How should companies with more than one revenue source report revenue and cost of
goods sold?
a. Each revenue source should be reported separately, but all cost of goods sold should
be added together and reported as a single amount.
b. The revenues and cost of goods sold should be netted together and reported as a
single line item.
c. All revenue sources should be added together and shown as one line item and all cost
of goods sold should be added together and shown as one line item.
d. Each revenue line should be shown separately with a corresponding cost of goods
sold line for each revenue source.
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
The following item would be classified as an investing activity on the statement of cash
flows:
a. Proceeds from borrowing.
b. Sale of goods.
c. Sale of property.
d. Payment to lenders.
Why are gains and losses from asset sales removed from net income when calculating
the cash flows from operating activities?
a. Selling assets is a noncash item.
b. Gains and losses from asset sales are a financing activity.
c. Gains and losses are not removed from net income when calculating the cash flows
from operating activities
d. The entire proceeds from sales of long-lived assets are included in investing
activities.
Which item below would not be a quality of financial reporting issue related to the
balance sheet?
a. Mismatching the type of debt (short or long-term) used to finance assets.
b. Discretionary expenses.
c. Overvaluation of assets.
d. Off-balance sheet financing.
Which stockholders’ equity account represents the sum of every dollar a company has
earned since its inception, less any payments made to shareholders in the form of
dividends?
a. Treasury stock.
b. Accumulated other comprehensive income
c. Retained earnings.
d. Preferred stock.
Which item may be of concern when analyzing cash flow from financing activities?
a. Increasing inventories.
b. Borrowing each year to repay debt from prior years.
c. Repayment of debt.
d. Payments of dividends.
Selling and administrative expenses include which of the following income statement
items?
a. Salaries, insurance, interest.
b. Salaries, rent, advertising.
c. Rent, interest, cost of goods.
d. Advertising, research & development, amortization.
Which method of inventory would be least likely to be used by a European firm?
a. FIFO.
b. LIFO.
c. Average cost.
d. LIFO and FIFO.
How is earnings per common share calculated?
a. Operating profit divided by the average number of common stock shares outstanding.
b. Net profit divided by the average number of common and preferred stock shares
outstanding.
c. Operating profit divided by the average number of repurchased common stock
shares.
d. Net profit divided by the average number of common stock shares outstanding.
What is cash from investing activities for Felix Company?
a. $5
b. $40
c. $75
d. $10
What is cash from financing activities for Armstrong Company?
a. $70
b. $60
c. $90
d. ($110)
Which of the following statements is false?
a. Common-size balance sheets allow for comparison of firms with different levels of
total assets by introducing a common denominator.
b. The common-size balance sheet reveals the composition of assets within major
categories.
c. Each item on a common-size balance sheet is expressed as a percentage of sales.
d. The common-size balance sheet reveals the capital and the debt structure of the firm.
The following item would be classified as a financing activity on the statement of cash
flows:
a. Payments for inventory.
b. Payment of dividends.
c. Acquisition of land.
d. Sales of goods.
Wilcox’s quick ratio is:
a. 0.85
b. 2.00
c. 1.00
d. 0.75
Jett Co.’s average tax rates for 2015 and 2014 are:
a. 15.5% and 10.0%
b. 20.0% and 35.0%
c. 25.8% and 35.4%.
d. 31.4% and 36.8%.
The Du Pont System shows which of the following series of relationships?
a. Net profit margin x total asset turnover = Return on investment.
b. Net profit margin x financial leverage = Return on equity.
c. Net profit margin x total asset turnover = Return on investment and Return on
investment x financial leverage = Return on equity.
d. Net profit margin x total asset turnover = Return on equity and Return on equity x
financial leverage = Return on investment.
Which of the following statements is true?
a. Foreign firms registered with the SEC may file reports based on IFRS.
b. U.S. firms registered with the SEC may file reports based on IFRS.
c. The European Union requires firms to report based on GAAP.
d. Foreign firms registered with the SEC may file reports based on IFRS only if they
reconcile all amounts to GAAP.
Which of the following marketable securities are reported at fair value?
a. Held to maturity and trading securities.
b. Trading securities and securities available for sale.
c. Held to maturity and securities available for sale.
d. Corporate bonds and convertible debt.
Redtop Co. purchased a piece of equipment last year for $300,000. Management
estimates that the equipment will have a useful life of five years and no salvage value.
The depreciation expense recorded for tax purposes will be $72,000 this year (Year 2).
The company uses the straight-line method of depreciation for reporting purposes.
a. Calculate the amount of depreciation expense for reporting purposes this year (Year
2).
b. What will be the net book value of the equipment reported on the balance sheet at the
end of this year (Year 2)?
c. Will a deferred tax asset or liability be created as a result of the depreciation recorded
for tax and financial reporting purposes?
d. What amount will be added to the deferred tax account as a result of the depreciation
timing difference?
Which method of inventory assumes the last units purchased will remain in ending
inventory on the balance sheet?
a. FIFO.
b. LIFO.
c. Average cost.
d. LIFO and FIFO.
Which of the following is an internal source of liquidity?
a. Borrowing.
b. Sales of stock.
c. Gifts and donations.
d. Sales of products or services.
Which of the following items would not be classified as cash equivalents?
a. U.S. Treasury bills.
b. Trading securities.
c. Commercial paper.
d. Money market funds.
Explain the impact of calculating depreciation using the straight-line method versus an
accelerated method on the amounts shown on a balance sheet.
Operating profit margin is impacted by sales and all operating expenses except cost of
goods sold.
N&M Corporation reported the following information for the current year:
(1) Net income is $560 million.
(2) Sales of assets $26 million.
(3) Customer accounts receivable decreased by $14 million.
(4) Repurchases of common stock were $20 million.
(5) Depreciation expense was $38 million.
(6) Income tax payable increased by $4 million.
(7) Long-term debt decreased by $13 million.
(8) Accounts payable increased by $9 million.
(9) Inventories increased by $24 million.
Based on the above information, calculate the following items:
a. Cash flow from operating activities.
b. Cash flow from investing activities.
c. Cash flow from financing activities.
d. The increase or decrease in the cash balance.
Prepare an income statement using the following information:
Explain the difference between the current ratio and the cash flow liquidity ratio.
A lease affects both the balance sheet and the income statement.
The cash basis of accounting recognizes when cash is received and recognizes when
cash is paid.
Supplementary schedules, such as data related to the breakdown of key financial figures
by operating segment, are helpful to financial statement analysts.
Insert the word ‘added’ or ‘subtracted’ in the blank.
An increase in inventory should be to convert net income to cash flow from operating
activities.