Prelim_1Fall_06 - David A. Dittman Preliminary Exam 1 -...

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David A. Dittman Exam #______ Preliminary Exam 1 - Fall 2006 Question Sheet True and False Questions: 1. A decision maker who wants to understand a company's financial statements must carefully read the notes to the financial statements because the notes provide useful supplemental information. 2. The amount of cash paid by a business for office utilities would be reported on the statement of cash flows as an operating activity. 3. One of the advantages of a corporation when compared to a partnership is the limited liability of the owners. 4. The payment of a liability in cash will decrease owners' equity. 5. The cash account is credited when stock is sold to investors and a stockholders' equity account is debited. 6. When a company uses cash to purchase equipment, the cash out flows are reported as investing activity. 7. Interest expense connected to notes payable is an example of a non-operating or peripheral expense. 8. Utilities expense and wages payable are both elements of the income statement. 9. The income statement reports income or loss at a point in time. 1
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David A. Dittman Exam #______ Preliminary Exam 1 - Fall 2006 Question Sheet 10. When total assets decrease, it will cause a decline in the asset turnover ratio if sales stay the same. 11. The trial balance, prepared immediately after all transactions of the period have been recorded and posted, should show all account balances that are in the ledger (T-accounts). 12. Unearned rent revenue is an example of a liability account that will usually not be satisfied by payment of cash but rather by allowing the tenant to occupy the premises for which they have prepaid. 13. In 2003, Dominos reported their net profit margin as 2.9% while Papa John's reported a 3.7% net profit margin. Dominos was more effective at controlling costs. 14. The full-disclosure principle requires a complete set of financial statements supported by notes to those statements. 15. The current ratio is computed by subtracting current liabilities from current assets. 2
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David A. Dittman Exam #______ Preliminary Exam 1 - Fall 2006 Question Sheet Multiple Choice Questions: 16. The Beta Corporation had 2007 revenues of $200,000, expenses of $140,000, and an income tax rate of 30 percent. Net income after taxes would be A) $60,000. B) $18,000. C) $42,000. D) $48,000. E) None of the above is correct. 17. On January 1, 2006, two individuals invested $500,000 each to form Jordan Corporation. Jordan had total revenues of $200,000 during 2006 and $250,000 during 2007. Total expenses for the same periods were $120,000 and $140,000 respectively. Cash dividends paid out to stockholders totaled $20,000 in 2006 and $25,000 in 2007. What was Jordan’s total stockholders' equity at the end of 2006 and 2007? A) $1,000,000 and $1,065,000 respectively.
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This note was uploaded on 04/07/2009 for the course H ADM 121 taught by Professor Ddittman during the Fall '07 term at Cornell University (Engineering School).

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Prelim_1Fall_06 - David A. Dittman Preliminary Exam 1 -...

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