Management AJE4B

Management
AJE4B
Instructions: Select the item which best answers the question or makes the statement
true. In all cases, there is only one best choice. Mark the letter of that choice on the
answer sheet provided. Upon completion of the exam send only the answer sheet to
the school for grading. Do not wait until you complete the next exam.
1. Which of the following does your reading material suggest is a disadvantage of
excess liquidity?
a. security issues
b. lost opportunities
c. increased tax rate
d. reckless spending
2. Consider the income statement you prepared on page 57 of your textbook. If
the depreciation expense on equipment is calculated at 25% (rather than 30%),
what is the net income? (Note: At each stage in your calculations, round up to
the nearest whole dollar, e.g., $6.50 is rounded up to $7.)
a. $36,563
b. $37,245
c. $38,245
d. $38,675
3. Extending the problem in Question 2, what is the net income if depreciation is
calculated at 25% AND income tax is calculated at 22% (rather than 25%)?
a. $37,675
b. $38,975
c. $40,222
d. $40,622
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4. Which of the following calculations would be the LEAST useful for Larry’s
Landscaping Inc.?
a. P-E ratio
b. net profit margin
c. ROE
d. asset turnover ratio
5. The debt-to-assets ratio and the cash coverage ratio are used by banks
primarily to measure __________.
a. long-term solvency
b. short-term performance
c. appreciation in equity
d. investment diversity
6. Based on the DuPont method, it is possible to portray both profitability and
asset efficiency by taking the net profit margin ratio and the asset turnover ratio
and __________ them together.
a. adding
b. subtracting
c. dividing
d. multiplying
7. On the sample balance sheet shown on page 74 of your reading material,
parentheses are used to indicate __________.
a. estimated numbers
b. numbers that must be subtracted
c. numbers that do not factor into any calculation
d. numbers that are shown elsewhere on the statement
8. When comparing two different companies, it is best to take their balance
sheets and __________.
a. average them together
b. subtract one from the other
c. convert key data to percentages
d. compare all key figures on a dollar-to-dollar basis
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9. When calculating the cash account, which of the following must be subtracted?
a. depreciation
b. amortization
c. accounts payable at the end
d. accounts receivable at the end
10. Your reading material compares the percentage change for Larry’s Landscaping
Inc. between 20X2 and 20X3. Which comparative statistic is misleading?
a. common stock
b. retained earnings
c. equipment
d. start-up costs
11. Further to Question 10, based on the comparative percentage change for these
two years, the author of your reading material recommends that Larry consider
__________.
a. issuing more common stock
b. investing in more equipment
c. securing more cash
d. reducing fixed assets
12. With regard to evaluation or analysis of an asset, the term liquidity refers to
__________.
a. the tangibility of the asset
b. the long-term stability of the asset
c. how quickly the asset can be turned into cash
d. the usefulness of the asset as a basis for borrowing
13. Current assets minus current liabilities equals __________.
a. working capital
b. gross profit
c. net profit
d. current equity
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14. Comparative analysis of the data for Larry’s Landscaping Inc. between 20X2
and 20X3 reveals that __________.
a. Larry managed to land a large number of new clients during this period
b. Larry needs to do a better job of keeping track of bank charges
c. Larry is in danger of succumbing to a cash crisis
d. Larry has done an excellent job of keeping expenses in line
15. When calculating the quick ratio, __________ must be subtracted from current
assets.
a. accounts receivable
b. inventory
c. cash
d. taxes
16. Variable costs are those that vary according to __________.
a. overhead
b. market fluctuations
c. sales
d. investments
17. An exercise in your reading material asks you to calculate the working capital
for Larry’s Landscaping Inc., for the years 20X2 and 20X3. Regarding the year
20X2, what would the working capital have been if the company’s accounts
receivable had been $13,600, rather than $15,600?
a. $21,481
b. $22,481
c. $24,481
d. $25,481
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18. Consider the partial income statement for Larry’s Landscaping Inc., presented
on pages 98 and 102 of your textbook. Which of the following statements is
FALSE?
a. The contribution margin is about 52%.
b. The gross profit includes money that will have to be paid in income tax.
c. Larry’s single greatest expense item was contractual persons, and this is
included in the calculation of variable costs.
d. Since sales revenue was $205,000 and income before taxes was
$17,475, the break-even sales point was the difference between these
two numbers, or $187,525.
19. What are the two conditions for liquidity?
a. sustainability and transferability
b. short-term value and long-term value
c. speed and value
d. speed and security
20. The break-even sales point is found by dividing the __________ by the
contribution margin.
a. fixed costs
b. variable costs
c. total costs
d. labor costs
21. In the simplest terms, a ratio is a/an __________.
a. absolute value
b. relationship
c. percentage
d. average
22. What is expressed by the current ratio?
a. the resources available to operate the business on a day-to-day basis
b. how long it takes accounts receivable to turn into cash
c. the dollar amount of funds available per the dollar amount of bills to be
paid
d. expenses relative to revenue
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23. The contribution margin tells us what percent of each sales dollar is needed to
cover the __________.
a. variable costs
b. fixed costs
c. ROE
d. start-up costs
24. When computing the accounts payable turnover, the purchases value used in
the equation should represent __________.
a. all purchases
b. only purchases of inventory
c. only expense items purchased in cash
d. only expense items purchased on credit
25. Which profitability ratio captures how efficiently a business uses its assets to
generate profit?
a. return on assets
b. asset turnover ratio
c. return on equity
d. price-earnings ratio
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