Question 1

Which of the following is a universally accepted measure of profitability?

Accepted Answer

A)  Return on investment. 
B)  Return on retained earnings. 
C)  Return on liabilities. 
D)  All of these. 
A)  Return on investment. 
B)  Return on retained earnings. 
C)  Return on liabilities. 
D)  All of these. A

Question 2

Another term for return on investment is:

Accepted Answer

A)  Return on equity. 
B)  Return on assets. 
C)  Return on retained earnings. 
D)  Return to sender. 
A)  Return on equity. 
B)  Return on assets. 
C)  Return on retained earnings. 
D)  Return to sender. B

Question 3

Presented below are the comparative balance sheets of Big Apple, Inc., at December 31, 2014, and 2013. Sales for the year ended December 31, 2014, totaled $890,000.   Required:
A) Calculate ROI for 2014.
B) Calculate ROE for 2014.
C) Calculate working capital at December 31, 2014.
D) Calculate the current ratio at December 31, 2014.
E) Calculate the acid-test ratio at December 31, 2014.

Accepted Answer

A) ROI = Margin * Turnover = (Net Income/Sales) * (Sales/Average assets)
= ($74,000/$890,000) * [$890,000/(($580,000 + $624,000)/2))] = 8.31% * 1.478 = 12.3%
B) ROE = Net income/Average stockholders' equity
= $74,000/[($279,000 + $332,000)/2] = 24.2%
C) Working capital = Current assets - Current liabilities
= $380,000 - $205,000 = $175,000
D) Current ratio = Current assets/Current liabilities
= $380,000/$205,000 = 1.85
E) Acid-test ratio = (Cash + Accounts Receivable)/Current liabilities
= ($45,000 + $134,000)/$205,000 = 0.87

Question 4

An advantage of the DuPont model for calculating ROI is that:

Accepted Answer

A)  it focuses on asset utilization as well as net income. 
B)  it is easier to use than the straightforward ROI formula. 
C)  it uses average assets and the straightforward ROI formula does not. 
D)  it uses stockholders' equity. 
A)  it focuses on asset utilization as well as net income. 
B)  it is easier to use than the straightforward ROI formula. 
C)  it uses average assets and the straightforward ROI formula does not. 
D)  it uses stockholders' equity.

Question 5

A firm's net income for the year was $200,000. Average assets totaled $1.5 million, and average liabilities totaled $0.3 million. Return on equity was:

Accepted Answer

A)  13.3%. 
B)  16.7%. 
C)  10%. 
D)  20%. 
A)  13.3%. 
B)  16.7%. 
C)  10%. 
D)  20%.

Question 6

Which of the following accounts is part of working capital?

Accepted Answer

A)  Retained Earnings. 
B)  Sales. 
C)  Merchandise Inventory. 
D)  Common Stock. 
A)  Retained Earnings. 
B)  Sales. 
C)  Merchandise Inventory. 
D)  Common Stock.

Question 7

Which of the following is not usually considered a measure of an entity's liquidity?

Accepted Answer

A)  Current ratio. 
B)  Acid-test ratio. 
C)  Cash ratio. 
D)  Working capital. 
A)  Current ratio. 
B)  Acid-test ratio. 
C)  Cash ratio. 
D)  Working capital.

Question 8

The return on investment measure of performance:

Accepted Answer

A)  is never as important a measure of management effectiveness as the amount of net income. 
B)  relates dividends paid to the entity's assets. 
C)  is calculated using net income as the amount of return. 
D)  is calculated by dividing average assets for a period by the amount of net income for the period. 
A)  is never as important a measure of management effectiveness as the amount of net income. 
B)  relates dividends paid to the entity's assets. 
C)  is calculated using net income as the amount of return. 
D)  is calculated by dividing average assets for a period by the amount of net income for the period.

Question 9

Return on equity:

Accepted Answer

A)  will be the same as return on investment. 
B)  relates dividends and turnover. 
C)  relates dividends and stockholders' equity. 
D)  relates net income and stockholders' equity. 
A)  will be the same as return on investment. 
B)  relates dividends and turnover. 
C)  relates dividends and stockholders' equity. 
D)  relates net income and stockholders' equity.

Question 10

A firm's net income is $315,000 on sales of $31.5 million. Average assets for the period were $7 million. For the year:

Accepted Answer

A)  margin was 5%, turnover was 1.2, and ROI was 6%. 
B)  margin was 6%, turnover was 1.5, and ROI was 6%. 
C)  margin was 4%, turnover was 1.2, and ROI was 4.8%. 
D)  margin was 1%, turnover was 4.5, and ROI was 4.5%. 
A)  margin was 5%, turnover was 1.2, and ROI was 6%. 
B)  margin was 6%, turnover was 1.5, and ROI was 6%. 
C)  margin was 4%, turnover was 1.2, and ROI was 4.8%. 
D)  margin was 1%, turnover was 4.5, and ROI was 4.5%.

Question 11

Financial statement ratios support informed judgments and decision making most effectively:

Accepted Answer

A)  when viewed for a single year. 
B)  when viewed as a trend of entity data. 
C)  when compared to an industry average for the most recent year. 
D)  when the trend of entity data is compared to the trend of industry data. 
A)  when viewed for a single year. 
B)  when viewed as a trend of entity data. 
C)  when compared to an industry average for the most recent year. 
D)  when the trend of entity data is compared to the trend of industry data.

Question 12

When comparing entity financial ratios with industry ratios:

Accepted Answer

A)  it should be assumed that the data result from the consistent application of alternative accounting methods. 
B)  relative values at a point in time may not be significant. 
C)  the trend of entity ratios should be compared to the current year's industry ratio. 
D)  entity ratios should not be compared with industry ratios. 
A)  it should be assumed that the data result from the consistent application of alternative accounting methods. 
B)  relative values at a point in time may not be significant. 
C)  the trend of entity ratios should be compared to the current year's industry ratio. 
D)  entity ratios should not be compared with industry ratios.

Question 13

A firm has an ROI of 15%, turnover of 3, and sales of $6 million. The firm's margin is:

Accepted Answer

A)  $900,00. 
B)  5%. 
C)  30%. 
D)  $300,000. 
A)  $900,00. 
B)  5%. 
C)  30%. 
D)  $300,000.

Question 14

Another term for return on equity is:

Accepted Answer

A)  return on investment. 
B)  return on assets. 
C)  return on retained earnings. 
D)  none of these. 
A)  return on investment. 
B)  return on assets. 
C)  return on retained earnings. 
D)  none of these.

Question 15

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:

Accepted Answer

A)  Higher. 
B)  Lower. 
C)  The same. 
D)  Would depend on the amount borrowed. 
A)  Higher. 
B)  Lower. 
C)  The same. 
D)  Would depend on the amount borrowed.

Question 16

The return on investment measure of performance:

Accepted Answer

A)  is relevant only to business enterprises. 
B)  is used by individuals to compare investment performance. 
C)  is calculated using sales as the amount of return. 
D)  is calculated using total assets at the beginning of the period as the amount of investment. 
A)  is relevant only to business enterprises. 
B)  is used by individuals to compare investment performance. 
C)  is calculated using sales as the amount of return. 
D)  is calculated using total assets at the beginning of the period as the amount of investment.

Question 17

A current ratio of 6.0 is usually an indication that the firm:

Accepted Answer

A)  has a low degree of liquidity. 
B)  has a reasonable degree of liquidity. 
C)  has not made the most productive use of its assets. 
D)  has made the most productive use of its assets. 
A)  has a low degree of liquidity. 
B)  has a reasonable degree of liquidity. 
C)  has not made the most productive use of its assets. 
D)  has made the most productive use of its assets.

Question 18

For a firm that presently has a current ratio of 2.0, the effect on this ratio of paying a current liability is that it:

Accepted Answer

A)  raises the current ratio. 
B)  lowers the current ratio. 
C)  doesn't affect the current ratio. 
D)  depends on the amount paid. 
A)  raises the current ratio. 
B)  lowers the current ratio. 
C)  doesn't affect the current ratio. 
D)  depends on the amount paid.

Which of the following is a universally accepted measure of profitability?

Another term for return on investment is:

An advantage of the DuPont model for calculating ROI is that:

A firm's net income for the year was $200,000. Average assets totaled $1.5 million, and average liabilities totaled $0.3 million. Return on equity was:

Which of the following accounts is part of working capital?

Which of the following is not usually considered a measure of an entity's liquidity?

The return on investment measure of performance:

Return on equity:

A firm's net income is $315,000 on sales of $31.5 million. Average assets for the period were $7 million. For the year:

Financial statement ratios support informed judgments and decision making most effectively:

When comparing entity financial ratios with industry ratios:

A firm has an ROI of 15%, turnover of 3, and sales of $6 million. The firm's margin is:

Another term for return on equity is:

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:

The return on investment measure of performance:

A current ratio of 6.0 is usually an indication that the firm:

For a firm that presently has a current ratio of 2.0, the effect on this ratio of paying a current liability is that it:

Accountingpresent and Past

Financial Statements and Accounting Conceptsprinciples

The Bookkeeping Process and Transaction Analysis

Accounting for and Presentation of Current Assets

Accounting for and Presentation of Property, Plant and Equipment,and Other Noncurrent Assets

Accounting for and Presentation of Liabilities

Accounting for and Presentation of Stockholders Equity

The Income Statement and the Statement of Cash Flows

Corporate Governance, Notes to the Financial Statements and Other Disclosures

Financial Statement Analysis

Managerial Accounting and Costvolumeprofit Analysis

Cost Accounting and Reporting

Cost Planning

Cost Control

Costs for Decision Making

Filters

Exam 3: Fundamental Interpretations Made From Financial Statement Data

Which of the following is a universally accepted measure of profitability?

Another term for return on investment is:

An advantage of the DuPont model for calculating ROI is that:

A firm's net income for the year was $200,000. Average assets totaled $1.5 million, and average liabilities totaled $0.3 million. Return on equity was:

Which of the following accounts is part of working capital?

Which of the following is not usually considered a measure of an entity's liquidity?

The return on investment measure of performance:

Return on equity:

A firm's net income is $315,000 on sales of $31.5 million. Average assets for the period were $7 million. For the year:

Financial statement ratios support informed judgments and decision making most effectively:

When comparing entity financial ratios with industry ratios:

A firm has an ROI of 15%, turnover of 3, and sales of $6 million. The firm's margin is:

Another term for return on equity is:

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:

The return on investment measure of performance:

A current ratio of 6.0 is usually an indication that the firm:

For a firm that presently has a current ratio of 2.0, the effect on this ratio of paying a current liability is that it:

Accountingpresent and Past

Financial Statements and Accounting Conceptsprinciples

The Bookkeeping Process and Transaction Analysis

Accounting for and Presentation of Current Assets

Accounting for and Presentation of Property, Plant and Equipment,and Other Noncurrent Assets

Accounting for and Presentation of Liabilities

Accounting for and Presentation of Stockholders Equity

The Income Statement and the Statement of Cash Flows

Corporate Governance, Notes to the Financial Statements and Other Disclosures

Financial Statement Analysis

Managerial Accounting and Costvolumeprofit Analysis

Cost Accounting and Reporting

Cost Planning

Cost Control

Costs for Decision Making

Filters