Practice Exam

Question 1

Which account is not closed at the end of the year?

Answer 1

Cost of Goods Sold

Question 2

Appropriate way to present date for a balance sheet

Answer 2

December 31, 2010

Question 3

The statement which shows the operating, investing, and financing activities of a business is the:

Answer 3

Statement of cash flows

Question 4

What does the debt to total assets ratio measure?

Answer 4

Solvency

Question 5

For information to be considered relevant, it should:

Answer 5

Be timely

Confirm or correct prior expectations

Question 6

Which ratio measures the percentage of assets financed by creditors rather than by stockholders?

Answer 6

Debt to total assets ratio

Question 7

If a company receives cash from a customer before performing services for the customer, then:

Answer 7

Assets increase and liabilities increase

Question 8

Bucky Company purchases supplies on account

Answer 8

Increase assets, increase liabilties

Question 9

What is the purpose of closing entries?

Answer 9

To transfer net income and dividends to retained earings

Question 10

Accrued expense adjustment

Answer 10

expenses overstated

liabilities overstated

Question 11

A company worried about their cash levels

Answer 11

LIFO

Question 12

under the perpetual method, buyers include the shipping cost they pay in ______________

Answer 12

inventory

Question 13

Prepaid expenses adjustment

Answer 13

Understated expenses

Overstated assets

Question 14

Deferred revenue adjustments

Answer 14

understated net income

overstated liabilities

Question 15

Depreciation used to

Answer 15

evenly expense benefit of having that asset

Question 16

Earings per share and gross profit rate are_______________

Answer 16

profitability ratios

Question 17

FOB shipping point, who pays?

Answer 17

Buyer

Question 18

Inventory turnover ratio:

Answer 18

COGS / Average Inventory

Question 19

Net Sales

Answer 19

Sales - Sales r&a - sales discounts = net sales

Question 20

Gross profit

Answer 20

Sales - sales r&a - sales discounts - cost of goods sold = gross profit

Question 21

Profitability ratios

Answer 21

How much money the company is making (EPS)

Question 22

Liquidity ratios

Answer 22

Ability to pay short-term obligations

Currenr ratio, working capital

Question 23

Solvency ratios

Answer 23

Ability ro survive

Debt to total assets ratio

Question 24

Steps in determing inventory quantities

Answer 24

1. Take a physical inventory of goods on hand
2. Determine the ownership of goods in transit or on consignment

Question 25

Primary basis of accounting for inventories:

Answer 25

Cost

Question 26

Ending inventory under FIFO

Answer 26

closest to current value

Question 27

Inventory under LIFO

Answer 27

farthest from current value

Question 28

LIFO results in

Answer 28

lower net income lower income taxes

Question 29

Beginning Retained earnings to Ending formula

Answer 29

Beginning retained earnings + Net income - Dividends = Ending retained earnings

Question 30

Working capital: analyzing liquidity

Answer 30

Positive working capital provides liquidity (can pay off short-term liabilities) negative working capital - could go bankrupt; does not necessarily mean a company has liquidity problems

Question 31

Current ratio: analyzing liquidity

Answer 31

Current ratio is a more reliable indicator of liquidity than working capital 97:1 - for every 1 dollar of current liabilities, they have 97 cents of assets \*could be innaccurate because it depends what kind of current assets it has - cash or inventory?

Question 32

Debt to total assets ratio: analyzing solvency

Answer 32

Measures the amount of financing provided by creditors Higher the percentage - more riskier the company is and may be unable to pay off debts

Question 33

Free Cash Flow =

Answer 33

Cash provided by operations - capital expenditures - cash dividends = Free Cash Flow

Question 34

Earings per share: analyzing profitability

Answer 34

Shows how much income is earned per each share of common stock Can be used for year-to-year comparrisons but not accros companies

Question 35

Gross Profit Rate: Analyzing Profitability

Answer 35

Measures how much a company profits off the sale of its inventory Shows how much a company is able to mark up their inventory & how cheaply they can purchase the inventory \*Can compare year-to-year and within the same industry

Question 36

Receiving a bank loan

Answer 36

Notes payable is creditted

Question 37

Other revenues and gains

Answer 37

Interest revenue Dividend revenue Rent Revenue Gain - from sale of PP&E

Question 38

Other Expenses and Losses

Answer 38

Interest expense Casualty losses - vandalism and accidents Loss - from sale of PP&E Loss - from strikes