Chapter 1 - Essentials Of Accounting And Finance
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1.
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Managers spend a good portion of time:
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  Delegating
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Purchasing
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Processing
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Planning
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2.
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Capital investments projects do NOT include:
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Property
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Plant
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Inventory
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Equipment
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3.
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The Controller is responsible for all EXCEPT:
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Custody of records
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Legal work
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Budgeting
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Payroll
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4.
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The three major types of business entities are:
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Profit, nonprofit, and corporate organizations
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Corporations, partnerships, and proprietorships
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Corporations, associations, and nonprofit organizations
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Institutions, partnerships, and corporations
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5.
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A business owned by two or more people is called a:
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Nonprofit organization
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Partnership
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Corporation
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Sole proprietorship
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6.
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An S corporation cannot have more than ______________ shareholders.
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7.
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____________ are typically not permitted to carry on certain service businesses (e.g., law, medicine, and accounting).
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Partnerships
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LLCs
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S Corporations
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C corporations
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Chapter 2 - Types Of Cost Data And Cost Analysis
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8.
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_________________ are related to time rather than to producing the product (e.g., advertising costs, sales commissions, and administrative salaries).
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Product costs
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Conversion costs
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Period costs
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Prime costs.
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9.
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The wood in an oak desk is an example of:
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Direct materials
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Indirect materials
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Direct labor
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Indirect labor
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10.
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Prime costs consist of:
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Direct materials and direct labor
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Direct labor and manufacturing overhead
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Direct materials and manufacturing overhead
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Fixed and variable costs
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11.
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Conversion costs consist of
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Direct materials and direct labor
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Direct labor and manufacturing overhead
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Direct materials and manufacturing overhead
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Fixed and variable costs
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Chapter 3 - Contribution Analysis
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12.
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_______________________ is not very useful for decision analysis.
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Contribution margin
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Margin of safety
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Profit margin
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Gross margin
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13.
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Contribution margin is calculated as:
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Sales minus cost of goods sold
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Sales minus total variable costs
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Sales minus total variable manufacturing costs
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Sales minus total variable manufacturing costs and total fixed manufacturing costs
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14.
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The contribution margin ratio is calculated as:
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Total contribution margin divided by total revenues
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Total contribution margin divided by total variable costs
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Total variable costs divided by contribution margin
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Income divided by contribution margin
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Chapter 4 - Break-Even And Cost-Volume-Profit Analysis
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15.
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The break-even point in sales dollars is computed using the:
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Fixed costs divided by the contribution margin ratio
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Variable costs expressed as a percentage of sales
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Fixed costs expressed as a percentage of sales
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Sales revenue expressed as a percentage of net income
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16.
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The formula that can be used to calculate unit sales necessary in order to earn a desired profit is:
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(fixed costs + contribution margin)/variable cost ratio
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(fixed costs + desired profit)/ unit CM
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(fixed costs + variable costs)/CM ratio
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(fixed costs + desired profit)/(1 - sales ratio)
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17.
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Sales mix is the relative combination of:
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Inputs required to produce a product
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Outputs produced by a firm
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Products sold by a firm
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Distribution channels used by a firm
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18.
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The ______________ measures the percentage change in profits resulting from a percentage change in sales.
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Variable cost ratio
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Contribution margin ratio
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Degree of operating leverage
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Sales margin ratio
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Chapter 5 - Relevant Cost And Making Short-Term Decisions
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19.
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___________ refer to all the manufacturing costs incurred prior to the split-off point.
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Separation costs
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Joint costs
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Processing costs
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Transferred-in costs.
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20.
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For a cost or revenue to be relevant to a particular decision, the cost or revenue must
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Differ between the alternatives being considered
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Be a past cost
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Be a sunk cost
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Continue regardless of the decision
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21.
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______________ are the result of past decisions and cannot be changed by current or future actions.
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Sunk costs
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Opportunity costs
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Avoidable costs
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Differential costs
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Chapter 6 - Forecasting Cash Needs And Budgeting
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22.
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Forecasting tries to
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Neutralize hedge
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Minimize uncertainty or risk about the future
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Minimize costs
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Plan ahead
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23.
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The _____________________ is immediately followed by the sales budget:
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Cash budget
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Production budget
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Direct materials budget
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Selling and administrative budget
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Chapter 7 - Cost Control And Variance Analysis
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24.
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Variance analysis is a tool used to:
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Evaluate financial performance
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Evaluate customer satisfaction
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Determine cost ratios
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Identify and control product compatibility
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25.
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Variances indicate:
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The cause of the variance
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Who is responsible for the variance
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That problems exist
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When the variance should be investigated
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26.
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When should variances be investigated?
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When they fall out of the accepted range or the control limit
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When the variances are unfavorable
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When the variances are over $10,000
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All variances should be investigated
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27.
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The performance evaluation of a cost center is typically based on its:
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Sales volume variance
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ROI
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Flexible budgeting
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Static budget variance
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28.
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The standard quantity allowed for actual output is used in the calculation of which of the following variances?
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It is NOT used in the Materials Price Variance, and it is NOT used in the Materials Quantity (Usage) Variance
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It is NOT used in the Materials Price Variance, but it is used in the Materials Quantity (Usage) Variance
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It is used in the Materials Price Variance, but it is NOT used in the Materials Quantity (Usage) Variance
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It is used in the Materials Price Variance, and it is used in the Materials Quantity (Usage) Variance
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29.
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Under a standard cost system, the labor rate variances are usually the responsibility of the:
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Production manager
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Cost accounting manager
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Human resource manager
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Purchasing manager
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30.
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Under a standard cost system, the sales price variances are the responsibility of:
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Production supervisor and foreperson
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Marketing and sales
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Purchasing and sales
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Sales and industrial engineering
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31.
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An unfavorable direct labor efficiency variance could be caused by a(n):
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Unfavorable fixed overhead spending variance
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Favorable labor rate variance
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Unfavorable variable overhead volume variance
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Poor supervision
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32.
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How is labor efficiency variance computed?
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The difference between standard and actual rates, times actual hours
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The difference between standard and actual rates, times standard hours allowed
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The difference between standard and actual hours, times standard rate
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The difference between standard and actual hours, times the difference between standard and actual rates
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Chapter 8 - Managing Financial Assets
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33.
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Working capital consists of:
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Equipment
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Inventory
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Bonds payable
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Revenue
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34.
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When a firm finances each asset with a financial instrument of the same approximate maturity as the life of the asset, it is applying:
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Working capital management
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Return maximization
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Financial leverage
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A hedging approach
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35.
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A lock-box system
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Reduces the need for compensating balances
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Accelerates the inflow of funds
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Provides security for late night deposits
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Reduces the risk of having checks lost in the mail
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36.
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Which one of following is least likely an investment vehicle for excess cash?
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Time deposits
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Corporate bonds
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Money market funds
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Bankers' acceptances
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37.
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A working capital technique that increases the payable float and therefore delays the outflow of cash is:
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Concentration banking
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A draft
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Electronic Data Interchange (EDI)
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A lockbox system
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Chapter 9 - Managing Accounts Receivable And Credit
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38.
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You can increase your rate of return by:
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Extended credit
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Accelerated cash receipts and delay cash payments
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Increase cash payments
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Make early cash payments
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39.
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The cost of a product is 30% of the selling price, and the carrying cost is 12% of the selling price. On the average, accounts are paid 90 days after the sale date. Sales average $30,000 per month. What is your accounts receivable for this product?
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$90,000
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$120,000
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$270,000
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$30,000
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40.
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Your accounts receivable (A/R) amounts to $100,000. The cost of a product is 30% of the selling price, and the carrying cost is 10% of the selling price. What is the amount of investment in A/R?
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$100,000
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$10,000
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$40,000
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$30,000
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Chapter 10 - Managing Inventory
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41.
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Economic order quantity refers to the order size that:
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Minimizes the size of the order
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Minimizes the carrying costs associated with inventory
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Minimizes total inventory costs
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Minimizes the ordering costs associated with inventory
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42.
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One of the elements included in the economic order quantity (EOQ) formula is:
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Safety stock
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Annual demand (usage)
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Selling price of item
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Lead time for delivery
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43.
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The amount of inventory that a company would tend to hold in stock would increase as the:
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Sales level falls to a permanently lower level
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Cost of carrying inventory decreases
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Variability of sales decreases
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Cost of running out of stock decreases
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44.
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The Stewart Co. uses the economic order quantity (EOQ) model for inventory management. A decrease in which one of the following variables would increase the EOQ?
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Annual sales
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Cost per order
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Safety stock level
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Carrying costs
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Chapter 11 - The Time Value Of Money
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45.
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If a loan is to be repaid in equal periodic amount it is:
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Personal loan
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Amortized loan
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Commercial loan
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Variable loan
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46.
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The basic idea of time value of money is that money received in the future is:
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Not as valuable as money received today
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More valuable than money received today
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Increases in value with time
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Future value
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47.
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Which of the following is true regarding capital rationing decisions?
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Companies should always rank the investment with the payback period
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Companies should rank the investments with the profitability index
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Companies should always choose the investment with the highest IRR
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Companies should always choose the investment with the highest ARR
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Chapter 12 - Capital Budgeting Decisions
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48.
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Long-term investment projects do NOT include investments in:
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Property and plant
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Information technology (IT)
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New product development
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Yearly tax deductions
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49.
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Several methods of evaluating investments are all EXCEPT:
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Payback period
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Nonprofit ratio
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Net present value (NPV)
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Internal rate of return (IRR)
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50.
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The newest rule for computing depreciation for tax purposes is called the
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Accelerated depreciation method
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Modified accelerated cost recovery system (MACRS)
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Accelerated cost recovery system (ACRS)
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Accelerated depreciation range
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51.
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Sally, Inc. is considering the purchase of an investment that has a negative net present value based on Sally's 10% hurdle rate (minimum required rate of return). The internal rate of return would be:
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Chapter 13 - Improving Managerial Performance
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52.
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_______________ is NOT an action management can take to enhance rate of return on investment (ROI):
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Improve margin by reducing expenses, raising selling prices, or increasing sales faster than expenses
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Improve turnover by increasing sales while holding the invest¡ment in assets relatively constant, or by reducing assets
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Improve both
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Enhance the cost of capital
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53.
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The breakdown of ROI into margin and turnover is popularly known as
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The ROI formula
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The Du Pont formula
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The Margin-Turnover Relationship
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The breakdown principle
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Chapter 14 - Evaluating And Improving Your Department'S Performance
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54.
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Which of the following is NOT a responsibility center?
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Cost center
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Asset center
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Profit center
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Investment center
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55.
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The best transfer price is the __________________ of the assembled product or service since it is a fair price and treats each profit center as a separate economic entity. .
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Cost plus price
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Dual price
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Negotiated market value
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Outside market price
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Chapter 15 - Sources Of Short-Term Financing
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56.
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Which one of the following provides a spontaneous source of financing for a firm?
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Trade credit (accounts payable)
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Mortgage bonds
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Accounts receivable
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Debentures
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57.
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An example of secured short-term financing is
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Commercial paper.
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A warehouse receipt.
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A revolving credit agreement.
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Trade credit.
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58.
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__________________ are often used to finance the shipment handling of both domestic and foreign merchandise.
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Agency securities.
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Bankers' acceptances.
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Commercial paper.
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Repurchase agreements.
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59.
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Commercial paper:
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Ordinarily does not have an active secondary market
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Has a maturity date greater than 1 year
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Is issued by corporations of any size
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Has an interest rate higher than a bank loan
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Chapter 16 - Considering Term Loans And Leasing
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60.
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Intermediate-term loans do NOT include
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Repurchase agreements
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Debentures
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Insurance company term loans
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Equipment financing
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61.
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Revolving credit is used mainly for:
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Long-term financing
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Seasonal financing
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Capital financing
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Renovation financing
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Chapter 17 - Long-Term Debt And Equity Financing
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62.
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An issuer of new securities selects an investment banker by
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A negotiated deal.
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Best efforts.
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A general cash offer or a rights offer.
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A firm commitment.
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63.
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When dealing with venture capital firms, do NOT:
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Read the fine print
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Watch for delay maneuvers
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Guard your trade secrets
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Give up an ownership interest
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64.
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Bond holders are:
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Creditors
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Debtors
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Entrepreneurs
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Risk takers
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65.
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Zero-coupon bonds:
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Are initially sold at par value (a zero discount)
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Are issued at prices significantly below face value
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Are initially sold for a price above par value
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Are tax free
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66.
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Which of the following is false about junk bonds?
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Issued when the debt ratio is very high
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Securities rated at less than investment grade
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They are useless securities
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Securities that are highly risky but offer high yields
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67.
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A firm must select from among several methods of financing arrangements when meeting its capital requirements. To acquire additional growth capital while attempting to maximize earnings per share, a firm should normally:
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Attempt to increase both debt and equity in equal proportions, which preserves a stable capital structure and maintains investor confidence
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Select debt over equity initially, even though increased debt is accompanied by interest costs and a degree of risk
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Select equity over debt initially, which minimizes risk and avoids interest costs
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Discontinue dividends and use current cash flow, which avoids the cost and risk of increased debt and the dilution of EPS through increased equity
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68.
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Common shareholders with preemptive rights are entitled to
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Vote first at annual meetings.
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Purchase any additional bonds sold by the firm
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Purchase sufficient shares so as to maintain their ownership percentage.
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Gain control of the firm in a proxy fight.
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69.
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In what way do investment bankers make money under best efforts offerings?
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By receiving the difference between the purchasing price and the offering price.
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By receiving a commission.
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By receiving a discount of the difference between the purchasing price and the offering price.
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By purchasing unsold securities for their own account.
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Chapter 18 - Interpreting Financial Statements
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70.
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The basic financial statements include a
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Balance sheet, income statement, statement of retained earnings, and statement of changes in retained earnings
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Statement of financial position, income statement, statement of retained earnings, and statement of changes in retained earnings
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Balance sheet, statement of financial position, income statement, and statement of changes in retained earnings
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Balance sheet, income statement, and statement of cash flows
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71.
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A statement of cash flows is to be presented in general purpose external financial statements by which of the following?
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Publicly held business enterprises only.
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All business enterprises and not-for-profit organizations.
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Privately held business enterprises only.
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All business enterprises.
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72.
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The primary purpose of the balance sheet is to measure:
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The fair market value of the firm's assets
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Assets, liabilities, and cash flows
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The liquidation value of the firm's assets
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The firm's financial position at a given date
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73.
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Another name for the balance sheet is the:
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Statement of cash flows
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Statement of earnings
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Statement of financial position
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Retained earnings statement
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74.
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Which of the following types of accounts are not found on the balance sheet?
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Revenues
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Assets
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Liabilities
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Owners' equity
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75.
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Which of the following would be classified as a current liability?
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Accounts payable
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Land
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Capital stock
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Accounts receivable
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76.
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The financial statement that shows the origin and disposition of an enterprise's cash flows is called the:
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Balance sheet
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Statement of cash flows
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Income statement
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Retained earnings statement
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77.
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Which of the following is a primary use of cash?
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Borrowing
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Investment by owners
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Operating expenses
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Sale of equipment
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Chapter 19 - Accounting Conventions And Recording Financial Data
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78.
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Double-entry system implies:
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Each transaction has a dual effect
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The use of two accounts
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The use of two journals
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The use of a journal and a ledger
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79.
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The idea that a transaction affects either both sides of the equation by the same amount or one side of the equation only, by increasing and decreasing it by identical amounts and thus netting zero:
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The additive concept
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The going concern assumption
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The monetary measurement concept
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Double-entry accounting
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80.
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The basic accounting equation is:
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Assets = liabilities + owners' equity
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Assets + liabilities = owners' equity
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Assets + owners' equity = liabilities
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Liabilities - owners' equity = assets
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81.
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A journal is:
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A flowchart of all transactions
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An accounting procedures manual
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A chart of account
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The initial recording of transactions
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82.
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The ledger is:
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A listing of the titles and numbers of all accounts in the chart of accounts
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A flowchart of all transactions
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The group of accounts which sum up the financial operations of the company
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A journal
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83.
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What function do general ledgers serve in the accounting process?
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Reporting
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Summarizing
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Classifying
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Recording
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84.
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Borrowing money from a bank:
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Increases assets and decreases liabilities
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Increases liabilities and decreases assets
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Decreases assets and decreases liabilities
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Increases assets and increases liabilities
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85.
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If a company purchased equipment for cash, the accounting equation would show a(n):
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Increase in assets and decrease in assets
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Decrease in liabilities and increase in assets
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Increase in liabilities and increase in assets
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Decrease in liabilities and decrease in assets
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Chapter 20 - Assessing Financial Health And Fitness
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86.
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What ratio is used to measure a firm's liquidity?
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Debt ratio
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Asset turnover
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Current ratio
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Return on equity
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87.
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What ratio is used to measure a firm's leverage?
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Debt ratio
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Current ratio
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Asset turnover
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Return on equity
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88.
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What ratio is used to measure a firm's efficiency at using its assets?
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Current ratio
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Total asset turnover
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Return on sales
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Return on equity
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89.
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What ratio is used to measure the profit earned on each dollar invested in a firm?
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Current ratio
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Asset turnover
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Return on sales
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Return on total asset
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90.
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What type of ratio is rate of return on net sales?
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Profitability ratio
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Activity ratio
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Liquidity ratio
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Leverage ratio
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91.
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If a company is profitable and is effectively using leverage, which one of the following ratios is likely to be the largest?
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Return on total assets
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Return on operating assets
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Return on equity (ROE)
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Return on total shareholders' equity
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