Assignment Print View

9/4/2019 Assignment Print View
Score: 0/0 Points 100 %

1. Award: 0 out of 0.00 points
External users of accounting information include decision makers such as investors, creditors, and
financial analysts.
  True
 False
Each of the identified decision makers uses accounting information in his/her decision-making process.
References
True / False Learning Objective:

05-01 Recognize the
people involved in
the accounting
communication
process (regulators,
managers, directors,
auditors, information
intermediaries, and
users), their roles in
the process, and the
guidance they
receive from legal
and professional
standards.
https://ezto.mheducation.com/hm.tpx?todo=printview 1/103


The mission of the Securities & Exchange Commission (SEC) is to develop generally accepted
accounting principles.
 True
  False
The mission of the SEC is to protect investors and maintain the integrity of the securities markets.
References

05-01 Recognize the
people involved in
the accounting
communication
intermediaries, and
guidance they
receive from legal
and professional
standards.

Independent auditors are advisors who analyze financial statements and other economic information to
formulate forecasts and stock recommendations.
 True
  False
Independent auditors provide an opinion with respect to the overall fairness of the financial statements.
References

05-01 Recognize the
people involved in
the accounting
communication
intermediaries, and
guidance they
receive from legal
and professional
standards.


The Securities & Exchange Commission (SEC) oversees the work of the Financial Accounting Standards
Board (FASB).
  True
 False
The SEC has delegated the responsibility for setting GAAP to the FASB.
References

05-01 Recognize the
people involved in
the accounting
communication
intermediaries, and
guidance they
receive from legal
and professional
standards.


The Financial Accounting Standards Board (FASB) oversees the work of the Public Company
Accounting Oversight Board (PCAOB).
 True
  False
The Securities & Exchange Commission (SEC) oversees the work of the Public Company Accounting
Oversight Board (PCAOB). The Financial Accounting Standards Board (FASB) has authority to set
generally accepted accounting principles (GAAP).
References

05-01 Recognize the
people involved in
the accounting
communication
intermediaries, and
guidance they
receive from legal
and professional
standards.

The Public Company Accounting Oversight Board (PCAOB) sets auditing standards for independent
auditors.
  True
 False
The Public Company Accounting Oversight Board (PCAOB) is responsible for setting auditing standards
for independent auditors.
References

05-01 Recognize the
people involved in
the accounting
communication
intermediaries, and
guidance they
receive from legal
and professional
standards.


The primary responsibility for the information in a corporation's financial statements lies with the chief
executive officer (CEO) and the chief financial officer (CFO).
  True
 False
The CEO and the CFO are primarily responsible for the content of the financial statements.
References

05-01 Recognize the
people involved in
the accounting
communication
intermediaries, and
guidance they
receive from legal
and professional
standards.


The audit committee of the board of directors is responsible for maintaining the integrity of a
company's financial statements and financial reporting.
  True
 False
The audit committee of the board of directors is responsible for ensuring that processes are in place for
maintaining the integrity of the company's accounting, financial statement preparation, and financial
reporting.
References

05-01 Recognize the
people involved in
the accounting
communication
intermediaries, and
guidance they
receive from legal
and professional
standards.

The Securities & Exchange Commission requires publically traded companies to have their financial
statements audited by their internal auditors.
 True
  False
The Securities & Exchange Commission requires a publically traded company to have its financial
statements audited by an independent registered public accounting firm.
References

05-01 Recognize the
people involved in
the accounting
communication
intermediaries, and
guidance they
receive from legal
and professional
standards.


Financial analysts utilize a company's financial reports to assist them in making earnings forecasts and
earnings per share projections.
  True
 False
Financial analysts utilize a company's financial reports to assist them in making forecasts of earnings,
earnings per share, and share prices, as well as buy and sell recommendations.
References

05-01 Recognize the
people involved in
the accounting
communication
intermediaries, and
guidance they
receive from legal
and professional
standards.


Corporate governance refers to the procedures designed to ensure that the company is managed in
the interest of the board of directors who oversee management.
 True
  False
Corporate governance refers to the procedures designed to ensure that the company is managed in
the interests of the shareholders.
References

05-01 Recognize the
people involved in
the accounting
communication
intermediaries, and
guidance they
receive from legal
and professional
standards.


The fraud triangle conditions necessary for financial statement fraud to occur are the existence of a
system of internal control, the ability to invade the system, and rationalization to commit the fraud.
 True
  False
The fraud triangle consists of incentive and opportunity to commit fraud, and ability to rationalize the
fraud misdeed.
References

05-01 Recognize the
people involved in
the accounting
communication
intermediaries, and
guidance they
receive from legal
and professional
standards.

The form 10-Q contains an unaudited set of quarterly financial statements.
  True
 False
The form 10-Q is the quarterly report containing a condensed income statement and balance sheet,
marked as unaudited, that publically traded companies must file with the SEC.
References

05-02 Identify the
steps in the
accounting
communication
process, including
the issuance of press
releases, annual
reports, quarterly
reports, and SEC
filings, as well as the
role of electronic
information services
in this process.


The form 10-K is the annual report that publically traded companies must file with the Securities &
Exchange Commission (SEC).
  True
 False
The form 10-K is the annual report that publically traded companies must file with the SEC.
References

05-02 Identify the
steps in the
accounting
communication
process, including
releases, annual
reports, quarterly
reports, and SEC
role of electronic
in this process.


Sales by major product category is a required financial statement disclosure.
 True
  False
Sales by major product category is a voluntary disclosure.
References

05-02 Identify the
steps in the
accounting
communication
process, including
releases, annual
reports, quarterly
reports, and SEC
role of electronic
in this process.


Information on all contractual agreements is included in notes as a financial statement disclosure.
 True
  False
Information that impacts the company financially but is not shown on the financial statements might
include information about contractual agreements that do not result in an asset or liability on the
balance sheet. All contractual agreements are not included in financial statement disclosures unless
they are material to the fair presentation of the financial statements.
References

05-02 Identify the
steps in the
accounting
communication
process, including
releases, annual
reports, quarterly
reports, and SEC
role of electronic
in this process.


Inventories are reported on the balance sheet as a current asset.
  True
 False
Current assets include cash, accounts receivable, inventories, and other assets that will be used or
turned into cash within one year from the date of the balance sheet.
References

05-03 Recognize and
apply the different
financial statement
and disclosure
formats used by
companies in
practice and analyze
the gross profit
percentage.


Intangible assets are reported on the balance sheet as a current asset.
 True
  False
Current assets include cash, accounts receivable, inventories, and other assets that will be used or
turned into cash within one year from the date of the balance sheet. Intangible assets have a long life
and are reported as noncurrent assets.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


Intangible assets are reported on the balance sheet as noncurrent assets and include goodwill.
  True
 False
Intangible assets are reported as noncurrent assets and include patents, trademarks, franchises,
copyrights, and goodwill.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


Comparative financial statements are those of a company in one industry presented with another
company in the same industry.
 True
  False
Comparative financial statements are those of one company that simultaneously present the current
period and one or more prior periods.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


An intangible asset has no physical existence and no life.
 True
  False
An intangible asset has no physical existence and has a long life.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


The essence of reporting the gains on sales of investments separately on an income statement is that
they are not primary operations of the reporting company.
  True
 False
Net sales less cost of goods sold is gross profit. Hence, gross profit is a component of income from
continuing operations.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Net sales plus cost of goods sold is reported on the income statement as income from continuing
operations.
 True
  False
Net sales less cost of goods sold is gross profit and is a component of income from continuing
operations.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Gains and losses on sales of investments are reported on the income statement as a component of
income from operations.
 True
  False
Gains and losses on sales of investments are reported in the income statement as nonoperating (other)
income (expense), after income from operations.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


The summary of significant accounting policies is a required financial statement disclosure.
  True
 False
One of the first disclosure notes is the summary of significant accounting policies.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


Preparers of the statement of cash flow must choose the direct or indirect method for each activity
section of the statement.
 True
  False
The choice of direct or indirect method is only for the Cash Flow from Operating Activities section.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


The indirect method of reporting cash flow from operating activities on the statement of cash flows
begins with net income and adjusts for cash items.
 True
  False
The indirect method begins with net income and adjusts for noncash items to arrive at cash flow from
operating activities.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

The gross profit percentage is calculated by dividing net sales by gross profit.
 True
  False
The gross profit percentage is calculated by dividing gross profit by net sales.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

The gross profit percentage decreases when operating expenses increase.
 True
  False
The gross profit percentage is calculated by dividing gross profit by net sales. Operating expenses do
not affect either gross profit or net sales.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

The return on assets ratio is calculated by dividing income from continuing operations by average total
assets.
 True
  False
The return on assets ratio is calculated by dividing net income by average total assets.
References

05-04 Analyze a
company's
performance based
on return on assets
and its components
and the effects of
transactions on
financial ratios.

The return on assets ratio may increase when sales increase.
  True
 False
The return on assets ratio calculation may increase when total asset turnover (net sales divided by
average total assets) increases. This is not the only reason for an increase in the turnover, but it is one
possibility.
References

05-04 Analyze a
company's
performance based
on return on assets
and its components
and the effects of
transactions on
financial ratios.


The return on assets ratio is affected by both the net profit margin ratio and the total asset turnover
ratio.
  True
 False
The return on assets ratio is calculated by multiplying the net profit margin ratio times the total asset
turnover ratio, referred to as the DuPont analysis.
References

05-04 Analyze a
company's
performance based
on return on assets
and its components
and the effects of
transactions on
financial ratios.


Which of the following tasks is not performed by the Securities & Exchange Commission (SEC)?
 Overseeing the work of the Financial Accounting Standards Board (FASB).
 Overseeing the work of the Public Company Accounting Oversight Board (PCAOB).
 Taking responsibility for protecting investors and maintaining the integrity of the securities
markets.
  The development of generally accepted accounting principles.
The FASB develops generally accepted accounting principles.
References
Multiple Choice Learning Objective:

05-01 Recognize the
people involved in
the accounting
communication
intermediaries, and
guidance they
receive from legal
and professional
standards.


Which of the following tasks does the Financial Accounting Standards Board (FASB) perform?
 Overseeing the work of the Securities & Exchange Commission (SEC).
 Overseeing the work of the Public Company Accounting Oversight Board (PCAOB).
 The responsibility for protecting investors and maintaining the integrity of the securities
markets.
  The development of generally accepted accounting principles.
The FASB develops generally accepted accounting principles.
References

05-01 Recognize the
people involved in
the accounting
communication
intermediaries, and
guidance they
receive from legal
and professional
standards.

Which of the following are primarily responsible for the information provided in a company's financial
statements?
 The internal and external auditors.
 The Securities & Exchange Commission (SEC) and the external auditors.
  The chief executive officer (CEO) and the chief financial officer (CFO).
 The external auditors and the board of directors.
The CEO and CFO are primarily responsible for the content of a company's financial statements.
References

05-01 Recognize the
people involved in
the accounting
communication
intermediaries, and
guidance they
receive from legal
and professional
standards.

Which of the following is not a responsibility of the chief executive officer (CEO) and the chief financial
officer (CFO)?
  Overseeing the financial statement external audit.
 Ensuring the accuracy and completeness of all reports provided to the Securities & Exchange
Commission (SEC).
 The certification of the strength of the internal control system.
 The disclosure to the auditor committee of any frauds they are aware of.
The external auditors are hired by the board of directors and are responsible for overseeing their own
audit.
References

05-01 Recognize the
people involved in
the accounting
communication
intermediaries, and
guidance they
receive from legal
and professional
standards.

Which of the following is not true about the audit committee of the board of directors?
 They meet with the auditors to discuss management's compliance with their financial
reporting responsibilities.
  They ensure the accuracy and completeness of all reports provided to the Securities &
 They are responsible for ensuring that processes are in place for maintaining the integrity of
the financial statement preparation and reporting.
 They are responsible for hiring the company's external auditors.
The CEO and CFO ensure the accuracy and completeness of all reports provided to the Securities &
References

05-01 Recognize the
people involved in
the accounting
communication
intermediaries, and
guidance they
receive from legal
and professional
standards.

Which of the following statements is false?
 The board of directors meets with the external auditors to discuss management's compliance
with their financial reporting obligations.
  The external auditors are selected by the Securities & Exchange Commission (SEC).
 The Securities & Exchange Commission (SEC) requires publically traded companies to have
their financial statements audited by an independent accountant.
 The external auditors assume some responsibility with respect to the fairness of the financial
statements.
The external auditors are selected by the board of directors.
References

05-01 Recognize the
people involved in
the accounting
communication
intermediaries, and
guidance they
receive from legal
and professional
standards.


Which of the following is an objective of the external audit of a company's financial statements?
 To provide a forecast of the company's future earnings.
 To assure no fraud has been committed by the company's management.
  To provide credibility that the financial statements are fairly presented.
 To detect all accounting errors made by the accounting system and employees.
The external audit lends credibility to the financial statements and reduces the risk that the financial
condition of the reporting entity is misrepresented.
References

05-01 Recognize the
people involved in
the accounting
communication
intermediaries, and
guidance they
receive from legal
and professional
standards.


Which of the following is not included as a primary part of the financial disclosure in Form 10-K?
 Financial data for a 5-year period.
  Management's opinion of the financial statements.
 Business operations and strategy.
 Four basic financial statements.
Management's Discussion and Analysis is an overview of the financial condition and results of
operations but is not an opinion of the financial statements.
References

05-02 Identify the
steps in the
accounting
communication
process, including
releases, annual
reports, quarterly
reports, and SEC
role of electronic
in this process.


The Statement of Comprehensive Income includes items in which order?
 Net income, Other items of net income, Comprehensive income.
 Comprehensive income, Net income, Other items of Comprehensive income.
 Net income, Other Fair value items, Comprehensive income.
  Net income, Other comprehensive income items, Comprehensive income.
The statement of comprehensive income reports Net income, Other comprehensive income items, and
Comprehensive income.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Which of the following would not be classified as a current asset?
 Accounts receivable.
  Goodwill.
 Inventories.
 Non-trade receivables.
Goodwill is an intangible asset; it is not a current asset.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Information disclosed in a balance sheet about shares of common stock includes the number of shares
that are:
 Authorized and Issued.
 Issued and Outstanding.
  Authorized, Issued, and Outstanding.
 Authorized, Issued, Outstanding, and Not Outstanding.
Information disclosed in the balance sheet about common stock is the number of shares that are
authorized, issued, and outstanding.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Stockholders' equity, also called shareholders' equity, includes which of the following two accounts?
 Common stock and Deferred revenue.
  Common stock and Retained earnings.
 Liabilities and Retained earnings.
 Retained earnings and Cash.
Stockholders' equity includes common stock and retained earnings.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


Components of other comprehensive income can be reported in combination with the:
 Balance sheet.
 Statement of cash flows.
 Statement of stockholders' equity.
  Income statement.
Other comprehensive income may be reported in a separate statement or may be combined with the
income statement.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Panmar Inc. is preparing a statement of stockholders' equity for 2016. On January 1, 2016, Panmar
started the year with a $200,000 credit balance in its retained earnings account. During 2016, the
company earned net income of $140,000. Panmar declared dividends of $80,000 and paid $50,000 of
those dividends. Also, the company received cash of $100,000 for additional shares of common stock
issued and then paid $30,000 to repurchase shares of common stock. What is the balance in retained
earnings on December 31, 2016?
  $260,000.
 $290,000.
 $330,000.
 $390,000.
Retained earnings on December 31, 2016 = $260,000 = $200,000 + $140,000 − $80,000.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Denmark Inc. is preparing a statement of stockholders' equity for 2016. On January 1, 2016, Denmark
started the year with a $100,000 credit balance in its retained earnings account. During 2016, the
company earned net income of $70,000 and declared dividends of $10,000. Also, the company
received cash of $15,000 as an additional investment by its owners. What is the balance in retained
earnings on December 31, 2016?
 $100,000.
 $170,000.
 $175,000.
  $160,000.
Retained earnings on December 31, 2016 = $160,000 = $100,000 + $70,000 − $10,000.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Which of the following is true about gross profit (gross margin)?
 It is net sales minus operating expenses.
  It is net sales minus cost of goods sold.
 It is the same as income from continuing operations.
 It is net sales minus cost of goods sold and operating expenses.
Gross profit equals net sales minus cost of goods sold.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


Which of the following best describes operating income?
 It includes the results of discontinued operations.
 It is before operating expenses.
 It is sales minus cost of goods sold and income tax expense.
  It is net sales minus cost of goods sold and operating expenses.
Operating income (also called income from operations) equals net sales minus cost of goods sold and
minus operating expenses.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


The Callie Company has provided the following information:
Operating expenses were $231,000;

Cost of goods sold was $376,000;
Net sales were $940,000;
Interest expense was $32,000;
Gain on sale of a building was $76,000;
Income tax expense was $151,000.
What was Callie's gross profit?
  $564,000.
 $188,000.
 $333,000.
 $232,000.
Gross profit ($564,000) equals net sales ($940,000) minus cost of goods sold ($376,000).
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.



What was Callie's income from operations (operating income)?

rev: 03_09_2017_QC_CS-80829; 03_10_2017_QC_CS-80829
  $409,000.
 $188,000.
 $156,000.
 $232,000.
Income from operations ($409,000) equals net sales ($940,000) minus cost of goods sold ($376,000)
minus operating expenses ($231,000), and add gain on sale of building ($76,000).
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


What was Callie's income before taxes?
 $564,000.
 $188,000.
  $377,000.
 $232,000.
Income before taxes ($377,000) equals net sales ($940,000) minus cost of goods sold ($376,000),
minus operating expenses ($231,000), minus interest expense ($32,000), plus gain on sale ($76,000).
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Kryton Corp. has provided the following information:
Gross profit was $620,000;

Net income was $400,000.
What was Kryton's gross profit percentage?
 40%
 61.3%
  62%
 155%
Gross profit ($620,000) equals sales (X) minus cost of goods sold ($380,000).
Therefore, Sales = Gross profit ($620,000) plus Cost of goods sold ($380,000).
Sales = $1,000,000.
Gross profit percentage = Gross profit divided by Sales = $620,000 ÷ $1,000,000 = 62%.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Brimmel Corp. has provided the following information:
Sales were $780,000;

Net income was $195,000.
What was Brimmel's gross profit percentage?
 55%
  45%
 62%
 222%
Gross profit equals sales ($780,000) minus cost of goods sold ($429,000).
Therefore, Gross profit = $780,000 − $429,000 = $351,000.
Gross profit percentage = Gross profit divided by Sales = $351,000 ÷ $780,000 = 45%.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Which of the following is not reported as an operating expense on the income statement?
 Administrative expenses.
 Research and development expense.
  Interest expense.
 Selling expenses.
Interest expense is a deduction from income from operations (operating income).
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

The Nellie Company has provided the following information:

What was Nellie's operating income?
  $514,000.
 $612,000.
 $497,000.
 $298,000.
Operating income ($514,000) equals gross profit ($629,000) minus operating expenses ($115,000).
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

The Nellie Company has provided the following information:

What was Nellie's income before taxes?
 $514,000.
 $612,000.
  $497,000.
 $298,000.
Income before taxes ($497,000) equals gross profit ($629,000) minus operating expenses ($115,000)
and minus interest expense ($17,000).
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

The Willie Company has provided the following information:

Income from operations was $415,000;
Net sales were $1,100,000;
Loss from sale of investments was $87,000;
What was Willie's gross profit?
 $340,000.
 $689,000.
 $818,000.
  $760,000.
Working backward: Gross profit ($760,000) equals operating expenses ($345,000) plus income from
operations ($415,000).
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


What was Willie's income before taxes?
 $344,000.
 $199,000.
  $257,000.
 $286,000.
Income before taxes ($257,000) equals income from operations ($415,000) minus interest expense
($71,000) minus loss from sale of investments ($87,000).
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


What was Willie's nonoperating income (expense)?
 ($71,000).
  ($158,000).
 $216,000.
 $257,000.
Nonoperating income (expense) ($158,000) is the total of interest expense ($71,000) and loss from the
sale of investments ($87,000).
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


What was Willie's net income?
 $373,000.
 $328,000.
  $199,000.
 ($156,000).
Net income ($199,000) equals income from operations ($415,000) minus interest expense ($71,000)
minus loss from the sale of investments (87,000) minus income tax ($58,000).
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


Which of the following would not be used to calculate income from operations?
 Gross profit.
 Selling and administrative expenses.
  Interest income.
 Research and development expense.
Interest income is reported as nonoperating revenue.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


Which of the following statements regarding earnings per share is false?
 It is reported on the income statement.
 It increases when net income increases.
 It is calculated using the average number of common shares outstanding during the period.
  It would not be affected by additional shares of common stock issued during the year.
Additional shares of common stock issued would change the number of shares outstanding and would
change the average number of shares of common stock outstanding during the period.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


Which of the following would not typically be disclosed in the notes to the financial statements?
 Additional detail regarding numbers reported in the financial statements.
 A summary of significant accounting policies.
 Commitments under long-term supply agreements.
  The net income earned for the reporting period.
The net income earned for the reporting period is included directly in the financial statements.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Examples of nonoperating items that would appear on an income statement are:
 Interest income, depreciation expense, gain on sale of land.
 Research and development expense, interest expense, loss on sale of investments.
  Interest expense, interest income, loss on sale of investments.
 Depreciation expense, interest income, interest expense.
Nonoperating items are revenues, expenses, gains, and losses that do not relate to the company's
primary operations. Examples include interest expense, interest income, and gains and losses on the
sale of investments.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

In which of the following classifications would cash dividend payments to stockholders be reported in
the statement of cash flows?
 Operating activities.
  Financing activities.
 Investing activities.
 Stockholder activities.
Financing activities include dividend payments to stockholders.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Which of the following items is not part of disclosure notes to the financial statements?
 Descriptions of the significant accounting methods applied in the company's financial

statements.
 Additional detail of income taxes payable reported in the balance sheet.
  Names of executive officers and the salaries for each officer listed.
 Commitments under long-term supply agreements to buy inventory and equipment.
Notes to the financial statements include a summary of significant accounting policies, additional detail
supporting reported numbers, and relevant financial information not disclosed in the financial
statements. Names of executive officers and their salaries are not included in these topics. Executive
officers and their compensation are included in the Form 10-K but not in the financial statement section
of the 10-K.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Anjou Company had 10,000 shares of common stock outstanding at December 31, 2015 and 14,000
shares of common stock outstanding at December 31, 2016. Anjou had sales of $3,600,000 in 2016
and net income of $280,000 in 2016. What is Anjou's earnings per share reported for 2016?
 $7.78
 $9.36
 $20.00
  $23.33
The earnings per share ($23.33) is net income ($280,000) divided by average number of shares of
common stock outstanding during the year ([10,000 + 14,000] ÷ 2 = 12,000).
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

What additional information is required to be presented on the same page as the income statement?
 Cash paid for interest.
 Deferred revenues.
  Earnings per share.
 Profit margin.
Earnings per share is required to be presented beneath the income statement.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Where are shares of the reporting company's common stock issued in exchange for cash reported on a
statement of cash flows?
Financing cash flows include the issuance of common stock in exchange for cash.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

In what order are cash flow activities presented on the statement of cash flows?
 Investing activities, Operating activities, Financing activities.
 Financing activities, Operating activities, Investing activities.
  Operating activities, Investing activities, Financing activities.
 Operating activities, Financing activities, Investing activities.
The cash flow activities are presented in the order of operating, investing, and financing activities.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

A company has paid cash to repurchase its common stock that was previously issued. Where will this
cash flow be reported on the statement of cash flows?
Financing cash flows include the repurchase of previously issued stock.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Which of the following statements is false when a company sells inventory costing $700 for $1,200
cash and operating expenses are $200?
 Cost of goods sold is $700.
 Gross profit is $500.
 Stockholders' equity increases by net income of $300.
  Net sales increase $500.
Net sales increase $1,200. Net sales ($1,200) minus cost of goods sold ($700) equals gross profit
($500) and minus operating expenses ($200) increases stockholders' equity by $300.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Which of the following statements is false when a company sells inventory costing $900 for $1,500
cash?
 Current assets increase $600.
  Gross profit increases $1,500.
 Stockholders' equity increases $600.
 Net sales increases $1,500.
Gross profit ($600) is the difference between net sales ($1,500) and cost of goods sold ($900). Gross
profit increases stockholders' equity. Current assets increase ($600) as cash increases ($1,500) and
inventory decreases ($900).
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


Which one of the following statements is true when a company sells inventory costing $800 for $1,400
cash, and operating expenses are $500?
rev: 10_03_2017_QC_CS-103726
 There is no change in current assets.
 Gross profit increases $100.
  Stockholders' equity increases $100.
 Net sales increases $2,200.
Stockholders' equity increases by net income ($100). Net income is net sales ($1,400) minus cost of
goods sold ($800) and minus operating expenses ($500).
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


Huron has provided the following year-end balances:
Cash, $25,000
Patents, $7,900
Accounts receivable, $9,300
Property, plant, and equipment, $98,700
Prepaid insurance, $3,600
Accumulated depreciation, $10,000
Inventory, $37,000
Retained earnings, 15,500
Trademarks, $12,600
Accounts payable, $8,000
Goodwill, $11,000
How much are Huron's current assets?
 $85,900.
 $71,300.
  $74,900.
 $102,100.
Huron's current assets ($74,900) include cash ($25,000), accounts receivable ($9,300), prepaid
insurance ($3,600), and inventory ($37,000).
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


Cash, $25,000
Patents, $7,900
Inventory, $37,000
Trademarks, $12,600
Goodwill, $11,000
How much are Huron's net noncurrent assets?
 $122,300.
  $120,200.
 $123,800.
 $112,300.
Huron's net noncurrent assets ($120,200) include patents ($7,900), property, plant, and equipment
($98,700), accumulated depreciation (-$10,000), trademarks ($12,600), and goodwill ($11,000).
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Cash, $25,000
Patents, $7,900
Inventory, $37,000
Trademarks, $12,600
Goodwill, $11,000
How much is Huron's stockholders' equity?
 $33,800.
  $187,100.
 $195,100.
 $202,600.
Total stockholders' equity ($187,100) equals total assets ($195,100) minus total liabilities ($8,000). Total
assets equals cash ($25,000), accounts receivable ($9,300), prepaid insurance ($3,600), inventory
($37,000), patents ($7,900), property, plant, and equipment ($98,700), accumulated depreciation
(-$10,000), trademarks ($12,600), and goodwill ($11,000). Total liabilities equals accounts payable
($8,000).
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Which of the following would not be included on an income statement?
  Accumulated depreciation.
 Insurance expense.
 Cost of goods sold.
 Discontinued operations.
Accumulated depreciation is a balance sheet account.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Which of the following is true?
 Income from operations would increase other income.
 Income before income taxes would be shown as a component of operating income on the
income statement.
  Gains and losses on the sales of investments are included in nonoperating income (loss).
 Income tax expense is shown as part of operating expenses.
Gains and losses on the sales of investments are included in nonoperating income (loss) as they are
not part of the company's primary operations.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Farrell Company has rent expense, wages expense, and utilities expense. Where will the company
present these expenses on the income statement?
 As a component of net sales.
 As a component of gross profit.
 After income from operations.
  Prior to income from operations.
Rent expense, wages expense, and utilities expense are operating expenses and are presented before
the subtotal of operating income.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Which of the following statements regarding international financial reporting standards (IFRS) is false?
 Common stock is titled as share capital.
 Property, plant, and equipment can be reported on the balance sheet at either fair value or
historical cost.
  The last-in first-out (LIFO) inventory method is permitted.
 Development costs are capitalized.
The last-in first-out inventory (LIFO) method is prohibited under IFRS.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Which of the following statements does not accurately describe the effect of the sale of inventory at a
profit on the financial statements?
 Income from operations and current assets both increase.
 Operating income and gross profit both increase.
 Net income and earnings per share both increase.
  Current assets do not change and stockholders' equity increases.
Current assets increase because the increase in either cash or accounts receivable is greater than the
decrease in inventory.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Which of the following statements regarding international financial reporting standards (IFRS) is false?
  Research and development costs are expensed.
 Research costs are expensed and development costs are capitalized.
 Cash payments for interest are reported on the cash flow statement as either an operating or
financing cash flow.
 Reversal of inventory write-downs is permitted.
Development costs are capitalized under IFRS.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Which of the following would not be included within the operating activities section of a cash flow
statement?
 Cash paid for research and development.
 Cash paid for insurance.
 Cash paid for interest expense.
  Cash paid to acquire a patent.
The cash paid to acquire a patent would be an investing activities cash flow.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Which of the following would not be reported in the operating activities section of the statement of
cash flows, which has been prepared using the indirect method?
 Sales on account which have not yet been collected.
 Net income.
  Cash paid for income taxes.
 Depreciation expense.
Under the indirect method, the operating activities section begins with net income, then adds back
depreciation expense, and adjusts for certain current assets and liabilities to reconcile net income to
net cash from operating activities, but cash paid for income taxes is not a specific item in this section.
Cash paid for income taxes is in a separate disclosure note.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.

Which of the following statements is correct?
 Accumulated depreciation is the amount of depreciation on the income statement.
  Current liabilities are debts expected to be paid within one year.
 Current assets are resources of a company that might include cash and copyrights.
 Patents, goodwill, and deferred revenues are classified as intangible assets on the balance
sheet.
Current liabilities are debts expected to be paid within one year from the date of the balance sheet and
are expected to consume current assets.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


 Gross profit percentage is calculated as gross profit divided by net sales.
  Gross profit should only be viewed for each reporting company and is not useful in comparing
different companies in the same industry.
 Gross profit is calculated as net sales less cost of sales.
 A higher gross profit might be strategic in order to afford high research and development
costs.
Gross profit is helpful to managers, analysts, and creditors for assessing a company by itself as well as
for comparing companies in the same industry.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


On January 1, 2016 Gucci Brothers Inc. had a $500,000 credit balance in retained earnings and
$600,000 balance in common stock. During 2016, the company earned net income of $100,000,
declared a dividend of $15,000, and issued additional stock for $25,000. What is total stockholders'
equity on December 31, 2016?
 $1,100,000.
  $1,210,000.
 $1,225,000.
 $1,240,000.
Stockholders' equity on December 31, 2016 = $1,210,000 = $500,000 + $600,000 + $100,000 −

$15,000 + $25,000.
References

05-03 Recognize and
apply the different
and disclosure
formats used by
companies in
the gross profit
percentage.


Which of the following transactions results in a decrease in the return on assets ratio?
 Increasing the sales price of the products sold.
 An increase in the net profit margin ratio.
  Purchasing land by signing a long-term note payable.
 Collecting cash from an account receivable.
Return on assets is net income divided by average total assets. Total assets increase by land
purchased and the return on assets ratio therefore decreases.
References

05-04 Analyze a
company's
performance based
on return on assets
and its components
and the effects of
transactions on
financial ratios.

Which of the following results in an increase in the return on assets ratio?
 A decrease in the total asset turnover ratio.
  An increase in the net profit margin ratio.
 Purchasing a building by signing a long-term mortgage payable.
 Using cash to purchase land.
Return on assets is net income divided by average total assets or net profit margin ratio times total
asset turnover ratio. An increase in the net profit margin ratio therefore increases return on assets.
References

05-04 Analyze a
company's
performance based
on return on assets
and its components
and the effects of
transactions on
financial ratios.

Marino Company has provided the following information:
Net sales, $480,000

Net income, $24,000
Average total assets, $200,000
What is Marino's net profit margin?
 75%
 12%
 42%
  5%
The net profit margin ratio (5%) is net income ($24,000) divided by net sales ($480,000).
References

05-04 Analyze a
company's
performance based
on return on assets
and its components
and the effects of
transactions on
financial ratios.

Net sales, $480,000

Net income, $24,000
What is Marino's total asset turnover?
 12.0
 8.33
 0.42
  2.4
The total asset turnover ratio (2.4) is net sales ($480,000) divided by average total assets ($200,000).
References

05-04 Analyze a
company's
performance based
on return on assets
and its components
and the effects of
transactions on
financial ratios.

Net sales, $480,000

Net income, $24,000
What is Marino's return on assets?
 240%
  12%
 5%
 42%
Return on assets (12%) equals net income ($24,000) divided by average total assets ($200,000). Return
on assets (12%) can also be calculated by multiplying the net profit margin ratio (5%) times the total
asset turnover ratio (2.4).
References

05-04 Analyze a
company's
performance based
on return on assets
and its components
and the effects of
transactions on
financial ratios.


Harley Company has provided the following selected financial information.

2015 2016
Total assets $ 3,200,000 $3,600,000
Net sales $ 7,200,000 $9,000,000
Net income $ 640,000 $ 450,000
What is Harley's 2016 total asset turnover (rounded)?
 2.38
 2.25
 0.132
  2.65
The total asset turnover ratio (2.65) is net sales for 2016 ($9,000,000) divided by average total assets
([$3,200,000+$3,600,000] ÷ 2 = $3,400,000).
References

05-04 Analyze a
company's
performance based
on return on assets
and its components
and the effects of
transactions on
financial ratios.



2015 2016
Total assets $ 3,200,000 $3,600,000
Net sales $ 7,200,000 $9,000,000
Net income $ 640,000 $ 450,000
What is Harley's 2016 net profit margin (rounded)?
  5.0%
 6.1%
 6.7%
 13.2%
The net profit margin ratio (5%) is net income ($450,000) divided by net sales ($9,000,000).
References

05-04 Analyze a
company's
performance based
on return on assets
and its components
and the effects of
transactions on
financial ratios.



2015 2016
Total assets $ 3,200,000 $3,600,000
Net sales $ 7,200,000 $9,000,000
Net income $ 640,000 $ 450,000
What is Harley's 2016 return on assets (rounded)?
 12.5%
  13.2%
 16.0%
 25.0%
Return on assets (13.2%) equals net income ($450,000) divided by average total assets
([$3,200,000+$3,600,000] ÷ 2 = $3,400,000). Return on assets (13.2%) can also be calculated by
multiplying the net profit margin ratio (5%) times the total asset turnover ratio (2.65).
References

05-04 Analyze a
company's
performance based
on return on assets
and its components
and the effects of
transactions on
financial ratios.


Which of the following transactions will decrease both the return on assets ratio and the total asset
turnover ratio?
  Purchasing land by signing a note payable.
 Accruing interest expense at year-end.
 Accruing interest revenue at year-end.
 Collecting cash from an account receivable.
The denominator in both ratios is average total assets. Purchasing land increases average total assets
and therefore decreases both ratios.
References

05-04 Analyze a
company's
performance based
on return on assets
and its components
and the effects of
transactions on
financial ratios.


 A decrease in the total asset turnover ratio results in a decrease in the return on assets ratio.
 An increase in average total assets results in a decrease in both the total asset turnover ratio
and return on assets ratio.
  A decrease in the total asset turnover ratio results in a decrease in the net profit margin ratio.
 An increase in the net profit margin ratio results in an increase in the return on assets ratio.
The total asset turnover ratio and net profit margin ratio are not directly related to each other.
References

05-04 Analyze a
company's
performance based
on return on assets
and its components
and the effects of
transactions on
financial ratios.


Which of the following statements is true?
 A decrease in net income decreases both the net profit margin ratio and the total asset
turnover ratio.
 An increase in average total assets results in a decrease in both the total asset turnover ratio
and the net profit margin ratio.
 A decrease in average total assets results in an increase in the total asset turnover ratio and a
decrease in the net profit margin ratio.
  An increase in net income increases both the net profit margin ratio and the return on assets
ratio.
The numerator for both ratios is net income. Therefore an increase in net income results in an increase
in both ratios.
References

05-04 Analyze a
company's
performance based
on return on assets
and its components
and the effects of
transactions on
financial ratios.


Which of the following would most likely increase the net profit margin ratio?
  An increase in the unit selling price.
 A decrease in the overall sales volume.
 An increase in operating expenses.
 An increase in cost of goods sold.
An increase in the unit selling price will increase net income by a greater amount proportionately
relative to the increase in net sales.
References

05-04 Analyze a
company's
performance based
on return on assets
and its components
and the effects of
transactions on
financial ratios.


Which of the following statements is correct?
 Income from operations increases when common stock is sold for more than par value.
 The accrual of research and development costs does not affect the net profit margin ratio.
 The payment of an accrued liability decreases total asset turnover.
  The declaration and payment of a cash dividend increases the return on assets ratio.
The cash payment decreases average total assets, which increases the total asset turnover ratio.
References

05-04 Analyze a
company's
performance based
on return on assets
and its components
and the effects of
transactions on
financial ratios.


Which of the following statements correctly describes the effect of accruing interest revenue at year-
end?
 Income from operations increases.
 The net profit margin ratio does not change.
 The total asset turnover ratio increases.
  The return on assets ratio is affected.
The accrual of interest revenue increases both total assets and net income, which are the two
components of return on assets.
References

05-04 Analyze a
company's
performance based
on return on assets
and its components
and the effects of
transactions on
financial ratios.

Assignment Print View

Diunggah oleh

Informasi Dokumen

Hak Cipta

Format Tersedia

Bagikan dokumen Ini

Bagikan atau Tanam Dokumen

Opsi Berbagi

Apakah menurut Anda dokumen ini bermanfaat?

Apakah konten ini tidak pantas?

Hak Cipta:

Format Tersedia

Assignment Print View

Diunggah oleh

Hak Cipta:

Format Tersedia

9/4/2019 Assignment Print View

Score: 0/0 Points 100 %

True / False Learning Objective:

True / False Learning Objective:

True / False Learning Objective:

True / False Learning Objective:

True / False Learning Objective:

True / False Learning Objective:

True / False Learning Objective:

True / False Learning Objective:

True / False Learning Objective:

True / False Learning Objective:

True / False Learning Objective:

True / False Learning Objective:

The form 10-Q contains an unaudited set of quarterly ﬁnancial statements.

True / False Learning Objective:

True / False Learning Objective:

Sales by major product category is a required ﬁnancial statement disclosure.

Sales by major product category is a voluntary disclosure.

True / False Learning Objective:

Information on all contractual agreements is included in notes as a ﬁnancial statement disclosure.

True / False Learning Objective:

Inventories are reported on the balance sheet as a current asset.

True / False Learning Objective:

Intangible assets are reported on the balance sheet as a current asset.

True / False Learning Objective:

True / False Learning Objective:

True / False Learning Objective:

An intangible asset has no physical existence and no life.

An intangible asset has no physical existence and has a long life.

True / False Learning Objective:

True / False Learning Objective:

True / False Learning Objective:

True / False Learning Objective:

The summary of signiﬁcant accounting policies is a required ﬁnancial statement disclosure.

True / False Learning Objective:

True / False Learning Objective:

True / False Learning Objective:

True / False Learning Objective:

The gross proﬁt percentage decreases when operating expenses increase.

True / False Learning Objective:

True / False Learning Objective:

The return on assets ratio may increase when sales increase.

True / False Learning Objective:

True / False Learning Objective:

 Overseeing the work of the Financial Accounting Standards Board (FASB).

  The development of generally accepted accounting principles.

The FASB develops generally accepted accounting principles.

Multiple Choice Learning Objective:

 Overseeing the work of the Securities & Exchange Commission (SEC).

  The development of generally accepted accounting principles.

The FASB develops generally accepted accounting principles.

Multiple Choice Learning Objective:

 The internal and external auditors.

 The external auditors and the board of directors.

Multiple Choice Learning Objective:

  Overseeing the ﬁnancial statement external audit.

 The certiﬁcation of the strength of the internal control system.

Multiple Choice Learning Objective:

 They are responsible for hiring the company's external auditors.

Multiple Choice Learning Objective:

Which of the following statements is false?

The external auditors are selected by the board of directors.

Multiple Choice Learning Objective: