Acc 560 week 11 quiz – strayer new
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Transcript of Acc 560 week 11 quiz – strayer new
ACC 560 Week 11 Quiz – Strayer NEW
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Week 11 Quiz 10: Chapter 14
TRUE-FALSE STATEMENTS
1. Intracompany comparisons of the same financial statement items can often detect changes in financial relationships and significant trends.
Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement
2. Calculating financial ratios is a financial reporting requirement under generally accepted accounting principles.
Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement
3. Measures of a company's liquidity are concerned with the frequency and amounts of dividend payments.
Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement
4. Analysis of financial statements is enhanced with the use of comparative data.
Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement
5. Comparisons of company data with industry averages can provide some insight into the company's relative position in the industry.
Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement
6. Vertical and horizontal analyses are concerned with the format used to prepare financial statements.
Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
7. Horizontal, vertical, and circular analyses are the most common tools of financial statement analysis.
Financial Statement Analysis
Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
8. Horizontal analysis is a technique for evaluating a financial statement item in the current year with other items in the current year.
Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement
9. Another name for trend analysis is horizontal analysis.
Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement
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Financial Statement Analysis
10. If a company has sales of $110 in 2012 and $154 in 2013, the percentage increase in sales from 2012 to 2013 is 140%.
Ans: LO: 3, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Performance Measurement
11. In horizontal analysis, if an item has a negative amount in the base year, and a positive amount in the following year, no percentage change for that item can be computed.
Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement
12. Common size analysis expresses each item within a financial statement in terms of a percent of a base amount.
Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement
13. Vertical analysis is a more sophisticated analytical tool than horizontal analysis.
Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement
14. Vertical analysis is useful in making comparisons of companies of different sizes.
Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement
15. Meaningful analysis of financial statements will include either horizontal or vertical analysis, but not both.
Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement
16. Using vertical analysis of the income statement, a company's net income as a percentage of net sales is 10%; therefore, the cost of goods sold as a percentage of sales must be 90%.
Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Performance Measurement
17. In the vertical analysis of the income statement, each item is generally stated as a percentage of net income.
Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement
18. A ratio can be expressed as a percentage, a rate, or a proportion.
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Financial Statement Analysis
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement
19. A solvency ratio measures the income or operating success of an enterprise for a given period of time.
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement
20. The current ratio is a measure of all the ratios calculated for the current year.
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement
21. Inventory turnover measures the number of times on the average the inventory was sold during the period.
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement
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Financial Statement Analysis
22. Profitability ratios are frequently used as a basis for evaluating management's operating effectiveness.
Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement
23. The rate of return on total assets will be greater than the rate of return on common stockholders' equity if the company has been successful in trading on the equity at a gain.
Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance Measurement
24. From a creditor's point of view, the higher the total debt to total assets ratio, the lower the risk that the company may be unable to pay its obligations.
Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Investment Decisions
25. A current ratio of 1.2 to 1 indicates that a company's current assets exceed its current liabilities.
Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Performance Measurement
26. Using borrowed money to increase the rate of return on common stockholders' equity is called "trading on the equity."
Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
27. When the disposal of a significant segment occurs, the income statement should report both income from continuing operations and income (loss) from discontinued operations.
Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communcations, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
28. An event or transaction should be classified as an extraordinary item if it is unusual in nature or if it occurs infrequently.
Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
29. Variations among companies in the application of generally accepted accounting principles may reduce quality of earnings.
Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
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Financial Statement Analysis
30. Pro forma income usually excludes items that the company thinks are unusual or nonrecurring.
Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communcations, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
31. The three basic tools of analysis are horizontal analysis, vertical analysis, and ratio analysis.
Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
32. A percentage change can be computed only if the base amount is zero or positive.
Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
33. In vertical analysis, the base amount in an income statement is usually net sales.
Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
34. Profitability ratios measure the ability of the enterprise to survive over a long period of time.
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
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Financial Statement Analysis
35. The days in inventory is computed by multiplying inventory turnover by 365.
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
36. Extraordinary items are reported net of applicable taxes in a separate section of the income statement.
Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
MULTIPLE CHOICE QUESTIONS
37. Which one of the following is primarily interested in the liquidity of a company?a. Federal governmentb. Stockholdersc. Long-term creditorsd. Short-term creditors
Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics
38. Which one of the following is not a characteristic generally evaluated in analyzing financial statements?a. Liquidityb. Profitabilityc. Marketabilityd. Solvency
Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics
39. In analyzing the financial statements of a company, a single item on the financial statementsa. should be reported in bold-face type.b. is more meaningful if compared to other financial information.c. is significant only if it is large.d. should be accompanied by a footnote.
Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics
40. Short-term creditors are usually most interested in evaluatinga. solvency.b. liquidity.c. marketability.
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Financial Statement Analysis
d. profitability.
Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics
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Financial Statement Analysis
41. Long-term creditors are usually most interested in evaluatinga. liquidity and solvency.b. solvency and marketability.c. liquidity and profitability.d. profitability and solvency.
Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics
42. Stockholders are most interested in evaluatinga. liquidity and solvency.b. profitability and solvency.c. liquidity and profitability.d. marketability and solvency.
Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics
43. A stockholder is interested in the ability of a firm toa. pay consistent dividends.b. appreciate in share price.c. survive over a long period.d. all of these.
Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics
44. Comparisons of financial data made within a company are calleda. intracompany comparisons.b. interior comparisons.c. intercompany comparisons.d. intramural comparisons.
Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
45. A technique for evaluating financial statements that expresses the relationship among selected items of financial statement data isa. common size analysis.b. horizontal analysis.c. ratio analysis.d. vertical analysis.
Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
46. Which one of the following is not a tool in financial statement analysis?a. Horizontal analysis
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Financial Statement Analysis
b. Circular analysisc. Vertical analysisd. Ratio analysis
Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
FOR INSTRUCTOR USE ONLY
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Financial Statement Analysis
47. In analyzing financial statements, horizontal analysis is aa. requirement.b. tool.c. principle.d. theory.
Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
48. Horizontal analysis is also calleda. linear analysis.b. vertical analysis.c. trend analysis.d. common size analysis.
Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
49. Vertical analysis is also known asa. perpendicular analysis.b. common size analysis.c. trend analysis.d. straight-line analysis.
Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
50. In ratio analysis, the ratios are never expressed as aa. rate.b. negative figure.c. percentage.d. simple proportion.
Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
51. The formula for horizontal analysis of changes since the base period is the current year amounta. divided by the base year amount.b. minus the base year amount divided by the base year amount.c. minus the base year amount divided by the current year amount.d. plus the base year amount divided by the base year amount.
Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
52. Horizontal analysis evaluates a series of financial statement data over a period of timea. that has been arranged from the highest number to the lowest number.
FOR INSTRUCTOR USE ONLY
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Financial Statement Analysis
b. that has been arranged from the lowest number to the highest number.c. to determine which items are in error.d. to determine the amount and/or percentage increase or decrease that has taken place.
Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
FOR INSTRUCTOR USE ONLY
14 - 12
Financial Statement Analysis
53. Horizontal analysis evaluates financial statement dataa. within a period of time.b. over a period of time.c. on a certain date.d. as it may appear in the future.
Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
54. Assume the following sales data for a company:
2014 $1,050,0002013 950,0002012 800,0002011 550,000
If 2011 is the base year, what is the percentage increase in sales from 2011 to 2013?a. 100%b. 90.9%c. 72.7%d. 52.4%
Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
55. Comparative balance sheets are usually prepared fora. one year.b. two years.c. three years.d. four years.
Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
56. Horizontal analysis is appropriately performeda. only on the income statement.b. only on the balance sheet.c. only on the statement of retained earnings.d. on all three of these statements.
Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
57. A horizontal analysis performed on a statement of retained earnings would not show a percentage change ina. dividends paid.b. net income.c. expenses.
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Financial Statement Analysis
d. beginning retained earnings.
Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
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Financial Statement Analysis
58. Under which of the following cases may a percentage change be computed?a. The trend of the balances is decreasing but all balances are positive.b. There is no balance in the base year.c. There is a positive balance in the base year and a negative balance in the subsequent
year.d. There is a negative balance in the base year and a positive balance in the subsequent
year.
Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
59. Assume the following sales data for a company:
2014 $945,0002013 877,5002012 650,000
If 2012 is the base year, what is the percentage increase in sales from 2012 to 2013?a. 24%b. 35%c. 76%d. 135%
Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
60. Assume the following cost of goods sold data for a company:2014 $1,680,0002013 1,400,0002012 1,200,000
If 2012 is the base year, what is the percentage increase in cost of goods sold from 2012 to 2014?a. 140%b. 40%c. 23%d. 17%
Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
61. Darius, Inc. has the following income statement (in millions):
DARIUS, INC.Income Statement
For the Year Ended December 31, 2013
Net Sales $300
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Financial Statement Analysis
Cost of Goods Sold 120Gross Profit 180Operating Expenses 44Net Income $136
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Financial Statement Analysis
MC 61. (Cont.)
Using vertical analysis, what percentage is assigned to Cost of Goods Sold?a. 30%b. 40%c. 100%d. None of the above
Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
62. Darius, Inc. has the following income statement (in millions):
DARIUS, INC.Income Statement
For the Year Ended December 31, 2013
Net Sales $300Cost of Goods Sold 120Gross Profit 180Operating Expenses 44Net Income $136
Using vertical analysis, what percentage is assigned to Net Income?a. 100%b. 75.6%c. 45.3%d. None of the above
Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
63. Vertical analysis is also calleda. common size analysis.b. horizontal analysis.c. ratio analysis.d. trend analysis.
Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
64. Vertical analysis is a technique which expresses each item within a financial statementa. in dollars and cents.b. in terms of a percentage of the item in the previous year.c. in terms of a percent of a base amount.d. starting with the highest value down to the lowest value.
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Financial Statement Analysis
Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
65. In common size analysis,a. a base amount is required.b. a base amount is optional.c. the same base is used across all financial statements analyzed.d. the results of the horizontal analysis are necessary inputs for performing the analysis.
Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
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Financial Statement Analysis
66. In performing a vertical analysis, the base for prepaid expenses isa. total current assets.b. total assets.c. total liabilities and stockholders' equity.d. prepaid expenses.
Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
67. In performing a vertical analysis, the base for sales revenues on the income statement isa. net sales.b. sales.c. net income.d. cost of goods available for sale.
Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
68. In performing a vertical analysis, the base for sales returns and allowances isa. sales.b. sales discounts.c. net sales.d. total revenues.
Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
69. In performing a vertical analysis, the base for cost of goods sold isa. total selling expenses.b. net sales.c. total revenues.d. total expenses.
Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
70. Each of the following is a liquidity ratio except thea. acid-test ratio.b. current ratio.c. debt to total assets ratio.d. inventory turnover.
Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
71. A ratio calculated in the analysis of financial statementsa. expresses a mathematical relationship between two numbers.b. shows the percentage increase from one year to another.
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Financial Statement Analysis
c. restates all items on a financial statement in terms of dollars of the same purchasing power.
d. is meaningful only if the numerator is greater than the denominator.
Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
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Financial Statement Analysis
72. A liquidity ratio measures thea. income or operating success of an enterprise over a period of time.b. ability of the enterprise to survive over a long period of time.c. short-term ability of the enterprise to pay its maturing obligations and to meet
unexpected needs for cash.d. number of times interest is earned.
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
73. The current ratio isa. calculated by dividing current liabilities by current assets.b. used to evaluate a company's liquidity and short-term debt paying ability.c. used to evaluate a company's solvency and long-term debt paying ability.d. calculated by subtracting current liabilities from current assets.
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
74. The acid-test (quick) ratioa. is used to quickly determine a company's solvency and long-term debt paying ability.b. relates cash, short-term investments, and net receivables to current liabilities.c. is calculated by taking one item from the income statement and one item from the
balance sheet.d. is the same as the current ratio except it is rounded to the nearest whole percent.
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
75. Harvey Clothing Store had a balance in the Accounts Receivable account of $390,000 at the beginning of the year and a balance of $410,000 at the end of the year. Net credit sales during the year amounted to $3,000,000. The average collection period of the receivables in terms of days wasa. 30 days.b. 365 days.c. 274 days.d. 48.7 days.
Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
76. Parker Hardware Store had net credit sales of $8,000,000 and cost of goods sold of $5,000,000 for the year. The Accounts Receivable balances at the beginning and end of the year were $600,000 and $700,000, respectively. The receivables turnover wasa. 7.7 times.b. 4.6 times.c. 11.4 times.
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Financial Statement Analysis
d. 12.3 times.
Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
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Financial Statement Analysis
77. Wagon Department Store had net credit sales of $16,000,000 and cost of goods sold of $15,000,000 for the year. The average inventory for the year amounted to $2,000,000. Inventory turnover for the year isa. 8 times.b. 15 times.c. 7.5 times.d. 5 times.
Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
78. Wagon Department Store had net credit sales of $16,000,000 and cost of goods sold of $15,000,000 for the year. The average inventory for the year amounted to $2,000,000. The average number of days in inventory during the year wasa. 365 days.b. 48.7 days.c. 46 days.d. 30 days.
Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
79. Each of the following is included in computing the acid-test ratio excepta. cash.b. inventory.c. receivables.d. short-term investments.
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
80. Which one of the following would not be considered a liquidity ratio?a. Current ratiob. Inventory turnoverc. Acid-test ratiod. Return on assets
Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
81. Asset turnover measuresa. how often a company replaces its assets.b. how efficiently a company uses its assets to generate sales.c. the portion of the assets that have been financed by creditors.d. the overall rate of return on assets.
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Financial Statement Analysis
Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
82. Profit margin is calculated by dividinga. sales by cost of goods sold.b. gross profit by net sales.c. net income by stockholders' equity.d. net income by net sales.
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
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Financial Statement Analysis
83. Stout Corporation had net income of $200,000 and paid dividends to common stockholders of $40,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Stout Corporation's common stock is selling for $75 per share on the New York Stock Exchange. Stout Corporation's price-earnings ratio isa. 3.8 times.b. 15 times.c. 18.8 times.d. 12 times.
Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
84 Stout Corporation had net income of $200,000 and paid dividends to common stockholders of $40,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Stout Corporation's common stock is selling for $60 per share on the New York Stock Exchange. Stout Corporation's payout ratio for 2013 isa. $4 per share.b 25%.c. 20%.d. 12.5%.
Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
85 Flake Company reported the following on its income statement:
Income before income taxes $600,000Income tax expense 150,000Net income $450,000
An analysis of the income statement revealed that interest expense was $50,000. Flake Company's times interest earned wasa. 13 times.b. 12 times.c. 6 times.d. 7 times.
Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
86. The debt to total assets ratio measuresa. the company's profitability.b. whether interest can be paid on debt in the current year.c. the proportion of interest paid relative to dividends paid.d. the percentage of the total assets provided by creditors.
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Financial Statement Analysis
Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
87. Trading on the equity (leverage) refers to thea. amount of working capital.b. amount of capital provided by owners.c. use of borrowed money to increase the return to owners.d. number of times interest is earned.
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
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Financial Statement Analysis
88. The current assets of Margo Company are $300,000. The current liabilities are $100,000. The current ratio expressed as a proportion isa. 300%.b. 3.0 : 1c. .33 : 1d. $300,000 ÷ $100,000.
Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
89. The current ratio may also be referred to as thea. short run ratio.b. acid-test ratio.c. working capital ratio.d. contemporary ratio.
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
90. A weakness of the current ratio isa. the difficulty of the calculation.b. that it doesn't take into account the composition of the current assets.c. that it is rarely used by sophisticated analysts.d. that it can be expressed as a percentage, as a rate, or as a proportion.
Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
91. A supplier to a company would be most interested in the company’sa. asset turnover.b. profit margin.c. current ratio.d. earnings per share.
Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
92. Which one of the following ratios would not likely be used by a short-term creditor in evaluating whether to sell on credit to a company?a. Current ratiob. Acid-test ratioc. Asset turnoverd. Receivables turnover
Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
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Financial Statement Analysis
93. Ratios are used as tools in financial analysisa. instead of horizontal and vertical analyses.b. because they may provide information that is not apparent from inspection of the
individual components of the ratio.c. because even single ratios by themselves are quite meaningful.d. because they are prescribed by GAAP.
Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
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Financial Statement Analysis
94. The ratios that are used to determine a company's short-term debt paying ability area. asset turnover, times interest earned, current ratio, and receivables turnover.b. times interest earned, inventory turnover, current ratio, and receivables turnover.c. times interest earned, acid-test ratio, current ratio, and inventory turnover.d. current ratio, acid-test ratio, receivables turnover, and inventory turnover.
Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
95. A measure of the percentage of each dollar of sales that results in net income isa. profit margin.b. return on assets.c. return on common stockholders' equity.d. earnings per share.
Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
96. West Company had $375,000 of current assets and $150,000 of current liabilities before borrowing $75,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on the amount of West Company's working capital?a. No effectb. $75,000 increasec. $150,000 increased. $75,000 decrease
Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
97. West Company had $375,000 of current assets and $150,000 of current liabilities before borrowing $75,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on West Company's current ratio?a. The ratio remained unchanged.b. The change in the current ratio cannot be determined.c. The ratio decreased.d. The ratio increased.
Ans: LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
98. If equal amounts are added to the numerator and the denominator of the current ratio, the ratio will alwaysa. increase.b. decrease.c. stay the same.d. equal zero.
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Financial Statement Analysis
Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
99. The acid-test ratioa. is a quick calculation of an approximation of the current ratio.b. does not include all current liabilities in the calculation.c. does not include inventory as part of the numerator.d. does include prepaid expenses as part of the numerator.
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
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Financial Statement Analysis
100. If a company has an acid-test ratio of 1.2:1, what respective effects will the borrowing of cash by short-term debt and collection of accounts receivable have on the ratio?
Short-term Borrowing Collection of Receivablea. Increase No effectb. Increase Increasec. Decrease No effectd. Decrease Decrease
Ans: LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
101. A company has a receivables turnover of 10 times. The average receivables during the period are $500,000. What is the amount of net credit sales for the period?a. $50,000b. $5,000,000c. $500,000d. Cannot be determined from the information given
Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
102. If the average collection period is 60 days, what is the receivables turnover?a. 6.0 timesb. 6.1 timesc. 12.2 timesd. None of these
Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
103. A general rule to use in assessing the average collection period is thata. it should not exceed 30 days.b. it can be any length as long as the customer continues to buy merchandise.c. it should not greatly exceed the discount period.d. it should not greatly exceed the credit term period.
Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
104. Inventory turnover is calculated by dividinga. cost of goods sold by the ending inventory.b. cost of goods sold by the beginning inventory.c. cost of goods sold by the average inventory.d. average inventory by cost of goods sold.
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Financial Statement Analysis
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
105. A company has an average inventory on hand of $40,000 and the days in inventory is 73 days. What is the cost of goods sold?a. $200,000b. $2,920,000c. $400,000d. $1,460,000
Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
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Financial Statement Analysis
106. A successful grocery store would probably havea. a low inventory turnover.b. a high inventory turnover.c. zero profit margin.d. low volume.
Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
107. An aircraft company would most likely havea. a high inventory turnover.b. low profit margin.c. high volume.d. a low inventory turnover.
Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
108. Net sales are $6,000,000, beginning total assets are $2,800,000, and the asset turnover is 3.0 times. What is the ending total asset balance?a. $2,000,000b. $1,200,000c. $2,800,000d. $2,200,000
Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
109. Earnings per share is calculateda. only for common stock.b. only for preferred stock.c. for common and preferred stock.d. only for treasury stock.
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
110. Which of the following is not a profitability ratio?a. Payout ratiob. Profit marginc. Times interest earnedd. Return on common stockholders' equity
Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
111. Times interest earned is also called theFOR INSTRUCTOR USE ONLY
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Financial Statement Analysis
a. money multiplier.b. interest coverage ratio.c. coupon coverage ratio.d. premium ratio.
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
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Financial Statement Analysis
112. The ratio that uses weighted average common shares outstanding in the denominator is thea. price-earnings ratio.b. return on common stockholders' equity.c. earnings per share.d. payout ratio.
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
113. Net income does not appear in the numerator of thea. profit margin.b. return on assets.c. return on common stockholders' equity.d. payout ratio.
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
114. Bria Clothing Store had a balance in the Accounts Receivable account of $920,000 at the beginning of the year and a balance of $980,000 at the end of the year. Net credit sales during the year amounted to $7,600,000. The receivables turnover ratio wasa. 8.0 times.b. 8.4 times.c. 7.8 times.d. 8.3 times.
Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
115. Bria Clothing Store had a balance in the Accounts Receivable account of $810,000 at the beginning of the year and a balance of $850,000 at the end of the year. Net credit sales during the year amounted to $6,640,000. The average collection period of the receivables in terms of days wasa. 91.3 days.b. 45.6 days.c. 30 days.d. 46.7 days.
Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
116. Donner Corporation had net income of $200,000 and paid dividends to common stockholders of $40,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Donner Corporation's common stock is selling for $35 per share on the New York Stock Exchange. Donner Corporation's price-earnings ratio isa. 5 times.
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Financial Statement Analysis
b. 8.75 times.c. 4 times.d. 10.9 times.
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
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Financial Statement Analysis
117. Donner Corporation had net income of $400,000 and paid dividends to common stockholders of $40,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Donner Corporation's common stock is selling for $50 per share on the New York Stock Exchange. Donner Corporation's payout ratio for 2013 isa. $8 per share.b. 10%.c. 12.5%.d. 20%.
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
118. Town Company reported the following on its income statement:Income before income taxes $750,000Income tax expense 150,000Net income $600,000
An analysis of the income statement revealed that interest expense was $100,000. Town Company's times interest earned wasa. 5 times.b. 8.5 times.c. 6 times.d. 7.5 times.
Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
119. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000Accounts receivable (net) 25,000Inventory 20,000Property, plant and equipment 210,000
Total Assets $300,000
Liabilities and Stockholders’ EquityCurrent liabilities $ 50,000Long-term liabilities 90,000Stockholders’ equity—common 160,000
Total Liabilities and Stockholders’ Equity $300,000
Income StatementSales $ 120,000Cost of goods sold 66,000
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Financial Statement Analysis
Gross profit 54,000Operating expenses 30,000
Net income $ 24,000
Number of shares of common stock 6,000Market price of common stock $20Dividends per share .50
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Financial Statement Analysis
MC 119. (Cont.)
What is the current ratio for Sampson?a. 1.80b. 1.30c. 1.40d. .64
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
120. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000Accounts receivable (net) 35,000Inventory 20,000Property, plant and equipment 210,000
Total Assets $310,000
Liabilities and Stockholders’ EquityCurrent liabilities $ 50,000Long-term liabilities 90,000Stockholders’ equity—common 160,000
Total Liabilities and Stockholders’ Equity $310,000
Income StatementSales $ 105,000Cost of goods sold 66,000Gross profit 39,000Operating expenses 30,000
Net income $ 9,000
Number of shares of common stock 6,000Market price of common stock $20Dividends per share .50
What is the receivables turnover for Sampson?a. 1.5 timesb. 1.1 timesc. 3.0 timesd. 12.9 times
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Financial Statement Analysis
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
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Financial Statement Analysis
121. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000Accounts receivable (net) 25,000Inventory 11,000Property, plant and equipment 210,000
Total Assets $291,000
Liabilities and Stockholders’ EquityCurrent liabilities $ 50,000Long-term liabilities 90,000Stockholders’ equity—common 151,000
Total Liabilities and Stockholders’ Equity $291,000
Income StatementSales $ 120,000Cost of goods sold 55,000Gross profit 65,000Operating expenses 30,000
Net income $ 35,000
Number of shares of common stock 6,000Market price of common stock $20Dividends per share .50
What is the inventory turnover for Sampson?a. 3.2 timesb. 5 timesc. 10.9 timesd. 0.20 times
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
122. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000Accounts receivable (net) 25,000Inventory 20,000Property, plant and equipment 210,000
Total Assets $300,000
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Financial Statement Analysis
Liabilities and Stockholders’ EquityCurrent liabilities $ 50,000Long-term liabilities 90,000Stockholders’ equity—common 160,000
Total Liabilities and Stockholders’ Equity $300,000
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Financial Statement Analysis
MC 122. (Cont.)Income Statement
Sales $ 120,000Cost of goods sold 66,000Gross profit 54,000Operating expenses 30,000
Net income $ 24,000
Number of shares of common stock 6,000Market price of common stock $20Dividends per share .50
What is the return on assets for Sampson?a. 8.0%b. 7.0%c. 18.0%d. 16.0%
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
123. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000Accounts receivable (net) 25,000Inventory 20,000Property, plant and equipment 310,000
Total Assets $400,000
Liabilities and Stockholders’ EquityCurrent liabilities $ 50,000Long-term liabilities 90,000Stockholders’ equity—common 260,000
Total Liabilities and Stockholders’ Equity $400,000
Income StatementSales $ 300,000Cost of goods sold 66,000Gross profit 234,000Operating expenses 30,000
Net income $ 204,000
Number of shares of common stock 6,000Market price of common stock $20
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Financial Statement Analysis
Dividends per share .50
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Financial Statement Analysis
MC 123. (Cont.)
What is the profit margin for Sampson?a. 115%b. 28.2%c. 68%d. 51%
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
124. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000Accounts receivable (net) 25,000Inventory 20,000Property, plant and equipment 230,000
Total Assets $320,000
Liabilities and Stockholders’ EquityCurrent liabilities $ 50,000Long-term liabilities 90,000Stockholders’ equity—common 180,000
Total Liabilities and Stockholders’ Equity $320,000
Income StatementSales $ 150,000Cost of goods sold 66,000Gross profit 84,000Operating expenses 30,000
Net income $ 54,000
Number of shares of common stock 6,000Market price of common stock $20Dividends per share .50
What is the return on common stockholders’ equity for Sampson?a. 30%b. 46.7%c. 36%d. 16.9%
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Financial Statement Analysis
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
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Financial Statement Analysis
125. The following information pertains to Sampson Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 45,000Accounts receivable (net) 25,000Inventory 20,000Property, plant and equipment 210,000
Total Assets $300,000
Liabilities and Stockholders’ EquityCurrent liabilities $ 50,000Long-term liabilities 90,000Stockholders’ equity—common 160,000
Total Liabilities and Stockholders’ Equity $300,000
Income StatementSales $ 120,000Cost of goods sold 66,000Gross profit 54,000Operating expenses 18,000
Net income $ 36,000
Number of shares of common stock 6,000Market price of common stock $33Dividends per share .50
What is the price-earnings ratio for Sampson?a. 5.5 timesb. 1.1 timesc. 6 timesd. 6.6 times
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
126. The following information pertains to Eura Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
AssetsCash and short-term investments $ 40,000Accounts receivable (net) 30,000Inventory 25,000Property, plant and equipment 215,000
Total Assets $310,000
Liabilities and Stockholders’ Equity
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Financial Statement Analysis
Current liabilities $ 60,000Long-term liabilities 75,000Stockholders’ equity—common 175,000
Total Liabilities and Stockholders’ Equity $310,000
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Financial Statement Analysis
MC 126. (Cont.)
Income StatementSales $ 90,000Cost of goods sold 45,000Gross profit 45,000Operating expenses 25,000
Net income $ 20,000
Number of shares of common stock 5,000Market price of common stock $22Dividends per share 1.00
What is the return on assets for Eura?a. 4.8%b. 9.7%c. 6.5%d. 12.9%
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
127. The following information pertains to Eura Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
AssetsCash and short-term investments $ 40,000Accounts receivable (net) 30,000Inventory 25,000Property, plant and equipment 215,000
Total Assets $310,000
Liabilities and Stockholders’ EquityCurrent liabilities $ 60,000Long-term liabilities 75,000Stockholders’ equity—common 175,000
Total Liabilities and Stockholders’ Equity $310,000
Income StatementSales $ 135,000Cost of goods sold 45,000Gross profit 90,000Operating expenses 25,000
Net income $ 65,000
Number of shares of common stock 5,000Market price of common stock $22Dividends per share 1.00
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Financial Statement Analysis
What is the profit margin for Eura?a. 27.8%b. 51.9%c. 72.2%d. 48.1%
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
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Financial Statement Analysis
128. The following information pertains to Eura Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
AssetsCash and short-term investments $ 40,000Accounts receivable (net) 30,000Inventory 45,000Property, plant and equipment 215,000
Total Assets $330,000
Liabilities and Stockholders’ EquityCurrent liabilities $ 60,000Long-term liabilities 75,000Stockholders’ equity—common 195,000
Total Liabilities and Stockholders’ Equity $330,000
Income StatementSales $ 90,000Cost of goods sold 45,000Gross profit 45,000Operating expenses 30,000
Net income $ 15,000
Number of shares of common stock 5,000Market price of common stock $22Dividends per share 1.00
What is the return on common stockholders’ equity for Eura?a. 4.8%b. 7.7%c. 23.1%d. 46.2%
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
129. The following information pertains to Eura Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
AssetsCash and short-term investments $ 40,000Accounts receivable (net) 30,000Inventory 25,000Property, plant and equipment 215,000
Total Assets $310,000
Liabilities and Stockholders’ EquityCurrent liabilities $ 60,000Long-term liabilities 75,000
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Financial Statement Analysis
Stockholders’ equity—common 175,000Total Liabilities and Stockholders’ Equity $310,000
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Financial Statement Analysis
MC 129. (Cont.)
Income StatementSales $ 90,000Cost of goods sold 45,000Gross profit 45,000Operating expenses 25,000
Net income $ 20,000
Number of shares of common stock 5,000Market price of common stock $22Dividends per share 1.00
What is the price-earnings ratio for Eura?a. 5 timesb. 4.0 timesc. 7.3 timesd. 5.5 times
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
130. The following information is available for Compton Company:
2013 2012 Accounts receivable $ 460,000 $ 500,000Inventory 280,000 320,000Net credit sales 2,470,000 1,400,000Cost of goods sold 1,860,000 1,060,000Net income 300,000 170,000
The receivables turnover ratio for 2013 isa. 1.6 times.b. 5.4 times.c. 5.1 times.d. 3.9 times.
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
131. The following information is available for Compton Company:
2013 2012 Accounts receivable $ 360,000 $ 400,000Inventory 340,000 420,000Net credit sales 2,470,000 1,400,000
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Financial Statement Analysis
Cost of goods sold 1,860,000 1,060,000Net income 300,000 170,000
The inventory turnover ratio for 2013 isa. 6.2 times.b. 4.9 times.c. 5.5 times.d. 4.4 times.
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
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Financial Statement Analysis
132. The following amounts were taken from the financial statements of Plant Company:
2013 2012 Total assets $800,000 $1,000,000Net sales 720,000 650,000Gross profit 352,000 320,000Net income 126,000 117,000Weighted average number of common shares outstanding 90,000 90,000Market price of common stock $35 $39
The return on assets ratio for 2013 isa. 16%.b. 14%.c. 32%.d. 28%.
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
133. The following amounts were taken from the financial statements of Plant Company:
2013 2012 Total assets $800,000 $1,000,000Net sales 840,000 650,000Gross profit 352,000 320,000Net income 155,400 117,000Weighted average number of common shares outstanding 90,000 90,000Market price of common stock $35 $39
The profit margin ratio for 2013 isa. 19.4%.b. 44.1%.c. 18.5%.d. 10.7%.
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
134. The following amounts were taken from the financial statements of Plant Company:
2013 2012 Total assets $800,000 $1,000,000Net sales 720,000 650,000Gross profit 352,000 320,000Net income 150,000 117,000Weighted average number of common shares outstanding 60,000 90,000Market price of common stock $67.50 $39
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Financial Statement Analysis
The price-earnings ratio for 2013 isa. 27 times.b. 45 times.c. 11 times.d. 2.5 times.
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
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Financial Statement Analysis
135. Star Corporation had net income of $300,000 and paid dividends to common stockholders of $40,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Star Corporation's common stock is selling for $36 per share on the New York Stock Exchange.
Star Corporation's price-earnings ratio isa. 5.2 times.b. 6 times.c. 18 times.d. 6.9 times.
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
136. Star Corporation had net income of $320,000 and paid dividends to common stockholders of $80,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares. Star Corporation's common stock is selling for $30 per share on the New York Stock Exchange.
Star Corporation's payout ratio for 2013 isa. 16%.b. 25%.c. 9%.d. $4 per share.
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
137. The following financial statement information is available for Houser Corporation: 2013 2012
Inventory $ 44,000 $ 43,000Current assets 81,000 106,000Total assets 432,000 358,000Current liabilities 30,000 36,000Total liabilities 102,000 88,000
The current ratio for 2013 isa. .37:1.b. 2.7:1.c. .79:1.d. 4.24:1.
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
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Financial Statement Analysis
138. The following financial statement information is available for Jones Corporation: 2013 2012
Net sales $784,000 $697,000Cost of goods sold 406,000 377,000Net income 112,000 80,000Tax expense 48,000 29,000Interest expense 14,000 14,000
The profit margin ratio for 2013 isa. 14.3%.b. 16.1%.c. 48.2%.d. 11.7%.
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
139. The following financial statement information is available for Henn Corporation: 2013 2012
Stockholders' equity - common $330,000 $270,000Net sales 784,000 697,000Cost of goods sold 406,000 377,000Net income 112,000 80,000Inc tax expense 48,000 29,000Interest expense 14,000 14,000Dividends paid to preferred stockholders 22,000 20,000Dividends paid to common stockholders 15,000 10,000The return on common stockholders’ equity for 2013 isa. 25.0%.b. 37.3%.c. 27.3%.d. 30.0%.
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
140. The following financial statement information is available for Bongo Corporation: 2013 2012
Net income $115,000 $ 80,000Income tax expense 50,000 29,000Interest expense 15,000 14,000Dividends paid to preferred stockholders 22,000 20,000Dividends paid to preferred
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Financial Statement Analysis
stockholders 15,000 10,000
The times interest earned for 2013 isa. 8.8 times.b. 7.7 times.c. 12 times.d. 11 times.
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
141. Dean Corporation reported net income $48,000, net sales $400,000, and average assets $800,000 for 2013. The 2013 profit margin was:a. 6%.b. 12%.c. 50%.d. 200%.
Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
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Financial Statement Analysis
142. Goin Company reports the following amounts for 2013:Net income $ 150,000Average stockholders’ equity 2,000,000Preferred dividends 48,000Par value preferred stock 200,000
The 2013 rate of return on common stockholders’ equity is:a. 5.1%.b. 5.7%.c. 7.5%.d. 8.3%.
Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
143. Gamble Corporation had beginning inventory $100,000, cost of goods purchased $700,000, and ending inventory $140,000. What was Gamble's inventory turnover?a. 5 times.b. 5.5 times.c. 5.83 times.d. 6.6 times.
Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
144. In 2013 Shum Corporation reported income from operations $180,000, interest expense $50,000, and income tax expense $40,000. Shum’s times interest earned ratio was:a. 5.4 times.b. 4.6 times.c. 4.4 times.d. 3.6 times.
Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
145. Reynolds Company has income before taxes of $360,000 and an extraordinary loss of $80,000. If the income tax rate is 30% on all items, the income statement should show income before irregular items and an extraordinary loss, respectively, of:a. $360,000 and ($80,000)b. $252,000 and ($24,000)c. $252,000 and ($56,000)d. $108,000 and ($24,000)
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Financial Statement Analysis
Ans: LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
146. All of the following statements regarding changes in accounting principles are true except:a. Most changes in accounting principles are only reported in current periods when the
principle change takes place.b. Changes in accounting principles are allowed when new principles are preferable to old
ones.c. Most changes in accounting principles are retroactively reported.d. Consistency is one of the biggest concerns when a change in accounting principle is
undertaken.
Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
147. Alpha’s Bunny Barn has experienced a $60,000 loss due to tornado damage to its inventory. Tornados have never before occurred in this area. Assuming that the company’s tax rate is 30%, what amount will be reported for this loss on the income statement?a. $60,000b. $42,000c. $18,000d. $54,000
Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
148. Wing Company reported income before taxes of $900,000 and an extraordinary loss of $250,000. Assume that the company’s tax rate is 30%. What amounts will be reported on the income statement for income before irregular items and extraordinary items, respectively?a. $630,000 and $250,000b. $630,000 and $175,000c. $650,000 and $250,000d. $650,000 and $175,000
Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
149. Krug Corporation has income before taxes of $900,000 and an extraordinary gain of $300,000. If the income tax rate is 25% on all items, the income statement should show income before irregular items and extraordinary items, respectively, ofa. $600,000 and $300,000.b. $600,000 and $225,000.c. $675,000 and $300,000.d. $675,000 and $225,000.
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Financial Statement Analysis
Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
150. Hook Inc. has an investment in available-for-sale securities of $80,000. This investment experienced an unrealized loss of $5,000 during the current year. Assuming a 35% tax rate, the effect of this loss on comprehensive income will bea. no effect.b. $80,000 increase.c. $28,000 decrease.d. $5,000 decrease.
Ans: LO: 6, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
151. The disposal of a significant component of a business is calleda. a change in accounting principle.b. an extraordinary item.c. an other expense.d. discontinued operations.
Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
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Financial Statement Analysis
152. ACME Company reports income before income taxes of $2,400,000 and had an extra-ordinary loss of $800,000. If the tax rate is 30%,a. the income before the extraordinary item is $1,920,000.b. the extraordinary loss would be reported on the income statement at $800,000.c. the income before the extraordinary item is $1,680,000.d. the extraordinary loss will be reported at $240,000.
Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
153. Eaton, Inc. disposes of an unprofitable segment of its business. The operation of the segment suffered a $360,000 loss in the year of disposal. The loss on disposal of the segment was $180,000. If the tax rate is 30%, and income before income taxes was $2,250,000,a. the income tax expense on the income before discontinued operations is $513,000.b. the income from continuing operations is $1,575,000.c. net income is $1,710,000.d. the losses from discontinued operations are reported net of income taxes at $270,000.
Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
154. Each of the following is an extraordinary item except thea. effects of major casualties, if rare in the area.b. effects of a newly enacted law or regulation.c. expropriation of property by a foreign government.d. losses attributable to labor strikes.
Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
155. The discontinued operations section of the income statement refers toa. discontinuance of a product line.b. the income or loss on products that have been completed and sold.c. obsolete equipment and discontinued inventory items.d. the disposal of a significant segment of a business.
Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
156. Which one of the following would be classified as an extraordinary item?a. Expropriation of property by a foreign governmentb. Losses attributed to a labor strikec. Write-down of inventoriesd. Gains or losses from sales of equipment
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Financial Statement Analysis
Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
157. A loss on the write down of obsolete inventory should be reported asa. "other expenses and losses."b. part of discontinued operations.c. an operating expense.d. an extraordinary item.
Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA
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Financial Statement Analysis
158. If an item meets one (but not both) of the criteria for an extraordinary item, ita. 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."
Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA
159. The order of presentation of nontypical items that may appear on the income statement isa. Extraordinary items, Discontinued operations, Other revenues and expenses.b. Discontinued operations, Extraordinary items, Other revenues and expenses.c. Other revenues and expenses, Discontinued operations, Extraordinary items.d. Other revenues and expenses, Extraordinary items, Discontinued operations.
Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
160. Each of the following is a factor affecting quality of earnings excepta. alternative accounting methods.b. improper recognition.c. pro forma income.d. extraordinary items.
Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
161. Comparisons can be made on each of the following bases excepta. industry averages.b. intercompany basis.c. intracompany basis.d. Each of these is a basis for comparison.
Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
162. Comparisons of data within a company are an example of the following comparative basis:a. Industry averagesb. Intercompanyc. Intracompanyd. Interregional
Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
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Financial Statement Analysis
163. Center Corporation reported net sales of $200,000, $350,000, and $550,000 in the years 2012, 2013, and 2014 respectively. If 2012 is the base year, what is the trend percentage for 2014?a. 100%b. 75%c. 175%d. 275%
Ans: LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
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Financial Statement Analysis
164. In vertical analysis, the base amount for each income statement item isa. gross profit.b. net income.c. net sales.d. sales.
Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
165. When performing vertical analysis, the base amount for administrative expense is generallya. administrative expense in a previous year.b. net sales.c. gross profit.d. fixed assets.
Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
166. Ratios that measure the short-term ability of the company to pay its maturing obligations area. liquidity ratios.b. profitability ratios.c. solvency ratios.d. trend ratios.
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
167. What type of ratios best measure the short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash?a. Leverageb. Solvencyc. Profitabilityd. Liquidity
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
168. The acid-test ratio is also known as thea. current ratio.b. quick ratio.c. fast ratio.d. times interest earned ratio.
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
169. The debt to total assets ratioFOR INSTRUCTOR USE ONLY
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Financial Statement Analysis
a. is a solvency ratio.b. is computed by dividing total assets by total debt.c. measures the total assets provided by stockholders.d. is a profitability ratio.
Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
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Financial Statement Analysis
170. An extraordinary item is one thata. occurs infrequently and is uncontrollable in nature.b. occurs infrequently and is unusual in nature.c. is material and is unusual in nature.d. is material and is uncontrollable in nature.
Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
171. Parrish, Inc. decided on January 1 to discontinue its telescope manufacturing division. On July 1, the division’s assets with a book value of $1,250,000 are sold for $850,000. Operating income from January 1 to June 30 for the division amounted to $125,000. Ignoring income taxes, what total amount should be reported on Parrish’s income statement for the current year under the caption, Discontinued Operations?a. $125,000b. $275,000 lossc. $400,000 lossd. $525,000
Ans: LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
172. When there has been a change in accounting principle,a. the old principle should be used in reporting the results of operations for the current
year.b. the cumulative effect of the change should be reported in the current year’s retained
earnings statement.c. the change should be reported retroactively.d. the new principle should be used in reporting the results of operations of the current
year, but there is no change to prior years.
Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
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Financial Statement Analysis
FOR INSTRUCTOR USE ONLY
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