ACCT 3309 Exam 2 Questions with Correct Answers Latest Update 2025/2026
Benchmark (denominator) - Answers to compare a company's current performance to its prior
period performance, its competitors, or the industry average
Common profitability benchmark - Answers return on equity
What does ROE measure - Answers the stockholder's return over the period
net income/average stockholders equity - Answers return on equity
ROA may be more appropriate when making ______ comparisons - Answers cross-company
net income/average total assets - Answers return on assets
What does ROA measure? - Answers the return earned on the firm's investments in assets
Net Income/total revenue - Answers profit margin
total revenue/ average total assets - Answers Asset Turnover
Profit Margin x Asset Turnover - Answers return on assets
What does asset turnover measure? - Answers the company's productivity and efficiency
What does asset turnover measure? - Answers the level of sales generated by the firm's
investments in assets
ROA can be increased by - Answers targeting higher profit margins, increasing asset turnover
(Sales revenue-COGS)/Sales Revenue - Answers Gross Profit Margin
Total Revenue/average accounts receivable - Answers Accounts receivable turnover
COGS/average inventory - Answers inventory turnover
Total Revenue/ average PP&E aka net of accumulated depreciation - Answers PP&E Turnover
A focus on accrual accounting means you focus on - Answers profitability
a focus on cash basis accounting means you focus on - Answers viability
Double entry accounting was originally documented by - Answers Luca Pacioli
In the past, until the last 25 years or so, accounting principles have required valuation based
primarily on - Answers historical costs
Accruals result in income being recorded after their related cash flow, while deferrals result in
income being recorded before their related cash flows. - Answers False
, Depreciation refers to the allocation of the ______ of a fixed asset to ________ over the years the
company expects to use it. - Answers cost; expense
A good way to understand accrual accounting is to realize that its primary effect on accounting
numbers is taking cash flows that take place in on period and assigning the _______ to different
periods. - Answers revenue and expenses
Expenses are recorded by matching them with revenues when incurred as assets are used or
______ are created - Answers obligations
When a company accrues interest expenses, they also record a related liability. - Answers true
The statement of cash flows classifies cash receipts and payments into 3 categories: Operating
activities, __________ activities, and financing activities - Answers investing
In order to identify the situation where accounting income may be misleading you need to
understand how changes in balance sheet accounts differentially impact net income and cash
flows. - Answers true
If the balance in prepaid insurance decreases over a period, that means that cash payments
relating to these transactions exceeded expenses relating to these transactions. - Answers
False
Net income differs from operating cash flows because accounting rules make changes to the
_____ of cash flows. - Answers Timing
Which if the following is an example of an expense deferral? - Answers inventory
Accounts receivable represents cash the company has already collected for which they have not
yet recorded the revenue. - Answers false
Which of the following is an example of a revenue deferral? - Answers unearned revenue
Taxes payable represents taxes the company has already paid in cash but not yet recorded as
expense. - Answers false
Equity investors are more concerned with solvency than profitability. - Answers false
_______ is disaggregated into the profit margin (PM) and Asset Turnover (AT) - Answers Return
on assets (ROA)
Accounts receivable turnover (ART) measures the length of the ______. - Answers Collection
Cycle
During one of the pre-recorded video lectures for Meeting #15 we reviewed a graph that showed
profit margin and asset turnover across industries. Every point on the best-fit curve on the graph
corresponds to the same ROA, indicating that market competition drives each industry towards
Benchmark (denominator) - Answers to compare a company's current performance to its prior
period performance, its competitors, or the industry average
Common profitability benchmark - Answers return on equity
What does ROE measure - Answers the stockholder's return over the period
net income/average stockholders equity - Answers return on equity
ROA may be more appropriate when making ______ comparisons - Answers cross-company
net income/average total assets - Answers return on assets
What does ROA measure? - Answers the return earned on the firm's investments in assets
Net Income/total revenue - Answers profit margin
total revenue/ average total assets - Answers Asset Turnover
Profit Margin x Asset Turnover - Answers return on assets
What does asset turnover measure? - Answers the company's productivity and efficiency
What does asset turnover measure? - Answers the level of sales generated by the firm's
investments in assets
ROA can be increased by - Answers targeting higher profit margins, increasing asset turnover
(Sales revenue-COGS)/Sales Revenue - Answers Gross Profit Margin
Total Revenue/average accounts receivable - Answers Accounts receivable turnover
COGS/average inventory - Answers inventory turnover
Total Revenue/ average PP&E aka net of accumulated depreciation - Answers PP&E Turnover
A focus on accrual accounting means you focus on - Answers profitability
a focus on cash basis accounting means you focus on - Answers viability
Double entry accounting was originally documented by - Answers Luca Pacioli
In the past, until the last 25 years or so, accounting principles have required valuation based
primarily on - Answers historical costs
Accruals result in income being recorded after their related cash flow, while deferrals result in
income being recorded before their related cash flows. - Answers False
, Depreciation refers to the allocation of the ______ of a fixed asset to ________ over the years the
company expects to use it. - Answers cost; expense
A good way to understand accrual accounting is to realize that its primary effect on accounting
numbers is taking cash flows that take place in on period and assigning the _______ to different
periods. - Answers revenue and expenses
Expenses are recorded by matching them with revenues when incurred as assets are used or
______ are created - Answers obligations
When a company accrues interest expenses, they also record a related liability. - Answers true
The statement of cash flows classifies cash receipts and payments into 3 categories: Operating
activities, __________ activities, and financing activities - Answers investing
In order to identify the situation where accounting income may be misleading you need to
understand how changes in balance sheet accounts differentially impact net income and cash
flows. - Answers true
If the balance in prepaid insurance decreases over a period, that means that cash payments
relating to these transactions exceeded expenses relating to these transactions. - Answers
False
Net income differs from operating cash flows because accounting rules make changes to the
_____ of cash flows. - Answers Timing
Which if the following is an example of an expense deferral? - Answers inventory
Accounts receivable represents cash the company has already collected for which they have not
yet recorded the revenue. - Answers false
Which of the following is an example of a revenue deferral? - Answers unearned revenue
Taxes payable represents taxes the company has already paid in cash but not yet recorded as
expense. - Answers false
Equity investors are more concerned with solvency than profitability. - Answers false
_______ is disaggregated into the profit margin (PM) and Asset Turnover (AT) - Answers Return
on assets (ROA)
Accounts receivable turnover (ART) measures the length of the ______. - Answers Collection
Cycle
During one of the pre-recorded video lectures for Meeting #15 we reviewed a graph that showed
profit margin and asset turnover across industries. Every point on the best-fit curve on the graph
corresponds to the same ROA, indicating that market competition drives each industry towards
