Acct 300 Test 3 Review

________ costs are or should be a major expense in the budgets of companies for which marketing is an important element of success.

Advertising

Gross profit is the difference between sales and all operating expenses.

False

Operating profit margin is impacted by sales and all operating expenses except cost of goods sold.

False

The common size income statement expresses each income statement item as a percentage of total assets.

False

The income statement comes in two basic formats, the multiple-step and the single-step versions; however, for analysis purposes the single-step version should be used.

False

The income statement presents cash revenues, cash expenses, net income, and earnings per share for an accounting period.

False

The________method of inventory generally results in the matching of current costs with current revenues and therefore produces higher-quality earnings.

LIFO

The statement of stockholders' equity is an important link between the balance sheet and the income statement.

True

Two special items, discontinued operations and extraordinary items, must be disclosed separately on the income statement

True

Users of financial statements need to distinguish between earnings increasing due to core operations versus items such as tax rate deductions

True

How are sales reported on the income statement? a. Sales are shown for three years net of returns and allowances. b. Sales amounts are inflation-adjusted. c. Sales are shown for two years and are reported in nominal terms. d. Sales are shown at gross amounts, adjusted for inflation.

a

How does the equity method distort earnings? a. Income is recognized even though cash may never be received. b. Equity earnings are recorded even if the investor cannot exercise influence over the investee's policies. c. Equity earnings are only recorded on a cash basis of accounting. d. Equity earnings are recorded when investment ownership is 100%.

a

Which format of the income statement should be used for analysis purposes? a. Multiple-step. b. Cash basis. c. Single-step. d. Accrual basis.

a

Which item would not be classified as an operating expense? a. Interest expense. b. Rent expense. c. Depreciation. d. Repairs and maintenance.

a

Which of the following items could be found on a statement of shareholders' equity? a. Reasons for retained earnings increases or decreases. b. A reconciliation of beginning to ending cash. c. The market value of the firm's common stock. d. Assets = Liabilities + Stockholders' Equity.

a

How is a common-size income statement prepared? a. Each income statement item is expressed as a percentage of total assets. b. Each income statement item is expressed as a percentage of net sales. c. Each income statement item is expressed as a percentage of net income. d. Each income statement item is expressed as a percentage of cash flow.

b

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%.

b

Jett Co.'s gross profit, operating profit and net profit margins for 2015 are: a. 50.0%, 32.5%, 22.5% respectively. b. 29.2%, 12.5%, 10.0%, respectively. c. 27.0%, 11.0%, 10.5%, respectively. d. 21.5%, 17.5%, 12.0%, respectively.

b

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.

b

Which of the items below would be included under "Other income and expense"? a. Salaries, interest expense, equity losses. b. Equity earnings, gains from sale of assets, interest income. c. Research and development, dividend income, interest expense. d. Advertising, cost of goods sold, selling and administrative expenses.

b

Why is it important to assess operating profit? a. Operating profit represents the firm's profits after consideration of all revenues, expenses and comprehensive income. b. The figure for operating profit provides a basis for assessing the success of the firm apart from its financing and investing activities and separate from tax considerations. c. Operating profit represents the firm's profits after consideration of all revenues and expenses. d. Operating profit represents the firm's profits after consideration of all revenues and expenses, except for taxes.

b

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.

c

What is amortization? a. The process used to allocate the cost of natural resources. b. The process used to allocate the cost of tangible fixed assets. c. The process used to allocate the cost of capital leases, leasehold improvements and intangible assets. d. The process used to allocate the cost of oil, gas, minerals and standing timber.

c

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.

c

Which item is not a special item that must be disclosed separately on the income statement? a. Extraordinary gain. b. Extraordinary loss. c. Foreign currency translation adjustments. d. Discontinued operations.

c

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.

c

Foreign currency translation effects, unrealized gains and losses, additional pension liabilities and cash flow hedges are items that may comprise a company's other ________income.

comprehensive

________ income is the change in equity of a company during a period from transactions, other events, and circumstances relating to nonowner sources.

comprehensive

The gross profit margin and ________ are complements of each other and the two percentages always add up to 100%.

costs of goods sold percentage

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.

d

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.

d

Which of the following is an acceptable method to report total comprehensive income? a. On the face of the balance sheet. b. Total comprehensive income does not have to be reported. c. In the operating section of the cash flow statement. d. In the statement of stockholders' equity

d

Which of the following statements is true? a. It is unnecessary to analyze operating expenses over which management exercises discretion. b. Impairment charges do not need to be analyzed since they are generally a non-recurring expense. c. A good way to improve operating profit is to cut repairs and maintenance costs as much as possible. d. Operating expenses can be easily analyzed by preparing a common-size income statement.

d

_______ and _____ represent the cost of assets other than land that will benefit a business enterprise for more than a year.

depreciation and amortizaion

Stock _____and stock _____ result in the issuance of additional shares of stock to existing shareholders.

dividends, splits

Two other terms used interchangeably with income are_______ and_______

earnings. profit

The ______method of accounting for investments should be used when the investor can exercise significant influence over the investee's operating and financing policies.

equity

________charges are the expenses recognized to record a decline in value of a long-term asset.

impairmente

If the cost of goods sold percentage increases or decreases, this does not necessarily mean that costs have increased or decreased

True

In volatile industries, such as high technology, gross profit margin may increase or decrease significantly each year

True