ACCT Exam 3
A firm's cash dividends were $1.98 per share of common stock for calendar 2019. In 2020, the stock was split 3-for-1, and in 2021 a 10% stock dividend was issued. Dividends per share for 2019, to be reported in the firm's annual report for 2021, are:
$0.60
An item that cost $120 is to be sold for a price that will yield a gross profit ratio of 20%. The selling price should be:
$150
Sales for Year 2 were $800,000. Accounts receivable was $100,000 at the end of Year 1 and $150,000 at the end of Year 2. The days' sales in accounts receivable for Year 2 (rounded to one decimal) was:
$150,000 / ($800,000 / 365) = 68.4 days
Sales were $2,000,000 in Year 1 and $2,400,000 in Year 2. Accounts receivable was $400,000 at the end of Year 1 and $200,000 at the end of Year 2. The accounts receivable turnover for Year 2 (rounded to one decimal) was:
$2,400,000 / (($400,000 + $200,000) / 2) = 8.0 times
For Year 2, sales were $300,000 and cost of goods sold was $180,000. Inventories amounted to $20,000 at the end of Year 1 and $30,000 at the end of Year 2. The days' sales in inventory for Year 2 (rounded to one decimal) was:
$30,000 / ($180,000 / 365) = 60.8 days
Cost of goods sold was $200,000 and $300,000 in Year 1 and Year 2, respectively. Sales for Year 2 were $500,000. Inventory was $15,000 at the end of Year 1 and $25,000 at the end of Year 2. The inventory turnover for Year 2 (rounded to one decimal) was:
$300,000 / (($15,000 + $25,000) / 2) = 15.0 times
Cost of goods sold for Year 2 was $300,000. Sales for Year 2 were $600,000. Inventory was $40,000 at the end of Year 1 and $60,000 at the end of Year 2. The inventory turnover for Year 2 (rounded to once decimal) was:
$300,000 / (($40,000 + $60,000) / 2) = 6.0 times
Firm B's common stock has a par value per share of $1, market value per share of $72, dividends per share of $4, earnings per share of $8, and a book value per share of $64. Firm B's dividend yield (rounded to one decimal) is:
$4 / $72 = 5.6%
Sales for Year 2 were $1,400,000. Accounts receivable was $350,000 at the end of Year 1 and $400,000 at the end of Year 2. The days' sales in accounts receivable for Year 2 (rounded to one decimal) was:
$400,000 / ($1,400,000 / 365) = 104.3 days
Firm C's common stock has a par value per share of $10, earnings per share of $6, dividends per share of $5, a book value per share of $69, and a market value per share of $80. Firm C's dividend yield (rounded to one decimal) is:
$5 / $80 = 6.3%
Cost of goods sold was $400,000 and $500,000 in Year 1 and Year 2, respectively. Sales for Year 2 were $1,000,000. Inventory was $60,000 at the end of Year 1 and $40,000 at the end of Year 2. The inventory turnover for Year 2 (rounded to one decimal) was:
$500,000 / (($60,000 + $40,000) / 2) = 10.0 times
Total liabilities were $650,000 at the beginning of the year and $600,000 at the end of the year. Stockholders' equity was $300,000 at the beginning of the year and $400,000 at the end of the year. The debt ratio at the end of the year (rounded to one decimal) was:
$600,000 / ($600,000 + $400,000) = 60%
Cost of goods sold for Year 2 was $600,000. Sales for Year 2 were $1,000,000. Inventory was $100,000 at the end of Year 1 and $150,000 at the end of Year 2. The inventory turnover for Year 2 (rounded to once decimal) was:
$600,000 / (($100,000 + $150,000) / 2) = 4.8 times
Firm B's common stock has a par value per share of $1, market value per share of $72, dividends per share of $4, earnings per share of $8, and a book value per share of $64. Firm B's price/earnings ratio is:
$72 / $8 = 9.0 per share
Firm A's common stock has a par value per share of $1, market value per share of $90, earnings per share of $5, dividends per share of $2, and a book value per share of $60. Firm A's price/earnings ratio is:
$90 / $5 = $18 per share
Firm G's earnings before income taxes for the year was $140,000, income tax expense was $35,000, interest expense was $20,000, and net income was $105,000. Firm G's times interest earned for the year (rounded to one decimal) was:
($140,000 + $20,000) / $20,000 = 8.0 times
Firm H's earnings before income taxes for the year was $180,000, cost of goods sold was $240,000, interest expense was $30,000, and income tax expense was $60,000. Firm H's times interest earned for the year (rounded to one decimal) was:
($180,000 + $30,000) / $30,000 = 7.0 times
An item that cost $270 is sold for $360. The gross profit ratio for this item is:
25%
If a firm's debt ratio was 25%, its debt/equity ratio would be:
33.33%
Which of the following is an accurate statement regarding a statement of cash flows?
All material operating, investing, and financing activities are included.
Firms that issue registered securities are required to file, with the SEC on an annual basis, which of the following?
All of these are mandatory annual SEC filings for firms that have issued registered securities. An annual report. A form 10-K. A set of financial statements.
Which of the following circumstances requires an explanatory paragraph in the independent auditors' report?
An explanatory paragraph in the independent auditors' report is required in each of these circumstances.
Which of the following is not a principal category of "Other operating expenses" frequently reported on the income statement?
Cost of goods sold
Which of the following is the proper paragraph sequence for an independent Auditor's Report?
Introduction, scope, opinion.
The difference between the inventory valuation as reported under LIFO and the amount that would have been reported under FIFO is called the:
LIFO reserve
Which of the following is not a category of financial statement ratios?
Marketability.
Which of the following is not a topic that is likely to be discussed as a significant accounting policy?
Method of estimating uncollectible accounts receivable.
A firm's independent auditors have the responsibility to:
assess the firm's accounting policies.
To calculate the inventory turnover, you would normally divide:
cost of goods sold by the average inventory.
Another term for the price/earnings ratio is:
earnings multiple.
The independent auditors' report usually:
includes an opinion that the financial statements present fairly, in all material respects, financial information about the company.
The nature and content of note disclosures relate to all of the following except:
management's plans for the future.
The first caption in most income statements in annual reports is:
net sales.
The ratios used to facilitate the interpretation of an entity's financial position and results of operations can be grouped into four categories:
profitability debt (or financial leverage) activity liquidity
Book value per share of common stock of a manufacturing company:
reflects the fair value of the company's stock.
An individual interested in making a judgment about the profitability of a company should:
review the trend of the company's ROI for several years.
Asset turnover calculations:
should be evaluated by observing the turnover trend over a period of time.
The most powerful corporate governance legislation to date has been:
the Sarbanes-Oxley Act (SOX) of 2002.
An entity's current ratio will be influenced by:
the inventory cost flow assumption used.
The dividend payout ratio describes:
the proportion of earnings paid as dividends.
For 2019, Skresso Co. reported $1.82 of earnings per share of common stock. During 2020, the firm had a 4% common stock dividend. The 2019 earnings per share to be reported in the annual report for 2020 are:
$1.75
Firm A's common stock has a par value per share of $1, market value per share of $90, earnings per share of $5, dividends per share of $2, and a book value per share of $60. Firm A's dividend payout ratio (rounded to one decimal) is:
$2 / $5 = 40%
Firm B's common stock has a par value per share of $1, market value per share of $72, dividends per share of $4, earnings per share of $8, and a book value per share of $64. Firm B's dividend payout ratio (rounded to one decimal) is:
$4 / $8 = 50%
The notes to the financial statements:
explain the significant accounting policies of the company.
The inventory turnover calculation:
is an alternative way of expressing the number of days' sales in inventory.
A transaction in which the present top management of a publicly held firm buys the stock of the nonmanagement stockholders and the firm becomes "privately owned" is known as a(n)
leveraged buyout
A management that wanted to increase the financial leverage of its firm would:
raise additional capital by selling fixed interest rate long-term bonds.
In the statement of cash flows, an increase in the accounts receivable balance from the beginning of the period to the end of the period would be:
subtracted from net income because this means that revenues earned and included within net income were more than the cash collected.
Recognition of revenue in accrual accounting requires:
that the revenue be realized or realizable, and earned.
Earnings multiple is another term used to describe the price/earnings ratio. This term merely reflects that:
the market price of stock is equal to the earnings per share multiplied by the P/E ratio.
Significant accounting policies are described in the notes to the financial statements because:
the reader must be aware of which of the alternative generally accepted accounting practices have been used.
A higher P/E ratio means that:
the stock is relatively expensive.
For the year ended December 31, 2019, a company reported earnings per share of $1.95 and cash dividends per share of $0.30. During 2020, the company had a 3-for-2 stock split. In the annual report for the year ended December 31, 2020, earnings per share and cash dividends for 2019 would be reported, respectively, as:
$1.30 and $0.20
For Year 2, sales were $1,200,000 and cost of goods sold was $800,000. Inventories amounted to $90,000 at the end of Year 1 and $110,000 at the end of Year 2. The days' sales in inventory for Year 2 (rounded to one decimal) was:
$110,000 / ($800,000 / 365) = 50.2 days
Sales for Year 1 and Year 2 amounted to $500,000 and $600,000, respectively. Accounts receivable was $100,000 at the end of Year 1 and $120,000 at the end of Year 2. The days' sales in accounts receivable for Year 2 (rounded to one decimal) was:
$120,000 / ($600,000 / 365) = 73.0 days
The term, "earned," in revenue recognition refers to which of the following?
The entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits.
Most entities satisfy the accounting criteria for recognizing an expense when:
a cost is incurred in the revenue generating process.
Management's use of resources can best be evaluated by focusing on measures of:
activity.
The notes to the financial statements:
should be referred to if more than a cursory, and perhaps misleading impression of a firm's financial position and its results of operations is to be achieved.
The impact of changing price levels on amounts reported in financial statements is:
encouraged, but not required to be described in the notes to the financial statements.
Revenue may be recognized:
if a company trades inventory at its usual selling price for newspaper advertising.
The price/earnings ratio:
is a measure of the relative expensiveness of a firm's common stock.
The Sarbanes-Oxley Act (SOX) of 2002 does not specifically prohibit an independent auditor from performing the following non-audit function(s) for an audit client:
tax services.
In the statement of cash flows, depreciation and amortization expense is added back to net income because:
these expenses do not affect cash, but were subtracted in the determination of net income.
The debt/equity ratio is usually calculated by dividing the:
year-end liabilities by year-end stockholders' equity.
Firm A's common stock has a par value per share of $1, market value per share of $90, earnings per share of $5, dividends per share of $2, and a book value per share of $60. Firm A's dividend yield (rounded to one decimal) is:
$2 / $90 = 2.2%
Total liabilities were $650,000 at the beginning of the year and $600,000 at the end of the year. Stockholders' equity was $300,000 at the beginning of the year and $400,000 at the end of the year. The debt/equity ratio at the end of the year (rounded to one decimal) was:
$600,000 / $400,000 = 150%
When a corporation has both common stock and preferred stock outstanding:
dividends on preferred stock must be paid before dividends on common stock can be paid.
To calculate the days' sales in inventory, you would normally divide the:
ending inventory by the average day's cost of goods sold.
A common size income statement:
expresses items as a percentage of net sales.
To calculate the accounts receivable turnover, you would divide:
sales by the average accounts receivable.
When an entity changes its accounting from one generally accepted method to another generally accepted method:
the dollar effect of the change on both the balance sheet and income statement must be disclosed.
Firm C's common stock has a par value per share of $10, earnings per share of $6, dividends per share of $5, a book value per share of $69, and a market value per share of $84. Firm C's price/earnings ratio is:
$84 / $6 = $14 per share
Management's statement of responsibility:
affirms that management is responsible for assuring adherence to internal control policies and procedures.
The term, "realization," in revenue recognition refers to which of the following?
The product or service has been exchanged for cash, claims to cash, or an asset that is readily convertible to a known amount of cash or claims to cash.
A company desiring to increase its total asset turnover could do so by using:
an accelerated depreciation method and the LIFO cost flow assumption.
Gains differ from revenues because gains:
are not a result of the entity's ongoing, central operations.
Business segment information is included in the notes to financial statements because:
current and potential investors can make more informed judgments about the company.
Total liabilities were $330,000 at the beginning of the year and $300,000 at the end of the year. Stockholders' equity was $270,000 at the beginning of the year and $240,000 at the end of the year. The debt/equity ratio at the end of the year (rounded to one decimal) was:
$300,000 / $240,000 = 125%
Corporate governance includes concerns about:
all of these answers are correct. business ethics and social responsibility. the responsibilities of the board of directors. equitable treatment of all stakeholders. disclosures and transparency.
The comparison of activity measures of different companies is complicated by the fact that:
different inventory cost flow assumptions may be used.
Which of the following descriptions is not one of the "Thirteen Financial Shenanigans" identified by Schilit and Perler, and listed in Exhibit 10-1?
failing to record intangible assets which the company has ownership rights to.
Which of the following is(are) an example of a measure of leverage?
Debt/equity ratio.
Which of the following are examples of physical measures of activity that are sometimes disclosed in corporate annual reports?
Each of these are all examples of physical measures of activity that are sometimes reported in corporate annual reports.
Which of the following accounts/captions are not included in the calculation of Gross Profit?
General and Selling Expenses.
The major difference between the indirect and the direct method of a statement of cash flows appears in which of the following activities section(s)?
The operating activities section only.
Management's Discussion and Analysis (MD&A):
All of these answers are correct. often includes disclosures concerning non-GAAP financial measures and key performance indicators that are used to assess the company's financial and operating results. is designed to enhance public disclosure of information about the corporation. is a part of the annual report that should be read by current and potential investors.
Which of the following statements is true regarding the reporting of discontinued operations?
By reporting discontinued operations as a separate item, net of taxes, all of the effects of the discontinued business segment are excluded from the revenues, expenses, gains, and losses of continuing operations.
Financial leverage:
arises because most borrowed funds have a fixed interest rate.
Most entities satisfy the accounting criteria for recognizing revenue when:
a product is delivered or a service is provided.
