1. Which of the following is not an example of a decision or
informed judgment that a potential investor would make from accounting
information?
A) Future profitability based on past profitability.
B) Probability of success of a new product development.
C) A forecast of dividends.
D) Assessment of risk that a company may have more debt than
it can repay if the economy enters a recession.
2. On January 31, an entity’s balance sheet showed total
assets of $750 and liabilities of $250. Owners’ equity at January 31 was:
A) $ 500
B) $1,000
C) $ 750
D) $ 250
3. An accounts receivable results from the sale of:
A) Property, plant and equipment for cash
B) Goods and services to customers on account
C) Goods and services to customers for cash.
D) The firm’s common stock.
E) None of the above.
4. Gains differ from revenues because gains:
A) are not a result of the entity’s ongoing, central
operations.
B) do not have to be realized.
C) are reported as income from operating activities.
D) do not involve any offsetting costs or expenses.
5. Under most circumstances, in order to recognize revenue:
A) cash must have been received.
B) the entity must expect to receive cash in the future.
C) the entity must have paid for all expenses incurred in
generating the revenue.
D) the revenue must be realized or realizable, and earned.
6. Most entities satisfy the accounting criteria for
recognizing an expense when:
A) a commitment is made to purchase a product or service.
B) cash is paid to a supplier.
C) a cost is incurred in the revenue generating process.
D) a dividend is paid to stockholders.
7. Which of the following accounts are not included in the
calculation for Gross Profit?
A) Revenue.
B) Cost of goods sold.
C) Net sales.
D) General and selling expenses.
8. Which of the following is not a category of financial
statement ratios?
A) Financial leverage.
B) Liquidity.
C) Profitability.
D) Prospectus.
9. The comparison of activity measures of different
companies is complicated by the fact that:
A) different inventory cost flow assumptions may be used.
B) dollar amounts of assets may be significantly different.
C) only one of the companies may have preferred stock
outstanding.
D) the number of shares of common stock issued may be
significantly different.
10. An individual interested in making a judgment about the
profitability of a company should:
A) review the trend of working capital for several years.
B) calculate the company’s ROI for the most recent year.
C) review the trend of the company’s ROI for several years.
D) compare the company’s ROI for the most recent year with
the industry average ROI for the most recent year.
11. To which function of management is CVP analysis most
applicable?
A) Planning.
B) Organizing.
C) Directing.
D) Controlling.
12. An example of a product cost is:
A) advertising expense for the product.
B) a portion of the president’s travel expenses.
C) interest expense on a loan to finance inventory.
D) production line maintenance costs.
13. An example of a cost that is likely to have a variable
behavior pattern is:
A) sales force salaries.
B) depreciation of production equipment.
C) salaries of production supervisors.
D) direct labor costs.
14. An example of a cost likely to have a fixed behavior
pattern is:
A) sales force commission.
B) raw material costs.
C) advertising costs.
D) electricity costs for packaging equipment.
15. The cash budget is especially important to a firm when:
A) there is not a lot of confidence in the sales forecast.
B) it has a relatively large amount of operating cash.
C) the P/E ratio has been trending downwards.
D) it may have to negotiate a short-term bank loan.
16. Prepaid expenses classified as current assets represent:
A) current year expenses that have been accrued.
B) current year disbursements that will be matched against
revenues of the next year.
C) cash that has been segregated to pay for future expenses.
D) expenses of the current year that have been paid in
advance.
17. The term, “earned,” in revenue recognition
refers to which of the following?
A) The entity has completed, or substantially completed, the
activities it must perform to be entitled to the revenue benefits.
B) The product or service has been exchanged for cash,
claims to cash, or an asset that is readily convertible to a known amount of
cash or claims to cash.
C) The entity has received an irrevocable order for goods or
services.
D) Cash has been received with an irrevocable order for
goods or services.
E) None of the above.
18. Management’s use of resources can best be evaluated by
focusing on measures of:
A) liquidity.
B) activity.
C) leverage.
D) book value.
19. Which of the following is a true statement regarding
absorption and/or direct costing?
A) A firm can choose to use either absorption or direct
costing for income tax purposes.
B) A firm can choose to use either absorption or direct
costing for financial reporting purposes.
C) Direct costing assigns only direct materials and direct
labor to products.
D) Absorption costing includes fixed overhead in product
costs whereas direct costing does not.
E) None of the above.
20. The overhead component of product cost is:
A) the sum of the actual overhead costs incurred in the
manufacture of the product.
B) likely to be the same amount for every product made by
the company.
C) an estimated amount based on labor hours, machine hours,
or some other activity.
D) determined at the end of the year when actual costs and
actual production are known.
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