1. Which of the following would not be considered a source of financing?

A. Notes receivable
B. Common stockholders' equity
C. Retained earnings
D. Debentures

2. Wilco Company reports the following:

Dividend payout ratio for 2005 was:

A. 27%
B. 12%
C. 22.2%
D. Not determinable

3. If a company receives an unqualified audit opinion it means the auditors:

A. did not complete a full audit and therefore do not feel qualified to give an opinion on
financial statements.
B. are providing assurance that the company will remain financially viable for at least the
next year.
C. are providing assurance that the company's financial statements fairly present
company's financial performance and position.
D. are providing assurance that the company's financial statements are free from
misstatement, fraudulent accounting and fairly indicate future performance.

4. A common size income statement would typically be prepared by dividing:

A. all items on income statement in Year t by their corresponding value in Year t-1.
B. all items on income statement in Year t by their corresponding balance sheet accounts
in Year t.
C. all items on income statement in Year t by net income in Year t-1.
D. all items on income statement in Year t by sales in Year t.

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5. When conducting comparative analysis by reviewing consecutive balance sheets,
A. all items on the balance sheet in Year t must be divided by their corresponding value in
Year t-1 and subtract 1.
B. all items on the balance sheet in Year t-1 must be subtracted from their corresponding
value in Year t.
C. all items on the balance sheet in Year t must be divided by net income in Year t-1.
D. Both A and B are correct.

6. You have prepared a trend series for Company XYZ for three years, 2004-2006
inclusive, using 2004 as the base year. Below are selected data.

7. From the above information, you can infer that:

A. rate of sales growth has decreased.
B. net income to sales (return on sales) is increasing over time.
C. asset turnover is decreasing over time.
D. None of the above

8. Which of the following statements is incorrect?

A. Net Income in 2006 increased by 28% compared to 2004.
B. XYZ's net income to sales (return on sales) increased in 2006 compared to 2004.
C. XYZ's net income to sales (return on sales) decreased in 2006 compared to 2004.
D. Assets have increased over time.

9. While determining the most profitable company from the given number of companies,
which of the following would be the best indicator of relative profitability?
A. Highest net income
B. Highest retained earnings
C. Highest return on equity
D. Highest operating margin

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10. Which of the following statements concerning financial ratios is incorrect?
A. Accounting principles and methods used by a company will not affect financial ratios.
B. The informational value of a ratio in isolation is limited.
C. A ratio is one number expressed as a percentage or fraction of another number.
D. Calculation of financial ratios is not sufficient for a complete financial analysis of a
company.

11. The use of LIFO rather than FIFO for inventory costing under normal economic
conditions results in:
I. lower net income.
II. higher total assets.
III. higher retained earnings.
IV. unchanged retained earnings.
A. II and III
B. I, II and IV
C. I only
D. I and IV

12. Which of the following is not a common characteristic of a company choosing to use
LIFO rather than FIFO?
A. Larger inventory balances
B. Higher variability in inventory balances
C. Greater expected tax savings
D. Larger in size

13. Financial Statements of ABC Corp. indicates that ending inventory levels in 2005 and
2006 were $200,000 and $350,000 respectively. Cost of Goods sold for 2005 and 2006
were $1,900,000 and $2,200,000 respectively. Purchases in 2006 were:
A. $1,950,000
B. $2,150,000
C. $2,350,000
D. $1,850,000

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14. 19. Target Inc. has 30M shares outstanding and trades at $50 per share. Target has net
identifiable assets with a book value of $1,000M and a fair value of $1,200M. Acquirer
Corporation purchases all of Target Inc. stock for $60 per share. How much will Acquirer
record as goodwill upon acquiring Target?
A. 300M
B. 500M
C. 600M
D. 800M

15. The following information can be found in Manufacturer Company's financial

statements.

16. If Manufacturer used FIFO its retained earnings as of the end of fiscal 2006 would be:
A. $ 540,000
B. $ 440,000
C. $ 524,000
D. $ 506,000

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17. The inventory costing method used by a company (LIFO, FIFO, etc.) will affect:

A. Option A
B. Option B
C. Option C
D. Option D

18. A firm has a current ratio greater than 1.0. If the firm's ending inventory is understated by
$3,000 and beginning inventory is overstated by $5,000, the firm's net income (before
taxes) and current ratio will be:

A. Option A
B. Option B
C. Option C
D. Option D

19. A firm has a current ratio greater than 1.0. During the course of the year the firm sells
$60M of accounts receivable with limited recourse. If it had not sold the receivables it
would have to have taken out a short-term loan. The effect of selling the receivables is:

A. Option A
B. Option B
C. Option C
D. Option D

20. Goodwill is:

A. the excess of the purchase price of net assets over the book value of net assets.
B. the excess of the appraised value of net assets over the book value of net assets.
C. the excess of the purchase price of net assets over the fair value of net assets.
D. the excess of the appraised value of net assets over the fair value of net assets.

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21. Securitization through the use of a properly structured SPE may result in the following
benefits to the company:
I. Remove receivables from the balance sheet.
II. Remove debt from the balance sheet.
III. Lower financing costs.
IV. Recognize gains on the sale of assets to the SPE.
A. I, II, III and IV
B. I, II and III
C. I and IV
D. II and III

22. Problem OneCalculating COGS and Inventory under LIFO and FIFO
Donuld Company sells many products. Sol is one of its popular items. Below is an
analysis of the inventory purchases and sales of Sol for the month of September. Donuld
Company uses the periodic inventory system.

INSTRUCTIONS
a. Using the FIFO assumption, calculate the amount charged to cost of goods sold for
September. (Do not Show computations)
b. Using the LIFO assumption, calculate the amount assigned to the inventory on hand on
September 30. (Do not Show computations)
c. Calculate the LIFO reserve that would be reported in the company's books on
September 30 if using LIFO.

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Problem One: Calculating COGS and Inventory under LIFO and FIFO

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23. The classification of marketable equity securities as trading or available-for-sale is
determined by:
A. management's intent regarding the disposition of the securities.
B. when the securities mature.
C. whether the current assets are greater or less than the current liabilities.
D. whether management wants to mark them to market or not.

24. The reclassification of trading securities as available-for-sale would produce the

following effect:
A. The balance sheet would need to be adjusted to report the securities at fair market
value and there would be no effect on the income statement.
B. There would be no effect on either the balance sheet or the income statement.
C. The balance sheet would need to be adjusted to report the securities at fair market
value and unrealized gains or losses on the date of the transfer would be included in net
income.
D. There would be no effect on the balance sheet and unrealized gains or losses on the
date of the transfer would be included in net income.

25. The equity method of accounting for investments requires:

A. Investment should be marked to market each accounting period.
B. Pro-rata share of investee's earnings should be recorded as investment income.
C. Company should not have significant influence over investee.
D. Goodwill related to purchase of investee stock to be recorded separately on balance
sheet.

26. Agwen Corporation owns 25% of the shares of Bronwo Corporation, which traded on the
New York Stock Exchange. Which method is Agwen most likely to use to account for this
investment?
A. Cost method
B. Market method
C. Equity method
D. Consolidation method

27. If a company uses the purchase method to account for a merger, which of the following is
true?

I. Prior year's statements must be restated as if merged companies had always been one
company.
II. Net income of combined companies will probably be lower than net income of two
separate companies added together.
III. Goodwill is never recorded.
IV. Assets of acquired company will be recorded on acquirer's books at their fair value.
A. II, III and IV
B. I, II and III
C. II and IV
D. I and III

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28. When accounting for an investment under the equity method, what situations may reduce
the carrying value of the investment?
I. Investee experiences significant losses.
II. Investee distributes dividends in excess of earnings.
III. Investee sells additional shares for less than book value.
IV. Investee engages in a stock split.
A. I and II
B. II and IV
C. I, II and III
D. I, III and IV

29. Which of the following is not a reason for economic income and accounting income to
differ?
A. Transaction basis
B. The monetary assumption
C. Conservatism
D. Earnings management

30. As a general rule, revenue is normally recognized when it is:

A. measurable and earned.
B. measurable and received.
C. realizable and earned.
D. realizable.

31. Which of the following measures of accounting income is typically reported in an income
statement?
A. Net income
B. Comprehensive income
C. Continuing income
D. All of the above

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32. Nonrecurring Items
For each of these nonrecurring items match the appropriate example indicated below .
1.Extraordinary item
2.Prior period adjustment
3.Change in accounting estimate
4.Change in accounting principle
5.Discontinued operation
6.Special items
7.Comprehensive income items
8.Change in reporting entity
9.SEC Enforcement Releases

A. Overly aggressive accounting practices

B. Consolidation of subsidiary

C. Gains/losses from early retirement of debt

D. Correction of error

E. Unrealized holding gain/loss on marketable, foreign currency translation adjustment

F. Impairment of long-lived assets, restructuring charges

G. Change in depreciable lives

H. Change in depreciation method, change in revenue recognition methodology

I. Operating income /loss from discontinued operations, gain/loss on disposal of

discontinued operations

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Nonrecurrin 1 2 3 4 5 6 7 8 9
g item

Example(fil
l up the
right choice
of
Alphabet)
Nonrecurrin 1 2 3 4 5 6 7 8 9
g item

Example(fil C D G H I F E B A
l up the
right choice
of
Alphabet)

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