Quiz #3

Question 1

WorldCom did which of the following in order to overstate earnings?

Answer 1

Capitalized some expenditures that should have been expensed

Question 2

T/F: Revenue expenditures are expensed in the current period

Answer 2

True

Question 3

T/F: Immaterial capital expenditures may be expensed

Answer 3

True

Question 4

T/F: Expenditures that reduce the operating costs of PP&E are added to its cost

Answer 4

True

Question 5

T/F: Betterments to PP&E are expensed in the current period

Answer 5

False

Question 6

T/F: Betterments are expensed in the current period

Answer 6

False

Question 7

T/F: Capital expenditures are deducted from the cost of the property plant and equipment

Answer 7

False

Question 8

A gain or loss on the sale of a plant asset is determined by comparing the:

Answer 8

Asset’s book value with the sales proceeds

Question 9

asset

turnover

Answer 9

Asset turnover = Net sales / average total assets

Question 10

return on assets

Answer 10

Return on assets = net income / average total assets

Question 11

Expenditures for operations that benefit the current period should be

Answer 11

Expensed during the current period

Question 12

How is the gain (loss) on a plant asset sale calculated?

Answer 12

Asset sale price – Book value on balance sheet

Question 13

At what point is an asset considered to be impaired?

Answer 13

When the net book value is greater than the sum of expected future cash flows

Question 14

expenditures that should NOT be capitalized?

Answer 14

routine maintenance

Question 15

asset turnover ratio answers what?

Answer 15

For every dollar invested in the firm, how many dollars of sales are generated?

Question 16

In times of rising prices, which method is most likely to result in the highest cost of goods
sold?

Answer 16

LIFO

Question 17

A firm’s inventory turnover

Answer 17

Can be affected by the inventory method used

Question 18

T/F: A low inventory turnover indicates that a firm is able to sell its inventory very quickly.

Answer 18

False

Question 19

Compute days’ sales in inventory for the

year

Answer 19

Days sales in inventory = 365/inventory turnover

Question 20

Compute Inventory turnover

Answer 20

Inventory turnover = cost of goods sold / ave. inventory

Question 21

Assuming rising prices, which method will result in the highest income taxes?

Answer 21

FIFO

Question 22

Which of the following inventory costing methods most closely matches the cost flow with
the goods flow?

Answer 22

Specific identification

Question 23

Increase/Decrease/Unaffected: If a firm’s “inventory turnover” ratio increases, its “days’ sales in inventory” ratio will:

Answer 23

Decrease