GB518: Financial Accounting Principles and Analysis final exaam

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 The useful life of a plant asset is: (Points : 2)

      [removed] The length of time it is used productively in a company’s operations
      [removed] Never related to its physical life
      [removed] Its productive life, but not to exceed one year
      [removed] Determined by the FASB
      [removed] Determined by law

 

2. Depreciation: (Points : 2)

      [removed] Measures the decline in market value of an asset
      [removed] Measures physical deterioration of an asset
      [removed] Is the process of allocating to expense the cost of a plant asset
      [removed] Is an outflow of cash from the use of a plant asset
      [removed] Is applied to land

 

3. Plant assets are: (Points : 2)

      [removed] Tangible assets used in the operation of a business that have a useful life of more than one accounting period
      [removed] Current assets
      [removed] Held for sale
      [removed] Intangible assets used in the operations of a business that have a useful life of more than one accounting period
      [removed] Tangible assets used in the operation of business that have a useful life of less than one accounting period

 

4. A company has net sales of $870,000 and average accounts receivable of $174,000. What is its accounts receivable turnover for the period? (Points : 2)

      [removed] 0.20
      [removed] 5.00
      [removed] 20.0
      [removed] 73.0
      [removed] 1,825

 

5. FICA taxes include: (Points : 2)

      [removed] Social Security taxes
      [removed] Charitable giving
      [removed] Employee income taxes
      [removed] Unemployment taxes

 

6. Times interest earned is calculated by: (Points : 2)

      [removed] Multiplying interest expense times income
      [removed] Dividing interest expense by income before interest expense
      [removed] Dividing income before interest expense and any income tax by interest expense
      [removed] Dividing interest and income tax expense by income before interest and income tax expense

 

7. Amortization: (Points : 2)

      [removed] Is the systematic allocation of the cost of an intangible asset to expense over its estimated useful life
      [removed] Is the process of allocating to expense the cost of a plant asset to the accounting periods benefiting from its use
      [removed] Is the process of allocating the cost of natural resources to periods when they are consumed
      [removed] Is an accelerated form of expensing an asset’s cost
      [removed] Is the same as depletion

 

8. A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and their length of time past due is the: (Points : 2)

      [removed] Direct write-off method
      [removed] Aging of accounts receivable method
      [removed] Percentage of sales method
      [removed] Aging of investments method
      [removed] Percent of accounts receivable method

 

9. A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. The depletion expense per ton of ore is: (Points : 2)

      [removed] $0.75
      [removed] $0.625
      [removed] $0.875
      [removed] $6.00
      [removed] $8.00

 

10. The matching principle requires: (Points : 2)

      [removed] That expenses be ignored if their effect on the financial statements are less important than revenues to the financial statement user
      [removed] The use of the direct write-off method for bad debts
      [removed] The use of the allowance method of accounting for bad debts
      [removed] That bad debts be disclosed in the financial statements
      [removed] That bad debts not be written off

 

11. Liabilities: (Points : 2)

      [removed] Must be certain
      [removed] Must sometimes be estimated
      [removed] Must be for a specific amount
      [removed] Must always have a definite date for payment
      [removed] Must involve an outflow of cash

 

12. In the accounting records of a defendant, lawsuits: (Points : 2)

      [removed] Are estimated liabilities
      [removed] Should always be recorded
      [removed] Should always be disclosed
      [removed] Should be recorded if payment for damages is probable and the amount can be reasonably estimated

 

13. A contingent liability: (Points : 2)

      [removed] Is always of a specific amount
      [removed] Is a potential obligation that depends on a future event arising out of a past transaction or event
      [removed] Is an obligation not requiring future payment
      [removed] Is an obligation arising from the purchase of goods or services on credit
      [removed] Is an obligation arising from a future event

 

14. Total asset turnover is calculated by dividing: (Points : 2)

      [removed] Gross profit by average total assets
      [removed] Average total assets by gross profit
      [removed] Net sales by average total assets
      [removed] Average total assets by net sales
      [removed] Net assets by total assets

 

15. If the times interest ratio: (Points : 2)

      [removed] Increases, then risk increases
      [removed] Increases, then risk decreases
      [removed] Is greater than 1.5, then the company is in default
      [removed] Is less than 1.5, the company is carrying too little debt

 

16. Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are: (Points : 2)

      [removed] Debentures
      [removed] Discounted notes
      [removed] Installment notes
      [removed] Indentures
      [removed] Investment notes

 

17. A company borrowed $300,000 cash from the bank by signing a 5-year, 8% installment note. The present value factor for an annuity at 8% for 5 years is 3.9927. Each annuity payment equals $75,137. The present value of the note is: (Points : 2)

      [removed] $75,137
      [removed] $94,013
      [removed] $300,000
      [removed] $375,685

 

18. A bond traded at 102 ½ means that: (Points : 2)

      [removed] The bond pays 2.5% interest
      [removed] The bond traded at $1,025 per $1,000 bond
      [removed] The market rate of interest is 2.5%
      [removed] The bonds were retired at $1,025 each

 

19. Dividend yield is the percent of cash dividends paid to common shareholders relative to the: (Points : 2)

      [removed] Common stock’s market value
      [removed] Earnings per share
      [removed] Investors’ purchase price of the stock
      [removed] Amount of retained earnings
      [removed] Amount of cash

 

20. A bondholder that owns a $1,000, 10%, 10-year bond has: (Points : 2)

      [removed] Ownership rights
      [removed] The right to receive $10 per year until maturity
      [removed] The right to receive $1,000 at maturity
      [removed] The right to receive $10,000 at maturity

 

21. A company issues at 9% bonds at par with a par value of $100,000 on April 1, which is 4 months after the most recent interest date. How much total cash interest is received on April 1 by the bond issuer? (Points : 2)

      [removed] $750
      [removed] $5,250
      [removed] $1,500
      [removed] $3,000
      [removed] $6,000

 

22. Bonds owned by investors whose names and addresses are recorded by the issuing company and for which interest payments are made with checks to the bondholders, are called: (Points : 2)

      [removed] Callable bonds
      [removed] Serial bonds
      [removed] Registered bonds
      [removed] Coupon bonds

 

23. The right of common shareholders to protect their proportionate interest in a corporation by having the first opportunity to buy additional proportionate shares of common stock issued by the corporation 
is called a: (Points : 2)

      [removed] Preemptive right
      [removed] Proxy right
      [removed] Right to call
      [removed] Financial leverage

 

24. Owners of preferred stock often do not have: (Points : 2)

      [removed] Ownership rights to assets of the corporation
      [removed] Voting rights
      [removed] Preference to dividends
      [removed] The right to sell their stock on the open market
      [removed] Preference to assets at liquidation

 

25. The dividend yield is computed by dividing: (Points : 2)

      [removed] Cash dividends per share by earnings per share
      [removed] Earnings per share by cash dividends per share
      [removed] Cash dividends per share by the market price per share
      [removed] Market price per share by cash dividends per share
      [removed] Cash dividends per share by retained earnings

 

26. A company issues 9%, 20-year bonds with a par value of $750,000. The current market rate is 9%. The amount of interest owed to the bondholders for each semiannual interest payment is. (Points : 2)

      [removed] $0
      [removed] $33,750
      [removed] $67,500
      [removed] $750,000
      [removed] $1,550,000

 

27. Secured bonds: (Points : 2)

      [removed] Are also referred to as debentures
      [removed] Have specific assets of the issuing company pledged as collateral
      [removed] Are backed by the issuer’s bank
      [removed] Are subordinated to those of other unsecured liabilities
      [removed] Are the same as sinking fund bonds

 

28. Bonds with a par value of less than $1,000 are known as: (Points : 2)

      [removed] Junk bonds
      [removed] Baby bonds
      [removed] Callable bonds
      [removed] Unsecured bonds
      [removed] Convertible bonds

 

29. A corporation’s distribution of additional shares of its own stock to its stockholders without the receipt of any payment in return is called a: (Points : 2)

      [removed] Stock dividend
      [removed] Stock subscription
      [removed] Premium on stock
      [removed] Discount on stock
      [removed] Treasury stock

 

30. A premium on common stock: (Points : 2)

      [removed] Is the amount paid in excess of par by purchasers of newly issued stock
      [removed] Is the difference between par value and issue price when the amount paid is below par
      [removed] Represents profit from issuing stock
      [removed] Represents capital gain on sale of stock
      [removed] Is prohibited in most states

 

31. A company had a market price of $83.12 per share, earnings per share of $4.87 and dividends per share of $5.40. Its price-earnings ratio is equal to: (Points : 2)

      [removed] .056
      [removed] .065
      [removed] 8.09
      [removed] 15.39
      [removed] 17.07

 

32. Reporting of discontinued segments includes: (Points : 2)

      [removed] Income or loss from operating the discontinued segment net of tax and gain or loss from disposal of the segment’s net assets net of tax
      [removed] Extraordinary items
      [removed] Changes in accounting principle
      [removed] Items that are both unusual and infrequent
      [removed] Writing off of receivables

 

33. One of several ratios that reflects solvency includes the: (Points : 2)

      [removed] Acid-test ratio
      [removed] Current ratio
      [removed] Times interest earned ratio
      [removed] Total asset turnover
      [removed] Days’ sales in inventory

 

34. The ability to meet short-term obligations and to efficiently generate revenues is called: (Points : 2)

      [removed] Liquidity and efficiency
      [removed] Solvency
      [removed] Profitability
      [removed] Market prospects
      [removed] Creditworthiness

 

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35. A company’s transactions with its creditors to borrow money and/or to repay the principal amounts of loans are reported as cash flows from: (Points : 2)