A What's going on?
B Which accounts are affected?
C Is this an accrual?
D Does the balance sheet balance?
E Does my analysis make sense?
2 Which of the following is not an example of a decision or informed judgment that a potential employee could make from accounting information?
A Personnel turnover statistics (i.e., hiring and terminations).
B Probability of the company's ability to make profit sharing plan contributions in the future.
C Assessment of the risk that the company may become bankrupt in the near future.
D The extent of the company's commitment to a research program.
3 On January 31, an entity's balance sheet showed net assets of $1,025 and liabilities of $225 Owners' equity on January 31 was:
4 Prepaid expenses classified as current assets represent:
A current year expenses that have been accrued.
B current year disbursements that will be matched against revenues of the next year.
C cash that has been segregated to pay for future expenses.
D expenses of the current year that have been paid in advance.
5 Gains differ from revenues because gains:
A are not a result of the entity's ongoing, central operations.
B do not have to be realized.
C are reported as income from operating activities.
D do not involve any offsetting costs or expenses.
6 Under most circumstances, in order to recognize revenue:
A cash must have been received.
B the entity must expect to receive cash in the future.
C the entity must have paid for all expenses incurred in generating the revenue.
D the revenue must be realized or realizable, and earned.
7 Most entities satisfy the accounting criteria for recognizing revenue when:
A an order is received from a customer.
B cash is received from a customer.
C an unearned revenue account is credited.
D a product is delivered or a service is provided.
8 The gross profit ratio is useful to the manager for each of the following purposes except that:
A it can be used to determine the selling price to set for an item.
B it can be used to estimate the amount of inventory lost in a fire.
C it can be used to determine the amount available from a given amount of revenue to cover operating expenses.
D it can be used to estimate the amount of operating expenses for a period.
Analyzing Financial Statements
9 Which of the following is not a category of financial statement ratios?
A Financial leverage.
10 An individual interested in making a judgment about the profitability of a company should:
A review the trend of working capital for several years.
B calculate the company's ROI for the most recent year.
C review the trend of the company's ROI for several years.
D compare the company's ROI for the most recent year with the industry average ROI for the most recent year.
11 A potential creditor's judgment about granting credit would be most influenced by the potential customer's:
A current ratio at the end of the prior fiscal year.
B most recent acid-test ratio.
C trend of acid-test ratio over the past three years.
D practice with respect to taking cash discounts offered by current suppliers.
12 The inventory turnover calculation:
A is wrong unless cost of goods sold is used in the numerator.
B is wrong unless sales is used in the numerator.
C is an alternative way of expressing the number of days' sales in inventory.
D requires knowledge of the inventory cost flow assumption being used.
13 Asset turnover calculations:
A are made by dividing the average asset balance during the year by the sales for the year.
B are made by dividing sales for the year by the asset balance at the end of the year.
C communicate information about how promptly the entity pays its bills.
D should be evaluated by observing the turnover trend over a period of time.
14 The cost of a single unit of production in excess of the breakeven point in units is:
A its fixed cost and variable cost.
B its fixed cost only.
C its variable cost only.
D none of the above.
15 To which function of management is CVP analysis most applicable?
16 An example of a product cost is:
A advertising expense for the product.
B a portion of the president's travel expenses.
C interest expense on a loan to finance inventory.
D production line maintenance costs.
17 The production cost of a single unit of a manufactured product is determined by:
A dividing total direct materials and direct labor for a production run by the number of units made.
B dividing total direct materials, direct labor, and manufacturing overhead for a production run by the number of units made.
C dividing total direct materials, direct labor, manufacturing overhead and selling expenses for a production run by the number of units made.
D dividing the selling price by the gross profit ratio.
18 An example of a cost likely to have a fixed behavior pattern is:
A sales force commission.
B raw material costs.
C advertising costs.
D electricity costs for packaging equipment.
19 The budgeting process that most likely creates an attitude supportive of achieving organization goals is:
A top-down approach.
B zero based approach.
C proportionate increase approach.
D participative approach.
20 Operating expenses are best budgeted on the basis of knowledge about:
A cost behavior patterns.
B relevant range.
C prior period actual expenses.
D current period budget amounts.
21 Which of the following costs are included in the cost classification that is based on the relationship between total cost and volume of activity?
A Variable cost and fixed cost.
B Direct cost and indirect cost.
C Product cost and period cost.
D Committed cost and discretionary cost.
22 Once standard costs for products or services have been developed:
A they must be updated monthly to be useful.
B they can be used for more than planning and control purposes.
C they need not be revised unless the product or service is modified.
D performance reports must be issued if the standards are to be useful.
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