Accounting Chapter 5

Puffin Pastry, Inc. had Net Sales Revenue of $90,000 and Net income of $10,000 during 2019. At December 31, 2018, its total assets were $100,000, and its net fixed assets were $40,000. At December 31, 2019, its total assets were $200,000, and its fixed assets were $80,000. Puffin's asset turnover ratio equals ______.

0.60

ABC Company reports net income of $120,000, sales of $1,200,000, and average total assets of $960,000. The asset turnover is ______.

1.25

Revenues were $1,000,000, Cost of Goods Sold was $750,000, and Net Income was $120,000. Net profit margin equals ______.

12%

The income statement for ABC Company shows Gross profit of $144,000; Operating expenses of $130,000; and Cost of goods sold of $216,000. What is net sales revenue?

360,000

Using the following information from Florist Gumps' financial statements, calculate the gross profit percentage. Net sales of $10,000; Cost of goods sold of $6,000; Operating expense of $2,000; Net income of $1,000

40%

Which of the following appears on the statement of stockholders' equity? (Check all that apply.)

Additional paid-in capital Beginning balance of retained earnings Net income Dividends Common stock

Which of the following are parts of a Form 10-K? (Select all that apply.)

Auditor reports Management's discussion and analysis Financial statements

Which of the following are major actors involved in ensuring the integrity of financial statements of a publicly-traded company? (Check all that apply.)

Board of Directors PCAOB SEC Independent Auditors Management

Which of the following statements are true regarding an annual report and Form 10-K? (Select all that apply.)

Both include the four basic financial statements The 10-K includes significantly more information than the annual report Both include the Report of Independent Accountants (Auditor's Opinion)

Who has primary responsibility for making sure that a company's financial statements follow GAAP? (Check all that apply.)

Chief financial officer Chief executive officer

Which of the following describes the acceptable methods that may be used to prepare the statement of cash flows? (Check all that apply.)

Direct method Indirect method

The decomposition of the ROA into the net profit margin and total asset turnover is referred to as the ______ analysis.

DuPont

The service sponsored by the SEC that provides free, quick access to public companies' SEC filings is called ______.

EDGAR

Dividend payments would be found under Cash Flows from ______ Activities on the ______.

Financing; statement of cash flows

Public companies file their quarterly reports on the SEC's ______.

Form 10-Q

Identify which of the following are nonoperating items on the income statement. (Select all that apply.)

Income tax expense Gains on sale of fixed assets Provision for income taxes

Who uses accounting information? (Check all that apply.)

Institutional investors Creditors Government Managers Private investors

Earnings per share (EPS) equals ______ divided by the average shares of common stock outstanding. (Assume no preferred stock has been issued.)

Net Income

Which of the following is not a typical element of a company's annual report?

Press release

Who are the external users of accounting information? (Check all that apply.)

Private investors Institutional investors The current and potential creditors

Puffin Turnovers, Inc.'s total asset turnover was 1.5 while Muffin Tops, Inc.'s total asset turnover was 0.9. Which of the following are true about Puffin compared with Muffin? (Check all that apply.)

Puffin had more sales for each dollar of assets. Puffin generated sales more efficiently.

Identify various sources of financial information for the investing public. (Select all that apply.)

SEC's EDGAR Service Financial analysts' earnings forecasts Companies' Websites

Which financial statement shows the changes in equity accounts during the accounting period?

Statement of stockholders' equity

The SEC requires which of the following of publicly traded companies? (Select all that apply.)

They must have their internal control systems audited by an independent CPA. They must have their financial statements audited by an independent registered public accountant

Press releases and conference calls are used by companies to ______. (Select all that apply.)

announce quarterly and annual earnings provide timely information for external users to limit the possibility of selective leakage of information

Lenders or creditors include ______. (Select all that apply.)

banks commercial credit companies suppliers

Up Against The Wall, Inc. discontinued its wallpaper operations in the Southeast. Up Against The Wall will report the loss on the sale of operations and the related net operating loss from the beginning of the year through to the final sale ______.

below Gross Profit on the income statement

Free services available for users to access a company's financial information on the Web include ______. (Select all that apply.)

company's Website EDGAR

Income before income tax expense is an important measure of financial performance as it allows investors ______.

compare companies' pretax levels of income

______ refers to procedures designed to ensure that the company is managed in the interests of the shareholders.

corporate governance

Suppliers, banks, commercial credit companies and other financial institutions that lend money are referred to as ______.

creditors

The gross profit percentage is the ratio to watch if you are worried about increased competition. If the company lowers its prices to retain market share without lowering its cost of goods sold, its gross profit percentage will ______.

decrease

What effect does the purchase of land for cash have on the current ratio?

decreases

The asset turnover ratio is calculated by ______.

dividing net sales by average total assets

The quality of financial reporting for publicly traded companies is improved through ______. (Check all that apply.)

evaluating and reporting on the effectiveness of internal controls obtaining an external audit

The SEC's ______ requires companies provide all investors equal access to all company news and prohibits managers or other insiders from trading shares based on nonpublic information.

fair disclosure

True or false: GAAP permits only one accounting method to choose from in computing amounts on the financial statements.

false

True or false: When presenting the operating activities section of the statement of cash flows, the direct method starts with net income and adjusts it by eliminating the effects of transactions that do not involve cash. The indirect method reports the total cash inflow or cash outflow from each main type of transaction.

false

What effect does a purchase of inventory on account have on a current ratio that is less than 1?

increases it

Managers of pension funds, mutual funds, and other funds associated with companies are referred to as ______.

institutional investors

If a company reports Amortization Expense for the period, it must have ______.

intangible assets on its balance sheet

When determining the effect of a transaction on a financial ratio, the steps include ______. (Select all that apply.)

journalize the transaction to see what accounts are affected determine if the accounts affected are included in the financial statement subtotals or totals in the ratio's numerator determine if the accounts affected are included in the financial statement subtotals or totals in the ratio's denominator

To determine how transactions affect ratios, such as the the effect of purchasing land for cash on a company's current ratio, you need to ______.

know the journal entry and its effect on the ratio's numerator and denominator and then evaluate the combined effect

An unqualified (clean) audit opinion, should help ______ the expected rate of return investors charge for providing capital.

lower

Financial analysts ______.

make earnings forecasts to assist in investment decisions

Who has the responsibility to apply accounting standards when communicating with investors and creditors?

management

Who has primary responsibility for preparing and making sure that a company's financial statements follow GAAP?

managment

The total asset turnover ratio ______. (Check all that apply.)

means greater efficiency when the ratio increases tells you how well assets are used to generate sales

Which line item on the statement of stockholders' equity is also found on the income statement?

net income

The net profit margin ratio is calculated by dividing net income by ______.

net sales

The best place to determine revenues by geographic region is the ______.

notes to the financial statements

Earnings per share (EPS) appear ______.

on the income statement

Institutional investors include ______. (Select all that apply.)

pension funds mutual funds charitable foundations

Venture capitalists are ______.

private investors

The notes to financial statements may include ______. (Check all that apply.)

relevant information, not disclosed on the statements accounting policies applied revenues broken out by geographic region segment information

Net income divided by average assets equals ______.

return on assets

The notes to the financial statements typically provide detail support of ______. (Select all that apply.)

revenues by geographic region business segments makeup of property, plant and equipment

Net cash flows provided by operating activities will be ______ when using the direct method compared to the indirect method.

the same

Voluntary disclosures of financial accounting information, such as press releases, may be issued ______.

to guide market expectations

Given a transaction increases both the numerator and denominator of a ratio, but the ratio's numerator is smaller than the denominator, then the effect of the transaction on the ratio is _____.

to increase it

On the income statement, Operating Income differs from Income before Income Taxes in that ______ are subtracted from Operating Income to arrive at Income before Income Taxes.

transactions that are non-operating or infrequently occurring

True or false: Comparative financial statements include separate columns for more than one period's results.

true

Private investors include ______.

venture capitalists

One of the main purposes of the first note to the financial statements is to disclose ______.

which of the alternative accounting methods was used to measure the effects of transactions