Chapter 14 (exam3) smartbook

A company has sales revenue of $100,000; cost of goods sold of $40,000; operating expenses of $30,000; and nonoperating expenses of $5,000. What is the amount of gross profit?

-$60,000

A company had sales of $90,000 in Year 1, the base year; $95,000 in Year 2; and $78,000 in Year 3. What is the trend percentage for Year 3? Round the answer to two decimal places?

-86.7% $78,000/$90,000 = 86.7%

The basis or denominator for computing a percentage change from Year 1 to Year 2 is

-the Year 1 amount.

A company had sales of $400,000; gross profit of $250,000; operating income of 150,000; and net income of $75,000. Dividends on preferred stock were $10,000. Throughout the year, 10,000 shares of common stock were outstanding and 1,000 shares of preferred stock were outstanding. What was the earnings per share for the year?

-$7.50

Gross profit minus operating expenses is called

-operating profit.

The calculation of the current ratio includes all of the following in the numerator except

-retained earnings. -equipment.

The return on investment is calculated as follows:

-return divided by average amount invested during the period

Two common applications of the Return on investment concept include:

-return on assets -return on equity

Measures of profitability include all of the following except

-the current ratio

If a business fails, the claims of ______ , exceed those of the owners.

creditors

The best number to use for the numerator in the calculation of return on equity is

-Net Income

A company's assets include cash of $6,000; accounts receivable of $10,000; inventories of $56,000; and plant assets of $28,000, totaling $100,000. Its liabilities include accounts payable of $25,000 and bonds payable of $45,000, totaling $70,000. Its stockholders' equity includes $10,000 of capital stock and $20,000 of retained earnings, totaling $30,000. What is the company's current ratio?

2.88 ($6,000 + $10,000 + $56,000)/$25,000 = 2.88

Comparing amounts for a company over time in successive accounting periods is called

horizontal analysis.

Which of the following do(es) NOT accurately describe the price-earnings ratio?

-It reflects a company's rate of inventory turnover. -It reflects a company's liquidity.

The balance sheet ratio that measures liquidity by excluding inventory as an asset is called the _____ ratio

-Quick Ratio

The relationship of one number to another related number is called a

-Ratio

Which of the following is NOT a goal of financial accounting information?

-To demonstrate a company's compliance with income tax law.

The basis or denominator for calculating a trend percentage is

-a base-year amount.

The base number (denominator) in the calculation of the return on assets is the

-average total assets

Which of the following are NOT considered in calculating the amount of a company's working capital?

-capital stock -bonds payable -retained earnings

Which of the following is/are included in calculating the quick ratio?

-cash -accounts receivable -accounts payable

The general formula for calculating earnings per share is

-net income divided by the number of shares of common stock outstanding.

The subtotal that follows operating expenses in a multiple-step income statement is called

-operating income.

True or false: Annual reports of companies are made available only to that company's creditors and stockholders.

-False

A widely used measure of liquidity that includes all current assets is referred to as the _____ ratio.

-current

An income statement that includes subtotals of profitability at intermediate steps is called a(n) ______ income statement

-multiple step

The price-earnings ratio is calculated by dividing the current market price by

-earnings per share

Which of the following are measures of different levels of profitability?

-gross profit -net income -operating income

Comparing amounts for a company with other companies that have similar characteristics is called

-industry analysis.

Financial statements that present multiyear information in side-by-side columns are called ___________(comparative/classified) financial statements.

-comparative

Standards of comparison commonly used in financial analysis include all of the following except

-comparisons with other companies in close geographic proximity.

The percentage that inventory represents of the total assets in a statement of financial position (balance sheet) is called the

-component percentage.

A company had gross profit of $500,000; operating income of $200,000; and net income of $100,000 during the year. Its statement of financial position (balance sheet) shows that its stockholders' equity began the year at $1 million and during the year was reduced to $950,000 by the purchase of treasury stock. What was the return on equity for the year, rounded to the nearest whole percentage?

-10%

A company had inventory in successive years of $45,000, $52,000, and $65,000. Which sequence represents the correct trend percentages, rounded to the nearest whole percentage, assuming the first year is the base year?

-100%, 116%, 144% $45,000/$45,000 = 100%; $52,000/$45,000 = 116%; $65,000/$45,000 = 144%

If a company had sales of $500,000; gross profit of $360,000; interest expense of $10,000; and net income of $125,000, the component percentage for interest expense, is ______

-2% $10,000/$500,000

A company had operating income of $250,000 and net income of $300,000 for a year in which its total stockholders' equity was $800,000 at the beginning of the year and increased to $950,000 from the sale of additional capital stock during the year. What was the amount of the company's return on equity for the year, rounded to the nearest whole percentage?

-34% $300,000 (net income)/(($800,000 + $950,000)/2) = 34%

A company had interest expense of $12,400 during a year. In the previous year, interest expense was $11,800. What was the percentage increase rounded to the nearest 1/10 percent?

-5.1% ($12,400 - $11,800)/$11,800 = 5.1%

A company has current assets of $300,000; noncurrent assets of $700,000; current liabilities of $175,000; noncurrent liabilities of $425,000; and stockholders' equity of $400,000. What is the amount of the company's debt ratio?

-60%

A company has cash of $20,000; accounts receivable of $45,000; inventory of $60,000; plant assets (net of depreciation) of $100,000; and accounts payable of $55,000. The amount of the company's working capital is $_____

-70,000

A company had operating income of $100,000 for the year. Other selected figures from the company's statement of financial position (balance sheet) were beginning plant assets of $40,000; ending plant assets of $45,000; beginning total assets of $120,000; and ending total assets of $150,000. What was the return on assets for the year, rounded to the nearest whole percentage?

-74% $100,000/(($120,000 + $150,000)/2) = 74%

A company had operating income of $450,000 and net income of $230,000 for the year. Its beginning total asset balance was $500,000, and its ending total asset balance was $600,000. What was the return on assets for the year, rounded to the nearest whole percentage?

-82% $450,000(operating income)/(($500,000 + $600,000)/2) = 82%

Which of the following best describe(s) what is meant by a company's liquidity?

-A company's ability to meet its obligations as they become due.

The return on _______ is a broad measure of profitability of a company based on the total investment in the company.

-Assets

True or false: Ratios compare only amounts within a single financial statement, such as an income statement or a statement of financial position (balance sheet). True

-False

The most common approaches used for financial analysis compare information about a company in a single accounting period with

-information about the same company in different accounting periods. -information about other companies in the same industry.

A company's ability to meet its obligations on an ongoing basis is generally referred to as the company's

-liquidity.