AU 60 Practice Test Attempt #1 Questions
with Complete Solutions
Which one of the following accounting principles may cause a limitation in the use of financial
statements to evaluate an organization? The cost principle.
Ace Woodworking Company makes household furniture. Which one of the following best
describes an expense that should be classified as an operating expense on Ace's income
statement? Utility charges for the manufacturing plant.
NOP Corporation, a publicly traded company, has a $72 million public float. The company's
fiscal year ends on December 31 of each calendar year. On April 30 of the current year, NOP
Corporation agreed with certain counterparties to amend the terms of two different derivative
contracts. NOP Corporation first reported these transactions on: Form 10-Q to the
Securities and Exchange Commission.
Which one of the following groups of financial statements, when considered together, would best
present an organization's financial condition? The balance sheet, the income statement,
the statement of changes in shareholders' equity, and the statement of cash flow.
, Common size statements are frequently used during vertical analysis. Which one of the
following is true regarding common size statements? Common size statements are good
for inter-company comparisons because they correct for differences in company size.
Ratio analysis is a common technique used by underwriters to analyze an organization's financial
statements. Each of the following is one of the four broad categories these ratios can be grouped
into for this purpose, EXCEPT: Solvency.
If a company's inventory turnover ratio is higher than the industry benchmark, it indicates that:
The company is selling its inventory more quickly than its competitors.
An underwriter is conducting ratio analysis and notices that a company has $1.5 million in long-
term debt, $3 million in shareholder's equity, and $5 million in assets. Which one of the
following statements is true based on the company's debt to equity ratio? The debt to
equity ratio is .50 and the company is mostly financed by equity.
One type of liquidity ratio that an underwriter may choose is an acid-test ratio. This ratio is a
more conservative measure of liquidity than the current ratio because it includes: Only
cash, marketable securities, and accounts receivable in the numerator.
with Complete Solutions
Which one of the following accounting principles may cause a limitation in the use of financial
statements to evaluate an organization? The cost principle.
Ace Woodworking Company makes household furniture. Which one of the following best
describes an expense that should be classified as an operating expense on Ace's income
statement? Utility charges for the manufacturing plant.
NOP Corporation, a publicly traded company, has a $72 million public float. The company's
fiscal year ends on December 31 of each calendar year. On April 30 of the current year, NOP
Corporation agreed with certain counterparties to amend the terms of two different derivative
contracts. NOP Corporation first reported these transactions on: Form 10-Q to the
Securities and Exchange Commission.
Which one of the following groups of financial statements, when considered together, would best
present an organization's financial condition? The balance sheet, the income statement,
the statement of changes in shareholders' equity, and the statement of cash flow.
, Common size statements are frequently used during vertical analysis. Which one of the
following is true regarding common size statements? Common size statements are good
for inter-company comparisons because they correct for differences in company size.
Ratio analysis is a common technique used by underwriters to analyze an organization's financial
statements. Each of the following is one of the four broad categories these ratios can be grouped
into for this purpose, EXCEPT: Solvency.
If a company's inventory turnover ratio is higher than the industry benchmark, it indicates that:
The company is selling its inventory more quickly than its competitors.
An underwriter is conducting ratio analysis and notices that a company has $1.5 million in long-
term debt, $3 million in shareholder's equity, and $5 million in assets. Which one of the
following statements is true based on the company's debt to equity ratio? The debt to
equity ratio is .50 and the company is mostly financed by equity.
One type of liquidity ratio that an underwriter may choose is an acid-test ratio. This ratio is a
more conservative measure of liquidity than the current ratio because it includes: Only
cash, marketable securities, and accounts receivable in the numerator.
