ACCT 5312 Final Exam questions and Answers
Financial statement ratios support informed judgments and decision making most
effectively:
- when compared to an industry average for the most recent year.
- when the trend of entity data is compared to the trend of industry data.
- when viewed as a trend of entity data.
- when viewed for a single year. ** Answ** when the trend of entity data is compared
to the trend of industry data.
Which of the following accounts is part of working capital?
- Common Stock
- Retained Earnings
- Sales
- Merchandise Inventory ** Answ** Merchandise Inventory
Another term for return on investment is:
- Return to sender.
- Return on equity.
- Return on retained earnings.
- Return on assets. ** Answ** Return on assets.
Which of the following is(are) an example of a measure of leverage?
- Debt/equity ratio.
- Debt payout ratio.
- Preferred dividend coverage ratio.
- Debt yield. ** Answ** Debt/equity ratio.
The inventory turnover calculation:
- is wrong unless sales is used in the numerator.
- requires knowledge of the inventory cost flow assumption being used.
- is wrong unless cost of goods sold is used in the numerator.
- is an alternative way of expressing the number of days' sales in inventory. ** Answ**
is an alternative way of expressing the number of days' sales in inventory
The price/earnings ratio:
- is a measure of the relative expensiveness of a firm's common stock.
- is calculated by dividing the earnings multiple by net income.
,- does not usually change by more than 1.0 (e.g. 8.2 to 9.2) during the year.
- can be used to determine the cash dividend to be received during the year. **
Answ** is a measure of the relative expensiveness of a firm's common stock.
An individual interested in making a judgment about the profitability of a company
should:
- calculate the company's ROI for the most recent year.
- review the trend of the company's ROI for several years.
- compare the company's ROI for the most recent year with the industry average ROI for
the most recent year.
- review the trend of working capital for several years. ** Answ** review the trend of
the company's ROI for several years.
An entity's current ratio will be influenced by:
- the depreciation method used.
- writing off an overdue account receivable against the allowance for uncollectible
accounts.
- issuance of a stock dividend.
- the inventory cost flow assumption used. ** Answ** the inventory cost flow
assumption used.
Financial leverage:
- usually has no bearing on the risk associated with a company.
- arises because most borrowed funds have a variable interest rate.
- arises because most borrowed funds have a fixed interest rate.
- is a concept that does not apply to individuals. ** Answ** arises because most
borrowed funds have a fixed interest rate.
Book value per share of common stock of a manufacturing company:
- is the same as the total balance sheet asset value per share of common stock.
- reflects the fair value of the company's stock.
- is not a very useful measure most of the time.
- is calculated by dividing market value per share by earnings per share. ** Answ**
is not a very useful measure most of the time.
If a firm borrowed money on a six-month bank loan, the firm's working capital
immediately after obtaining the loan, relative to its working capital just prior to the loan,
would be:
- Lower.
- The same.
- Higher.
,- Would depend on the amount borrowed. ** Answ** The same.
Which of the following is a universally accepted measure of profitability?
- Return on liabilities.
- Return on retained earnings.
- All of these.
- Return on investment. ** Answ** Return on investment.
Another term for return on investment is:
- Return on assets.
- Return on equity.
- Return on retained earnings.
- Return to sender. ** Answ** Return on assets.
When a firm has financial leverage:
- ROI will usually be less than it would be without leverage.
- ROI will be greater than ROE.
-risk is greater than if there wasn't any leverage.
- the firm will always have a higher ROE than it would without leverage. ** Answ**
risk is greater than if there wasn't any leverage.
A common size income statement:
- makes comparisons between years more difficult.
- uses the same dollar amount of revenues for each year.
- is useful in estimating the impact of inflation.
- expresses items as a percentage of revenues. ** Answ** expresses items as a
percentage of revenues.
Another term for the price/earnings ratio is:
- earnings multiple.
- sales multiple.
- cost ratio.
- profit ratio. ** Answ** earnings multiple.
A higher P/E ratio means that:
- investors are wary of the stock.
- the stock is relatively expensive.
- the stock is more reasonably priced.
- earnings are expected to decrease. ** Answ** the stock is relatively expensive.
, The dividend payout ratio describes:
- the percentage change in dividends this year compared to last year.
- the relationship of dividends per share to market price per share.
- the proportion of earnings paid as dividends.
- dividends as a percentage of the price/earnings ratio. ** Answ** the proportion of
earnings paid as dividends.
Which of the following is not a category of financial statement ratios?
A. Financial leverage.
B. Liquidity.
C. Profitability.
D. Prospectus. ** Answ** Prospectus.
Management's use of resources can best be evaluated by focusing on measures of:
A. liquidity.
B. activity.
C. leverage.
D. book value. ** Answ** activity.
A potential creditor's judgment about granting credit would be most influenced by the
potential customer's:
A. current ratio at the end of the prior fiscal year.
B. most recent acid-test ratio.
C. trend of acid-test ratio over the past three years.
D. practice with respect to taking cash discounts offered by current suppliers. **
Answ** practice with respect to taking cash discounts offered by current suppliers.
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.
Financial statement ratios support informed judgments and decision making most
effectively:
- when compared to an industry average for the most recent year.
- when the trend of entity data is compared to the trend of industry data.
- when viewed as a trend of entity data.
- when viewed for a single year. ** Answ** when the trend of entity data is compared
to the trend of industry data.
Which of the following accounts is part of working capital?
- Common Stock
- Retained Earnings
- Sales
- Merchandise Inventory ** Answ** Merchandise Inventory
Another term for return on investment is:
- Return to sender.
- Return on equity.
- Return on retained earnings.
- Return on assets. ** Answ** Return on assets.
Which of the following is(are) an example of a measure of leverage?
- Debt/equity ratio.
- Debt payout ratio.
- Preferred dividend coverage ratio.
- Debt yield. ** Answ** Debt/equity ratio.
The inventory turnover calculation:
- is wrong unless sales is used in the numerator.
- requires knowledge of the inventory cost flow assumption being used.
- is wrong unless cost of goods sold is used in the numerator.
- is an alternative way of expressing the number of days' sales in inventory. ** Answ**
is an alternative way of expressing the number of days' sales in inventory
The price/earnings ratio:
- is a measure of the relative expensiveness of a firm's common stock.
- is calculated by dividing the earnings multiple by net income.
,- does not usually change by more than 1.0 (e.g. 8.2 to 9.2) during the year.
- can be used to determine the cash dividend to be received during the year. **
Answ** is a measure of the relative expensiveness of a firm's common stock.
An individual interested in making a judgment about the profitability of a company
should:
- calculate the company's ROI for the most recent year.
- review the trend of the company's ROI for several years.
- compare the company's ROI for the most recent year with the industry average ROI for
the most recent year.
- review the trend of working capital for several years. ** Answ** review the trend of
the company's ROI for several years.
An entity's current ratio will be influenced by:
- the depreciation method used.
- writing off an overdue account receivable against the allowance for uncollectible
accounts.
- issuance of a stock dividend.
- the inventory cost flow assumption used. ** Answ** the inventory cost flow
assumption used.
Financial leverage:
- usually has no bearing on the risk associated with a company.
- arises because most borrowed funds have a variable interest rate.
- arises because most borrowed funds have a fixed interest rate.
- is a concept that does not apply to individuals. ** Answ** arises because most
borrowed funds have a fixed interest rate.
Book value per share of common stock of a manufacturing company:
- is the same as the total balance sheet asset value per share of common stock.
- reflects the fair value of the company's stock.
- is not a very useful measure most of the time.
- is calculated by dividing market value per share by earnings per share. ** Answ**
is not a very useful measure most of the time.
If a firm borrowed money on a six-month bank loan, the firm's working capital
immediately after obtaining the loan, relative to its working capital just prior to the loan,
would be:
- Lower.
- The same.
- Higher.
,- Would depend on the amount borrowed. ** Answ** The same.
Which of the following is a universally accepted measure of profitability?
- Return on liabilities.
- Return on retained earnings.
- All of these.
- Return on investment. ** Answ** Return on investment.
Another term for return on investment is:
- Return on assets.
- Return on equity.
- Return on retained earnings.
- Return to sender. ** Answ** Return on assets.
When a firm has financial leverage:
- ROI will usually be less than it would be without leverage.
- ROI will be greater than ROE.
-risk is greater than if there wasn't any leverage.
- the firm will always have a higher ROE than it would without leverage. ** Answ**
risk is greater than if there wasn't any leverage.
A common size income statement:
- makes comparisons between years more difficult.
- uses the same dollar amount of revenues for each year.
- is useful in estimating the impact of inflation.
- expresses items as a percentage of revenues. ** Answ** expresses items as a
percentage of revenues.
Another term for the price/earnings ratio is:
- earnings multiple.
- sales multiple.
- cost ratio.
- profit ratio. ** Answ** earnings multiple.
A higher P/E ratio means that:
- investors are wary of the stock.
- the stock is relatively expensive.
- the stock is more reasonably priced.
- earnings are expected to decrease. ** Answ** the stock is relatively expensive.
, The dividend payout ratio describes:
- the percentage change in dividends this year compared to last year.
- the relationship of dividends per share to market price per share.
- the proportion of earnings paid as dividends.
- dividends as a percentage of the price/earnings ratio. ** Answ** the proportion of
earnings paid as dividends.
Which of the following is not a category of financial statement ratios?
A. Financial leverage.
B. Liquidity.
C. Profitability.
D. Prospectus. ** Answ** Prospectus.
Management's use of resources can best be evaluated by focusing on measures of:
A. liquidity.
B. activity.
C. leverage.
D. book value. ** Answ** activity.
A potential creditor's judgment about granting credit would be most influenced by the
potential customer's:
A. current ratio at the end of the prior fiscal year.
B. most recent acid-test ratio.
C. trend of acid-test ratio over the past three years.
D. practice with respect to taking cash discounts offered by current suppliers. **
Answ** practice with respect to taking cash discounts offered by current suppliers.
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.
