C213 Exam Questions with Verified
Solutions
Accounting - ANSWER-A system of providing "quantitative information, primarily
financial in nature, about economic entities that is intended to be useful in making
economic decisions."
Which of the following ratios is used to measure the profit earned on each dollar
invested in a firm? - ANSWER-Return on equity
Which of the following transactions could increase a firm's current ratio? - ANSWER-
Payment of accounts payable
What ratio is used to measure a firm's liquidity? - ANSWER-Current ratio
Which of the following ratios is calculated using only balance sheet numbers? -
ANSWER-Current Ratio
Which of the following below generally is the most useful in analyzing companies of
different sizes? - ANSWER-Common-sized financial statement
In a common-size income statement, each item on the statement is expressed as a
percentage of - ANSWER-Revenue
In a common-size balance sheet, using the percent of sales method, each item on the
balance sheet is typically expressed as a percentage of - ANSWER-Sales Revenue
In a common-size income statement, each item on the statement is expressed as a
percentage of - ANSWER-Revenue
When using common-size statements - ANSWER-Data may be selected for the same
business as of different dates, or for two or more businesses as of the same date
Which of the following ratios is used to measure a firm's leverage? - ANSWER-
Which of the following ratios is used to measure a firm's leverage? - ANSWER-Assets /
Equity
Which of the following is included in the DuPont framework? - ANSWER-A measure of:
Efficiency
Leverage
,Profitability
Which cash flow ratio reflects a company's ability to finance its capital expansion
through cash from operations? - ANSWER-Cash flow adequacy
In general, most companies have significant noncash expenses that reduce net income
and also cause the cash flow-to-net income ratio to be - ANSWER-Greater than 1
The particular analytical measures chosen to analyze a company may be influenced by
all BUT which one of the following? - ANSWER-Product quality or service effectiveness
Which one of these is NOT one of the benchmarking problems that arises when
analyzing financial statements? - ANSWER-All of these are benchmarking problems:
Reported financial statement numbers may actually be a measurement of different
things
Companies that are being compared may be conglomerates
Not all companies use the same accounting practices
Which of the following statements is true about disagreements in the financial
statements of a company? - ANSWER-Disagreements result when different people
arrive at different conclusions based on the same set of facts.
Which of the following statements is true about errors in the financial statements of a
company? - ANSWER-Errors are not intentional and when detected are immediately
corrected.
Which of the following is NOT a reason for problems occurring in the financial
statements? - ANSWER-Safeguards
Which one of the following errors causes net income to be understated? - ANSWER-
Failure to record revenue earned but not billed
If the total amount for Rent Expense is inadvertently posted to Prepaid Rent at the end
of the year, what will be the effect on the year-end financial statements? - ANSWER-
Assets will be overstated
If a company does NOT record accrued wages expense at the end of the year, how
does this affect the year-end financial statements? - ANSWER-Overstates owner's
equity
Estimates are used in many instances when recording a company's results of
operations. Which of the following would NOT require an estimate to be made? -
ANSWER-Wages earned
, If the total amount for Insurance Expense is inadvertently posted to Prepaid Insurance
at the end of the year, what will be the effect on the year-end financial statements? -
ANSWER-All are true:
Expenses will be understated
Owner's equity will be overstated
Net income will be overstated
Which one of the following errors causes net income to be understated? - ANSWER-
Failure to record revenue earned but not billed
Failure to record the used portion of supplies on hand during the month has the
following effect on the financial statements prepared at the end of the month -
ANSWER-Overstates assets
Which of the following requires that every company's annual report contain an internal
control report? - ANSWER-Sarbanes-Oxley Act
Which of the following are usually members of a company's audit committee? -
ANSWER-Members of the board of directors who are not officers of the company
If an external auditor suspects wrongdoing in financial statements, the concerns should
be addressed to - ANSWER-The audit committee
The Sarbanes-Oxley Act requires that an internal control report be included in every
company's annual report. Which one of the following is NOT one of the requirements of
the internal control report? - ANSWER-Describe in detail the internal controls of the
company
Which of the following is a poor internal accounting control feature? - ANSWER-
Combining accountability with custodianship
income smoothing - ANSWER-The practice of carefully timing the recognition of
revenues and expenses to even out the amount of reported earnings from one year to
the next.
Internal Earnings Targets - ANSWER-An important tool in motivating managers to
increase sale efforts, control costs, and use resources more efficiently.
window dressing - ANSWER-presenting the company accounts in a favorable light - to
flatter the business performance
As William is preparing the end of year financial statements, he has been asked to
review the accrual judgments and estimates to see if the originally calculated net loss
can be changed to a net profit. This is an example of - ANSWER-Meeting external
expectations
Solutions
Accounting - ANSWER-A system of providing "quantitative information, primarily
financial in nature, about economic entities that is intended to be useful in making
economic decisions."
Which of the following ratios is used to measure the profit earned on each dollar
invested in a firm? - ANSWER-Return on equity
Which of the following transactions could increase a firm's current ratio? - ANSWER-
Payment of accounts payable
What ratio is used to measure a firm's liquidity? - ANSWER-Current ratio
Which of the following ratios is calculated using only balance sheet numbers? -
ANSWER-Current Ratio
Which of the following below generally is the most useful in analyzing companies of
different sizes? - ANSWER-Common-sized financial statement
In a common-size income statement, each item on the statement is expressed as a
percentage of - ANSWER-Revenue
In a common-size balance sheet, using the percent of sales method, each item on the
balance sheet is typically expressed as a percentage of - ANSWER-Sales Revenue
In a common-size income statement, each item on the statement is expressed as a
percentage of - ANSWER-Revenue
When using common-size statements - ANSWER-Data may be selected for the same
business as of different dates, or for two or more businesses as of the same date
Which of the following ratios is used to measure a firm's leverage? - ANSWER-
Which of the following ratios is used to measure a firm's leverage? - ANSWER-Assets /
Equity
Which of the following is included in the DuPont framework? - ANSWER-A measure of:
Efficiency
Leverage
,Profitability
Which cash flow ratio reflects a company's ability to finance its capital expansion
through cash from operations? - ANSWER-Cash flow adequacy
In general, most companies have significant noncash expenses that reduce net income
and also cause the cash flow-to-net income ratio to be - ANSWER-Greater than 1
The particular analytical measures chosen to analyze a company may be influenced by
all BUT which one of the following? - ANSWER-Product quality or service effectiveness
Which one of these is NOT one of the benchmarking problems that arises when
analyzing financial statements? - ANSWER-All of these are benchmarking problems:
Reported financial statement numbers may actually be a measurement of different
things
Companies that are being compared may be conglomerates
Not all companies use the same accounting practices
Which of the following statements is true about disagreements in the financial
statements of a company? - ANSWER-Disagreements result when different people
arrive at different conclusions based on the same set of facts.
Which of the following statements is true about errors in the financial statements of a
company? - ANSWER-Errors are not intentional and when detected are immediately
corrected.
Which of the following is NOT a reason for problems occurring in the financial
statements? - ANSWER-Safeguards
Which one of the following errors causes net income to be understated? - ANSWER-
Failure to record revenue earned but not billed
If the total amount for Rent Expense is inadvertently posted to Prepaid Rent at the end
of the year, what will be the effect on the year-end financial statements? - ANSWER-
Assets will be overstated
If a company does NOT record accrued wages expense at the end of the year, how
does this affect the year-end financial statements? - ANSWER-Overstates owner's
equity
Estimates are used in many instances when recording a company's results of
operations. Which of the following would NOT require an estimate to be made? -
ANSWER-Wages earned
, If the total amount for Insurance Expense is inadvertently posted to Prepaid Insurance
at the end of the year, what will be the effect on the year-end financial statements? -
ANSWER-All are true:
Expenses will be understated
Owner's equity will be overstated
Net income will be overstated
Which one of the following errors causes net income to be understated? - ANSWER-
Failure to record revenue earned but not billed
Failure to record the used portion of supplies on hand during the month has the
following effect on the financial statements prepared at the end of the month -
ANSWER-Overstates assets
Which of the following requires that every company's annual report contain an internal
control report? - ANSWER-Sarbanes-Oxley Act
Which of the following are usually members of a company's audit committee? -
ANSWER-Members of the board of directors who are not officers of the company
If an external auditor suspects wrongdoing in financial statements, the concerns should
be addressed to - ANSWER-The audit committee
The Sarbanes-Oxley Act requires that an internal control report be included in every
company's annual report. Which one of the following is NOT one of the requirements of
the internal control report? - ANSWER-Describe in detail the internal controls of the
company
Which of the following is a poor internal accounting control feature? - ANSWER-
Combining accountability with custodianship
income smoothing - ANSWER-The practice of carefully timing the recognition of
revenues and expenses to even out the amount of reported earnings from one year to
the next.
Internal Earnings Targets - ANSWER-An important tool in motivating managers to
increase sale efforts, control costs, and use resources more efficiently.
window dressing - ANSWER-presenting the company accounts in a favorable light - to
flatter the business performance
As William is preparing the end of year financial statements, he has been asked to
review the accrual judgments and estimates to see if the originally calculated net loss
can be changed to a net profit. This is an example of - ANSWER-Meeting external
expectations
