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Multiple Choice Questions

(I) Select the best answer from the following multiple choices:

1. If Division C has a 10% return of sales, income of $500, and an investment
turnover of 4 times, its ROI is
a) 500%
b) 100%
c) 40%
d) 10%

2. If income increase while sales and investment remain constant, which of the
following is true?
a) investment turnover increases
b) ROS decreases
c) ROI increase
d) ROI could increase or decrease

3. Which of the following describes the computation of ROI?
a) return on sales x investment
b) investment turnover x return on sales
c) income - (investment x minimum RI)
d) sales x investment turnover

4. Monico Division has net income of $60,000 on sales of $800,000. If the
investment is $400,000 what is ROS?
a) 15.0%
b) 7.5%
c) 10.0%
d) 2.0

5. Scottso Division has the following results for the year
Revenues $ 740,000
Variable expenses $ 260,000
Fixed expenses $ 300,000
Total division assets are $1,000,000. The company's minimum required rate of
return is 14 percent. Return on sales for Scottso is
a) 10.4%
b) 18.0%
c) 24.3%
d) 48.0%

6. The last step in the accounting cycle is to prepare:
a. financial statements
b. a post-closing trial balance
c. adjusting and closing entries
d. a work sheer

7. Henry Company is preparing financial statements and has a mortgage
note on its building, which is due in six months and will be paid in
cash. The mortgage note payable will be recorded in the classified
balance sheet under:
a. Current liabilities
b. Long-term liabilities
c. Accrued liabilities
d. Property, plant, and equipment

8. The revenue recognition principle is primary concerned with:
a. how revenue is recorded
b. whether revenue is recorded
c. when revenue will be recorded
d. which revenue is recorded

9. The statement of cash flows:
a. provides a convenient summary of information, none of which can be calculated from the other three principal financial statements
b. is required only for companies with annual revenues of over $1,000,000
c. can assist in determining whether the company needs additional financing
d. provides a measure of the goodwill that has been generated by management

10. Cash paid for financing activities would include cash paid for:
a. the stock of another company
b. merchandise inventory
c. the purchase of treasury stock
d. taxes

11. "Purchases" appears on the:
a. balance sheet
b. income statement
c. statement of retained earnings
d. The other answers are all incorrect

12. Net purchases is equal to purchases less:
a. purchases discounts
b. purchases returns and allowances
c. purchases discounts and purchase returns and allowances
d. trade discounts

13. Merchandise purchased by Award, Inc. had an invoice price of $800 and terms of 2/15, n/30, FOB shipping point. As an accommodation, the seller prepaid shipping charges of $50. If payment is made within the discount period, the purchaser' s journal entry to record total payment would include a:
a. credit to Cash of $850
b. debit to Accounts Payable of $833
c. credit to Cash of $834
d. credit to Purchases Discounts of $17

14. As owners of a corporation, stockholders have a right to elect the:
a. president of the corporation
b. treasurer of the corporation
c. board of directors of the corporation
d. officers of the corporation

15. The corporate board of directors:
a. is elected by the corporate officers
b. manages the day-to-day operations of the corporation
c. is responsible for declaring dividends
d. approves transfers of stock between stockholders

16. In computing the book value of common stock, assets are assumed to be saleable at their:
a. book values
b. fair market values
c. book values less selling expenses
d. fair market values less selling expenses and creditor claims against the assets

17. The percentage increase in shares that defines the difference between a small and large stock dividend is which percentage of the previously outstanding shares?:
a. 5 to 10%
b. 10 to 15%
c. 20 to 25%
d. over 50%

18. Upon close examination of the income statement, which of the following
mathematical expressions would be true?
a. Net Sales - Gross Profit = Income from Operations
b. Gross Profit + Selling, General & Admst. Expenses = Net Sales
c. Net Income - Income Taxes = Net Income Per Share of C/S
d. Income from Operations - Interest Expense - Income Tax Exp. = Net Income

19. Which of the following is not a correct expression of the accounting equation?
a. Assets - Liabilities = Owner's Equity
b. Net Assets = Equities
c. Assets = Equities
d. Assets = Liabilities + Owner's Equity

20. According to generally accepted accounting principles, all of the following
financial statements are required except:
a. Statement of Cash Flows
b. Income Statement
c. Balance Sheet
d. Statement of Changes in Owner's Equity

21. If total assets were $21,000 and total liabilities were $12,000 at the beginning of
the year, and if net income for the year was $5,000, what is total owne's equity at the end of the year?
a. $4,000
b. $5,000
c. $9,000
d. $14,000

22. Retained Earnings is not:
a. Increase by net Income
b. Decreased by expenses
c. Increased by revenues
d. Decreased by gains and losses

23. Which of the following is not a correct expression of the accounting equation?
a. Assets = Equities
b. Assets = Liabilities - Owner's Equity
c. Assets = Liabilities + Paid-in Capital + Retained Earnings
d. Assets = Liabilities + Paid-in Capital + Revenues - Expenses

24. All of the following are typically classified as current assets except:
a. Marketable Securities
b. Accounts Receivables
c. Equipment
d. Cash

25. Manufacturing firms have all of the following inventories except:
a. Merchandise inventory
b. Raw Material inventory
c. Work-in Process inventory
d. Finished Goods inventory

26. Credits to the Accumulated Depreciation account during the period result from:
a. recording depreciation expense, and they decrease the net book value of the related assets.
b. Recording depreciation expense, and they increase the net book value of the related assets.
c. Recording depreciation expense, and they have no effect on the net book value of the related assets.
d. Selling the related asset, and they decrease the net book value of the related assets.

27. Which depreciation method results in equal depreciation expense amounts for
each year of an asset's useful life?
a. Units-of-production
b. Straight-line
c. Sum-of-the-years-digits
d. Double-declining-balance

28. All of the following are examples of "accrued expense" types of liabilities except
the liability for:
a. short-term notes taken out at a bank during the year.
b. Payroll taxes owed by the employer for the year
c. Property taxes owed to local governments for the year
d. Salaries and wages owed to employees at the end of the year

29. The amount of interest expense that would accrue on a $32,600 note payable
maturing in 90 days with a 14% rate would be computed as:
a. $32,600 X 14%
b. $32,600 X 14% X 3/24
c. $32,600 X 14% X 3
d. $32,600 X 14% X 90/360

30. Michael sells Melissa his grand piano and wished to avoid both the cost of
shipping it, and the risk of loss while the piano is in transit. He should send the
piano:
a. FOB shipping point, freight collect
b. FOB shipping point, freight prepaid
c. FOB destination, freight collect
d. FOB destination, freight prepaid

Solution Preview

1. If Division C has a 10% return of sales, income of $500, and an investment
turnover of 4 times, its ROI is
a) 500%
b) 100%
c) 40%
d) 10%

ROI=Net Income/Investment=Net Income/Sales X Sales/Investment
ROI=Return on SalesXInvestment Turnover
ROI = 10% X 4 = 40%
Answer c

2. If income increase while sales and investment remain constant, which of the
following is true?
a) investment turnover increases
b) ROS decreases
c) ROI increase
d) ROI could increase or decrease

As seen above ROI=ROSXInvestment Turnover.
If income increases, ROS will increase and investment turnover will remain the same. So the ROI will increase.
Answer c

3. Which of the following describes the computation of ROI?
a) return on sales x investment
b) investment turnover x return on sales
c) income - (investment x minimum RI)
d) sales x investment turnover

Answer b

4. Monico Division has net income of $60,000 on sales of $800,000. If the
investment is $400,000 what is ROS?
a) 15.0%
b) 7.5%
c) 10.0%
d) 2.0

ROS = Net Income/Sales = 60,000/800,000=7.5%
Answer b

5. Scottso Division has the following results for the year
Revenues $ 740,000
Variable expenses $ 260,000
Fixed expenses $ 300,000
Total division assets are $1,000,000. The company's minimum required rate of
return is 14 percent. Return on sales for Scottso is
a) 10.4%
b) 18.0%
c) 24.3%
d) 48.0%

The net income is revenues less expenses.
Net Income = 740,000-260,000-300,000=180,000
Return on Sales = Net Income/Sales = 180,000/740,000=24.3%
Answer c

6. The last step in the accounting cycle is to prepare:
a. financial statements
b. a post-closing trial balance
c. adjusting and closing entries
d. a work sheer

Answer b - a post closing trial balance

7. Henry Company is preparing financial statements and has a mortgage
note on its building, which is due in six months and will be paid in
cash. The mortgage note payable will be recorded in the classified
balance sheet under:
a. Current liabilities
b. Long-term liabilities
c. Accrued liabilities
d. Property, plant, and equipment

Since it is due in six months, it should be recorded as current liability.
Answer a.

8. The revenue recognition principle is primary concerned with:
a. how revenue is recorded
b. whether revenue is recorded
c. when revenue will be recorded
d. which revenue is recorded

The revenue recognition principle states that revenue ...

Solution Summary

The solution has various multiple choice questions in financial management and accounting

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