Finance MCQs

1. Reasons why an organization reacquires its own stock (treasury stock) include(s):
a. To reissue shares to officers and employees under bonus and stock compensation plans.
b. To increase trading of the company’s stock in the securities market
c. To have additional shares available for use in acquiring other companies
d. To reduce the number of shares outstanding and thereby increase earnings-per-share (EPS)
e. All of the above (x)
____ 2. Accumulated depreciation will be shown on the balance sheet in what section?
a. Current assets
b. Property, plant, and equipment (X)
c. Intangible assets
d. Long-term investments
e. Other assets
____ 3. A daily cash count of register receipts made by a cashier department supervisor demonstrates an application of which of the following internal control principles?
a. Documentation procedures
b. Segregation of duties
c. Establishment of responsibility
d. Independent internal verification
____ 4. Current liabilities are obligations that are reasonably expected to be paid from Existing Creation of Other Current Assets Current Liabilities
a. No No
b. Yes Yes
c. Yes No
d. No Yes
____ 5. Which of the following combinations presents correct examples of liquidity, profitability, and solvency ratios, respectively? Liquidity Profitability Solvency
a. Inventory turnover Inventory turnover Times interest earned
b. Current ratio Inventory turnover Debt to total assets
c. Receivable turnover Return on assets Times interest earned
d. Average days collection Payout ratio Return on assets
_____ 6. Which of the following pairs of terms in the area of financial statement analysis are synonymous?
a. Ratio – Trend
b. Horizontal – Trend
c. Vertical – Ratio
d. Horizontal – Ratio
_____ 7. Which of the following should be classified as an extraordinary item?
a. Effects of major casualties not infrequent in the area
b. Write-off of a significant amount of receivables
c. Loss from the expropriation of facilities by a foreign government
d. Losses due to a bitter, lengthy labor strike
_____ 8. Harne Manufacturing declared an 10% stock dividend when it had 150,000 shares of $5 par value common stock outstanding. The market price per common share was $15 per share when the dividend was declared. The entry to record this dividend declaration includes a credit to
a. Retained Earnings of $225,000.
b. Paid-in Capital in Excess of Par for $150,000.
c. Common Stock for $225,000.
d. Retained Earnings for $75,000.
____ 9. Fison Corp. purchased 15,000 shares of its $2 par common stock at a cost of $12 per share on April 30, 2006. The stock was originally issued at $10 per share. The entry to record the purchase of the stock should include a debit to
a. Common Stock for $30,000.
b. Treasury Stock for $30,000.
c. Common Stock for $180,000.
d. Treasury Stock for $180,000.
_____ 10. What is the effect on total paid-in capital of a stock dividend and a stock split, respectively? Stock Dividend Stock Split
a. Increase No effect
b. No effect No effect
c. Decrease No effect
d. Decrease Decrease
____ 11. All the following are principles of internal control except:
a. Having a yearly audit by an independent auditing firm
b. Segregation of duties
c. Documentation procedures
d. Establishment of responsibility
e. Physical, mechanical and electronic controls
____ 12. For a lease to be classified as a capital lease, it must meet all of the following criteria except:
a. Transfers ownership to lessee at the end of the lease
b. Contains a bargain purchase option
c. Lease term equals 90 percent or more of the estimated remaining economic life of the leased property
d. The present value of the minimum lease payment equals or exceeds 90 percent of the fair value
e. The asset is specific to the firm
_____13. All of the following are sections of a cash budget except
a. cash disbursements.
b. cash receipts.
c. financing.
d. operating.
_____14. The receivables turnover ratio is calculated by dividing
a. net credit sales by average receivables.
b. net credit sales by ending receivables.
c. total sales by average receivables.
d. total sales by ending receivables.
_____15. The amortization of premium on bonds payable
a. will increase bond interest expense.
b. should take place over a period not to exceed 40 years.
c. will decrease bond interest expense.
d. will increase bond interest revenue.
____ 16. A $200,000, 5%, 20-year bond was issued at 97. The proceeds received f from the bond issuance are
a. $194,000.
b. $190,400.
c. $200,000.
d. $206,000.
______ 17. The inventory turnover ratio is computed by dividing the average inventories into
a. net sales.
b. total assets.
c. cost of goods sold.
d. stockholders’ equity.
_____ 18. The best way to study the relationship of the components of financial statements is to prepare
a. common size statements.
b. a trend analysis.
c. profitabiltiy analysis.
d. ratio analysis.
_____ 19. In performing a vertical analysis, the base for prepaid expenses is
a. total current assets.
b. total assets.
c. total liabilities.
d. prepaid expenses in a previous year.
_____ 20. Which one of the following transactions does not affect cash?
a. Acquisition and retirement of bonds payable
b. Write-off of an uncollectible accounts receivable
c. Acquisition of treasury stock
d. Payment of cash dividend
_____ 21. Hepford Company reported the following on its income statement: Income before income taxes $420,000 Income tax expense 120,000 Net income $300,000 An analysis of the income statement revealed that interest expense was $80,000. Hepford Company’s times interest earned was
a. 8 times.
b. 5.25 times.
c. 6.25 times.
d. 5 times.
_____ 22. If year one equals $800, year two equals $840, and year three equals $896, the percentage to be assigned for year three in a trend analysis, assuming that year 1 is the base year, is
a. 112%.
b. 89%.
c. 105%.