Multiple Choice questions on accounts basics.
1. When a change in accounting principle occurs
a. prior years\' financial statements should not be changed to reflect the newly adopted principle
b. the new principle should be used in reporting the results of operations of the current year
c. the cumulative effect of the change in principle should be reflected on the income statement as of the beginning of the next year.
d. the cumulative effect of the change in accounting principle should be classified as an extraordinary item on the income statement.
2. If an item meets one (but not both) of the criteria for an extraordinary item, it
a. only needs to be disclosed in the footnotes of the financial statements.
b. may be treated as sales revenue (if it is a gain) and as an operating expense (if it is a loss).
c. is reported as an \"other revenue or gain\" or \"other expense and loss,\" net of tax.
d. is reported at its gross amount as an \"other revenue or gain\" or \"other expense or loss.\"
3. Horizontal analysis is also known as
a. linear analysis
b. vertical analysis
c. trend analysis
d. common size analysis
4. Vertical analysis is a technique that expresses each item in a financial statement
a. in dollars and cents
b. as a percent of the item in the previous year
c. as a percent of a base amount
d. starting with the highest value down to the lowest value
5. Return on common stockholders\' equity ratio is most closely related to
a. gross profit rate and operating expenses to sales ratio
b. profit margin and free cash flow
c. times interest earned and debt to stockholders\' equity ratio
d. return on asset ratio and leverage (debt to total assets ratio).