Question 1

The Retained Earnings portion of a corporation represents the initial contribution of capital to the business.

Accepted Answer

A) True 
 B)False

Question 2

A company should classify land held for a planned manufacturing facility as

Accepted Answer

A)  an intangible asset. 
B)  an investment. 
C)  a current asset. 
D)  property, plant, and equipment. 
A)  an intangible asset. 
B)  an investment. 
C)  a current asset. 
D)  property, plant, and equipment.

Question 3

The normal operating cycle helps define which of the following balance sheet sections?

Accepted Answer

A)  Intangible assets 
B)  Current assets 
C)  Property, plant, and equipment 
D)  Owner's equity 
A)  Intangible assets 
B)  Current assets 
C)  Property, plant, and equipment 
D)  Owner's equity

Question 4

To which account is the cost of inventory transferred when a product is sold?

Accepted Answer

A)  Sales 
B)  Operating expenses 
C)  Inventory sold 
D)  Cost of goods sold 
A)  Sales 
B)  Operating expenses 
C)  Inventory sold 
D)  Cost of goods sold

Question 5

Which of the following is not considered an operating expense?

Accepted Answer

A)  General office expenses 
B)  Cost of goods sold 
C)  Freight-out expense 
D)  Advertising expense 
A)  General office expenses 
B)  Cost of goods sold 
C)  Freight-out expense 
D)  Advertising expense

Question 6

Delivery expense is a selling expense on the income statement.

Accepted Answer

A) True 
 B)False

Question 7

Use this information to answer the following question.   The debt to equity ratio is

Accepted Answer

A)  0.46. 
B)  0.67. 
C)  2.20. 
D)  0.33. 
A)  0.46. 
B)  0.67. 
C)  2.20. 
D)  0.33.

Question 8

Classified balance sheets list accounts in alphabetical order.

Accepted Answer

A) True 
 B)False

Question 9

The conservatism convention should not be used when the accountant is certain of a particular measure.

Accepted Answer

A) True 
 B)False

Question 10

In accounting, $1,000 is considered the dividing line between material and immaterial amounts.

Accepted Answer

A) True 
 B)False

Question 11

Using the following data, prepare a classified balance sheet for Blanchard Company as of December 31, 2010.

Accepted Answer

The answer of Using the following data, prepare a classified...

Question 12

Use this balance sheet and income statement for the first year of operations for Layton Novelties to answer the following question. Use ending balances whenever average balances are required for computing ratios.   Laytan Navelties
Income St-tement
Far the Year Ended December 31, 2010
$\begin{array}{lr}
\text { Net sales } & \$ 80,000 \
\text { Cost of goods sold } & 32,000 \
\text { Gross margin } & \$ 48,000 \
\text { Operating expenses } & 26,400\\text { Net income }&\$21,600
\end{array}$ The current ratio for Layton Novelties is

Accepted Answer

A)  1.75. 
B)  0.57. 
C)  1.4. 
D)  2.0. 
A)  1.75. 
B)  0.57. 
C)  1.4. 
D)  2.0.

Question 13

Investors and creditors use financial statements to evaluate a company's ability to pay dividends and interest.

Accepted Answer

A) True 
 B)False

Question 14

Using the following amounts taken from the balance sheet and income statement of a business, compute the measures listed below. After each answer, write "L" if it is a measure of liquidity or "P" if it is a measure of profitability. Round to two decimal places.
 $\begin{array}{lrlr}
\text { Current assets } & \$ 6,000 & \text { Average owner's equity } & \$ 15,000 \
\text { Average total assets } & 30,000 & \text { Net sales } & 19,500 \
\text { Current liabilities } & 4,500 & \text { Net income } & 2,400 \
\text { Long-term liabilities } & 10,500 & &
\end{array}$ 
a. Return on assets
b. Working capital
c. Return on equity
d. Current ratio

Accepted Answer

a. 8% P ($2,400 ÷ $30,000)
b.

Question 15

Both return on assets and working capital are profitability measures.

Accepted Answer

A) True 
 B)False

Question 16

A merchandiser will earn an operating income of exactly $0 when

Accepted Answer

A)  gross margin equals operating expenses. 
B)  net sales equals cost of goods sold. 
C)  cost of goods sold equals gross margin. 
D)  operating expenses equal net sales. 
A)  gross margin equals operating expenses. 
B)  net sales equals cost of goods sold. 
C)  cost of goods sold equals gross margin. 
D)  operating expenses equal net sales.

Question 17

Use this balance sheet and income statement for the first year of operations for Layton Novelties to answer the following question. Use ending balances whenever average balances are required for computing ratios.   Laytan Navelties
Income St-tement
Far the Year Ended December 31, 2010
$\begin{array}{lr}
\text { Net sales } & \$ 80,000 \
\text { Cost of goods sold } & 32,000 \
\text { Gross margin } & \$ 48,000 \
\text { Operating expenses } & 26,400\\text { Net income }&\$21,600
\end{array}$ The return on equity for Layton Novelties is

Accepted Answer

A)  48 percent. 
B)  21.6 percent. 
C)  42 percent. 
D)  30 percent. 
A)  48 percent. 
B)  21.6 percent. 
C)  42 percent. 
D)  30 percent.

Question 18

The debt to equity ratio equals

Accepted Answer

A)  owner's equity divided by total liabilities. 
B)  owner's equity divided by long-term liabilities. 
C)  total liabilities divided by owner's equity. 
D)  current liabilities divided by average owner's equity. 
A)  owner's equity divided by total liabilities. 
B)  owner's equity divided by long-term liabilities. 
C)  total liabilities divided by owner's equity. 
D)  current liabilities divided by average owner's equity.

Question 19

Use this information to answer the following question.   The total amount of working capital is

Accepted Answer

A)  $370,000. 
B)  $40,000. 
C)  $140,000. 
D)  $60,000. 
A)  $370,000. 
B)  $40,000. 
C)  $140,000. 
D)  $60,000.

Question 20

Only the chief financial officer and the company's CPAs are responsible for the accuracy of financial statements. The chief executive officer is not expected to understand financial information.

Accepted Answer

A) True 
 B)False

Exam 5: Financial Reporting and Analysis

The Retained Earnings portion of a corporation represents the initial contribution of capital to the business.

A company should classify land held for a planned manufacturing facility as

The normal operating cycle helps define which of the following balance sheet sections?

To which account is the cost of inventory transferred when a product is sold?

Which of the following is not considered an operating expense?

Delivery expense is a selling expense on the income statement.

Use this information to answer the following question. The debt to equity ratio is

Classified balance sheets list accounts in alphabetical order.

The conservatism convention should not be used when the accountant is certain of a particular measure.

In accounting, $1,000 is considered the dividing line between material and immaterial amounts.

Using the following data, prepare a classified balance sheet for Blanchard Company as of December 31, 2010.

Investors and creditors use financial statements to evaluate a company's ability to pay dividends and interest.

Both return on assets and working capital are profitability measures.

A merchandiser will earn an operating income of exactly $0 when

The debt to equity ratio equals

Use this information to answer the following question. The total amount of working capital is

Only the chief financial officer and the company's CPAs are responsible for the accuracy of financial statements. The chief executive officer is not expected to understand financial information.

Uses of Accounting Information and the Financial Statements

Analyzing Business Transactions

Measuring Business Income

Completing the Accounting Cycle

The Operating Cycle and Merchandising Operations

Internal Control

Inventories

Cash and Receivables

Current Liabilities and Fair Value Accounting

Long Term Assets

Contributed Capital

Long Term Liabilities

The Corporate Income Statement and the Statement of Stockholders Equity

The Statement of Cash Flows

Financial Performance Measurement

Partnerships

The Changing Business Environment-A Managers Pers

Cost Concepts and Cost Allocation

Costing Systems: Job Order Costing

Costing Systems Process Costing

Activity-Based Systems-Abm and Lean

Cost Behavior Analysis

The Budgeting Process

Performance Management and Evaluation

Standard Costing and Variance Analysis

Short Run Decision Analysis

Capital Investment Analysis

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