When will a firm regard goodwill on its books?
a. When one company acquires another company for a price in excess of the fair market
value of the net identifiable assets acquired.
b. When the firm donates property to charities.
c. When it is determined that there has been a loss of value of long-term assets.
d. When fixed assets are impaired.
Which type of firm would most likely carry the most finished goods inventory?
a. A manufacturing firm.
b. A retail firm.
c. A service firm.
d. A wholesale firm.
Wilcox’s days payable outstanding is:
a. 7 days
b. 11 days
c. 16 days
d. 22 days
How is the cash conversion cycle calculated?
a. Average collection period + days inventory held + Days payable outstanding.
b. Average collection period – days inventory held + Days payable outstanding.
c. Average collection period – days inventory held – Days payable outstanding.
d. Average collection period + days inventory held – Days payable outstanding.
How are revenues and expenses recognized under the accrual basis of accounting?
a. Revenues are recognized when cash is received and expenses are recognized when
cash is paid.
b. Revenues and expenses are recognized equally over a twelve month period.
c. Revenues and expenses are recognized based on the choices of management.
d. Revenues are recognized in the accounting period when the sale is made and
expenses are recognized in the period in which they relate to the sale of the product.
What is a qualified report?
a. A report stating that the auditors are not qualified to report on a firm.
b. A report that states the financial statements are in violation of GAAP.
c. A report that states that departures from GAAP exist in the firm’s financial
statements.
d. A report that states the financial statements are presented fairly, in all material
respects, and are in conformity with GAAP.
Use the following statement of cash flows for Star Pharmaceuticals to:
a. prepare a summary analysis of the statement of cash flows,
b. analyze cash flow from operating activities, and
c. analyze the cash inflows and cash outflows.
Star Pharmaceuticals
Statement of Cash Flows
For the Years Ended December 31, 2015 and 2014
Using the following information calculate the ending inventory balance and the cost of
goods sold expense that would be reported at the end of the year if the following
inventory valuation methods are used:
a. Average cost
b. FIFO
c. LIFO
What is the preferred method to generate cash in a firm?
a. Operating activities.
b. Investing activities.
c. Financing activities.
d. Investing and financing activities.
Which of the following items would be a way to manipulate the cash flow from
operating activities amount on the statement of cash flows?
a. Adding depreciation back to net income to determine cash flow from operating
activities.
b. Including interest expense and tax expense in the calculation of cash flow from
operating activities.
c. Recording an item that should be recorded as an operating activity as an investing
activity.
d. The cash flow statement cannot be manipulated.
What is the change in cash for Felix Company?
a. $310
b. $205
c. $330
d. $230
Which equation represents an income statement?
a. Assets = liabilities + stockholders’ equity.
b. Cash in ‘“ cash out = net income.
c. Revenues – expenses = net income.
d. Beginning retained earnings + revenues ‘“ expenses = ending retained earnings.
Which of the following statements is true?
a. In stable industries, such as retailers, the gross profit margin is generally volatile
from year to year.
b. Gross profit margin and operating profit margin are complements of each other and
the two percentages add up to 100%.
c. Fixed costs do not vary proportionately with volume changes but remain the same
within a relevant range of activity.
d. In capital intensive industries sales volume changes result in a stable gross profit
margin.
Wilcox’s average collection period is:
a. 5 days
b. 9 days
c. 13 days
d. 15 days
Which agency requires the filing of Form 10-Ks, Form 10-Qs and Form 8-Ks?
a. FASB.
b. IASB.
c. SEC.
d. GAAP.
How is it possible for a U.S. firm to have increasing earnings but a lower effective tax
rate?
a. The firm has expenses that are not deductible for tax purposes.
b. Tax rates in foreign countries where the firm operates are higher.
c. Tax rates in foreign countries where the firm operates are lower.
d. It is not possible for a firm to have an effective tax rate different from the U.S.
federal statutory tax rate.
The sharper and clearer the picture presented through the financial data and the closer
that picture is to financial reality, the higher the financial statements and reported
earnings.
Using the following information analyze the accounts receivable and the allowance for
doubtful accounts for this company:
Using the excerpt from the Animal World Company statement of cash flows analyze
thoroughly the cash flow from operating activities. Be sure to offer possible reasons for
the changes identified.
If an investor wants to understand how well a firm is performing in their core industry,
which profit number (gross, operating or net) would be the best to analyze? Explain
why.
The analyst of financial statements should consider cash flows over a period of time,
looking at patterns of performance and exploring underlying causes of strength and
weakness.
is responsible for the preparation of the financial statements, including the notes, and
the attests to the fairness of the presentation.
Discuss the format of a statement of cash flows prepared using the indirect method.
Gross profit is the difference between sales and all operating expenses.