Problem 1. The ____________ provides a financial summary of the firm's operating results during a specified period.
a) Statement of cash flows
b) Statement of retained earnings
c) Balance sheet
d) Income statement
Problem 2. When calculating the proportion of revenue that finds its way into profits, it is often appropriate to add back debt interest to net income. The ratio which best describes this is:
a) net profit margin
b) return on assets
c) operating profit margin (aka Return on Sales)
d) return on equity
Problem 3. The capital expenditures budget is an example of an operating budget.
a) True
b) False
Problem 4. The _________ is a position statement that shows where the company stands in financial terms at a specific date.
a) statement or retained earnings
b) statement of cash flows
c) income statement
d) balance sheet
Problem 5. A system that relies on electronic impulses, not paper documents, to transfer cash is known as:
a) electronic remittance
b) electronic imaging
c) electronic mail
d) electronic funds transfer
Problem 6. Treasury stock should be included in an organization's total number of outstanding shares.
a) True
b) False
Problem 7. The role of the financial manager includes all of the following EXCEPT:
a) preparation of financial statements
b) reselling IPO (initial public offering) stock securities to the public
c) raising capital
d) cash management
Problem 8. During the closing process, revenue and expense accounts are closed to:
a) owner's equity
b) dividends
c) retained earnings
d) income summary
Problem 9. The cash conversion cycle is the period between a firm's payment for materials, and collection on its sales.
a) True
b) False
Problem 10. Expenses should be recorded in the period in which they are used up. This is referred to as:
a) The Matching Principle
b) Book Value
c) Market Value
d) The Realization Principle
Problem 11. The revenue recognition principle states that revenue should be recorded:
a) when the sale is made
b) when payment is received
c) A or B
d) None of the above
Problem 12. Cash management helps to do all of the following EXCEPT:
a) avoid unnecessarily large amounts of idle cash
b) ensures low levels of accounts receivable write-offs
c) accurately account for cash
d) prevent theft and fraud
Problem 13. An analysis of economic and market conditions plus forecasts of customer needs from marketing personnel are components of the:
a) sales budget
b) capital expenditures budget
c) production budget
d) cash budget
Problem 14. The final step in the financial budget is the preparation of the:
a) budgeted income statement
b) budgeted balance sheet
c) cash budget
d) master budget
Problem 15. All of the following are characteristics of internal accounting information except:
a) measures of efficiency and effectiveness
b) identity of decision maker
c) historical in nature
d) these are all characteristics of internal accounting information
Problem 16. Steve Smith, owner of Steve's Bowling Alley, incurs a total salary expense of $4,000 for the period November 16-November 30. However, since payday is Friday, Steve pays his employees for this period on December 2. The salary expense would be recognized:
a) At year-end
b) On November 30
c) On December 2
d) Steve can choose between November 30 or December 2
Problem 17. A(n) _________ describes your product, the potential market, the production method, and the resources?time, money, employees, plant, and equipment?needed for success.
a) business plan
b) operating budget
c) prospectus
d) master budget
Problem 18. Steve Smith, the owner of Steve's Bowling Alley, purchased 300 new bowling balls for $10,000. The bowling balls have a useful life of 5 years. Assuming straight-line depreciation, what would be the expense entry in year six?
a) $10,000
b) $2,000
c) $0
d) none of the above
Problem 19. The asset turnover ratio is classified as a(n):
a) liquidity ratio
b) efficiency ratio
c) profitability ratio
d) market value ratio
Problem 20. The short-term financing strategy of stretching payables is preferable to bank loans to improve a firm's cash flow position.
a) True
b) False
Problem 21. Properly done, the ___________ ensures that all cash transactions have been accounted for and that the bank and book records of cash are correct.
a) statement of cash flows
b) bank reconciliation
c) cash reconciliation
d) bank statement
Problem 22. Steve Smith, the owner Steve's Bowling Alley, purchased 500 pairs of bowling shoes for $7,500. He paid for the shoes on account. The journal entry to record this transaction would be:
a) Debit "Retained Earnings" for $7,500; Credit "Tools and Equipment - shoes" for $7,500
b) Debit "Cash" for $7,500; Credit "Tools and Equipment - shoes" for $7,500
c) Debit "Tools and Equipment - shoes" for $7,500; Credit "Accounts Payable" for $7,500
d) No entry is required until the account is paid.
Problem 23. Steve Smith, the owner of Steve's Bowling Alley, generated $30,000 in total sales during the month of November, and incurred $5,000 in expenses. He allows several "regular" customers to pay on account. Sales on account for the month of November were equal to $5,000. The amount that Steve should record as net income for the month of November is:
a) $5,000
b) $20,000
c) $25,000
d) $30,000
Problem 24. Current assets minus current liabilities is known as:
a) credit scoring
b) payment float
c) discount interest
d) net working capital
Problem 25. The primary purpose in preparing a budget is
a) cash planning and profit planning
b) for risk analysis
c) for cash planning
d) for profit planning
Problem 26. Steve Smith, owner of Steve's Bowling Alley, purchased a 12-month rental storage unit in December for the upcoming year, beginning January 1. The rental contract costs $12,000, and he paid in cash. The journal entry to record this transaction on January 31 would be:
a) Debit "prepaid rental unit" for $12,000; Credit "Cash" for $12,000
b) Debit "rental expense" for $1,000; Credit "prepaid rental unit" for $1,000
c) Debit "prepaid rental unit" for $1,000; Credit "rental expense" for $1,000
d) No January entry is required. The entry should only be recorded in December.
Problem 27. Financial budgets include the cash budget, budgeted income statement, budgeted balance sheet, and the general and administrative expense budget.
a) True
b) False
Problem 28. The debt ratio is computed by:
a) dividing total assets by total liabilities
b) dividing current liabilities by total liabilities
c) dividing current assets by current liabilities
d) dividing total liabilities by total assets
Problem 29. Net income appears on which two financial statements?
a) income statement and statement of owner's equity
b) balance sheet and statement of cash flows
c) statement of owner's equity and balance sheet
d) income statement and balance sheet
Problem 30. Check kiting, a form of legal float, can help a firm to increase cash flow.
a) True
b) False
Problem 31. A firm with a total debt ratio of 0.60 indicates:
a) they are financed with 60% debt, 40% equity
b) they are financed with 60% equity, 40% debt
c) they are financed with 60% long-term debt, 40% short-term debt
d) they are financed with 60% short-term debt, 40% long-term debt
Problem 32. Partnerships:
a) own and manage the business
b) have unlimited liability
c) pool resources such as knowledge and capital
d) all of the above
Problem 33. The legal contract setting forth the purpose of the business and how it is to be financed, managed and governed is:
a) a bond indenture
b) a debenture
c) the articles of incorporation
d) a promissory note
Problem 34. A distinct disadvantage of corporations is:
a) the ease with which corporations can be established
b) the owners manage and run the business
c) the owners and business are taxed separately
d) none of the above
Problem 35. In a sole proprietorship, the law protects the personal assets of the owner from creditors of the business.
a) true
b) false