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ACC 599 Midterm Exam: Financial and Managerial Accounting Concepts

A midterm exam that tests both financial and managerial accounting concepts and their application in business.

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    ACC 599 Midterm Exam: Financial and Managerial Accounting Concepts Question 1 Dawn Alive reported the following for 2012. Ending market price $40.75 Earnings per share: Basic 2.50 Diluted 2.08 Dividends per share 1.10 The price/earnings ratio and dividend payout were: Answer 19.59 and 52.88% 16.30 and 52.88% 16.30 and 44.00% 19.59 and 44.00% 37.04 and 52.88% Question 2 The ratio percentage of earnings retained is the same as that termed: Answer dividend yield. dividend payout. this year's retained earnings to net income. return on common equity. book value. Question 3 What is the effect of the exercise of stock options? Answer They generate cash to the issuing firm and therefore increase profit per share. They are an expense at the time of exercise. This lowers net income. They increase debt and lower borrowing capacity but have no effect on profit. They increase the number of shares outstanding. They have no immediate effect on profitability Question 4 Interest expense creates magnification of earnings through financial leverage because: Answer the interest rate is variable. interest accompanies debt financing. the use of interest causes higher earnings. interest costs are cheaper than the required rate of return to equity owners.

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    while earnings available to pay interest rise, earnings to residual owners rise faster. Question 5 Book value per share may not approximate market value per share because: Answer the book value is after tax. book values are based on replacement costs rather than market values. book value is related to book figures and market value is related to the future potential as seen by investors. investors do not understand book value. book value is not related to dividends. Question 6 The price/earnings ratio: Answe r measures the past earning ability of the firm. is a gauge of future earning power as seen by investors. relates price to dividends. relates price to total net income. Question 7 Which of the following ratios appears most frequently in annual reports? Answer Earnings per Share Return on Equity Profit Margin Effective Tax Rate Debt/Equity Question 8 Which of the following ratios is rated to be a primary measure of liquidity and the highest significance rating of the liquidity ratios according to commercial loan departments? Answer Debt/Equity Current Ratio Degree of Financial Leverage Inventory Turnover in Days Accounts Receivable Turnover in Days Question 9 Which of the following ratios is given the highest significance rating by controllers? Answer Current Ratio Earning Per Share Return on Equity - After Tax

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