MGMT Practice Exam Questions with 100%
Correct Answers Latest Versions 2025
Graded A+
A company's ratio of net sales (cash and credit sales) to average accounts receivable can be
interpreted as management's ability to:
A. Collect cash from all sales to customers
B. Effectively market its products and services
C. Generate profits for investors
D. Reduce costs of selling products and services to customers Correct Answer: A
Sandburg Veterinarian reports the following information for the year:
What is Sandburg's receivables turnover ratio?
Net credit sales
$120,000
Average accounts receivable
20,000
Cash collections on credit sales
100,000
A. 6.0
B. 5.0
C. 1.2
D. 0.2 Correct Answer: A
An increase in a company's receivables turnover ratio typically means the company is
A. Having trouble paying debts as they become due.
B. Less profitable.
C. More effectively granting and collecting credit to customers.
D. Losing customers to its competitors. Correct Answer: C
Even though the percentage‐of‐receivables method and the percentage‐of‐credit‐sales method
use different accounts to estimate future uncollectible accounts, the amount of bad debt expense
reported in the income statement will always be the same under the two methods.
A. True
B. False Correct Answer: B
Which of the following statements is true with respect to the percentage‐of‐credit‐sales method
for estimating uncollectible accounts?
,A. The amount recorded for bad debt expense does not depend on the balance of the allowance
for uncollectible accounts
B. This method is referred to as the balance sheet approach
C. This method does not allow for future uncollectible accounts
D. Under this method, bad debt expense is recorded at the time of an actual bad debt Correct
Answer: A
Costs that are expensed when incurred are called?
A. Product costs
B. Direct costs
C. Inventoriable costs
D. Period costs
E. Indirect costs Correct Answer: D
Which of the following statements is true?
A. Product costs affect only the balance sheet
B. Product costs affect only the income statement
inventory
C. Period costs affect only the balance sheet
D. Neither product costs nor period costs affect the Statement of Retained Earnings. This can
also be a true statement if the period costs were prepaid (i.e., prepaid advertising, depreciation)
E. Product costs eventually affect both the balance sheet and the income statement Correct
Answer: E
The cost of unsold inventory at the end of the year is classified as a(n) ______ in the ______.
A. Asset; Balance sheet
B. Expense; Income statement
C. Liability; Balance sheet
D. Revenue; Income statement Correct Answer: A
One of the major differences between service companies and retail or manufacturing companies
is that retailers and manufacturers must account for:
A. Current assets
B. Inventory
C. Selling expenses
D. Deferred revenue Correct Answer: B
Inventory does not include
A. Materials used in the production of goods to be sold.
B. Assets intended to be sold in the normal course of business.
C. Equipment used in the manufacturing of assets for sale.
D. Assets currently in production for normal sales. Correct Answer: C
Cost of goods sold is:
, A. Reported in the income statement
B. Reported in the balance sheet
C. A current asset
D. The cost of inventory on hand at the end of the period Correct Answer: A
If a company has ending inventory of $25,000, purchases during the year of $95,000, and
beginning inventory of $30,000, cost of goods sold equals $90,000.
A. True
B. False Correct Answer: B
Beginning inventory is $30,000. Purchases of inventory during the year are $50,000. Cost of
goods sold is $60,000. What is ending inventory?
A. $20,000
B. $30,000
C. $10,000
D. $50,000 Correct Answer: A
Which level of profitability is considered profit from normal operations?
A. Gross profit
B. Operating income
C. Income before taxes
D. Net income Correct Answer: B
Sales revenue less cost of goods sold is referred to as operating income
A. True
B. False Correct Answer: B
The primary distinction between operating activities and nonoperating activities in a multiple‐
step income statement is whether the activity is:
A. A large or small dollar amount
B. Part of primary business operations
C. Related to current versus long‐term assets
D. Reported as a revenue or an expense Correct Answer: B
Gross profit is calculated as net sales minus
A. Nonoperating expenses and income tax expense.
B. Operating expenses.
C. Cost of goods sold.
D. All of the other answers are subtracted from net sales. Correct Answer: C
Which of the following is not a period cost?
A. Legal costs
B. Public relations costs
C. Sales commissions
D. Wages of assembly‐line workers
E. The salary of a company's chief financial officer (CFO). Correct Answer: D
Correct Answers Latest Versions 2025
Graded A+
A company's ratio of net sales (cash and credit sales) to average accounts receivable can be
interpreted as management's ability to:
A. Collect cash from all sales to customers
B. Effectively market its products and services
C. Generate profits for investors
D. Reduce costs of selling products and services to customers Correct Answer: A
Sandburg Veterinarian reports the following information for the year:
What is Sandburg's receivables turnover ratio?
Net credit sales
$120,000
Average accounts receivable
20,000
Cash collections on credit sales
100,000
A. 6.0
B. 5.0
C. 1.2
D. 0.2 Correct Answer: A
An increase in a company's receivables turnover ratio typically means the company is
A. Having trouble paying debts as they become due.
B. Less profitable.
C. More effectively granting and collecting credit to customers.
D. Losing customers to its competitors. Correct Answer: C
Even though the percentage‐of‐receivables method and the percentage‐of‐credit‐sales method
use different accounts to estimate future uncollectible accounts, the amount of bad debt expense
reported in the income statement will always be the same under the two methods.
A. True
B. False Correct Answer: B
Which of the following statements is true with respect to the percentage‐of‐credit‐sales method
for estimating uncollectible accounts?
,A. The amount recorded for bad debt expense does not depend on the balance of the allowance
for uncollectible accounts
B. This method is referred to as the balance sheet approach
C. This method does not allow for future uncollectible accounts
D. Under this method, bad debt expense is recorded at the time of an actual bad debt Correct
Answer: A
Costs that are expensed when incurred are called?
A. Product costs
B. Direct costs
C. Inventoriable costs
D. Period costs
E. Indirect costs Correct Answer: D
Which of the following statements is true?
A. Product costs affect only the balance sheet
B. Product costs affect only the income statement
inventory
C. Period costs affect only the balance sheet
D. Neither product costs nor period costs affect the Statement of Retained Earnings. This can
also be a true statement if the period costs were prepaid (i.e., prepaid advertising, depreciation)
E. Product costs eventually affect both the balance sheet and the income statement Correct
Answer: E
The cost of unsold inventory at the end of the year is classified as a(n) ______ in the ______.
A. Asset; Balance sheet
B. Expense; Income statement
C. Liability; Balance sheet
D. Revenue; Income statement Correct Answer: A
One of the major differences between service companies and retail or manufacturing companies
is that retailers and manufacturers must account for:
A. Current assets
B. Inventory
C. Selling expenses
D. Deferred revenue Correct Answer: B
Inventory does not include
A. Materials used in the production of goods to be sold.
B. Assets intended to be sold in the normal course of business.
C. Equipment used in the manufacturing of assets for sale.
D. Assets currently in production for normal sales. Correct Answer: C
Cost of goods sold is:
, A. Reported in the income statement
B. Reported in the balance sheet
C. A current asset
D. The cost of inventory on hand at the end of the period Correct Answer: A
If a company has ending inventory of $25,000, purchases during the year of $95,000, and
beginning inventory of $30,000, cost of goods sold equals $90,000.
A. True
B. False Correct Answer: B
Beginning inventory is $30,000. Purchases of inventory during the year are $50,000. Cost of
goods sold is $60,000. What is ending inventory?
A. $20,000
B. $30,000
C. $10,000
D. $50,000 Correct Answer: A
Which level of profitability is considered profit from normal operations?
A. Gross profit
B. Operating income
C. Income before taxes
D. Net income Correct Answer: B
Sales revenue less cost of goods sold is referred to as operating income
A. True
B. False Correct Answer: B
The primary distinction between operating activities and nonoperating activities in a multiple‐
step income statement is whether the activity is:
A. A large or small dollar amount
B. Part of primary business operations
C. Related to current versus long‐term assets
D. Reported as a revenue or an expense Correct Answer: B
Gross profit is calculated as net sales minus
A. Nonoperating expenses and income tax expense.
B. Operating expenses.
C. Cost of goods sold.
D. All of the other answers are subtracted from net sales. Correct Answer: C
Which of the following is not a period cost?
A. Legal costs
B. Public relations costs
C. Sales commissions
D. Wages of assembly‐line workers
E. The salary of a company's chief financial officer (CFO). Correct Answer: D
