1. Current financial reporting standards assume that users of accounting information:
A) have a reasonably informed knowledge of business.
B) have only minimal knowledge of business.
C) have an expert’s understanding of economic and financial events and conditions.
D) have widely differing levels of knowledge about business, and that financial reporting must meet these differing needs.
2. Financial statement analysis involves forms of comparison including:
A) comparing changes in the same item over a number of periods.
B) comparing key relationships within the same year.
C) comparing key items to industry averages.
D) all of the above.
3. Select the incorrect statement regarding horizontal analysis.
A) Percentage analysis involves establishing the relationship of one amount to another.
B) In doing horizontal analysis, an account is expressed as a percentage of the previous balance of the same account.
C) Percentage analysis attempts to eliminate the materiality problem of comparing firms of different sizes.
D) A horizontal analysis of cost of goods sold on the income statement would involve dividing cost of goods sold by total sales revenue.
4. Select the incorrect statement regarding ratio analysis.
A) Ratio analysis is a specific form of horizontal analysis.
B) Ratio analysis involves making comparisons between different accounts in the same set of financial statements.
C) There are many different ratios available for evaluating a firm’s performance.
D) Some ratios involve an account from the balance sheet and one from the income statement.
5. All of the following are considered to be measures of a company’s short-term debt-paying ability except:
A) the current ratio.
B) inventory turnover.
C) earnings per share.
D) the average number of days to collect receivables.
6. Otteman Company reported net income of $16,700 on gross sales of $80,000. The company has average total assets of $115,200, of which $100,000 is property, plant and equipment. What is the company’s return on investment?
7. The return on investment measure is also referred to as:
A) net margin.
B) return on equity.
C) return on assets.
D) return on debt.
8. Sliefert Company provided the following information from its financial records:
Total stockholders’ equity
Common shares outstanding, 12/31
What is the company’s book value per share?
9. Which of the following is a potential limitation of financial statement analysis?
A) Lack of comparability of firms in different industries
B) The impact of changing economic conditions
C) The impact of having more than one acceptable alternative accounting principle for accounting for a given transaction or economic event
D) All of the above
10. You are considering an investment in Ingram Company stock and wish to assess the company’s position in the stock market. All of the following ratios can be used for this purpose except:
A) current ratio.
B) earnings per share.
C) dividend yield.
D) price-earnings ratio.
11. Choose the answer that is not a distinguishing characteristic of financial accounting information.
A) It is global information that reflects the performance of the whole company.
B) Its time horizon is the present and future.
C) It is more concerned with financial data than physical or economic data.
D) It is more highly regulated than managerial accounting information.
12. Which of the following most exemplifies the value-added principle?
A) An ongoing process where continuous improvement is the goal
B) A competitive management program that emphasizes quality
C) Information gathering and reporting activities that are restricted to those activities that add value in excess of their cost
D) Managerial accounting information is measured in economic, physical, and financial terms
13. For a manufacturing company, product costs include all of the following except:
A) direct material costs.
B) direct labor costs.
C) research and development costs.
D) overhead costs.
14. Which of the following should not be recorded as an expense?
A) Paid office salaries
B) Paid factory maintenance costs
C) Paid product advertising costs
D) Paid sales commissions
15. During its first year of operations, Martin Company paid $4,000 for direct materials and $8,500 for production workers’ wages. Lease payments and utilities on the production facilities amounted to $7,500 while general, selling, and administrative expenses totaled $3,000. The company produced 5,000 units and sold 4,000 units at a price of $7.50 a unit. What is the amount of gross margin for the first year?
16. Costs such as transportation-out, sales commissions, uncollectible accounts receivable, and packaging are sometimes called:
A) upstream costs.
B) indirect costs.
C) direct costs.
D) downstream costs.
17. Howard Lumber Company mistakenly classified as an expense a product cost that totaled $20,000. The company produced 2,000 units of product and sold 1,000 of them during the year. Management is paid a bonus equal to 2%of net income. In the year in which the mistake was made:
A) product costs were overstated.
B) management bonuses were overstated.
C) the company’s income statement portrayed a more favorable position than actually existed.
D) the company’s net income was understated.
18. Which of following practices is considered an effective means of re-engineering business systems?
A) Identifying the best practices used by world-class competitors
B) Improving the accuracy of cost allocations
C) Eliminating non-value added activities
D) All of the above
19. As a Certified Management Accountant, Zandra is bound by the standards of ethical conduct issued by the Institute of Management Accountants. During the course of business, Zandra learned that her company has decided to discontinue a major product line. If she mentions this fact to her brother, who is a stockbroker, Zandra could be in violation of the:
A) competence standard.
B) confidentiality standard.
C) integrity standard.
D) objectivity standard.
20. Which of the following is not one of the four Standards of Ethical Conduct for Management Accountants?
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