Ch5. Review Test

Question 1

Which of the following types of business organization is associated with double taxation?

A. sole proprietorship

B. limited partnership

C. C-corporation

D. S-corporation

Answer 1

C. C-corporation

Question 2

Which of the following insurance policies will increase the coverage limits and expands coverage of a Commercial General Liability Policy?

A. All-risk

B. Umbrella

C. Peril-specific

D. None of the above

Answer 2

B. Umbrella

Question 3

The type of insurance that covers claims made after the policy expires or is canceled is:

A. claims-made

B. occurrence

C. umbrella

D. all risk

Answer 3

B. occurrence

Question 4

In the cash system of accounting, a transaction is recorded or posted:

A. when a bill is approved for payment

B. when an invoice is mailed

C. when income is earned and expenses are incurred

D. when cash changes hands

Answer 4

D. when cash changes hands

Question 5

Which of the following is NOT a current asset?

A. retentions

B. prepaid expenses

C. bank loan

D. inventory

Answer 5

C. bank loan

Question 6

What is the difference between a balance sheet and an income statement?

A. A balance sheet is a summary at one particular point in time where an income statement is a summary over a period of time.

B. The balance sheet is prepared annually and covers a fiscal year where income statements only cover a calendar quarter.

C. The current ratio of a company requires information from both the balance sheet and income statement.

D. The income statement is used to determine the owner’s equity.

Answer 6

A. A balance sheet is a summary at one particular point in time where an income statement is a summary over a period of time.

Question 7

Working capital is:

A. different from operating capital

B. the difference between liabilities and owner’s equity

C. total income minus total expenses

D. total current assets minus total current liabilities

Answer 7

D. total current assets minus total current liabilities

Question 8

The “bottom line” of an income statement is:

A. Sales

B. Operating Expenses

C. Gross Margin

D. Net Profit

Answer 8

D. Net Profit

Question 9

What would be the net profit if income is $100,000, cost of sales is $55,000, gross margin is $45,000, and expenses are $35,000?

A. $65,000

B. $45,000

C. $10,000

D. 0

Answer 9

C. $10,000

Question 10

Cost of Sales on an income statement would NOT include:

A. Salaries

B. Direct Costs

C. Direct Labor Burden

D. Material Used

Answer 10

A. Salaries

Question 11

The current ratio is:

A. also known as the “acid test”

B. the ratio of quick assets to current liabilities

C. the ratio of current assets to current liabilities

D. the ratio of inventories to prepaid expenses

Answer 11

C. the ratio of current assets to current liabilities

Question 12

Which of the following statements is correct regarding the quick ratio?

A. It considers only assets that can be quickly converted to cash.

B. It excludes inventories.

C. It is more conservative than the current ratio.

D. All of the above.

Answer 12

D. All of the above.

Question 13

What is the quick ratio of a company if current assets are $80,000, current liabilities are $40,000, inventories are $30,000, and net profit is $12,000?

A. 0.30

B. 1.00

C. 1.25

D. 2.00

Answer 13

C. 1.25

Question 14

A budget is or should be:

A. a tool for providing control

B. a detailed plan of future receipts and expenditures

C. reviewed monthly and updated if needed

D. all of the above

Answer 14

D. all of the above

Question 15

The total financial resources made available to an owner of a company are called:

A. net worth

B. capitalization

C. liquidity

D. receivables

Answer 15

B. capitalization