1. Which of the following statements is true about apartnership?
a. One capital and one drawings account is used for eachpartnership.
b. The capital account is used to record each partner'sinvestment and that partner's designated share of the earnings.
c. Partnerships are subject to separate income taxes.
d. The drawings account is closed to retained earnings at theend of the period.
2. Which of the followingstatements does not correctly describe preferred stock?
a. Preferred shareholders have a preference with respect todividend payments.
b. Preferred shareholders have a preference with respect toassets in the event of dissolution.
c. Preferred shareholders have voting rights on a per sharebasis.
d. Preferred stock typically has a fixed dividend rate.
3. Which of the followingstatements is false?
a. Common stockholders have a residual claim on assets in theevent of liquidation.
b. Shares of stock held in the treasury are subtracted from thenumber of issued shares in the determination of the number ofoutstanding shares.
c. Common stockholders have voting rights at annual stockholdermeetings.
d. Corporations are governed by their stockholders.
4. Which of the following would not be reportedas a financing activities cash flow?
a. Issuing common stock for cash.
b. Cash dividend payments.
c. Purchasing treasury stock.
d. Purchase of a building by signing a note payable.
5. Which of the following is not reported as acash flow from investing activities?
a. Sale of a depreciable asset for cash.
b. Purchasing land in exchange for common stock.
c. Selling a long-term investment at a loss for cash.
d. Purchase of a patent in exchange for cash.
6. Which of the following transactions would be reported withinthe investing section of the cash flow statement?
a. The cash sale of land at a loss.
b. The purchase of a building in exchange for common stock.
c. The receipt of a stock dividend from a stock investment.
d. The cash receipt of a dividend from a stock investment.
7. Which of the following would be subtracted from net incomewhen determining cash flows from operating activities under theindirect method?
a. A decrease in utilities payable.
b. Patent amortization expense.
c. A decrease in prepaid rent.
d. A loss on the sale of a depreciable asset.
7. Which of the following would be added to net income whendetermining cash flows from operating activities under the indirectmethod?
a. A decrease in accounts payable.
b. Patent amortization expense.
c. An increase in prepaid insurance.
d. A gain on the sale of a depreciable asset.
8. Which of the following would not be a cashflow from financing activities?
a. Issuance of common stock for cash.
b. Borrowing cash on a long-term note payable.
c. Collection of a cash dividend.
d. Repayment of principal on a long-term note payable.
9. The cash payment of a previously declared dividend increaseswhich of the following ratios?
a. Debt-to-equity.
b. Earnings per share.
c. Price/earnings ratio.
d. Asset turnover.
10. The debt-to-equity ratio measures which of thefollowing?
a. Liquidity.
b. Solvency.
c. Profitability.
d. Market strength.
11. Negative financial leverage occurs when the:
a. Average net (after tax) interest rate on borrowed funds isless than the company's earnings rate on its assets.
b. Return on assets is more than return on equity.
c. Return on equity is more than return on assets.
d. Operating expenses exceed gross profit.
12. Which of the following ratios is notconsidered to be a test of profitability?
a. Current ratio.
b. Profit margin.
c. Return on assets.
d. Earnings per share.
13. Home Depot's operating strategy is to offer a broadassortment of high-quality merchandise and services at competitiveprices using highly knowledgeable service-oriented personnel andaggressive advertising. Which of the following isnot as critical to achieving Home Depot'sstrategy?
a. Cost control
b. Product differentiation
c. High level of customer service
d. High sales volume
13. Which of the following ratios is not partof the DuPont model?
a. Asset turnover.
b. Debt-to-equity.
c. Net profit margin.
d. Return on equity.
Which of the following statements is notcorrect?
Purchasing fixed assets through debt financing decreases thefinancial leverage ratio.
Accruing an expense will affect the net profit margin ratio.
Return on equity may increase even when the financial leverageratio decreases.
Purchasing treasury stock results in a decrease in assetturnover.
