Accounts Basics - Multiple Choice questions
1. Costs become expenses
a. when they are paid.
b. when they are charged against revenues.
c. when they are purchased.
d. at the end of the accounting period.
2. Working capital is
a. Net income divided by sales.
b. Current assets minus current liabilities.
c. Current assets divided by current liabilities.
d. Total debt divided by total assets.
3. The Sarbanes-Oxley Act of 2002 requires that all U.S. corporations under the jurisdiction of the Securities and Exchange Commission
a. have at least one foreign subsidiary.
b. maintain accounting records of foreign branches and subsidiaries in the local foreign currency.
c. maintain an adequate system of internal control.
d. must file reports with the National Commission on Fraudulent Financial Reporting.
4. Having one person post entries to accounts receivable subsidiary ledger and a different person post to the Accounts Receivable Control account in the general ledger is an example of
a. inadequate internal control.
b. duplication of effort.
c. external verification.
d. segregation of duties.
5. Assume the following cost of goods sold data for a company:
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2009
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$1, 500,000
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2008
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1, 200,000
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2007
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900,000
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If 2007 is the base year, what is the percentage increase in cost of goods sold from 2007 to 2009?
a. 167%
b. 67%
c. 60%
d. 40%
Use the following information for questions 6-7:
Moon Beam, Inc. has the following income statement (in millions):
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MOON BEAM, INC.
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Income Statement
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For the Year Ended December 31, 2008
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Net Sales
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$180
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Cost of Goods Sold
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120
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Gross Profit
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60
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Operating Expenses
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33
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Net Income
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$ 27
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6. Using vertical analysis, what percentage is assigned to Cost of Goods Sold?
a. 67%
b. 33%
c. 100%
d. None of the above
7. Using vertical analysis, what percentage is assigned to Net Income?
a. 100%
b. 85%
c. 15%
d. None of the above
Use the following information for questions 8 -9.
Raney Corporation had net income of $200,000 and paid dividends to common stockholders of $50,000 in 2008. The weighted average number of shares outstanding in 2008 was 50,000 shares. Raney Corporation\'s common stock is selling for $40 per share on the New York Stock Exchange.
8. Raney Corporation\'s price-earnings ratio is
a. 2.5 times.
b. 10 times.
c. 13.3 times.
d. 4 times.
9. Raney Corporation\'s payout ratio for 2008 is
a. $4 per share.
b. 33.3%.
c. 25%.
d. 10%.
10. Holt Company reported the following on its income statement:
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Income before income taxes
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$420,000
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Income tax expense
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120,000
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Net income
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$300,000
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An analysis of the income statement revealed that interest expense was $52,500. Holt Company\'s time\'s interest earned was
a. 9 times.
b. 8 times.
c. 7 times.
d. 6 times.