econ 4

Under IFRS, dividends paid can be classified as -Operating activities -Investing activities -Financing activities -All of the above are legitimate

-All of the above are legitimate

Which of the following are considered cash inflows? -Payments to employees -Dividends paid on investments owned by the company -Taxes -Dividends paid to the company's shareholders

-Dividends paid on investments owned by the company

John decides to use an alternate schedule to make his depreciation expense look larger for the current accounting cycle. One reason John may have done this is to: -Increase operating cash flows =Increase net income -Generate a tax shield -None of the above

-Generate a tax shield

When it comes to the disagreement between IFRS and GAAP treatment of cash flow classifications, the main discrepancy comes in when dealing with: -Interest and dividends -Taxes and interest -Working capital -Shareholders' equity

-Interest and dividends

firm selling a bond is essentially an example of a firm: -Giving away a share of future profitability -Taking out a loan -Making a capital gain -All of the above

-Taking out a loan

The operating activities portion of the cash flow statement is supposed to be analogous to: -The income statement -The assets portion of the balance sheet -The statement of shareholders equity -The liabilities portion of the balance sheet

-The income statement

An important check to make sure you've applied the indirect method correctly involves: -the direct method -verifying debits equal credits =listing cash outflows by source =None of the above

-the direct method

Cash flows from operations excludes which of the following income statement items? =Depreciation =Amortization =Gains (losses) on PP&E =All of the above

=All of the above

Under IFRS, interest paid can be classified as =Operating activities =Investing activities =Financing activities =All of the above are legitimate

=All of the above are legitimate

Each of the following have their own section on the statement of cash flows EXCEPT: =Operating activities =Disclosure of non-cash acquisitions or divestitures =Financing activities =None of the above are correct answers

=None of the above are correct answers

In the Relic Spotter case, the purchase of the metal detectors were considered an investing cash flow rather than an operating cash flow had to do with the fact that: -The metal detectors didn't depreciate quickly -Park purchased land in the same transaction =They were rented out instead of sold -All of the above

=They were rented out instead of sold

A firm in the startup phase of its lifecycle most likely exhibits a low magnitude of -Operating cash flow -Investing cash flow -Financing cash flow -None of the above

Operating cash flow

When selling PPE, which of the following statements are correct? -The gain/loss on the sale is considered an operating cash flow but the total price of the sale is an investing cash flow -The gain/loss on the sale is recorded separately in the investing section of the SCF =The total price of the sale is an investing cash flow -None of the above are correct

The total price of the sale is an investing cash flow

When using the indirect method to prepare the SCF, which of the following will generally result in having to adjust operating cash flows upward (relative to net income)? a. Your cost of goods sold (COGS) should include a depreciation expense, which you had not yet accounted for on your income statement, but will correct. b. Your cost of goods sold (COGS) included a depreciation expense, which you had already accounted for in your income statement. c. Your revenues include accounts receivables d. All of the above

Your cost of goods sold (COGS) included a depreciation expense, which you had already accounted for in your income statement.

Using the straight line method, the monthly depreciation expense on a piece of equipment with a book value of $100,000, a salvage value of $26,000, and a useful life of twenty years is a) $350 b) $420 c) $3500 d) $4200

a) $350

If company X pays $5,000 to its suppliers for raw materials purchased last accounting period, then this transaction most likely involves a) Debiting a payable account b) Debiting a cash account c) Crediting a receivables account d) Crediting a payable account

a) Debiting a payable account

Which of the following are classified as financing cash flows per GAAP? a) Dividends paid and principal paid b) Interest paid and interest received c) Dividends received and interest received d) Principal paid and interest paid

a) Dividends paid and principal paid

Each of the following is/are required to be disclosed as a separate line item on the SCF when complying with GAAP EXCEPT a) EBITDA b) Noncash transactions c) Taxes paid in cash d) Interest paid in cash

a) EBITDA

The direct method should always be used when constructing each of the following portions of the SCF EXCEPT: a) Operating b) Financing c) Investing d) All of the above

a) Operating

#36) Under GAAP, interest payments are classified as a) Operating cash flows b) Investing cash flows c) Financing cash flows d) All of the above

a) Operating cash flows

Deciding to rent out your inventory rather than selling it would result in reclassifying the inventory acquisition from a) Operating to investing b) Investing to financing c) Financing to operating d) None of the above

a) Operating to investing

Each of the following are examples of cash outflows EXCEPT: a) Selling stock b) Paying employees c) Buying land d) None of the above since all are cash outflows

a) Selling stock

Historically, a flat or an inverted yield curve typically is a signal that a) Short term interest rates are about to fall b) Short term interest rates are about to rise c) Long term interest rates are about to fall d) Long term interest rates are about to rise

a) Short term interest rates are about to fall

Which of the following types of accounts need to be closed at the end of the accounting cycle? a) Temporary accounts b) Permanent accounts c) Tangible asset accounts d) Intangible asset accoun

a) Temporary accounts

Which of the following are done immediately prior to adjusting entries in the accounting cycle? a) Unadjusted trial balance b) Adjusted trial balance c) Post and journalize d) Closing accounts

a) Unadjusted trial balance

Each of the following are examples of temporary accounts EXCEPT a) accumulated depreciation b) sales revenues c) expenses d) none of the above

a) accumulated depreciation

When preparing the operating portion of the statement of cash flows (SCF), despite not being required for GAAP compliance, the __________ method is a good way to check that you've properly performed the ____________ method. a) direct... indirect b) indirect... direct c) all of the above d) none of the above

a) direct... indirect

When your employees have worked for the month but have not yet been paid, this is an example of a. Accrued expenses b. Deferred expenses c. Deferred revenues d. None of the above

a. Accrued expenses

A company's software license has a book value of $3,600 for a three year use horizon.What is the adjustment that needs to be done when using the indirect method to reconcile operating cash flows and net income for a single fiscal quarter? a. Add $300 back to net income b. Add $1,200 back to net income c. Subtract $1,200 from net income d. Subtract $300 from net income

a. Add $300 back to net income

26) A company's hardware has a book value of $1,200 and will fully depreciate over 36 months. What is the adjustment that needs to be done when using the indirect method to reconcile operating cash flows and net income for a single fiscal year? a. Add $400 to net income b. Add $100 to net income c. Subtract $100 from net income d. Subtract $400 from net income

a. Add $400 to net income

The first step in the accounting cycle involves a. Analyzing transactions b. Journalizing transactions c. posting to T-Accounts d. none of the above

a. Analyzing transactions

Which of the following financial statements provide only a static picture of a firm's financial position? a. Balance Sheet b. Statement of Income c. Statement of Cash Flows d. Statement of Shareholders' Equity

a. Balance Sheet

Each of the following situations involves a recognized asset EXCEPT a. Company B signs a contract to deliver $50,000 of natural gas to Company C every month beginning next year. b. Company A sells $10,000 of inventory to a customer that promises to pay cash within 30 days. c. Company D buys $20,000 of raw materials and pays cash at the time of delivery netting it a 15% discount. d. Company G pays $2 million for the annual rent on its warehouse space it has already occupied for a month.

a. Company B signs a contract to deliver $50,000 of natural gas to Company C every month beginning next year.

When firms function, they a. Convert revenue flows into profit and rent flows b. Convert outputs into inputs c. Seek to optimize operating revenues d. None of the above

a. Convert revenue flows into profit and rent flows

Which of the following is NOT a legitimate journal entry according to double entry bookkeeping? a. Crediting revenue and crediting an expense b. Crediting one asset and debiting another c. Crediting an expense and debiting an asset d. These are all legitimate

a. Crediting revenue and crediting an expense

A good predictor of future operating cash flow is a. Current earnings b. Current operating cash flows c. Current net cash flow d. None of the above

a. Current earnings

The final action required in the accounting cycle most likely involves a. Debiting retained earnings and crediting expense b. Preparing financial statements c. Filing with the IRS d. All of the above

a. Debiting retained earnings and crediting expense

Closing out a revenue account most likely involves a. Debiting the revenue account b. Debiting retained earnings c. Crediting the revenue account d. None of the above

a. Debiting the revenue account

When Bob renovates his $2 million dollar warehouse, extending the capacity by 50%, and the renovations cost Bob $500,000, then this transaction generally involves a. Debiting the warehouse account $500,000 b. Crediting accumulated depreciation $1,000,000 c. Crediting the warehouse account $500,000 d. Crediting a separate renovation expense account for $500,000

a. Debiting the warehouse account $500,000

Each of the following situations require utilizing an asset as a "placeholder" for a cash payment that will occur at a different time EXCEPT a. Deferred Revenue b. Deferred Expense c. Accrued Revenue d. None of the above since all require a liability on the books

a. Deferred Revenue

If you accidentally ship a product to a customer that didn't order it, but you invoiced them, then the revenue is considered to be a. Earned b. Realized c. Recognized d. All of the above

a. Earned

Delivery of goods with failure to secure something that can easily be converted into cash in exchange for the goods results in revenues that are a. earned b. realized c. recognized d. none of the above

a. earned

In class, we argued that a key element that explained the difference between the (DuPont) decomposition of the ROE between typical high end (low volume) and low end (high volume) retailers comes down to comparing a. Efficiency of sales vs efficiency of assets b. Efficiency of assets vs degree of financial leverage c. Degree of financial leverage vs efficiency of sales d. None of the above comparisons were capable of explaining the differences

a. Efficiency of sales vs efficiency of assets

#28) Each of the following are examples of permanent accounts EXCEPT: a. Expenses b. Retained Earnings c. Accumulated Depreciation d. Assets

a. Expenses

Which of the following are examples of temporary accounts: a. Expenses b. Retained Earnings c. Accumulated Depreciation d. Assets

a. Expenses

The set of rules that is relevant for firms doing business in the US is delineated in a. GAAP b. IFRS c. FASB d. IASB

a. GAAP

Which of the following assets will generally need to be depreciated (and accumulated)? a. Hardware b. Land c. Accounts Receivable d. Prepaid rent

a. Hardware

Each of the of the following organizations exerts some overview of GAAP EXCEPT a. IASB b. FASB c. EITF d. SEC

a. IASB

Which of the following statements should be prepared first in the accounting cycle? a. Income Statement b. Balance Sheet c. Statement of Cash Flows d. Statement of Shareholders' Equity

a. Income Statement

When you take an expense from your plant, property, or equipment depreciates, then balancing the balance sheet identity requires a. Increasing a contra asset b. Reducing an asset c. Increasing an asset d. none of the above

a. Increasing a contra asset

Who is hired by the board of directors to provide a formal "expressed opinion" with respect to whether or not a firm's filings complied with GAAP? a. Independent auditors b. the oversight committee c. the ethics committee d. the audit committee

a. Independent auditors

The ______________ typically provides a formal "expressed opinion" to the _____________ with respect to whether or not a firm's filings complied with GAAP? a. Independent auditors...board of directors b. CEOs... independent auditors c. Board of directors... independent auditors d. SEC... independent auditors

a. Independent auditors...board of directors

Increasing shareholders' equity by reducing a liability is consistent with a. Issuing stock to pay off a bank loan b. Using money from accounts receivable to pay out dividends c. Issuing bonds in order to buy back stock d. None of these are consistent with the question stem

a. Issuing stock to pay off a bank loan

The classical dichotomy is an idea from __________ that suggests there is a separation between ___________ and _____________ variables. a. Macroeconomics...real....nominal b. Microeconomics...short run...long run c. Macroeconomics...short run...long run d. Microeconomics...real...nominal

a. Macroeconomics...real....nominal

#40) For a given journal entry, the sum of the debits a. Must be equal to the sum of credits b. Must be greater than the sum of credits c. Must be less than the sum of credits d. None of the above

a. Must be equal to the sum of credits

For a given transaction, the sum of the debits a. Must be equal to the sum of credits b. Must be greater than the sum of credits c. Must be less than the sum of credits d. None of the above

a. Must be equal to the sum of credits

#39) In any given T-Account, the sum of credits a. Must be positive b. Could be negative c. Must equal the sum of debits d. None of the above

a. Must be positive

The direct method is always used for preparing each of the following sections of the statement of cash flows EXCEPT: a. Operating activities b. Investing activities c. Financing activities d. None of the above are correct

a. Operating activities

Under GAAP, interest received is considered a. Operating activities b. Investing activities c. Financing activities d. All of the above are legitimate

a. Operating activities

According to GAAP, receiving dividend payments is an example of a. Operating cash flows b. Investing cash flows c. Financing cash flows d. None of the above

a. Operating cash flows

#25) Which of the following situations requires an adjusting entry at the end of the fiscal year? a. Paying taxes to the IRS b. A new sales order comes in from a customer c. You prepaid rent for January of next year d. None of these require adjusting entries

a. Paying taxes to the IRS

The matching principle applies to a. Product costs b. Period costs c. One-time costs d. None of the above

a. Product costs

A company raises $100 from shareholders and borrows $50 from the bank to purchase $150 worth of assets that generate $50 of income. The ROE, ROA, and (financial leverage) FLR are then: a. ROE=50%; ROA=33.33%; FLR=150% b. ROE=33.33%; ROA=50%; FLR=66.66% c. ROE=50%; ROA=33.33%; FLR=66.66% d. ROE=50%; ROA=66.66%; FLR=33.33%

a. ROE=50%; ROA=33.33%; FLR=150%

Each of the following is a core branch of accounting EXCEPT a. Real estate accounting b. Managerial accounting c. Financial accounting d. Tax accounting

a. Real estate accounting

The conservatism principle is an ethical guideline that suggests a. Recognizing future expenses sooner and future benefits later b. Recognizing future expenses and future benefits sooner c. Recognizing future expenses later and future benefits sooner d. Leads to an upward bias in the overall profitability of the operation

a. Recognizing future expenses sooner and future benefits later

Which of the following is considered a permanent account? a. Retained earnings b. Revenue c. Expenses d. All of the above

a. Retained earnings

In the US, Congress delegates GAAP oversight to the a. SEC b. IASB c. FASB d. EITF

a. SEC

Which of the following are considered to be a cash inflow related to a financing activity? a. Selling bonds b. Acquisition of PP&E c. Buying stocks in other companies d. Paying dividends

a. Selling bonds

When a typical retail operation is exhibiting a relatively large level of investing cash outflows, it is most likely at a. The early growth phase of the operating horizon b. The declining phase of the operating horizon c. The end of the operating horizon d. None of the above

a. The early growth phase of the operating horizon

13) If we measure Lebron's performance on the court against his past performance, then we are using a. Time series analysis b. Benchmark analysis Which of the following are a reason why one may want to reclassify taxes away from the

a. Time series analysis

In order to recognize revenues we apply a. Two criteria, both of which must hold b. The matching principle c. Two criteria, only one of which must hold d. None of the above

a. Two criteria, both of which must hold

Karen noticed that for a particular level of net income, taking a larger depreciation expense increases operating cash flows using the indirect method. She advised that the company take as much depreciation expense early on to maximize operating cash flows. Karen most likely neglected the fact that a. When depreciation increases, it has an offsetting effect on net income b. Interest expenses are tax deductible c. She could generate more operating cash flow selling the tangibles that are depreciating d. All of the above

a. When depreciation increases, it has an offsetting effect on net income

Which of the following situations requires an adjusting entry at the end of the current fiscal year? a. You incur a tax obligation to the government. b. A new sales order comes in from a customer. c. You prepaid for an insurance policy that begins in the next accounting cycle. d. None of these require adjusting entries.

a. You incur a tax obligation to the government.

A foreign currency translation is most likely an issue if a. You own entities in multiple countries b. You own entities in multiple lines of business c. You are trying to measure real economic activity in the operating section of the SCF d. None of the above

a. You own entities in multiple countries

Which of the following is considered to be a type of information system? a. accounting b. a firm c. an economy d. none of the above

a. accounting

The conservatism principle generally suggests that future benefits should be recorded a. as late as possible prior to them being realized b. to best reflect the business operations c. as early as possible prior to them being realized d. None of these

a. as late as possible prior to them being realized

An example of a situation where revenues were earned but not realized despite invoicing customers and delivering the goods was known as a. channel stuffing b. front loading c. free riding d. none of the above

a. channel stuffing

The implicit cost of physical "wear and tear" on capital equipment is a. depreciation b. deterioration c. replacement cost d. salvage value

a. depreciation

The main function of accounting is a. descriptive b. prescriptive c. predictive d. none of the above

a. descriptive

The primary purpose of accounting, from an economic perspective, is to provide a description of a a. firm b. company's tax liability c. stakeholders' profits d. None of the above

a. firm

"When it is relatively easier to convert an asset into cash, we say that asset is relatively a. liquid b. solvent c. fungible d. transactable

a. liquid

The classical dichotomy is an idea from macroeconomics that suggests that, in the long run, __________ variables behave differently than they would in the short run. a. nominal b. real c. exchange rate d. none of the above

a. nominal

When we open up a notes payable account, this account is used to track the _________ balance of a loan. a. principal b. interest c. all of the above d. none of the above

a. principal

The term "credit," as applied to analyzing T-accounts, refers to a. right side entries b. left side entries c. increasing the account balance d. none of the above

a. right side entries

The reason why preparing the statement of cash flows is generally more complicated than it needs to be is due to the use of __________ and ___________. -cash basis... the direct method -cash basis... the indirect method -accrual basis... the direct method -accrual basis... the indirect method

accrual basis... the indirect method

In a recent journal entry, Company X is recorded as crediting the common stock account for $60,000 and crediting the APIC account for $100,000. If the transaction is related to company X selling 1000 shares of stock, what was the par value of a share that was sold? a) $40 b) $60 c) $100 d) $160

b) $60

Which of the following relationships are correct? a) Liabilities = Assets + Shareholders' Equity b) Assets ‐ Liabilities = Shareholders' Equity c) Shareholders' Equity - Liabilities = Assets d) None of the above

b) Assets ‐ Liabilities = Shareholders' Equity

Which of the following types of adjusting entries is most likely associated with crediting a prepaid asset? a) Deferred revenues b) Deferred expenses c) Accrued revenues d) Accrues expenses

b) Deferred expenses

Each of the following are components of shareholders' equity EXCEPT: a) Retained earnings b) Dividends payable c) APIC d) Expenses

b) Dividends payable

I. Debiting a revenue account II. Crediting an expense account III. Debiting retained earnings IV. Crediting retained earnings Closing out a revenue account most likely requires which of the following: a) I ONLY b) I&IVONLY c) I&IIIONLY d) II & III ONLY

b) I&IVONLY

The purpose of accounting is a. prescriptive b. descriptive c. predictive d. none of the above

b. descriptive

The financial statement that should be prepared first in the accounting cycle is the a) Balance sheet b) Income Statement c) Statement of Cash Flows d) Statement of Shareholders' Equity

b) Income Statement

When Bob purchases inventory for his new business with the intention of renting the inventory out into perpetuity, then the cash flow classification for the inventory acquisition will most likely be a) Operating b) Investing c) Financing d) Not enough information provided

b) Investing

John receives $3000 in prepayments from his customers for product that he will deliver next month. The cash prepayment is considered to be a) Recognizable revenue b) Realized revenue c) Earned revenue d) All of the above

b) Realized revenue

The classical dichotomy is an idea in macroeconomics that suggests, in the long run, that _______________ variables don't affect _______________ variables. a) real... nominal b) nominal... real c) real... fake d) accounting... economic

b) nominal... real

Working capital is the difference between a) long term assets and long term liabilities b) short term assets and short term liabilities c) liquid assets and liquid liabilities d) employed capital and unemployed capital

b) short term assets and short term liabilities

If the quarterly depreciation expense associated with a $500,000 (book value) piece of machinery with a 10 year use horizon is $7,500, then the salvage value must be a. $100,000 b. $200,000 c. $300,000

b. $200,000

If company X faces a semi-annual amortized expense of $1000 on a 3 year service contract for which it paid up front, then the book value of the service contract at the time of purchase must have been about a. $3000 b. $6000 c. $36,000 d. None of the above

b. $6000

If assets are $100 million, liabilities are $30 million, and shareholders' equity is $70 million, what is the net book value of the company? a. $30 million b. $70 million c. $100 million d. None of the above

b. $70 million

If Company X recognized a depreciation expense of $2,000 last quarter on an asset with book value of $120,000. If the salvage value of the asset at the end of the asset's useful life is $40,000, what is the useful life of the asset? a. 1 year b. 10 years c. 20 years d. 40 years

b. 10 years

A regularly recurring fixed production cost, not associated with the level of production, would generally be considered a. A product cost b. A period cost c. A one-time unusual event d. None of the above

b. A period cost

Each of the following are considered to be a recognizable asset on the balance sheet EXCEPT: a. Prepaid insurance b. Accounts payable c. Accounts receivable d. None since all of the above are recognizable assets

b. Accounts payable

Which of the following occurs latest in the accounting cycle relative to the other choices? a. Journalizing and posting to T-accounts b. Adjusted trial balance c. Adjusting entries d. Unadjusted trial balance

b. Adjusted trial balance

When there is a change in accounts receivable, in order to understand the effect this change has on cash flows, we often look to the a. Income statement b. Balance sheet equation c. Net cash from financing d. None of the above

b. Balance sheet equation

Each of the following are considered to be a recognizable asset on the balance sheet EXCEPT: a. Prepaid rent b. Brand c. PP&E (property, plant and equipment) d. All of the above are recognizable assets

b. Brand

Which of the following duties would most likely apply to a financial accountant? a. Reporting to upper management within the company b. Communicating business activities to investors c. Preparing documents for the IRS d. All of the above

b. Communicating business activities to investors

Paying for inventory that your supplier provided to you last period most likely involves a. Debiting an asset and crediting a liability b. Crediting an asset and debiting a liability c. Crediting one asset and debiting another d. None of the above

b. Crediting an asset and debiting a liability

Returning raw materials to a supplier with no penalty against the amount charged on account at the initial point of sale most likely involves a. Debiting one asset and crediting another b. Crediting an asset and debiting a liability c. Debiting an asset and crediting a liability d. None of the above

b. Crediting an asset and debiting a liability

When dividends are announced (but not paid out) we typically handle this type of transaction by a. Crediting retained earnings b. Crediting dividends payable c. Debiting dividends payable d. Debiting cash

b. Crediting dividends payable

When constructing the balance sheet, the line items elements are ordered first by ___________ and then by ___________. a. Liquidity...equity b. Currency...liquidity c. Liquidity... currency d. None of the above

b. Currency...liquidity

Purchasing raw materials on account requires a. Debiting cash and crediting inventory b. Debiting inventory and crediting accounts payable c. Debiting accounts payable and crediting inventory d. None of the above

b. Debiting inventory and crediting accounts payable

ATR is a measure of a. profitability b. efficiency c. leverage d. none of the above

b. efficiency

Purchasing inventory with cash requires a. Debiting cash and crediting inventory b. Debiting inventory and crediting cash c. Debiting inventory and crediting accounts payable d. Debiting accounts payable and crediting inventory

b. Debiting inventory and crediting cash

Financial leverage is a measure of the degree to which a firm's capital structure is dominated by a. Tangible assets b. Debt c. Net income d. None of the above

b. Debt

Each of the following situations require utilizing a liability as a "placeholder" EXCEPT a. Deferred Revenue b. Deferred Expense c. Accrued Expense

b. Deferred Expense

Which of the following accounts differs from the rest based on the normal balance carried by the account? a. Common Stock b. Depreciation Expense c. Accumulated Depreciation d. None because they are all similar in this regard

b. Depreciation Expense

Which of the following transactions would violate the principles of double entry bookkeeping? a. Reducing an asset and reducing a liability b. Increasing an asset and increasing an expense c. Increasing an expense and increasing a contra asset d. None of the above since all maintain the balance sheet identity

b. Increasing an asset and increasing an expense

The start up phase is typically dominated by which of the following classification of cash outflows? a. Operating b. Investing c. Financing d. Non cash transactions

b. Investing

The direct method should always be applied to prepare which of the following sections of the SCF? a. Operating and investing b. Investing and financing c. Operating and financing d. None of the above

b. Investing and financing

The analogy to the income statement with respect to the statement of cash flows is the a. Operating portion b. Investing portion c. Financing portion d. Noncash disclosures portion

b. Investing portion

14) One problem with using cross-sectional analysis is that a. It can't capture effects that are different across firms b. It can't capture dynamic effects within firms c. Distorts the application of ratios across entities d. None of the above

b. It can't capture dynamic effects within firms

The branch of government exercising the highest level of delegation of authority in overseeing the development of financial standards per GAAP a. Executive b. Legislative c. Judicial d. Bureaucracy

b. Legislative

Which of the following accounts differs from the rest based on the normal balance carried by the account? a. Expenses b. Liabilities c. Assets d. None because they are all similar in this regard

b. Liabilities

One rationale for arguing why interest payments should be classified as an operating activity is due to the fact that they are an expense associated with the "service" of a. A tax deduction b. More liquidity c. Less liquidity d. Free checking

b. More liquidity

After preparing the income statement, the link that lets you put the balance sheet together comes from a. Dividends b. Net Income c. Contributed Capital d. None of the above

b. Net Income

Each of the following are considered to be a recognizable asset on the balance sheet EXCEPT: a. Prepaid insurance b. Positive public perception c. Accounts receivable d. All of the above are recognizable assets

b. Positive public perception

Return on sales, asset turnover, and financial leverage decompose the return on equity into metrics that respectively measure a. Efficiency, Leverage, & Profitability b. Profitability, Efficiency, & Leverage c. Efficiency, Profitability, & Leverage d. Leverage, Profitability, & Efficiency

b. Profitability, Efficiency, & Leverage

Each of the following transactions represents a situation where you would have to increase one asset and decrease another EXCEPT a. Purchasing inventory with cash b. Purchasing inventory on account c. Trading a building for land d. None of the above since all of the above involve increasing and decreasing an asset

b. Purchasing inventory on account

Ratios are a. The most informative metric about a businesses operations b. Purely contextual c. Not easy to manipulate d. None of the above

b. Purely contextual

If a customer pays us upfront for services that have yet to be rendered, then the revenue from the transaction is considered a. Earned b. Realized c. Recognized d. All of the above

b. Realized

We try to estimate the future resale value of a tangible, also known as the a. Useful life of the asset b. Salvage value of the asset c. Depreciation expense for the asset d. None of the above

b. Salvage value of the asset

Which of the following is considered to be a cash inflow? a. Payment of interest b. Selling stock c. Paying dividends d. Payment of principal on a loan

b. Selling stock

Due to distortions caused by growth in assets and sales, analyst typically apply normalizations to each of the financial statements EXCEPT a. Statement of Income b. Statement of Cash Flows c. Balance Sheet d. None of the above since all are used to generate common-size financial statements

b. Statement of Cash Flows

The financial statement with the most complexities in terms of how it is "put together" according to GAAP compliance is most likely a. Statement of Stockholders' Equity b. Statement of Cash Flows c. The Balance Sheet d. Statement of Income

b. Statement of Cash Flows

The reason why many analysts use EBITDA is because it avoids discrepancies forced by GAAP constraints on classifying a. Interest and dividends b. Taxes and interest c. Working capital d. Depreciation and amortization

b. Taxes and interest

When using the indirect method, a useful relationship for understanding how changes in non cash working capital accounts should translate into adjusting operating cash flows is given by the a. DuPont decomposition b. The balance sheet identity c. Capital structure equality d. None of the above

b. The balance sheet identity

If assets grow by 10% during a time when liabilities only grow by 5%, then which of the following are consistent with these figures if the balance sheet identity holds? a. The firm bought stock b. The firm sold stock c. Net book value dropped by 5% d. The firm sold bonds

b. The firm sold stock

GAAP requires that a. The direct method must be used to prepare the operating section of the SCF. b. The indirect method must be used to prepare the operating section of the SCF. c. Both the direct and indirect method must be used to prepare the operating section of the SCF. d. You can use any method you want to prepare the operating section of the SCF.

b. The indirect method must be used to prepare the operating section of the SCF.

Which of the following are a reason why one may want to reclassify taxes away from the operating activity classification? a. They are associated with government provision of infrastructure and society b. They are associated with the sale of property c. IFRS considers them to be a financing activity d. None of the above

b. They are associated with the sale of property

Benchmarking the same firm against its own historical performance is an example of a. Milestoning b. Time series analysis c. Cross-sectional analysis d. None of the above

b. Time series analysis

The step in the accounting cycle that verifies that credits equal debits before making adjusting entries is a. Preparation of financial statements b. Unadjusted trial balance c. Adjusted trial balance d. Closing entries

b. Unadjusted trial balance

The amount of depreciation recorded using the straight line method most likely _________ the true cost of wear and tear early in an assets life and ________________ it later in an assets life. a. Overstates... understates b. Understates...overstates c. Overstates...overstates d. Understates...understates

b. Understates...overstates

The matching principle generally suggests that expenses should be recorded a. When they generate cash flows b. When they realize revenue c. As soon as possible d. None of these

b. When they realize revenue

The key feature of financial accounting that differentiates it from tax and managerial accounting has most to do with a. How the board is structured b. Who is being reported to c. The profitability of the firm d. all of the above

b. Who is being reported to

When you purchase inventory from a supplier on account, this most likely involves a. debiting cash b. crediting accounts payable c. debiting accounts payable d. none of the above

b. crediting accounts payable

Which of the following is NOT a legitimate journal entry according to double entry bookkeeping? a. debiting an expense and crediting an asset b. crediting revenue and crediting an expense c. crediting one asset and debiting another d. These are all legitimate

b. crediting revenue and crediting an expense

When a firm decides to finance more asset acquisitions by issuing more bonds, then the firm's a. ROE will decrease b. financial leverage will increase c. Net income will increase d. None of the above

b. financial leverage will increase

#27) Alice and Bob are each running identical operations from both an operational and investing perspective. They both own identical sets of assets (in terms of quantity and efficiency), but Bob used a loan from the bank to finance part of his operation. Which of the following will be true? a) Alice's operation will have a lower ROA than Bob's b) Alice's operation will have a higher ROE than Bob's c) Bob's operation will have a higher ROE than Alice's d) Bob's operation will have a lower ROA than Alice's

c) Bob's operation will have a higher ROE than Alice's

#24) Which of the following examples is referencing a real variable a) Alan makes a wage of $20 per hour b) Bob receives a bonus worth 100,000 Japanese Yen c) Carl pays his auto assembly line employees the equivalent of 1⁄2 car each month d) None of the above

c) Carl pays his auto assembly line employees the equivalent of 1⁄2 car each month

The governing body in the U.S. with the highest level of oversight over the accounting rules and regulations is a) IFRS b) GAAP c) Congress d) SEC

c) Congress

Each of the following accounts carries a normal debit balance EXCEPT: a) Cash b) Expenses c) Contra Assets d) Prepaid Rent

c) Contra Assets

Bob adds a $20,000 bathroom upgrade to his store and pays in full with cash. Which of the following are true regarding the journal entry for this transaction? a) It requires Bob to debit the accumulated depreciation on the store for $20,000 b) It requires Bob to credit the accumulated depreciation on the store for $20,000 c) It requires Bob to debit the book value of the store asset account for $20,000 d) It requires Bob to credit the book value of the store asset account for $20,000

c) It requires Bob to debit the book value of the store asset account for $20,000

When company X takes out a loan from the bank, the principal on the loan is recorded in an account known as a) Interest payable b) Accounts payable c) Notes payable d) Notes receivable

c) Notes payable

Bob made an error putting together his financial statements - the amount of depreciation he computed was $100 lower than it was supposed to be. After adjusting for this error across his financial statements and applying the indirect method, this results in operating cash flows a) Increasing b) Decreasing c) Remaining the same d) Not enough information to tell

c) Remaining the same

#8) In order to recognize an obligation as a liability, each of the following must be true EXCEPT a) The obligation represents a service or good transacted in a current or past transaction b) The timing and size of reimbursement for the obligation are known with reasonable precision c) The obligation is associated with realizing revenues d) None of the above since all are associated with recognizing a liability

c) The obligation is associated with realizing revenues

If an analyst requests the financial statements for a firm's past 10 years of filings, then the analyst would be able to use this information to conduct a) Cross-sectional analysis b) Pooled cross-sectional analysis c) Time series analysis d) All of the above

c) Time series analysis

Which of the following are functions of a firm in the circular flow model of an economy? a) converts wages into household spending b) converts goods and services into factors of production c) converts sales revenues into rents paid to capital owners d) none of the above

c) converts sales revenues into rents paid to capital owners

When using the indirect method, selling property involves making adjustments to each portion of the SCF EXCEPT a) operating b) investing c) financing d) none of the above since it involves adjustment to all of them

c) financing

Company X produces and sells cookies as its main line of business. Company X is able to book an expense for its cookie dough when a) it buys the cookie dough b) it uses the cookie dough c) it sells the cookies made from the cookie dough d) the management feels most appropriate to reflect the functions of the business

c) it sells the cookies made from the cookie dough

The key balance sheet line item that links the income statement to the operating portion of the SCF is a) current assets b) net income c) retained earnings d) none of the above

c) retained earnings

Ratios are helpful when they are used a) regardless of context b) to report in financial statements c) to help ask the right questions d) without a benchmark comparison

c) to help ask the right questions

If John makes $15 an hour picking apples, and each apple is sold at a price of $0.30 at the market, then John's real wage per hour is a. $15 b. 5 apples c. 50 apples d. $50

c. 50 apples

In the case of a material event taking place, a company may need to file during a non- standard reporting interval by using a(n): a. 10-Q b. 10-K c. 8-K d. 8-Q

c. 8-K

When you sell PP&E (plant, property, and equipment), which of the following statements is true regarding the indirect method? a. The entire book value of the PP&E is considered an operating cash flow b. A gain from selling above book value shows up as an operating cash flow and not in net income c. A loss on the PP&E will result in adjusting operating cash flows upward from net income d. None of the above

c. A loss on the PP&E will result in adjusting operating cash flows upward from net incom

Each of the following are considered to be tangible assets EXCEPT a. Shipping trucks b. Warehouse buildings c. A patent on an invention d. None of the above since all are considered tangible

c. A patent on an invention

A proxy is a. A clone b. A manager's aide c. A type of variable d. None of the above

c. A type of variable

The step in the accounting cycle that verifies that credits equal debits after making adjusting entries is a. Preparation of financial statements b. Unadjusted trial balance c. Adjusted trial balance d. Closing entries

c. Adjusted trial balance

When incurring a production (product) cost, one most likely needs to apply a. The revenue recognition criteria b. The matching principle c. All of the above d. None of the above

c. All of the above

In the circular flow model of an economy, households a. Are buyers in the input markets 4 b. Are sellers in the output markets c. Are sellers in the input markets d. None of the above

c. Are sellers in the input markets

The conservatism principle generally suggests that expenses should be recorded a. When they generate cash flows b. Best reflect the business operations c. As soon as possible d. None of these

c. As soon as possible

If Liabilities and Stockholder's Equity each increase by 10% over a given period, then a. Cash must have increased by 10% b. Non‐cash assets must have increased by 10% c. Assets must have increased by 10% d. not enough information to say

c. Assets must have increased by 10%

If Bob acquires a parcel of land from one of his suppliers. The going rate in the market for such a parcel is $1 million, but Bob acquires the land at a 20% discount. Which of the following are true? a. Bob needs to debit the Land account for $1 million b. Bob needs to credit the Land account for $1 million c. Bob needs to debit the Land account for $800,000 d. Bob needs to credit the Land account for $800,000

c. Bob needs to debit the Land account for $800,000

Suppose your accountant made an error when reconciling net income with operating cash flows when considering a recent $5 gain on property that was sold for $60. The gain actually turned out to be $10 instead of $5. What effect will correcting this error have? a. Net income will increase by $5 b. Cash flows from operations will decrease by $5 c. Both a) and b) d. None of the above

c. Both a) and b)

Which of the following payments is considered a cash outflow? a. Dividends received b. Receipts from customers c. Buying stock d. All of the above

c. Buying stock

#16) Each of the following situations will result in revenue being recognized in December EXCEPT: a. Company A leases space to a tenant for the months of December through February for $10,000 (total), all of which is paid up front. b. Bank B receives $30,000 of interest on a loan that it was owed for December but receives the payment in January. c. Company C collects $20,000 in cash in December for goods that were delivered in November. d. none of the above since they all recognize revenues in December

c. Company C collects $20,000 in cash in December for goods that were delivered in November.

Each of the following situations necessitate recognizing a liability EXCEPT a. Company A hasn't yet paid its employees who have earned salaries totalling $150,000 during the most recent pay period. b. Company B borrows $500,000 from a bank on a one‐year note with a 10% interest rate. c. Company C is sued by a group of consumers that claim the products caused them to get sick claiming damages of $100,000. d. Company D purchases $10,000 in inventory from its supplier and promises to pay within 30 days.

c. Company C is sued by a group of consumers that claim the products caused them to get sick claiming damages of $100,000.

If Company X raises $125,000 by selling 75,000 shares at a par value of $1 per share, then which of the following represent a legitimate line from the journal entry for this transaction? a. Cr. Cash (-A) 125,000 b. Cr. Common Stock (+SE) 50,000 c. Cr. APIC (+SE) 50,000 d. Cr. APIC (+SE) 75,000

c. Cr. APIC (+SE) 50,000

Accumulated depreciation is tracked by a. Directly deducting the expense from the asset account b. Creating a liability c. Creating a contra asset account d. Accumulated depreciation does not apply to tangible goods

c. Creating a contra asset account

The accounting standards that are applicable in most of the world are a. GAAP b. CRAPP c. IFRS d. IASB

c. IFRS

Using up an intangible asset requires each of the following EXCEPT a. Crediting the intangible asset account b. Debiting an expense c. Creating a contra asset account d. None of the above since all are required

c. Creating a contra asset account

If Company X announces that it will pay its investors $1 million in dividends in the future, then this month the company must now a. Debit a recognized expense in line with the conservatism principle b. Credit an asset in line with the conservatism principle c. Credit a liability and debit retained earnings in line with the conservatism principle d. Debit a liability and credit cash in line with the conservatism principle

c. Credit a liability and debit retained earnings in line with the conservatism principle

Debiting the retained earnings account at the end of an accounting cycle is consistent with each of the following operations EXCEPT a. Paying dividends to shareholders b. Closing out an expense account c. Crediting a revenue account d. None of the above

c. Crediting a revenue account

Each of the following is recognized as a liability EXCEPT a. Employees worked this month but have not yet been paid 1 b. The court rules that you owe damages to customers who used your product c. Customers sue you for damages associated with using your product d. None of the above since all are recognizable

c. Customers sue you for damages associated with using your product

#33) When dividends are paid out (not when they are announced) we typically handle this type of transaction by a. Debiting retained earnings b. Crediting dividends payable c. Debiting dividends payable d. Debiting cash

c. Debiting dividends payable

If customers paid you up front for a service contract for services to be rendered over the next three years, then this initial payment/transaction will necessitate the adjusting entries at the end of the accounting cycle due to a. Accrued expenses b. Deferred expenses c. Deferred revenues

c. Deferred revenues

Accounting is most generally used to a. Keep a record of all business activities b. Report business dealings to authorities c. Describe an input-output system d. None of these

c. Describe an input-output system

Each of the following are correct about EBITDA EXCEPT a. It doesn't measure cash flow well if there are large changes in working capital b. Can be manipulated by "channel stuffing" c. EBITDA must be reported per GAAP regulation on the SCF d. None - all of the above are true

c. EBITDA must be reported per GAAP regulation on the SCF

A credit will increase each of the following account balances EXCEPT a. Notes payable b. Common stock c. Expenses d. Retained earnings

c. Expenses

Which of the following T-Accounts accounts doesn't behave like the rest? a. Liabilities b. Revenues c. Expenses d. Contributed capital

c. Expenses

Which of the following accounts carries a normal debit balance? a. Liabilities b. Revenues c. Expenses d. Contributed capital

c. Expenses

The matching principle relies on the idea that a. Expenses should be recognized to match the timing of cash outflows b. Revenues should be recognized to match the timing of cash inflows c. Expenses should be recognized to best match business operations d. Revenues should be recognized to best match business operations

c. Expenses should be recognized to best match business operations

The Emerging Issues Task Force (EITF) was formed and delegated oversight into improving the financial accounting reporting process by the a. US Congress b. IASB c. FASB d. SEC

c. FASB

Each of the following are components of return on assets (ROA) EXCEPT a. Return on sales b. Asset turnover rate c. Financial leverage d. None of these because they are all components of ROA

c. Financial leverage

Under GAAP, principal paid can be classified as a. Operating activities b. Investing activities c. Financing activities d. All of the above are legitimate

c. Financing activities

According to GAAP paying dividends is an example of a. Operating cash flows b. Investing cash flows c. Financing cash flows d. None of the above

c. Financing cash flows

When preparing the balance sheet, we typically list assets and liabilities (from top to bottom) in a. Alphabetical order b. Order of journal transaction date c. From most to least liquid d. From least to most liquid

c. From most to least liquid

If Bill recognized a $10 inventory expense this month for his designer t-shirts, then it must be the case under GAAP that a. He paid for the inventory this month b. He faced a $10 period cost c. He must have sold his t-shirts d. None of the above

c. He must have sold his t-shirts

#1) If Bob used the direct method to prepare the operating, investing, and financing sections of the statement of cash flows (SCF), then which of the following actions must Bob take to remain GAAP compliant with his financial document preparation before filing? a. He must prepare the investing section of the SCF using the indirect method b. He must prepare the financing section of the SCF using the indirect method c. He must prepare the operating section of the SCF using the indirect method d. None of the above - Bob is already GAAP compliant

c. He must prepare the operating section of the SCF using the indirect method

The set of accounting rules that apply to companies filing outside of the US are set by the a. IFRS b. GAAP c. IASB d. FASB

c. IASB

If you are doing business internationally, odds are that you'll need to comply with these rules: a. GAAP b. CRAPP c. IFRS d. IASB

c. IFRS

Ratios are useful a. For making key financial decisions b. And required for reporting on the three major financial statements for GAAP compliance c. In a purely contextual application d. All of the above

c. In a purely contextual application

Firms in the circular flow model transform each of the following EXCEPT a. Revenues into wages b. Factors of production into goods and services c. Income into Spending d. All of the above

c. Income into Spending

One downside to increasing a leveraged position by taking on more debt to finance asset acquisitions is a. A reduced ROE b. Decreased liquidity c. Increased risk of default / bankruptcy d. All of the above

c. Increased risk of default / bankruptcy

#25) Increasing a contra asset account is most similar to a. Increasing a liability because it requires a debit transaction b. Increasing an asset because it involves a debit transaction c. Increasing a liability because it requires a credit transaction d. Increasing an asset because it involves a credit transaction

c. Increasing a liability because it requires a credit transaction

Which of the following are examples of intangible assets? a. Land b. Buildings c. Intellectual Property Protection d. Office Equipment

c. Intellectual Property Protection

15) Which of the following is considered a working capital account? a. Common stock b. Revenue c. Inventory d. Long term debt

c. Inventory

Crediting a Liability account to debit Stockholders' Equity is consistent with a. Issuing stock to pay off a bank loan b. Using money from accounts receivable to pay out dividends c. Issuing bonds in order to buy back stock d. None of these are consistent with the question stem

c. Issuing bonds in order to buy back stock

Which of the following are examples of intangible assets? a. Office Equipment b. Buildings c. Legal services d. Brand identity

c. Legal services

A tax shield is created when a firm a. Pays dividends b. Receives interest payments c. Makes interest payments d. All of the above

c. Makes interest payments

A tax shield is created when a firm a. Pays dividends b. Receives interest payments c. Makes interest payments d. Goes to war

c. Makes interest payments

Investing activities tend to dominate a (typical retail) firm's net cash flows during each of the following phases of the life cycle EXCEPT: a. Start-up b. Early Growth c. Mature d. None of the above

c. Mature

Each of the following are considered measures of free cash flows EXCEPT a. NOPLAT b. NOPAT c. NOLUNCH d. EBITDA

c. NOLUNCH

The indirect and direct method should yield identical a. Net income b. Depreciation adjustments c. Net operating cash flows d. None of the above

c. Net operating cash flows

A startup phase firm likely has cash flows characterized by relatively high levels of each of the following EXCEPT: a. Investing activities b. Financing activities c. Operating activities d. None of the above

c. Operating activities

Which of the following is a recognizable asset? a. A product's brand image b. A signed contract to deliver goods to a customer at a future date c. Paying for rent on your warehouse up front for the next fiscal cycle d. None of the above since all are recognizable

c. Paying for rent on your warehouse up front for the next fiscal cycle

Which of the following are examples of intangible assets? a. Desks b. Buildings c. Prepaid rent d. Computers

c. Prepaid rent

An information intermediary is something that functions to a. Keep a secret b. Distort a message c. Provide regulatory oversight d. All of the above

c. Provide regulatory oversight

#3) Each of the following are likely responsibilities of a financial accountant EXCEPT a. Reporting to shareholders b. Reporting to the board of directors c. Reporting to the IRS d. None of the above ‐ all are responsibilities of financial accountants

c. Reporting to the IRS

The balance sheet line item that "links" it to the preparation of the income statement is a. Current Assets b. Net Income c. Retained Earnings d. None of the above

c. Retained Earnings

Selling shares of equity or paying dividends are never considered to be a. Common stock b. Retained earnings c. Revenues d. All of the above

c. Revenues

Reducing shareholders' equity by increasing a liability is consistent with a. Issuing stock to pay off a bank loan b. Using money from accounts receivable to pay out dividends c. Taking out a loan in order to buy back stock d. None of these are consistent with the question stem

c. Taking out a loan in order to buy back stock

An example of a strategic asset for firms that utilize a "leveraged position" in formation of their capital structure is called a a. Levered sword b. Debt insulation c. Tax shield d. None of the above

c. Tax shield

An asset can only be recognized if each of the following conditions hold EXCEPT a. Must convey benefits that are measured with reasonable precision b. Must be acquired in a past transaction c. The asset generates future sales revenue d. None of the above since all of the following conditions must hol

c. The asset generates future sales revenue

The reason we utilized a Net PPE account when property was sold in class was because we didn't know a. The book value of the asset being sold b. If the asset was being sold for a gain or a loss c. The information on the accumulated depreciation on the specific asset d. All of the above

c. The information on the accumulated depreciation on the specific asset

The non-cash accounts that managers exercise the most control over are referred to as a. Current assets b. Current liabilities c. Working capital d. Working assets

c. Working capital

Which of the following situations requires an adjusting entry at the end of the current fiscal year? a. A new sales order comes in from a customer b. You prepaid rent for January of next year c. You have an outstanding loan balance and haven't paid any interest d. None of these require adjusting entries

c. You have an outstanding loan balance and haven't paid any interest

Each of the following are considered investing cash flows EXCEPT a. You purchase a new factory to expand your operations b. You sell some shares of another company's stock c. You sell some shares of your company's stock d. None since all are considered investing cash flows

c. You sell some shares of your company's stock

One problem with measuring free cash flows is caused by a lack of a. applying the indirect method b. a standard reporting requirement c. a standard definition d. all of the above

c. a standard definition

We generally recognize an asset if it a. conveys benefits that are measured with reasonable precision b. is acquired in a past transaction c. all of the above d. none of the above

c. all of the above

Each of the following statements provide a dynamic picture of the firm's operations EXCEPT a. income statement b. statement of cash flows c. balance sheet d. none of the above

c. balance sheet

Which of the following provides a static snapshot of firm activity in an accounting period? a. income statement b. statement of cash flows c. balance sheet d. none of the above

c. balance sheet

#6) A debit transaction a. requires a right side entry b. will generally decrease an asset account c. can reduce the accumulated depreciation account d. None of the above

c. can reduce the accumulated depreciation account

Which of the following is the factor of production most often associated with describing a general group of plant, property, and equipment? a. land b. labor c. capital d. money

c. capital

What differentiates financial accounting from the other branches of accounting is that in financial accounting, reporting is delivered to a. upper level management b. internal stake holders c. external stake holders d. all of the above

c. external stake holders

The circular flow model of an economy has each of the following elements EXCEPT: a. market for goods & services b. households c. government d. market for factors of production

c. government

Unofficial entities that help to provide regulatory oversight are often referred to as a. defacto regulators b. unofficial oversight c. information intermediaries d. All of the above

c. information intermediaries

#1) Accounting is a type of a. ledger b. journal c. information system d. database

c. information system

When listing assets and liabilities on the balance sheet, we typically order them according to a. Alphabetical order b. transaction date c. liquidity d. None of the above

c. liquidity

10) Working capital accounts generally refer to a classification of assets over which a. liquidity is the greatest b. benefits are conveyed in the long term c. management exercises the most control d. None of the above

c. management exercises the most control

The return on assets is a general measure of a firm's a. efficiency b. profitability c. operating performance d. financial leverage

c. operating performance

When a firm pays out dividends this typically requires a. Debiting cash b. Crediting dividends c. Debiting dividends d. Debiting retained earnings

d. Debiting retained earnings

When a bank charges a client interest on a loan, the charge is because the bank has provided which service? a. principal b. fungibility c. operational liquidity d. none of the above

c. operational liquidity

Which of the following transactions is considered to be an operating cash flow? a. Purchasing inventory from a supplier on account b. Bringing in money by selling stock c. receipts from customers d. None of the above

c. receipts from customers

When there is a change in a non-cash working capital account, in order to understand the effect this change has on operating cash flows using the indirect method, we often look to a. Net Income b. Net cash inflow c. the Balance sheet identity d. None of the above

c. the Balance sheet identity

When a typical retail operation is exhibiting a relatively large level of financing cash outflows, it is most likely at a. the start-up phase of the operating horizon b. an early growth stage in the operating horizon c. the mature phase in the operating horizon d. The end of the operating horizon

c. the mature phase in the operating horizon

The final step in the accounting cycle before starting the next accounting period involves: preparing the financial statements adjusting entries closing entries adjusting the trial balance

closing entries

Earnings tend to be a better predictor of future operating cash flows than current or past operating cash flows because a) Earnings measure value added, and can capture the generation of net income even when that income hasn't yet been paid b) Initially, operating cash flows tend to be low or negative as the firm starts up, and this tends to happen regardless of if the firm brings in future operating cash flows c) Operating cash flows could be high in the growth/mature phase and won't reflect diminishing future cash flows dear the declining phase of operation d) All of the above

d) All of the above

Under IFRS, interest payments could be classified as a) Operating cash flows b) Investing cash flows c) Financing cash flows d) All of the above

d) All of the above

Which of the following would cause a change in balance sheet activity that is NOT explained by the statement of cash flows? a) A change in nominal exchange rates b) Acquiring another company in a dramatically different line of business c) Large noncash financing and investing activities d) All of the above

d) All of the above

#26) The amount of asset acquired (on average) per the average dollar of shareholders' equity raised measures a) ROA b) ROE c) Liquidity d) Financial Leverage

d) Financial Leverage

When lots of investors try and purchase short term bonds at the same time, this results in the price of the short term bond to _____________ and the yield to maturity (the interest rate) on the bond to ____________. a) Increases... increases b) Decreases... decreases c) Decrease... increase d) Increase... decrease

d) Increase... decrease

A firm that uses primarily debt instruments (loans and bonds) to raise funds is said to be highly a) Liquid b) Profitable c) Efficient d) Leveraged

d) Leveraged

#10) Each of the following accounts are considered to be working capital accounts EXCEPT: a) Accounts payable b) Inventory c) Notes receivable d) Long term debt

d) Long term debt

#9) Which of the following will reduce shareholder's equity holding other factors fixed? a) A reduction in expenses b) An increase in revenues c) An increase in prior retained earnings d) None of the above

d) None of the above

Crediting an account a) increases the balance of an account b) decreases the balance of an account c) Refers to adding a left side entry d) None of the above

d) None of the above

I. Debiting a revenue account II. Crediting an expense account III. Debiting retained earnings IV. Crediting retained earnings #3) Closing out an expense account most likely requires which of the following a) I ONLY b) II ONLY c) I&IIIONLY d) None of the above

d) None of the above

The organizational guideline for listing assets and liabilities on the balance sheet depends critically on the asset's a) Alphabetical order b) Date of acquisition c) Book value d) None of the above

d) None of the above

When using the indirect method to prepare the SCF, which of the following result in having to adjust operating cashflows downward (relative to net income)? a) Your operating costs included an amortized depreciation expense b) Your operating costs included expenses covered by accounts payables c) You sold some property for a loss d) None of the above

d) None of the above

Which of the following are correct regarding EBITDA? a) It proxys cash flows well when there are large changes in noncash working capital. b) It doesn't allow for a proper comparison when there are large differences in tax and interest obligations across firms when making an inter-firm comparison. c) Highly leveraged firms will distort cross-sectional analysis using EBITDA d) None of the above

d) None of the above

Each of the following are examples of noncash operating, financing, or investing activities EXCEPT a) Restructuring liability b) Proceeds from sale of property c) An increase in accounts payable d) None of the above since all are examples of both activities

d) None of the above since all are examples of both activities

A non-cash acquisition of property would show up on each of the following statements EXCEPT: a) Income Statement b) Balance Sheet c) Statement of Cash Flows d) None of the above since evidence of such an acquisition would show up on all of these

d) None of the above since evidence of such an acquisition would show up on all of these

One difficulty in interpreting free cash flows is that a) economic costs are difficult to estimate b) the nature of the business could be dramatically different across companies c) companies may use different methods to compute depreciation d) there is no standard definition applied uniformly by companies that report them

d) there is no standard definition applied uniformly by companies that report them

Each of the following are examples of a filing report required by the SEC EXCEPT a. 10-Q b. 10-K c. 8-K d. 8-Q

d. 8-Q

Assets are associated with a. Providing economic benefits b. Increasing future cash inflows c. Reducing future cash outflows d. All of the above

d. All of the above

Income taxes a. Are classified as operating activities under GAAP b. Could be associated with investing and financing activities c. Must be disclosed on the SCF per FASB regulation d. All of the above

d. All of the above

One problem with using cross-sectional analysis is that a. Differences in business strategies distort the analysis b. Differences in capital structure distort the analysis c. Differences in accounting methods distort the analysis d. All of the above

d. All of the above

ROE can be calculated as the product of a. ROA and the Financial Leverage Ratio (FLR) b. ROS, ATR, Financial Leverage Ratio (FLR) c. Profitability, Efficiency, and Leverage metrics d. All of the above

d. All of the above

Ratios can be used to identify sources of a. Competitive advantages b. Potential problems c. Profitability d. All of the above

d. All of the above

When using accrual accounting principles, revenue can only be recorded for a particular accounting period if it is a. Earned b. Realized c. Recognized d. All of the above

d. All of the above

Which of the following are situations that could cause a change in a balance sheet item left unexplained by the statement of cash flows a. Company A undertakes a large amount of non-cash investing and financing activity b. Company B sells a large component of its business to company C c. Company D acquires a real estate company to manage its property holdings d. All of the above

d. All of the above

Which of the following elements account for some of the difference between current assets and current liabilities? a. Inventory b. Accounts payable c. Accounts receivable d. All of the above

d. All of the above

Which of the following represents a claim on firm resources by either an owner or an outsider? a. Unearned revenue b. Income tax payable c. Common stock d. All of the above

d. All of the above

Which of the following situations generally requires an adjusting entry at the end of the accounting period? a. Deferred expense b. Accrued revenue c. Accrued expense d. All of the above

d. All of the above

Under IFRS, interest received can be classified as a. Operating activities b. Investing activities c. Financing activities d. All of the above are legitimate

d. All of the above are legitimate

GAAP and IFRS could generally disagree on the cash flow classifications of a. Interest payments received b. Dividend payments received c. Interest payments made d. All of the above are sources of potential disagreement

d. All of the above are sources of potential disagreement

Which of the following are true regarding adjusting entries? a. They never involve cash b. They involve internal transactions c. They don't involve payments to suppliers or customers receipts d. All of the above are true

d. All of the above are true

When recognizing expenses, we generally apply a. The conservatism principle b. The matching principle c. Two criteria, only one of which must hold d. All of the above could generally apply

d. All of the above could generally apply

Each of the following are metrics required for reporting per GAAP compliance EXCEPT a. EBITDA b. ROA c. ROE d. All of the above since none are required for reporting

d. All of the above since none are required for reporting

Each of the following will distort attempts at a cross-sectional analysis for GAAP compliant firms EXCEPT a. Changes in business strategy b. Changes in capital structure c. Changes in business segments d. Changes in GAAP rulesets over time

d. Changes in GAAP rulesets over time

If we wanted to look at how much income is returned per dollar of asset acquired without the distortion of the effects of the firm's financing decisions, then an appropriate measure would be a. ROI b. ROA c. De-levered net income d. De-levered ROA

d. De-levered ROA

Which of the following accounts don't behave like the rest (with respect to credit and debit operations) a. Accounts Payable b. Retained Earnings c. APIC d. Expenses

d. Expenses

#11) If using a cash basis, then we recognize that a. Revenues equal cash outflows b. Expenses equal cash inflows c. Revenues don't equal cash inflows d. Expenses equal cash outflows

d. Expenses equal cash outflows

#5) The body that has oversight of the rule set that generally applies to most international companies is a. GAAP b. IFRS c. FASB d. IASB

d. IASB

The accounting standards board that sets the rules that are applicable in most of the world are a. GAAP b. CRAPP c. IFRS d. IASB

d. IASB

A long-term asset acquisition is generally considered ___________ because the benefits conveyed last for more than ___________. a. Operating cash flow...one year b. Investing cash flow... one month c. Operating cash flow...one month d. Investing cash flow... one year

d. Investing cash flow... one year

Each of the following assets will generally need to be depreciated (and accumulated) EXCEPT: a. Hardware b. Office equipment c. Buildings d. Land

d. Land

Each of the following are a reason why a change in a balance sheet item would not match the corresponding element on the statement of cash flows EXCEPT a. Noncash investing and financing activities b. Acquisitions and divestitures of businesses c. Subsidiaries in different industries d. Large cash transfer between a firm and its supplier

d. Large cash transfer between a firm and its supplier

Issuing bonds and taking out a loan are both similar ways of raising capital funds in that they both necessitate the creation of a. Common stock b. Retained earnings c. Assets d. Liabilities

d. Liabilities

) Purchasing inventory with cash requires a. Debiting cash and crediting inventory b. Debiting inventory and crediting accounts payable c. Debiting accounts payable and crediting inventory d. None of the above

d. None of the above

Each of the following are examples of working capital EXCEPT a. Accounts receivable b. Inventory c. Prepaid expenses d. None of the above

d. None of the above

Each of the following metrics must be reported on at least one of the three major financial statements to comply with GAAP EXCEPT a. EBITDA b. Free Cash Flows c. EBITDARGLE d. None of the above

d. None of the above

If Bob takes a loan from the bank and uses some of the cash funds to acquire a property and the remainder to pay for the last month of accrued salary of his employees, then this transaction has elements that could fall into each of the following categories EXCEPT a. Operating b. Investing c. Financing d. None of the above

d. None of the above

If you are required to file a 10-Q, then you most likely need to do this how many times per year? a. Once b. Twice c. Anytime there is a "material event" d. None of the above

d. None of the above

In any given T-account, the sum of the debits a. Must be equal to the sum of credits b. Must be greater than the sum of credits c. Must be less than the sum of credits d. None of the above

d. None of the above

In which of the following cases should Gepetto recognize expenses for the wood he used to build the dolls that he retails? a. He just paid the rent for the month on his store location and should also absorb other production costs for the month. b. He purchases the wood from his supplier down the street with cash c. A customer puts in an order for one of the dolls and pays cash up front for delivery later d. None of the above

d. None of the above

The implied economic cost of wearing out capital is known as a. Opportunity cost b. Implicit costs c. Deterioration d. None of the above

d. None of the above

The step in the accounting cycle just prior to preparation of the financial statements involves a. Adjusting entries b. Unadjusted Trial balance c. Closing entries d. None of the above

d. None of the above

When benchmarking one firm against other similar firms in the industry the analysis is considered to be a. Time series analysis b. Benchmark analysis c. Dynamic analysis d. None of the above

d. None of the above

When you sell a customer a service contract for services to be performed over the next several accounting periods, then the revenue from any cash received against the gross price of the contract would be a. Earned but not realized b. Earned and realized c. Recognized d. None of the above

d. None of the above

Which of the following operations is consistent with the final step in the accounting cycle? a. Crediting revenue accounts b. Crediting dividends accounts c. Closing (zero-ing) out permanent accounts d. None of the above

d. None of the above

Each of the following will generally result in a decreased per-period depreciation expense (holding all other factors fixed) when applying the straight line method EXCEPT a. An increase in the salvage value b. An increase in the use horizon c. A reduction in the asset's book value d. None of the above - all result in a lower depreciation expense

d. None of the above - all result in a lower depreciation expense

Each of the following types of adjusting entries involve cash EXCEPT a. Accrued revenues b. Accrued expenses c. Deferred revenues d. None of the above involve cash

d. None of the above involve cash

Each of the following must be disclosed on the statement of cash flows EXCEPT a. Non-cash asset acquisitions b. Cash interest payments c. Cash tax payments d. None of the above since all must be disclosed on the SCF

d. None of the above since all must be disclosed on the SCF

Each of the following are correct about EBITDA EXCEPT a. It doesn't measure cash flow well if there are large changes in noncash working capital b. Can be manipulated by "channel stuffing" c. It is a proxy for operating cash flows d. None since all of the above are true

d. None since all of the above are true

If liabilities grow by 5% and stockholders' equity grows by 2% , then the growth in assets must be a. 3% b. 5% c. 7% d. Not enough information provided

d. Not enough information provided

When Bob purchases inventory with cash for his new business, the cash flow for that transaction would be classified as a. Operating b. Investing c. Financing d. Not enough information provided to make the assessment

d. Not enough information provided to make the assessment

If a firm raised $500,000 from selling stock at a par value of $2 per share, then the value per share at which the stocks were sold must have been a. $5 per share b. $50 per share c. $300 per share d. Not enough information to tell

d. Not enough information to tell

Each of the following are examples of cash outflows from investing activities EXCEPT: a. Acquisition of a business b. Acquisition of PP&E c. Buying stocks in other companies d. Paying dividends

d. Paying dividends

If current retained earnings are $500 after paying $100 in dividends and only generating $50 in net income, then a. Expenses must be $650 b. Expenses must be $150 c. Prior Retained Earnings must be $450 d. Prior Retained Earnings must be $550

d. Prior Retained Earnings must be $550

Each of the following are examples of working capital EXCEPT a. Accounts receivable b. Accounts payable c. Prepaid expenses d. Revenue

d. Revenue

The financial statement that should be prepared first towards the end of the accounting cycle is: a. Statement of Stockholders' Equity b. Statement of Cash Flows c. The Balance Sheet d. Statement of Income

d. Statement of Income

The financial statement that should be prepared first towards the end part of the accounting cycle is: a. Statement of Stockholders' Equity b. Statement of Cash Flows c. The Balance Sheet d. Statement of Income

d. Statement of Income

Alice and Bob both have identical operations with identical assets (in terms of both efficiency and profitability). The only difference between Alice and Bob's operations is financing decisions: Alice funded her operation using a combination of selling bonds and selling stock whereas Bob raised funds by selling only stock. Which of the following are true? a. The ROA will be lower for Bob b. The FLR will be higher for Bob c. The FLR will be lower for Alice d. The ROE will be higher for Alice

d. The ROE will be higher for Alice

Which of the following is NOT a legitimate journal entry according to double entry bookkeeping? a. Credit an asset and debiting a liability b. Crediting one asset and debiting another c. Crediting an expense and debiting an asset d. These are all legitimate

d. These are all legitimate

The best predictor of future operating cash flows is a. Present operating cash flows b. Past operating cash flows c. Present earnings d. Using all of the above together provide the best prediction

d. Using all of the above together provide the best prediction

"Notes Payable" is an example of ______________ account typically associated with ___________________. a. an asset..... equity b. an asset..... loans c. a liability..... equity d. a liability..... debt

d. a liability..... debt

12) One issue with using ratios to incentivize individual behavior within an organization is that a. ratios can be manipulated b. doing so may result in unintended behavioral consequences c. benchmarks and/or goals can be inappropriately chosen d. all of the above

d. all of the above

Assets equals a. Liabilities + Stockholder's Equity b. Cash + Non‐Cash Assets c. Liabilities + Contributed Capital+Retained Earnings d. all of the above

d. all of the above

Capital structure is a term used to describe a firm's a. financing activities b. the division of assets between liabilities and equity c. funding strategy d. all of the above

d. all of the above

In economics, we assume that a firm's goal is to maximize a. economic profit b. net income c. the difference between revenues and expenses d. all of the above

d. all of the above

Which of the following are examples of situations that will require an adjusting entry towards the end of the accounting cycle? a. deferred revenues b. deferred expenses c. accrued expenses d. all of the above

d. all of the above

Which of the following are important financial statements for financial accounting? a. statement of cash flows b. statement of income c. balance sheet d. all of the above

d. all of the above

The beginning part of the accounting cycle most likely involves a. closing entries b. preparation of the financial statements c. adjusting entries d. journalizing and posting entries to T‐Accounts

d. journalizing and posting entries to T‐Accounts

#17) Which of the following situations will result in an expense being recognized in December? a. Company A pays $50,000 in cash dividends to its shareholders in December b. Company B uses newly acquired engines to construct jets at a total cost of $9,000,000 in December. c. Company C pays its legal counsel $60,000 in advance for services to be rendered beginning in January of next year and ending in March of that year. d. none of the above recognize expenses in December

d. none of the above recognize expenses in December

Each of the following are examples of information intermediaries EXCEPT a. the media b. stock analysts c. the SEC d. none of the above since all are information intermediaries

d. none of the above since all are information intermediaries

11) Ratios should be used to do each of the following EXCEPT: a. benchmark b. provide context c. help ask questions d. none of the above since all are valid uses

d. none of the above since all are valid uses

#9) If Liabilities and Contributed Capital each decrease by 10% over a given period, then a. Cash must have increased by 10% b. Non‐cash assets must have increased by 10% c. Assets must have increased by 10% d. not enough information to say

d. not enough information to say

Part of the board of directors that is responsible for overseeing the preparation of a firm's financial statements is a. the chairman of the board b. the oversight committee c. the ethics committee d. the audit committee

d. the audit committee

Who is responsible for putting together a firm's financial statements? a. the board of directors b. the audit committee c. external accounting firms that are contracted out d. the management of the firm

d. the management of the firm

Each of the following are key branches of the practice of accounting EXCEPT: financial accounting tax accounting executive accounting managerial accounting

executive accounting

Accounting is a type of: distributed ledger system input-output system information system journal system

information system

Each of the following is an example of a factor of production EXCEPT: land labor capital money

money

A firm generally does each of the following EXCEPT provides goods and services with the goal of serving the public converts inputs into outputs converts revenues into wages, rents, and profits

provides goods and services with the goal of serving the public

Which of the following are goods for which depreciation should be recorded? intangible tangible short term assets long term assets

tangible

Managerial accounting would most likely be used for reporting from management to stockholders to the government to the CEO to customers

to the CEO