Account 4356 Test 2 Stansfield

An analyst applied the DuPont System to the following data for a company: Equity turnover 4.2 Net profit margin 5.5% Total asset turnover 2.0 Dividend payout ratio 31.8% The company's return on equity is closest to: 1.3% 11.1% 23.1%

23.1% ROE is equal to the net profit margin multiplied by the equity turnover ratio: ROE = 0.055 x 4.2 = 0.231 or 23.1%

Chumbawamba Corp. started business in 2015 and uses the FIFO method. During 2015, it purchased 45,000 units of inventory at €10 each and sold 40,000 units for €20 each. In 2016, it purchased another 50,000 units at €11 each and sold 45,000 units at €22 each. Its 2016 CoGS (€ thousands) was closest to: €490 €495 €500

490

Bianchi Corp. started business in 2015 and uses the LIFO method. During 2015, it purchased 45,000 units of inventory at €10 each and sold 40,000 units for €20 each. In 2016, it purchased another 45,000 units at €11 each and sold 45,000 units at €22 each. Its 2016 CoGS (€ thousands) was closest to: €490 €495 €500

495

Your firm began operations in 2014 and purchased 1,000 units of inventory at $10 per unit. In 2014 you sold 800 units at $15. The following year in 2015 you purchased an additional 1,000 units of inventory at $12 per unit and sold 800 units at $16. Using the weighted average cost method your cost of goods sold for 2015 was closest to: $9,200.00 $9,600.00 $9,800.00

9,200

Carrying inventory at a value above its historical cost would most likely be permitted if: Financial statements were prepared using US GAAP The inventory was held by a producer of agricultural products. The change resulted from a reversal of a previous write-down.

Agricultural products

ROA= net income/avg assets

Also =Net income+Interest expense x (1-tax rate) / Avg assets

ROE= Net income/avg shareholder equity

Also =net income/avg total assets x avg total assets/avg shareholder equity =profit margin x TAT x leverage

Assuming no changes in other variables, which of the following would decrease ROA? A decrease in the effective tax rate. A decrease in interest expense. An increase in average assets

An increase in average assets

Cameron Corp. started business in 2016 and uses the LIFO method. During 2016, it purchased 45,000 units of inventory at €10 each and sold 40,000 units for €20 each. In 2017, it purchased another 50,000 units at €11 each and sold 45,000 units at €22 each. Its 2017 ending inventory balance (€ thousands) was closest to: €105 €109 €110

Answer a) is correct. Using, LIFO, 5,000 units of the 2016 units remain in inventory (at €10 each) by year end 2017. there are also 5,000 units in inventory at €11 each 5,000 × €10 + 5,000 × €11 = €105,000

Cameron Corp. started business in 2014 and uses the weighted average cost method. During 2014, it purchased 45,000 units of inventory at €10 each and sold 40,000 units for €20 each. In 2015, it purchased another 50,000 units at €11 each and sold 45,000 units at €22 each. Its 2015 cost of sales (in € thousands) was closest to: €490 €491 €495

Answer b) is correct. In 2015, 5,000 units of inventory were 2014 units at €10 and 50,000 units cost €11. The total cost was €50,000 + €550,000 = €600,000 The weighted average cost was €600,000 / 55,000 = €10.91 Cost of sales were €10.91 × 45,000 = €490,950

Cameron Corp. started business in 2016 and uses the FIFO method. During 2016, it purchased 45,000 units of inventory at €10 each and sold 40,000 units for €20 each. In 2017, it purchased another 50,000 units at €11 each and sold 45,000 units at €22 each. Its 2017 ending inventory balance (€ thousands) was closest to: €105 €109 €110

Answer c) is correct. Using, FIFO, all of the old units are out of inventory by year end 2017. there are 10,000 units in inventory at €11 each

A high P/E indicates That a firm may have very low earnings per share. That the firm is valued highly by market. both a) and b) could be true

Both

Karp, Inc. prepares its financial statements according to GAAP and uses LIFO. For 2017, CoGS was reported at $2,211m on the income statement. The LIFO reserve was $155m for 2017 and $117m for 2016. if Karp had used FIFO instead of LIFO, the Cost of Goods Sold reported as of 2017 would have been closest to: $2,056m $2,173m $2,249m

Correct answer b) Karp's CoGS under FIFO equals CoGs under LIFO minus the increase in the LIFO reserve $2,173 = $2,211m − ($155m − $117m)

Karp, Inc. prepares its financial statements according to GAAP and uses LIFO. For 2017, Inventory was reported at $620m on the Balance Sheet. The LIFO reserve was $155m for 2017 and $117m for 2016. if Karp had used FIFO instead of LIFO, the amount of inventory reported as of 2017 would have been closest to: $465m $658m $775m

Correct answer c) Karp's inventory under FIFO equals LIFO inventory + LIFO reserve $775m = $620m + $155m

Eric's Used Book Store prepares its financial statements in accordance with IFRS. Inventory was purchased for £1,000,000 and later marked down to £550,000. One of the books, however, was later discovered to be a rare collectable item, and the inventory is now worth an estimated £3,000,000. The inventory is most likely reported on the balance sheet as £550,000 £1,000,000 £3,000,000

Correct answer is b). Under IFRS, the reversal of write-downs is required if NRV increases. The inventory will be reported on the balance sheet as the lower of cost or NRV, in this case £1m Under GAAP, reversal of write-downs is not permitted.

Like many high tech companies, Techno Tools operates in an environment of declining prices. Its reported profits will tend to highest if it accounts for inventory using the: FIFO method LIFO method Weighted average cost method

LIFO

Balance Year End 2013--2014--2015 ROE 19.8% 20.0% 22.0% ROA 8.1% 8.0% 7.9% Total Asset Turnover 2.0 2.0 2.1 over the period FY13 to FY15 the company's: Net profit margin and financial leverage have decreased Net profit margin and financial leverage have increased Net profit margin has decreased and financial leverage have increased

Net profit margin decrease and financial leverage increase

Generally speaking, any "turnover" ratio (like total asset turnover, equity turnover, etc) has as the numerator Sales Return on Equity Stock Price

Sales

Inventory cost is least likely to include: Production-related storage costs Costs incurred as a result of normal waste of materials Transportation costs of shipping inventory to customers

Shipping inventory

Which of the following expenditures are capitalized? Related to purchase of towel and tissue roll machine: €10,900 purchase price including taxes €200 for delivery of the machine €300 for installation and testing of the machine €100 to train staff on maintaining the machine €350 paid to a construction team to reinforce the factory floor and ceiling joists to accommodate the machine's weight Maintenance: €1,500 for roof repair; expected to extend useful life of the factory by 5 years. €1,000 for repainting exterior of the factory and adjoining offices; repainting neither extends the life of factory and offices nor improves their usability.

The company will capitalize, as part of the cost of the machine, all costs that are necessary to get the new machine ready for its intended use: €10,900 purchase price, €200 for delivery, €300 for installation and testing, and €350 to reinforce the factory floor and ceiling joists to accommodate the machine's weight (which was necessary to use the machine and does not increase the value of the factory). The €100 to train staff is not necessary to get the asset ready for its intended use and will be expensed. The company will capitalize the expenditure of €1,500 to repair the factory roof because the repair is expected to extend the useful life of the factory. The company will expense the €1,000 to have the exterior of the factory and adjoining offices repainted because the painting does not extend the life or alter the productive capacity of the buildings.

n a period of rising prices, when compared with a company that uses weighted average cost for inventory, a company using FIFO will most likely report higher values for its: debt to equity ratio inventory turnover return on sales

return on sales