MGMT 200 Final Exam Practice Questions

The Sports Shack reports net income of $120,000, sales of $1,200,000, and average assets of $960,000. The profit margin is: a. 10%. b. 12.5%. c. 80%. d. 125%

a. 10%.

Which of the following is a publicly traded company? a. American Eagle. b. Cargill. c. Ernst & Young. d. Koch Industries.

a. American Eagle.

Which of the following items do we not report in the statement of cash flows using the direct method? a. Depreciation expense b. Cash received from customers c. Cash paid to suppliers d. Cash paid for income taxes

a. Depreciation expense

An exclusive 20-year right to manufacture a product or to use a process is a: a. Patent b. Copyright c. Trademark d. Franchise

a. Patent

The Sports Shack reports net income of $120,000, sales of $1,200,000, and average assets of $960,000. The asset turnover is: a. 0.10 times. b. 0.80 times. c. 8 times. d. 1.25 times.

d. 1.25 times.

When a product or service is delivered to a customer that previously paid in advance, the delivery is recorded as: a. A debit to a revenue and a credit to a liability account b. A debit to a revenue and a credit to an asset account c. A debit to an asset and a credit to a revenue account d. A debit to a liability and a credit to a revenue account

d. A debit to a liability and a credit to a revenue account

Retained earnings: a. Has a normal debit balance. b. Decreases stockholders' equity. c. Is equal to the balance in cash. d. Increases stockholders' equity.

d. Increases stockholders' equity.

Which of the following is not a primary source of corporate debt financing? a. Bonds. b. Notes. c. Leases. d. Receivables.

d. Receivables.

Retained earnings: a. Is increased by debits b. Decreases stockholders' equity c. Is backed by an equivalent amount of cash d. Increases stockholders' equity

d. Increases stockholders' equity

Which of the following is not a potential feature of preferred stock? a. Convertible b. Redeemable c. Cumulative d. Secured

d. Secured

Lincoln County retires a $50 million bond issue when the carrying value of the bonds is $48 million, but the market value of the bonds is $54 million. Lincoln County will record the retirement as: a. A debit of $6 million to Loss due to early extinguishment. b. A credit of $6 million to Gain due to early extinguishment. c. No gain or loss on retirement. d. A debit to Cash for $54 million

a. A debit of $6 million to Loss due to early extinguishment.

In preparing a statement of cash flows under the indirect method, an increase in accounts payable would be reported or included as a(n): a. Addition to net income in the operating activities section b. Deduction from net income in the operating activities section c. Investing activity d. Financing activity

a. Addition to net income in the operating activities section

Which of the following is an example of a conservative accounting practice? a. Adjust the allowance for uncollectible accounts to a larger amount. b. Record inventory at market rather than lower-of-cost-or-market. c. Change from double-declining-balance to straight-line depreciation. d. Record sales revenue before it is actually earned.

a. Adjust the allowance for uncollectible accounts to a larger amount.

Which of the following leases is simply a rental? a. An operating lease b. A capital lease c. Both an operating and a capital lease d. Neither an operating lease nor a capital lease

a. An operating lease

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Western's legal counsel believes it is probable that Western will settle the lawsuit for an estimated amount in the range of $75,000 to $175,000, with all amounts in the range considered equally likely. How should Western report this litigation? a. As a liability for $75,000 with disclosure of the range. b. As a liability for $125,000 with disclosure of the range. c. As a liability for $175,000 with disclosure of the range. d. As a disclosure only. No liability is reported.

a. As a liability for $75,000 with disclosure of the range.

When bonds are issued at a discount, what happens to the carrying value and interest expense over the life of the bonds? a. Carrying value and interest expense increase. b. Carrying value and interest expense decrease. c. Carrying value decreases and interest expense increases. d. Carrying value increases and interest expense decreases.

a. Carrying value and interest expense increase.

Which of the following is an example of horizontal analysis? a. Comparing a balance sheet account over time b. Comparing a balance sheet account with an income statement account c. Comparing a balance sheet account with another balance sheet account at the same point in time d. Comparing an income statement account with another income statement account at the same point in time

a. Comparing a balance sheet account over time

We can identify operating activities from income statement information and changes in: a. Current asset and current liability accounts. b. Long-term asset accounts. c. Long-term liability accounts. d. Stockholders' equity accounts.

a. Current asset and current liability accounts.

The current ratio is: a. Current assets divided by current liabilities b. Current liabilities divided by current assets c. Cash, short-term investments, and accounts receivable divided by current liabilities d. Cash, short-term investments, accounts receivable, and inventory divided by current liabilities

a. Current assets divided by current liabilities

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably possible, a contingent liability should be: a. Disclosed but not reported as a liability. b. Disclosed and reported as a liability. c. Neither disclosed nor reported as a liability. d. Reported as a liability but not disclosed.

a. Disclosed but not reported as a liability.

Current liabilities: a. May include contingent liabilities. b. Include obligations payable within one year or one operating cycle, whichever is shorter. c. Can be satisfied only with the payment of cash. d. Are preferred by most companies over long-term liabilities.

a. May include contingent liabilities.

What effect does a stock dividend have on total stockholders' equity? a. No effect on total stockholders' equity b. Increases total stockholders' equity c. Decreases total stockholders' equity d. Can either increase or decrease total stockholders' equity depending on the situation

a. No effect on total stockholders' equity

Which of the following expenditures should be recorded as an expense? a. Repairs and maintenance that maintain current benefits. b. Adding a major new component to an existing asset. c. Replacing a major component of an existing asset. d. Successful legal defense of an intangible asset.

a. Repairs and maintenance that maintain current benefits.

The price of a bond is equal to: a. The present value of the face amount plus the present value of the stated interest payments. b. The future value of the face amount plus the future value of the stated interest payments. c. The present value of the face amount only. d. The present value of the interest only.

a. The present value of the face amount plus the present value of the stated interest payments.

How does the stockholders' equity section in the balance sheet differ from the statement of stockholders' equity? a. The stockholders' equity section shows balances at a point in time, whereas the statement of stockholders' equity shows activity over a period of time. b. The stockholders' equity section shows activity over a period of time, whereas the statement of stockholders' equity is at a point in time. c. There are no differences between them. d. The stockholders' equity section is more detailed than the statement of stockholders' equity.

a. The stockholders' equity section shows balances at a point in time, whereas the statement of stockholders' equity shows activity over a period of time.

Common shareholders usually have all of the following rights except: a. To participate in the day-to-day operations b. To share in the distribution of assets c. To elect board of directors d. To receive dividends when declared

a. To participate in the day-to-day operations

When using vertical analysis, we express balance sheet accounts as a percentage of: a. Total assets b. Total liabilities c. Total stockholders' equity d. Sales

a. Total assets

When using vertical analysis, we express balance sheet accounts as a percentage of: a. Total assets. b. Total liabilities. c. Total stockholders' equity. d.Sales.

a. Total assets.

The more frequent the rate of compounding, the more interest that is earned on previous interest, resulting in a higher future value. a. True b. False

a. True

Which of the following leases is essentially the purchase of an asset with debt financing? a. An operating lease. b. A capital lease. c. Both an operating lease and a capital lease. d. Neither an operating lease nor a capital lease.

b. A capital lease

The book value of an asset is equal to the: a. Replacement cost. b. Asset's cost less accumulated depreciation. c. Asset's fair value less its historical cost. d. Historical cost plus accumulated depreciation.

b. Asset's cost less accumulated depreciation.

Serial bonds are: a. Bonds backed by collateral. b. Bonds that mature in installments. c. Bonds the issuer can repurchase at a fixed price. d. Bonds issued below the face amount

b. Bonds that mature in installments.

The asset's cost less accumulated depreciation is called: a. Replacement cost b. Book value c. Net fair value d. Residual value

b. Book value

Interest expense on bonds payable is calculated as: a. Face amount times the stated interest rate. b. Carrying value times the market interest rate. c. Face amount times the market interest rate. d. Carrying value times the stated interest rate.

b. Carrying value times the market interest rate.

Which of the following is an example of horizontal analysis? a. Comparing operating expenses with sales. b. Comparing the growth in sales with the growth in cost of goods sold. c. Comparing property, plant, and equipment with total assets. d. Comparing gross profit across companies.

b. Comparing the growth in sales with the growth in cost of goods sold.

We normally record a long-term asset at the: a. Cost of the asset only. b. Cost of the asset plus all costs necessary to get the asset ready for use. c. Appraised value. d. Cost of the asset, but subsequently adjust it up or down to appraised value

b. Cost of the asset plus all costs necessary to get the asset ready for use.

Treasury stock: a. Has a normal credit balance. b. Decreases stockholders' equity. c. Is recorded as an investment. d. Increases stockholders' equity.

b. Decreases stockholders' equity.

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is probable, a contingent liability should be: a. Disclosed but not reported as a liability b. Disclosed and reported as a liability c. Neither disclosed or reported as a liability d. Reported as a liability but not disclosed

b. Disclosed and reported as a liability

The purchase of a long-term asset is classified in the statement of cash flows as a(n): a. Operating activity. b. Investing activity. c. Financing activity. d. Noncash activity.

b. Investing activity.

The advantages of owning a corporation include: a. Difficulty in transferring ownership. b. Limited liability. c. Lower taxes. d. Less paperwork.

b. Limited liability.

Which of the following will maximize net income by minimizing depreciation expense in the first year of the asset's life? a. Short service life, high residual value, and straight-line depreciation. b. Long service life, high residual value, and straight-line depreciation. c. Short service life, low residual value, and double-declining-balance depreciation. d. Long service life, high residual value, and double-declining-balance depreciation.

b. Long service life, high residual value, and straight-line depreciation.

Assuming a current ratio of 1.00 and an acid-test ratio of 0.75, how will the purchase of inventory with cash affect each ratio? a. Increase the current ratio and increase the acid-test ratio. b. No change to the current ratio and decrease the acid-test ratio. c. Decrease the current ratio and decrease the acid-test ratio. d. Increase the current ratio and decrease the acid-test ratio.

b. No change to the current ratio and decrease the acid-test ratio.

The correct order from the smallest number of shares to the largest number of shares is: a. Authorized, issued, and outstanding. b. Outstanding, issued, and authorized. c. Issued, outstanding, and authorized. d. Issued, authorized, and outstanding.

b. Outstanding, issued, and authorized.

The value today of receiving an amount in the future is referred to as the: a. Future value of an annuity b. Present value of a single amount c. Present value of an annuity d. Future value of a single amount

b. Present value of a single amount

Which of the following is an example of a noncash activity? a. Sale of land for more than its cost. b. Purchase of land by issuing common stock. c. Sale of land for less than its cost. d. Purchase of land using cash proceeds from issuance of common stock

b. Purchase of land by issuing common stock.

Which of the following is an example of a cash inflow from an investing activity? a. Receipt of cash from the issuance of common stock. b. Receipt of cash from the sale of equipment. c. Receipt of cash from the issuance of a note payable. d. Receipt of cash from the sale of inventory.

b. Receipt of cash from the sale of equipment.

Entries for cash dividends are recorded on all of the following dates except: a. Declaration date b. Record date c. Payment date d. Entries are made on all of these dates

b. Record date

When using vertical analysis, we express income statement accounts as a percentage of: a. Net income. b. Sales. c. Gross profit. d. Total assets.

b. Sales.

Which of the following is true for bonds issued at a discount? a. The stated interest rate is greater than the market interest rate. b. The market interest rate is greater than the stated interest rate. c. The stated interest rate and the market interest rate are equal. d. The stated interest rate and the market interest rate are unrelated.

b. The market interest rate is greater than the stated interest rate.

Which of the following is not deducted from an employee's salary? a. FICA taxes. b. Unemployment taxes. c. Income taxes. d. Employee portion of insurance and retirement payments.

b. Unemployment taxes.

We record interest expense on a note payable in the period in which: a. We pay cash for interest. b. We incur interest. c. We pay cash and incur interest. d. We pay cash or incur interest.

b. We incur interest.

If Express Jet borrows $100 million on October 1, 2018, for one year at 6% interest, how much interest expense does it record for the year ended December 31, 2018? a. $0. b. $1 million. c. $1.5 million. d. $6 million.

c. $1.5 million.

Tasty Inn and Out incurred the following costs related to its purchase of equipment Cost of the equipment: $10,000 Sales tax (7%): 700 Annual property insurance: 500 Shipping: 200 Installation: 1,000 Total costs: $12,400 What is the recorded cost of the equipment? a. $10,000 b. $10,700 c. $11,900 d. $12,400

c. $11,900, no property insurance

Equipment originally costing $95,000 has accumulated depreciation of $30,000. If it sells the equipment for $55,000, the company should record: a. No gain or loss. b. A gain of $10,000. c. A loss of $10,000. d. A loss of $40,000.

c. A loss of $10,000.

Depreciation in accounting is the: a. Decrease in fair value of an asset b. Decrease in selling price of an asset c. Allocation of an asset's cost to an expense over time d. Change in fair value of an asset

c. Allocation of an asset's cost to an expense over time

Allied Partners filed suit against Big Sky, Inc., seeking damages for patent infringement. Big Sky's legal counsel believes it is probable that Big Sky will settle the lawsuit for an estimated amount in the range of $500,000 to $700,000, with all amounts in the range considered equally likely. How should Big Sky report this litigation? a. As a liability for $700,000 with disclosure of the range b. As a liability for $600,000 with disclosure of the range c. As a liability for $500,000 with disclosure of the range d. As a disclosure only. No liability is reported

c. As a liability for $500,000 with disclosure of the range

Preferred stock: a. Is always recorded as a liability. b. Is always recorded as part of stockholders' equity. c. Can have features of both liabilities and stockholders' equity. d. Is not included in either liabilities or stockholders' equity.

c. Can have features of both liabilities and stockholders' equity.

Which of the following items do we report in the statement of cash flows using the direct method? a. Depreciation expense. b. Gain on sale of an asset. c. Cash paid to suppliers. d. Loss on sale of an asset.

c. Cash paid to suppliers.

The acid-test ratio is: a. Current assets divided by current liabilities. b. Cash and current investments divided by current liabilities. c. Cash, current investments, and accounts receivable divided by current liabilities. d. Cash, current investments, accounts receivable, and inventory divided by current liabilities.

c. Cash, current investments, and accounts receivable divided by current liabilities.

We can identify operating activities from income statement information and changes in: a. Current asset accounts b. Current liability accounts c. Current asset and current liability accounts d. Stockholders' equity accounts

c. Current asset and current liability accounts

Which of the following ratios is most useful in evaluating solvency? a. Receivables turnover ratio. b. Inventory turnover ratio. c. Debt to equity ratio. d. Current ratio.

c. Debt to equity ratio.

We record cash dividends on the: a. Declaration date, record date, and payment date. b. Record date and payment date. c. Declaration date and payment date. d. Declaration date and record date.

c. Declaration date and payment date.

Which of the following items would we report at the very bottom of the income statement just before net income? a. Losses due to the write-down of inventory. b. Gain on the sale of long-term assets. c. Discontinued operations. d. Losses due to restructuring.

c. Discontinued operations.

The issuance of bonds payable is classified in the statement of cash flows as a(n): a. Operating activity. b. Investing activity. c. Financing activity. d. Noncash activity.

c. Financing activity.

The issuance of common stock is classified in the statement of cash flows as a(n): a. Operating activity. b. Investing activity. c. Financing activity. d. Noncash activity.

c. Financing activity.

The PE ratio: a. Tends to be lower for growth stocks. b. Tends to be higher for value stocks. c. Indicates how a stock is trading in relation to current earnings. d. Typically is less than 1.

c. Indicates how a stock is trading in relation to current earnings.

Which of the following statements regarding liabilities is not true? a. Liabilities can be for services rather than cash. b. Liabilities are reported in the balance sheet for almost every business. c. Liabilities result from future transactions. d. Liabilities represent probable future sacrifices of benefits.

c. Liabilities result from future transactions.

Power Equipment incurred a material loss due to business restructuring. This loss should be reported as: a. Selling expenses b. A discontinued operation c. Other revenues and expenses d. A separate line item in retained earnings

c. Other revenues and expenses

Which of the following is an example of a cash outflow from a financing activity? a. Payment of interest. b. Purchase of an intangible asset. c. Payment of cash dividends. d. Purchase of land.

c. Payment of cash dividends.

The return on assets is equal to the: a. Profit margin plus asset turnover. b. Profit margin minus asset turnover. c. Profit margin times asset turnover. d. Profit margin divided by asset turnover.

c. Profit margin times asset turnover.

Convertible bonds: a. Provide potential benefits only to the issuer. b. Provide potential benefits only to the investor. c. Provide potential benefits to both the issuer and the investor. d. Provide no potential benefits.

c. Provide potential benefits to both the issuer and the investor.

Convertible bonds: a. Provide potential benefits only to the lender b. Provide potential benefits only to the borrower c. Provide potential benefits to both the lender and the borrower d. Provide no potential benefits

c. Provide potential benefits to both the lender and the borrower

Which of the following statements is true regarding the amortization of intangible assets? a. Intangible assets with a limited useful life are not amortized. b. The service life of an intangible asset is always equal to its legal life. c. The expected residual value of most intangible assets is zero. d. In recording amortization, Accumulated Amortization is always credited.

c. The expected residual value of most intangible assets is zero.

Sandwich Express incurred the following costs related to its purchase of a bread machine. Cost of the equipment $20,000 Sales tax (8%) 1,600 Shipping 2,200 Installation 1,400 Total costs $25,200 At what amount should Sandwich Express record the bread machine? a. $20,000. b. $21,600. c. $23,800. d. $25,200

d. $25,200

Performance, Inc., reports net income of $100,000, sales of $800,000, and average assets of $500,000. The asset turnover is: a. 0.20 times b. 0.625 times c. 5 times d. 1.6 times

d. 1.6 times, 800,000/500,000

The indirect and direct methods: a. Are used by companies about equally in actual practice. b. Affect the presentations of operating, investing, and financing activities. c. Arrive at different amounts for net cash flows from operating activities. d. Are two allowable methods to present operating activities in the statement of cash flows.

d. Are two allowable methods to present operating activities in the statement of cash flows.

Which of the following is a positive sign that a company can quickly turn its receivables into cash? a. A low receivables turnover ratio. b. A high receivables turnover ratio. c. A low average collection period. d. Both a high receivables turnover ratio and a low average collection period.

d. Both a high receivables turnover ratio and a low average collection period.

We can separate cash return on assets into: a. Cash flow to sales and return on assets. b. Profit margin and asset turnover. c. Cash flow to sales and profit margin. d. Cash flow to sales and asset turnover.

d. Cash flow to sales and asset turnover.

Which of the following is an example of horizontal analysis? a. Comparing gross profit across companies b. Comparing gross profit with operating expenses c. Comparing assets with equity d. Comparing the change in sales over time

d. Comparing the change in sales over time

Which of the following statements regarding liabilities is true? a. Liabilities are always payable in cash b. Liabilities are all reported as current in the balance sheet c. Liabilities result from future transactions d. Liabilities represent probable future sacrifices of benefits

d. Liabilities represent probable future sacrifices of benefits

The return on assets is equal to: a. Net income divided by long-term assets b. Net income divided by average long-term assets c. Average total assets divided by net income d. Net income divided by average total assets

d. Net income divided by average total assets

The purchase of long-term assets by issuing debt is classified in the statement of cash flows as a(n): a. Operating activity b. Investing activity c. Financing activity d. Noncash activity

d. Noncash activity

Horizontal analysis examines trends in a company: a. Between income statement accounts in the same year. b. Between balance sheet accounts in the same year. c. Between income statement and balance sheet accounts in the same year. d. Over time.

d. Over time.

Both cash dividends and stock dividends: a. Reduce total assets. b. Reduce total liabilities. c. Reduce total stockholders' equity. d. Reduce retained earnings.

d. Reduce retained earnings.

The seller collects sales taxes from the customer at the time of sale and reports the sales taxes as: a. Sales tax expense. b. Sales tax revenue. c. Sales tax receivable. d. Sales tax payable.

d. Sales tax payable.

Research and development costs generated internally: a. Are recorded as research and development assets. b. Are capitalized and then amortized. c. Should be included in the cost of the patent they relate to. d. Should be expensed.

d. Should be expensed.

The balance in the Accumulated Depreciation account represents: a. The amount charged to expense in the current period. b. A contra expense account. c. A cash fund to be used to replace plant assets. d. The amount charged to depreciation expense since the acquisition of the plant asset.

d. The amount charged to depreciation expense since the acquisition of the plant asset.

Financial leverage is best measured by which of the following ratios? a. The return on assets ratio b. The return on equity ratio c. The times interest earned ratio d. The debt to equity ratio

d. The debt to equity ratio

Which of the following ratios measures financial leverage? a. The return on assets ratio. b. The inventory turnover ratio. c. The times interest earned ratio. d. The debt to equity ratio.

d. The debt to equity ratio.