All of the following statements regarding the gross profit ratio are true except:
a.The gross profit ratio alone is sufficient to determine a company’s profitability.
b.Managers, investors, and creditors use the gross profit ratio to measure one aspect of
profitability.
c.The gross profit ratio explains how many cents on every dollar are available to cover
expenses other than cost of goods sold and to earn a profit.
d.If a company’s net sales were $200,000 and cost of goods sold were $120,000, its
gross profit ratio would be 40%.
Select where the following accounts would be reported on CocaCola’s financial
statements. (Select all that apply.)
Gain on sale of plant asset
a.Balance Sheet – Property, Plant, and Equipment
b.Balance Sheet – Intangible Assets
c.Balance Sheet – Current Assets
d.Balance Sheet – Other Assets
e.Income Statement – Operating Section
f.Income Statement – Other Revenue and Expense Section
g.Statement of Cash Flows
Match the following bond and long-term liability related terms to the appropriate
definition.
a.Long-term liability
b.Face value
c.Debenture bonds
d.Serial bonds
e.Callable bonds
f.Face rate of interest
g.Market rate of interest
h.Bond issue price
i.Premium
j.Discount
k.Effective interest method of amortization
l.Carrying value
m.Gain or loss on redemption
The principal amount of the bond as stated on the bond certificate.
Each account has a normal balance. For the following list of accounts, indicate whether
the normal balance of each is a debit or a credit.
a.Debit
b.Credit
Retained Earnings
Read the information about Fellsmere Corporation.
(A)Explain the change in Fellsmere’s working capital from 2013 to 2014. Why do users
believe the current ratio
provides more information than the dollar amount of working capital? Explain.
(B)Fellsmere Corporation’s creditors need to know whether its working capital position
improved during the year. How would you evaluate this?
Use the following codes to indicate how the cash flow effect, if any, of each transaction
or event would be reported on a statement of cash flows if the operating activities
section is prepared using the indirect method.
a.Operating activity-add to net income
b.Operating activity-deduct from net income
c.Inflow from investing activity
d.Outflow from investing activity
e.Inflow from financing activity
f.Outflow from financing activity
g.Noncash investing and financing activity
h.Not reported on statement of cash flows
Received cash from the sale of securities.
For each of the following accounts, indicate whether it is a balance sheet account or an
income statement account.
a.Balance sheet account
b.Income statement account
Prepaid Insurance
Select the term from the list below that matches each of the following six descriptions.
a.Interest
b.Maturity value
c.Principal
d.Payee
e.Discounting
f.Term
g.Recourse
h.Implicit
i.Maker
The sale of a note
Explain the meaning or significance of the following ratios:
A.Average life of property, plant, and equipment
B.Average age of property, plant, and equipment
Match the inventory-related accounts to costs that may be included in inventories for
retailers and manufacturers.
a.Merchandise Inventory
b.Raw Materials
c.Work in Process
d.Finished Goods
e.Cost of Goods Sold
Costs to purchase goods ready to sell.
The solution to this problem requires time value of money calculations. Reference to
Tables 9-1 through 9-4 in the text is necessary to complete the calculations.
Winston wins the lottery. He wins $20,000 per year to be paid to him for 10 years. The
state offers him the choice of a cash settlement now instead of the annual payments for
10 years. If the interest rate is 6%, what is the amount the state will offer for a
settlement today?
a. $147,200
b. $200,000
c. $154,440
d. $175,000
Identify where each of the following accounts would be reported on CocaCola’s
financial statements
a.Balance Sheet – Property, Plant, and Equipment
b.Balance Sheet – Intangible Assets
c.Balance Sheet – Current Assets
d.Balance Sheet – Other Assets
e.Income Statement – Operating Section
f.Income Statement – Other Revenue and Expense Section
g.Statement of Cash Flows
Accumulated amortization
The revenue recognition principle does not pertain to long-term contracts, franchises,
commodities, and installment sales.
a.True
b.False
For each of the following items, indicate whether it would appear on a statement of
cash flows prepared using the Direct method (a) or the Indirect method (b).
a.Direct
b.Indirect
Depreciation expense
Choose from the following list of account titles the one that most accurately fits the
description of that account or is an example of that account. An account title may be
used more than once or not at all.
a.Cash
b.Prepaid Asset
c.Investments
d.Taxes Payable
e.Preferred Stock
f.Accounts Receivable
g.Land
h.Accounts Payable
i.Retained Earnings
j.Notes Receivable
k.Buildings
l.Notes Payable
m.Common Stock
Claims by the owners on the undistributed net income of a business