CHAPTER 14
Analyzing Financial Statements: A Managerial Perspective
Summary of Questions by Objectives and Bloom’s Taxonomy
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Multiple Choice Questions
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Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
14-2
TRUE-FALSE STATEMENTS
1. A managerial accountant may analyze his/her company’s own financial statements in
order to assess the appearance of his/her firm to investors.
2. One reason a managerial accountant might need to analyze financial statements of
other firms is to assess the viability of a vendor.
3. To assess control of operations, managers expect that successful implementation of
their plan will be reflected in subsequent financial statements as substantially increased
profits.
4. It is important for managers to analyze their company’s financial statements so that they
can anticipate and answer questions from investors and creditors.
5. In general, managers should analyze financial statements primarily from the perspective
of their customers.
6. Whenever an asset increases, the corresponding part of the transaction will always be
an increase to net income.
7. Vertical analysis is performed on the balance sheet because it represents a point in time,
while horizontal analysis is performed on the income statement because it covers a
period of time.
8. An increase in gross margin of 7% from one period to the next implies that the
company’s net income will have increased by 7% as well.
9. The statement of cash flows divides a company’s profitability into operating, investing,
and financing activities.
10. If sales revenue of a retail company increases by 10% because the company sells more
units of product, the company’s cost of goods sold will increase by 10% as well.
11. If a company records fictitious sales, income will increase, but operating cash flows will
not be affected.
12. Common size financial statements are an example of horizontal analysis.
13. Horizontal analysis examines the change in financial statement amounts over time.
14. One example of vertical analysis is the determination that long-term assets increased by
2.5% over time.
15. One example of vertical analysis is the determination that interest expense rose from
1.2% of net sales to 1.4% of net sales from one period to the next period.
16. When the amount of net sales is used as the base amount for all income statement
items, horizontal analysis is being performed.
Chapter 14 Analyzing Financial Statements: A Managerial Perspective
14-3
17. If net income is substantially less than operating cash flows, this is a sign of possible
accounting irregularities.
18. Recording fictitious sales will cause operating cash flows and net income to increase.
19. The management discussion and analysis section of the annual report explains financial
results that are not obvious simply from reading the basic financial statements.
20. News articles and credit reports are valuable sources of financial information.
21. Financial leverage relates to a company’s use of debt financing to acquire and use
productive assets.
22. Earnings per share is the amount of net income earned in a company that is paid out as
cash dividends to shareholders.
23. The gross margin percentage is a turnover ratio that measures the efficiency with which
a company sells its products.
24. If a company’s return on total assets is higher than its return on common stockholders’
equity, a company is using financial leverage effectively.
25. An increase in inventory turnover implies that a company is selling its inventory and
collecting cash from customers more quickly.
26. Turnover ratios involve both a balance sheet and an income statement account.
27. Debt-related ratios reveal the ability of a company to pays its obligations when they
become due.
28. A high debt–to-equity ratio implies that a company has more risk than a company with a
low ratio.
29. Times interest earned measures how many times operating income is able to pay the
company’s interest expense.
30. The acid-test ratio is a more stringent test of a company’s ability to pay its short-term
debt compared to the current ratio.
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
14-4
MULTIPLE CHOICE
31. Which of the following is not a reason that managers need to analyze financial reports?
A. To assess control of operations
B. To assess the ability of customers to pay their bills
C. To assess the viability of suppliers
D. To maximize annual bonuses
32. Which of the following is a reason that managers use financial statements?
A. To assess the company’s image
B. To assess the product cost of competitors
C. To assess competitors’ contribution margins
D. To assess the long-term viability of key customers
33. Which of the following does accounts receivable turnover measure?
A. The ability of a company to pay its short-term obligations
B. The number of times receiveables are collected during the period
C. The efficiency with which a company generates sales on credit
D. The length of time it takes to collect receivables
34. Which of the following indicates the amount investors are willing to pay per dollar of
earnings?
A. Market price per share of a company’s stock
B. Earnings per share
C. Price-earnings ratio
D. Return on total assets
35. Using the balance sheet equation, which of the following is not a possible transaction?
A. Increase an asset and increase stockholders’ equity
B. Increase a liability and decrease stockholders’ equity
C. Increase an asset and decrease a liability
D. Decrease an asset and decrease a liability
36. Which of the following is the return a company is able to earn on funds invested by
shareholders?
A. Return on total assets
B. Return on common stockholders’ equity
C. Price-earning ratio
D. Dividends paid
37. Which of the following is not an operating activity on the statement of cash flows?
A. Paying a dividend
B. Paying for inventory purchases
C. Collecting cash from the sale of merchandise
D. Paying cash for income taxes
38. Which of the following is not a profitability ratio?
A. Price-earnings ratio
B. Return on total assets
C. Earnings per share
D. Asset turnover
Chapter 14 Analyzing Financial Statements: A Managerial Perspective
14-5
39. Which of the following changes is the least favorable?
A. An increase in inventory turnover
B. A decrease in operating expenses
C. An increase in the price-earnings ratio
D. A decrease in the asset turnover
40. Net cash provided by operations represents
A. net income converted to a cash basis.
B. the net increase in cash and cash equivalents for a period.
C. the cash provided by selling inventory to customers.
D. a measure of profitability.
41. What does financial leverage measure?
A. How quickly a company generates profit from its assets
B. How quickly a company is turning its net income into cash
C. The overall efficiency with which a company uses assets to generate revenues
D. How effectively the company uses debt financing to acquire economic resources
42. What is asset turnover?
A. How quickly a company generates profit from its assets
B. How quickly a company is turning its net income into cash
C. The overall efficiency with which the company uses assets to generate revenues
D. How quickly the company acquires economic resources
43. Which of the following is true concerning vertical analysis?
A. It is a technique for evaluating a series of financial statement data over a period
of time.
B. It is used to determine the increase or decrease that has taken place over a
period of time.
C. It is expressed as a percentage of the base year amount of the same account.
D. It is also called common size analysis.
44. Which of the following is true concerning horizontal analysis?
A. It is also called common size analysis.
B. It consists of analyzing changes in financial statement amounts across time.
C. It consists of analyzing financial statements in terms of a base amount.
D. It restates each income statement line item as a percentage of net sales.
45. Which type of analysis would highlight the percentage increase in sales from one year to
the next?
A. Horizontal analysis
B. Vertical analysis
C. Common size analysis
D. Comprehensive analysis
46. What type of analysis will you perform to compare the gross margin percentage from
one year to the next?
A. Debt-related analysis
B. Turnover analysis
C. Horizontal analysis
D. Vertical analysis
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
14-6
47. In which of the following will the percentage increase in sales from one year to the next
be most obvious?
A. Profitability analysis
B. Turnover analysis
C. Horizontal analysis
D. Vertical analysis
48. If the rate of growth in sales is greater than the rate of growth in cost of goods sold from
one year to the next, which of the following will you most likely expect?
A. The gross margin percentage is increasing.
B. The gross margin percentage is decreasing.
C. Accounts receivable turnover is declining.
D. Inventory turnover is declining.
49. Which of the following will vertical analysis allow managers to readily identify?
A. Sales are increasing at a faster rate than selling expenses
B. The percentage change in sales from the prior year
C. Sales are growing at a faster rate than assets
D. Income taxes are a larger percentage of sales in the current year compared to a
previous year
50. Gross margin in 2017 for Beaver Enterprises totaled $1,000,000. If cost of goods sold is
60% of sales, how much is sales?
A. $400,000
B. $600,000
C. $1,666,667
D. $2,500,000
51. If management is manipulating earnings to achieve performance targets, what outcome
may result?
A. Net income may exceed cash from operations.
B. Cash from investing activities will exceed cash from financing activities.
C. Cash will experience a net decrease.
D. Total assets will increase.
52. Where can you find insight of why sales has increased by 32% from a prior period?
A. Common size financial statements
B. Management’s discussion and analysis
C. The balance sheet
D. Horizontal analysis
53. Which of the following is a stringent measure of a company’s ability to repay obligations
in a short period of time?
A. Return on total assets
B. Current ratio
C. Acid-test ratio
D. Debt turnover
Chapter 14 Analyzing Financial Statements: A Managerial Perspective
14-7
54. Which of the following ratios measures how many multiples of the firm’s earnings that
investors are willing to pay for the company’s stock?
A. Return on total assets
B. Earnings per share
C. Price-earnings ratio
D. Time interest earned
55. Which of the following most likely indicates that a company is making good use of
financial leverage?
A. The price-earnings ratio exceeds that of competitors.
B. Earnings per share is higher than the dividends paid per share.
C. Net income is higher than cash from operations.
D. Return on common stockholders’ equity is higher than the return on total assets.
56. What effect does financing with debt have on a company?
A. It will increase financial risk.
B. It will decrease the potential return for shareholders.
C. It will create a requirement to pay dividends.
D. It will decrease turnover.
57. Which of the following is not a profitability ratio?
A. Inventory turnover
B. Gross margin percentage
C. Earnings per share
D. Return on total assets
58. Which ratio measures the rate earned on a company’s total economic resources?
A. Price-earnings ratio
B. Earnings per share
C. Return on total assets
D. Return on common stockholders’ equity
59. Which ratio is a measure of the profit available to common shareholders on each share
of common stock outstanding?
A. Price-earnings ratio
B. Earnings per share
C. Return on total assets
D. Return on common stockholders’ equity
60. Which statement is true concerning the gross margin percentage?
A. It indicates how much a company earns per dollar of sales taking into account
the cost of items it sells.
B. It indicates how much earnings are generated on each share of common stock.
C. It indicates the amount of sales generated for each dollar of assets.
D. It measures the amount of net income generated for each dollar of sales.
61. Which of the following ratios is a measure of the company’s profitability to its market
price?
A. Price-earnings ratio
B. Earnings per share
C. Return on total assets
D. Return on common stockholders’ equity
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
14-8
62. Which of the following is not used to measure the efficiency with which a firm uses its
assets?
A. Inventory turnover ratio
B. Current ratio
C. Accounts receivable turnover ratio
D. Asset turnover
63. Which of the following is a common effect when return on common stockholders’ equity
is greater than return on total assets?
A. Financial leverage is being used effectively.
B. The company has no debt.
C. The company’s profit is declining.
D. Earnings per share will be extremely large.
64. Cost of goods sold in 2017 for Reno Parts Company totaled $4,530,000. If the gross
margin percentage is 56%, how much are sales ?
A. $10,295,454
B. $7,066,800
C. $8,089,286
D. None of these answer choices are correct.
65. The gross margin amount in 2017 for the Billings Corporation totaled $800,000. If cost of
goods sold is 80% of sales, how much is sales?
A. $960,000
B. $4,000,000
C. $3,200,000
D. $1,440,000
66. Bonanza, Incorporated’s net income in 2017 was $378,000. The company had 75,000
shares of common stock outstanding and 35,000 shares of preferred stock outstanding.
No shares were issued or repurchased during the year. The company paid dividends of
$1.50 per share on the common stock and $1.80 per share on the preferred stock. How
much is earnings per share for 2017?
A. $3.44
B. $4.20
C. $4.34
D. $5.04
67. Best Corporation’s net income in 2017 was $1,295,000. The company had 500,000
shares of common stock outstanding and 90,000 shares of preferred stock outstanding.
No shares were issued or repurchased during the year. The company paid dividends of
$0.70 per share on the common stock and $0.80 per share on the preferred stock. How
much profit did Best generate for each share of outstanding common stock in 2017?
A. $1.15
B. $2.45
C. $2.59
D. $2.19
Chapter 14 Analyzing Financial Statements: A Managerial Perspective
14-9
68. Bread Enterprises had a current ratio of 3.5 on December 31 of the current year. On that
date, the company’s assets were as follows:
Cash $ 200,000
Accounts receivable, net 600,000
Inventory 960,000
Prepaid expenses 25,000
Equipment, net 2,200,000
Total assets $3,985,000
What impact will issuing common stock for cash have on the company’s earnings per
share?
A. It will increase earnings per share.
B. It will decrease earnings per share.
C. There will be no change.
D. The number of common shares outstanding is needed to determine the answer.
69. Bread Enterprises had a current ratio of 2.5 on December 31 of the current year. On that
date, the company’s assets were as follows:
Cash $ 100,000
Accounts receivable, net 600,000
Inventory 960,000
Prepaid expenses 25,000
Equipment, net 2,200,000
Total assets $3,985,000
What impact will an increase in the market price of the company’s common stock from
$24.50 to $37.20 have on a company’s price-earnings ratio?
A. It will increase the price-earnings ratio.
B. It will decrease the price-earnings ratio.
C. There will be no change.
D. There is not enough information to determine the answer.
70. Lane Class Company had 50,000 shares of common stock outstanding and 10,000
shares of preferred stock outstanding. No shares were issued or repurchased during the
year. The company paid a dividend of $0.80 per share of common stock and $0.60 per
share of preferred stock. If the company reports earnings per common share of $0.85,
how much is net income?
A. $42,500
B. $56,500
C. $48,500
D. $57,000
71. Blue Corporation reported earnings per share of common stock at $12 in 2017 and paid
dividends of $3 per share. The current market price per share is $102 and the book
value per share is $54. Blue Corporation has no preferred stock. How much is the
company’s price-earnings ratio?
A. $11.80
B. $1.90
C. $8.50
D. $11.30
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
14–10
72. McDonald Company’s net income in 2017 was $200,000. The company paid preferred
dividends of $32,000 and common stock dividends of $10,000. It average common
stockholders’ equity was $850,000 during 2017. How much is the company’s return on
common stockholders’ equity for 2017?
A. 19.8%
B. 23.5%
C. 18.6%
D. 4.3%
73. The following is from Nantucket Limited’s records for 2017:
Account Balances January 1 December 31
Common stock $210,000 $250,000
Additional paid-in-capital 95,000 110,000
Retained earnings 105,000 195,000
During 2017, the company paid dividends of $15,000 on its common stock. The
company’s net income for the year was $105,000. How much is the company’s return on
common stockholders’ equity for the year ending December 31, 2017?
A. 18.9%
B. 16.2%
C. 22.0%
D. 25.6%
74. Relish Holdings had 250,000 shares of common stock outstanding and 40,000 shares of
preferred stock outstanding. No shares were issued or repurchased during the year. The
company paid a dividend of $1.50 per share of common stock and $2 per share of
preferred stock. If the company reported earnings per common share of $1.60, how
much would net income have been?
A. $480,000
B. $400,000
C. $156,250
D. $320,000
75. Denton Limited Company reported earnings per share of common stock $2 in 2017 and
paid dividends of $1.50 per share. Denton has no preferred stock issued. The current
market price per share is $15 and the book value per share is $14. How much is
Denton’s price-earnings ratio?
A. $6.75
B. $7.50
C. $7.00
D. $30.00
76. Asset turnover is
A. net income divided by sales.
B. net sales divided by total assets.
C. net sales divided by current assets.
D. earnings per share divided by the market price per share of stock.
77. Asset turnover is a measure of
A. how quickly a company is replacing its old plant assets with new plant assets.
B. how quickly a company is turning its sales into cash.
C. the overall efficiency with which the company uses assets to generate revenues.
D. how rapidly the stock market believes the company will grow.
Chapter 14 Analyzing Financial Statements: A Managerial Perspective
14–11
78. Inventory turnover
A. is a measure of the profitability of selling inventory.
B. is used to calculate how quickly customers pay for inventory they purchased.
C. is an indicator of how quickly suppliers are being paid by the company.
D. measures how efficiently a company sells it inventory.
79. The higher the amount of a company’s accounts receivable turnover,
A. the shorter time period it takes to collect a receivable.
B. the more assets a company has tied up in receivables.
C. the longer it takes a company to collect its receivables.
D. the more likely a company will experience cash flow problems.
80. Which statement is true concerning the current ratio?
A. It is usually a larger amount than the acid-test ratio.
B. It is a more stringent test of a company’s ability to pay its short-term obligations.
C. It measures a company’s ability to manage its assets efficiently.
D. It measures a company’s ability to make interest payments on debt.
81. Wangley Company has an inventory turnover of 8. Which statement is true?
A. Wangley has about 2 months of sales in its inventory.
B. Wangley takes about 46 days from the time an item is sold until Wangley collects
the cash.
C. Wangley takes about one month from the time an item is purchased until the
cash is collected from the sale of the inventory.
D. Wangley sells it inventory 8 times faster than other companies.
82. Redzone Corporation reported $400,000 in sales on account plus another $60,000 in
cash sales last year. Cost of goods sold for the period totaled $220,000. The beginning
balance in accounts receivable was $32,000 and the ending balance was $50,000. How
much is the company’s accounts receivable turnover?
A. 9.2 times
B. 4.8 times
C. 8.0 times
D. 12.5 times
83. Fenwick Holdings reported cash sales in 2017 of $220,000. Accounts receivable at the
beginning of the year totaled $420,000, with a balance of $490,000 at the end of the
year. If the company’s accounts receivable turnover is 3.5 for the year, how much are its
total sales for the year?
A. $2,250,000
B. $1,715,000
C. $1,495,000
D. $1,935,000
84. Real Crisp Company reported cost of goods sold of $800,000 last year. The company’s
beginning inventory balance was $58,000 and the ending inventory balance was
$54,000. How many days will it take the company to sell its inventory as of year end?
A. 13.8 days
B. 14.8 days
C. 24.6 days
D. 26.5 days
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
14–12
85. Benzo Limited reported an inventory turnover of 14.5 times last year. Beginning
inventory was $290,000 and ending inventory was $260,000. How much was cost of
goods sold?
A. $3,770,000
B. $3,987,500
C. $4,205,000
D. $7,975,000
86. Zin Company repoted cost of goods sold of $1,500,000 last year. The company’s
beginning inventory balance was $110,000 and the ending inventory balance was
$86,000. How many days will it take the company to sell off all of its inventory?
A. 13.6 days
B. 17.4 days
C. 20.9 days
D. 26.8 days
87. Which of the following is the most stringent test of a company’s ability to meet its current
obligations?
A. Current ratio
B. Quick ratio
C. Debt-equity ratio
D. Times interest earned
88. Which of the following is included in the calculation of the current ratio, but not the quick
ratio?
A. Inventory
B. Cash
C. Accounts receivable
D. Marketable securities
89. Wilker Industries has a current ratio of 1.8. If Wilker collects a payment from a customer
on account, what is expected to happen to the company’s current ratio?
A. It will increase.
B. It will decrease.
C. It will stay the same.
D. The effect is based on the amount of debt a company holds at the end of the
period.
90. Organic Ways is a large food and drug retailer with more than 1,700 stores in the U.S.
and Canada. The following financial information relates to fiscal years, 2017 and 2018.
(In Millions) 2018 2017
Sales $34,286 $38,185
Cost of goods sold 32,000 34,000
Accounts receivable 577 461
Merchandise inventory 2,905 2,510
How much is the company’s inventory turnover for 2018?
A. 9.08 times
B. 11.02 times
C. 11.80 times
D. 33.12 times
Chapter 14 Analyzing Financial Statements: A Managerial Perspective
14–13
91. Waylon Appliances is a large applicance retailer with more than 800 stores in the U.S.
The following financial information relates to fiscal 2017 and 2018.
(In Millions) 2018 2017
Sales $42,286 $40,185
Cost of goods sold 33,000 31,000
Accounts receivable 820 960
Merchandise inventory 2,900 2,700
How much is the company’s days’ sales in inventory for 2018 and 2017, respectively?
A. 32.08, 31.79 days
B. 41.52, 41.91 days
C. 11.38, 11.48 days
D. 2.13; 3.15 days
92. Brick Works, Inc. had a current ratio of 1.5 to 1 on December 31 of the current year. On
that date, the company’s assets were as follows:
Cash $ 100,000
Accounts receivable, net 800,000
Inventory 960,000
Prepaid expenses 25,000
Equipment, net 2,600,000
Total assets $4,485,000
What impact will collecting $56,000 due from customers have on Brick Work’s inventory
turnover?
A. It will increase.
B. It will decrease.
C. It will have no effect.
D. The amount of current liabilities is needed to determine the answer.
93. A company has a high debt–to-equity ratio. What other amount will most likely be high for
the company?
A. The company’s level of risk
B. The company’s assets
C. Earnings per share
D. Net income
94. What does times interest earned measure?
A. The ability of a company to make interest payments on its debt
B. The ability of a company to pay its interest-bearing debt obligations
C. The increase in interest expense as a result of new debt obligations acquired
during the period
D. The average interest rate incurred on the company’s debt
95. What does a quick ratio of less than one typically indicate?
A. The company does not have enough quick assets to settle its current liabilities.
B. The company is unprofitable.
C. The company has a very high debt–to-equity ratio.
D. All of the answer choices are correct.
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
14–14
96. RT Enterprises has a current ratio of less than one, and a very high debt–to-equity ratio.
Which of the following will management of other companies most likely be reluctant to
do?
I. Sign an agreement with RT Enterprises to become a major
supplier
II. Sell RT Enterprises goods on credit
III. Expand capacity to better serve the needs of RT Enterprises
A. I and II
B. II and III
C. I and III
D. I, II, and III
97. Which of the following is not a communication by a company’s management that may
help alleviate investors and creditors concerns of the company’s financial statements?
A. News articles
B. Notes to their financial statements
C. Assessment of vendors and customers
D. Press releases
98. Cramer Cooling Company reported the following results for the year just ended:
Cash $50,000
Accounts receivable 45,000
Prepaid insurance 10,000
Inventory 51,300
Cramer Cooling’s acid-test ratio is 1.25. How much are the company’s current liabilities?
A. $76,000
B. $84,000
C. $125,040
D. $117,040
99. Planter Zone’s working capital is $32,500 and its current assets are $85,100. How much
is the company’s current ratio?
A. 0.72
B. 1.62
C. 2.62
D. 1.38
100. Seekers Limited reported the following results for the year just ended:
Cash $ 30,000
Accounts receivable 90,000
Inventory 150,000
The company’s quick ratio was 0.90 for the year. How much are the company’s current
liabilities?
A. $120,000
B. $133,333
C. $266,667
D. $108,000
Chapter 14 Analyzing Financial Statements: A Managerial Perspective
14–15
101. Kerwin Holdings has total assets of $450,000 and shareholders’ equity of $120,000, of
which $45,000 of the equity is common stock. How much is the company’s debt–to–
equity ratio?
A. 3.75
B. 2.75
C. 6.00
D. 4.40
102. Comparative financial statements for Bent Stew Enterprises are shown below:
December 31
2018 2017
Assets
Current assets:
Cash $ 3,000 $ 800
Accounts receivable 8,500 6,000
Inventory 12,000 8,200
Prepaid expenses 1,400 900
Total current assets 24,900 15,900
Property, plant, and equipment, net 103,600 123,300
Intangible assets, net 64,000 47,000
Total assets $192,500 $186,200
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 11,000 $ 12,000
Other current liabilities 11,800 3,200
Total current liabilities 22,800 15,200
Long-term debt 120,000 128,000
Total liabilities 142,800 143,200
Stockholders’ equity:
Common stock 15,000 15,000
Additional paid-in capital 20,000 20,000
Retained earnings 14,700 8,000
Total stockholders’ equity 49,700 43,000
Total liabilities and stockholders’ equity $192,500 $186,200
Year Ended December 31
2018 2017
Sales $250,000 $ 230,000
Cost of goods sold 164,000 142,300
Gross margin 86,000 87,700
Operating expenses 64,000 54,000
Operating income 22,000 33,700
Interest expense 7,500 5,900
Earnings before income taxes 14,500 27,800
Income taxes 7,800 7,140
Net earnings $ 6,700 $ 20,660
Using horizontal analysis, how much is the percentage change in cash for Bent Stew
Enterprises from 2017 to 2018?
A. 375.00% increase
B. 73.33% increase
C. 26.67% increase
D. 275.00% increase
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
14–16
103. Comparative financial statements for Bent Stew Enterprises are shown below:
December 31
2018 2017
Assets
Current assets:
Cash $ 3,000 $ 800
Accounts receivable 8,500 6,000
Inventory 12,000 8,200
Prepaid expenses 1,400 900
Total current assets 24,900 15,900
Property, plant, and equipment, net 103,600 123,300
Intangible assets, net 64,000 47,000
Total assets $192,500 $186,200
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 11,000 $ 12,000
Other current liabilities 11,800 3,200
Total current liabilities 22,800 15,200
Long-term debt 120,000 128,000
Total liabilities 142,800 143,200
Stockholders’ equity:
Common stock 15,000 15,000
Additional paid-in capital 20,000 20,000
Retained earnings 14,700 8,000
Total stockholders’ equity 49,700 43,000
Total liabilities and stockholders’ equity $192,500 $186,200
Year Ended December 31
2018 2017
Sales $250,000 $ 230,000
Cost of goods sold 164,000 142,300
Gross margin 86,000 87,700
Operating expenses 64,000 54,000
Operating income 22,000 33,700
Interest expense 7,500 5,900
Earnings before income taxes 14,500 27,800
Income taxes 7,800 7,140
Net earnings $ 6,700 $ 20,660
How much is the company’s gross margin percentage for 2018?
A. (1.98%)
B. 34.40%
C. 98.16%
D. 7.80%
Chapter 14 Analyzing Financial Statements: A Managerial Perspective
14–17
104. Comparative financial statements for Bent Stew Enterprises are shown below:
December 31
2018 2017
Assets
Current assets:
Cash $ 3,000 $ 800
Accounts receivable 8,500 6,000
Inventory 12,000 8,200
Prepaid expenses 1,400 900
Total current assets 24,900 15,900
Property, plant, and equipment, net 103,600 123,300
Intangible assets, net 64,000 47,000
Total assets $192,500 $186,200
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 11,000 $ 12,000
Other current liabilities 11,800 3,200
Total current liabilities 22,800 15,200
Long-term debt 120,000 128,000
Total liabilities 142,800 143,200
Stockholders’ equity:
Common stock 15,000 15,000
Additional paid-in capital 20,000 20,000
Retained earnings 14,700 8,000
Total stockholders’ equity 49,700 43,000
Total liabilities and stockholders’ equity $192,500 $186,200
Year Ended December 31
2018 2017
Sales $250,000 $ 230,000
Cost of goods sold 164,000 142,300
Gross margin 86,000 87,700
Operating expenses 64,000 54,000
Operating income 22,000 33,700
Interest expense 7,500 5,900
Earnings before income taxes 14,500 27,800
Income taxes 7,800 7,140
Net earnings $ 6,700 $ 20,660
Bent Stew Enterprises had 10,000 shares of common stock outstanding during both
2017 and 2018. How much was earnings per share in 2018?
A. $0.15
B. $0.67
C. $1.49
D. $19.25
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
14–18
105. Comparative financial statements for Bent Stew Enterprises are shown below:
December 31
2018 2017
Assets
Current assets:
Cash $ 3,000 $ 800
Accounts receivable 8,500 6,000
Inventory 12,000 8,200
Prepaid expenses 1,400 900
Total current assets 24,900 15,900
Property, plant, and equipment, net 103,600 123,300
Intangible assets, net 64,000 47,000
Total assets $192,500 $186,200
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 11,000 $ 12,000
Other current liabilities 11,800 3,200
Total current liabilities 22,800 15,200
Long-term debt 120,000 128,000
Total liabilities 142,800 143,200
Stockholders’ equity:
Common stock 15,000 15,000
Additional paid-in capital 20,000 20,000
Retained earnings 14,700 8,000
Total stockholders’ equity 49,700 43,000
Total liabilities and stockholders’ equity $192,500 $186,200
Year Ended December 31
2018 2017
Sales $250,000 $ 230,000
Cost of goods sold 164,000 142,300
Gross margin 86,000 87,700
Operating expenses 64,000 54,000
Operating income 22,000 33,700
Interest expense 7,500 5,900
Earnings before income taxes 14,500 27,800
Income taxes 7,800 7,140
Net earnings $ 6,700 $ 20,660
Using vertical analysis, how would you best describe the change in the company’s
operating expenses from 2017 to 2018?
A. Operating expenses increased from 1.63% of net earnings to 9.55% of net
earnings from 2017 to 2018.
B. Operating expenses increased by $10,000 from 2017 to 2018.
C. Operating expenses increased from 23.5% to 25.6% of sales from 2017 to 2018.
D. Operating expenses increased by 18.5% from 2017 to 2018.
Chapter 14 Analyzing Financial Statements: A Managerial Perspective
14–19
106. Comparative financial statements for Bent Stew Enterprises are shown below:
December 31
2018 2017
Assets
Current assets:
Cash $ 3,000 $ 800
Accounts receivable 8,500 6,000
Inventory 12,000 8,200
Prepaid expenses 1,400 900
Total current assets 24,900 15,900
Property, plant, and equipment, net 103,600 123,300
Intangible assets, net 64,000 47,000
Total assets $192,500 $186,200
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 11,000 $ 12,000
Other current liabilities 11,800 3,200
Total current liabilities 22,800 15,200
Long-term debt 120,000 128,000
Total liabilities 142,800 143,200
Stockholders’ equity:
Common stock 15,000 15,000
Additional paid-in capital 20,000 20,000
Retained earnings 14,700 8,000
Total stockholders’ equity 49,700 43,000
Total liabilities and stockholders’ equity $192,500 $186,200
Year Ended December 31
2018 2017
Sales $250,000 $ 230,000
Cost of goods sold 164,000 142,300
Gross margin 86,000 87,700
Operating expenses 64,000 54,000
Operating income 22,000 33,700
Interest expense 7,500 5,900
Earnings before income taxes 14,500 27,800
Income taxes 7,800 7,140
Net earnings $ 6,700 $ 20,660
Using horizontal analysis, how would you best describe the change in the company’s
operating expenses from 2017 to 2018?
A. Operating expenses increased from 1.63% of net earnings to 9.55% of net
earnings from 2017 to 2018.
B. Operating expenses increased by $10,000 from 2017 to 2018.
C. Operating expenses increased from 23.5% to 25.6% of sales from 2017 to 2018.
D. Operating expenses increased by 18.5% from 2017 to 2018.
Test Bank to accompany Jiambalvo Managerial Accounting, 6th Edition
14–20
107. Comparative financial statements for Bent Stew Enterprises are shown below:
December 31
2018 2017
Assets
Current assets:
Cash $ 3,000 $ 800
Accounts receivable 8,500 6,000
Inventory 12,000 8,200
Prepaid expenses 1,400 900
Total current assets 24,900 15,900
Property, plant, and equipment, net 103,600 123,300
Intangible assets, net 64,000 47,000
Total assets $192,500 $186,200
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 11,000 $ 12,000
Other current liabilities 11,800 3,200
Total current liabilities 22,800 15,200
Long-term debt 120,000 128,000
Total liabilities 142,800 143,200
Stockholders’ equity:
Common stock 15,000 15,000
Additional paid-in capital 20,000 20,000
Retained earnings 14,700 8,000
Total stockholders’ equity 49,700 43,000
Total liabilities and stockholders’ equity $192,500 $186,200
Year Ended December 31
2018 2017
Sales $250,000 $ 230,000
Cost of goods sold 164,000 142,300
Gross margin 86,000 87,700
Operating expenses 64,000 54,000
Operating income 22,000 33,700
Interest expense 7,500 5,900
Earnings before income taxes 14,500 27,800
Income taxes 7,800 7,140
Net earnings $ 6,700 $ 20,660
What does vertical analysis for 2018 versus 2017 reveal for Bent Stew Enterprises?
A. There was no change in the proportion of common stock to total assets from
2017 to 2018.
B. Inventory levels have decreased from 2017 to 2018 in proportion to total assets.
C. Gross margin declined to 34.4% in 2017, down from 38.19% in 2017.
D. The company has a higher proportion of long-term debt in 2018 compared to
2017.