Module

Question 1

The percentage analysis of increases and decreases in individual items in comparative financial statements is called?

Answer 1

horizontal analysis

Question 2

The percent of fixed assets to total assets is an example of ___ ___.

Answer 2

vertical analysis

Question 3

An analysis in which all the components of an income statement are expressed as a percentage of net sales is called ___ ___.

Answer 3

vertical anaylsis

Question 4

Statements in which all items are expressed only in relative terms (percentages of a common base) are ___ ___ statements.

Answer 4

common size

Question 5

The ability of a business to pay its debts as they come due and to earn a reasonable amount of income is referred to as ___ and ___.

Answer 5

solvency and probabilty

Question 6

Which of the following is NOT an analysis used in assessing? ratio of ___ ___ to ___.

Answer 6

net sales

assets

Question 7

The ratio computed by dividing current assets by current liabilities is the ___ ___.

Answer 7

current ratio

Question 8

The ratio of the sum of cash, receivables, and marketable securities to current liabilities is called the ___ ___.

Answer 8

quick ratio

Question 9

An acceleration in the collection of receivables will tend to cause the accounts receivable turnover to ___.

Answer 9

increase

Question 10

Which ratio provides a solvency measure that shows the margin of safety of noteholders or bondholders and also gives an indication of the potential ability of the business to borrow additional funds on a long-term basis? Ratio of ___ ___ to ____ ____.

Answer 10

fixed assets

long-term liabilities

Question 11

The number of times interest charges are earned is computed as ___ before ___ ___ plus ___ charges divided by ___ charges

Answer 11

income
income tax
interest
interest

[income (before tax) + Interest] / interest

Question 12

Measures the profitability of total assets, without considering how the assets are financed.

Answer 12

Rate earned on total assets

Question 13

What is NOT a characteristic generally evaluated in ratio analysis?

Answer 13

Marketability

Question 14

Which additional report is required of independent auditors since the passage of the Sarbanes-Oxley Act in 2002? A report attesting to the ___ assessment of ___ ___.

Answer 14

management’s

internal control

Question 15

Decisions to install new equipment, replace old equipment, and purchase or construct a new building are examples of ___ ___ analysis.

Answer 15

capital investment

Question 16

Two present value methods of analyzing capital investment proposals are ___ ___ value and ___ ___ of ___.

Answer 16

Net present value
internal rate
return

Question 17

By converting dollars to be received in the future into current dollars, the present value methods take into consideration that money has a ___ ___.

Answer 17

time value

Question 18

The primary advantages of the average rate of return method are its ease of computation and the fact that it emphasizes the ___ of ___ earned over the ___ of the ___.

Answer 18

amount
income
life
proposal

Question 19

__ __ index can be used to place capital investment proposals involving different amounts of investment on a comparable basis for purposes of net present value analysis.

Answer 19

Present value

Question 20

An analysis of a proposal by the net present value method indicated that the present value exceeded the amount to be invested.

Is the proposal desirable? Why?

Answer 20

Yes.

The rate of return expected from the proposal exceeds the minimum rate used for the analysis.

Question 21

In general, present value methods of analyzing capital investments are more desirable than methods ignoring present value because

Answer 21

the present value methods consider that a dollar today is worth more than a dollar in the future due to the potential earning power of that dollar.

Question 22

Which method of evaluating capital investment proposals uses the concept of present value to compute a rate of return?

Answer 22

Internal rate of return

Question 23

When several alternative investment proposals of the same amount are being considered, the one with the largest net present value is the most desirable. If the alternative proposals involve different amounts of investment, it is useful to prepare a relative ranking of the proposals by using a(n)

Answer 23

present value index.

Question 24

Which method of evaluating capital investment proposals uses present value concepts to compute the rate of return from the net cash flows expected from capital investment proposals?

Answer 24

Internal rate of return

Question 25

The present value index is computed using which of the following formulas?

Answer 25

Total present value of net cash flow/Amount to be invested

Question 26

Which of the following is a present value method of analyzing capital investment proposals?

Answer 26

Net present value

Question 27

An analysis of a proposal by the net present value method indicated that the present value of future cash inflows exceeded the amount to be invested. Which of the following statements best describes the results of this analysis?

Answer 27

The proposal is desirable and the rate of return expected from the proposal exceeds the minimum rate used for the analysis.

Question 28

All of the following are factors that may complicate capital investment analysis EXCEPT

Answer 28

sunk cost.

Question 29

Which of the following provisions of the Internal Revenue Code can be used to reduce the amount of the income tax expense arising from the capital investment projects?

Answer 29

Depreciation deduction

Question 30

Periods in time that experience increasing price levels are known as periods of

Answer 30

inflation.

Question 31

The process by which management allocates available investment funds among competing investment proposals is called

Answer 31

capital rationing.

Question 32

In capital rationing, an initial screening of alternative proposals is usually performed by establishing minimum standards. Which of the following evaluation methods are normally used?

Answer 32

Cash payback method and average rate of return method

Question 33

In capital rationing, alternative proposals that survive initial and secondary screening are normally evaluated in terms of

Answer 33

nonfinancial factors.

Question 34

The basic financial statements do NOT include the

Answer 34

tax return.

Question 35

Which of the following is NOT an element of the financial accounting system?

Answer 35

Which of the following is NOT an element of the financial accounting system?

Question 36

Which of the following accounts is a stockholders’ equity account?

Answer 36

Retained Earnings

Question 37

The stockholders’ equity will be reduced by which of the following accounts:

Answer 37

dividends.

Question 38

The gross increases in stockholders’ equity attributable to business activities are called

Answer 38

revenues.

Question 39

A __________ is an economic event that under generally accepted accounting principles affects an element of the financial statements and must be recorded.

Answer 39

transaction

Question 40

The statement of cash flows is integrated with the balance sheet because

Answer 40

the cash at the beginning of the period plus or minus the cash flows from operating, investing, and financing activities equals the end of period cash reported on the balance sheet.

Question 41

the cash at the beginning of the period plus or minus the cash flows from operating, investing, and financing activities equals the end of period cash reported on the balance sheet.

Answer 41

the cash at the beginning of the period plus or minus the cash flows from operating, investing, and financing activities equals the end of period cash reported on the balance sheet.

Question 42

Anderson, Inc. paid rent expense of $4,000 for the month of October. How are the accounts affected due to this transaction?

Answer 42

Decrease in cash $4,000 and decrease in retained earnings $4,000

Question 43

Anderson, Inc. receives $5,000 cash for fees earned. What is the effect of this transaction?

Answer 43

Net income will increase.

Question 44

Declaring and paying cash dividends affects which balance sheet accounts?

Answer 44

Cash and stockholders’ equity

Question 45

If Assets have a balance of $50,000 and Stockholders’ Equity has a balance of $40,000, then Liabilities must have a balance of

Answer 45

10000

Question 46

A to Z Corporation engaged in the following transaction “Paid a $10,000 cash dividend.” On the Statement of Cash Flows, the transaction would be classified as

Answer 46

Cash Flows from Financing Activities.

Question 47

The income statement for August indicates net income of $50,000. The corporation also paid $10,000 in dividends during the same period. If there was no beginning balance in stockholders’ equity, what is the ending balance in stockholders’ equity?

Answer 47

40000

Question 48

The first month of operation showed the net cash from operating activities to be $3,760, the net cash from investing activities to be ($5,415), and the ending cash balance to be $2,425. The net cash from financing activities must be

Answer 48

$4,080.00.

Question 49

The purpose of the Sarbanes-Oxley Act of 2002 is to

Answer 49

restore public confidence and trust in the financial statements of publicly held companies.

Question 50

The Sarbanes-Oxley Act of 2002 requires companies and their independent accountants to

Answer 50

report on the effectiveness of the company’s internal controls.

Question 51

The objectives of internal control are to

Answer 51

provide reasonable assurance that assets are safeguarded, information is processed accurately, and laws and regulations are complied with.

Question 52

A firm’s internal control environment is influenced by

Answer 52

all of these.

Management’s operating style.
organizational structure.
personnel policies.

Question 53

When a firm uses internal auditors, it is adhering to which of the following internal control elements?

Answer 53

Monitoring

Question 54

Which of the following is NOT defined as cash?

Answer 54

Commercial paper

Question 55

The notification accompanying a check that indicates the specific invoice being paid is called a

Answer 55

remittance advice.

Question 56

EFT

Answer 56

can process certain cash transactions at less cost than by using the mail.

Question 57

On the bank’s accounting records, customers’ accounts are normally shown as

Answer 57

a liability.

Question 58

Credit memorandums from the bank

Answer 58

show the bank has collected a note receivable for the customer.

Question 59

A bank reconciliation should be prepared periodically because

Answer 59

any differences between the depositor’s records and the bank’s records should be determined, and any errors made by either party should be discovered and corrected.

Question 60

The amount of the outstanding checks is included on the bank reconciliation as a(n)

Answer 60

deduction from the balance per bank statement.

Question 61

A special cash fund used to make small payments that occur frequently is called a(n)

Answer 61

petty cash fund.

Question 62

Cash equivalents include

Answer 62

money market accounts and commercial paper.

Question 63

A minimum cash balance required by a bank is called

Answer 63

compensating balance.

Question 64

The budget process involves doing all the following EXCEPT

Answer 64

dismissing all managers who fail to achieve operational goals specified in the budget.

Question 65

The budget process involves doing all the following EXCEPT

Answer 65

dismissing all managers who fail to achieve operational goals specified in the budget.

Question 66

When department managers plan lower goals than possible in order to build in a cushion for unexpected events, the result is

Answer 66

budgetary slack.

Question 67

The process of developing budget estimates by requiring all levels of management to estimate sales, production, and other operating data as though operations were being initiated for the first time is referred to as

Answer 67

zero-based budgeting.

Question 68

A variant of fiscal-year budgeting whereby a twelve-month projection into the future is maintained at all times is termed

Answer 68

continuous budgeting.

Question 69

The production budgets are used to prepare which of the following budgets?

Answer 69

Direct materials purchases, direct labor cost, factory overhead cost

Question 70

The first budget customarily prepared as part of an entity’s master budget is the

Answer 70

sales budget.

Question 71

The budget that summarizes future plans for the acquisition of fixed assets is the

Answer 71

capital expenditures budget.

Question 72

Estimated cash payments are planned reductions in cash from all of the following EXCEPT

Answer 72

notes and accounts receivable collections.

Question 73

Management accountants usually provide for a minimum cash balance in their cash budgets for which of the following reasons?

Answer 73

It provides a safety buffer for variations in estimates.

Question 74

Planning for capital expenditures is necessary for all of the following reasons EXCEPT

Answer 74

amounts spent for office equipment may be immaterial.

Question 75

Standards that represent levels of operation that can be attained with reasonable effort are called

Answer 75

normal standards.

Question 76

Periodic comparisons between planned objectives and actual performance are reported in

Answer 76

budget performance reports.

Question 77

The standard price and quantity of direct materials are separated because

Answer 77

direct materials prices are controlled by the Purchasing Department, and quantity used is controlled by the Production Department.

Question 78

If the price paid per unit differs from the standard price per unit for direct materials, the variance is termed

Answer 78

price variance.

Question 79

If the actual direct labor hours spent producing a commodity differ from the standard hours, the variance is termed

Answer 79

time variance.

Question 80

Variances from standard costs are usually reported to

Answer 80

management.

Question 81

The use of standards for nonmanufacturing expenses is

Answer 81

not as common as it is for manufacturing costs.