Exam 5: Financial Reporting and Analysis

Financial statements are often audited by management to increase confidence in the statements' reliability.

Which accounting convention requires a note to the financial statements explaining the company's method of revenue recognition?

A practical decision to expense small capital expenditures rather than record them as property, plant, and equipment and depreciate them probably is made on the basis of the convention of

Liabilities have which of the following two major categories?

Return on assets is a measure of liquidity.

The other revenues and expenses section of a multistep income statement could include all the following except

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. Current assets \ 30,000 Average owner's equity \ 60,000 Average total assets 120,000 Net sales 64,000 Current liabilities 20,000 Net income 3,000 Long-term liabilities 40,000 a. Current ratio b. Return on equity c. Return on assets d. Working capital

The following lettered items represent a classification scheme for a multistep income statement. In the blank next to each account, write the letter indicating to which category it belongs. a. Revenues b. Cost of goods sold c. Selling expenses d. General and administrative expenses e. Other revenues and expenses f. Not on income statement _____ 1. Depreciation Expense (for delivery truck) _____ 2. Dividend Income _____ 3. Cash _____ 4. Interest Income _____ 5. Prepaid Rent _____ 6. Rent Expense (for main office) _____ 7. Advertising Expense _____ 8. Personnel Expense _____ 9. Unearned Revenue _____ 10. Sales Discounts

Sean and Dylan Matthews are brothers who each own and operate sports memorabilia shops in neighboring towns. They decide to have a contest to see whose shop can be more profitable for the year. At year-end, Sean's records show sales of $105,000, cost of goods sold of $55,000, and operating expenses of $21,000. The records of Dylan's shop reveal sales of $108,000, cost of goods sold of $62,000, and operating expenses of $19,000. Dylan's shop also had other revenue of $3,000 received for allowing the shop to be used in taping a television show. Each brother claims to have won the contest. Provide explanations as to why each would think so, and then name the winner.

Asset turnover measures how efficiently assets are used to produce sales.

Use this information to answer the following question. The total dollar amount of assets to be classified as current assets is

An investment is classified as short term or long term based on

Which of the following is an actual account on the books?

According to the FASB, the usefulness of accounting is judged by which of the following two prime qualitative characteristics of accounting information?

Although a stapler that costs $10 is a long-term asset, can be expensed because the amount is immaterial and will not affect anyone's decision making.

Distinguish between cost of goods sold and operating expenses, describing the nature of these two items and their placement on a multistep income statement.

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 Net sales \ 80,000 Cost of goods sold 32,000 Gross margin \ 48,000 Operating expenses 26,400 Net income \2 1,600 The return on assets for Layton Novelties is

Operating expenses include cost of goods sold.

Both investors and creditors have an interest in a company's ability to generate favorable cash flows.

The convention of consistency relates most closely to