GB518: Financial Accounting Principles and Analysis final exaam
Question Detail:

The useful life of a plant asset is: (Points : 2)

The length of time it is used productively in a company’s operations
Never related to its physical life
Its productive life, but not to exceed one year
Determined by the FASB
Determined by law

2.Depreciation: (Points : 2)

Measures the decline in market value of an asset
Measures physical deterioration of an asset
Is the process of allocating to expense the cost of a plant asset
Is an outflow of cash from the use of a plant asset
Is applied to land

3.Plant assets are: (Points : 2)

Tangible assets used in the operation of a business that have a useful life of more than one accounting period
Current assets
Held for sale
Intangible assets used in the operations of a business that have a useful life of more than one accounting period
Tangible assets used in the operation of business that have a useful life of less than one accounting period

4.A company has net sales of $870,000 and average accounts receivable of $174,000. What is its accounts receivable turnover for the period? (Points : 2)


5.FICA taxes include: (Points : 2)

Social Security taxes
Charitable giving
Employee income taxes
Unemployment taxes

6.Times interest earned is calculated by: (Points : 2)

Multiplying interest expense times income
Dividing interest expense by income before interest expense
Dividing income before interest expense and any income tax by interest expense
Dividing interest and income tax expense by income before interest and income tax expense

7.Amortization: (Points : 2)

Is the systematic allocation of the cost of an intangible asset to expense over its estimated useful life
Is the process of allocating to expense the cost of a plant asset to the accounting periods benefiting from its use
Is the process of allocating the cost of natural resources to periods when they are consumed
Is an accelerated form of expensing an asset’s cost
Is the same as depletion

8.A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and their length of time past due is the: (Points : 2)

Direct write-off method
Aging of accounts receivable method
Percentage of sales method
Aging of investments method
Percent of accounts receivable method

9.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: (Points : 2)


10.The matching principle requires: (Points : 2)

That expenses be ignored if their effect on the financial statements are less important than revenues to the financial statement user
The use of the direct write-off method for bad debts
The use of the allowance method of accounting for bad debts
That bad debts be disclosed in the financial statements
That bad debts not be written off

11.Liabilities: (Points : 2)

Must be certain
Must sometimes be estimated
Must be for a specific amount
Must always have a definite date for payment
Must involve an outflow of cash

12.In the accounting records of a defendant, lawsuits: (Points : 2)

Are estimated liabilities
Should always be recorded
Should always be disclosed
Should be recorded if payment for damages is probable and the amount can be reasonably estimated

13.A contingent liability: (Points : 2)

Is always of a specific amount
Is a potential obligation that depends on a future event arising out of a past transaction or event
Is an obligation not requiring future payment
Is an obligation arising from the purchase of goods or services on credit
Is an obligation arising from a future event

14.Total asset turnover is calculated by dividing: (Points : 2)

Gross profit by average total assets
Average total assets by gross profit
Net sales by average total assets
Average total assets by net sales
Net assets by total assets

15.If the times interest ratio: (Points : 2)

Increases, then risk increases
Increases, then risk decreases
Is greater than 1.5, then the company is in default
Is less than 1.5, the company is carrying too little debt

16.Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are: (Points : 2)

Discounted notes
Installment notes
Investment notes

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: (Points : 2)


18.A bond traded at 102 means that: (Points : 2)

The bond pays 2.5% interest
The bond traded at $1,025 per $1,000 bond
The market rate of interest is 2.5%
The bonds were retired at $1,025 each

19.Dividend yield is the percent of cash dividends paid to common shareholders relative to the: (Points : 2)

Common stock’s market value
Earnings per share
Investors’ purchase price of the stock
Amount of retained earnings
Amount of cash

20.A bondholder that owns a $1,000, 10%, 10-year bond has: (Points : 2)

Ownership rights
The right to receive $10 per year until maturity
The right to receive $1,000 at maturity
The right to receive $10,000 at maturity

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? (Points : 2)


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: (Points : 2)

Callable bonds
Serial bonds
Registered bonds
Coupon bonds

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 corporation
is called a: (Points : 2)

Preemptive right
Proxy right
Right to call
Financial leverage

24.Owners of preferred stock often do not have: (Points : 2)

Ownership rights to assets of the corporation
Voting rights
Preference to dividends
The right to sell their stock on the open market
Preference to assets at liquidation

25.The dividend yield is computed by dividing: (Points : 2)

Cash dividends per share by earnings per share
Earnings per share by cash dividends per share
Cash dividends per share by the market price per share
Market price per share by cash dividends per share
Cash dividends per share by retained earnings

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. (Points : 2)


27.Secured bonds: (Points : 2)

Are also referred to as debentures
Have specific assets of the issuing company pledged as collateral
Are backed by the issuer’s bank
Are subordinated to those of other unsecured liabilities
Are the same as sinking fund bonds

28.Bonds with a par value of less than $1,000 are known as: (Points : 2)

Junk bonds
Baby bonds
Callable bonds
Unsecured bonds
Convertible bonds

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: (Points : 2)

Stock dividend
Stock subscription
Premium on stock
Discount on stock
Treasury stock

30.A premium on common stock: (Points : 2)

Is the amount paid in excess of par by purchasers of newly issued stock
Is the difference between par value and issue price when the amount paid is below par
Represents profit from issuing stock
Represents capital gain on sale of stock
Is prohibited in most states

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: (Points : 2)


32.Reporting of discontinued segments includes: (Points : 2)

Income 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
Extraordinary items
Changes in accounting principle
Items that are both unusual and infrequent
Writing off of receivables

33.One of several ratios that reflects solvency includes the: (Points : 2)

Acid-test ratio
Current ratio
Times interest earned ratio
Total asset turnover
Days’ sales in inventory

34.The ability to meet short-term obligations and to efficiently generate revenues is called: (Points : 2)

Liquidity and efficiency
Market prospects

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: (Points : 2)

Operating activities
Investing activities
Financing activities
Direct activities
Indirect activities

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: (Points : 2)


37.Net sales divided by average accounts receivable is equal to the: (Points : 2)

Days’ sales uncollected
Average accounts receivable ratio
Current ratio
Profit margin
Accounts receivable turnover ratio

38.The comparison of a company’s financial condition and performance across time is known as: (Points : 2)

Horizontal analysis
Vertical analysis
Political analysis
Financial reporting
Investment analysis

39.Selected information from Doodle Company’s for 2010 is below (in millions):
Inventory decreased $6.0
Accounts Payable increased by $7.0
Cost of goods sold $36.50
Salaries Expense $24.0
Salaries Payable decreased $6.0
Accounts Receivable increased by $10.0
Sales $56.4
What is the amount of cash paid for salaries by Doodle during 2010? (Points : 2)


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? (Points : 2)


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: (Points : 2)

Period-to-period statements
Controlling statements
Successive statements
Comparative statements
Serial statements

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: (Points : 2)

Accounts receivable turnover
Inventory turnover
Days’ sales uncollected
Current ratio

43.Which of the following items is not likely to be considered an extraordinary item? (Points : 2)

Loss from an unexpected union strike
Condemnation of property by the city government
Loss of use of property due to a new and unexpected environmental regulation
Loss due to an earthquake in Florida
Expropriation of property by a foreign government

44.Net income divided by net sales is equal to the: (Points : 2)

Return on total assets
Profit margin
Current ratio
Total asset turnover
Days’ sales in inventory

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: (Points : 2)

Comparative statements
Common-size comparative statements
General-purpose financial statements
Base line statements
Index statements

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: (Points : 2)

Direct method of reporting net cash provided or used by operating activities
Cash basis of accounting
Classified statement of cash flows
Indirect method of reporting net cash provided or used by operating activities
Net method of reporting cash flows from operating activities

47.The indirect method for the preparation of the operating activities section of the statement of cash flows: (Points : 2)

Separately lists each major item of operating cash receipts
Separately lists each major item of operating cash payments
Reports net income and then adjusts it for items necessary to determine net cash provided or used by operating activities
Is required if the company is a merchandiser

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? (Points : 2)


49.A component of operating efficiency and profitability, calculated by expressing net income as a percent of net sales is equal to the: (Points : 2)

Acid-test ratio
Merchandise turnover
Price earnings ratio
Accounts receivable turnover
Profit margin ratio

50.An 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): (Points : 2)

Short-term marketable equity security
Operating activity
Common stock
Cash equivalent
Financing activity