. Which of the following situations would more likely not result in bad debts?

 

a. The company extends credit easily.

b. The company has a strict credit policy.

c. The company has a cash-only policy.

d. None of these answers are correct.

 

5. The cost of a plant asset did not include installation costs that were expensed. This error would cause:

 

a. The period’s net income to be overstated.

b. the period’s net income to be understated.

c. the period’s end assets to be understated.

d. Both B & C

 

6. An item that can be converted into cash or used up during the normal operating cycle is:

 

a. a current asset.

b. Plant and Equipment.

c. a current liability.

d. a long term liability.

 

7. If $6,000 was the beginning inventory, purchases were $10,000, and sales were $7,000, What would be ending inventory be?

 

a. 9000

b. 6000

c. 0

d. 3000

 

For number 7, I believe the wording is wrong and the question should read “How much was ending inventory last accounting period?”

 

8. Ending inventory:

 

a. increases Cost of Goods Sold.

b. decreases Cost of Goods Sold.

c. does not affect Cost of Goods Sold.

d. increases liabilities.

 

9. Workers’ Compensation Insurance is:

 

a. paid by the employer to protect the employee against job-related injury or death.

b. paid by the employee to protect himself against job-related accidents or death.

c. paid by the employer to protect the employee against injury or death unrelated to the job.

d. paid by the employee to protect himself against accidents or death unrelated to the job.

 

10. The time frame when customers are allowed to pay their bills and still be eligible for a discount is the:

 

a. credit period.

b. discount period.

c. closing period.

d. due date.

 

Principles of Accounting 2

 

1. Issued stock is:

 

a. authorized shares of stock that can be sold.

b. stock only sold to another company.

c. shares sold and in stockholders’ possession.

d. stock sold to stockholders.

 

2. In the statement of cash flows, which event would cause net income to be increased?

 

a. A decrease in Inventory

b. An increase in Prepaid Insurance

c. A decrease in Accounts Payable

d. An increase in Accounts Receivable

 

3. Finished Goods Inventory appears on which of the following statements on the worksheet?

 

a. Statement of cost of goods manufactured and income statement

b. Statement of cost of goods manufactured and balance sheet

c. Income statement and balance sheet

d. Income statement and cost of goods sold statement

 

4. One reason a corporation might issue bonds rather than sell stock is that :

 

a. bond interest is a tax-deductible expense.

b. interest rates are high.

c. dividends will lower the amount of tax due.

d. bondholders have claims at liquidation.

 

5. For a corporation, bond interest:

 

a. is treated the same as dividends for tax purposes.

b. has no effect on earnings and therefore has no effect on income taxes.

c. reduces income tax by reducing earnings.

d. None of the above.

 

6. Dividends paid to stockholders are:

 

a. taxable to the recipient stockholder.

b. taxable to the corporation.

c. treated the same as bond interest.

d. None of the above.

 

7. If beginning and ending inventories are $20,000 and $30,000, respectively, and cost of goods sold is $400,000, what is the inventory turnover ratio?

 

a. 18

b. 16

c. 15.5

d. 15

 

8. Declaration of a cash dividend causes:

 

a. an increase in stockholders’ equity.

b. an increase in cash.

c. an increase in liabilities.

d. None of the above.

 

9. The current ratio is:

 

a. quick assets divided by current liabilities.

b. assets divided by liabilities.

c. current assets divided by current liabilities.

d. net sales divided by current liabilities.

 

10. When the contract rate of interest on bonds is equal to the market rate of interest, bonds sell at:

 

a. a premium.

b. their face value.

c. their maturity rate.

d. a discount.

 

Principles of Management

 

1. The three essential managerial skills include:

 

a. technical, human, and empirical.

b. human, empirical, and conceptual.

c. technical, interpersonal, and controlling.

d. technical, human, and conceptual.

 

2. A(n) ________ is the existence of a discrepancy between an existing and a desired state of affairs.

 

a. opportunity

b. solution

c. weakness

d. problem

 

3. The quantitative approach involves applications of:

 

a. statistics, information models, and computer simulations.

b. psychology testing, focus groups, and mathematics.

c. optimization models, interviews, and questionnaires.

d. surveys, strategic planning, and group problem solving.

 

4. Ethics training sessions can provide what benefit?

 

a. They clarify acceptable and unacceptable practices.

b. They create ego strength in employees.

c. They evaluate decisions and management practices in terms of the code of ethics.

d. They strengthen the employees’s locus of control.

 

5. Planning is often called the primary management function because it:

 

a. offers some basis for future decision making.

b. creates the vision for the organizational members to work toward.

c. establishes the basis for all the other functions.

d. sets the tone for the organizational culture.

 

6. ________ teams tend to be more task-oriented especially if the team members have never personally met.

 

a. Cross-functional

b. Problem- solving

c. Self-managed

d. Virtual

 

7. A theory that suggests that employees compare their inputs and outcomes from a job to the ration of input to outcomes of relevant others is known as:

 

a. action motivation.

b. goal setting.

c. reinforcement theory.

d. equity theory.

 

8. How would a manger motivate low-skilled, minimum-wage employees?

 

a. Offer more pay for high levels of performance

b. Use employee recognition programs

c. Provide the opportunity for training

d. Provide the opportunity for full-time employment

 

9. Managers can’t really know whether their work units are working properly until they’ve evaluated what activities have been done:

 

a. with those who remain.

b. and have compared actual performance to a desired standard.

c. and evaluate the performance of each of their employees.

d. successfully.

 

10. The prevalent thinking today is that:

 

a. organizations must make everyone fit a common corporate mold.

b. organizations should support, nurture, and utilize people’s differences in a way that respects employees’ unique perspectives and promotes a shares vision.

c. employees have a a single identity.

d. All of the above.

 

 

1. Cheryl instituted a new commission structure for her team of salespeople, who now receive additional cash bonuses for meeting sales targets. This is an example of a/an ______ reward. 
A. extrinsic 
B. job enlargement 
C. intrinsic 
D. job enrichment

 

 

 

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