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ACC 560 Week 11 Quiz
Chapter 14
ACC 560 Quiz Chapter
14 Week 11
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.
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
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.
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
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
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
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 government
b. Stockholders
c. Long-term creditors
d. 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. Liquidity
b. Profitability
c. Marketability
d. 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 statements
a. 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 evaluating
a. solvency.
b. liquidity.
c. marketability.
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
41. Long-term
creditors are usually most interested in evaluating
a. 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
evaluating
a. 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 to
a. 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 called
a. 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 is
a. 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
b. Circular analysis
c. Vertical analysis
d. 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
47. In analyzing financial statements,
horizontal analysis is a
a. 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 called
a. 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 as
a. 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 a
a. 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 amount
a. 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 time
a. that has been arranged from the highest number to the lowest
number.
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
53. Horizontal analysis evaluates financial
statement data
a. 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 $1,050,000
2013 950,000
2012 800,000
2011 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 for
a. 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
performed
a. 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 in
a. dividends paid.
b. net income.
c. expenses.
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
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 $945,000
2013 877,500
2012 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 $1,680,000
2013 1,400,000
2012 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
Cost of Goods Sold 120
Gross Profit 180
Operating Expenses 44
Net Income $136
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 $300
Cost of Goods Sold 120
Gross Profit 180
Operating Expenses 44
Net 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 called
a. 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 statement
a. 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.
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
66. In performing a vertical analysis, the base
for prepaid expenses is
a. 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 is
a. 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 is
a. 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 is
a. 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 the
a. 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 statements
a. expresses a mathematical relationship between two numbers.
b. shows the percentage increase from one year to another.
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
72. A liquidity ratio measures the
a. 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 is
a. 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) ratio
a. 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 was
a. 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 was
a. 7.7 times.
b. 4.6 times.
c. 11.4 times.
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
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
is
a. 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 was
a. 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 ratioexcept
a. 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 ratio
b. Inventory turnover
c. Acid-test ratio
d. 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 measures
a. 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.
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 dividing
a. 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
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 is
a. 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 is
a. $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 $600,000
Income
tax expense 150,000
Net
income $450,000
An
analysis of the income statement revealed that interest expense was $50,000.
Flake Company's times interest earned was
a. 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 measures
a. 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.
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
the
a. 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
88. The current assets of Margo Company are
$300,000. The current liabilities are $100,000. The current ratio expressed as
a proportion is
a. 300%.
b. 3.0 : 1
c. .33 : 1
d. $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 the
a. 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 is
a. 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’s
a. 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 ratio
b. Acid-test ratio
c. Asset turnover
d. 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
93. Ratios are used as tools in financial
analysis
a. 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
94. The ratios that are used to determine a
company's short-term debt paying ability are
a. 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 is
a. 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 effect
b. $75,000 increase
c. $150,000 increase
d. $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 always
a. increase.
b. decrease.
c. stay the same.
d. equal zero.
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 ratio
a. 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
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
Receivable
a. Increase No effect
b. Increase Increase
c. Decrease No effect
d. 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. $50,000
b. $5,000,000
c. $500,000
d. 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 times
b. 6.1 times
c. 12.2 times
d. 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 that
a. 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
dividing
a. 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.
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. $200,000
b. $2,920,000
c. $400,000
d. $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
106. A
successful grocery store would probably have
a. 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 have
a. 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. $2,000,000
b. $1,200,000
c. $2,800,000
d. $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 calculated
a. 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 ratio
b. Profit margin
c. Times interest earned
d. 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 the
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
112. The ratio that uses weighted average common
shares outstanding in the denominator is the
a. 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 the
a. 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 was
a. 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 was
a. 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 is
a. 5 times.
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
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
is
a. $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 $750,000
Income tax expense 150,000
Net income $600,000
An analysis of the
income statement revealed that interest expense was $100,000. Town Company's times interest earned was
a. 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 $ 45,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 210,000
Total
Assets $300,000
Liabilities and
Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 160,000
Total
Liabilities and Stockholders’ Equity $300,000
Income Statement
Sales $ 120,000
Cost of goods sold 66,000
Gross profit 54,000
Operating expenses 30,000
Net
income $ 24,000
Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50
MC 119. (Cont.)
What is the current ratio for Sampson?
a. 1.80
b. 1.30
c. 1.40
d. .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 $ 45,000
Accounts receivable (net) 35,000
Inventory 20,000
Property, plant and equipment 210,000
Total
Assets $310,000
Liabilities and
Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 160,000
Total
Liabilities and Stockholders’ Equity $310,000
Income Statement
Sales $ 105,000
Cost of goods sold 66,000
Gross profit 39,000
Operating expenses 30,000
Net
income $ 9,000
Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50
What is the receivables turnover for Sampson?
a. 1.5 times
b. 1.1 times
c. 3.0 times
d. 12.9 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
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 $ 45,000
Accounts receivable (net) 25,000
Inventory 11,000
Property, plant and equipment 210,000
Total
Assets $291,000
Liabilities and
Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 151,000
Total
Liabilities and Stockholders’ Equity $291,000
Income Statement
Sales $ 120,000
Cost of goods sold 55,000
Gross profit 65,000
Operating expenses 30,000
Net
income $ 35,000
Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50
What is the inventory turnover for Sampson?
a. 3.2 times
b. 5 times
c. 10.9 times
d. 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 $ 45,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 210,000
Total
Assets $300,000
Liabilities and
Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 160,000
Total
Liabilities and Stockholders’ Equity $300,000
MC 122. (Cont.)
Income Statement
Sales $ 120,000
Cost of goods sold 66,000
Gross profit 54,000
Operating expenses 30,000
Net
income $ 24,000
Number of shares of common stock 6,000
Market price of common stock $20
Dividends 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 $ 45,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 310,000
Total
Assets $400,000
Liabilities and
Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 260,000
Total
Liabilities and Stockholders’ Equity $400,000
Income Statement
Sales $ 300,000
Cost of goods sold 66,000
Gross profit 234,000
Operating expenses 30,000
Net
income $ 204,000
Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50
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 $ 45,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 230,000
Total
Assets $320,000
Liabilities and
Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 180,000
Total
Liabilities and Stockholders’ Equity $320,000
Income Statement
Sales $ 150,000
Cost of goods sold 66,000
Gross profit 84,000
Operating expenses 30,000
Net
income $ 54,000
Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .50
What is the return on common stockholders’ equity
for Sampson?
a. 30%
b. 46.7%
c. 36%
d. 16.9%
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
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 $ 45,000
Accounts receivable (net) 25,000
Inventory 20,000
Property, plant and equipment 210,000
Total
Assets $300,000
Liabilities and
Stockholders’ Equity
Current liabilities $ 50,000
Long-term liabilities 90,000
Stockholders’ equity—common 160,000
Total
Liabilities and Stockholders’ Equity $300,000
Income Statement
Sales $ 120,000
Cost of goods sold 66,000
Gross profit 54,000
Operating expenses 18,000
Net
income $ 36,000
Number of shares of common stock 6,000
Market price of common stock $33
Dividends per share .50
What is the price-earnings ratio for Sampson?
a. 5.5 times
b. 1.1 times
c. 6 times
d. 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.
Assets
Cash and short-term investments $ 40,000
Accounts receivable (net) 30,000
Inventory 25,000
Property, plant and equipment 215,000
Total
Assets $310,000
Liabilities
and Stockholders’ Equity
Current liabilities $ 60,000
Long-term liabilities 75,000
Stockholders’ equity—common 175,000
Total Liabilities and Stockholders’
Equity $310,000
MC 126. (Cont.)
Income
Statement
Sales $ 90,000
Cost of goods sold 45,000
Gross profit 45,000
Operating expenses 25,000
Net income $ 20,000
Number of shares of common stock 5,000
Market price of common stock $22
Dividends 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.
Assets
Cash and short-term investments $ 40,000
Accounts receivable (net) 30,000
Inventory 25,000
Property, plant and equipment 215,000
Total
Assets $310,000
Liabilities
and Stockholders’ Equity
Current liabilities $ 60,000
Long-term liabilities 75,000
Stockholders’ equity—common 175,000
Total Liabilities and Stockholders’
Equity $310,000
Income
Statement
Sales $ 135,000
Cost of goods sold 45,000
Gross profit 90,000
Operating expenses 25,000
Net income $ 65,000
Number of shares of common stock 5,000
Market price of common stock $22
Dividends per share 1.00
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
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.
Assets
Cash and short-term investments $ 40,000
Accounts receivable (net) 30,000
Inventory 45,000
Property, plant and equipment 215,000
Total
Assets $330,000
Liabilities
and Stockholders’ Equity
Current liabilities $ 60,000
Long-term liabilities 75,000
Stockholders’ equity—common 195,000
Total Liabilities and Stockholders’
Equity $330,000
Income
Statement
Sales $ 90,000
Cost of goods sold 45,000
Gross profit 45,000
Operating expenses 30,000
Net income $ 15,000
Number of shares of common stock 5,000
Market price of common stock $22
Dividends 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.
Assets
Cash and short-term investments $ 40,000
Accounts receivable (net) 30,000
Inventory 25,000
Property, plant and equipment 215,000
Total
Assets $310,000
Liabilities
and Stockholders’ Equity
Current liabilities $ 60,000
Long-term liabilities 75,000
Stockholders’ equity—common 175,000
Total Liabilities and Stockholders’
Equity $310,000
MC 129. (Cont.)
Income
Statement
Sales $ 90,000
Cost of goods sold 45,000
Gross profit 45,000
Operating expenses 25,000
Net income $ 20,000
Number of shares of common stock 5,000
Market price of common stock $22
Dividends per share 1.00
What is the price-earnings ratio for Eura?
a. 5 times
b. 4.0 times
c. 7.3 times
d. 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 $ 500,000
Inventory
280,000 320,000
Net
credit sales 2,470,000 1,400,000
Cost
of goods sold 1,860,000 1,060,000
Net
income 300,000 170,000
The receivables turnover ratio for 2013 is
a. 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 $ 400,000
Inventory
340,000 420,000
Net
credit sales 2,470,000 1,400,000
Cost
of goods sold 1,860,000 1,060,000
Net
income 300,000 170,000
The inventory turnover ratio for 2013 is
a. 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
132. The
following amounts were taken from the financial statements of Plant Company:
2013
2012
Total
assets $800,000 $1,000,000
Net
sales 720,000 650,000
Gross
profit 352,000 320,000
Net
income 126,000 117,000
Weighted
average number of common shares outstanding 90,000 90,000
Market
price of common stock $35 $39
The return on assets ratio for 2013 is
a. 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 $1,000,000
Net
sales 840,000 650,000
Gross
profit 352,000 320,000
Net
income 155,400 117,000
Weighted
average number of common shares outstanding 90,000 90,000
Market
price of common stock $35 $39
The profit margin ratio for 2013 is
a. 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 $1,000,000
Net
sales 720,000 650,000
Gross
profit 352,000 320,000
Net
income 150,000 117,000
Weighted
average number of common shares outstanding 60,000 90,000
Market
price of common stock $67.50 $39
The price-earnings ratio for 2013 is
a. 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
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 is
a. 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 is
a. 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 $ 43,000
Current assets 81,000 106,000
Total assets 432,000 358,000
Current liabilities 30,000 36,000
Total liabilities 102,000 88,000
The current ratio for 2013 is
a. .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
138. The
following financial statement information is available for Jones Corporation:
2013 2012
Net sales $784,000 $697,000
Cost of goods sold 406,000 377,000
Net income 112,000 80,000
Tax expense 48,000 29,000
Interest expense 14,000 14,000
The profit margin ratio for 2013 is
a. 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 $270,000
Net sales 784,000 697,000
Cost of goods sold 406,000 377,000
Net income 112,000 80,000
Inc tax expense 48,000 29,000
Interest expense 14,000 14,000
Dividends paid to preferred
stockholders 22,000 20,000
Dividends paid to common
stockholders 15,000 10,000
The return on common stockholders’ equity for 2013
is
a. 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 $
80,000
Income tax expense 50,000 29,000
Interest expense 15,000 14,000
Dividends paid to preferred
stockholders 22,000 20,000
Dividends paid to preferred
stockholders 15,000 10,000
The times interest earned for 2013 is
a. 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
142. Goin Company reports the following amounts
for 2013:
Net income $ 150,000
Average stockholders’ equity 2,000,000
Preferred dividends 48,000
Par 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)
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 damageto itsinventory.
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. $60,000
b. $42,000
c. $18,000
d. $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
$250,000
b. $630,000 and
$175,000
c. $650,000 and
$250,000
d. $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, of
a. $600,000 and
$300,000.
b. $600,000 and
$225,000.
c. $675,000 and
$300,000.
d. $675,000 and
$225,000.
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
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
be
a. 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 called
a. 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
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 the
a. 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 to
a. 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 government
b. Losses attributed to a labor strike
c. Write-down of inventories
d. Gains or losses from sales of equipment
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 as
a. "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
158. If
an item meets one (but not both) of the criteria for an extraordinary item, it
a. 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 is
a. 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 except
a. 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 except
a. 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 averages
b. Intercompany
c. Intracompany
d. 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
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
164. In
vertical analysis, the base amount for each income statement item is
a. 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 generally
a. 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 are
a. 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. Leverage
b. Solvency
c. Profitability
d. 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
the
a. 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 ratio
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
170. An extraordinary
item is one that
a. 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. $125,000
b. $275,000 loss
c. $400,000 loss
d. $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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