Adaptive Assignment Chapter 13
Peter's Paintball Company sold its PeeWee division, which resulted in a $14,000 loss. If the tax rate is 18%, what should be reported on the income statement for the loss on this disposal?
$11,480
Ethel's Ethylene Glycol Corp had a free cash flow of $400,000 in 2017. During 2017, Ethel purchased $100,000 of new equipment with cash and reported $700,000 of net cash provided by operating activities on its 2017 statement of cash flows. What was the amount of cash dividends received by Ethel's shareholders in 2017?
$200,000
Sandy's Seashells sold its starfish division, which resulted in a $25,000 loss. Assuming a 15% tax rate, what amount should Sandy report on the income statement for the loss on this disposal?
$21,250
Which of the following statements is true with regard to a firm's treatment of pro forma income under generally accepted accounting principles (GAAP)?
A firm is not required to include pro forma income in its financial statements.
Critics of companies who use pro forma income presentation would be most wary of which item?
Consistent "non-recurring charges"
What timeframe is considered in horizontal analysis?
Any given period of time
What action is most likely to improve a company's quality of earnings?
Avoid reporting pro forma income
A disposal of a significant component of a business would be classified under which of the following sections?
Discontinued operations
On the income statement, where should the disposal of a significant component of a business be reported?
Discontinued operations
On the income statement, what does "discontinued operations" refer to?
Disposal of a significant component of a business
Which of the following would fall under discontinued operations?
Disposal of a significant component of a business
Which ratio must be calculated using an amount external to a company's financial statements?
Price-earnings ratio
A measure of income that usually excludes items that a company thinks are unusual or non-recurring is an example of what type of income?
Pro Forma Income
Asset turnover is considered to be an example of which type of ratio?
Profitability
When a company compares the rate of return on assets with the rate of interest paid for borrowed money, what are they trying to determine?
Profitability of trading on the equity
Which type of analysis may intertwine balance sheet and income statement accounts?
Ratio
Breyer Metal decided to change their inventory costing method from LIFO to FIFO beginning January 1, 2020. When Breyer reports 2019 and 2020 financial statements, how will this change in accounting principle be treated?
Retroactively
Unrealized loss on available-for-sale securities would be reported where on MegaCorp's financial statements?
Separately from net income
What effect does paying a short-term liability have on ratio analysis when current assets exceed current liabilities at the time the payment is made?
The current ratio increases
What is the accounting treatment for discontinued operations?
The operating gain or loss of the component and the gain or loss on disposal of the component are reported net of applicable income tax.
Which ratio includes the same figure in the numerator and denominator?
Times interest earned
Which of the following items would CG Company report separately from net income in its annual report?
Unrealized loss on available-for-sale securities
To evaluate individual financial items as a percentage of total assets for a company, which type of analysis would be used?
Vertical
Intracompany comparisons are most effective for market analyst reliance when
exploring earning trends for a single company.
Because it has a ________ inventory turnover, a grocery store will likely have a ________ profit margin than a heavy-equipment manufacturer.
higher; lower
The presence of consistent "non-recurring charges" on a firm's pro forma income presentation frequently suggests Choose your answer here_____quality of income.
low
When determining earnings per share, you must deduct a firm's preferred dividends from its
net income.
In a horizontal analysis, financial data is evaluated
over a period of time.
Custom Floor Company managers wish to gain a better understanding of the company's overall financial position. Which of the following best describes the type of analysis the managers are most likely to use?
ratio
Which analysis would a bank use to compare assets to liabilities for purposes of granting a short-term loan?
ratio
When presenting pro forma income, companies usually claim that
the numbers represent sustainable income.
It is hard to accept companies' claims that pro forma income represents sustainable income because
they tend not to report adverse scenarios and generally overestimate future income when compared with GAAP.
If a company experiences an unrealized loss of $9,000 during the current year on a $125,000 investment in trading securities, what effect will this loss have on comprehensive income? Assume a 22% tax rate.
No effect
Jameson Produce, Inc. experienced an unrealized loss of $45,000 in the current year on an investment of $250,000 in trading securities. Assuming a 35% tax rate, how will this loss affect comprehensive income statement?
No effect
MacArthur, Inc. invested $75,000 in trading securities, which experienced an unrealized loss of $3,000 in the current year. Assuming a 15% tax rate, what effect will this loss have on comprehensive income?
No effect
Trowel Enterprises, Inc. has a $30,000 investment in trading securities that experienced a loss during the current year. Assuming an 18% tax rate, what effect will the $4,000 unrealized loss have on other comprehensive income?
No effect
In an era of downsizing, Capnix University sold three properties for $1.2 million (including a gain), and implemented telecommuting. How should Capnix University report this gain?
Gain from discontinued operations and net of taxes
Profit margin will increase when which item becomes a larger percentage of net sales revenue?
Gross profit
A company wishing to attract stockholders by emphasizing the growth in the year-end cash balance would use which type of analysis?
Horizontal
What type of comparison is a company performing when it compares its current financial data with its prior year's data?
Intracompany
When a company compares its current financial data with its prior year's data, what type of comparison is it making?
Intracompany
Which ratio must be computed before the days in inventory ratio can be calculated?
Inventory turnover
The current ratio is an example of which type of ratio?
Liquidity
In performing a vertical analysis, what forms the base amount for cost of goods sold on the income statement?
Net sales
A company's financial statements provide the following information for the current year: net sales = $1,000, cost of goods sold = $650, selling and administrative expense = $150, net income = $100, total assets = $700, total liabilities = $300, total stockholders' equity = $400. Which accounts would be used to compare cost of goods sold to a company of similar size?
Net sales = $1,000 and cost of goods sold = $650
Sales returns and allowances increasing by a greater amount than sales revenues can cause confusion when calculating
an increase in sales revenue and net income.
