Accounting Test Bank

1. A bonus usually differs from a salary in
terms of:

A.
Amount
and timing.
B.
Base, timing, and financial statement
effect.
C.
Tax implications.
D.
Motivation effects.
E.
Base, pool, and payment terms.

2. Of the three basic forms of management
compensation (salary, bonus, benefits), the fastest growing part of total
compensation is:

A.
Salary.

B.
Bonus.
C.
Benefits.
D.
Salary and bonus.

3. As a firm’s strategy changes to respond to
different stages of a product’s life cycle, compensation:

A.
Can
be affected.
B.
Is affected, but only to a very limited
extent.
C.
Should change in response to the new
strategy.
D.
Should increase.
E.
Should decrease.

4. Risk aversion by managers should be
recognized when revising compensation plans because:

A.
Compensation
mix (salary, bonus) can influence a manager’s risk aversion.
B.
Most companies want risk averse
managers.
C.
Most companies want risk taking
managers.
D.
It costs less to pay risk averse
managers.

5. Due in part to the failure of many banks in
2008, executive compensation is getting increased oversight by:

A.
Audit
committees of corporate boards
B.
Top management
C.
Compensation committees of corporate
boards
D.
Banking regulators and corporate
compensation committees
E.
Banking regulators such as the SEC

6. Any system of compensation:

A.
May
encourage unethical behavior.
B.
Must be approved by the appropriate
regulatory authority.
C.
Should be designed by top management.
D.
Must be approved by the auditor.

7. The objectives of management compensation,
when compared to the objectives used to develop performance measurement
systems, are:

A.
More
numerous.
B.
Less specific.
C.
Consistent in content.
D.
Significantly broader in scope.
E.
More specific.

8. In developing compensation plans, the
management accountant works to achieve fairness by making the plan:

A.
Precise,
comprehensive and directive.
B.
Simple, clear and consistent.
C.
Attractive.
D.
Rewarding.
E.
Selective.

9. Bases for management bonus compensation often
include:

A.
Stock
price performance.
B.
Percentage of salary.
C.
Achievement of break-even sales.
D.
Percentage of firm-wide net income.

10.
When strategic performance measures or
critical success factors are used to determine bonus compensation, the bonus
will usually depend either on the amount of improvement in the measure or on:

A.
Maintaining
the current level.
B.
Achieving a predetermined goal.
C.
Quality of work completed.
D.
Intensity of effort expended.

11. Bonus plans
should be tied to variable cost income which is not affected by inventory level
changes, rather than the conventional:

A.
Tax-based
net income.
B.
Marginal cost income.
C.
Full cost income.
D.
Operating income.

12. The
balanced scorecard critical success factors (CSFs) provide strong motivation in
bonus compensation plans if the non-controllable factors are:

A.
Emphasized.

B.
Separated.
C.
Recognized.
D.
Excluded.
E.
Controlled.

13. If fairness
only is considered, unit managers prefer:

A.
Not
to be evaluated.
B.
A subjective measure.
C.
A single, objective measure.
D.
A firm-wide pool over a unit-based pool.

E.
A unit-based pool over a firm-wide pool.

14.
Generally, the current and deferred
types of bonus payment options currently in use tend to focus the manager’s
attention on short-term performance measures, most commonly:

A.
Division
profit.
B.
After tax corporate profit.
C.
Cash flow.
D.
Growth in firm value.
E.
Stock price.

15. The stock
option form of bonus payments to managers usually:

A.
Motivates
well even in extended market downturns.
B.
Can lose some motivation because of the
delay in reward.
C.
Focuses on the short-term.
D.
Is not consistent with shareholder
interests.
E.
Has less risk than other types of bonus
payment plans.

16.
The ideal compensation plan would make
all company contributions to the plan immediately tax-deductible and all tax
consequences for managers:

A.
Insignificant.

B.
Deferred or avoidable.
C.
Limited, but current.
D.
Limited, but pre-paid.

17. In
management compensation, the use of the balanced scorecard achieves:

A.
Fairness.

B.
Alignment of manager’s incentives and
the organization’s strategy.
C.
The desired ethical environment.
D.
Revenue generation and cost control.
E.
A specific non-financial measurement.

18. The balanced
scorecard evaluation of the firm is an especially strong financial tool because
of its:

A.
Use
of qualitative measures.
B.
Use of quantitative measures.
C.
Simplicity in use.
D.
Ability to predict change.
E.
Use of multiple critical success factors
(CSFs).

19. The
receivables turnover ratio is a measure of:

A.
Asset
value.
B.
Leverage.
C.
Sales performance.
D.
Profitability.
E.
Liquidity.

20. Market value
of equity is an objective measure which clearly shows what:

A.
The
firm’s financial statements show the firm’s value to be.
B.
Investors think is the firm value.
C.
Stock analysts calculate as the firm’s
value.
D.
Is the sales value of the firm.
E.
Is the liquidation value of the firm.

21. Analysts
prefer the following three valuation methods over all others:

A. EVA, cash
flow multiplier and sales multiplier

B.
Enterprise
value, discounted cash flow, and sales multiple
C.
Sales multiple, earnings multiple, and
discounted cash flow
D.
EVA, return on equity and discounted
cash flow
E.
Enterprise value, earnings multiple, and
sales multiple

22. Since
it is based on cash flows, the discounted cash flow (DCF) method of valuation
has the added advantage that it is not subject to the bias of different:

A.
Discount
rates.
B.
Internal rates of return.
C.
Monetary systems.
D.
Accounting policies for determining
total assets and net income.

23.
The multiplier used in an earnings-based
method of valuation of a firm is often estimated from the price-to-earnings
ratios of the stocks of comparable:

A.
Taxable
entities.
B.
Industries.
C.
Firms.
D.
For-profit firms.
E.
Publicly-held firms.

24. Which one of
the following items is not a measure of a company’s liquidity?

A.
Accounts
receivable turnover.
B.
Return on equity.
C.
Quick ratio.
D.
Cash flow ratio.
E.
Day’s sales in inventory.

25. Which one of
the following forms of compensation is a based upon the achievement of
performance goals for current the period?

A.
Perk.

B.
Stock option.
C.
Performance shares.
D.
Bonus.
E.
Salary.

26. Which one of
the following forms of compensation includes special services and benefits for
the employee?

A.
Perk.

B.
Stock option.
C.
Performance shares.
D.
Bonus.
E.
Salary.

27. A method for
determining a bonus based upon the performance of the unit is a(n):

A.
Segment-based
pool.
B.
Unit-based pool.
C.
Firm-based pool.
D.
Activity-based pool.
E.
Function-based pool.

28. A method for
determining a bonus based upon the performance of the firm is a(n):

A.
Segment-based
pool.
B.
Unit-based pool.
C.
Firm-based pool.
D.
Activity-based pool.
E.
Volume-based pool.

29. All of the
following are listed as common payment options for bonus compensation plans except:

A.
Performance
shares.
B.
Current bonus.
C.
Deferred bonus.
D.
Preferred bonus.
E.
Stock options.

30. The profit
multiplier is used to measure:

A.
Efficiency.

B.
Effectiveness.
C.
Net revenue.
D.
Collectability.
E.
Accountability.

31. Each one of
the following is a method for directly measuring the value of a firm’s equity except:

A.
The
discounted cash flow method.
B.
Market value.

C.
Sales
multiple.
D.
Earnings-based valuation.
E.
Enterprise value.

32. Which one of
the following refers to the firm’s ability to pay its current operating
expenses and maturing debt?

A.
Discounted
cash flow.
B.
Liquidity.
C.
Earnings base.
D.
Profitability.
E.
Purchasing power.

33. Which one of
the following develops the value of the firm as the discounted present value of
the firm’s net free cash flows?

A.
Discounted
cash flow method.
B.
Liquidity method.
C.
Multiples-based method.
D.
Profitability method.
E.
Purchasing power method.

34. A deferred
bonus consists of:

A.
Cash
only.
B.
Stock only.
C.
Cash and/or stock.
D.
Membership in a fitness club.

35. Which one of
the following computes value based on annual earnings?

A.
Discounted
cash flow method.
B.
Liquidity method.
C.
Multiples-based method.
D.
Profitability method.
E.
Market value method.

36. Jackson
Supply Company has a 2 to 1 current ratio. This ratio would increase to more
than 2 to 1 if the company:

A.
Purchased
a marketable security for cash.
B.
Wrote off an uncollectible receivable.
C.
Sold merchandise on account that earned
a normal gross margin.
D.
Purchased inventory on account.

37. Benefits
include all of the following except:

A.
Travel.

B.
Life insurance.
C.
Medical benefits.
D.
Membership in a fitness club.
E.
Performance shares.

38. A current
bonus consists of:

A.
Cash
only.
B.
Stock only.
C.
Cash and/or stock.
D.
Membership in a fitness club.

39. In service
firms, improvement in long term profitability is best measured by all the
following except:

A.
Staff
utilization.
B.
Net revenues.
C.
Collections of customer accounts.
D.
Materials usage.