Exam 5: Financial Reporting and Analysis

On the income statement of a merchandising company, net income is the amount by which net sales exceed operating expenses.

Each of the following statements is justified by a concept or convention of accounting. Write the letter in the blank next to each statement corresponding to the concept or convention involved. a. Consistency b. Materiality c. Conservatism _____ 1. This convention best enhances comparability of financial statements between years. _____ 2. A merger agreed on just after the balance sheet date nevertheless is reported in the notes to the financial statements. _____ 3. A company forgoes hiring another full-time accountant, which would add only slightly to the financial statements' accuracy. _____ 4. A company uses lower-of-cost-or-market to value inventory. _____ 5. A large company rounds its financial statement figures to the nearest $10,000. d. Full disclosure e. Cost-benefit

Use this balance sheet and income statement to answer the following question. Use ending balances whenever average balances are required for computing ratios. The debt to equity ratio for Abner Systems is

Using the following data, prepare a multistep income statement for Matthew's Dry Goods for the month ended February 28, 2010. Cost of Goods Sold \ 15,000 General and Administrative Expenses 4,000 Net Sales 25,000 Selling Expenses 3,500

Why is it important for a company to maintain the same accounting methods and practices from period to period?

A debt to equity ratio of 1.0 means that half of the company's assets are financed by creditors.

The accounting convention that is most responsible for the increase in the number of notes to financial statements is

Oil wells and coal mines used in the normal course of business would appear in which balance sheet section?

The two parts of a corporation's stockholders' equity section are contributed capital and retained earnings.

General and administrative expenses are a category of operating expense.

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

Sales returns and allowances are deducted from gross sales on the balance sheet.

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. The total amount of working capital for Layton Novelties is

Which of the following is not expressed in terms of a percentage?

The convention of consistency refers to consistent use of accounting principles

Another term for cost of goods sold is cost of sales.

Use this balance sheet and income statement to answer the following question. Use ending balances whenever average balances are required for computing ratios. The total amount of working capital for Abner Systems is

Which of the following is expressed in terms of a percentage?

The user can depend on the accuracy of financial information when which of the following qualitative characteristics has been followed?

State the definition of a current asset.