| Accounting Questions
1. Which of the following is not an example of a decision or informed judgment that a potential investor would make from accounting information?
A) Future profitability based on past profitability.
B) Probability of success of a new product development.
C) A forecast of dividends.
D) Assessment of risk that a company may have more debt than it can repay if the economy enters a recession.
2. Which of the following is not an example of a decision or informed judgment that a potential employee could make from accounting information?
A) Personnel turnover statistics (i.e., hiring and terminations).
B) Probability of the company's ability to make profit sharing plan contributions in the future.
C) Assessment of the risk that the company may become bankrupt in the near future.
D) The extent of the company's commitment to a research program.
3. On January 31, an entity's balance sheet showed total assets of $750 and liabilities of $250. Owners' equity at January 31 was:
A) $ 500
B) $1,000
C) $ 750
D) $ 250
4. On January 31, an entity's balance sheet showed net assets of $1,025 and liabilities of $225 Owners' equity on January 31 was:
A) $ 800
B) $1,025
C) $1,250
D) $ 225
5. An accounts receivable results from the sale of:
A) Property, plant and equipment for cash
B) Goods and services to customers on account
C) Goods and services to customers for cash.
D) The firm's common stock.
E) None of the above.
6. Prepaid expenses classified as current assets represent:
A) current year expenses that have been accrued.
B) current year disbursements that will be matched against revenues of the next year.
C) cash that has been segregated to pay for future expenses.
D) expenses of the current year that have been paid in advance.
7. Which of the following is not a category of financial statement ratios?
A) Financial leverage.
B) Liquidity.
C) Profitability.
D) Prospectus.
8. Management's use of resources can best be evaluated by focusing on measures of:
A) liquidity.
B) activity.
C) leverage.
D) book value.
9. An individual interested in making a judgment about the profitability of a company should:
A) review the trend of working capital for several years.
B) calculate the company's ROI for the most recent year.
C) review the trend of the company's ROI for several years.
D) compare the company's ROI for the most recent year with the industry average ROI for the most recent year.
10. An entity's current ratio will be influenced by:
A) the inventory cost flow assumption used.
B) writing off an overdue account receivable against the allowance for uncollectible accounts.
C) the depreciation method used.
D) issuance of a stock dividend.
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