1. The most reliable source of information about a business that a person is considering investing in is usually the
a. company's published financial statements.
b. current owner(s).
c. company's credit report.
d. local better business bureau.
2. The best estimate of the value of an existing business is the
a. amount of total owner's equity on the balance sheet.
b. book value of the assets on the balance sheet.
c. present value of estimated net income for the next 10 years.
d. fair market value of the net assets owned by the business.
3. In evaluating the worth of accounts receivable when purchasing a going concern, the best measure of the fair market value of accounts receivable is the
a. gross accounts receivables recorded in the accounting records.
b. accounts receivables, net, as shown in the balance sheet.
c. future value of the gross accounts receivables in the accounting records.
d. accounts receivables plus the amount of the allowance for doubtful accounts.
4. Which of the following questions is not relevant when purchasing accounts receivable of an existing business?
a. Has the amount of credit sales versus cash sales increased recently?
b. Are the existing credit terms reasonable and effective or do they need to be changed?.
c. Does the company have the correct product mix for buyers needs?
d. What percentage of the existing accounts receivable are collectible?
5. The primary purpose of horizontal analysis of financial data is to:
a. Compare current year figures with the previous year(s) to determine percentage changes.
b. Determine the dollar amount of each balance sheet item.
c. Determine the percentage of each income statement item in relationship to sales of the current period.
d. Compare income statement and balance sheet items.
6. Which of the following questions is not relevant when valuing inventory in the purchase of inventory of an existing business?
a. Is the current inventory outdated or obsolete?
b. Is the amount of inventory on hand reasonable?
c. Does the company have the correct product mix for the buyer's needs?
d. Does the company use a periodic or perpetual inventory system?
7. Hypo Company had the following items for the most recent year: Sales $100,000; Cost of Goods Sold $75,000; Gross Margin $25,000; Accounts Receivable (ending) $10,000; and Inventory (beginning and ending) $15,000. Based on these data, the inventory turnover was:
a. 4 times
b. 6.67 times
c. 5 times
d. 7.5 times
8. Days sales in inventory is the relationship of which of the following items divided into 365 days?
a. Net income to sales.
b. Cost of goods sold to inventory.
c. Sales to cost of goods sold.
d. Sales to gross margin
9. The most reliable measure of long-term assets (fixed assets) value when purchasing another company is
a. an appraisal by a qualified outside appraiser.
b. book value of the fixed assets on the balance sheet.
c. original cost of the fixed assets on the balance sheet.
d. current salvage value of the fixed assets.
10. Which of the following items would be a risk of primary concern to the purchaser of a going concern?
a. Unrecorded intangible assets.
b. Unrecorded liabilities.
c. Audited financial statements.
d. An experienced employee work force.
11. The accounts receivable balance was $45,000 at the end of 1999 and $50,000 at the end of 2000. What was the percentage increase in 2000?
a. 111%
b. 10%
c. 90%
d. 11%