Question 1. Which of the following is a potential limitation of financial statement analysis?

• Lack of comparability of firms in different industries
• The impact of changing economic conditions
• The impact of having more than one acceptable alternative accounting principle for accounting for a given transaction or economic event
• All of the above

Question 2. You are considering an investment in Ingram Company stock and wish to assess the company's position in the stock market. All of the following ratios can be used for this purpose except:

• current ratio.
• earnings per share.
• dividend yield.
• price-earnings ratio

Question 3. Select the incorrect statement regarding net margin.

• Net margin refers to the average amount of each sales dollar remaining after all expenses are subtracted
• Net margin may be calculated in several ways
• The smaller the net margin the better
• The amount of net margin is affected by a company's choices of accounting principles

Question 4. Current financial reporting standards assume that users of accounting information:

• have a reasonably informed knowledge of business
• have only minimal knowledge of business
• have an expert's understanding of economic and financial events and conditions
• have widely differing levels of knowledge about business, and that financial reporting must meet these differing needs

Question 5. You are considering an investment in Ingram Company stock and wish to assess the company's position in the stock market. All of the following ratios can be used for this purpose except:

• current ratio
• earnings per share
• dividend yield
• price-earnings ratio

Question 6. Common methods of financial statement analysis include all of the following except:

• horizontal analysis
• incremental analysis
• vertical analysis
• ratio analysis

Question 7. Select the incorrect statement regarding horizontal analysis.

• Percentage analysis involves establishing the relationship of one amount to another
• In doing horizontal analysis, an account is expressed as a percentage of the previous balance of the same account
• Percentage analysis attempts to eliminate the materiality problem of comparing firms of different sizes
• A horizontal analysis of cost of goods sold on the income statement would involve dividing cost of goods sold by total sales revenue

Question 8. Select the in correct statement regarding ratio analysis.

• Ratio analysis is a specific form of horizontal analysis
• Ratio analysis involves making comparisons between different accounts in the same set of financial statements
• There are many different ratios available for evaluating a firm's performance
• Some ratios involve an account from the balance sheet and one from the income statement

Question 9. Select the correct statement regarding vertical analysis.

• Vertical analysis of the income statement involves showing each item as a percentage of sales.
• Vertical analysis of the balance sheet involves showing each asset as a percentage of total assets
• Vertical analysis examines two or more items from the financial statements of one accounting period
• All of the above are correct

Question 10. Solvency refers to a company's ability to:

• sell inventory in a timely manner
• generate profits from operations
• repay liabilities in the long run
• generate cash flows to pay current liabilities

Question 11. Which of the following should not be recorded as an expense?

• Paid office salaries
• Paid factory maintenance costs
• Paid product advertising costs
• Paid sales commissions

Question 12. Which of following practices is considered an effective means of re-engineering business systems?

• Identifying the best practices used by world-class competitors
• Improving the accuracy of cost allocations
• Eliminating non-value added activities
• All of the above

Question 13. During its first year of operations, Martin Company paid $4,000 for direct materials and $8,500 for production workers' wages. Lease payments and utilities on the production facilities amounted to $7,500 while general, selling, and administrative expenses totaled $3,000. The company produced 5,000 units and sold 4,000 units at a price of $7.50 a unit.
What is the amount of gross margin for the first year?

• $20,000
• $12,000
• $7,500
• $14,000

Question 14. Which of the following statements is true with regard to product costs versus general, selling, and administrative costs?

• Product costs associated with unsold units appear on the income statement as general expenses.
• General, selling, and administrative costs appear on the balance sheet
• Product costs associated with units sold appear on the Income Statement as cost of goods sold expense
• All of the above

Question 15. Which of the following is a product cost for a construction company?

• Cost of transporting raw materials to the job site
• Selling costs
• Wages paid to the company's office manager
• All of the above

Question 16. During its first year of operations, Martin Company paid $4,000 for direct materials and $8,500 for production workers' wages. Lease payments and utilities on the production facilities amounted to $7,500 while general, selling, and administrative expenses totaled $3,000. The company produced 5,000 units and sold 4,000 units at a price of $7.50 a unit.

What is the amount of finished goods inventory for the first year?

• $4,000
• $5,000
• $2,5000
• $16,000

Question 17. Select the incorrect statement regarding upstream and downstream costs.

• Profitability analysis should consider only manufacturing and downstream costs
• Companies must recover the total cost of developing, producing, and delivering products
• Pricing decisions must consider both upstream and downstream costs
• The total cost per unit includes upstream, manufacturing, and downstream costs

Question 18. Susan Mason is the manager of one department in a large store. In this capacity, which of the following kinds of information would she be interested in?

• Information that is local, relevant, and timely
• Information that is global and pertains to the business as a whole
• Information that meets cost/benefit criteria
• Both A and C

Question 19. Which of the following is not one of the four Standards of Ethical Conduct for Management Accountants?

• Competence
• Confidentiality
• Integrity
• Education

Question 20. As a Certified Management Accountant, Jill is bound by the standards of ethical conduct issued by the Institute of Management Accountants. If she accepts an expensive gift from a vendor trying to win a contract with her firm, which of the following standards will she violate?

• Competence
• Confidentiality
• Integrity
• Objectivity