ABA Financial Reporting and Analysis 3

Question 1

Under GAAP, research costs are generally:

Accepted Answer

Expensed as incurred

Answer

GAAP requires research costs to be expensed as incurred because future benefits are too uncertain to justify capitalization.

Question 2

Which ratio measures the proportion of earnings paid out as dividends to shareholders?

Accepted Answer

Dividend payout ratio

Answer

The dividend payout ratio is calculated as dividends per share divided by earnings per share, showing the fraction of earnings distributed.

Question 3

A company using the LIFO inventory method during a period of rising prices will report:

Accepted Answer

Lower net income and lower inventory than FIFO

Answer

LIFO assigns the most recent (higher) costs to COGS, resulting in lower net income and a lower (older cost) ending inventory balance compared to FIFO.

Question 4

The quick ratio differs from the current ratio because the quick ratio excludes:

Accepted Answer

Inventory and prepaid expenses

Answer

The quick ratio excludes inventory and prepaid expenses because these are less liquid and may not be converted to cash quickly.

Question 5

On a common-size income statement, each line item is expressed as a percentage of:

Accepted Answer

Net sales (revenue)

Answer

Common-size income statements express each item as a percentage of net sales, enabling meaningful comparison across companies or periods.

(ABA) Accredited Business Accountant Practice Test

(ABA) Accredited Business Accountant Practice Test

ABA Financial Reporting and Analysis 3