QUESTIONS BANK
1.
Which of the following statements concerning the notes to the audited financial statements of a company is least accurate? Financial statement notes: a.
include management’ assessment of the company operating performance and financial results b.
are audited c.
contain information about contingent losses that may occur
2.
Which description of the objective of financial statements is most accurate? The objective of financial statements is: a.
to provide securities analysts with objective data about a firm’s financial prospects b.
to provided a wide range of users with information about a firm’s financial propects c.
to provide economic decisions makers with useful information about a firm’s financial performance and changes in financial position
3.
In the financial statement analysis framework, using the data to address the objectives of the analysis and deciding what conclusions or recommendations the information supports is best described as: a.
processing the data b.
analyzing and interpreting the data c.
reporting the conclusions
4.
A company’s operating revenues for a reporting period are most likely to be shown on its: a.
income statement b.
cash flow statement c.
balance sheet
5.
The best description of the general ledger is that it: a.
sorts the entries in the general journal by account b.
groups accounts into the categories that are presented in the financial statements c.
is where journal entries are first recorded
6.
Disclosures regarding accounting policies and estimates are found in: a.
only the footnotes to the financial statements b.
only the Management’s Discussion and Analysis c.
both the footnotes to the financial statements and the Management’s Discussion and
Analysis

7.
The step in the financial statement analysis framework that includes making any appropriate adjustments to the financial statements and calculating ratios is best described as: a.
processing the data b.
analyzing and interpreting the data c.
gathering the data
8.
Which of the following statements about financial statements and reporting standards is least accurate: a.
financial statements could potentially take any form if reporting standards didn’t exist b.
reporting standards focus mostly on format and presentation and allow management wide latitude in assumptions. c.
the objective of financial statements is to provide economic decision makers with useful information.
9.
What is fundamental balance sheet equation? a.
Assets = Liabilities + Stockholder’s Equity b.
Assets = Stockholder’s Equity – Liabilities c.
Liabilities = Assets + Stockholder’s equity
10.
Which of the following is the best description of the financial statement analysis framework? a.
Gather data, analyze and interpret the data process the conclusions, assess the context, report the recommendation, update the analysis. b.
State the objective and context, gather data, analyze and interpret the data, report the conclusions or recommendations, update the analysis c.
Gather data, analyze and interpret the data, determine the context, report the conclusions, update the analysis.
11.
Prema Singh is the bookkeeper for Octabius Industries. Singh has been asked by the CFO of
Octabis to review all purchases that occurs between Feb 1 and Feb 8 to the investigate an error on the receiving dock. Singh will most likely look at the: a.
initial trial balance b.
general ledger c.
general journal
12.
Which of the following best describes financial reporting and financial statement analysis: a.
Financial reporting refers to how companies show their financial performance and financial analysis refers to using the information to make economic decisions.

b.
Financial reports assess a company’s past performance in order to draw conclusions about the company’s ability to generate cash and profits in the future. c.
The objective of financial analysis is to provide information about the financial position of an entity that is useful to a wide range of users
13.
A listing of all the firm’s journal entries by date is called the: a.
general ledger b.
adjusted trial balance c.
general journal
14.
The purchase of equipment for 25.000 $ is most likely to be recorded as: a.
an increase in one asset account and a decrease in another asset account b.
an increase in an asset account and an increase in a liability account c.
an increase in two asset accounts
15.
Under which inventory cost flow assumption does inventory on the balance sheet best approximately its current cost? a.
FIFO b.
LIFO c.
Weighted average cost
16.
During the year, a firm’s inventory purchase were as follows:
Quarter
1
2
3
4
Units purchased
400
100
200
50
Cost per unit
3.30
3.60
3.90
4.20
Total
1.320
360
780
210
The firm uses a periodic inventory system and calculates inventory and COGS at the end of the year.
Beginning inventory was 200 units at $3 per unit = $600. Sales for the year were 600 units. Compute the COGS for the year under FIFO and LIFO:
LIFO FIFO a.
1.920 b.
1.920
2.175
1.850 c.
2.070 2.175
17.
During May, a firm’s inventory account included the following transactions:
May 1
May 12
May 16
Inventory
Purchased
Sold
25 units x $4.00
60 units x $4.20
40 units x $6.00

May 27
May 29
Purchased
Sold
Assuming periodic FIFO inventory costing, gross profit for May was:
30 units x $4.25
40 units x $6.10 a.
$132 b.
$147 c.
$153
18.
Which of the following is most likely for a firm with high inventory turnover and lower sales growth than the industry average? The firm: a.
is managing its inventory effectively. b.
may have obsolete inventory that requires a writedown. c.
may be losing sales by not carrying enough inventory.
19.
in periods of rising prices and stable inventory quantities, which of the following best describes the effect on gross profit of using LIFO as compared to using FIFO? a.
Lower b.
Higher c.
The same
20.
At the end of last year, Maui corporation’s assets and liabilities were as follows:
Total assets
Accrued liabilities
Short term debt
$98.500
$5000
$12.000
Bonds payable $39.000
Maui’ debt to equity ratio is closes to: a.
1.2 b.
1.3 c.
1.4
21.
Which of the following is least likely to be considered a role of financial statement analysis? a.
To make economic decisions. b.
Determining whether to invest in the company’s securities c.
Assessing the management skill of the company’s executives
22.
Which of the following is the least likely to be considered an accrual for accounting purposes?

a.
Wages payable b.
Accumulated depreciation c.
Unearned revenue
23.
The standard auditor report is most likely required to: a.
provide reasonable assurance that the financial statements contain no material errors. b.
provide an “unqualified” opinion if material uncertainties exist c.
provide reasonable assurance that management is reliable
24.
Which of the following represents information at a specific point in time? a.
the balance sheet b.
the income statement and the balance sheet c.
the income statement
25.
The difference between cash flow from operations (CFO) under the direct method and CFO under the indirect method is: a.
balanced by an opposite difference in cash flow from investing b.
always equal to zero c.
disclosed as a reserve in the footnotes to the cash flow statement
26.
What are the main components of cash flow from operations? a.
Capitalization activities, sale of assets and purchasing securities b.
Changes in accounts receivable, inventory, accounts payable and items that flow through the income statement c.
Repayment of bonds, issuance of common stock and stock splits
27.
Which ration is used to measure a company’s internal liquidity? a.
interest coverage b.
current ratio c.
total asset turnover
28.
Which of the following ratios is NOT part of original Dupont system? a.
Asset turnover b.
Equity multiplier

c.
Debt to total capital
29.
Which of the following items would NOT be included in cash flow from investing? a.
Proceeds related to acquisitions b.
Selling stock of the company c.
Buying and selling a building
30.
An analyst has gathered the following data about a company:
Average receivables collection period of 95 days
Average inventory processing period of 183 days
A payable payment period of 274 days
What is their cash conversion cycle? a.
4 days b.
-4 days c.
186 days
31.
In its first year of business, Digmore Corporation’s balance sheet shows gross fixed assets at $90 million and accumulated depreciation of $10 million. If the estimated salvage value of these assets is $10 mi8llion, and the original estimated useful life is 8 years, what method of depreciation did Digmore most likely use? a.
Units of production b.
Double declining balance c.
Straight line
32.
If a company has a net profit margin of 15%, an asset turnover ratio of 4.5 and a ROE of 18%, what is the financial leverage? a.
2.667 b.
0.267 c.
0.523
33.
Which of the following does NOT represent a cash flow relating to operating activity? a.
Cash received from customers b.
Dividends paid to stockholders

c.
Interest paid to bondholders
34.
The traditional Dupont equation shows ROE equal to: a.
EBIT/ sales x sales/assets x assets/ equity x(1- tax rate) b.
net income/ assets x sales / equity x assets/ sales c.
net income/ sales x sales / assets x assets / equity
35.
Which of the following is a measure of a firm’s liquidity? a.
Equity turnover b.
Cash ratio c.
Net profit margin
36.
The main difference between the current ratio and the quick ratio is that the quick ratio excludes: a.
inventory b.
cost of goods sold c.
assets
37.
Common size balance sheet express all balance sheet items as a percentage of: a.
sales b.
assets c.
equity
38.
When a US company pays dividends to its stockholders, which type of cash flow does this represent? a.
operating b.
investing c.
financing
39.
An analyst has gathered the following information about a firm:
Net sales of $500.000
Cost of goods sold $ 250.000
EBIT of $150.000
EAT of $90.000

What is the firm’s operating profit margin a.
18% b.
30% c.
50%
40.
Are the quick ratio and the debt to capital ratio used primarily to assess a company’s ability to meet short term obligations
Quick ratio a. Yes b. No
Debt to capital ratio
Yes
Yes
No c. Yes
41.
Calculate the ratio
Balance sheet
Year Current year Previous year
Assets
Cash and marketable securities
Receivable
Inventories
105
205
310
195
195
290
620
1800
580
1700
Total current assets
Gross property, plant and equipment
Accumulated depreciation
Net property, plant and equipment
Total assets
Liabilities
Payables
360
1440
2060
110
340
1360
1940
90

Short term debt
Current portion of long term debt
Current liabilities
Long term debt
Deferred taxes
Common stock
Additional paid in capital
Retained earnings
Common shareholder equity
Total liabilities and equity
Income Statement
Year
Sales
Cost of goods sold
Gross profit
Operating expenses
Operating profit
Interest expense
Earnings before taxes
Taxes
Net income
Common dividends
160
55
400
320
1020
2060
325
610
105
300
650
350
50
300
Current year
4000
3000
1000
100
200
60
140
45
400
180
880
1940
275
690
95
300