MOdule 8 Extra

129. A company can assess its financial strengths by analyzing its _____ ratios. a. management efficiency b. financial condition c. cash muscle d. management effectiveness

B

138. Totaling its debt-to-equity and interest coverage, its _____ ratios may show that a company is heading for financial trouble. a. profit margin b. financial condition c. management efficiency d. industrial strength

B

139. Last year, Rebecca's Bookstore had $1 million in sales. She spent $590,000 to buy the books that she sold and paid out $300,000 in operating expenses. Interest and taxes came to $3,000. How much profit did Rebecca have for each $1.00 in sales? a. $0.071 b. $0.107 c. $0.170 d. $0.017

B

37. We read in business publications that net income is often called the _____. a. banker's best friend b. bottom line c. language of business d. core line

B

44. _____ costs vary with quantity of goods sold but remain constant on a per unit basis. a. Breakeven b. Variable c. Fixed d. Flat

B

79. Holt Industries Ltd. has a(n) _____ loan that's payable in one year. a. long-term b. annual c. temporary d. short-range

B

85. The Kathryn Lorillard Co.'s income before taxes is called _____ income. a. accumulated b. net c. private d. gross

B *

145. Brenda probably deals with gross profit margin ratios but not with net profit margin ratios.

False ***

71. The system that requires an accountant to record a transaction when it occurs is called immediate accounting.

False, accrual accounting

102. The current ratio shows the relationship between a company's current assets and its current liability.

TRUE

104. Vertical percentage analysis expresses each item on an income statement as a percentage of a certain base.

true

25. Expenses are divided into two categories—cost of goods sold and operating expenses.

true

26. Its fiscal year is a company's designated business year.

true

34. Fixed cost/contribution margin per unit equals a company's breakeven point in units.

true

70. A merchandiser is a company that makes a profit by selling goods.

true

72. A long-term asset that will be used for several years—say, a vehicle—appears on the income statement as a depreciation expense.

true

73. When figuring income taxes, you can regard the "bottom line" and "net income" as the same thing.

true

96. A ratio analysis is a technique for financial comparison that shows the relationship between two numbers.

true

97. Its debt-to-equity ratio shows the risk entailed by a company's capital structure.

true

99. Management effectiveness ratios measure overall company performance and show how successfully management is at running the business.

true

78. An account receivable is recorded as a current asset.

true ***

140. What was Rebecca's gross profit margin? a. 41% b. 5.9% c. 59% d. 4.1%

A

41. Cash flows from _____ activities are derived from the day-to-day operations of your main line of business. a. operating b. investing c. sales d. quotidian

A

48. Your balance sheet is based on the _____ equation: Assets = Liabilities + Owner's equity. a. accounting b. bookkeeping c. financial d. profit

A

51. _____ costs don't vary with quantity of goods sold. a. Fixed b. Variable c. Breakeven d. Flat

A

90. Because the assets were purchases, _____ reflects the amount that a business has charged as depreciation expense. a. accumulated depreciation b. expense depreciation c. straight line depreciation d. FIFO

A

91. The annual allocation of the cost of a long-term asset is recorded as a(n): a. depreciation expense b. operating expense c. accrual expense d. cost of goods sold

A

117. If she wants to know how competently her company's assets are being managed, junior accountant Amy Duerkin will analyze its _____ ratio. a. management effectiveness b. organizational effectiveness c. management efficiency d. financial control

C

13. To help them operate the business, _____ accounting provides information and analysis to decision makers inside the organization. a. financial b. internal c. management d. executive

C

36. _____ is another word for revenues. a. Bottom line b. Profits c. Sales d. Income

C

38. _____ is/are the resources from which a company expects to gain some future benefit. a. Liabilities b. Owner's equity c. Assets d. Capital

C

49. Accounting can help your business in all of the following ways except _____. a. by revealing whether you made a profit b. by permitting you to play what-if games to determine your profit under different assumptions c. by legalizing your financial records d. by showing the value and sources of your assets

C

57. Calvin's Calendar Company has assets of $75,000 and liabilities of $15,000. How much is Calvin's owner equity? a. $90,000 b. 20% c. $60,000 d. 80%

C

58. This past year Donald's Duck Farm had revenues of $25,000. The company spend $1,000 per month on duck eggs and $700 per month on feed, rent, and utilities to keep incubators running. What was Donald's net income? a. $8,000 b. $13,000 c. $4,600 d. $6,400

C

63. In preparing the company's income statement, you'll report on all of the following items except _____. a. sales revenues b. costs of goods sold c. short-term assets d. operating expenses

C

12. Accountants do all of the following except _____. a. measure business activities b. summarize business activities c. interpret financial information d. locate capital

D

125. Its _____ ratio indicates that a company is making a reasonable profit on its sales even though its profitability is declining. a. management efficiency b. management effectiveness c. product life cycle d. profit margin

D

92. In September, Sherry's Shoe Mart ordered women's boots from a supplier. The boots were delivered in October, paid for in November, and sold in December. If Sherry uses accrual-based accounting, in which month should she report the boots under Cost of goods sold? a. September b. October c. November d. December

D

160. The raft of corporate scandals that includes the notorious Enron episode was mainly the fault of _____. a. stakeholders b. managers c. accountants d. auditors

D ***

127. _____ activities create cash inflows or outflows through the selling or buying of long-term assets. a. Investing b. Vertical c. Financing d. Operating

a

132. To find out the relationship between its present assets and its present liabilities, you can look up Zanzibar Corp.'s _____ ratio in its annual report. a. breakeven b. current c. account d. control

b

135. To determine a company's interest coverage, you divide its operating income by its _____. a. operating expense b. interest expense c. interest income d. net profit

b

136. The _____ ratio may suggest that inventory is moving quickly even though the rate of turnover is slowing. a. profit margin b. management effectiveness c. management efficiency d. financial control

c

111. Its debt-to-equity ratio shows a company's ability to pay interest on its debts from its operating income.

false

112. To find an inventory turnover ratio, you multiply ending inventory by Cost of goods sold.

false

35. Contribution margin per unit is the shortage of revenue per unit over variable cost per unit.

false

98. A vertical income statement shows income for more than one year.

false

154. Public accounting firms offer consulting and tax services, the hallmark of the profession being the performance of internal audits.

false*** external audits

109. The relationship between funds acquired from creditors and funds invested by owners is called principal structure.

false, debt and equity

106. Profit margin ratios help a company assess its financial strengths.

false, financial ratio

31. Your balance sheet shows what your sales and expenses are.

false, income statement ***

105. Financial condition ratios tell you how efficiently your assets are being managed.

false, management efficiency

100. Gross profit is the money that a company has earned after paying all its expenses.

false, net income

75. A current loan is due in two years.

false, one year and long is 5 yr

110. Interest coverage equals interest expense divided by operating income.

false, opposite

108. Dividing your inventory by your cost of goods sold will yield your inventory turnover rate.

false, sales/inventory

74. If you sell merchandise rather than services, your financial statements won't have a cost-of-goods sold line.

false, service rather than merchandise

77. Under accrual accounting, accounts receivable are recorded when sales are made and accounts payable when payments have been received.

false, when it occurs immediately