Which of the following should be reported as a change in accounting estimate?
a) Change in the reported beginning inventory amount due to a discovery of a bookkeeping error
b) Change from the completed-contract method to the percentage-of- completion method for revenue recognition on long-term construction contracts
c) Increase in the rate applied to net credit sales from 1 percent to 1-1/2 percent in determining losses from uncollectible receivables
d) Change made to comply with a new FASB pronouncement
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Question 2 (3 points)
Question 2 Saved
Which of the following is NOT a change in reporting entity?
Question 2 options:
a) A company acquires a subsidiary that is to be accounted for as a purchase.
b) A company presents consolidated or combined statements in place of statements of individual companies.
c) A company changes the companies included in combined financial statements.
d) A company changes the subsidiaries for which consolidated statements are presented.
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Question 3 (3 points)
Question 3 Saved
McCartney Corp. reports on a calendar-year basis. Its 2013 and 2014 financial statements contained the following errors:
2013
2014
Over(under)statement of ending inventory ….
$(10,000)
$ 4,000
Depreciation understatement ……………..
4,000
6,000
Failure to accrue salaries at year end ……
8,000
12,000
As a result of the above errors, 2014 income would be
Question 3 options:
a) overstated by $4,000.
b) overstated by $24,000.
c) overstated by $22,000.
d) overstated by $16,000.
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Question 4 (3 points)
Question 4 Saved
Badger Corporation purchased a machine for $132,000 on January 1, 2011, and depreciated it by the straight-line method using an estimated useful life of eight years with no salvage value. On January 1, 2014, Badger determined that the machine had a useful life of six years from the date of acquisition and will have a salvage value of $12,000. A change in estimate was made in 2014 to reflect these additional data. What amount should Badger record as the balance of the accumulated depreciation account for this machine at December 31, 2014?
Question 4 options:
a) $73,000
b) $77,000
c) $61,250
d) $63,600
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Question 5 (3 points)
Question 5 Saved
Pages, Inc. receives subscription payments for annual (one year) subscriptions to its magazine. Payments are recorded as revenue when received. Amounts received but unearned at the end of each of the last three years are shown below.
2012
2013
2014
Unearned revenues ………….
$120,000
$150,000
$176,000
Pages failed to record the unearned revenues in each of the three years. The entry needed to correct the above errors is
Question 5 options:
a) Retained Earnings ……………… 150,000
Subscription Revenues ………….. 26,000
Unearned Revenues …………… 176,000
b) Retained Earnings ……………… 30,000
Subscription Revenues ………….. 26,000
Unearned Revenues …………… 56,000
c) Subscription Revenues ………….. 176,000
Unearned Revenues …………… 176,000
d) Subscription Revenues ………….. 150,000
Retained Earnings ……………… 26,000
Unearned Revenues …………… 176,000
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Question 6 (3 points)
Question 6 Saved
On December 31, 2014, Artistown Company appropriately changed to the FIFO cost method from the weighted-average cost method for financial statement and income tax purposes. The change will result in a $700,000 increase in the beginning inventory at January 1, 2014. Assuming a 40 percent income tax rate and that no comparative financial statements for prior years are reported, the cumulative effect of this accounting change reported for the year ended December 31, 2014, is
Question 6 options:
a) $700,000.
b) $350,000.
c) $420,000.
d) $280,000.
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Question 7 (3 points)
Question 7 Saved
On January 1, 2011, Caravanos Company purchased for $320,000 a machine with a useful life of ten years and no salvage value. The machine was depreciated by the double-declining-balance method, and the carrying amount of the machine was $204,800 on December 31, 2012. Caravanos changed to the straight-line method on January 1, 2013. Caravanos can justify the change. What should be the depreciation expense on this machine for the year ended December 31, 2014?
Question 7 options:
a) $20,480
b) 25,600
c) 32,000
d) 52,480
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Question 8 (3 points)
Question 8 Saved
On January 1, 2011, Mardi Gras Shipping bought a machine for $1,500,000. At that time, this machine had an estimated useful life of six years, with no salvage value. As a result of additional information, Mardi Gras determined on January 1, 2014, that the machine had an estimated useful life of eight years from the date it was acquired, with no salvage value. Accordingly, the appropriate accounting change was made in 2014. How much depreciation expense for this machine should Mardi Gras record for the year ended December 31, 2014, assuming Mardi Gras uses the straight-line method of depreciation?
Question 8 options:
a) $125,000
b) $150,000
c) $187,500
d) $250,000
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Question 9 (3 points)
Question 9 Saved
When a firm changed its method of accounting for inventory from LIFO to FIFO in 2014, it decided that the 2014 financial statements should be shown comparatively with the 2013 results.
Which of the following statements concerning reporting the change in the retained earnings statement is correct?
Question 9 options:
a) Both the January 1, 2013, and January 1, 2014, retained earnings balances are reported at different amounts to reflect the effects of the change in earnings before those respective dates.
b) Only the January 1, 2013, retained earnings balance is reported at a different amount to reflect the effects of the change in earnings.
c) Only the January 1, 2014, retained earnings balance is reported at a different amount to reflect the effects of the change in earnings.
d) No direct change to retained earnings is needed since earnings for both years have been adjusted to reflect the change.
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Question 10 (3 points)
Question 10 Saved
Which of the following, if discovered by Somber Company in the accounting period subsequent to the period of occurrence, requires the company to report the correction of an error?
Question 10 options:
a) The estimate of the useful life of a depreciable asset should have been revised.
b) Capitalization of an expense
c) A change from declining-balance depreciation method to straight-line method
d) Change in percentage of sales used for determining bad debt expense
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Question 11 (3 points)
Question 11 Saved
Asuncion Company purchased some equipment on January 2, 2011, for $24,000. The company used straight-line depreciation based on a ten-year estimated life with no residual value. During 2014, management decided that this equipment could be used only three more years and then would be replaced with a technologically superior model. What entry should the company make as of January 1, 2014, to reflect this change?
Question 11 options:
a) No entry
b) Debit a Prior Period Adjustment account for $4,800 and credit accumulated depreciation for $4,800.
c) Debit Retained Earnings for $4,800 and credit accumulated depreciation for $4,800.
d) Debit Depreciation Expense for $4,800 and credit Accumulated Depreciation for $4,800.
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Question 12 (3 points)
Question 12 Saved
Which of the following is not a justification for a change in depreciation methods?
Question 12 options:
a) A change in the estimated useful life of an asset as a result of unexpected obsolescence
b) A change in the pattern of receiving the estimated future benefits from an asset
c) To conform to the depreciation method prevalent in a particular industry
d) A change in the estimated future benefits from the asset
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Question 13 (3 points)
Question 13 Saved
Which of the following independent transactions would cause net income to be more than cash from operating activities?
Question 13 options:
a) A decrease in the accounts receivable account
b) An increase in the merchandise inventory account
c) An increase in the accounts payable account
d) An increase in the accrued wages payable account
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Question 14 (3 points)
Question 14 Saved
Which of the following investments should be classified as cash equivalents for Lastima Company in preparing the statement of cash flows?
1 Shares of stock in Lastima Company.
2 A one-month Treasury note purchased by Lastima Company when only
3 months remained in the note’s term.
3 Share in a money market fund purchased by Lastima Company; the fund
purchases only investment grade corporate debt instruments with
maturities of 2 months or less.
4 A one-year treasury note purchased by Lastima Company when the
treasury note was issued, which now has only 2 months
remaining in its term.
Question 14 options:
a) 2, 3
b) 2, 4
c) 2, 3, 4
d) 1, 2, 3, 4
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Question 15 (3 points)
Question 15 Saved
Choose the combination that best reflects the appropriate classification of cash received from operating, investing and financing activities.
Operating Investing Financing
Question 15 options:
a) Cash paid by customers Sale of operational assets Issuance of bonds payable
b) Dividends received Cash paid by customers Issuance of bonds payable
c) Sale of operational assets Dividends received Cash paid by customers
d) Issuance of bonds payable Sale of operational assets Dividends received
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Question 16 (3 points)
Question 16 Saved
Under the direct method, which one of the following would represent cash paid?
Question 16 options:
a) Losses on sales of plant assets
b) Gains on sales of plant assets
c) Interest expense, adjusted for changes in interest payable and amortization of bond premium or discount
d) Depreciation expense, adjusted for changes in depreciation methods
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Question 17 (3 points)
Question 17 Saved
Choose the combination below that best reflects the appropriate classification of cash received from investing and financing activities.
Cash Received from Cash Received from
Investing Activities Financing Activities
Question 17 options:
a) Sale of treasury stock Proceeds from issuing common stock
b) Sale of treasury stock Sale of investment securities
c) Sale of investment securities Proceeds of issuing common stock
d) Proceeds from issuing common stock Sale of investment securities
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Question 18 (3 points)
Question 18 Saved
At the beginning of the year, a firm leased equipment on a capital lease, capitalizing $60,000 in both its lease liability and leased assets accounts. The contract calls for December 31 payments of $15,000. The lessees annual reporting period ends December 31 and the contract reflects 10% interest. The lessee made the first payment as required. The direct method statement of cash flows for the lessee should reflect which of the following in the first year of the lease contract (ignore noncash disclosures)?
Question 18 options:
a) $15,000 financing cash outflow
b) $15,000 operating cash outflow
c) $6,000 operating cash outflow; $9,000 financing cash outflow
d) $9,000 financing cash outflow
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Question 19 (3 points)
Question 19 Saved
Melville Company reported sales of $700,000, bad debt expense of $60,000, and an increase in net accounts receivable of $150,000 during the current year. What is the amount of cash collected from customers for the current year if the company did not record any write-offs during the current year?
Question 19 options:
a) $550,000
b) $590,000
c) $610,000
d) $640,000
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Question 20 (3 points)
Question 20 Saved
Assume cash paid to suppliers for 2014 is $420,000, that merchandise inventory increased by $20,000 during the year, and that cost of goods sold was $415,000 for the year. During 2014, accounts payable must have
Question 20 options:
a) increased by $5,000.
b) decreased by $5,000.
c) increased by $15,000.
d) decreased by $15,000.
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Question 21 (3 points)
Question 21 Saved
A firm sold an investment in securities available for sale originally costing $30,000, for $28,000. At the beginning of the year, the investment had a valuation allowance of $3,000, debit. What is the correct disclosure for these events in the statement of cash flows prepared under the direct method, assuming this is the only investment in securities available for sale?
Question 21 options:
a) $28,000 investing cash inflow; add $33,000 in the reconciliation of earnings and net operating cash flow
b) $28,000 investing cash inflow; add $2,000 in the reconciliation of earnings and net operating cash inflow
c) $28,000 investing cash inflow; add $5,000 in the reconciliation of earnings and net operating cash inflow
d) Add $5,000 in the reconciliation of earnings and net operating cash flow.
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Question 22 (3 points)
Question 22 Saved
How should the sale of $3,000 worth of cash equivalents costing $2,500 be reflected on the statement of cash flows prepared under the indirect method?
Question 22 options:
a) $500 operating cash inflow
b) No disclosure
c) $500 operating cash outflow
d) $500 subtraction in the reconciliation of
earnings to net operating cash flow
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Question 23 (3 points)
Question 23 Saved
If a company issues both a balance sheet and an income statement with comparative figures from last year, a statement of cash flows:
Question 23 options:
a) is no longer necessary; but may be used at the companys option.
b) should not be issued.
c) should be issued for the current year only.
d) should be issued for each period for which an income statement is presented.
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Question 24 (3 points)
Question 24 Saved
Aboard Company began the current year with the following:
Accounts receivable
$ 10,000
Allowance for doubtful accounts
(800)
Net account receivable
9,200
During the current year, the following events occurred:
Accounts written off
$ 1,200
Sales on account
30,000
Bad debt expense recognized
2,000
At the end of the current year, Aboard showed a balance in gross accounts receivable (before the allowance for doubtful accounts) of $16,800.
What amount would be shown as an operating cash inflow in the statement of cash flows under the indirect method?
Question 24 options:
a) $21,000
b) $22,000
c) $30,000
d) $28,200
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Question 25 (3 points)
Question 25 Saved
A translation adjustment resulting from the translation process is disclosed on the financial statements as
Question 25 options:
a) a separate component of stockholders’ equity.
b) a below-the-line item on the income statement.
c) an adjustment to retained earnings.
d) a part of income from operations on the income statement.
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Question 26 (3 points)
Question 26 Saved
Which of the following is NOT a short-term convergence topic that the FASB must address in order to eliminate the reconciliation of accounts prepared under different sets of standards of different countries?
Question 26 options:
a) Segment reporting
b) Accounting for income taxes
c) Accounting for research and development costs
d) Accounting for the impairment of assets
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Question 27 (3 points)
Question 27 Saved
Which of the following is NOT a long-term, joint FASBIASB project?
Question 27 options:
a) Derecognition
b) Fair value measurement
c) Accounting for income taxes
d) Accounting and reporting for intangible assets
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Question 28 (3 points)
Question 28 Saved
According to FASB ASC Topic 830 (Foreign Currency Matters – Translation of Financial Statements), the appropriate method of restatement from a foreign currency to the U.S. dollar for each of the following is
Remeasurement Translation
Question 28 options:
a) Current rate Monetary/nonmonetary
b) Monetary/nonmonetary Monetary/nonmonetary
c) Monetary/nonmonetary Current rate
d) Current rate Current rate
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Question 29 (3 points)
Question 29 Saved
Pilsner Company. converts its foreign subsidiary financial statements using the translation process. The companys subsidiary in the Czech Republic reported the following for 2014: revenues and expenses of 25,000,000 and 18,500,000 koruna, respectively, earned or incurred evenly throughout the year, dividends of 1,500,000 koruna were paid during the year. The following exchange rates are available:
On January 1, 2014 ………………………………
$.040
On December 31, 2014 …………………………….
.030
Average rate for 2014 ……………………………
.035
Rate when dividends were declared and paid …………
.031
Translated net income for 2014 is
Question 29 options:
a) $148,500.
b) $227,500.
c) $175,000.
d) $195,000.
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Question 30 (3 points)
Question 30 Saved
Monty Enterprises, a subsidiary of Kerry Company based in Delaware, reported the following information at the end of its first year of operations (all in British pounds): assets–483,000; expenses–360,000; liabilities–105,000; capital stock–90,000, revenues–648,000. Relevant exchange rates are as follows:
On date subsidiary stock was purchased …………….
$2.07
Average rate for the year ………………………..
1.86
At year end …………………………………….
1.82
As a result of the translation process, what amount is recorded on the financial statements as the translation adjustment?
Question 30 options:
a) $34,020 debit adjustment
b) $34,020 credit adjustment
c) $11,520 debit adjustment
d) $11,520 credit adjustment
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Question 31 (3 points)
Question 31 Saved
Under international accounting standards, cash received from dividends (associated with dividend revenue) can be shown on the statement of cash flows as
Question 31 options:
a) an operating or a financing activity
b) a financing activity only.
c) a financing or an investing activity.
d) an investing activity only.
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Question 32 (3 points)
Question 32 Saved
Under international accounting standards regarding depreciation, an entity
Question 32 options:
a) must depreciate separately the components of a composite asset (e.g., land and building) separately.
b) is not allowed to depreciate the components of a composite asset (e.g., land and building) separately.
c) may depreciate separately the components of a composite asset (e.g., land and building)
d) must use fair value accounting for property, plant, and equipment, thus eliminating the need for depreciation.
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Question 33 (3 points)
Question 33 Saved
Under international accounting standards, remote contingent liabilities are
Question 33 options:
a) not disclosed.
b) not disclosed unless a guarantee arrangement (e. g., cosigning the loan of another party) exists.
c) disclosed if the amount of the contingent liability is reasonably estimable.
d) treated the same as reasonable possible contingencies.
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Question 34 (3 points)
Question 34 Saved
The measurement of deferred tax liabilities and assets under international accounting standards requires the use of
Question 34 options:
a) current-year tax rates; use of future-years tax rates even though enacted is prohibited.
b) currently-enacted tax rates for future years..
c) currently-enacted tax rates for future years and future tax rates that have been announced by the government but have not yet been formally enacted into law
d) tax rates in effect when the temporary difference originated.
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Question 35 (3 points)
Question 35 Saved
Under international accounting standards, deferred tax assets and liabilities are classified as
Question 35 options:
a) neither current or noncurrent but are disclosed in a separate section of the balance sheet.
b) current and noncurrent.
c) only current.
d) only noncurrent.
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Question 36 (3 points)
Question 36 Saved
Which of the following statements is correct?
Question 36 options:
a) Retained earnings are translated at the average exchange rate for the year.
b) Capital stock of a foreign subsidiary is translated at the historical rate, that is, the rate prevailing on the date the subsidiary was acquired.
c) Dividends are translated at the average exchange rate for the year.
d) Assets and liabilities are translated at the historical rate prevailing when the subsidiary was acquired.
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Question 37 (3 points)
Question 37 Saved
Which of the following statements best describes the use of financial statement analysis?
Question 37 options:
a) Financial statement analysis techniques are merely guides to interpretation of financial data.
b) Financial statement analysis can eliminate the risk in investment decisions.
c) Measurements for a specific company should be compared only with data from past periods.
d) All of these are correct.
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Question 38 (3 points)
Question 38 Saved
If a firm changes its inventory method from FIFO to LIFO just prior to a period of rising prices, the effect in the next period will be
Current Ratio Inventory Turnover
Question 38 options:
a) No effect Increase
b) No effect Decrease
c) Increase Decrease
d) Decrease Increase
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Question 39 (3 points)
Question 39 Saved
Brookville Corporation’s books disclosed the following information for the year ended December 31, 2014:
Net credit sales ………………………………
$1,500,000
Net cash sales ………………………………..
240,000
Accounts receivable at beginning of year …………
200,000
Accounts receivable at end of year ………………
400,000
Brookville’s accounts receivable turnover is
Question 39 options:
a) 3.75 times.
b) 4.35 times.
c) 5.00 times.
d) 5.80 times.
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Question 40 (3 points)
Question 40 Saved
Selected information from the accounting records of Carbine Manufacturing follows:
Net sales ………………………………………
$2,900,000
Cost of goods sold ………………………………
1,900,000
Inventories at January 1 ………………………..
572,000
Inventories at December 31 ……………………….
476,000
What is the number of days’ sales in average inventories for the year?
Question 40 options:
a) 132
b) 109
c) 101
d) 66
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Question 41 (3 points)
Question 41 Saved
Selected financial data of Nicholas Corporation for the year ended December 31, 2014, is presented below:
Operating income ………………………………..
$800,000
Interest expense ………………………………..
(150,000)
Income before income tax …………………………
$650,000
Income tax expense ………………………………
(220,000)
Net income ……………………………………..
$430,000
Preferred stock dividends ………………………..
(200,000)
Net income available to common stockholders ………..
$230,000
Common stock dividends were $120,000. The times-interest-earned ratio is
Question 41 options:
a) 2.9 to 1.
b) 3.6 to 1.
c) 4.3 to 1.
d) 5.3 to 1.
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Question 42 (3 points)
Question 42 Saved
Which of the following is included in the calculation of the acid-test (quick) ratio?
Accounts Receivable Inventories
Question 42 options:
a) No No
b) No Yes
c) Yes No
d) Yes Yes
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Question 43 (3 points)
Question 43 Saved
What is the effect of the collection of accounts receivable on the current ratio and net working capital, respectively?
Current Ratio Net Working Capital
Question 43 options:
a) No effect No effect
b) Increase Increase
c) Increase No effect
d) No effect Increase
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Question 44 (3 points)
Question 44 Saved
During the year, The Core Company purchased $1,700,000 of inventory. The cost of goods sold for the year was $1,600,000 and the ending inventory at December 31 was $330,000. What was the inventory turnover for the year?
Question 44 options:
a) 2.9
b) 3.3
c) 5.7
d) 6.1
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Question 45 (3 points)
Question 45 Saved
The calculation of the return on total assets ratio would use all of the following except
Question 45 options:
a) average stockholders equity.
b) total assets.
c) average total assets.
d) net sales.
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Question 46 (3 points)
Question 46 Saved
Hermine Company wrote off an $700 uncollectible account receivable against the allowance for doubtful accounts with a balance of $2,000. The current ratio after the write-off of the uncollectible account
Question 46 options:
a) would be less than before the write-off of the account.
b) would be greater than before the write-off of the account.
c) would be the same as before the write-off of the account.
d) cannot be determined with the information given.
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Question 47 (3 points)
Question 47 Saved
The book value per share of common stock measures
Question 47 options:
a) liquidity.
b) profitability.
c) equity position and coverage.
d) efficiency.
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Question 48 (3 points)
Question 48 Saved
The inventory turnover ratio
Question 48 options:
a) measures managements ability to productively employ all of its resources.
b) measures the efficient use of assets held for resale.
c) is a stringent measure of liquidity.
d) provides a measure of the strength of the sales mix the company currently employs.
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Question 49 (3 points)
Question 49 Saved
Which of the following is NOT correct regarding the rate of return on assets?
Question 49 options:
a) The rate of return on assets measures managements ability to productively employ all its resources.
b) The rate of return on assets measures the return on all assets used regardless of how the assets are financed.
c) The rate of return on assets is a measure of profitability.
d) The rate of return on assets measures the return on the investment made by the owners of the entity.
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Question 50 (3 points)
Question 50 Saved
Which of the following ratios would not be affected by the choice of depreciation methods?
Question 50 options:
a) Working capital turnover
b) Earnings per share of common stock
c) Debt to equity
d) Price-earnings ratio
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