Reference no: EM13356120

Multiple choice questions related to investors and expenses.

1. Debt securities sold to investors that must be repaid at a particular date some years in the future are called
a.accounts payable.
b.notes receivable.
c.taxes payable.
d.bonds payable.

2. Using accrual accounting, expenses are recorded and reported only
a.when they are incurred whether or not cash is paid.
b.when they are incurred and paid at the same time.
c.if they are paid before they are incurred.
d.if they are paid after they are incurred.

3. Which statement is correct?
a.As long as a company consistently uses the cash basis of accounting, generally accepted accounting principles allow its use.
b.The use of the cash basis of accounting violates both the revenue recognition and matching principles.
c.The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received.
d.As long as management is ethical, there are no problems with using the cash basis of accounting.

4. Which one of the following is not a tool in financial statement analysis?
a.Horizontal analysis
b.Circular analysis
c.Vertical analysis
d.Ratio analysis

5. If year one equals $800, year two equals $840, and year three equals $880, the percentage to be assigned for year three in a trend analysis, assuming that year 1 is the base year, is
a.110%.
b.105%.
c.95%.
d.100%.

6. Assume the following sales data for a company:

2008	$945,000
2007	780,000
2006	650,000

If 2006 is the base year, what is the percentage increase in sales from 2006 to 2007?
a.25%
b.20%
c.125%
d.143%

7. Ratios are most useful in identifying
a.trends.
b.differences.
c.causes.
d.relationships.

8. Return on assets ratio is most closely related to
a.profit margin and debt to total assets ratio.
b.profit margin and asset turnover ratio.
c.times interest earned and debt to stockholders' equity ratio.
d.profit margin and free cash flow.

9. Return on common stockholders' equity ratio is most closely related to
a.gross profit rate and operating expenses to sales ratio.
b.profit margin and free cash flow.
c.times interest earned and debt to stockholders' equity ratio.
d.return on asset ratio and leverage (debt to total assets ratio).

10. The current ratio is a
a.liquidity ratio.
b.profitability ratio.
c.long-term solvency ratio.
d.cash flow ratio.

11. The receivables turnover and inventory turnover ratios are used to analyze
a.long-term solvency.
b.profitability.
c.liquidity.
d.leverage.

12. Which one of the following is not an objective of a system of internal controls?
a.Safeguard company assets
b.Overstate liabilities in order to be conservative
c.Enhance the accuracy and reliability of accounting records
d.Reduce the risks of errors

13. Internal control is defined, in part, as a plan that safeguards
a.all balance sheet accounts.
b.assets.
c.liabilities.
d.capital stock.

14.Internal controls are not designed to safeguard assets from
a.natural disasters.
b.employee theft.
c.robbery.
d.unauthorized use.

15. Having one person responsible for the related activities of ordering merchandise, receiving goods, and paying for them
a.increases the potential for errors and fraud.
b.decreases the potential for errors and fraud.
c.is an example of good internal control.
d.is a good example of safeguarding the company's assets.

16. From an internal control standpoint, the asset most susceptible to improper diversion and use is a.prepaid insurance.
b.cash.
c.buildings.
d.land.

17. A consequence of separation of duties is that
a.theft by employees becomes impossible.
b.operations become extremely inefficient because of constant training of employees.
c.more employees will need to be bonded.
d.theft is still possible when several employees are involved.

18. A very small company would have the most difficulty in implementing which of the following internal control activities?
a.Separation of duties
b.Limited access to assets
c.Periodic independent verification
d.Sound personnel