Question 1

Which of the following statements is false?

Accepted Answer

A) Gross profit percentage is calculated as gross profit divided by net sales. 
B) Gross profit should only be viewed for each reporting company and is not useful in comparing different companies in the same industry. 
C) Gross profit is calculated as net sales less cost of sales. 
D) A higher gross profit might be strategic in order to afford high research and development costs. 
A) Gross profit percentage is calculated as gross profit divided by net sales. 
B) Gross profit should only be viewed for each reporting company and is not useful in comparing different companies in the same industry. 
C) Gross profit is calculated as net sales less cost of sales. 
D) A higher gross profit might be strategic in order to afford high research and development costs.

Question 2

Where are shares of the reporting company's common stock issued in exchange for cash reported on a statement of cash flows?

Accepted Answer

A) Operating activities. 
B) Financing activities. 
C) Investing activities. 
D) Stockholder activities. 
A) Operating activities. 
B) Financing activities. 
C) Investing activities. 
D) Stockholder activities.

Question 3

Inventories are reported on the balance sheet as a current asset.

Accepted Answer

A) True 
 B)False

Question 4

The return on assets ratio is calculated by dividing income from continuing operations by average total assets.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements correctly describes the effect of accruing interest revenue at year-end?

Accepted Answer

A) Income from operations increases. 
B) The net profit margin ratio does not change. 
C) The total asset turnover ratio increases. 
D) The return on assets ratio is affecteD.The accrual of interest revenue increases both total assets and net income, which are the two components of return on assets. 
A) Income from operations increases. 
B) The net profit margin ratio does not change. 
C) The total asset turnover ratio increases. 
D) The return on assets ratio is affecteD.The accrual of interest revenue increases both total assets and net income, which are the two components of return on assets.

Question 6

External users of accounting information include decision makers such as investors, creditors, and financial analysts.

Accepted Answer

A) True 
 B)False

Question 7

Stockholders' equity, also called shareholders' equity, includes which of the following two accounts?

Accepted Answer

A) Common stock and Deferred revenue. 
B) Common stock and Retained earnings. 
C) Liabilities and Retained earnings. 
D) Retained earnings and Cash. 
A) Common stock and Deferred revenue. 
B) Common stock and Retained earnings. 
C) Liabilities and Retained earnings. 
D) Retained earnings and Cash.

Question 8

The Nellie Company has provided the following information: Operating expenses were $115,000;
Gross profit was $629,000;
Cost of goods sold was $470,000;
Interest expense was $17,000;
Income tax expense was $199,000.
What was Nellie's income before taxes?

Accepted Answer

A) $514,000. 
B) $612,000. 
C) $497,000. 
D) $298,000. 
A) $514,000. 
B) $612,000. 
C) $497,000. 
D) $298,000.

Question 9

Intangible assets are reported on the balance sheet as noncurrent assets and include goodwill.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is not true about the audit committee of the board of directors?

Accepted Answer

A) They meet with the auditors to discuss management's compliance with their financial reporting responsibilities. 
B) They ensure the accuracy and completeness of all reports provided to the Securities & Exchange Commission (SE
C) . 
C) They are responsible for ensuring that processes are in place for maintaining the integrity of the financial statement preparation and reporting. 
D) They are responsible for hiring the company's external auditors. 
A) They meet with the auditors to discuss management's compliance with their financial reporting responsibilities. 
B) They ensure the accuracy and completeness of all reports provided to the Securities & Exchange Commission (SE
C) . 
C) They are responsible for ensuring that processes are in place for maintaining the integrity of the financial statement preparation and reporting. 
D) They are responsible for hiring the company's external auditors.

Question 11

The Public Company Accounting Oversight Board (PCAOB) sets auditing standards for independent auditors.

Accepted Answer

A) True 
 B)False

Question 12

Examples of nonoperating items that would appear on an income statement are:

Accepted Answer

A) Interest income, depreciation expense, gain on sale of land. 
B) Income taxes, interest expense, loss on sale of investments. 
C) Interest expense, interest income, loss on sale of investments. 
D) Depreciation expense, interest income, interest expense. 
A) Interest income, depreciation expense, gain on sale of land. 
B) Income taxes, interest expense, loss on sale of investments. 
C) Interest expense, interest income, loss on sale of investments. 
D) Depreciation expense, interest income, interest expense.

Question 13

Which of the following is not included as a primary part of the financial disclosure in Form 10-K?

Accepted Answer

A) Financial data for a 5-year period. 
B) Management's opinion of the financial statements. 
C) Business operations and strategy. 
D) Four basic financial statements. 
A) Financial data for a 5-year period. 
B) Management's opinion of the financial statements. 
C) Business operations and strategy. 
D) Four basic financial statements.

Question 14

Ridgetop Corporation reported the following amounts on its balance sheet at December 31, 2016:   On January 1, 2016, total assets were $2,000,000, total liabilities were $1,200,000 and total stockholders' equity was $800,000.
Requirement:
Calculate Ridgetop's return on assets.

Accepted Answer

$100,000 ÷ ($2,000,0

Question 15

The form 10-Q contains an unaudited set of quarterly financial statements.

Accepted Answer

A) True 
 B)False

Question 16

Denmark Inc. is preparing a statement of stockholders' equity for 2016. On January 1, 2016, Denmark started the year with a $100,000 credit balance in its retained earnings account. During 2016, the company earned net income of $70,000 and declared dividends of $10,000. Also, the company received cash of $15,000 as an additional investment by its owners. What is the balance in retained earnings on December 31, 2016?

Accepted Answer

A) $100,000. 
B) $170,000. 
C) $175,000. 
D) $160,000. 
A) $100,000. 
B) $170,000. 
C) $175,000. 
D) $160,000.

Question 17

Determine the effect of the following transactions on the identified financial statement components and ratios. Code your answers as follows:
A: If the transaction results in an increase in the financial statement component or ratio.
B: If the transaction results in a decrease in the financial statement component or ratio.
C: If the transaction does not affect the financial statement component or ratio.
Transaction 1: A company acquired land by signing a long-term note payable.
Property, plant, and equipment _____
Total asset turnover ratio _____
Net profit margin ratio _____
Return on assets ratio _____
Transaction 2: Cash was used to pay a current liability.
Net income _____
Total asset turnover ratio _____
Net profit margin ratio _____
Return on assets ratio _____

Accepted Answer

Transaction 1: A company acquired land b

Question 18

Components of other comprehensive income can be reported in combination with the:

Accepted Answer

A) Balance sheet. 
B) Statement of cash flows. 
C) Statement of stockholders' equity. 
D) Income statement. 
A) Balance sheet. 
B) Statement of cash flows. 
C) Statement of stockholders' equity. 
D) Income statement.

Question 19

Which of the following transactions results in a decrease in the return on assets ratio?

Accepted Answer

A) Increasing the sales price of the products sold. 
B) An increase in the net profit margin ratio. 
C) Purchasing land by signing a long-term note payable. 
D) Collecting cash from an account receivable. 
A) Increasing the sales price of the products sold. 
B) An increase in the net profit margin ratio. 
C) Purchasing land by signing a long-term note payable. 
D) Collecting cash from an account receivable.

Question 20

Which of the following is true?

Accepted Answer

A) Income from operations would increase other income. 
B) Income before income taxes would be shown as a component of operating income on the income statement. 
C) Gains and losses on the sales of investments are included in nonoperating income (loss). 
D) Income tax expense is shown as part of operating expenses. 
A) Income from operations would increase other income. 
B) Income before income taxes would be shown as a component of operating income on the income statement. 
C) Gains and losses on the sales of investments are included in nonoperating income (loss). 
D) Income tax expense is shown as part of operating expenses.

Which of the following statements is false?

Where are shares of the reporting company's common stock issued in exchange for cash reported on a statement of cash flows?

Inventories are reported on the balance sheet as a current asset.

The return on assets ratio is calculated by dividing income from continuing operations by average total assets.

Which of the following statements correctly describes the effect of accruing interest revenue at year-end?

External users of accounting information include decision makers such as investors, creditors, and financial analysts.

Stockholders' equity, also called shareholders' equity, includes which of the following two accounts?

The Nellie Company has provided the following information: Operating expenses were $115,000; Gross profit was $629,000; Cost of goods sold was $470,000; Interest expense was $17,000; Income tax expense was $199,000. What was Nellie's income before taxes?

Intangible assets are reported on the balance sheet as noncurrent assets and include goodwill.

Which of the following is not true about the audit committee of the board of directors?

The Public Company Accounting Oversight Board (PCAOB) sets auditing standards for independent auditors.

Examples of nonoperating items that would appear on an income statement are:

Which of the following is not included as a primary part of the financial disclosure in Form 10-K?

Ridgetop Corporation reported the following amounts on its balance sheet at December 31, 2016: On January 1, 2016, total assets were $2,000,000, total liabilities were $1,200,000 and total stockholders' equity was $800,000. Requirement: Calculate Ridgetop's return on assets.

The form 10-Q contains an unaudited set of quarterly financial statements.

Components of other comprehensive income can be reported in combination with the:

Which of the following transactions results in a decrease in the return on assets ratio?

Which of the following is true?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments, Financial Statements, and the Quality of Earnings

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Bond Securities

Reporting and Interpreting Stockholders Equity

Statement of Cash Flows

Analyzing Financial Statements

PPA: Reporting and Interpreting Investments in Other Corporations

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Exam 5: Communicating and Interpreting Accounting Information

Which of the following statements is false?

Where are shares of the reporting company's common stock issued in exchange for cash reported on a statement of cash flows?

Inventories are reported on the balance sheet as a current asset.

The return on assets ratio is calculated by dividing income from continuing operations by average total assets.

Which of the following statements correctly describes the effect of accruing interest revenue at year-end?

External users of accounting information include decision makers such as investors, creditors, and financial analysts.

Stockholders' equity, also called shareholders' equity, includes which of the following two accounts?

The Nellie Company has provided the following information: Operating expenses were $115,000; Gross profit was $629,000; Cost of goods sold was $470,000; Interest expense was $17,000; Income tax expense was $199,000. What was Nellie's income before taxes?

Intangible assets are reported on the balance sheet as noncurrent assets and include goodwill.

Which of the following is not true about the audit committee of the board of directors?

The Public Company Accounting Oversight Board (PCAOB) sets auditing standards for independent auditors.

Examples of nonoperating items that would appear on an income statement are:

Which of the following is not included as a primary part of the financial disclosure in Form 10-K?

Ridgetop Corporation reported the following amounts on its balance sheet at December 31, 2016: On January 1, 2016, total assets were $2,000,000, total liabilities were $1,200,000 and total stockholders' equity was $800,000. Requirement: Calculate Ridgetop's return on assets.

The form 10-Q contains an unaudited set of quarterly financial statements.

Components of other comprehensive income can be reported in combination with the:

Which of the following transactions results in a decrease in the return on assets ratio?

Which of the following is true?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments, Financial Statements, and the Quality of Earnings

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Bond Securities

Reporting and Interpreting Stockholders Equity

Statement of Cash Flows

Analyzing Financial Statements

PPA: Reporting and Interpreting Investments in Other Corporations

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