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Test answers for Financial Statement Test 2016

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1 Answered Test Questions:

1. Which of the following financial statements provides information about economic resources and claims on those resources?

Answers:

• Income Statement

• Balance Sheet

• Statement of Cash Flows

• All of the above


75 NOT Answered Yet Test Questions:

(hold on, will be updated soon)
2. The _______________ reports the net cash flows relating to operating, investing, and financing activities for a particular period of time.

Answers:

• Retained Earnings Statement

• Balance Sheet

• Income Statement

• Cash Flow Statement

3. The ____________ is the excess of revenues over expenses for a particular period.

Answers:

• Net Income

• Net Loss

• Cash Inflow

• Change in Assets

4. Which of the following financial statements provides information about inflows and outflows of cash?

Answers:

• Income Statement

• Balance Sheet

• Statement of Cash Flows

• All of the above

5. The _______________ is a measure of a firm's ability to control the level of costs, or expenses, relative to sales.

Answers:

• Asset Turnover

• Profit Margin Ratio

• Times Interest Earned

• Inventory Turnover

6. The _______________ provides a measure of the sales generated for each dollar invested in fixed assets.

Answers:

• Inventory Turnover

• Cash Flow

• Fixed Asset Turnover Ratio

• Gross Income

7. Comparisons of a given firm's ratios with those of other firms for a particular period is referred to as ____________________.

Answers:

• Times-Series Analysis

• Defensive Interval Analysis

• Cross-Section Analysis

• None of the above

8. The ______________ is computed by dividing net income attributable to common stock by the average number of common shares outstanding during the period.

Answers:

• Quick Ratio

• Asset Turnover

• Earnings Per Share

• Retained Earnings

9. If a company's rate of return on assets is 20 percent and the profit margin percentage is 5 percent, the company's total assets turnover must be which of the following?

Answers:

• 1

• 4

• 5

• 20

10. During the year, XYZ Company sold one of its warehouses for $250,000 cash. This transaction is an example of which of the following?

Answers:

• An investing activity

• A financing activity

• An operating activity

• None of the above

11. Which of the following transactions does NOT result in an inflow of cash?

Answers:

• Sale of surplus equipment

• Issuance of common stock

• Distribution of dividends to shareholders

• Issuance of long-term debt

12. Which of the following ratios would NOT be used to assess a firm's long-term liquidity risk?

Answers:

• Debt-Equity ratio

• Long-Term Debt ratio

• Interest Coverage ratio

• Current Ratio

13. When an auditor feels that an opinion cannot be expressed as to the fairness of a company's financial statements as a whole, he issues a/an ________________ .

Answers:

• qualified opinion

• agreed opinion

• unqualified opinion

• adverse opinion

14. Which of the following does NOT describe an expense?

Answers:

• Dividends paid to shareholders

• Cost of merchandise sold

• Salaries earned by employees but not yet paid

• Depreciation of the firm's building for the particular period

15. Which of the following equations is incorrect?

Answers:

• Shareholders' Equity = Contributed Capital + Retained Earnings

• Revenues - Expenses = Net Income

• Assets = Liabilities + Equity

• All of the above equations are correct.

16. The ____________ is the financial statement that presents an overall view of a company's financial position as of a given date.

Answers:

• Balance Sheet

• Income Statement

• Cash Flow Statement

• Retained Earnings Statement

17. Which of the following would not appear on a Balance Sheet?

Answers:

• Retained Earnings

• Bonds Payable

• Cost of Goods Sold

• Accounts Receivable

18. The ____________ is an agency of the federal government and has the legal authority to set acceptable accounting standards in the United States.

Answers:

• IASC

• SEC

• GAAP

• FASB

19. Which of the following ratios indicates the proportion of a firm's long-term capital that is provided by creditors?

Answers:

• Return on Equity

• Long-Term Debt Ratio

• Return on Assets

• Quick Ratio

20. The ________________ indicates the length of the period between the purchase of inventory on account and the payment of cash to suppliers.

Answers:

• Accounts Receivable Turnover Ratio

• Inventory Turnover

• Net Profit

• Accounts Payable Turnover Ratio

21. In computing the quick ratio, which of the following items is customarily excluded from the numerator?

Answers:

• Cash

• Inventory

• Marketable Securities

• Accounts Receivable

22. Which of the following terms refers to the "nearness of cash" of a firm's assets?

Answers:

• Liquidity

• Marketability

• Turnover

• Net Income

23. The ______________ is a useful measure for assessing a firm's performance in using assets to generate earnings.

Answers:

• Profit Margin Ratio

• Financial Leverage

• Rate of Return on Assets

• Working Capital

24. Which of the following can be described as "claims on resources that result from benefits previously received by the company, and which require that a specified amount be paid on a specified date"?

Answers:

• Shareholders' Equity

• Contributed Capital

• Liabilities

• Retained Earnings

25. Which of the following approaches does the Financial Accounting Standards Board follow in establishing generally accepted accounting principles?

Answers:

• An approach that ensures that financial reports conform to income tax reports

• A deductive theory-based approach

• A political lobbying approach, which selects accounting methods favored by those involved with financial accounting reports

• Both b and c

26. A ______________ involves comparing a given firm's ratios with those of other firms for a particular period.

Answers:

• Time Sensitive Analysis

• Profit Margin Analysis

• Return on Assets Analysis

• Cross-Section Analysis

27. The ______________ is computed by dividing cash flow from operations by average current liabilities.

Answers:

• Debt Equity Ratio

• Cash Flow from Operations to Current Liabilities Ratio

• Current Ratio

• Quick Ratio

28. Which of the following ratios assesses the firm's operating performance independently of financing decisions?

Answers:

• Rate of Return on Assets

• Inventory Turnover

• Profit Ratio

• Net Income

29. The ______________ is a private sector group that has been given the responsibility of establishing acceptable accounting standards in the United States.

Answers:

• IASC

• SEC

• GAAP

• FASB

30. The primary source of cash for most firms should be _______________.

Answers:

• operating activities

• contributed capital

• assets

• financing activities

31. The ____________ is the excess of expenses over revenue for a given period.

Answers:

• Net Profit

• Assets

• Equity

• Net Loss

32. XYZ Company sells on credit with terms of Net 30 days. If the company's credit policy and collection activity are working efficiently, how many times should the company's Accounts Receivable turn in a year?

Answers:

• 6 times

• 8 times

• 10 times

• 12 times

33. The phenomenon of common shareholders trading at extra risk for a potentially higher return is called __________________.

Answers:

• financial leverage

• operating leverage

• liquidity

• interest coverage ratio

34. Which of the following terms refers to the practice of using debt and preferred stock for financing in order to increase the return to the common shareholders' equity?

Answers:

• Equity

• Asset Turnover

• Liabilities

• Financial Leverage

35. Which of the following organizations, despite the fact that it has no legal authority, has played a role in developing acceptable accounting principles worldwide?

Answers:

• IASC

• SEC

• GAAP

• FASB

36. XYZ Company reports total assets and total shareholders' eQuity of $375,000 and $220,000, respectively, at the end of its first year of business. The company reported earnings of $100,000 and distributed $40,000 in dividends during its first year. Also during the year, the company issued additional shares of stock for $75,000. What are the firm's liabilities at year end and the firm's contributed capital at the beginning of the year, respectively?

Answers:

• $75,000 and $115,000

• $80,000 and $160,000

• $155,000 and $85,000

• $155,000 and $45,000

37. A __________________ involves comparing the changes in a firm's ratios over a multiple-year period.

Answers:

• Draft Analysis

• Time-Series Analysis

• Profit Margin Analysis

• Net Income Analysis

38. Economic resources that have the potential or ability to provide future services or benefits to the firm are called _________________.

Answers:

• cash

• liabilities

• assets

• equity

39. Which of the following is NOT a current asset?

Answers:

• Cash

• Land

• Merchandise Inventory

• Accounts Receivable

40. During the year, XYZ Company issued additional common stock. This transaction is an example of which of the following?

Answers:

• An investing activity

• A financing activity

• An operating activity

• None of the above

41. A creditor's claim on the resources of the company is called ____________.

Answers:

• an asset

• cash

• equity

• a liability

42. The ________________ indicates the number of times that the average inventory has been sold during a particular period.

Answers:

• Asset Utilization Ratio

• Debt Equity Ratio

• Inventory Turnover Ratio

• Accounts Receivable Turnover

43. Which of the following ratios provides a measure of the sales generated for each dollar invested in assets?

Answers:

• Total Assets Turnover Ratio

• Inventory Turnover Ratio

• Return on Equity

• Debt to Equity Ratio

44. Which of the following transactions does NOT result in an outflow of cash?

Answers:

• Purchase of a tract of land

• Payment of dividends to shareholders

• Reacquisition of some of the company's common stock

• Issuance of long-term debt

45. In the _____________, earnings per share amount are compared with the market price of the stock.

Answers:

• Quick Ratio

• Pricing Earnings Ratio

• Current Ratio

• Accounts Payable Turnover Ratio

46. In computing the rate of return on common shareholders' equity, do dividends on preferred stock have to be added to net income?

Answers:

• Yes

• No

• Depends on whether the company is public or private

• More information is needed

47. The _______________ is the financial statement that presents the results of earnings activity over time.

Answers:

• Balance Sheet

• Income Statement

• Cash Flow Statement

• Retained Earnings Statement

48. Which of the following ratios would probably NOT be used to analyze the Total Assets Turnover Ratio?

Answers:

• Fixed Asset Turnover

• Accounts Receivable Turnover

• Inventory Turnover

• Long-Term Debt Ratio

49. XYZ Company's retained earnings increased by $100,000 during the year. Also during the year, dividends totaling $22,500 were declared and paid to shareholders. What was XYZ Company's net income for the year?

Answers:

• $22,500

• $77,500

• $100,000

• $122,500

50. The _____________ considers the availability of liquid assets to cover various levels of debt. For a financially healthy firm, the ratio should be 20 percent or more.

Answers:

• Current Ratio

• Quick Ratio

• Cash Flow from Operations to Total Liabilities Ratio

• Inventory Turnover

51. The _______________ represent/s the earnings, or profits, in excess of dividends distributed to shareholders that have been realized by the firm since its formation.

Answers:

• Retained Earnings

• Assets

• Cash

• Liabilities

52. Which of the following would NOT appear on an Income Statement?

Answers:

• Rent Expense

• Salaries Payable

• Sales Revenue

• Cost of Goods Sold

53. Which of the following ratios measures the firm's performance in generating earnings that are assignable to the common shareholders' equity?

Answers:

• Rate of Return on Common Shareholders' Equity

• Debt Equity

• Return on Assets

• Accounts Payable Turnover

54. Which of the following represents a measure of the assets provided by the original shareholder in exchange for an ownership interest in the firm?

Answers:

• Shareholders' Equity

• Retained Earnings

• Cash

• Assets

55. Financial leverage can increase the return to common shareholders as long as ______________.

Answers:

• the rate of return earned on assets equals the rate paid for the capital used to acquire those assets

• the rate of return earned on assets is less than the rate paid for the capital used to acquire those assets

• the rate of return earned on assets exceeds the rate paid for the capital used to acquire those assets

• the firm has a "good" earnings year

56. The Rate of Return on Assets can be disaggregated into two other ratios. Which of the following is one of the two ratios?

Answers:

• Fixed Asset Turnover Ratio

• Debt-Equity Ratio

• Profit Margin Ratio

• Inventory Turnover Ratio

57. A company wants to increase its rate of return on assets from 8 percent to 14 percent. It is believed that the firm's total assets turnover of .667 cannot be easily increased at the present time. What must the profit margin percentage be to achieve the desired 14 percent rate of return on assets?

Answers:

• 7 percent

• 14 percent

• 21 percent

• 28 percent

58. The ______________ is the sequence of activities in which inventory is purchased on account from suppliers, inventory is sold on account to customers, customers pay the amounts due, and suppliers are paid the amounts due to them.

Answers:

• Operating Cycle

• Cash Inflow

• Accounts Receivable Cycle

• Accounts Payable Cycle

59. Outflows of assets used up in generating revenue are called ______________.

Answers:

• Liabilities

• Retained Earnings

• Expenses

• Revenues

60. Financial statements that are prepared using a particular set of assumptions are called ___________________.

Answers:

• Income Statements

• Tax Liability Statements

• Pro-Forma Financial Statements

• Retained Earnings

61. Which of the following is NOT a measure of profitability?

Answers:

• Rate of Return on Assets

• Accounts Payable Turnover Ratio

• Rate of Return on Common Shareholders' Equity

• Earnings Per Common Share

62. The _______________ indicates the proportion of total capital supplied by creditors.

Answers:

• Gross Margin

• Debt-Equity Ratio

• Inventory Turnover Ratio

• Asset Turnover Ratio

63. Revenues are a measure of the inflows of assets (or reductions in liabilities) from selling goods and providing services to customers. Which of the following is NOT a revenue transaction?

Answers:

• Sale of merchandise for cash to a customer

• Sale of merchandise on account to a customer

• Delivery of weekly magazines to a subscriber who previously paid for a one-year subscription

• Borrowing money from a local bank to be used in the business

64. Which of the following ratios uses sales in its numerator?

Answers:

• Total Assets Turnover Ratio

• Profit Margin Ratio

• Fixed Asset Turnover Ratio

• Both a & c

65. The _______________ is used to indicate the relative protection of bondholders and to assess the probability of a firm's failing to meet required interest payments.

Answers:

• Interest Coverage Ratio

• Gross Margin

• Net Income

• Asset Turnover

66. The _______________is supposed to indicate the ability of the firm to meet its current obligations.

Answers:

• Quick Ratio

• Debt Equity Ratio

• Retained Earnings

• Current Ratio

67. Which of the following is NOT a current liability?

Answers:

• Mortgage Payable

• Accounts Payable

• Salaries Payable

• Taxes Payable

68. XYZ Company reports total assets and total liabilities of $425,000 and $200,000, respectively, at the conclusion of its first year of business. The company earned $95,000 during the first year and distributed $50,000 in dividends. What was the firm's contributed capital?

Answers:

• $225,000

• $180,000

• $130,000

• $65,000

69. In computing the rate of return on assets, interest expense net of income tax savings is added to net income. Assume that XYZ Company has interest expense of $20 million and net income of $50 million. Assume that the income tax rate is 40 percent. In computing the rate of return on assets, what would the numerator be?

Answers:

• $38 million

• $42 million

• $58 million

• $62 million

70. Which of the following would NOT be used to evaluate a firm's operating cycle?

Answers:

• Accounts Payable Turnover Ratio

• Inventory Turnover Ratio

• Current Ratio

• Accounts Receivable Turnover Ratio

71. The _____________ states that if bond indentures require periodic repayments of principal on long-term liabilities, the denominator of the interest coverage ratio might include such repayments.

Answers:

• Debt Equity Ratio

• Asset Turnover Ratio

• Accounts Receivable Turnover

• Fixed Charges Coverage Ratio

72. Assume that the current ratio of XYZ Company is 2.5:1. What effect would an equal dollar increase in current assets and current liabilities have on the current ratio?

Answers:

• It would increase the current ratio.

• It would decrease the current ratio.

• It would have no effect on the current ratio.

• The answer cannot be determined from the information given.

73. Which of the following is NOT used to assess short-term liquidity risk?

Answers:

• Accounts Receivable Turnover

• Operating Cash Flow to Current Liabilities Ratio

• Current Ratio

• Quick Ratio

74. Assume that the debt-equity ratio of XYZ Company is .5 to 1. If the company issued a long-term note in the purchase of some land, what effect would this transaction have on the debt-equity ratio?

Answers:

• It would decrease the debt-equity ratio.

• It would increase the debt-equity ratio.

• It would have no effect on the debt-equity ratio.

• The answer cannot be determined from the information given.

75. The ________________ generally includes cash, marketable securities, and accounts receivable in its numerator.

Answers:

• Quick Ratio

• Debt Equity

• Asset Turnover

• Accounts Receivable Turnover

76. ____________ is/are the excess of expenses over revenue for a given period.

Answers:

• Net profit

• Assets

• Equity

• Net loss