PART ONE: TRUE OR FALSE
Question 1.
Comparability is the qualitative characteristic of accounting information that allows a statement reader to compare a company's performance from one year to the next.
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True.
False.
Question 2.
Consistency means that a company uses the same accounting principles and methods as the rest of the companies in the same industry.
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True.
False.
Question 3.
Conservatism in accounting means that small monetary items can be ignored.
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True.
False.
Question 4.
The return on assets ratio is an overall measure of profitability.
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True.
False.
Question 5.
Current assets are assets that are expected to be converted to cash or used in the business within one year or the normal operating cycle, whichever is shorter.
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True.
False.
PART TWO: MULTIPLE CHOICE
Question 6.
Which of the following is not a characteristic of relevant accounting information?
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Verifiability.
Timeliness.
Provides feedback.
Predicts future events.
Question 7.
Which of the following is not a characteristic of reliable accounting information?
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Verifiability.
Timeliness.
Neutrality.
Representational faithfulness.
Question 8.
Which of the following allow a company to modify generally accepted accounting principles without jeopardizing the usefulness of the financial statements?
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Consistency and comparability.
Relevance and reliability.
Timeliness and neutrality.
Cost-benefit and materiality.
Question 9.
Alternate means of expressing a ratio include all of the following except as a:
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Simple proportion.
Rate.
Percentage.
Dollar amount.
Question 10.
Which of the following ratios measures the ability of the company to survive over a long period of time?
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Current ratios.
Liquidity ratios.
Profitability ratios.
Solvency ratios.
Question 11.
The return on assets ratio is calculated by dividing net earnings by:
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Beginning total assets.
Ending total assets.
Average total assets.
Average net assets.
Question 12.
Which if the following would not be classified as a current asset?
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Prepaid expenses.
Accounts receivable.
Patents.
Inventory.
Question 13.
Which of the following is the correct order for current assets to be listed on the balance sheet?
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Cash, accounts receivable, prepaid expenses, inventories.
Cash, short-term investments, inventories, prepaid expenses, accounts receivable.
Cash, accounts receivable, inventories, short-term investments, prepaid expenses.
Cash, short-term investments, accounts receivable, inventories, prepaid expenses.
Question 14.
Which of the following is an example of a capital asset?
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Accounts receivable.
Trademarks.
Prepaid expenses.
Long-term investments.
Question 15.
Which is the proper order for assets to appear on the balance sheet?
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Current Assets; Capital Assets; Long-term Investments.
Current Assets; Long-term Investments; Capital Assets.
Current Assets; Capital Assets; Intangible Assets; Long-term Investments.
Current Assets; Long-term Investments; Capital Assets.
Question 16.
Current assets minus current liabilities is a measure of a company’s:
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Solvency.
Working capital.
Profitability.
Cash flow.
Use the following information for questions 17-20. The following balances and amounts were taken from the financial statements of Ortiz, Inc. The data are presented in alphabetical order.
Accounts payable
$35,000
Net earnings
$36,000
Accounts receivable
37,500
Net sales
400,000
Average assets
300,000
Other current liabilities
12,000
Cash
100,000
Salaries payable
8,000
Gross profit
175,000
Shareholders’ equity
120,000
Question 17.
The current ratio is:
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2.38.
3.27.
2.50.
3.40.
Question 18.
The profit margin ratio is:
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7%.
18%.
20%.
9%.
Question 19.
The return on assets ratio is:
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9%.
12%.
20%.
24%.
Question 20.
The debt to total assets ratio is:
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60%.
40%.
30%.
20%.
