Chapter 14 – Financial Statement Analysis
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Page 51
RATIONALE:
Ratio of Sales to Total Assets = Sales / Average Total Assets = $85,000 / $250,000 =
0.34
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
PREFACE NAME:
Diane Company
LEARNING OBJECTIVES:
FNMN.WAJO.19.14–05 – LO: 14–05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:35 PM
DATE MODIFIED:
10/16/2017 6:37 PM
116. What is the return on total assets for Diane Company?
a.
10.0%
b.
8.0%
c.
0.10%
d.
1.0%
ANSWER:
a
RATIONALE:
Rate Earned on Total Assets = (Net Income + Interest Expense) / Average Total Assets
= ($20,000 + $5,000) / $250,000 = 10%
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
PREFACE NAME:
Diane Company
LEARNING OBJECTIVES:
FNMN.WAJO.19.14–05 – LO: 14–05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:35 PM
DATE MODIFIED:
10/16/2017 6:37 PM
117. What are the dividends per common share for Diane Company?
a.
$20.00
b.
$3.00
c.
$0.67
d.
$1.50
ANSWER:
d
RATIONALE:
Dividends per Common Share = Dividends on Common Stock / Shares of Common
Stock Outstanding = $9,000 / 6,000 shares = $1.50
POINTS:
1
Chapter 14 – Financial Statement Analysis
Copyright Cengage Learning. Powered by Cognero.
Page 54
Income Statement
Sales
$90,000
Cost of goods sold
45,000
Gross margin
$45,000
Operating expenses
20,000
Net income
$25,000
Number of shares of common stock
6,000
Market price of common stock
$40
Dividends per share
$1.00
Cash provided by operations
$40,000
What is the return on total assets for this company?
a.
8.1%
b.
6.8%
c.
10.5%
d.
16.1%
ANSWER:
a
RATIONALE:
Rate Earned on Total Assets = (Net Income + Interest Expense) / Average Total Assets
= ($25,000 + $0) / $310,000 = 8.1%
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.14–05 – LO: 14–05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:35 PM
DATE MODIFIED:
10/16/2017 6:37 PM
122. The following information pertains to Dallas Company. Assume that all balance sheet amounts represent both
average and ending balance figures and that all sales were on credit.
Assets
Cash and short-term investments
$ 40,000
Accounts receivable (net)
30,000
Inventory
25,000
Property, plant, and equipment
280,000
Total assets
$375,000
Liabilities and Stockholders’ Equity
Current liabilities
$ 60,000
Long-term liabilities
95,000
Common stock, $20 par
120,000
Retained earnings
100,000
Total liabilities and stockholders’ equity
$375,000
Income Statement
Sales
$90,000
Cost of goods sold
45,000
Chapter 14 – Financial Statement Analysis
Copyright Cengage Learning. Powered by Cognero.
Page 55
Gross margin
$45,000
Operating expenses
15,000
Net income
$30,000
Number of shares of common stock
6,000
Market price of common stock
$20
Dividends per share
$1.00
Cash provided by operations
$40,000
What is the return on stockholders’ equity?
a.
7.3%
b.
13.6%
c.
20.5%
d.
40.9%
ANSWER:
b
RATIONALE:
Rate Earned on Stockholders’ Equity = Net Income / Average Total Stockholders’
Equity = $30,000 / $220,000 = 13.6%
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.14–05 – LO: 14–05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:35 PM
DATE MODIFIED:
10/16/2017 6:37 PM
123. A company reports the following:
Net income
$160,000
Preferred dividends
$10,000
Shares of common stock outstanding
20,000
Market price per share of common stock
$35
The company’s earnings per share on common stock is
a.
$13.33
b.
$8.50
c.
$7.50
d.
$35.00
ANSWER:
c
RATIONALE:
Earnings per Share (EPS) on Common Stock = (Net Income – Preferred Dividends) /
Shares of Common Stock Outstanding = ($160,000 – $10,000) / 20,000 = $150,000 /
20,000 = $7.50
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
Multiple Choice
Chapter 14 – Financial Statement Analysis
Copyright Cengage Learning. Powered by Cognero.
Page 58
d.
off-balance-sheet arrangements
ANSWER:
c
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.14–06 – LO: 14–06
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.20 – Accounting for Corporations
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
ACCT.AICPA.FN.04 – Reporting
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:35 PM
DATE MODIFIED:
10/16/2017 6:37 PM
129. Which of the following would appear as an unusual item on the income statement?
a.
loss resulting from the sale of fixed assets
b.
gain resulting from the disposal of a segment of the business
c.
presentation of earnings per share
d.
stock split
ANSWER:
b
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.14–06 – LO: 14–06
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:35 PM
DATE MODIFIED:
10/16/2017 6:37 PM
130. A loss on disposal of a segment would be reported in the income statement as a(n)
a.
administrative expense
b.
other expense
c.
deduction from income from continuing operations
d.
selling expense
ANSWER:
c
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
Copyright Cengage Learning. Powered by Cognero.
Page 60
133. A loss due to a discontinued operation should be reported on the income statement
a.
above income from continuing operations
b.
without related tax effect
c.
below income from continuing operations
d.
as an operating expense
ANSWER:
c
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.14–06 – LO: 14–06
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:35 PM
DATE MODIFIED:
10/16/2017 6:37 PM
134. A change from one acceptable accounting method to another is reported
a.
on the statement of stockholders’ equity, as a correction to the beginning balance
b.
on the income statement, below income from continuing operations
c.
on the income statement, above income tax expense
d.
through a retroactive restatement of prior-period earnings
ANSWER:
d
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.14–06 – LO: 14–06
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:35 PM
DATE MODIFIED:
10/16/2017 6:37 PM
135. Which of the following items should be classified as an unusual item on an income statement?
a.
gain on the retirement of a bond payable
b.
gain on a sale of a long-term investment
c.
loss due to a discontinued operation in Colorado
d.
selling treasury stock for more than the company paid for it
ANSWER:
c
POINTS:
1