MBA Accounting 2 — Questions and Answers
Question 1: A company's current ratio is calculated as:
- Total Assets / Total Liabilities
- Current Assets / Current Liabilities (Correct answer)
- Net Income / Total Assets
- Total Revenue / Current Liabilities
Correct answer: Current Assets / Current Liabilities
The current ratio measures short-term liquidity by dividing current assets by current liabilities, indicating a company's ability to meet near-term obligations.
Question 2: Which of the following best describes accrual-basis accounting?
- Recording transactions only when cash is received or paid
- Recognizing revenues when earned and expenses when incurred, regardless of cash flow (Correct answer)
- Reporting income only when customers pay in cash
- Recording all transactions at their replacement cost
Correct answer: Recognizing revenues when earned and expenses when incurred, regardless of cash flow
Accrual accounting recognizes revenues when they are earned and expenses when they are incurred, independent of when cash actually changes hands.
Question 3: The abbreviation EBITDA stands for:
- Equity Before Interest, Taxes, Depreciation, and Amortization
- Earnings Before Interest, Taxes, Depreciation, and Amortization (Correct answer)
- Earnings Before Income Tax, Dividends, and Accruals
- Estimated Budget Including Taxes, Depreciation, and Amortization
Correct answer: Earnings Before Interest, Taxes, Depreciation, and Amortization
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, a widely used measure of core operating performance.
Question 4: Which financial ratio measures how efficiently a company collects payments from its credit customers?
- Inventory Turnover Ratio
- Return on Assets
- Debt-to-Equity Ratio
- Accounts Receivable Turnover Ratio (Correct answer)
Correct answer: Accounts Receivable Turnover Ratio
Accounts Receivable Turnover measures how many times per period a company collects its average accounts receivable balance, indicating collection efficiency.
Question 5: Goodwill appearing on a company's balance sheet represents:
- The appraised market value of the company's brand name
- The amount paid over the fair value of net identifiable assets in an acquisition (Correct answer)
- The total value of a company's patents and trademarks
- Customer loyalty program liabilities
Correct answer: The amount paid over the fair value of net identifiable assets in an acquisition
Goodwill is an intangible asset recorded when a buyer pays more than the fair value of a target's net identifiable assets during a business acquisition.
Question 6: The debt-to-equity ratio primarily measures:
- A company's profitability relative to shareholder equity
- The proportion of company financing coming from debt versus equity (Correct answer)
- The return generated on total invested capital
- A company's ability to pay short-term obligations
Correct answer: The proportion of company financing coming from debt versus equity
The debt-to-equity ratio indicates what proportion of a company's financing comes from creditors versus shareholders, reflecting its financial leverage.
Question 7: Which accounting assumption requires that financial statements be prepared on the basis that the business will continue to operate indefinitely?
- Materiality Principle
- Consistency Principle
- Going Concern Assumption (Correct answer)
- Conservatism Principle
Correct answer: Going Concern Assumption
The going concern assumption presumes a business will remain operational for the foreseeable future, justifying the deferral of certain costs and long-term asset classification.
MBA Accounting 2
A company's current ratio is calculated as: