Question 1

Changes in the number of common stock shares outstanding will impact the computation of earnings per share.

Accepted Answer

A) True 
 B)False  True

Question 2

What is another term frequently used when referring to operating profit?

Accepted Answer

A)  Earnings before interest and taxes (EBIT). 
B)  Earnings before interest, taxes, depreciation and amortization (EBITD
A) . 
C)  Net profit. 
D)  Earnings before interest (EBI). 
A)  Earnings before interest and taxes (EBIT). 
B)  Earnings before interest, taxes, depreciation and amortization (EBITD
A) . 
C)  Net profit. 
D)  Earnings before interest (EBI). A

Question 3

Gross profit margin does not impact operating profit margin.

Accepted Answer

A) True 
 B)False  False

Question 4

The terms income, earnings, and profit are used interchangeably.

Accepted Answer

A) True 
 B)False

Question 5

Use of the equity method somewhat distorts earnings in the sense that income is recognized even though no cash may ever be received.

Accepted Answer

A) True 
 B)False

Question 6

Discontinued operations, extraordinary items, and gains or losses on sales of plant assets are special items that must be disclosed separately on the income statement.

Accepted Answer

A) True 
 B)False

Question 7

What could be the cause of an increase in a firm's sales number?

Accepted Answer

A)  The firm has decreased prices. 
B)  Fewer units of product have been sold. 
C)  The firm has increased prices and volume of sales. 
D)  The firm has decreased prices and volume of sales. 
A)  The firm has decreased prices. 
B)  Fewer units of product have been sold. 
C)  The firm has increased prices and volume of sales. 
D)  The firm has decreased prices and volume of sales.

Question 8

The effective tax rate is calculated by dividing operating profit by income tax expense.

Accepted Answer

A) True 
 B)False

Question 9

In general, higher quality earnings result when sales volume increases and sales prices increase with inflation.

Accepted Answer

A) True 
 B)False

Question 10

What is the required reporting for discontinued operations?

Accepted Answer

A)  The results of discontinued operations should be reported as an extraordinary item. 
B)  The gain or loss on the disposal should be reported in comprehensive income. 
C)  The operating results of discontinued operations should be reported as part of continuing operations and any gain or loss on disposal should be disclosed separately from continuing operations. 
D)  The operating results of discontinued operations should be reported separately from continuing operations and any gain or loss on disposal should be also be disclosed separately from continuing operations. 
A)  The results of discontinued operations should be reported as an extraordinary item. 
B)  The gain or loss on the disposal should be reported in comprehensive income. 
C)  The operating results of discontinued operations should be reported as part of continuing operations and any gain or loss on disposal should be disclosed separately from continuing operations. 
D)  The operating results of discontinued operations should be reported separately from continuing operations and any gain or loss on disposal should be also be disclosed separately from continuing operations.

Question 11

The equity method of accounting should be used when the parent company owns 100% of the voting stock in its subsidiaries.

Accepted Answer

A) True 
 B)False

Question 12

Sales volume changes in firms with high fixed costs will result in stable gross profit margins.

Accepted Answer

A) True 
 B)False

Question 13

Users of financial statements need to distinguish between earnings increasing due to core operations versus items such as tax rate deductions.

Accepted Answer

A) True 
 B)False

Question 14

The statement of stockholders' equity details the transactions that affect all balance sheet accounts during an accounting period.

Accepted Answer

A) True 
 B)False

Question 15

What information can be found on a statement of shareholders' equity?

Accepted Answer

A)  Details of assets and liabilities. 
B)  A reconciliation of beginning to ending cash.. 
C)  Detail of changes in equity accounts. 
D)  Assets = Liabilities + Stockholders' Equity. 
A)  Details of assets and liabilities. 
B)  A reconciliation of beginning to ending cash.. 
C)  Detail of changes in equity accounts. 
D)  Assets = Liabilities + Stockholders' Equity.

Question 16

Since other income or expense items are not part of daily operations there is no need to analyze these accounts.

Accepted Answer

A) True 
 B)False

Question 17

Why is the common-size income statement valuable to the analyst?

Accepted Answer

A)  The common-size income statement shows the relative magnitude of revenues and expenses to total assets. 
B)  The common-size income statement allows the analyst to compare the firm to itself from year-to-year, but not to its competitors. 
C)  The common-size income statement shows the relative magnitude of revenues and expenses relative to profits. 
D)  The common-size income statement shows the relative magnitude of expenses relative to net sales. 
A)  The common-size income statement shows the relative magnitude of revenues and expenses to total assets. 
B)  The common-size income statement allows the analyst to compare the firm to itself from year-to-year, but not to its competitors. 
C)  The common-size income statement shows the relative magnitude of revenues and expenses relative to profits. 
D)  The common-size income statement shows the relative magnitude of expenses relative to net sales.

Question 18

Which of the items below would be analyzed separate from operating profit?

Accepted Answer

A)  Salaries, interest expense, equity losses. 
B)  Equity earnings, discontinued operations, interest income. 
C)  Research and development, dividend income, interest expense. 
D)  Advertising, cost of goods sold, selling and administrative expenses. 
A)  Salaries, interest expense, equity losses. 
B)  Equity earnings, discontinued operations, interest income. 
C)  Research and development, dividend income, interest expense. 
D)  Advertising, cost of goods sold, selling and administrative expenses.

Question 19

Impairment charges are the expenses recognized to record a decline in value of a long-term asset.

Accepted Answer

A) True 
 B)False

Question 20

Earnings per common share is the net cash available to common stockholders for each share of stock owned.

Accepted Answer

A) True 
 B)False

Changes in the number of common stock shares outstanding will impact the computation of earnings per share.

What is another term frequently used when referring to operating profit?

Gross profit margin does not impact operating profit margin.

The terms income, earnings, and profit are used interchangeably.

Use of the equity method somewhat distorts earnings in the sense that income is recognized even though no cash may ever be received.

Discontinued operations, extraordinary items, and gains or losses on sales of plant assets are special items that must be disclosed separately on the income statement.

What could be the cause of an increase in a firm's sales number?

The effective tax rate is calculated by dividing operating profit by income tax expense.

In general, higher quality earnings result when sales volume increases and sales prices increase with inflation.

What is the required reporting for discontinued operations?

The equity method of accounting should be used when the parent company owns 100% of the voting stock in its subsidiaries.

Sales volume changes in firms with high fixed costs will result in stable gross profit margins.

Users of financial statements need to distinguish between earnings increasing due to core operations versus items such as tax rate deductions.

The statement of stockholders' equity details the transactions that affect all balance sheet accounts during an accounting period.

What information can be found on a statement of shareholders' equity?

Since other income or expense items are not part of daily operations there is no need to analyze these accounts.

Why is the common-size income statement valuable to the analyst?

Which of the items below would be analyzed separate from operating profit?

Impairment charges are the expenses recognized to record a decline in value of a long-term asset.

Earnings per common share is the net cash available to common stockholders for each share of stock owned.

Financial Statements: an Overview

The Balance Sheet

Statement of Cash Flows

The Analysis of Financial Statements

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Exam 3: Income Statement and Statement of Stockholders Equity

Changes in the number of common stock shares outstanding will impact the computation of earnings per share.

What is another term frequently used when referring to operating profit?

Gross profit margin does not impact operating profit margin.

The terms income, earnings, and profit are used interchangeably.

Use of the equity method somewhat distorts earnings in the sense that income is recognized even though no cash may ever be received.

Discontinued operations, extraordinary items, and gains or losses on sales of plant assets are special items that must be disclosed separately on the income statement.

What could be the cause of an increase in a firm's sales number?

The effective tax rate is calculated by dividing operating profit by income tax expense.

In general, higher quality earnings result when sales volume increases and sales prices increase with inflation.

What is the required reporting for discontinued operations?

The equity method of accounting should be used when the parent company owns 100% of the voting stock in its subsidiaries.

Sales volume changes in firms with high fixed costs will result in stable gross profit margins.

Users of financial statements need to distinguish between earnings increasing due to core operations versus items such as tax rate deductions.

The statement of stockholders' equity details the transactions that affect all balance sheet accounts during an accounting period.

What information can be found on a statement of shareholders' equity?

Since other income or expense items are not part of daily operations there is no need to analyze these accounts.

Why is the common-size income statement valuable to the analyst?

Which of the items below would be analyzed separate from operating profit?

Impairment charges are the expenses recognized to record a decline in value of a long-term asset.

Earnings per common share is the net cash available to common stockholders for each share of stock owned.

Financial Statements: an Overview

The Balance Sheet

Statement of Cash Flows

The Analysis of Financial Statements

Filters