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External audits are conducted by Certified Public Accountants (CPAs) who are not independent of the company.

A) True
B) False

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At the end of the year, a company made a deferral adjusting entry to recognize the expiration of prepaid insurance. Which of the following is true?


A) Net profit margin ratio will decrease and debt-to-assets ratio will increase.
B) Net profit margin ratio will increase and debt-to-assets ratio will not change.
C) Net profit margin ratio will decrease and debt-to-assets ratio will not change.
D) Net profit margin ratio will not change and debt-to-assets ratio will not change.

E) B) and C)
F) None of the above

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What would happen to the asset turnover ratio if additional assets were acquired at the end of 2012 for $2,000 on account?


A) The asset turnover ratio would decrease.
B) The asset turnover ratio would increase because no cash was paid.
C) The asset turnover ratio would have decreased even if this transaction had notoccurred.
D) The asset turnover ratio would not change because this transaction would not berecorded until 2013.

E) A) and C)
F) A) and B)

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Further information about financial data, accounting methods, and financial statements is included in what part of the annual report?


A) The balance sheet.
B) The unaudited condensed quarterly data.
C) The notes to the financial statements.
D) The summarized financial data.

E) A) and C)
F) All of the above

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The Sarbanes-Oxley Act (SOX) requires the company's board of directors to establish an audit committee of independent directors to oversee the financial matters of the company.

A) True
B) False

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Scandals involving Enron and WorldCom drew heightened attention to the possibility that financial statements might be misreported to portray a favorable impression of a company's financial results. Which of the following false impressions could be suggested by the ratio indicated?


A) Greater control of expenses might be suggested by the net profit margin ratio.
B) Greater efficiency in asset use might be suggested by the debt-to-assets ratio.
C) Greater control of expenses might be suggested by the debt-to-assets ratio.
D) Less financing risk might be suggested by the asset turnover ratio.

E) A) and B)
F) A) and C)

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Stockholders elect the directors who then oversee the performance of management.

A) True
B) False

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Which of the following misstatements would cause the asset turnover ratio to be overstated?


A) Capitalizing costs that should have been expensed.
B) Failing to adjust for depreciation in the current period.
C) Failing to accrue income taxes of the current period.
D) Failing to accrue interest earned of the current period.

E) A) and C)
F) B) and C)

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According to the Sarbanes-Oxley Act (SOX) , who are possible members of the Audit Committee?


A) The president of the company.
B) Chief financial officer of the company.
C) Independent directors.
D) External auditors.

E) A) and B)
F) A) and C)

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Purrfect Pets has a debt-to-assets ratio of 0.55. This means that:


A) stockholders' equity is 55% of total assets.
B) stockholders' equity is 45% of total assets.
C) the asset turnover ratio also is 0.55.
D) the asset turnover ratio also is 0.45.

E) C) and D)
F) B) and D)

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What is the detailed report that companies file annually with the Securities and Exchange Commission?


A) Form 8-K
B) Form 10-Q
C) Form 10-K
D) Form 5-K

E) A) and D)
F) B) and D)

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Which is the amount of retained earnings that will be reported on the Statement of Stockholders' equity at the end of 2012?


A) $90,000
B) $75,000
C) $70,000
D) $35,000

E) B) and C)
F) All of the above

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The financial results for a public company are generally first reported in a:


A) press release issued one day after the accounting period ends.
B) press release issued on the same day as the quarterly or annual report.
C) quarterly or annual report issued a week or two after the accounting period ends.
D) press release issued a few weeks after the accounting period ends.

E) None of the above
F) A) and B)

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Which of the following is NOT true about the role of the external auditors?


A) Must test the effectiveness of the company's internal controls.
B) Must issue a report that gives an opinion about the company's internal controls.
C) Must examine the company's financial statements by performing adequate tests of the underlying financial information.
D) Must issue a qualified opinion of the financial statements if no material misstatements are found.

E) A) and D)
F) C) and D)

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Which of the following statements regarding ratios is true?


A) All other things equal, a lower debt-to-assets ratio indicates a riskier financing strategy.
B) A lower asset turnover ratio is a positive indicator of the efficiency of a company.
C) The net profit margin ratio cannot be used to indicate how well a company is controlling its expenses.
D) Ratios can be useful in the attempt to measure key relationships within a business.

E) All of the above
F) A) and B)

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Calculate the missing value using the appropriate financial statement ratio. A) Total liabilities are $1,055,880, while total assets are $1,257,000. Calculate the debt -to-assets ratio. B) The asset turnover ratio is 1.4, while sales revenue is $42,000. Assets at the beginning of the accounting period were $25,000. Calculate assets at the end of the accounting period. C) The net profit margin ratio is 12% and sales revenue is $400,000. Calculate the net income. D) The debt-to-assets ratio is 61% and assets are $150,000. Calculate total liabilities. E) The net profit margin ratio is 0.128 and net income is $160,000. Calculate sales revenue. F) Refer to the information in part E. Sales revenue increase by $250,000 and expenses increase by $150,000. Calculate the new net profit margin ratio. A) The asset turnover rate is 0.86 and the company invests $485,000 in new equipment and facilities. Assume

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A. $1,055,880  $1,257,000 = 0.84B. 1.4 ...

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A company has an asset turnover ratio of 1.15. Which of the following statements is true?


A) The company generates $1.15 of net income for every $1 in reported assets.
B) The company buys assets more frequently than it sells them.
C) The company generates $1.15 of sales revenue for every $1 in reported assets.
D) This is an improvement over the previous period when the asset turnover rate was 1.7.

E) C) and D)
F) All of the above

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The Grass is Greener Company borrows money from a bank. Part of the loan agreement requires Grass is Greener to maintain stockholders' equity of at least 40% of assets or pay a higher interest rate. This requirement is referred to as a:


A) loan covenant.
B) credit rating.
C) bond rating.
D) call feature.

E) C) and D)
F) A) and C)

Correct Answer

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External audits are performed by:


A) Certified Management Accountants (CMAs)
B) Certified Financial Analysts (CFAs)
C) Certified Public Accountants (CPAs)
D) Certified Internal Auditors (CIAs)

E) A) and D)
F) C) and D)

Correct Answer

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An analyst notes that the net income of a major corporation grew 10% last year and that it is currently growing at 11%. The analyst concludes that the net income will rise 12% next year. This is an example of a(n) :


A) audit.
B) earnings forecast.
C) credit analysis.
D) business model.

E) A) and B)
F) B) and C)

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Showing 121 - 140 of 140

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