Problem 1: Limitations of the Balance Sheet include:
a) Assets recorded at historical value.
b) It only recognizes assets that can be expressed in monetary terms.
c) Owners' equity is usually less than the company's market value.
d) All of the above
Problem 2: The costs of maintaining current assets, including the opportunity cost of capital is known as
a) Net Working Capital
b) Carrying Cost
c) Shortage Costs
d) The Cash Conversion Cycle
Problem 3: Expenses should be recorded in the period in which they are used up. This is referred to as:
a) The Realization Principle
b) Market Value
c) Book Value
d) The Matching Principle
Problem 4: A cash payment on a long-term note payable would:
a) increase the asset, and decrease the liability
b) decrease the asset, and increase the liability
c) increase the asset, and increase the liability
d) decrease the asset, and decrease the liability
Problem 5: 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) return on assets
b) net profit margin
c) return on equity
d) operating profit margin (aka Return on Sales)
Problem 6: Using accounting rules, an increase in revenue is reflected as a "credit", and a decrease in revenue is reflected as a "debit".
a) True
b) False
Problem 7: Steve Smith recorded $37,000 in net income for the month of December. This amount would be recognized in the financial statements as a:
a) Credit to retained earnings
b) Debit to retained earnings
c) Credit to cash
d) Debit to cash
Problem 8: A bank reconciliation accomplishes the following:
a) Determines the reasons for differences between bank and company cash balances
b) Adjusts bank balance for information on books not yet recorded at the bank
c) Adjusts book balance for adjustments bank has made that have not been recorded
d) All of the above
Problem 9: The three major activities of a business are operating activities, financing activities, and:
a) consulting activities
b) managing activities
c) investing activities
d) none of the above