Question 1

The two parts of a corporation's stockholders' equity section are contributed capital and retained earnings.

Accepted Answer

A) True 
 B)False

Question 2

Natural resources,such as coal mines and oil wells,are classified as intangible assets.

Accepted Answer

A) True 
 B)False

Question 3

Even when no errors have been made,accounting is never 100 percent accurate because of the extensive use of estimates.

Accepted Answer

A) True 
 B)False

Question 4

The term net worth is a more accurate term than owner's equity because assets are recorded at original cost rather than at current value.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following appears on the balance sheet?

Accepted Answer

A)  Interest income 
B)  Income taxes 
C)  Net sales 
D)  Merchandise inventory 
A)  Interest income 
B)  Income taxes 
C)  Net sales 
D)  Merchandise inventory

Question 6

Use this balance sheet and income statement to answer the following question.Use ending balances whenever average balances are required for computing ratios.   $\begin{array}{c}
\text {Abner Systems, Inc.}\
\text {Income Statement}\
\text {For the Year Ended December 31, 2010}\\begin{array}{lr}
\text { Net sales } & \$ 24,000 \
\text { Costs of goods sold } &  \underline{8,000} \
\text { Gross margin } & \$ 16,000 \
\text { Operating expenses } &  \underline{8,000}\
\text { Income before income taxes }&\$8,000 \
\text { Income taxes }& \underline{3,200}\
 \text {Net income } & \$4,800 
\end{array}\end{array}$

The asset turnover for Abner Systems is

Accepted Answer

A)  1.00 times. 
B)  1.33 times. 
C)  .83 times. 
D)  1.20 times. 
A)  1.00 times. 
B)  1.33 times. 
C)  .83 times. 
D)  1.20 times.

Question 7

Use this balance sheet and income statement to answer the following question.Use ending balances whenever average balances are required for computing ratios.   $\begin{array}{c}
\text {Abner Systems, Inc.}\
\text {Income Statement}\
\text {For the Year Ended December 31, 2010}\\begin{array}{lr}
\text { Net sales } & \$ 24,000 \
\text { Costs of goods sold } &  \underline{8,000} \
\text { Gross margin } & \$ 16,000 \
\text { Operating expenses } &  \underline{8,000}\
\text { Income before income taxes }&\$8,000 \
\text { Income taxes }& \underline{3,200}\
 \text {Net income } & \$4,800 
\end{array}\end{array}$

The return on assets for Abner Systems is

Accepted Answer

A)  30 percent. 
B)  150 percent. 
C)  33-1/3 percent. 
D)  24 percent. 
A)  30 percent. 
B)  150 percent. 
C)  33-1/3 percent. 
D)  24 percent.

Question 8

Gross margin equals the difference between net sales and

Accepted Answer

A)  net income. 
B)  cost of goods sold plus operating expenses. 
C)  operating expenses. 
D)  cost of goods sold. 
A)  net income. 
B)  cost of goods sold plus operating expenses. 
C)  operating expenses. 
D)  cost of goods sold.

Question 9

Consistency in accounting means that a company uses the same generally accepted accounting principles from one accounting period to the next accounting period.

Accepted Answer

A) True 
 B)False

Question 10

Use the following information to calculate the liquidity and profitability ratios listed below.Round to two decimal places.
 $$\begin{array} { l r l r } 
\text { Average stockholders' equity } & 9,250 & \text { Net income } & 1,500 \
\text { Average total as5ets } & 18,000 & \text { Net sales } & 15,625 \
\text { Curent as5ets } & 11,250 & \text { Tatal liabilities } & 8,750 \
\text { Current liabilities } & 7,500 &
\end{array}$$ 
a. Current ratio
b. Working capital
c. Return on equity
d. Profit margin
e. Debt to equity
f. Return on assets
g. Asset turnover

Accepted Answer

a.1.5 ($11,250 ÷ $7,500)
b.$3,750 ($11,2

Question 11

Use this balance sheet and income statement for the first year of operations for Layton Novelties,Inc.to answer the following question.Use ending balances whenever average balances are required for computing ratios.   $\begin{array}{c}
\text {Abner Systems, Inc.}\
\text {Income Statement}\
\text {For the Year Ended December 31, 2010}\\begin{array}{lr}
\text { Net sales } & \$ 80,000 \
\text { Costs of goods sold } &  \underline{32,000} \
\text { Gross margin } & \$ 48,000 \
\text { Operating expenses } &  \underline{12,000}\
\text { Income before income taxes }&\$36,000 \
\text { Income taxes }& \underline{14,400}\
 \text {Net income } & \$21,600 
\end{array}\end{array}$
   The return on assets for Layton Novelties is

Accepted Answer

A)  40 percent. 
B)  70 percent. 
C)  18 percent. 
D)  66-2/3 percent. 
A)  40 percent. 
B)  70 percent. 
C)  18 percent. 
D)  66-2/3 percent.

Question 12

Positive operating income will result if gross margin exceeds

Accepted Answer

A)  operating expenses. 
B)  purchases. 
C)  cost of goods sold. 
D)  cost of goods sold minus operating expenses. 
A)  operating expenses. 
B)  purchases. 
C)  cost of goods sold. 
D)  cost of goods sold minus operating expenses.

Question 13

Oil wells and coal mines used in the normal course of business would appear in which section of the balance sheet?

Accepted Answer

A)  Property, plant, and equipment 
B)  Investments 
C)  Current assets 
D)  Intangible assets 
A)  Property, plant, and equipment 
B)  Investments 
C)  Current assets 
D)  Intangible assets

Question 14

Who is responsible for preparing financial statements?

Accepted Answer

A)  The CPA firm that audits the financial statements 
B)  Management 
C)  A company's accounting department 
D)  The SEC 
A)  The CPA firm that audits the financial statements 
B)  Management 
C)  A company's accounting department 
D)  The SEC

Question 15

The income statement of a company that provides a service only will contain gross margin.

Accepted Answer

A) True 
 B)False

Question 16

A company with a low debt to equity ratio is in a more vulnerable position during poor economic times than a company with a high debt to equity ratio.

Accepted Answer

A) True 
 B)False

Question 17

In accounting,$1,000 is considered the dividing line between material and immaterial amounts.

Accepted Answer

A) True 
 B)False

Question 18

Earnings per share,often called net income per share,is the net income earned on each share of common stock.

Accepted Answer

A) True 
 B)False

Question 19

Contributed capital is shown on a corporate balance sheet as two amounts: the par value of the issued stock and additional paid-in capital.

Accepted Answer

A) True 
 B)False

Question 20

Use this balance sheet and income statement for the first year of operations for Layton Novelties,Inc.to answer the following question.Use ending balances whenever average balances are required for computing ratios.   $\begin{array}{c}
\text {Abner Systems, Inc.}\
\text {Income Statement}\
\text {For the Year Ended December 31, 2010}\\begin{array}{lr}
\text { Net sales } & \$ 80,000 \
\text { Costs of goods sold } &  \underline{32,000} \
\text { Gross margin } & \$ 48,000 \
\text { Operating expenses } &  \underline{12,000}\
\text { Income before income taxes }&\$36,000 \
\text { Income taxes }& \underline{14,400}\
 \text {Net income } & \$21,600 
\end{array}\end{array}$
  The current ratio for Layton Novelties is

Accepted Answer

A)  1.75. 
B)  .57. 
C)  1.4. 
D)  2.0. 
A)  1.75. 
B)  .57. 
C)  1.4. 
D)  2.0.

Exam 4: Financial Reporting and Analysis

The two parts of a corporation's stockholders' equity section are contributed capital and retained earnings.

Natural resources,such as coal mines and oil wells,are classified as intangible assets.

Even when no errors have been made,accounting is never 100 percent accurate because of the extensive use of estimates.

The term net worth is a more accurate term than owner's equity because assets are recorded at original cost rather than at current value.

Which of the following appears on the balance sheet?

Gross margin equals the difference between net sales and

Consistency in accounting means that a company uses the same generally accepted accounting principles from one accounting period to the next accounting period.

Positive operating income will result if gross margin exceeds

Oil wells and coal mines used in the normal course of business would appear in which section of the balance sheet?

Who is responsible for preparing financial statements?

The income statement of a company that provides a service only will contain gross margin.

A company with a low debt to equity ratio is in a more vulnerable position during poor economic times than a company with a high debt to equity ratio.

In accounting,$1,000 is considered the dividing line between material and immaterial amounts.

Earnings per share,often called net income per share,is the net income earned on each share of common stock.

Contributed capital is shown on a corporate balance sheet as two amounts: the par value of the issued stock and additional paid-in capital.

Uses of Accounting Information and the Financial Statements

Analyzing Business Transactions

Measuring Business Income

Supplement - Closing Entries and the Work Sheet

The Operating Cycle and Merchandising Operations

Inventories

Cash and Receivables

Current Liabilities and Fair Value Accounting

Long Term Assets

Long-Term Liabilities

Contributed Capital

Investments

The Corporate Income Statement and the Statement of Stockholders Equity

The Statement of Cash Flows

The Changing Business Environment - a Managers Perspective

Cost Concepts and Cost Allocation

Costing Systems- Job Order Costing

Costing Systems- Process Costing

Value-Based Systems- Abm and Lean

Cost Behavior Analysis

The Budgeting Process

Performance Management and Evaluation

Standard Costing and Variance Analysis

Short Run Decision Analysis

Capital Investment Analysis

Pricing Decisions,incltarget Costing and Transfer Pricing

Quality Management and Measurement

Financial Analysis of Performance

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