Multiple choice questions on intangible assets, net income and ratios.
1.The process of charging the cost of intangible assets such as patents or goodwill to expense over their useful lives is called:
a.Cost flow.
b.Depreciation.
c.Depletion.
d.Amortization.
2. Which of the following classification errors by an accountant would have an effect on net income of the current year?
a.Capital expenditure versus expense.
b.Current versus long-term liability.
c.Cost of goods sold versus operating expense.
d.More than one of the above.
e.None of the above.
3. ABC Company has an unadjusted balance in Allowance for Bad Debts of $6,000. The amount of the allowance appearing on the balance sheet is $51,000. What is the amount of bad debt expense for the year?
a.$6,000.
b.$45,000.
c.$51,000.
d.$57,000.
4. In an environment of rising costs, ABC Company changes from FIFO to LIFO as their inventory cost flow assumption. What effect will this change have on ABC's current ratio?
a.Increase.
b.Decrease.
c.No effect.
5. Firms that choose to use the LIFO inventory method most often have the primary motive of:
a.Conforming with GAAP.
b.Obtaining income tax savings.
c.Enhancing profits reported to shareholders.
d.Improving the effectiveness of inventory handling.
6. Beginning inventory is 200 units @ $10/unit. During the year, the following purchases are made (in chronological order): 800 units @ $12/unit; 700 units @ $13/unit; and 100 units @ $15/unit. Ending inventory is 300 units. Compute the cost of ending inventory under the FIFO method.
a.$3,000.
b.$3,200.
c.$4,100.
d.$4,500.
7. The division of assets and liabilities into current and non-current categories is useful primarily for assessment of
a.Profitability.
b.Cash flow.
c.Efficiency.
d.Liquidity.
8.The ability of a firm to convert revenue into profit is best measured by:
a.Total revenue.
b.Return on equity.
c.Return on sales.
d.Gross margin percentage.
9.The quick ratio is an especially sensitive measure for assessing a firm's __________
a.Profitability.
b.Liquidity.
c.Market value.
d.Long-term risk.
10.The process of charging the cost of intangible assets such as patents or goodwill to expense over their useful lives is called:
a.Cost flow.
b.Depreciation.
c.Depletion.
d.Amortization.
11.Cost of goods sold appears in the numerator of which ratio?
a.Gross margin.
b.Inventory turnover.
c.Asset turnover.
d.Current ratio.