Multiple choice

Principle of Accounting II

1. The sales for Mary’s Services for Years 1, 2, and 3 are $25,000, $45,000, $60,000, respectively. The trend percentage for Year 3 is __________.

A. 42%

B. 240%

C. 140%

D. 58%

2. If beginning and ending inventories are $100,000 and 150,000, respectively, and the cost of goods sold is $450,000, what is the inventory turnover ratio?

A. 4.50

B. 3.00

C. 3.60

D. 0.28

3. The lower the times interest earned ratio, the more likely __________.

A. a default in payment will occur

B. a business needs to borrow money

C. a business will suffer a loss

D. interest payments can be made

4.Debt management ratios measure __________.

A. how effectively a company is using its cash

B. how well a company is using debt versus equity position

C. a company’s ability to earn profit

D. a company’s ability to meet payable obligations

5. In a comparative balance sheet, the ending Cash was $315,000 in 2011 and $270,000 in 2012. The net increase or decrease from 2011 to 2012 is __________.

A. 86.0%

B. 14.3%

C. 26.4%

D. 16.7%

6. If Rick Company’s sales increased from $40,000 to $80,000 and its cost of goods sold increased from $30,000 to $50,000, then vertical analysis based on sales would show the cost of goods sold for the two periods as __________.

A. 75% and 62.5%

B. 62.5% and 75%

C. 133.33% and 160%

D. 160% and 133.33%

7. If management wishes to evaluate the ability of a business to provide funding to cover operating expenses, they could use the __________.

A. rate of return on total assets

B. rate of return on common stockholders’ equity

C. gross profit rate

D. times interest earned

8. If total assets are $6,000, what is the vertical analysis for Cash when it has a balance of $2,400?

A. 40%

B. 60%

C. 250%

D. 25%

9. If Cara Piano’s sales increased from $40,000 to $60,000 and its cost of goods sold increased from $20,000 to $40,000, then vertical analysis based on sales would show which of the following for cost of goods sold?

A. 40% and 20%

B. 10% and 30%

C. 50% and 67%

D. 67% and 40%

10. Profitability ratios measure __________.

A. a company’s ability to earn profits

B. a company’s ability to meet short-term obligations

C. how well a company is using debt versus equity

D. how effectively a company is using its assets

11. What was the percentage of decrease in the Accounts Receivable account if the receivables were $80,000 in Year 1 and $60,000 in Year 2?

A. (25%.

B. 33.33%

C. (33.33%.

D. 25%

12. Compute the gross profit rate when net sales are $350,000 and gross profits are $178,500.

A. 51:10

B. 54%

C. 51%

D. 54:10

13. Chuck Company has a beginning Accounts Receivable balance of $65,000 and an ending balance of $60,000. Net credit sales are $250,000. The company’s accounts receivable turnover ratio is __________.

A. 3.846

B. 4.167

C. 4.000

D. none of the above

14.Noble Company’s accounts receivable turnover was 18.2 in Year 1 and 24.6 in Year 2. This change in accounts receivable turnover indicates __________.

A. the company is not selling its inventory as fast

B. the company is selling its inventory faster

C. the company’s customers are paying faster

D. the company’s customers are paying slower.

15. Comparative reports in which each item is expressed as a percentage of a base amount without dollar amounts are called __________.

A. comparative financial statements

B. common-size statements

C. cash flow analysis

D. horizontal analysis

16. Which statement below best describes the quick (acid test. ratio?

A. The acid test ratio considers only the most liquid assets: cash, accounts receivable, and temporary investments.

B. The current ratio includes only the assets most easily converted into cash.

C. The acid test adds merchandise inventory and prepaid expenses in the computation of current assets.

D. none of the above

17. The ratio that indicates how many days it takes to turn accounts receivable into cash is the __________.

A. accounts receivable turnover ratio

B. average turnover ratio

C. average collection period

D. quick assets turnover ratio

18. If Rick’s sales decreased from $90,000 (Year 1. to $45,000 (Year 2. and its cost of goods sold decreased from $30,000 (Year 1. to $20,000 (Year 2., then vertical analysis based on sales would show the following decreases for cost of goods sold for the two periods __________.

A. 33.33% and 44.44%.

B. 44.44% and 33.33%.

C. 300% and 225%.

D. None of the above.

19. The current ratio determines the ability of a company to __________.

A. pay off all payables

B. pay off current payables

C. manage its ability to earn profit

D. use its equity

20. If management wishes to evaluate the amount of assets that were financed by creditors, they could use the __________.

A. debt to total assets

B. rate of return on common stockholders’ equity

C. debt to total liabilities

D. times interest earned

21. A maintenance department would be an example of a __________.

A. cost center

B. direct expense

C. profit center

D. none of the above

22. What is the purpose of determining the contribution margin?

A. to show the contribution by a department toward covering indirect costs

B. to help determine whether to eliminate a department

C. to show the effect on net income of each department

D. all of the above

23. The photography department in a department store experienced the following revenue and expenses during October:

 

Sales	$11,000
Cost of Goods Sold	$5,000
Direct Operating Expenses	$800
Indirect Operating Expenses	$2,100

 

The photography department’s gross profit on sales is __________.

A. $3,100
B. $5,200
C. $6,000
D. $8,100

24. The women’s shoe department shows gross sales of $245,000 with the cost of the shoes $147,000. The men’s shoe department shows gross sales of $184,000 with the cost of the shoes $110,000. What is the gross profit for each department?

A. $392,000 and $294,000

B. $245,000 and $184,000

C. $98,000 and $74,000

D. $429,000 and $257,000

25. Gross profit by department appears on the __________.

A. balance sheet

B. statement of retained earnings

C. statement of cash flows

D. income statement

26. When a company tracks gross profit by department, the sales journal will __________.

A. not differ from a company that does not track gross profit by department

B. have a separate column for accounts receivable for each department

C. have a separate column for sales for each department

D. have a column for purchases for each department

27. Calculate a department’s gross profit on sales given the following: 

Sales	$1,600
Operating expenses	$350
Cost of goods sold	$900

A.  $350
B. $700
C. $1,050
D. $1,250 28. Departmental reports are useful for all of the following purposes except __________. A. determining performance B. determining future revenue C. controlling D. planning 29. A line on the income statement that indicates what a department has left after covering cost of goods sold and direct expenses is __________. A. the gross margin B. the net income C. the contribution margin D. none of the above 30. Managerial accounting is primarily used for __________, but financial accounting is used for __________. A. business decisions; external reports B. CEOs; stockholders C. customers; tax reporting D. external reports; decision-making 31. A company has four departments (A, B, C, and D. and the net sales are $35,000, $40,000, $60,000, and $25,000, respectively. The cost of goods sold per department are $25,000, $15,000, $40,000, and $15,000, respectively. Which department has the lowest gross profit? A. A B. B C. C D. both A and D 32. Calculate the costume jewelry department net income given the following:   Sales $1,300 Direct Operating Expenses 300 Indirect Operating Expenses 250 Cost of Goods Sold 1,000   A.  $1,300   B. $1,000   C. $300   D. -$250 33. What is the total gross profit of a company that has three departments (A, B, and C. with net sales of $200,000, $164,000, and $286,000, and cost of goods sold is $86,000, $92,000, and $82,000? A. $390,000 B. $650,000 C. $400,000 D. $260,000 34. Sales minus cost of goods sold yields __________. A. operating expenses B. gross profit C. income before taxes D. net income 35. To determine how each profit center is performing, management would analyze the __________. A. income tax rate B. indirect expenses C. gross profit for each profit center D. other expenses 36. The candy department experienced the following revenue and expenses during October:   Sales $13,500 Cost of Goods Sold $8,200 Direct Operating Expenses $1,100 Indirect Operating Expenses $700   The candy department’s net income is __________.   A. $6,400   B. $3,500   C. $4,200   D. $5,300 37. Normally the report prepared for a department is a(n. __________. A. cash flow statement B. statement of equity C. income statement D. balance sheet 38. Direct expenses are expenses that __________. A. can be identified with a specific department B. cannot be identified with a specific department C. can be identified with more than one department D. none of the above 39. Compute net income for the housewares department when gross profits are $550,000, direct expenses are $235,000, indirect expenses are $110,000, and sales are $875,000. A. ($20,000. B. $530,000 C. $205,000 D. $325,000 40. When preparing an income statement showing departmental contribution margin, __________. A. indirect expenses are combined with direct expenses B. indirect departmental expenses are added to contribution margin C. direct expenses are subtracted from contribution margin on sales D. none of the above