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