Acc 560 week 11 quiz – strayer new

ACC 560 Week 11 Quiz – Strayer NEW
Click On The Link Below to Purchase A+ Graded Material
Instant Download
http://budapp.net/ACC-560-Week-11-Quiz-Strayer-NEW-ACC560W11Q.htm
Week 11 Quiz 10: Chapter 14
TRUE-FALSE STATEMENTS
1. Intracompany comparisons of the same financial statement items can often detect changes
in financial relationships and significant trends.
Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN:
Reporting, AICPA PC: None, IMA: Performance Measurement
2. Calculating financial ratios is a financial reporting requirement under generally accepted
accounting principles.
Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN:
3. Measures of a company's liquidity are concerned with the frequency and amounts of
dividend payments.
4. Analysis of financial statements is enhanced with the use of comparative data.
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.
Reporting, AICPA PC: None, IMA: Reporting
7. Horizontal, vertical, and circular analyses are the most common tools of financial
statement analysis.

Financial Statement Analysis
FOR INSTRUCTOR USE ONLY
14 - 2
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.
9. Another name for trend analysis is horizontal analysis.

14 - 3
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.
12. Common size analysis expresses each item within a financial statement in terms of a
percent of a base amount.
13. Vertical analysis is a more sophisticated analytical tool than horizontal analysis.
14. Vertical analysis is useful in making comparisons of companies of different sizes.
15. Meaningful analysis of financial statements will include either horizontal or vertical
analysis, but not both.
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
17. In the vertical analysis of the income statement, each item is generally stated as a
percentage of net income.
18. A ratio can be expressed as a percentage, a rate, or a proportion.

14 - 4
19. A solvency ratio measures the income or operating success of an enterprise for a given
period of time.
20. The current ratio is a measure of all the ratios calculated for the current year.
21. Inventory turnover measures the number of times on the average the inventory was sold
during the period.

14 - 5
22. Profitability ratios are frequently used as a basis for evaluating management's operating
effectiveness.
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.
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.
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
26. Using borrowed money to increase the rate of return on common stockholders' equity is
called "trading on the equity."
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.

14 - 6
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:
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:
32. A percentage change can be computed only if the base amount is zero or positive.
33. In vertical analysis, the base amount in an income statement is usually net sales.
34. Profitability ratios measure the ability of the enterprise to survive over a long period of
time.

14 - 7
35. The days in inventory is computed by multiplying inventory turnover by 365.
36. Extraordinary items are reported net of applicable taxes in a separate section of the income
statement.
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
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
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,
40. Short-term creditors are usually most interested in evaluating
a. solvency.
b. liquidity.
c. marketability.

14 - 8
d. profitability.

14 - 9
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.
42. Stockholders are most interested in evaluating
a. liquidity and solvency.
b. profitability and solvency.
c. liquidity and profitability.
d. marketability and solvency.
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.
44. Comparisons of financial data made within a company are called
a. intracompany comparisons.
b. interior comparisons.
c. intercompany comparisons.
d. intramural comparisons.
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.
46. Which one of the following is not a tool in financial statement analysis?
a. Horizontal analysis

14 - 10
b. Circular analysis
c. Vertical analysis
d. Ratio analysis

14 - 11
47. In analyzing financial statements, horizontal analysis is a
a. requirement.
b. tool.
c. principle.
d. theory.
48. Horizontal analysis is also called
a. linear analysis.
b. vertical analysis.
c. trend analysis.
d. common size analysis.
49. Vertical analysis is also known as
a. perpendicular analysis.
b. common size analysis.
c. trend analysis.
d. straight-line analysis.
50. In ratio analysis, the ratios are never expressed as a
a. rate.
b. negative figure.
c. percentage.
d. simple proportion.
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.
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.

14 - 12
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.

14 - 13
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.
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.
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.
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.

14 - 14
d. beginning retained earnings.

14 - 15
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.
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%
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%
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

14 - 16
Cost of Goods Sold 120
Gross Profit 180
Operating Expenses 44
Net Income $136

14 - 17
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
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
Economics
63. Vertical analysis is also called
a. common size analysis.
b. horizontal analysis.
c. ratio analysis.
d. trend analysis.
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.

14 - 18
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.

14 - 19
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.
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.
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.
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.
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.
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.

14 - 20
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.

14 - 21
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.
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.
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.
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.
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.

14 - 22
d. 12.3 times.
Economics

14 - 23
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.
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.
Economics
79. Each of the following is included in computing the acid-test ratio except
a. cash.
b. inventory.
c. receivables.
d. short-term investments.
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
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.

14 - 24
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.

14 - 25
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.
Economics
84 Stout Corporation had net income of $200,000 and paid dividends to common stockholders
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%.
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.
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.

14 - 26
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.

14 - 27
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.
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.
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.
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.
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

14 - 28
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.

14 - 29
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.
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.
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
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:
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.

14 - 30
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.

14 - 31
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
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
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.
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.

14 - 32
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
Economics

14 - 33
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.
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.
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
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.
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
111. Times interest earned is also called the

14 - 34
a. money multiplier.
b. interest coverage ratio.
c. coupon coverage ratio.
d. premium ratio.

14 - 35
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.
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.
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.
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.
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.

14 - 36
b. 8.75 times.
c. 4 times.
d. 10.9 times.
Ans: LO: 5, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB:
Economics

14 - 37
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%.
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.
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

14 - 38
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

14 - 39
MC 119. (Cont.)
What is the current ratio for Sampson?
a. 1.80
b. 1.30
c. 1.40
d. .64
Economics
credit.
Assets
Inventory 20,000
Income Statement
Sales $ 105,000
Gross profit 39,000
Net income $ 9,000
What is the receivables turnover for Sampson?
a. 1.5 times
b. 1.1 times
c. 3.0 times
d. 12.9 times

14 - 40
Economics

14 - 41
credit.
Assets
Inventory 11,000
Income Statement
Sales $ 120,000
Gross profit 65,000
Net income $ 35,000
What is the inventory turnover for Sampson?
a. 3.2 times
b. 5 times
c. 10.9 times
d. 0.20 times
Economics
credit.
Assets
Inventory 20,000

14 - 42

14 - 43
MC 122. (Cont.)
Income Statement
Sales $ 120,000
Gross profit 54,000
Net income $ 24,000
What is the return on assets for Sampson?
a. 8.0%
b. 7.0%
c. 18.0%
d. 16.0%
Economics
credit.
Assets
Inventory 20,000
Income Statement
Sales $ 300,000
Gross profit 234,000
Net income $ 204,000

14 - 44

14 - 45
MC 123. (Cont.)
What is the profit margin for Sampson?
a. 115%
b. 28.2%
c. 68%
d. 51%
Economics
credit.
Assets
Inventory 20,000
Income Statement
Sales $ 150,000
Gross profit 84,000
Net income $ 54,000
What is the return on common stockholders’ equity for Sampson?
a. 30%
b. 46.7%
c. 36%
d. 16.9%

14 - 46
Economics

14 - 47
credit.
Assets
Inventory 20,000
Income Statement
Sales $ 120,000
Gross profit 54,000
Net income $ 36,000
What is the price-earnings ratio for Sampson?
a. 5.5 times
b. 1.1 times
c. 6 times
d. 6.6 times
Economics
126. The following information pertains to Eura Company. Assume that all balance sheet
credit.
Assets
Inventory 25,000

14 - 48

14 - 49
MC 126. (Cont.)
Income Statement
Sales $ 90,000
Gross profit 45,000
Net income $ 20,000
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%
Economics
credit.
Assets
Inventory 25,000
Income Statement
Sales $ 135,000
Gross profit 90,000
Net income $ 65,000

14 - 50
What is the profit margin for Eura?
a. 27.8%
b. 51.9%
c. 72.2%
d. 48.1%
Economics

14 - 51
credit.
Assets
Inventory 45,000
Income Statement
Sales $ 90,000
Gross profit 45,000
Net income $ 15,000
What is the return on common stockholders’ equity for Eura?
a. 4.8%
b. 7.7%
c. 23.1%
d. 46.2%
Economics
credit.
Assets
Inventory 25,000

14 - 52

14 - 53
MC 129. (Cont.)
Income Statement
Sales $ 90,000
Gross profit 45,000
Net income $ 20,000
What is the price-earnings ratio for Eura?
a. 5 times
b. 4.0 times
c. 7.3 times
d. 5.5 times
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.
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

14 - 54
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.
Economics

14 - 55
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%.
Economics
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
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%.
Economics
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
Market price of common stock $67.50 $39

14 - 56
The price-earnings ratio for 2013 is
a. 27 times.
b. 45 times.
c. 11 times.
d. 2.5 times.
Economics

14 - 57
135. Star Corporation had net income of $300,000 and paid dividends to common stockholders
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.
Economics
136. Star Corporation had net income of $320,000 and paid dividends to common stockholders
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.
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.
Economics

14 - 58
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%.
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
Dividends paid to preferred
stockholders 22,000 20,000
Dividends paid to common
The return on common stockholders’ equity for 2013 is
a. 25.0%.
b. 37.3%.
c. 27.3%.
d. 30.0%.
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

14 - 59
The times interest earned for 2013 is
a. 8.8 times.
b. 7.7 times.
c. 12 times.
d. 11 times.
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%.
Economics

14 - 60
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%.
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.
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.
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)

14 - 61
Ans: LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB:
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.
147. Alpha’s Bunny Barn has experienced a $60,000 loss due to tornado damage to its
inventory. Tornados have never before occurred in this area. Assuming that the company’s
tax rate is 30%, what amount will be reported for this loss on the income statement?
a. $60,000
b. $42,000
c. $18,000
d. $54,000
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
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.

14 - 62
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:
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

14 - 63
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.
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.
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.
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.
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

14 - 64
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.
AICPA FN: Measurement, AICPA PC: None, IMA: FSA

14 - 65
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."
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.
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.
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.
162. Comparisons of data within a company are an example of the following comparative basis:
a. Industry averages
b. Intercompany
c. Intracompany
d. Interregional
AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

14 - 66
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:
Economics

14 - 67
164. In vertical analysis, the base amount for each income statement item is
a. gross profit.
b. net income.
c. net sales.
d. sales.
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.
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.
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
168. The acid-test ratio is also known as the
a. current ratio.
b. quick ratio.
c. fast ratio.
d. times interest earned ratio.
169. The debt to total assets ratio

14 - 68
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.

14 - 69
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.
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
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.

14 - 70

Acc 560 week 11 quiz – strayer new

Recommended

Recommended

More Related Content

Viewers also liked

Viewers also liked (10)

Similar to Acc 560 week 11 quiz – strayer new

Similar to Acc 560 week 11 quiz – strayer new (20)

More from EmmaJack2018

More from EmmaJack2018 (15)

Recently uploaded

Recently uploaded (20)

Acc 560 week 11 quiz – strayer new