Exam 4: Financial Reporting and Analysis

Who is responsible for preparing financial statements?

Which accounting term does not mean the same as the others?

It is possible for an asset to be a current asset even though the expected conversion of that asset into cash is to be longer than one year.

The main difference among the balance sheets of the sole proprietorship,the partnership,and the corporation is found in the owners' equity section.

The lower-of-cost-or-market method of accounting for inventories follows the convention of

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

Use this balance sheet and income statement to answer the following question.Use ending balances whenever average balances are required for computing ratios. Abner Systems, Inc. Income Statement For the Year Ended December 31, 2010 Net sales \2 4,000 Costs of goods sold. 8,000 Gross margin \1 6,000 Operating expenses 8,000 Income before income taxes \8 ,000 Income taxes 3,200 Net income \4 ,800 The total amount of working capital of Abner Systems is

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.

Match the following financial statement ratios with their definition. 1.Working capital _____ 2.Current ratio _______ 3.Profit margin ______ 4.Return on assets______ 5.Debt to equity ratio________ 6.Return on equity_______ 7.Asset turnover_________ a.A measure of profitability that shows the proportion of a company's assets that is financed by creditors and the proportion financed by stockholders b.A measure of liquidity that shows the net current assets on hand to continue business operations c.A measure of profitability that relates the amount earned by a business to the stockholders' investment in the business d.A measure of profitability that shows the percentage of each sales dollar that results in net income e.A measure of liquidity; current assets divided by current liabilities .A measure of profitability that shows how efficiently a company uses its assets to produce income g.A measure of how efficiently assets are used to produce sales

Return on assets is a measure of liquidity.

Each of the following statements is justified by a concept or convention of accounting.Write the letter in the blank next to each statement corresponding to the concept or convention involved. a. Consistency b. Materiality c. Conservatism _____ 1. This convention best enhances comparability of financial statements between years. _____ 2. A merger agreed on just after the balance sheet date nevertheless is reported in the notes to the financial statements. _____ 3. A company forgoes hiring another full-time accountant, which would add only slightly to the financial statements' accuracy. _____ 4. A company uses lower-of-cost-or-market to value inventory. _____ 5. A large company rounds its financial statement figures to the nearest $10,000. d. Full disclosure e. Cost-benefit

A different set of financial statements usually is prepared for each user.

Use this information to answer the following question. The total dollar amount of assets to be classified as current assets is

Use this information to answer the following question. Alcorn \& Zeto Company Income Statement For the Year Ended December 31, 2010 Revenues Net sales \1 03,250 Dividend income 8,750 Total revenues \1 12,000 Costs and expenses Costs of goods sold \ 30,000 Selling expenses 10,000 General and administrative expenses 13,750 Interest expense 6,250 Total costs and expenses 60,0000 Income before income taxes \ 52,000 Income taxes 19,500 Net income \ 32,500 If the income statement were prepared in a multistep form,income from operations would be

Which of the following is expressed in terms of a percentage?

Illegal acts of a small dollar amount can be ignored because they are immaterial.

Investors and creditors use financial statements to evaluate a company's ability to pay dividends and interest.

The owner's capital for a sole proprietorship is similar in nature to which of the following for corporations?

Which of the following appears in different sections of the income statement when prepared on a single-step basis and when prepared on a multistep basis?

Use this information to answer the following question. The debt to equity ratio is