133) Which of the following statements is not true?
A) We report any profits or losses on discontinued operations in the current year separately from
profits and losses on the portion of the business that will continue.
B) We report discontinued items separately, net of taxes, just before net income.
C) The decision of whether to report a loss as part of continuing operations or discontinued
operations depends on the preference of management.
D) When using a company’s current earnings to estimate future earnings performance, investors
normally exclude discontinued operations.
134) Examples of discontinued operations include all of the following except:
A) A disposal of a major geographical area.
B) A disposal of a major piece of equipment.
C) A disposal of a major line of business.
D) A disposal of a major investment in which the company has significant influence.
135) Which of the following income statement items is least likely to persist into future periods?
A) Sales revenue.
B) Discontinued operations.
C) Cost of goods sold.
D) Salaries expense.
136) LeBron’s Bookstores has two divisions: media and books. The media division had another
great year with net sales of $14 million, cost of goods sold of $8 million, operating expenses of $3
million, and income tax expense of $900,000. The book division did not do as well and was sold
during the year. The loss from operations and sale of the book division was $400,000 before taxes
and $280,000 after taxes.
Assuming the sale of the book division is reported as a discontinued operation, at what amount did
LeBron’s Bookstores report the discontinued operations?
A) Gain of $1,820,000.
B) Loss of $280,000.
C) Loss of $400,000.
D) Gain of $1,700,000.
137) LeBron’s Bookstores has two divisions: media and books. The media division had another
great year with net sales of $14 million, cost of goods sold of $8 million, operating expenses of $3
million, and income tax expense of $900,000. The book division did not do as well and was sold
during the year. The loss from operations and sale of the book division was $400,000 before taxes
and $280,000 after taxes.
Assuming the sale of the book division is reported as a discontinued operation, at what amount did
LeBron’s Bookstores report net income?
A) $3,000,000.
B) $1,820,000.
C) $2,100,000.
D) $1,700,000.
138) LeBron’s Bookstores has two divisions: media and books. The media division had another
great year with net sales of $14 million, cost of goods sold of $8 million, operating expenses of $3
million, and income tax expense of $900,000. The book division did not do as well and was sold
during the year. The loss from operations and sale of the book division was $400,000 before taxes
and $280,000 after taxes.
Assuming the sale of the book division is reported as a discontinued operation, at what amount did
LeBron’s Bookstores report income before tax?
A) $1,820,000.
B) $3,000,000.
C) $2,100,000.
D) $1,700,000.
139) Quality of earnings refers to:
A) Positive net income.
B) Ability of reported earnings to reflect the company’s true earnings.
C) An increasing trend in profitability.
D) All of the other answer choices are correct.
140) The usefulness of reported earnings to predict future earnings is often referred to as:
A) Conservative accounting practices.
B) Aggressive accounting practices.
C) Quality of earnings.
D) Horizontal analysis.
141) Which of the following is a result of conservative accounting practices?
A) Higher income, higher assets, and lower liabilities.
B) Lower income, higher assets, and lower liabilities.
C) Higher income, lower assets, and lower liabilities.
D) Lower income, lower assets, and higher liabilities.
142) Which of the following is a result of aggressive accounting practices?
A) Lower income, higher assets, and higher liabilities.
B) Higher income, higher assets, and lower liabilities.
C) Lower income, lower assets, and higher liabilities.
D) Higher income, lower assets, and higher liabilities.
143) The financial statements of a firm that uses more conservative accounting practices would be
likely to report:
A) Higher profitability.
B) Higher dividends.
C) Higher liabilities.
D) Higher stockholders’ equity.
144) The financial statements of a firm that uses more aggressive accounting practices would be
likely to report:
A) Higher profitability.
B) Higher dividends.
C) Higher liabilities.
D) Lower assets.
145) Which of the following is not an example of applying conservatism in accounting?
A) Recording contingent losses that are probable.
B) Expensing all research and development costs as they are incurred.
C) Using the lower of cost and net realizable value for inventory accounting.
D) Increasing the useful life used in calculating depreciation.
146) Which of the following is not an example of aggressive accounting practices?
A) Recording contingent losses that are probable.
B) Recording research and development costs as assets.
C) Using a lower estimate of bad debts.
D) Increasing the useful life used in calculating depreciation.
147) Which of the following is a conservative accounting practice?
A) The use of a longer service life for depreciation.
B) Waiting to record a litigation loss.
C) Adjust the allowance for uncollectible accounts to a smaller amount.
D) The write-down of overvalued inventory.
148) Which of the following is an aggressive accounting practice?
A) The use of a shorter service life for depreciation.
B) Waiting to record a litigation loss.
C) Adjust the allowance for uncollectible accounts to a larger amount.
D) The write-down of overvalued inventory.
149) Which of the following is a conservative accounting practice?
A) Change from double-declining balance to straight-line depreciation.
B) Record sales revenue before it is actually earned.
C) Adjust the allowance for uncollectible accounts to a larger amount.
D) Record inventory at market rather than lower of cost or market.
150) Which of the following is an aggressive accounting practice?
A) Change from straight-line to double-declining balance depreciation.
B) Record sales revenue before it is actually earned.
C) Adjust the allowance for uncollectible accounts to a larger amount.
D) Record inventory at the lower of cost and net realizable value.
151) Which of the following is a conservative accounting practice?
A) The use of a longer service life for depreciation.
B) Waiting to record a litigation loss.
C) Recording a lower amount for bad debt expense.
D) Taking an asset write-down early.
152) Which of the following is an aggressive accounting practice?
A) The use of a shorter service life for depreciation.
B) Waiting to record a litigation loss.
C) Recording a higher amount for bad debt expense.
D) Taking an asset write-down early.
153) Which of the following would be an example of conservative accounting?
A) Estimating warranty costs to be 4% of sales instead of 9% of sales.
B) Estimating the percentage of bad debts as 6% of accounts receivable instead of 10% of accounts
receivable.
C) Estimating that none of the inventory has a market value below cost rather than estimating that
some inventory has a market value below cost.
D) Assessing the probability of a contingent liability as probable.
69
Match the following:
A) Vertical analysis
B) Growth stocks
C) Profitability ratios
D) Value Stocks
E) Solvency
F) Horizontal analysis
G) Liquidity
154) Analyzes trends in financial statement data for a single company over time.
Difficulty: 2 Medium
Topic: Vertical Analysis; Horizontal Analysis; Risk Analysis – General; Profitability Analysis –
General
Learning Objective: 12-01 Perform vertical analysis.; 12-02 Perform horizontal analysis.; 12-03
Use ratios to analyze a company’s risk.; 12-04 Use ratios to analyze a company’s profitability.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
155) Have lower share prices in relationship to their fundamental ratios and therefore trade at
lower PE ratios.
Difficulty: 2 Medium
Topic: Vertical Analysis; Horizontal Analysis; Risk Analysis – General; Profitability Analysis –
General
Learning Objective: 12-01 Perform vertical analysis.; 12-02 Perform horizontal analysis.; 12-03
Use ratios to analyze a company’s risk.; 12-04 Use ratios to analyze a company’s profitability.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
156) Expresses each item in a financial statement as a percentage of the same base amount.
Difficulty: 2 Medium
Topic: Vertical Analysis; Horizontal Analysis; Risk Analysis – General; Profitability Analysis –
General
Learning Objective: 12-01 Perform vertical analysis.; 12-02 Perform horizontal analysis.; 12-03
Use ratios to analyze a company’s risk.; 12-04 Use ratios to analyze a company’s profitability.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
70
157) Refers to a company’s ability to pay its current liabilities.
Difficulty: 2 Medium
Topic: Vertical Analysis; Horizontal Analysis; Risk Analysis – General; Profitability Analysis –
General
Learning Objective: 12-01 Perform vertical analysis.; 12-02 Perform horizontal analysis.; 12-03
Use ratios to analyze a company’s risk.; 12-04 Use ratios to analyze a company’s profitability.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
158) Refers to a company’s ability to pay its long-term liabilities.
Difficulty: 2 Medium
Topic: Vertical Analysis; Horizontal Analysis; Risk Analysis – General; Profitability Analysis –
General
Learning Objective: 12-01 Perform vertical analysis.; 12-02 Perform horizontal analysis.; 12-03
Use ratios to analyze a company’s risk.; 12-04 Use ratios to analyze a company’s profitability.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
159) Have high expectations of future earnings and therefore usually trade at higher P/E ratios.
Difficulty: 2 Medium
Topic: Vertical Analysis; Horizontal Analysis; Risk Analysis – General; Profitability Analysis –
General
Learning Objective: 12-01 Perform vertical analysis.; 12-02 Perform horizontal analysis.; 12-03
Use ratios to analyze a company’s risk.; 12-04 Use ratios to analyze a company’s profitability.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
160) Measure the earnings or operating effectiveness of a company.
Difficulty: 2 Medium
Topic: Vertical Analysis; Horizontal Analysis; Risk Analysis – General; Profitability Analysis –
General
Learning Objective: 12-01 Perform vertical analysis.; 12-02 Perform horizontal analysis.; 12-03
Use ratios to analyze a company’s risk.; 12-04 Use ratios to analyze a company’s profitability.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
71
Match the following:
A) Aggressive accounting practices
B) Horizontal analysis
C) Liquidity
D) Other revenues and expenses
E) Discontinued operation
F) Vertical analysis
G) Solvency
H) Conservative accounting practices
161) A company’s ability to pay its current liabilities.
Difficulty: 2 Medium
Topic: Earnings Persistence and Earnings Quality; Vertical Analysis; Horizontal Analysis; Risk
Analysis – General; Profitability Analysis – General; Earnings Persistence and One-Time Income
Items; Quality of Earnings
Learning Objective: 12-01 Perform vertical analysis.; 12-02 Perform horizontal analysis.; 12-03
Use ratios to analyze a company’s risk.; 12-04 Use ratios to analyze a company’s profitability.;
12-05 Distinguish persistent earnings from one-time items.; 12-06 Distinguish between
conservative and aggressive accounting practices.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
162) Accounting choices that result in reporting lower income, lower assets, and higher liabilities.
Difficulty: 2 Medium
Topic: Earnings Persistence and Earnings Quality; Vertical Analysis; Horizontal Analysis; Risk
Analysis – General; Profitability Analysis – General; Earnings Persistence and One-Time Income
Items; Quality of Earnings
Learning Objective: 12-01 Perform vertical analysis.; 12-02 Perform horizontal analysis.; 12-03
Use ratios to analyze a company’s risk.; 12-04 Use ratios to analyze a company’s profitability.;
12-05 Distinguish persistent earnings from one-time items.; 12-06 Distinguish between
conservative and aggressive accounting practices.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
72
163) The sale or disposal of most long-term assets.
Difficulty: 2 Medium
Topic: Earnings Persistence and Earnings Quality; Vertical Analysis; Horizontal Analysis; Risk
Analysis – General; Profitability Analysis – General; Earnings Persistence and One-Time Income
Items; Quality of Earnings
Learning Objective: 12-01 Perform vertical analysis.; 12-02 Perform horizontal analysis.; 12-03
Use ratios to analyze a company’s risk.; 12-04 Use ratios to analyze a company’s profitability.;
12-05 Distinguish persistent earnings from one-time items.; 12-06 Distinguish between
conservative and aggressive accounting practices.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
164) Accounting choices that result in reporting higher income, higher assets, and lower liabilities.
Difficulty: 2 Medium
Topic: Earnings Persistence and Earnings Quality; Vertical Analysis; Horizontal Analysis; Risk
Analysis – General; Profitability Analysis – General; Earnings Persistence and One-Time Income
Items; Quality of Earnings
Learning Objective: 12-01 Perform vertical analysis.; 12-02 Perform horizontal analysis.; 12-03
Use ratios to analyze a company’s risk.; 12-04 Use ratios to analyze a company’s profitability.;
12-05 Distinguish persistent earnings from one-time items.; 12-06 Distinguish between
conservative and aggressive accounting practices.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
165) A tool to analyze trends in financial statement data for a single company over time.
Difficulty: 2 Medium
Topic: Earnings Persistence and Earnings Quality; Vertical Analysis; Horizontal Analysis; Risk
Analysis – General; Profitability Analysis – General; Earnings Persistence and One-Time Income
Items; Quality of Earnings
Learning Objective: 12-01 Perform vertical analysis.; 12-02 Perform horizontal analysis.; 12-03
Use ratios to analyze a company’s risk.; 12-04 Use ratios to analyze a company’s profitability.;
12-05 Distinguish persistent earnings from one-time items.; 12-06 Distinguish between
conservative and aggressive accounting practices.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
73
166) The sale or disposal of a significant component of a company’s operations.
Difficulty: 2 Medium
Topic: Earnings Persistence and Earnings Quality; Vertical Analysis; Horizontal Analysis; Risk
Analysis – General; Profitability Analysis – General; Earnings Persistence and One-Time Income
Items; Quality of Earnings
Learning Objective: 12-01 Perform vertical analysis.; 12-02 Perform horizontal analysis.; 12-03
Use ratios to analyze a company’s risk.; 12-04 Use ratios to analyze a company’s profitability.;
12-05 Distinguish persistent earnings from one-time items.; 12-06 Distinguish between
conservative and aggressive accounting practices.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
167) A means to express each item in a financial statement as a percentage of a base amount.
Difficulty: 2 Medium
Topic: Earnings Persistence and Earnings Quality; Vertical Analysis; Horizontal Analysis; Risk
Analysis – General; Profitability Analysis – General; Earnings Persistence and One-Time Income
Items; Quality of Earnings
Learning Objective: 12-01 Perform vertical analysis.; 12-02 Perform horizontal analysis.; 12-03
Use ratios to analyze a company’s risk.; 12-04 Use ratios to analyze a company’s profitability.;
12-05 Distinguish persistent earnings from one-time items.; 12-06 Distinguish between
conservative and aggressive accounting practices.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
168) A company’s ability to pay its long-term liabilities.
Difficulty: 2 Medium
Topic: Earnings Persistence and Earnings Quality; Vertical Analysis; Horizontal Analysis; Risk
Analysis – General; Profitability Analysis – General; Earnings Persistence and One-Time Income
Items; Quality of Earnings
Learning Objective: 12-01 Perform vertical analysis.; 12-02 Perform horizontal analysis.; 12-03
Use ratios to analyze a company’s risk.; 12-04 Use ratios to analyze a company’s profitability.;
12-05 Distinguish persistent earnings from one-time items.; 12-06 Distinguish between
conservative and aggressive accounting practices.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
74
Match the following:
A) Current ratio
B) Acid-test ratio
C) Inventory turnover ratio
D) Average collection period
E) Average days in inventory
F) Receivables turnover ratio
G) Debt to equity ratio
H) Times interest earned ratio
169) Cost of goods sold divided by average inventory; the number of times the firm sells its
average inventory balance during a reporting period.
Difficulty: 2 Medium
Topic: Risk Analysis – Receivables Turnover Ratio; Risk Analysis – Average Collection Period;
Risk Analysis – Inventory Turnover Ratio; Risk Analysis – Average Days in Inventory; Risk
Analysis – Current Ratio; Risk Analysis – Acid-Test Ratio; Risk Analysis – Debt to Equity Ratio;
Risk Analysis – Times Interest Earned Ratio
Learning Objective: 12-03 Use ratios to analyze a company’s risk.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
170) Total liabilities divided by total stockholders’ equity; measure a company’s solvency risk.
Difficulty: 2 Medium
Topic: Risk Analysis – Receivables Turnover Ratio; Risk Analysis – Average Collection Period;
Risk Analysis – Inventory Turnover Ratio; Risk Analysis – Average Days in Inventory; Risk
Analysis – Current Ratio; Risk Analysis – Acid-Test Ratio; Risk Analysis – Debt to Equity Ratio;
Risk Analysis – Times Interest Earned Ratio
Learning Objective: 12-03 Use ratios to analyze a company’s risk.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
171) Approximate number of days the average inventory is held.
Difficulty: 2 Medium
Topic: Risk Analysis – Receivables Turnover Ratio; Risk Analysis – Average Collection Period;
Risk Analysis – Inventory Turnover Ratio; Risk Analysis – Average Days in Inventory; Risk
Analysis – Current Ratio; Risk Analysis – Acid-Test Ratio; Risk Analysis – Debt to Equity Ratio;
Risk Analysis – Times Interest Earned Ratio
Learning Objective: 12-03 Use ratios to analyze a company’s risk.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
75
172) Ratio that compares interest expense with income available to pay those charges.
Difficulty: 2 Medium
Topic: Risk Analysis – Receivables Turnover Ratio; Risk Analysis – Average Collection Period;
Risk Analysis – Inventory Turnover Ratio; Risk Analysis – Average Days in Inventory; Risk
Analysis – Current Ratio; Risk Analysis – Acid-Test Ratio; Risk Analysis – Debt to Equity Ratio;
Risk Analysis – Times Interest Earned Ratio
Learning Objective: 12-03 Use ratios to analyze a company’s risk.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
173) Net sales divided by average accounts receivable; the number of times during a year that the
average accounts receivable balance is collected.
Difficulty: 2 Medium
Topic: Risk Analysis – Receivables Turnover Ratio; Risk Analysis – Average Collection Period;
Risk Analysis – Inventory Turnover Ratio; Risk Analysis – Average Days in Inventory; Risk
Analysis – Current Ratio; Risk Analysis – Acid-Test Ratio; Risk Analysis – Debt to Equity Ratio;
Risk Analysis – Times Interest Earned Ratio
Learning Objective: 12-03 Use ratios to analyze a company’s risk.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
174) Cash, short-term investments, and accounts receivable divided by current liabilities;
measures the availability of liquid current assets to pay current liabilities.
Difficulty: 2 Medium
Topic: Risk Analysis – Receivables Turnover Ratio; Risk Analysis – Average Collection Period;
Risk Analysis – Inventory Turnover Ratio; Risk Analysis – Average Days in Inventory; Risk
Analysis – Current Ratio; Risk Analysis – Acid-Test Ratio; Risk Analysis – Debt to Equity Ratio;
Risk Analysis – Times Interest Earned Ratio
Learning Objective: 12-03 Use ratios to analyze a company’s risk.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
175) Current assets divided by current liabilities; measures the availability of current assets to pay
current liabilities.
Difficulty: 2 Medium
Topic: Risk Analysis – Receivables Turnover Ratio; Risk Analysis – Average Collection Period;
Risk Analysis – Inventory Turnover Ratio; Risk Analysis – Average Days in Inventory; Risk
Analysis – Current Ratio; Risk Analysis – Acid-Test Ratio; Risk Analysis – Debt to Equity Ratio;
Risk Analysis – Times Interest Earned Ratio
Learning Objective: 12-03 Use ratios to analyze a company’s risk.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
76
176) Approximate number of days the average accounts receivable balance is outstanding.
Difficulty: 2 Medium
Topic: Risk Analysis – Receivables Turnover Ratio; Risk Analysis – Average Collection Period;
Risk Analysis – Inventory Turnover Ratio; Risk Analysis – Average Days in Inventory; Risk
Analysis – Current Ratio; Risk Analysis – Acid-Test Ratio; Risk Analysis – Debt to Equity Ratio;
Risk Analysis – Times Interest Earned Ratio
Learning Objective: 12-03 Use ratios to analyze a company’s risk.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
77
Match the following:
A) Asset turnover
B) Price-earnings (PE) ratio
C) Profit margin
D) Gross profit ratio
E) Return on assets
F) Return on equity
177) Net income divided by average total assets; measures the amount of net income generated for
each dollar invested in assets.
Difficulty: 2 Medium
Topic: Profitability Analysis – Gross Profit Ratio; Profitability Analysis – Return on Assets;
Profitability Analysis – Profit Margin; Profitability Analysis – Asset Turnover; Profitability
Analysis – Return on Equity; Profitability Analysis – Price-Earnings Ratio
Learning Objective: 12-04 Use ratios to analyze a company’s profitability.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
178) Compares a company’s share price with its earnings per share.
Difficulty: 2 Medium
Topic: Profitability Analysis – Gross Profit Ratio; Profitability Analysis – Return on Assets;
Profitability Analysis – Profit Margin; Profitability Analysis – Asset Turnover; Profitability
Analysis – Return on Equity; Profitability Analysis – Price-Earnings Ratio
Learning Objective: 12-04 Use ratios to analyze a company’s profitability.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
179) Net income divided by average stockholders’ equity; measures the income generated per
dollar of equity.
Difficulty: 2 Medium
Topic: Profitability Analysis – Gross Profit Ratio; Profitability Analysis – Return on Assets;
Profitability Analysis – Profit Margin; Profitability Analysis – Asset Turnover; Profitability
Analysis – Return on Equity; Profitability Analysis – Price-Earnings Ratio
Learning Objective: 12-04 Use ratios to analyze a company’s profitability.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
78
180) Gross profit divided by net sales; measures the amount by which the sale price of inventory
exceeds its cost per dollar of sales.
Difficulty: 2 Medium
Topic: Profitability Analysis – Gross Profit Ratio; Profitability Analysis – Return on Assets;
Profitability Analysis – Profit Margin; Profitability Analysis – Asset Turnover; Profitability
Analysis – Return on Equity; Profitability Analysis – Price-Earnings Ratio
Learning Objective: 12-04 Use ratios to analyze a company’s profitability.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
181) Net sales divided by average total assets; which measures the sales per dollar of assets
invested.
Difficulty: 2 Medium
Topic: Profitability Analysis – Gross Profit Ratio; Profitability Analysis – Return on Assets;
Profitability Analysis – Profit Margin; Profitability Analysis – Asset Turnover; Profitability
Analysis – Return on Equity; Profitability Analysis – Price-Earnings Ratio
Learning Objective: 12-04 Use ratios to analyze a company’s profitability.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
182) Net income divided by net sales; indicates the earnings per dollar of sales.
Difficulty: 2 Medium
Topic: Profitability Analysis – Gross Profit Ratio; Profitability Analysis – Return on Assets;
Profitability Analysis – Profit Margin; Profitability Analysis – Asset Turnover; Profitability
Analysis – Return on Equity; Profitability Analysis – Price-Earnings Ratio
Learning Objective: 12-04 Use ratios to analyze a company’s profitability.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
79
Match the following:
A) Other revenues and expenses
B) Quality of earnings
C) Discontinued operation
D) Aggressive accounting practices
E) Conservative accounting practices
183) The sale or disposal of most long-term assets.
Difficulty: 2 Medium
Topic: Earnings Persistence and One-Time Income Items; Quality of Earnings
Learning Objective: 12-05 Distinguish persistent earnings from one-time items.; 12-06
Distinguish between conservative and aggressive accounting practices.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
184) The sale or disposal of a significant component of a company’s operations.
Difficulty: 2 Medium
Topic: Earnings Persistence and One-Time Income Items; Quality of Earnings
Learning Objective: 12-05 Distinguish persistent earnings from one-time items.; 12-06
Distinguish between conservative and aggressive accounting practices.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
185) Refers to the ability of reported earnings to reflect the company’s true earnings, as well as the
usefulness of reported earnings to predict future earnings.
Difficulty: 2 Medium
Topic: Earnings Persistence and One-Time Income Items; Quality of Earnings
Learning Objective: 12-05 Distinguish persistent earnings from one-time items.; 12-06
Distinguish between conservative and aggressive accounting practices.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
186) Practices that result in reporting lower income, lower assets, and higher liabilities.
Difficulty: 2 Medium
Topic: Earnings Persistence and One-Time Income Items; Quality of Earnings
Learning Objective: 12-05 Distinguish persistent earnings from one-time items.; 12-06
Distinguish between conservative and aggressive accounting practices.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
187) Practices that result in reporting higher income, higher assets, and lower liabilities.
Difficulty: 2 Medium
Topic: Earnings Persistence and One-Time Income Items; Quality of Earnings
Learning Objective: 12-05 Distinguish persistent earnings from one-time items.; 12-06
Distinguish between conservative and aggressive accounting practices.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
188) Perform a vertical analysis on the following information:
2021
2020
Cash
$500,000
$200,000
Accounts receivable
900,000
800,000
Inventory
700,000
500,000
Long-term assets
2,200,000
2,500,000
Total assets
$4,300,000
$4,000,000