acct ch4
Compute the asset turnover ratio using the following information: net sales is $100,000 for the year, last year's assets in place were $900,000 and this year's assets in place are $1,100,000. Receivables for both years are $50,000.
10%
Compute the inventory turnover ratio using the following information: Net sales is $100,000 for the year, costs of goods sold are $40,000, last year's assets in place were $900,000, and this year's assets in place are $1,100,000. Receivables for both years are $50,000. Inventory changed from $30,000 last year to $10,000 this year.
2
If a component of the business qualifies for discontinued operations treatment, which of the following statements are true? (Select all that apply.)
All related revenues, expenses, gains, and losses must be removed from continuing operations. The tax expense effect is removed from continuing operations.
How are discontinued operations reported? (Select all that apply.)
As a separate line item on the income statement. With separate reporting of the tax effect on the item of discontinued operations. Below income from continuing operations.
When a company discovers an immaterial error in a year subsequent to the year the error is made, what is the proper course of action?
Correct the error in the year discovered
What do high turnover ratios suggest? (Select all that apply.)
Fewer assets are required to maintain a given level of activity. The company is more efficient in managing its assets
Which of the following are acceptable methods of presenting the income statement? (Select all that apply.)
Multiple-step format Single-step format
Which of the following terms is also used as a heading for an income statement?
Statement of Operations
Activity ratios measure
a company's efficiency in using its assets
The statement of cash flows is useful because
accrual-based income is not an indication of cash flows
The three key components to the DuPont framework include
activity. profitability. financial leverage.
Which of the following ratios are activity ratios?
average collection period inventory turnover asset turnover receivables turnover
U.S. GAAP requires that a statement of cash flows must be presented for
each period for which a balance sheet and income statement are prepared
The evidence that a financial statement user or analyst might use as evidence to suggest that earnings have been smoothed is
earnings have a steady stream over time
Investing activities involve the acquisition and sale of (Select all that apply.)
long-lived assets used in business operations. nonoperating investment assets
Non-GAAP earnings are
management's estimates and view of earnings
If discontinued operations have a _____ effect on the income statement, they must be reported separately
material
Discontinued operations should be reported on the income statement
net of tax below income from continuing operations
Significant noncash investing and financing activities are disclosed because they
provide more complete information
Costs that are planned and controlled by management that materially change the scope of the business undertaken or the manner in which the business is conducted are called
restructuring costs
The inflow of resources resulting from providing goods or services to customers is referred to as
revenue
What items must be removed from continuing operations and reported separately for a discontinued operation? (Select all that apply.)
tax expense Revenues expenses gains
In looking at earnings quality, analysts try to separate a company's ........ earnings effects from its ....... earnings.
temporary permanent
Accumulated other comprehensive income represents
the total of other comprehensive income to date
Gains and losses from the sale of investments can affect earnings quality because
they are often nonrecurring
Basic earnings per share is calculated as net income available to common shareholders divided by
weighted average common shares outstanding
Gulf Corp. has the following information: End of Year 1 Net sales $ 80,000 Total assets 600,000 Accounts receivable 30,000 End of Year 2 $100,000 Total assets 800,000 Accounts receivable 50,000 What is the asset turnover ratio for year 2 rounded to the nearest 1/1000?
0.143
Compute the receivables turnover ratio using the following information: Net credit sales is $200,000 for year 2. Total assets at the end of years 1 and 2 were $800,000 and $1,200,000, respectively. Accounts receivable at the end of years 1 and 2 were $40,000 and $60,000, respectively.
4
Green Company has net credit sales of $100,000, an asset turnover ratio of 4, and a receivables turnover ratio of 9. What is the average collection period?
40.6 days
Sync Corp. has net sales of $1,000,000 for the year. Additional information is shown below: Receivables turnover ratio 10 Inventory turnover ratio 5 Asset turnover ratio 3 Return on equity 10% What is the average days in inventory?
73 days
What type of ratios measure a company's efficiency in managing its assets?
Activity
Which of the following is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding?
Basic earnings per share
Statement of operations and statement of earnings are additional titles for the
Income Statement
Which information regarding the receivable turnover ratio is true? (Select all that apply.)
It shows the number of times during a period that the average accounts receivable balance is collected. It provides an indication of a company's efficiency in collecting receivables
Which statements about the inventory turnover ratio are correct? (Select all that apply.)
It shows the number of times the average inventory balance is sold during a reporting period. It indicates how quickly inventory is sold
Management's assessment of permanent earnings are referred to as what?
Non-GAAP earnings
Which of the following are commonly used to assess a company's profitability?
Profit margin on sales Return on assets Return on equity
The purpose of the statement of cash flows includes which of the following? (Select all that apply.)
Provide information about cash receipts during a period. Provide information about cash disbursements during a period.
What does the inventory turnover ratio measure?
The average number of times inventory is sold during a period
Non-GAAP earnings are calculated
based on management's assumptions of permanent earnings
The potential tax expense or benefits of items reported as components of Other Comprehensive Income
can be shown separately for each item or aggregated and reported as one line item
The receivables turnover ratio offers an indication of how quickly a company is able to
collect its accounts receivable
Which of the following items are included in calculating operating income? (Select all that apply.)
expenses related to primary revenue-generating activities revenues related to primary revenue-generating activities
The three types of accounting changes are a change in
reporting entity. accounting estimate. accounting principle
If a company reorganizes its operation to gain efficiency, the cost associated with this reorganization is classified as
restructuring costs
Analyzing earnings quality requires an analyst to
separate a company's temporary and permanent earnings
Income tax expense is reported in what way on the income statement?
As a separate line item.
Operating, investing, and financing activities are found on which financial statement?
Statement of cash flows
Which of the following items are reported as components of operating income for most manufacturing and merchandising companies? (Select all that apply.)
revenues administrative expenses selling expenses