Thursday, July 18, 2013

ACC 560 Chapter 14 Quiz Perfect Solution

ACC 560 Chapter 14 Quiz Perfect Solution
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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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