55. Use this information to answer the following question.
Ramsey Company
Income Statement
For the Year Ended December 31, 2013
Revenues
Net sales
$200,000
Dividend income
17,500
Total revenues
$217,500
Costs and expenses
Costs of goods sold
$ 58,000
Selling expenses
20,000
General and administrative expenses
27,500
Interest expense
12,500
Total costs and expenses
118,0000
Income before income taxes
$ 99,500
Income taxes
39,000
Net income
$ 60,500
If the income statement were prepared in a multistep form, gross margin from sales would be
a.
$159,500.
b.
$152,000.
c.
$142,000.
d.
$172,000.
56. Use this information to answer the following question.
Net sales
$206,500
Dividend income
17,500
Total revenues
$224,000
Costs of goods sold
$ 60,000
Selling expenses
20,000
General and administrative expenses
27,500
Interest expense
12,500
Total costs and expenses
120,000
Income before income taxes
$104,000
Income taxes
39,000
Net income
$ 65,000
If the income statement were prepared in a multistep form, income from operations would be
a.
$99,000.
b.
$84,000.
c.
$104,000.
d.
$86,500.
57. Use this information to answer the following question.
Net sales
$200,000
Dividend income
14,000
Total revenues
$214,000
Costs of goods sold
$ 60,000
Selling expenses
20,000
General and administrative expenses
27,500
Interest expense
12,500
Total costs and expenses
120,000
Income before income taxes
$ 94,000
Income taxes
39,000
Net income
$ 55,000
If the income statement were prepared in a multistep form, excess of other expenses over other
revenues would be
a.
$14,000.
b.
$1,500.
c.
$16,500.
d.
$1,250.
58. Use this information to answer the following question.
Net sales
$200,000
Dividend income
17,500
Total revenues
$217,500
Costs of goods sold
$ 60,000
Selling expenses
20,000
General and administrative expenses
27,500
Interest expense
12,500
Total costs and expenses
120,000
Income before income taxes
$ 97,500
Income taxes
39,000
Net income
$ 58,500
If the income statement were prepared in a multistep form, income before income taxes would be
a.
$67,500.
b.
$105,000.
c.
$80,000.
d.
$97,500.
59. Use this information to answer the following question.
Net sales
$200,000
Dividend income
17,500
Total revenues
$217,500
Costs of goods sold
$ 75,500
Selling expenses
20,000
General and administrative expenses
12,000
Interest expense
12,500
Total costs and expenses
120,000
Income before income taxes
$ 97,500
Income taxes
39,000
Net income
$ 58,500
If the income statement were prepared in a multistep form, operating expenses would be
a.
$92,000.
b.
$32,000.
c.
$44,500.
d.
$80,000.
60. The debt to equity ratio equals
a.
stockholders’ equity divided by total liabilities.
b.
stockholders’ equity divided by long-term liabilities.
c.
total liabilities divided by stockholders’ equity.
d.
current liabilities divided by average stockholders’ equity.
61. The profit margin equals
a.
net sales divided by net income.
b.
gross margin divided by net income.
c.
net income divided by gross margin.
d.
net income divided by net sales.
62. Asset turnover equals
a.
net sales divided by average total assets.
b.
average total assets divided by net income.
c.
average total assets divided by total liabilities.
d.
net income divided by average total assets.
63. Which of the following is not expressed in terms of a percentage?
a.
Return on assets
b.
Debt to equity ratio
c.
Asset turnover
d.
Profit margin
64. Which of the following is expressed in terms of a percentage?
a.
Return on equity
b.
Cash flow yield
c.
Asset turnover
d.
None of these are expressed in terms of a percentage.
65. Which of the following does not include net income in its computation?
a.
Debt to equity ratio
b.
Return on assets
c.
Return on equity
d.
Profit margin
66. The asset turnover ratio measures
a.
how quickly the company uses assets to pay debt.
b.
how efficiently assets are used to produce sales.
c.
the income produced by selling inventory.
d.
how efficiently equity is used to produce revenue.
67. Which of the following is not a measure of profitability?
a.
Profit margin
b.
Return on assets
c.
Return on equity
d.
Debt to equity ratio
68. Use this balance sheet and income statement to answer the following question. Use ending balances
whenever average balances are required for computing ratios.
Isanti Systems, Inc.
Balance Sheet
December 31, 2013
Assets
Liabilities
Current assets
$ 12,000
Current liabilities
$ 8,000
Investments
2,000
Long-term liabilities
2,000
Property, plant, and equipment
16,000
Total liabilities
$ 10,000
Intangible assets
10,000
Stockholders’ Equity
Common stock
$20,000
Retained earnings
10,000
Total stockholders’ equity
$30,000
Total liabilities and
Total assets
$40,000
stockholders’ equity
$40,000
Isanti Systems, Inc.
Income Statement
For the Year Ended December 31, 2013
Net sales
$ 48,000
Costs of goods sold
16,000
Gross margin
$ 32,000
Operating expenses
16,000
Income before income taxes
$ 16,000
Income taxes
6,400
Net income
$ 9,600
The profit margin of Isanti Systems is
a.
60 percent.
b.
25 percent.
c.
20 percent.
d.
12 percent.
69. Use this balance sheet and income statement to answer the following question. Use ending balances
whenever average balances are required for computing ratios.
Isanti Systems, Inc.
Balance Sheet
December 31, 2013
Assets
Liabilities
Current assets
$ 12,000
Current liabilities
$ 8,000
Investments
2,000
Long-term liabilities
2,000
Property, plant, and equipment
16,000
Total liabilities
$ 10,000
Intangible assets
10,000
Stockholders’ Equity
Common stock
$20,000
Retained earnings
10,000
Total stockholders’ equity
$30,000
Total liabilities and
Total assets
$40,000
stockholders’ equity
$40,000
Isanti Systems, Inc.
Income Statement
For the Year Ended December 31, 2013
Net sales
$ 48,000
Costs of goods sold
16,000
Gross margin
$ 32,000
Operating expenses
16,000
Income before income taxes
$ 16,000
Income taxes
6,400
Net income
$ 9,600
The return on assets for Isanti Systems is
a.
30 percent.
b.
150 percent.
c.
33-1/3 percent.
d.
24 percent.
70. Use this balance sheet and income statement to answer the following question. Use ending balances
whenever average balances are required for computing ratios.
Isanti Systems, Inc.
Balance Sheet
December 31, 2013
Assets
Liabilities
Current assets
$ 12,000
Current liabilities
$ 8,000
Investments
2,000
Long-term liabilities
2,000
Property, plant, and equipment
16,000
Total liabilities
$ 10,000
Intangible assets
10,000
Stockholders’ Equity
Common stock
$20,000
Retained earnings
10,000
Total stockholders’ equity
$30,000
Total liabilities and
Total assets
$40,000
stockholders’ equity
$40,000
Isanti Systems, Inc.
Income Statement
For the Year Ended December 31, 2013
Net sales
$ 48,000
Costs of goods sold
16,000
Gross margin
$ 32,000
Operating expenses
16,000
Income before income taxes
$ 16,000
Income taxes
6,400
Net income
$ 9,600
The return on equity for Isanti Systems is
a.
40 percent.
b.
67 percent.
c.
47 percent.
d.
32 percent.
71. Use this balance sheet and income statement to answer the following question. Use ending balances
whenever average balances are required for computing ratios.
Isanti Systems, Inc.
Balance Sheet
December 31, 2013
Assets
Liabilities
Current assets
$ 12,000
Current liabilities
$ 8,000
Investments
2,000
Long-term liabilities
2,000
Property, plant, and equipment
16,000
Total liabilities
$ 10,000
Intangible assets
10,000
Stockholders’ Equity
Common stock
$20,000
Retained earnings
10,000
Total stockholders’ equity
$30,000
Total liabilities and
Total assets
$40,000
stockholders’ equity
$40,000
Isanti Systems, Inc.
Income Statement
For the Year Ended December 31, 2013
Net sales
$ 48,000
Costs of goods sold
16,000
Gross margin
$ 32,000
Operating expenses
16,000
Income before income taxes
$ 16,000
Income taxes
6,400
Net income
$ 9,600
The debt to equity ratio for Isanti Systems is
a.
67 percent.
b.
75 percent.
c.
25 percent.
d.
33.3 percent.
72. Use this balance sheet and income statement to answer the following question. Use ending balances
whenever average balances are required for computing ratios.
Isanti Systems, Inc.
Balance Sheet
December 31, 2013
Assets
Liabilities
Current assets
$ 12,000
Current liabilities
$ 8,000
Investments
2,000
Long-term liabilities
2,000
Property, plant, and equipment
16,000
Total liabilities
$ 10,000
Intangible assets
10,000
Stockholders’ Equity
Common stock
$20,000
Retained earnings
10,000
Total stockholders’ equity
$30,000
Total liabilities and
Total assets
$40,000
stockholders’ equity
$40,000
Isanti Systems, Inc.
Income Statement
For the Year Ended December 31, 2013
Net sales
$ 48,000
Costs of goods sold
16,000
Gross margin
$ 32,000
Operating expenses
16,000
Income before income taxes
$ 16,000
Income taxes
6,400
Net income
$ 9,600
The asset turnover for Isanti Systems is
a.
1.00 times.
b.
1.33 times.
c.
.83 times.
d.
1.20 times.
73. Use the following information for the first year of operations for Layton Novelties, Inc. to answer the
following question. Use ending balances whenever average balances are required for computing ratios.
Layton Novelties, Inc.
Balance Sheet
December 31, 2013
Assets
Liabilities
Current assets
$ 28,000
Current liabilities
$ 16,000
Investments
12,000
Long-term liabilities
4,000
Property, plant, and equipment
48,000
Total liabilities
$ 20,000
Intangible assets
32,000
Stockholders’ Equity
Common stock
$ 80,000
Retained earnings
20,000
Total stockholders’ equity
$100,000
Total liabilities and
Total assets
$120,000
stockholders’ equity
$120,000
Layton Novelties, Inc.
Income Statement
For the Year Ended December 31, 2010
Net sales
$ 80,000
Costs of goods sold
32,000
Gross margin
$ 48,000
Operating expenses
12,000
Income before income taxes
$ 36,000
Income taxes
14,400
Net income
$ 21,600
Cash flow from operating expenses for Layton Novelties is $32,400.
The asset turnover of Layton Novelties is
a.
2.5 times
b.
1.5 times.
c.
.667 times.
d.
.18 times
74. Use the following information for the first year of operations for Layton Novelties, Inc. to answer the
following question. Use ending balances whenever average balances are required for computing ratios.
Layton Novelties, Inc.
Balance Sheet
December 31, 2013
Assets
Liabilities
Current assets
$ 28,000
Current liabilities
$ 16,000
Investments
12,000
Long-term liabilities
4,000
Property, plant, and equipment
48,000
Total liabilities
$ 20,000
Intangible assets
32,000
Stockholders’ Equity
Common stock
$ 80,000
Retained earnings
20,000
Total stockholders’ equity
$100,000
Total liabilities and
Total assets
$120,000
stockholders’ equity
$120,000
Layton Novelties, Inc.
Income Statement
For the Year Ended December 31, 2013
Net sales
$ 80,000
Costs of goods sold
32,000
Gross margin
$ 48,000
Operating expenses
12,000
Income before income taxes
$ 36,000
Income taxes
14,400
Net income
$ 21,600
Cash flow from operating expenses for Layton Novelties is $32,400.
The cash flow yield for Layton Novelties is
a.
1.5 times.
b.
.67 times
c.
.405 times.
d.
2.5 times.
75. Use the following information for the first year of operations for Layton Novelties, Inc. to answer the
following question. Use ending balances whenever average balances are required for computing ratios.
Layton Novelties, Inc.
Balance Sheet
December 31, 2013
Assets
Liabilities
Current assets
$ 28,000
Current liabilities
$ 16,000
Investments
12,000
Long-term liabilities
4,000
Property, plant, and equipment
48,000
Total liabilities
$ 20,000
Intangible assets
32,000
Stockholders’ Equity
Common stock
$ 80,000
Retained earnings
20,000
Total stockholders’ equity
$100,000
Total liabilities and
Total assets
$120,000
stockholders’ equity
$120,000
Layton Novelties, Inc.
Income Statement
For the Year Ended December 31, 2013
Net sales
$ 80,000
Costs of goods sold
32,000
Gross margin
$ 48,000
Operating expenses
12,000
Income before income taxes
$ 36,000
Income taxes
14,400
Net income
$ 21,600
Cash flow from operating expenses for Layton Novelties is $32,400.
The cash return on assets for Layton Novelties is
a.
45 percent.
b.
40 percent.
c.
27 percent.
d.
9 percent.
76. Use this balance sheet and income statement for the first year of operations for Layton Novelties, Inc.
to answer the following question. Use ending balances whenever average balances are required for
computing ratios.
Layton Novelties, Inc.
Balance Sheet
December 31, 2013
Assets
Liabilities
Current assets
$ 28,000
Current liabilities
$ 16,000
Investments
12,000
Long-term liabilities
4,000
Property, plant, and equipment
48,000
Total liabilities
$ 20,000
Intangible assets
32,000
Stockholders’ Equity
Common stock
$ 80,000
Retained earnings
20,000
Total stockholders’ equity
$100,000
Total liabilities and
Total assets
$120,000
stockholders’ equity
$120,000
Layton Novelties, Inc.
Income Statement
For the Year Ended December 31, 2013
Net sales
$ 80,000
Costs of goods sold
32,000
Gross margin
$ 48,000
Operating expenses
12,000
Income before income taxes
$ 36,000
Income taxes
14,400
Net income
$ 21,600
The profit margin of Layton Novelties is
a.
30 percent.
b.
75 percent.
c.
60 percent.
d.
27 percent.
77. Use this balance sheet and income statement for the first year of operations for Layton Novelties, Inc.
to answer the following question. Use ending balances whenever average balances are required for
computing ratios.
Layton Novelties, Inc.
Balance Sheet
December 31, 2013
Assets
Liabilities
Current assets
$ 28,000
Current liabilities
$ 16,000
Investments
12,000
Long-term liabilities
4,000
Property, plant, and equipment
48,000
Total liabilities
$ 20,000
Intangible assets
32,000
Stockholders’ Equity
Common stock
$ 80,000
Retained earnings
20,000
Total stockholders’ equity
$100,000
Total liabilities and
Total assets
$120,000
stockholders’ equity
$120,000
Layton Novelties, Inc.
Income Statement
For the Year Ended December 31, 2013
Net sales
$ 80,000
Costs of goods sold
32,000
Gross margin
$ 48,000
Operating expenses
12,000
Income before income taxes
$ 36,000
Income taxes
14,400
Net income
$ 21,600
The return on assets for Layton Novelties is
a.
40 percent.
b.
70 percent.
c.
18 percent.
d.
66-2/3 percent.
78. Use this balance sheet and income statement for the first year of operations for Layton Novelties, Inc.
to answer the following question. Use ending balances whenever average balances are required for
computing ratios.
Layton Novelties, Inc.
Balance Sheet
December 31, 2013
Assets
Liabilities
Current assets
$ 28,000
Current liabilities
$ 16,000
Investments
12,000
Long-term liabilities
4,000
Property, plant, and equipment
48,000
Total liabilities
$ 20,000
Intangible assets
32,000
Stockholders’ Equity
Common stock
$ 80,000
Retained earnings
20,000
Total stockholders’ equity
$100,000
Total liabilities and
Total assets
$120,000
stockholders’ equity
$120,000
Layton Novelties, Inc.
Income Statement
For the Year Ended December 31, 2013
Net sales
$ 80,000
Costs of goods sold
32,000
Gross margin
$ 48,000
Operating expenses
12,000
Income before income taxes
$ 36,000
Income taxes
14,400
Net income
$ 21,600
The return on equity for Layton Novelties is
a.
48 percent.
b.
21.6 percent.
c.
42 percent.
d.
30 percent.
79. Use this balance sheet and income statement for the first year of operations for Layton Novelties, Inc.
to answer the following question. Use ending balances whenever average balances are required for
computing ratios.
Layton Novelties, Inc.
Balance Sheet
December 31, 2013
Assets
Liabilities
Current assets
$ 28,000
Current liabilities
$ 16,000
Investments
12,000
Long-term liabilities
4,000
Property, plant, and equipment
48,000
Total liabilities
$ 20,000
Intangible assets
32,000
Stockholders’ Equity
Common stock
$ 80,000
Retained earnings
20,000
Total stockholders’ equity
$100,000
Total liabilities and
Total assets
$120,000
stockholders’ equity
$120,000
Layton Novelties, Inc.
Income Statement
For the Year Ended December 31, 2013
Net sales
$ 80,000
Costs of goods sold
32,000
Gross margin
$ 48,000
Operating expenses
12,000
Income before income taxes
$ 36,000
Income taxes
14,400
Net income
$ 21,600
The debt to equity ratio for Layton Novelties is
a.
16-2/3 percent.
b.
20 percent.
c.
80 percent.
d.
83-1/3 percent.
80. Use this information to answer the following question.
J. & B. Auto Parts, Inc.
Balance Sheet
December 31, 2013
Assets
Cash
$ 60,000
Short-term investments
40,000
Notes receivable (due in ten months)
30,000
Accounts receivable
20,000
Merchandise inventory
70,000
Land held for future use
80,000
Land
90,000
Building
$100,000
Less accumulated depreciation
20,000
80,000
Trademark
70,000
Total assets
$540,000
Liabilities
Notes payable (due in six months)
$ 50,000
Accounts payable
20,000
Salaries payable
10,000
Mortgage payable (due in seven years)
90,000
Total liabilities
$170,000
Stockholders’ Equity
Common stock
$310,000
Retained earnings
60,000
Total stockholders’ equity
370,000
Total liabilities and stockholders’ equity
$540,000
The debt to equity ratio is
a.
.46.
b.
.67.
c.
2.20.
d.
.33.
81. Use this information to answer the following question.
Coyne Corporation
Balance Sheet
December 31, 2013
Assets
Cash
$ 70,000
Short-term investments
56,000
Accounts receivable
28,000
Notes receivable (due in one year)
42,000
Merchandise inventory
98,000
Land held for future use
112,000
Land
140,000
Building
$150,000
Less accumulated depreciation
28,000
122,000
Trademark
92,000
Total assets
$760,000
Liabilities
Notes payable (due in one year)
$ 70,000
Accounts payable
30,000
Salaries payable
14,000
Mortgage payable (due in seven years)
146,000
Total liabilities
$260,000
Stockholders’ Equity
Common stock
$300,000
Retained earnings
200,000
500,000
Total liabilities and stockholders’ equity
$760,000
The debt to equity ratio is
a.
.48.
b.
.34.
c.
.52.
d.
.66.
82. If net cash flows from operating activities were $187,000, net income were $50,000, and net sales
were $600,000, the cash flow yield would equal (Round amounts to one decimal place)
a.
0.3 times.
b.
3.2 times.
c.
3.7 times.
d.
12.0 times.
83. Heckart Corporation had sales of $250,000, net income of $25,000, average total assets of $350,000,
dividend payments of $17,500, net cash flows from operating activities of $26,000, purchases of plant
assets of $37,500, and sales of plant assets of $45,000. Cash return on assets equals (Round amounts to
one decimal place)
a.
13.0 percent
b.
10.4 percent
c.
8.7 percent
d.
7.4 percent
SHORT ANSWER
1. List at least five qualitative characteristics of financial accounting.
2. The most fundamental qualitative characteristics of financial accounting are relevance and faithful
representation. List the two items that information must have in order to be relevant and the three
items that demonstrate that information is faithfully represented.
3. Following is a list of descriptions of concepts or conventions of accounting. Write the name of the
concept or convention that is described.
a.
The relative importance of an item or event.
b.
Once a company has adopted an accounting procedure, it must use it from one period to
the next unless a note to the financial statements informs users of a change in procedure.
c.
The benefits to be gained from providing accounting information should be greater than
the costs of providing it.
d.
When faced with choosing between two equally acceptable procedures or estimates,
accountants should choose the one that is least likely to overstate assets and income.
e.
Financial statements should present all the information relevant to users’ understanding
of the statements.
a.
Materiality
Consistency
c.
Cost-benefit
Conservatism
e.
Full disclosure
4. Why is it important for a company to maintain the same accounting methods and practices from period
to period?
5. State the definition of a current asset.
6. Following is a classification scheme for a balance sheet.