301 Chap 4

Crimson Corp. has a component that is a discontinued operation. The revenues and expenses of the component were $200,000 and $240,000, respectively. The component was sold with a resulting loss of $160,000. The tax rate is 30%. What is the total gain or loss on discontinued operations (net-of-tax effects) that will be reported on the income statement?

$140,000 loss

Carol Corp. has a component that is a discontinued operation. The revenues and expenses of the component were $100,000 and $160,000, respectively. The component was sold with a resulting gain of $200,000. The tax rate is 40%. What is the total gain or loss on discontinued operations (net-of-tax effects) that will be reported on the income statement?

$84,000 gain

What is Gordon's return on assets for year 2?

11.4%

Marston has the following information: Sales $120,000 Cost of goods sold 80,000 Tax expense 5,000 Operating expenses 20,000 Total assets 500,000 Accounts receivable 25,000

12.5%

What is Powell's return on assets for year 2?

16%

Assuming that the company has no interest or tax expense, what is Linden's profit margin?

30%

avg days in inventory

365/inventory turnover ratio

avg collection period

365/receivables turnover

What type of ratios measure a company's efficiency in managing its assets? Multiple choice question. Liquidity Activity Solvency Profitability

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

inventory turnover

COGS/ avg inventory

return on equity

Net Income / Average Stockholders' Equity

What is the formula for the receivables turnover ratio?

Net credit sales divided by average accounts receivable (net).

What is the formula to compute the return on assets?

Net income divided by average total assets.

Which of the following is a category of accounting change?

Reporting entity

Which of the following are commonly used to assess a company's profitability? Multiple select question. Return on assets Profit margin on sales Current ratio Return on equity Quick ratio

Return on assets Profit margin on sales Return on equity

How are discontinued operations reported? (Select all that apply.) Multiple select question. With separate reporting of the tax effect on the item of discontinued operations. With tax on the discontinued operation included in total income tax expense. As a separate line item on the income statement. Above income from continuing operations. Below income from continuing operations.

With separate reporting of the tax effect on the item of discontinued operations. As a separate line item on the income statement. Below income from continuing operations.

Activity ratios measure Multiple choice question. the solvency of a company. the profitability of a company. the liquidity of a company. a company's efficiency in using its assets.

a company's efficiency in using its assets.

The three types of accounting changes are a change in Multiple select question. accounting estimate. reporting entity. accounting principle. corporate structure. fiscal years.

accounting estimate. reporting entity. accounting principle.

The statement of cash flows is useful because Multiple choice question. it is prepared on an accrual basis. accrual-based income is not an indication of cash flows. it is more accurate in measuring net income for the period. it provides more accurate information than the balance sheet.

accrual-based income is not an indication 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.) interest expense administrative expenses revenues selling expenses

administrative expenses revenues selling expenses

Cash flows from investing activities include inflows and outflows of cash related to the acquisition and disposition of long-term _____________ used in operations

assets

A discontinued operation is reported when a _______________ of an entity either (a) has been disposed of or (b) is classified as held for sale. (Enter one word per blank)

component

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.

When a transaction is recorded incorrectly or is not recorded at all, this is treated as an accounting

error

True or false: Income tax expense may be disclosed either on the income statement or in the notes to the financial statements.

false

The type of activities related to the external financing of the company are Blank______ activities.

financing

Which type of activities involve cash inflows and outflows from transactions with creditors and owners?

financing

The guidance on discontinued operations defines a discontinued operation as a component that either/or (Select all that apply.) Multiple select question. has been sold is classified as held for sale will likely be sold

has been sold is classified as held for sale

what do you multiply the marginal tax rate by to get the tax expense

income before income taxes

Sales of services for cash and collection on account are classified as cash _________ while payment on account and payment of salaries are classified as cash _______________ from operating activities on the statement of cash flows.

inflows outflows

Financial statements covering periods of less than one year are called ________ reports

interim

The classifications on the statement of cash flows are cash flows from (Select all that apply.) Multiple select question. discontinued activities. investing activities. operating activities. financing activities. business activities.

investing activities. operating activities. financing activities.

what are the accounts used in the continued operations of the income statement

just income from continuing operations before income taxes income tax expense

Interim reports are financial statements covering a period

less than one year

what are the accounts used in the discontinued operations of the income statement

loss from operations (net loss with gain or loss on sale) income tax benefit loss on discontinued operations

Income smoothing describes the concept that Multiple choice question. income is averaged over a 10-year moving average. income is not reported until approved by the board of directors. managers manipulate the pattern of income to not vary much between years.

managers manipulate the pattern of income to not vary much between years.

If discontinued operations have a Blank______ effect on the income statement, they must be reported separately.

material

The calculation of _________________ income omits certain gains and losses that are instead included in the broader perspective of other _______________ income. (Enter one word per blank.)

net comprehensive

The profit margin ratio is defined a _____ _____ divided by net sales

net income

In calculating basic earnings per share, Blank______ is divided by the weighted average common shares outstanding.

net income less any preferred stock dividends

return on assets

net income/average total assets

profit margin

net income/net sales

asset turnover ratio

net sales / avg total assets

receivables turnover

net sales/ avg A/R

Inflows and outflows of cash related to the transactions used to determine net operating income are what type of activities?

operating

The inflows and outflows of cash that result from activities reported in the income statement are classified as cash flows from ___________ activates

operating

The statement of cash flows classifies items as

operating, investing, and financing.

DuPont framework return on equity

operations x investing x finances profit margin x asset t/o x equity mult

The correction of a material error in the prior year's financial statements is considered a

prior period adjustment.

Profit margin on sales, return on assets, and return on shareholders' equity are commonly used ________ ratios

profitability

A change in depreciation method is accounted for by

prospectively applying the new method

Significant noncash investing and financing activities are disclosed because they

provide more complete information.

______ costs include costs associated with shutdown or relocation of facilities.

restructuring

If a company reorganizes its operation to gain efficiency, the cost associated with this reorganization is classified as

restructuring costs

what is included in operating income

sales revenue - COGS - selling expense - general and admin expense

Analyzing earnings quality requires an analyst to

separate a company's temporary and permanent earnings

Which of the following terms are used to describe an income statement? (Select all that apply) Statement of Earnings Statement of Business Activities Statement of Changes in Financial Position Statement of Operations

statement of earnings statement of operations

Which of the following terms is also used as a heading for an income statement?

statement of operations

In looking at earnings quality, analysts try to separate a company's __________ earnings effect from its ___________ earnings

temporary permanent

Gains and losses from the sale of investments can affect earnings quality because Multiple choice question. they are often nonrecurring. they are netted against cost of goods sold. they are often recurring. the gains were included in revenues.

the are often nonrecurring

A prior period adjustment requires an adjustment to

the beginning balance of retained earnings.

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

Which of the following activities would constitute discontinued operations? (select all that apply) Multiple select question. A toy company decides to stop production on one of its less popular products. A U.S. cereal manufacturer commits to a plan to dispose of its operations in the EU. A large equipment manufacturer sells some idle machinery at one of its facilities. A retail company, like Target, sells its financial services (credit card) business.

A U.S. cereal manufacturer commits to a plan to dispose of its operations in the EU. A retail company, like Target, sells its financial services (credit card) business.

Equity Multiplier

Average Total Assets / Average Stockholders' Equity

Which of the following are accounting errors? (Select all that apply.) Multiple select question. Changing from LIFO to FIFO. Forgetting to accrue salary expense. Using a different depreciation method. Making a mistake in calculating depreciation expense.

Forgetting to accrue salary expense. Making a mistake in calculating depreciation expense.

Where on the income statement is income tax expense reported? In extraordinary gains and losses. In a separate line. In other comprehensive income. In other expenses.

In a separate line.

______ from discontinued operations will result in additional income tax expense; ______ from discontinued operations will result in a tax benefit.

Income; Loss

Which statements about the inventory turnover ratio are correct? (Select all that apply.) Multiple select question. A high ratio suggests a high inventory level. The lower the ratio, the quicker a company sells its inventory. It indicates how quickly inventory is sold. It shows the number of times the average inventory balance is sold during a reporting period.

It indicates how quickly inventory is sold. It shows the number of times the average inventory balance is sold during a reporting period.

The purpose of the statement of cash flows includes which of the following? (Select all that apply.) Multiple select question. Provide information about cash disbursements on a specific date. Provide information about cash receipts on a specific date. Provide information about cash receipts during a period. Provide information about cash disbursements during a period.

Provide information about cash receipts during a period. Provide information about cash disbursements during a period.

Which is a significant noncash activity? Multiple choice question. Signing a note payable in exchange for land. Collecting on customer accounts. Repurchasing common stock. Receiving proceeds from sale of stock.

Signing a note payable in exchange for land.

Operating, investing, and financing activities are found on which financial statement?

Statement of Cash Flows

What does the inventory turnover ratio measure?

The average number of times inventory is sold during a period.

What do high turnover ratios suggest? (Select all that apply.) Multiple select question. The company is more efficient in managing its assets. More assets are required to maintain a given level of activity. The company is not effectively managing its assets. Fewer assets are required to maintain a given level of activity.

The company is more efficient in managing its assets. Fewer assets are required to maintain a given level of activity.

True or false: Net income is a portion of comprehensive income.

True

Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? (Select all that apply.) collection on account interest received on notes receivable issuance of common stock borrowing from bank activity not an operating activity sale of building

collection on account interest received on notes receivable

If a company owns multiple lines of business in different areas such as cable TV, film entertainment, networks, and publishing, and decides to sell a specific unit, the resulting gain or loss would most likely be classified as a(n)Blank______ on the income statement.

discontinued operation

A change in depreciation method is treated as a change in accounting _________ that is achieved by a change in accounting ____________

estimate principle

A gain from discontinued operations will result in an income tax _____________, whereas a loss from discontinued operations will result in an income tax _______________

expense benefit

Which of the following items are included in calculating operating income? (Select all that apply.) revenues related to peripheral activities expenses related to peripheral activities expenses related to primary revenue-generating activities revenues related to primary revenue-generating activities

expenses related to primary revenue-generating activities revenues related to primary revenue-generating activities

The income statement is considered most useful for predicting

future profitability

what is included in non operating income

gain or loss on investments interest expense

Which financial statement summarizes the profit-generating activities that occurred during the reporting period? Multiple choice question. Income statement Balance sheet Statement of cash flows Statement of shareholder's equity

income statement

The statement of cash flows is useful because (select all that apply) Multiple select question. it reveals the company's ability to generate positive cash flow from its normal operations it provides information about liquidity it provides a more accurate prediction of the company's ability to generate future cash flows than income does

it reveals the company's ability to generate positive cash flow from its normal operations it provides information about liquidity

Investing activities involve the acquisition and sale of (Select all that apply.) Multiple select question. long-lived assets used in business operations. nonoperating investment assets. inventories sold in normal operations.

long-lived assets used in business operations. nonoperating investment assets.

The inflow of resources resulting from providing goods or services to customers is referred to as _______________

revenue

Nonoperating items that are not expected to continue into the future are considered a ______ component of earnings and should be ______ when forecasting future performance.

temporary; excluded