Overview of Accounting and Finance
1) Which of the following is not one of the 5 questions of transaction analysis?
a) What's going on? ***
b) Which accounts are affected?
c) Is this an accrual?
d) Does the balance sheet balance?
e) Does my analysis make sense?

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 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

4) An Accounts Payable could result from which of the following transactions?
a) Purchasing accounts for cash.
b) Purchasing property, plant and equipment on credit.
c) Purchasing goods and services from suppliers on credit.
d) All of the above. ***
e) None of the above.

5) The concept of matching revenue and expense refers to the fact that:
a) expenses for a period equal the revenues for the period. ***
b) all costs incurred in the process of earning revenue during a period are recorded as an expense in that period.
c) all cash disbursements during a period are subtracted from all cash receipts during the period.
d) costs incurred in the process of earning revenue during a period are deferred and expensed in a future period.

6) Most entities satisfy the accounting criteria for recognizing revenue when:
a) an order is received from a customer.
b) cash is received from a customer. ***
c) an unearned revenue account is credited.
d) a product is delivered or a service is provided.

Analyzing Financial Statements
1) 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.

2) A potential creditor's judgment about granting credit would be most influenced by the potential customer's:
a) current ratio at the end of the prior fiscal year.
b) most recent acid-test ratio.
c) trend of acid-test ratio over the past three years. ***
d) practice with respect to taking cash discounts offered by current suppliers.

3) The comparison of activity measures of different companies is complicated by the fact that:
a) different inventory cost flow assumptions may be used. ***
b) dollar amounts of assets may be significantly different.
c) only one of the companies may have preferred stock outstanding.
d) the number of shares of common stock issued may be significantly different.

4) The inventory turnover calculation:
a) is wrong unless cost of goods sold is used in the numerator.
b) is wrong unless sales is used in the numerator.
c) is an alternative way of expressing the number of days' sales in inventory.
d) requires knowledge of the inventory cost flow assumption being used. ***

5) Asset turnover calculations:
a) are made by dividing the average asset balance during the year by the sales for the year.
b) are made by dividing sales for the year by the asset balance at the end of the year. ***
c) communicate information about how promptly the entity pays its bills.
d) should be evaluated by observing the turnover trend over a period of time.