Question 1

The best indication of the operational efficiency of management is

Accepted Answer

A)   net income.
B)   earnings per share.
C)   earnings before interest and taxes (EBIT) .
D)   gross profit. C

Question 2

An increase in assets represents a positive source of funds.

Accepted Answer

A) True 
 B)False  False

Question 3

A statement of cash flows allows a financial analyst to determine

Accepted Answer

A)   whether a cash dividend is affordable.
B)   how increases in assets have been financed.
C)   whether long-term assets are being financed with long-term or short-term financing.
D)   All of the options D

Question 4

Candy Company had sales of $320,000 and cost of goods sold of $112,000. What is the gross profit margin (ratio of gross profit to sales)?

Accepted Answer

A)   55%
B)   65%
C)   35%
D)   73.3%

Question 5

Preferred stock dividends ________ earnings available to common stockholders.

Accepted Answer

A)   increase
B)   decrease
C)   do not effect
D)   There is not enough information to determine.

Question 6

The sale of a firm's securities is a source of positive funds, whereas the purchase of securities is a use of funds.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following would not be classified as a current asset?

Accepted Answer

A)   Marketable securities
B)   Plant property and equipment
C)   Prepaid expenses
D)   Inventory

Question 8

An increase in accrued expenses results in a cash outflow on the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 9

Allen Lumber Company had earnings after taxes of $750,000 in the year 2015 with 300,000 shares outstanding on December 31, 2015. On January 1, 2016, the firm issued 50,000 new shares. The company took the proceeds from these new shares as well as other operating improvements and earned $937,500 earnings after taxes in 2016. Earnings per share for the year 2016 were

Accepted Answer

A)   $2.14.
B)   $2.68.
C)   $3.13.
D)   None of the options.

Question 10

Which of the following would represent a use of funds and, indirectly, a reduction in cash balances?

Accepted Answer

A)   An increase in inventories
B)   A decrease in marketable securities
C)   An increase in accounts payable
D)   The sale of new bonds by the firm

Question 11

Accumulated depreciation shows up in the income statement, while depreciation expense shows up on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is not a primary source of raising money or capital for the firm?

Accepted Answer

A)   Assets
B)   Common stock
C)   Preferred stock
D)   Bonds

Question 13

Assuming a tax rate of 21%, depreciation expenses of $500,000 will

Accepted Answer

A)   reduce income by $15,000.
B)   reduce taxes by $105,000.
C)   reduce taxes by $150,000.
D)   have no effect on income or taxes, since depreciation is not a cash expense.

Question 14

Elgin Battery Manufacturers had sales of $1,000,000 in 2015 and their cost of goods sold is $700,000. Selling and administrative expenses were $100,000. Depreciation expense was $80,000 and interest expense for the year was $10,000. The firm's tax rate is 30 percent. What is the dollar amount of taxes paid in 2015?

Accepted Answer

A)   $36,000
B)   $117,800
C)   $33,000
D)   $300,000

Question 15

The income statement is the major device for measuring the profitability of a firm over a period of time.

Accepted Answer

A) True 
 B)False

Question 16

An increase of $100,000 in inventory would result in a(n)

Accepted Answer

A)   Decrease of net cash flow.
B)   Increase in net cash flow.
C)   Decrease in marketable securities.
D)   Increase in bonds payable.

Question 17

The real value of a firm is the same from an economic and accounting perspective.

Accepted Answer

A) True 
 B)False

Question 18

How many of the following items decrease cash flow in the statement of cash flows?
•	Increase in accounts receivable 
•	Increase in notes payable  
•	Depreciation expense  
•	Increase in investments  
•	Decrease in accounts payable  
•	Decrease in prepaid expenses  
•	Dividend payment  
•	Increase in accrued expenses

Accepted Answer

A)   Two of these items decrease cash flow
B)   Three of these items decrease cash flow
C)   Four of these items decrease cash flow
D)   Five of these items decrease cash flow

Question 19

Consider the following information for Ball Corp.
$\begin{array}{lr}
\text { Selling and administrative expense } & \$ 40,000 \
\text { Depreciation expense } & 70,000 \
\text { Sales } & 350,000 \
\text { Interest expense } & 30,000 \
\text { Cost of goods sold } & 110,000 \
\text { Taxes } & 17,500
\end{array}$
What is the operating profit for Ball Corp.?

Accepted Answer

A)   $71,450
B)   $90,000
C)   $130,000
D)   None of the options

Question 20

Cash flow from operations is equal to earnings before taxes minus depreciation.

Accepted Answer

A) True 
 B)False

Exam 2: Review of Accounting

The best indication of the operational efficiency of management is

An increase in assets represents a positive source of funds.

A statement of cash flows allows a financial analyst to determine

Candy Company had sales of $320,000 and cost of goods sold of $112,000. What is the gross profit margin (ratio of gross profit to sales) ?

Preferred stock dividends ________ earnings available to common stockholders.

The sale of a firm's securities is a source of positive funds, whereas the purchase of securities is a use of funds.

Which of the following would not be classified as a current asset?

An increase in accrued expenses results in a cash outflow on the statement of cash flows.

Which of the following would represent a use of funds and, indirectly, a reduction in cash balances?

Accumulated depreciation shows up in the income statement, while depreciation expense shows up on the balance sheet.

Which of the following is not a primary source of raising money or capital for the firm?

Assuming a tax rate of 21%, depreciation expenses of $500,000 will

The income statement is the major device for measuring the profitability of a firm over a period of time.

An increase of $100,000 in inventory would result in a(n)

The real value of a firm is the same from an economic and accounting perspective.

Cash flow from operations is equal to earnings before taxes minus depreciation.