1.The useful life of a plant asset is:  

       The length of time it is used productively in a company’s operations

       Never related to its physical life

       Its productive life, but not to exceed one year

       Determined by the FASB

       Determined by law

 

2.  Depreciation: 

 

       Measures the decline in market value of an asset

       Measures physical deterioration of an asset

       Is the process of allocating to expense the cost of a plant asset

       Is an outflow of cash from the use of a plant asset

       Is applied to land

 

3. Plant assets are

       Tangible assets used in the operation of a business that have a useful life of more than one accounting period

       Current assets

       Held for sale

       Intangible assets used in the operations of a business that have a useful life of more than one accounting period

       Tangible assets used in the operation of business that have a useful life of less than one accounting period

 

4.   A company has net sales of $870,000 and average accounts receivable of $174,000. What is its accounts receivable turnover for the period? 

 

       0.20

       5.00    

       20.0

       73.0

       1,825

 

5.  FICA taxes include:

 

       Social Security taxes

       Charitable giving

       Employee income taxes

       Unemployment taxes

 

6.   Times interest earned is calculated by: 

 

       Multiplying interest expense times income

       Dividing interest expense by income before interest expense

       Dividing income before interest expense and any income tax by interest expense

       Dividing interest and income tax expense by income before interest and income tax expense

 

7.   Amortization: 

 

       Is the systematic allocation of the cost of an intangible asset to expense over its estimated useful life

       Is the process of allocating to expense the cost of a plant asset to the accounting periods benefiting from its use

       Is the process of allocating the cost of natural resources to periods when they are consumed

       Is an accelerated form of expensing an asset’s cost

       Is the same as depletion

 

8.   A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and their length of time past due is the: 

 

       Direct write-off method

       Aging of accounts receivable method

       Percentage of sales method

       Aging of investments method

       Percent of accounts receivable method

 

9.   A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. The depletion expense per ton of ore is: 

 

       $0.75

       $0.625   

       $0.875

       $6.00

       $8.00

 

10. The matching principle requires: 

 

       That expenses be ignored if their effect on the financial statements are less important than revenues to the financial statement user

       The use of the direct write-off method for bad debts

       The use of the allowance method of accounting for bad debts

       That bad debts be disclosed in the financial statements

       That bad debts not be written off

 

11. Liabilities: 

 

       Must be certain

       Must sometimes be estimated

       Must be for a specific amount

       Must always have a definite date for payment

       Must involve an outflow of cash

 

12.   In the accounting records of a defendant, lawsuits: 

 

       Are estimated liabilities

       Should always be recorded

       Should always be disclosed

       Should be recorded if payment for damages is probable and the amount can be reasonably estimated

 

13. A contingent liability: 

      

       Is always of a specific amount

       Is a potential obligation that depends on a future event arising out of a past transaction or event

       Is an obligation not requiring future payment

       Is an obligation arising from the purchase of goods or services on credit

       Is an obligation arising from a future event

 

14. Total asset turnover is calculated by dividing:

 

       Gross profit by average total assets

       Average total assets by gross profit

       Net sales by average total assets

       Average total assets by net sales

       Net assets by total assets

 

15. If the times interest ratio: 

 

       Increases, then risk increases

       Increases, then risk decreases

       Is greater than 1.5, then the company is in default

       Is less than 1.5, the company is carrying too little debt

 

16. Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are: 

 

       Debentures

       Discounted notes

       Installment notes

       Indentures

       Investment notes

 

17. A company borrowed $300,000 cash from the bank by signing a 5-year, 8% installment note. The present value factor for an annuity at 8% for 5 years is 3.9927. Each annuity payment equals $75,137. The present value of the note is: 

 

       $75,137

       $94,013

       $300,000     

       $375,685

 

18. A bond traded at 102 ½ means that:

 

       The bond pays 2.5% interest

       The bond traded at $1,025 per $1,000 bond   

       The market rate of interest is 2.5%

       The bonds were retired at $1,025 each

 

19.  Dividend yield is the percent of cash dividends paid to common shareholders relative to the:

 

       Common stock’s market value

       Earnings per share

       Investors’ purchase price of the stock

       Amount of retained earnings

       Amount of cash

 

20. A bondholder that owns a $1,000, 10%, 10-year bond has:

 

       Ownership rights

       The right to receive $10 per year until maturity

       The right to receive $1,000 at maturity

       The right to receive $10,000 at maturity

 

21. A company issues at 9% bonds at par with a par value of $100,000 on April 1, which is 4 months after the most recent interest date. How much total cash interest is received on April 1 by the bond issuer? 

 

       $750

       $5,250

       $1,500

       $3,000     

       $6,000

 

22. Bonds owned by investors whose names and addresses are recorded by the issuing company and for which interest payments are made with checks to the bondholders, are called: 

 

       Callable bonds

       Serial bonds

       Registered bonds

       Coupon bonds

 

23. The right of common shareholders to protect their proportionate interest in a corporation by having the first opportunity to buy additional proportionate shares of common stock issued by the corporation 

is called a:

 

       Preemptive right

       Proxy right

       Right to call

       Financial leverage

 

24. Owners of preferred stock often do not have: 

 

       Ownership rights to assets of the corporation

       Voting rights

       Preference to dividends

       The right to sell their stock on the open market

       Preference to assets at liquidation

 

25. The dividend yield is computed by dividing:

 

       Cash dividends per share by earnings per share

       Earnings per share by cash dividends per share

       Cash dividends per share by the market price per share

       Market price per share by cash dividends per share

       Cash dividends per share by retained earnings

 

26. A company issues 9%, 20-year bonds with a par value of $750,000. The current market rate is 9%. The amount of interest owed to the bondholders for each semiannual interest payment is.

 

       $0

       $33,750   

       $67,500

       $750,000

       $1,550,000

 

27. Secured bonds:

 

       Are also referred to as debentures

       Have specific assets of the issuing company pledged as collateral

       Are backed by the issuer’s bank

       Are subordinated to those of other unsecured liabilities

       Are the same as sinking fund bonds

 

28. Bonds with a par value of less than $1,000 are known as:

 

       Junk bonds

       Baby bonds

       Callable bonds

       Unsecured bonds

       Convertible bonds

 

29. A corporation’s distribution of additional shares of its own stock to its stockholders without the receipt of any payment in return is called a:

 

       Stock dividend

       Stock subscription

       Premium on stock

       Discount on stock

       Treasury stock

 

30. A premium on common stock: 

 

       Is the amount paid in excess of par by purchasers of newly issued stock

       Is the difference between par value and issue price when the amount paid is below par

       Represents profit from issuing stock

       Represents capital gain on sale of stock

       Is prohibited in most states

 

31. A company had a market price of $83.12 per share, earnings per share of $4.87 and dividends per share of $5.40. Its price-earnings ratio is equal to:

 

       .056

       .065

       8.09

       15.39

       17.07   

 

32. Reporting of discontinued segments includes:

 

       Income or loss from operating the discontinued segment net of tax and gain or loss from disposal of the segment’s net assets net of tax

       Extraordinary items

       Changes in accounting principle

       Items that are both unusual and infrequent

       Writing off of receivables

 

33. One of several ratios that reflects solvency includes the: 

 

       Acid-test ratio

       Current ratio

       Times interest earned ratio

       Total asset turnover

       Days’ sales in inventory

 

34. The ability to meet short-term obligations and to efficiently generate revenues is called:

      

      Liquidity and efficiency

       Solvency

       Profitability

       Market prospects

       Creditworthiness

 

35. A company’s transactions with its creditors to borrow money and/or to repay the principal amounts of loans are reported as cash flows from: 

 

       Operating activities

       Investing activities

       Financing activities

       Direct activities

       Indirect activities

 

36. A company had net cash flows from operations of $120,000, total cash flows of $500,000 and average total assets of $2,500,000. The cash flow on total assets ratio equals: 

 

       4.8%

       5.0%

       20.0%    

       20.8%

       24.0%

 

37. Net sales divided by average accounts receivable is equal to the: 

 

       Days’ sales uncollected

       Average accounts receivable ratio

       Current ratio

       Profit margin

       Accounts receivable turnover ratio

 

38. The comparison of a company’s financial condition and performance across time is known as:

 

       Horizontal analysis

       Vertical analysis

       Political analysis

       Financial reporting

       Investment analysis

 

39. Selected information from Doodle Company’s for 2010 is below (in millions):

 

Inventory decreased    $6.0 

Accounts Payable increased by  $7.0 

Cost of goods sold   $36.50 

Salaries Expense      $24.0 

Salaries Payable decreased  $6.0 

Accounts Receivable increased by  $10.0 

Sales    $56.4

 

What is the amount of cash paid for salaries by Doodle during 2010? 

 

       $4.0

       $6.0

       $24.0

       $30.0   

       $18.0

 

40. A company has sales of $5,417,000, a gross profit ratio of 35%, ending merchandise inventory of $201,425, and total current assets of $1,539,600. What is the days sales’ in inventory ratio for the year?

 

       6.10

       20.88  

       26.15

       22.67

       15.77

 

41. Financial statements with data for two or more successive accounting periods placed in columns side by side, sometimes with changes shown in dollar amounts and percents, are referred to as: 

 

       Period-to-period statements

       Controlling statements

       Successive statements

       Comparative statements

       Serial statements

 

42. The average number of times a company’s inventory is sold during an accounting period, calculated by dividing cost of goods sold by the average inventory balance is equal to the: 

 

       Accounts receivable turnover

       Inventory turnover

       Days’ sales uncollected

       Current ratio

 

43. Which of the following items is not likely to be considered an extraordinary item? 

 

       Loss from an unexpected union strike

       Condemnation of property by the city government

       Loss of use of property due to a new and unexpected environmental regulation

       Loss due to an earthquake in Florida

       Expropriation of property by a foreign government

 

44. Net income divided by net sales is equal to the: 

 

       Return on total assets

       Profit margin

       Current ratio

       Total asset turnover

       Days’ sales in inventory

 

45. Comparative financial statements in which each amount is expressed as a percentage of a base amount and in which the base amount is expressed as 100%, are called: 

 

       Comparative statements

       Common-size comparative statements

       General-purpose financial statements

       Base line statements

       Index statements

 

46. The reporting of net cash provided or used by operating activities that lists the major items of operating cash receipts, such as receipts from customers and subtracts the major items of operating cash disbursements, such as cash paid for merchandise is referred to as the: 

 

       Direct method of reporting net cash provided or used by operating activities

       Cash basis of accounting

       Classified statement of cash flows

       Indirect method of reporting net cash provided or used by operating activities

       Net method of reporting cash flows from operating activities

 

47. The indirect method for the preparation of the operating activities section of the statement of cash flows: 

 

       Separately lists each major item of operating cash receipts

       Separately lists each major item of operating cash payments

       Reports net income and then adjusts it for items necessary to determine net cash provided or used by operating activities

       Is required if the company is a merchandiser

 

48. A company has a profit margin of 5%. If net income is equal to $83,000 and average total assets is equal to $45,000, how much are net sales? 

 

       $4,150

       $2,250

       $1,660,000    

       $6,400

       $128,000

 

49. A component of operating efficiency and profitability, calculated by expressing net income as a percent of net sales is equal to the: 

 

       Acid-test ratio

       Merchandise turnover

       Price earnings ratio

       Accounts receivable turnover

       Profit margin ratio

 

 50.  An investment that is readily convertible to a known amount of cash and that is sufficiently close to its maturity date so that its market value is relatively insensitive to interest rate changes is a(n): 

 

       Short-term marketable equity security

       Operating activity

       Common stock

       Cash equivalent

       Financing activity