1. Financial statement ratios support informed judgments and decision making most effectively:
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.
2. When comparing entity financial ratios 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. Relates dividends paid to the entity's assets.
D. Entity ratios should not be compared with industry ratios.
3. The return on investment measure of performance:
A. Is not 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.
4. Another term for return on investment is:
A. Return on equity.
B. Return on assets.
C. Return on retained earnings.
D. None of these.
5. The return on investment measure of performance:
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.
6. An advantage of the DuPont model for calculating ROI is that:
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 owners' equity.
7. A firm has an ROI of 15%, turnover of 3, and sales of $6 million. The firm's margin is:
A. $900,00
B. 5%
C. 30%
D. $300,000
8. A firm's net income is $260,000 on sales of $31.5 million. Average assets for the period were $7 million. For the year:
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%.
9. Another term for return on equity is:
A. Return on investment.
B. Return on assets.
C. Return on retained earnings.
D. None of these.
10. Return on equity:
A. Will be the same as return on investment.
B. Relates dividends and turnover.
C. Relates dividends and owners' equity.
D. Relates net income and owners' equity.
11. An expanded version of the accounting equation could be:
A. A + Rev = L + OE - Exp
B. A - L = Paid-in Capital - Rev - Exp
C. A = L + Paid-in Capital + Beginning Retained Earnings + Rev - Exp
D. A = L + Paid-in Capital - Rev + Exp
12. In the seller's records, the sale of merchandise on account would:
A. Increase assets and increase expenses.
B. Increase assets and decrease liabilities.
C. Increase assets and increase paid-in capital.
D. Increase assets and decrease revenues.
13. In an advertiser's records, a newspaper ad submitted and published this week with the agreement to pay for it next week would:
A. Decrease assets and decrease expenses.
B. Increase liabilities and increase expenses.
C. Decrease assets and increase revenue.
D. Increase assets and decrease liabilities.
14. In the buyer's records, the purchase of merchandise on account would:
A. Increase assets and increase expenses.
B. Increase assets and increase liabilities.
C. Increase liabilities and increase paid-in capital.
D. Have no effect on total assets.
15 A newspaper ad submitted and published this week, with the agreement to pay for it next week would, in the newspaper's records:
A. Increase assets and increase revenues.
B. Increase assets and decrease liabilities.
C. Increase assets and increase expenses.
D. Have no effect on total assets.