Accounting 201Chapter 12 Practice Test

Question 1

Which of the following ratios is more useful in evaluating solvency? 
A) Receivables turnover ratio. 
B) Debt to equity ratio. 
C) Current ratio. 
D) Inventory turnover ratio.

Answer 1

B

Question 2

A loss from discontinued operations is reported
A) As an operating expense.
B) As part of other revenues and expenses.
C) Before income tax expense.
D) Below income from continuing operations.

Answer 2

D

Question 3

Which of the following qualifies as an extraordinary item?
A) Damage from a summer storm. Storms of this nature occur occasionally.
B) Damage from a warehouse fire.
C) A loss from a lawsuit.
D) A penalty payable to the IRS.

Answer 3

B

Question 4

The Pernell Company reports net sales of $2 million, cost of goods sold of $1 million, operating expenses of $500,000, and other revenues and expenses of $100,000. Pernell Company's gross profit ratio is: 
A) 50%. 
B) 25%. 
C) 100%. 
D) 5%.

Answer 4

A

Question 5

If a company’s sales revenue and cost of goods sold increase by a higher percentage than its inventory balances, inventory turnover will:
A) Increase.
B) Decrease.
C) Remain the same.
D) Increase or decrease depending on whether the inventory is purchases on account or for cash.

Answer 5

A

Question 6

Neuman Corporation reports net income of $250,000, sales revenue of $24 million, and average assets of 3 million. The asset turnover is: 
A) 12 times. 
B) 8 times. 
C) 1.5 times. 
D) 0.8 times.

Answer 6

B

Question 7

Which of the following is an example of conservative accounting?
A) Adjusting the allowance for uncollectible accounts to a smaller amount.
B) Recording inventory at lower of cost or market.
C) Changing to a longer useful life for depreciating a long-lived asset.
D) Recording the lowest possible warranty expense.

Answer 7

B

Question 8

Which of the following is classified as a liquidity ratio? 
A) Inventory turnover ratio. 
B) Gross profit ratio. 
C) Profit margin. 
D) Debt to equity ratio.

Answer 8

A

Question 9

The times interest earned ratio is classified as an indicator of a company's: 
A) Liquidity. 
B) Profitability. 
C) Solvency. 
D) Long-term survival.

Answer 9

C

Question 10

Growth stocks tend to have relatively 
A) High P/E ratios. 
B) Low P/E ratios. 
C) Constant P/E ratios. 
D) Negative P/E ratios.

Answer 10

A