Question 1

The appropriate section of a cash flow statement to show the money spent by a company to buy back its own stock is the financing section.

Accepted Answer

A) True 
 B)False  True

Question 2

Historical financial statements are meant to help users assess all of the following, except:

Accepted Answer

A)  Likely success of new products 
B)  Performance of management in earning income 
C)  Profitability of the business 
D)  Solvency of the business 
A)  Likely success of new products 
B)  Performance of management in earning income 
C)  Profitability of the business 
D)  Solvency of the business A

Question 3

_____ A company now has a profit margin for ROCE of 6%. Its asset turnover is 1.5. Its capital structure leverage ratio is 2. Compute the Return on common equity.

Accepted Answer

To compute the Return on Common Equity (ROCE), we can use the relationship between the profit margin, asset turnover, and financial leverage to determine the return on equity (ROE). The formula for ROE when considering these factors is:

ROE = Profit Margin × Asset Turnover × Financial Leverage

Given:
- Profit Margin = 6% (or 0.06 in decimal form)
- Asset Turnover = 1.5
- Financial Leverage (Capital Structure Leverage Ratio) = 2

Now, we can plug these values into the formula:

ROE = 0.06 × 1.5 × 2
ROE = 0.09 × 2
ROE = 0.18

Converting the decimal back to a percentage:

ROE = 0.18 × 100%
ROE = 18%

Therefore, the Return on Common Equity (ROCE) for the company is 18%.

Question 4

The type of audit report that means that auditors have done enough work to reach an opinion, and that the auditors believe the financial statements are fairly stated, is called

Accepted Answer

A)  An unqualified report 
B)  A qualified report 
C)  A facts and circumstances report 
D)  A quality compliance certification 
A)  An unqualified report 
B)  A qualified report 
C)  A facts and circumstances report 
D)  A quality compliance certification

Question 5

A major reason why a company's return on common equity is often different than its return on assets is capital structure leverage.

Accepted Answer

A) True 
 B)False

Question 6

The text discusses various factors that relate to the risk of a company facing financial distress or bankruptcy. Which of the following might be in indicator of higher risk, based on the discussion in the text?

Accepted Answer

A)  The company has a low rate of asset turnover. 
B)  The company's assets are mostly liquid assets. 
C)  Most of the company's debts are long-term, not short-term. 
D)  The company's sales levels do not vary much from year to year. 
A)  The company has a low rate of asset turnover. 
B)  The company's assets are mostly liquid assets. 
C)  Most of the company's debts are long-term, not short-term. 
D)  The company's sales levels do not vary much from year to year.

Question 7

Assume that during the year, the Foley Company had net income of $200,000. Its accounts receivable increased by $6,000, and its accrued expenses payable increased by $7,000. Based on this information, net operating cash flows for the year equal

Accepted Answer

A)  187000 
B)  199000 
C)  201000 
D)  213000 
A)  187000 
B)  199000 
C)  201000 
D)  213000

Question 8

According to research, movements in stock prices are most closely related to movements in which financial statement?

Accepted Answer

A)  Balance sheet 
B)  Income statement 
C)  Statement of owners' equity 
D)  Cash flow statement 
A)  Balance sheet 
B)  Income statement 
C)  Statement of owners' equity 
D)  Cash flow statement

Question 9

On a statement of cash flows prepared using the indirect method, an decrease in income taxes payable will be shown as something that increases operating cash flows.

Accepted Answer

A) True 
 B)False

Question 10

A commonly used ratio to judge the amount a company is earning, not just for its owners, but related to all the resources that managers have to use in the business, is

Accepted Answer

A)  Net income 
B)  Return on assets 
C)  Return on common equity 
D)  Earnings per share 
A)  Net income 
B)  Return on assets 
C)  Return on common equity 
D)  Earnings per share

Question 11

The proper numerator to use in computing return on assets is

Accepted Answer

A)  Net income after noncontrolling interests - interest expense + noncontrolling interest in income 
B)  Net income after noncontrolling interests + (1- tax rate) × interest expense + noncontrolling interest in income 
C)  Net income after noncontrolling interests + (tax rate) × interest expense + noncontrolling interest in income 
D)  Net income after noncontrolling interests - (1- tax rate) × interest expense + noncontrolling interest in income 
A)  Net income after noncontrolling interests - interest expense + noncontrolling interest in income 
B)  Net income after noncontrolling interests + (1- tax rate) × interest expense + noncontrolling interest in income 
C)  Net income after noncontrolling interests + (tax rate) × interest expense + noncontrolling interest in income 
D)  Net income after noncontrolling interests - (1- tax rate) × interest expense + noncontrolling interest in income

Question 12

Academic research shows that the major reason for movements in stock prices are the release of financial statements by companies.

Accepted Answer

A) True 
 B)False

Question 13

The "return on common equity" ratio is primarily used to judge company solvency.

Accepted Answer

A) True 
 B)False

Question 14

The total leverage effect for a company equals the operating leverage effect multiplied by the financial leverage effect.

Accepted Answer

A) True 
 B)False

Question 15

Assume a company acquires inventory, using cash. Which of the following statements is correct regarding the effect of this purchase on its ratios?

Accepted Answer

A)  The current ratio will fall. 
B)  The quick ratio will fall. 
C)  The inventory turnover ratio increases. 
D)  The capital structure leverage increases. 
A)  The current ratio will fall. 
B)  The quick ratio will fall. 
C)  The inventory turnover ratio increases. 
D)  The capital structure leverage increases.

Question 16

____ A company now has a profit margin for ROA of 10%. Its asset turnover is 3. Compute the Return on assets.

Accepted Answer

Return on Assets (ROA) is a financial ra

Question 17

The Chen Corp. in 2016 had revenues of $1,200, variable costs of $600, fixed operating costs of $200, interest expenses of $100, no taxes, and net income = $300. The total leverage effect for this company is

Accepted Answer

A)  1 
B)  1.33 
C)  3 
D)  4 
A)  1 
B)  1.33 
C)  3 
D)  4

Question 18

Return on assets equals "profit margin for ROA" multiplied by "asset turnover."

Accepted Answer

A) True 
 B)False

Question 19

The correct formula for asset turnover is

Accepted Answer

A)  Total revenues ÷ Average total assets 
B)  Total revenues ÷ Beginning of year total assets 
C)  Total revenues ÷ End of year total assets 
D)  Total revenues ÷ Maximum level of total assets during the year 
A)  Total revenues ÷ Average total assets 
B)  Total revenues ÷ Beginning of year total assets 
C)  Total revenues ÷ End of year total assets 
D)  Total revenues ÷ Maximum level of total assets during the year

Question 20

In general, when fixed operating costs become a smaller percentage of a company's operating costs, the operating leverage effect

Accepted Answer

A)  Decreases 
B)  Stays the same 
C)  Increases 
A)  Decreases 
B)  Stays the same 
C)  Increases

The appropriate section of a cash flow statement to show the money spent by a company to buy back its own stock is the financing section.

Historical financial statements are meant to help users assess all of the following, except:

_____ A company now has a profit margin for ROCE of 6%. Its asset turnover is 1.5. Its capital structure leverage ratio is 2. Compute the Return on common equity.

The type of audit report that means that auditors have done enough work to reach an opinion, and that the auditors believe the financial statements are fairly stated, is called

A major reason why a company's return on common equity is often different than its return on assets is capital structure leverage.

The text discusses various factors that relate to the risk of a company facing financial distress or bankruptcy. Which of the following might be in indicator of higher risk, based on the discussion in the text?

Assume that during the year, the Foley Company had net income of $200,000. Its accounts receivable increased by $6,000, and its accrued expenses payable increased by $7,000. Based on this information, net operating cash flows for the year equal

According to research, movements in stock prices are most closely related to movements in which financial statement?

On a statement of cash flows prepared using the indirect method, an decrease in income taxes payable will be shown as something that increases operating cash flows.

A commonly used ratio to judge the amount a company is earning, not just for its owners, but related to all the resources that managers have to use in the business, is

The proper numerator to use in computing return on assets is

Academic research shows that the major reason for movements in stock prices are the release of financial statements by companies.

The "return on common equity" ratio is primarily used to judge company solvency.

The total leverage effect for a company equals the operating leverage effect multiplied by the financial leverage effect.

Assume a company acquires inventory, using cash. Which of the following statements is correct regarding the effect of this purchase on its ratios?

____ A company now has a profit margin for ROA of 10%. Its asset turnover is 3. Compute the Return on assets.

The Chen Corp. in 2016 had revenues of $1,200, variable costs of $600, fixed operating costs of $200, interest expenses of $100, no taxes, and net income = $300. The total leverage effect for this company is

Return on assets equals "profit margin for ROA" multiplied by "asset turnover."

The correct formula for asset turnover is

In general, when fixed operating costs become a smaller percentage of a company's operating costs, the operating leverage effect

How Accounting Works

Selecting Your Business Structure

Choosing Accounting Software

Accounting for Inventory

Doing Business Day to Day

Tackling the General Ledger

Reconciling Bank and Credit Card Statements

Setting up New Team Members

Understanding Insurance

Other Benefits and Reimbursements

Payroll Taxes

Appendix

Filters

Exam 4: Managing Your Accounts

The appropriate section of a cash flow statement to show the money spent by a company to buy back its own stock is the financing section.

Historical financial statements are meant to help users assess all of the following, except:

_____ A company now has a profit margin for ROCE of 6%. Its asset turnover is 1.5. Its capital structure leverage ratio is 2. Compute the Return on common equity.

The type of audit report that means that auditors have done enough work to reach an opinion, and that the auditors believe the financial statements are fairly stated, is called

A major reason why a company's return on common equity is often different than its return on assets is capital structure leverage.

The text discusses various factors that relate to the risk of a company facing financial distress or bankruptcy. Which of the following might be in indicator of higher risk, based on the discussion in the text?

Assume that during the year, the Foley Company had net income of $200,000. Its accounts receivable increased by $6,000, and its accrued expenses payable increased by $7,000. Based on this information, net operating cash flows for the year equal

According to research, movements in stock prices are most closely related to movements in which financial statement?

On a statement of cash flows prepared using the indirect method, an decrease in income taxes payable will be shown as something that increases operating cash flows.

A commonly used ratio to judge the amount a company is earning, not just for its owners, but related to all the resources that managers have to use in the business, is

The proper numerator to use in computing return on assets is

Academic research shows that the major reason for movements in stock prices are the release of financial statements by companies.

The "return on common equity" ratio is primarily used to judge company solvency.

The total leverage effect for a company equals the operating leverage effect multiplied by the financial leverage effect.

Assume a company acquires inventory, using cash. Which of the following statements is correct regarding the effect of this purchase on its ratios?

____ A company now has a profit margin for ROA of 10%. Its asset turnover is 3. Compute the Return on assets.

The Chen Corp. in 2016 had revenues of $1,200, variable costs of $600, fixed operating costs of $200, interest expenses of $100, no taxes, and net income = $300. The total leverage effect for this company is

Return on assets equals "profit margin for ROA" multiplied by "asset turnover."

The correct formula for asset turnover is

In general, when fixed operating costs become a smaller percentage of a company's operating costs, the operating leverage effect

How Accounting Works

Selecting Your Business Structure

Choosing Accounting Software

Accounting for Inventory

Doing Business Day to Day

Tackling the General Ledger

Reconciling Bank and Credit Card Statements

Setting up New Team Members

Understanding Insurance

Other Benefits and Reimbursements

Payroll Taxes

Appendix

Filters