MGMT 200 EXAM 4 QUESTIONS AND
CORRECT ANSWERS
Comparing operating expenses as a percentage of sales is an example of:
A) Vertical analysis.
B) Horizontal analysis.
C) Diagonal analysis.
D) Both vertical and horizontal analysis. - Answer-A) Vertical analysis.
Which of the following is an example of horizontal analysis?
A) Comparing COGS with sales.
B) Comparing net income across companies.
C) Comparing debt with equity.
D) Comparing the growth in sales over time. - Answer-D) Comparing the growth in sales
over time.
Which of the following ratios is most useful in evaluating liquidity?
A) Return on assets.
B) Return on equity.
C) Debt to equity ratio.
D) Current ratio. - Answer-D) Current ratio.
Which of the following is a sign that a company cannot quickly turn its receivables into
cash?
A) A high receivables turnover ratio.
B) A low receivables turnover ratio.
C) A low average collection period.
D) Both a high receivables turnover ratio and a low average collection period. - Answer-
B) A low receivables turnover ratio.
Assuming a current ratio of 1.0 and an acid-test ratio of 0.75, how will the purchase of
inventory with cash affect each ratio?
A) Increase the current ratio and increase the acid-test ratio.
B) No change to the current ratio and decrease the acid-test ratio.
C) Decrease the current ratio and decrease the acid-test ratio.
D) Increase the current ratio and decrease the acid-test ratio. - Answer-B) No change to
the current ratio and decrease the acid-test ratio.
The profit margin ratio indicates the amount of net income achieved for each:
A) collection on a receivable.
B) dollar of inventory.
, C) dollar of total assets.
D) dollar of sales. - Answer-D) dollar of sales.
Compared to growth stocks, value stocks' price-earnings ratio is typically:
A) There is no relationship between the price-earnings ratios of growth and value
stocks.
B) The same.
C) Higher.
D) Lower. - Answer-D) Lower.
A company incurred a material gain on the sale of land. This gain should be reported
as:
A) Other revenues.
B) A gain from discontinued operations.
C) Other expenses.
D) A separate line item in retained earnings. - Answer-A) Other revenues.
The usefulness of reported earnings to predict future earnings is often referred to as:
A) Conservative accounting practices.
B) Aggressive accounting practices.
C) Quality of earnings.
D) Horizontal analysis. - Answer-C) Quality of earnings.
Which of the following is a result of aggressive accounting practices?
A) Lower income, higher assets, and higher liabilities.
B) Higher income, higher assets, and lower liabilities.
C) Lower income, lower assets, and higher liabilities.
D) Higher income, lower assets, and higher liabilities. - Answer-B) Higher income,
higher assets, and lower liabilities.
Which of the following is a conservative accounting practice?
A) Change from double-declining balance to straight-line depreciation.
B) Record sales revenue before it is actually earned.
C) Adjust the allowance for uncollectible accounts to a larger amount.
D) Record inventory at market rather than lower of cost or market. - Answer-C) Adjust
the allowance for uncollectible accounts to a larger amount.
Which of the following is recorded by the lessee at the beginning of the lease?
A) Decrease in assets.
B) Increase in expenses.
C) Increase in revenues.
D) Increase in liabilities. - Answer-D) Increase in liabilities.
Babble Co. signs a five-year installment note on January 1, 2021. At which of the
following dates would the carrying value be the lowest?
A) August 1, 2021
CORRECT ANSWERS
Comparing operating expenses as a percentage of sales is an example of:
A) Vertical analysis.
B) Horizontal analysis.
C) Diagonal analysis.
D) Both vertical and horizontal analysis. - Answer-A) Vertical analysis.
Which of the following is an example of horizontal analysis?
A) Comparing COGS with sales.
B) Comparing net income across companies.
C) Comparing debt with equity.
D) Comparing the growth in sales over time. - Answer-D) Comparing the growth in sales
over time.
Which of the following ratios is most useful in evaluating liquidity?
A) Return on assets.
B) Return on equity.
C) Debt to equity ratio.
D) Current ratio. - Answer-D) Current ratio.
Which of the following is a sign that a company cannot quickly turn its receivables into
cash?
A) A high receivables turnover ratio.
B) A low receivables turnover ratio.
C) A low average collection period.
D) Both a high receivables turnover ratio and a low average collection period. - Answer-
B) A low receivables turnover ratio.
Assuming a current ratio of 1.0 and an acid-test ratio of 0.75, how will the purchase of
inventory with cash affect each ratio?
A) Increase the current ratio and increase the acid-test ratio.
B) No change to the current ratio and decrease the acid-test ratio.
C) Decrease the current ratio and decrease the acid-test ratio.
D) Increase the current ratio and decrease the acid-test ratio. - Answer-B) No change to
the current ratio and decrease the acid-test ratio.
The profit margin ratio indicates the amount of net income achieved for each:
A) collection on a receivable.
B) dollar of inventory.
, C) dollar of total assets.
D) dollar of sales. - Answer-D) dollar of sales.
Compared to growth stocks, value stocks' price-earnings ratio is typically:
A) There is no relationship between the price-earnings ratios of growth and value
stocks.
B) The same.
C) Higher.
D) Lower. - Answer-D) Lower.
A company incurred a material gain on the sale of land. This gain should be reported
as:
A) Other revenues.
B) A gain from discontinued operations.
C) Other expenses.
D) A separate line item in retained earnings. - Answer-A) Other revenues.
The usefulness of reported earnings to predict future earnings is often referred to as:
A) Conservative accounting practices.
B) Aggressive accounting practices.
C) Quality of earnings.
D) Horizontal analysis. - Answer-C) Quality of earnings.
Which of the following is a result of aggressive accounting practices?
A) Lower income, higher assets, and higher liabilities.
B) Higher income, higher assets, and lower liabilities.
C) Lower income, lower assets, and higher liabilities.
D) Higher income, lower assets, and higher liabilities. - Answer-B) Higher income,
higher assets, and lower liabilities.
Which of the following is a conservative accounting practice?
A) Change from double-declining balance to straight-line depreciation.
B) Record sales revenue before it is actually earned.
C) Adjust the allowance for uncollectible accounts to a larger amount.
D) Record inventory at market rather than lower of cost or market. - Answer-C) Adjust
the allowance for uncollectible accounts to a larger amount.
Which of the following is recorded by the lessee at the beginning of the lease?
A) Decrease in assets.
B) Increase in expenses.
C) Increase in revenues.
D) Increase in liabilities. - Answer-D) Increase in liabilities.
Babble Co. signs a five-year installment note on January 1, 2021. At which of the
following dates would the carrying value be the lowest?
A) August 1, 2021
