Exam
Name___________________________________
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
Complete the comparative income statement. Round percents to the nearest tenth of a percent.
1)
Amount
This Year
Percent
This Year
Amount
Last Year
Percent
Last Year
Gross Sales $1,809,000 $1677,000
Returns $7000 $13,000
Net Sales 100.0% 100.0%
Cost of Goods Sold $1,026,000 $949,000
Gross Profit $776,000 $715,000
Wages $251,000 $246,000
Rent $100,000 $110,000
Advertising $114,000 $124,000
Utilities $30,000 $24,000
Total Expenses $495,000 $504,000
Net Income before Taxes
1)
The table compares the national averages for an industry to the results for a given company in the industry. Identify any
areas that might require attention by management and offer suggestions.
2)
Business
Cost of
Goods
Gross
Profit
Total
Exp
Net
Income Wages Rent Advertising
Drugs 67.9% 32.1% 23.5% 8.6% 12.3% 2.4% 1.4%
Bowen Pharmacy 66.7%33.3%23.7%6.2%9.2%4.6%1.9%
2)
Provide an appropriate response.
3)
Explain the purpose of an income statement.
3)
The table compares the national averages for an industry to the results for a given company in the industry. Identify any
areas that might require attention by management and offer suggestions.
4)
Business
Cost of
Goods
Gross
Profit
Total
Exp
Net
Income Wages Rent Advertising
Supermarkets 82.7% 17.3% 13.9% 3.4% 6.5% 0.8% 1.0%
Red & White 82.5%17.5%16.1%2.7%6.3%1.8%0.9%
4)
Provide an appropriate response.
5)
Explain the purpose of the ratio of net income after taxes to average owner’s equity.
5)
Complete the balance sheet using vertical analysis. Round to the nearest tenth of a percent.
6)
Amount
This Year
Percent
This Year
Amount
Last Year
Percent
LastYear
ASSETS
Current Assets
Cash $39,000 $34,000
Notes Receivable $7,000 $5000
Accounts Receivable $118,000 $96,000
Inventory $122,000 $100,000
Total Current Assets
Plant Assets $31,000 $26,000
TOTAL ASSETS 100.0% 100.0%
6)
2
LIABILITIES
Current Liabilities
Accounts Payable $2000 $3000
Notes Payable $161,000 $122,000
Total Current Liabilities
Long Term Liabilities
Mortgages Payable $16,000 $13,000
Long Term Notes Payable $46,000 $34,000
Total Long–Term Liabilities
TOTAL LIABILITIES
Owners’ Equity
TOTAL LIABILITIES
AND OWNERS’ EQUITY
$92,000 $89,000
The table compares the national averages for an industry to the results for a given company in the industry. Identify any
areas that might require attention by management and offer suggestions.
7)
Business
Cost of
Goods
Gross
Profit
Total
Exp
Net
Income Wages Rent Advertising
Funiture 68.9% 31.2% 21.7% 9.6% 9.5% 1.8% 2.5%
Franklin’s 68.9%31.1%25.1%8.5%9.9%4.1%1.4%
7)
Provide an appropriate response.
8)
Explain the purpose of a balance sheet.
8)
9)
Explain the purpose of a horizontal analysis of an income statement.
9)
10)
Explain why the acid–test ratio is a better measure of financial health than the current ratio.
10)
11)
Explain the purpose of a vertical analysis of an income statement.
11)
The table compares the national averages for an industry to the results for a given company in the industry. Identify any
areas that might require attention by management and offer suggestions.
12)
Business
Cost of
Goods
Gross
Profit
Total
Exp
Net
Income Wages Rent Advertising
Service Stations 76.8% 23.2% 16.9% 6.3% 8.5% 2.3% 0.5%
Phil’s Fillup 78.4%21.6%16.9%5.2%7.9%2.1%0.7%
12)
Provide an appropriate response.
13)
Explain how to determine the cost of goods sold.
13)
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Find the current ratio and the acid–test ratio for the indicated year. Round each ratio to the nearest hundredth of a
percent.
14)
Morgan Jewelers
This
Year
Last
Year
Current Assets
Cash
Notes Receivable
Accts Receivable
Inventory
Total Current
Plant Assets
Total Assets
$43,000
$12,000
$112,000
$145,000
$312,000
$53,000
$365,000
$40,000
$9000
$93,000
$92,000
$234,000
$34,000
$268,000
Last year current liabilities were $243,000.
14)
A)
0.96; 0.58
B)
1.28; 0.55
C)
0.96; 0.69
D)
1.28; 0.69
Find (a) the gross profit, (b) the net income before taxes, and (c) the net income after taxes.
15)
Steel Master Sales had a cost of goods sold of $201,000, operating expenses of $180,000, returns of
$11,000, taxes of $29,350, and gross sales of $587,000.
15)
A)
(a) $375,000 (b) $195,000 (c)$165,650
B)
(a) $396,000 (b) $195,000 (c)$165,650
C)
(a) $407,000 (b) $195,000 (c)$165,650
D)
(a) $386,000 (b) $195,000 (c)$165,650
5
Find the current ratio and the acid–test ratio for the indicated year. Round each ratio to the nearest hundredth of a
percent.
16)
Dean’s Printing
This
Year
Last
Year
Current Assets
Cash
Notes Receivable
Accts Receivable
Inventory
Total Current
Plant Assets
Total Assets
$58,000
$12,000
$129,000
$121,000
$320,000
$41,000
$361,000
$34,000
$8000
$97,000
$105,000
$244,000
$49,000
$293,000
Last year current liabilities were $136,000.
16)
A)
1.79; 1.46
B)
1.79; 1.02
C)
2.35; 0.96
D)
2.35; 1.46
Prepare a vertical analysis. Round percents to the nearest tenth of a percent.
17)
Rosie’s Cleaning Service had a cost of goods sold of $45,000, operating expenses of $209,000, and
net sales of $496,000.
17)
A)
Percent cost of goods sold =9.1%
Percent operating expenses =42.1%
B)
Percent cost of goods sold =51.2%
Percent operating expenses =9.1%
C)
Percent cost of goods sold =42.1%
Percent operating expenses =9.1%
D)
Percent cost of goods sold =9.1%
Percent operating expenses =51.2%
Complete the balance sheet.
6
18)
Data–Serve Computer Services: fixed assets $77,000; mortgages $25,000; accounts payable $22,000;
notes payable $18,000; long–term notes $42,000; equity $82,000; cash $20,000; inventory $12,000;
notes receivable $20,000; accounts receivable $60,000
Balance Sheet Dec 31
Assets
Current Assets
Cash $
Notes Receivable $
Accts Receivable $
Inventory $
Total Current Assets $
Plant Assets $
Total Assets $
Liabilities
Current Liabilities
Notes Payable $
Accts Payable $
Total Current Liabilities $
Long–Term Liabilities
Mortgages Payable $
Long Term Notes Payable $
Total Long–Term Liabilities $
Total Liabilities $
Owner’s Equity
Owner‘s Equity $
Total Liabilities and Owner’s Equity $
18)
A)
Assets: 20,000; 20,000; 60,000; 12,000; 112,000; 77,000; 189,000
Liabilities: 42,000; 22,000; 64,000; 25,000; 18,000; 43,000; 82,000
Owner’s Equity: 107,000; 189,000
B)
Assets: 20,000; 20,000; 60,000; 112,000; 12,000; 77,000; 189,000
Liabilities: 42,000; 22,000; 64,000; 25,000; 18,000; 43,000; 107,000
Owner’s Equity: 82,000; 189,000
C)
Assets: 20,000; 20,000; 60,000; 12,000; 112,000; 77,000; 189,000
Liabilities: 42,000; 22,000; 64,000; 25,000; 18,000; 43,000; 107,000
Owner’s Equity: 82,000; 189,000
D)
Assets: 20,000; 20,000; 60,000; 12,000; 112,000; 77,000; 189,000
Liabilities: 18,000; 22,000; 40,000; 25,000; 42,000; 67,000; 107,000
Owner’s Equity: 82,000; 189,000
Find the ratio of net income after taxes to average owner’s equity. Round to the nearest tenth of a percent.
19)
Owner’s equity at beginning of year: $1,379,000. Owner’s equity at end of year: $2,171,000. Net
income after taxes: $483,500.
19)
A)
22.3%
B)
35.2%
C)
27.2%
D)
35.1%
Complete the balance sheet.
20)
Jake’s Janitorial Service: fixed assets $97,000; long–term notes $81,000; equity $176,000; accounts
payable $11,000; notes payable $11,000; inventory $95,000; accounts receivable $58,000; cash
$29,000
Balance Sheet Dec 31
Assets
Current Assets
Cash $
Notes Receivable $
Accts Receivable $
Inventory $
Total Current Assets $
Plant Assets $
Total Assets $
Liabilities
Current Liabilities
Notes Payable $
Accts Payable $
Total Current Liabilities $
Long–Term Liabilities
Mortgages Payable $
Long Term Notes Payable $
Total Long–Term Liabilities $
Total Liabilities $
Owner’s Equity
Owner‘s Equity $
Total Liabilities and Owner’s Equity $
20)
A)
Assets: 29,000; 0; 58,000; 95,000; 182,000; 97,000; 279,000
Liabilities: 11,000; 11,000; 22,000; 0; 81,000; 81,000; 103,000
Owner’s Equity: 176,000; 279,000
B)
Assets: 29,000; 0; 58,000; 182,000; 95,000; 97,000; 279,000
Liabilities: 81,000; 11,000; 92,000; 0; 11,000; 11,000; 103,000
Owner’s Equity: 176,000; 279,000
C)
Assets: 29,000; 0; 58,000; 95,000; 182,000; 97,000; 279,000
Liabilities: 81,000; 11,000; 92,000; 0; 11,000; 11,000; 103,000
Owner’s Equity: 176,000; 279,000
8
D)
Assets: 29,000; 0; 58,000; 95,000; 182,000; 97,000; 279,000
Liabilities: 81,000; 11,000; 92,000; 0; 11,000; 11,000; 176,000
Owner’s Equity: 103,000; 279,000
D)
Complete the horizontal analysis for the comparative income statement. Round to the nearest tenth of a percent.
21)
This Year Last Year
Increase or
–Decrease Percent
Gross Sales $1,786,000 $1,590,000
Returns $12,000 $8000
Net Sales $1,774,000 $1,582,000
Cost of Goods Sold $1,177,000 $1,047,000
Gross Profit $597,000 $535,000
Total Expenses $80,000 $53,000
Net Income before taxes $517,000 $482,000
21)
A)
11.0%, 33.3%, 10.8%, 11.0%, 10.4%, 33.8%, 6.8%
B)
6.0%, -75.0%, 5.8%, 2.9%, -7.1%, -137.7%, -13.5%
C)
12.3%, 50.0%, 12.1%, 12.4%, 11.6%, 50.9%, 7.3%
D)
-12.3%, -50.0%, -12.1%, -12.4%, -11.6%, -50.9%, -7.3%
D)
The following chart shows some figures from an income statement. Prepare a vertical analysis by expressing each item as
a percent of net sales. Round percents to the nearest tenth of a percent.
22)
Westminster Office Machines
Amt %
Net Sales
Cost of Goods Sold
Wages
Advertising
Net Income before Taxes
$873,000
$319,000
$86,000
$35,000
$23,000
100%
22)
A)
36.5%, 9.9%, 40.7%, 2.6%
B)
36.5%, 10.0%, 11.0%, 7.2%
C)
36.5%, 27.0%, 11.0%, 7.2%
D)
36.5%, 9.9%, 4.0%, 2.6%
D)
Complete the balance sheet.
9
23)
Clara’s Secretarial Services: net worth $68,000; cash $22,000; accounts receivable $23,000; inventory
$48,000; fixed assets $35,000; long–term notes $18,000; mortgages $18,000; accounts payable
$10,000; notes payable $14,000
Balance Sheet Dec 31
Assets
Current Assets
Cash $
Notes Receivable $
Accts Receivable $
Inventory $
Total Current Assets $
Plant Assets $
Total Assets $
Liabilities
Current Liabilities
Notes Payable $
Accts Payable $
Total Current Liabilities $
Long–Term Liabilities
Mortgages Payable $
Long Term Notes Payable $
Total Long–Term Liabilities $
Total Liabilities $
Owner’s Equity
Owner‘s Equity $
Total Liabilities and Owner’s Equity $
23)
A)
Assets: 22,000; 0; 23,000; 48,000; 93,000; 35,000; 128,000
Liabilities: 14,000; 10,000; 24,000; 18,000; 18,000; 36,000; 60,000
Owner’s Equity: 68,000; 128,000
B)
Assets: 22,000; 0; 23,000; 93,000; 48,000; 35,000; 128,000
Liabilities: 18,000; 10,000; 28,000; 18,000; 14,000; 32,000; 60,000
Owner’s Equity: 68,000; 128,000
C)
Assets: 22,000; 0; 23,000; 48,000; 93,000; 35,000; 128,000
Liabilities: 18,000; 10,000; 28,000; 18,000; 14,000; 32,000; 68,000
Owner’s Equity: 60,000; 128,000
D)
Assets: 22,000; 0; 23,000; 48,000; 93,000; 35,000; 128,000
Liabilities: 18,000; 10,000; 28,000; 18,000; 14,000; 32,000; 60,000
Owner’s Equity: 68,000; 128,000
The following chart shows some figures from an income statement. Prepare a vertical analysis by expressing each item as
a percent of net sales. Round percents to the nearest tenth of a percent.
24)
Mama Mia Ristorante
Amt %
Net Sales
Cost of Goods Sold
Wages
Advertising
Net Income before Taxes
$553,000
$357,000
$88,000
$39,000
$39,000
100%
24)
A)
64.6%, 24.6%, 10.9%, 10.9%
B)
64.6%, 16.2%, 10.9%, 10.9%
C)
64.6%, 15.9%, 44.3%, 7.1%
D)
64.6%, 15.9%, 7.1%, 7.1%
Complete the income statement.
25)
Bay Side Videos had gross sales of $560,000 with returns of $6700. The inventory on January 1 was
$60,000. During the year $216,000 worth of goods was purchased with freight of $2100. The
inventory on December 31 was $50,000. Wages and salaries were $54,400, rent was $13,300,
advertising was $4300, utilities were $2100, business taxes totaled $5100, and miscellaneous
expenses were $2900.
Bay Side Videos Income Statement Year Ending December 31
Gross Sales 1)
Returns 2)
Net Sales 3)
Cost of Goods Sold 4)
Gross Profit 5)
Total Expenses 6)
Net Income before Taxes 7)
25)
A)
1) $560,000, 2) $6700, 3) $553,300, 4) $228,100, 5) $325,200, 6) $82,100,7) $243,100
B)
1) $560,000, 2) $6700, 3) $553,300, 4) $228,100, 5) $325,200, 6) $82,100,7) $256,500
C)
1) $560,000, 2) $6700, 3) $553,300, 4) $223,900, 5) $329,400, 6) $82,100,7) $243,100
D)
1) $560,000, 2) $6700, 3) $566,700, 4) $228,100, 5) $338,600, 6) $82,100,7) $256,500
Calculate the current ratio and the acid–test ratio. Is the company healthy based on the guidelines given in the text?
26)
Current assets: $516,000
Current liabilities: $183,000
Liquid assets: $246,000
26)
A)
Current ratio =2.10 which is fine
Acid–test ratio =1.34 which is too low
B)
Current ratio =1.34 which is too low
Acid–test ratio =2.82 which is fine
C)
Current ratio =2.82 which is fine
Acid–test ratio =2.10 which is fine
D)
Current ratio =2.82 which is fine
Acid–test ratio =1.34 which is fine
Find the current ratio and the acid–test ratio for the indicated year. Round each ratio to the nearest hundredth of a
percent.
27)
Office City
This
Year
Last
Year
Current Assets
Cash
Notes Receivable
Accts Receivable
Inventory
Total Current
Plant Assets
Total Assets
$61,000
$9000
$119,000
$135,000
$324,000
$50,000
$374,000
$32,000
$6000
$105,000
$97,000
$240,000
$40,000
$280,000
This year current liabilities are $202,000.
27)
A)
1.39; 0.94
B)
1.60; 0.94
C)
1.60; 0.68
D)
1.39; 0.71
Complete the income statement.
28)
Cindy’s Sweet Shop had gross sales of $316,000 with returns of $6000. The inventory on January 1
was $60,000. During the year $212,000 worth of goods was purchased with freight of $2300. The
inventory on December 31 was $55,000. Wages and salaries were $29,200, rent was $9700,
advertising was $4600, utilities were $2600, business taxes totaled $5300, and miscellaneous
expenses were $2500.
Cindy’s Sweet Shop Income Statement Year Ending December 31
Gross Sales 1)
Returns 2)
Net Sales 3)
Cost of Goods Sold 4)
Gross Profit 5)
Total Expenses 6)
Net Income before Taxes 7)
28)
A)
1) $316,000, 2) $6000, 3) $310,000, 4) $219,300, 5) $90,700, 6) $53,900,7) $48,800
B)
1) $316,000, 2) $6000, 3) $310,000, 4) $214,700, 5) $95,300, 6) $53,900,7) $36,800
C)
1) $316,000, 2) $6000, 3) $322,000, 4) $219,300, 5) $102,700, 6) $53,900,7) $48,800
D)
1) $316,000, 2) $6000, 3) $310,000, 4) $219,300, 5) $90,700, 6) $53,900,7) $36,800
Find the ratio of net income after taxes to average owner’s equity. Round to the nearest tenth of a percent.
29)
Owner’s equity at beginning of year: $660,000. Owner’s equity at end of year: $861,000. Net income
after taxes: $18,500
29)
A)
2.1%
B)
2.9%
C)
2.4%
D)
2.8%
Complete the horizontal analysis for the comparative income statement. Round to the nearest tenth of a percent.
30)
This Year Last Year
Increase or
–Decrease Percent
Gross Sales $1,759,000 $1,577,000
Returns $15,000 $8000
Net Sales $1,744,000 $1,569,000
Cost of Goods Sold $1,111,000 $1,032,000
Gross Profit $633,000 $537,000
Total Expenses $71,000 $80,000
Net Income before taxes $562,000 $457,000
30)
A)
-11.5%, -87.5%, -11.2%, -7.7%, -17.9%, 11.2%, -23.0%
B)
10.3%, 46.7%, 10.0%, 7.1%, 15.2%, -12.7%, 18.7%
C)
5.2%, -37.5%, 4.8%, -2.0%, -0.7%, -136.2%, 1.1%
D)
11.5%, 87.5%, 11.2%, 7.7%, 17.9%, -11.2%, 23.0%
Find the current ratio and the acid–test ratio for the indicated year. Round each ratio to the nearest hundredth of a
percent.
31)
MidTown Repair
This
Year
Last
Year
Current Assets
Cash
Notes Receivable
Accts Receivable
Inventory
Total Current
Plant Assets
Total Assets
$63,000
$12,000
$120,000
$137,000
$332,000
$63,000
$395,000
$48,000
$9000
$103,000
$98,000
$258,000
$43,000
$301,000
This year current liabilities are $248,000.
31)
A)
1.21; 0.65
B)
1.34; 0.61
C)
1.34; 0.79
D)
1.21; 0.79