| Question 1 | 2.5 / 2.5 points |
Which of the following is an acceptable method to report total comprehensive income?
Question options:
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| On the face of the balance sheet | ||
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| Total comprehensive income does not have to be reported | ||
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| In the operating section of the cash flow statement | ||
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| In the statement of stockholders' equity | ||
| Question 2 | 2.5 / 2.5 points | ||
Which items below would be classified as operating expenses?
Question options:
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| Depreciation, capital leases, and operating profit | ||
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| Interest expense, interest income, and rent expense | ||
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| Accounts payable, lease payments, and depreciation | ||
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| Advertising, selling and administrative, and repairs and maintenance | ||
| Question 3 | 2.5 / 2.5 points | ||
How should gross profit margin be analyzed for firms having more than one revenue source?
Question options:
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| The overall gross profit margin should be calculated for all revenue sources. | ||
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| Gross profit margin cannot be analyzed if a firm has multiple revenue sources. | ||
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| A separate gross profit margin for each revenue source should be calculated. | ||
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| The gross profit margins from each revenue source should be calculated and then averaged. | ||
| Question 4 | 2.5 / 2.5 points | ||
Which equation represents an income statement?
Question options:
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| Assets = liabilities + stockholders' equity | ||
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| Cash in – cash out = net income | ||
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| Revenues - expenses = net income | ||
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| Beginning retained earnings + revenues – expenses = ending retained earnings | ||
| Question 5 | 2.5 / 2.5 points | ||
How is earnings per common share calculated?
Question options:
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| Operating profit divided by the average number of common stock shares outstanding | ||
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| Net profit divided by the average number of common and preferred stock shares outstanding | ||
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| Operating profit divided by the average number of repurchased common stock shares | ||
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| Net profit divided by the average number of common stock shares outstanding | ||
| Question 6 | 2.5 / 2.5 points | ||
What is another term frequently used when referring to operating profit?
Question options:
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| Earnings before interest and taxes (EBIT) | ||
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| Earnings before interest, taxes, depreciation and amortization (EBITDA) | ||
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| Net profit | ||
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| Earnings before interest (EBI) | ||
| Question 7 | 2.5 / 2.5 points | ||
How does the equity method distort earnings?
Question options:
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| Income is recognized even though cash may never be received. | ||
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| Equity earnings are recorded even if the investor cannot exercise influence over the investee's policies. | ||
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| Equity earnings are only recorded on a cash basis of accounting. | ||
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| Equity earnings are recorded when investment ownership is 100%. | ||
| Question 8 | 2.5 / 2.5 points | ||
Which of the following statements is true?
Question options:
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| Only service companies report both cost of goods sold and gross profit. | ||
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| Cost of goods sold is the largest expense item for many firms. | ||
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| Cost of goods sold is not affected by the choice of inventory valuation method. | ||
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| Cost of goods sold equals gross profit. | ||
| Question 9 | 2.5 / 2.5 points | ||
Selling and administrative expenses include which of the following income statement items?
Question options:
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| Salaries, insurance, and interest | ||
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| Salaries, rent, and advertising | ||
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| Rent, interest, and cost of goods | ||
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| Advertising, research & development, and amortization | ||
| Question 10 | 2.5 / 2.5 points | ||
Why is it important to assess operating profit?
Question options:
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| Operating profit represents the firm's profits after consideration of all revenues, expenses and comprehensive income. | ||
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| The figure for operating profit provides a basis for assessing the success of the firm apart from its financing and investing activities and separate from tax considerations. | ||
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| Operating profit represents the firm's profits after consideration of all revenues and expenses. | ||
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| Operating profit represents the firm's profits after consideration of all revenues and expenses, except for taxes. | ||
| Question 11 | 2.5 / 2.5 points | ||
Why is the common-size income statement valuable to the analyst?
Question options:
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| The common-size income statement shows the relative magnitude of revenues and expenses to total assets. | ||
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| The common-size income statement allows the analyst to compare the firm to itself from year-to-year, but not to its competitors. | ||
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| The common-size income statement shows the relative magnitude of revenues and expenses relative to profits. | ||
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| The common-size income statement shows the relative magnitude of expenses relative to net sales. | ||
| Question 12 | 2.5 / 2.5 points | ||
Use the following information for Jett Co. to answer the next question.
| 2015 | 2014 | |
| Sales | 1,200 | 1,000 |
| COGS | 850 | 700 |
| Operating expenses | 200 | 200 |
| Income taxes | 30 | 35 |
Jett Co.'s gross profit, operating profit and net profit margins for 2015 are:
Question options:
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| 50.0%, 32.5%, and 22.5% respectively. | ||
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| 29.2%, 12.5%, and 10.0%, respectively. | ||
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| 27.0%, 11.0%, and 10.5%, respectively. | ||
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| 21.5%, 17.5%, and 12.0%, respectively. | ||
| Question 13 | 2.5 / 2.5 points | ||
When will volume changes cause volatility in the gross profit margin?
Question options:
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| If cost of goods sold includes fixed costs which do not vary proportionately with volume changes | ||
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| In industries with little capital | ||
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| In industries having no fixed costs | ||
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| If cost of goods sold includes costs that vary proportionately with volume changes | ||
| Question 14 | 2.5 / 2.5 points | ||
How is it possible for a U.S. firm to have increasing earnings but a lower effective tax rate?
Question options:
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| The firm has expenses that are not deductible for tax purposes. | ||
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| Tax rates in foreign countries where the firm operates are higher. | ||
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| Tax rates in foreign countries where the firm operates are lower. | ||
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| It is not possible for a firm to have an effective tax rate different from the U.S. federal statutory tax rate. | ||
| Question 15 | 2.5 / 2.5 points | ||
Use the following information for Jett Co. to answer the next question.
| 2015 | 2014 | |
| Sales | 1,200 | 1,000 |
| COGS | 850 | 700 |
| Operating expenses | 200 | 200 |
| Income taxes | 30 | 35 |
Jett Co.'s average tax rates for 2015 and 2014 are:
Question options:
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| 15.5% and 10.0%. | ||
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| 20.0% and 35.0%. | ||
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| 25.8% and 35.4%. | ||
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| 31.4% and 36.8%. | ||
| Question 16 | 2.5 / 2.5 points | ||
Of what value is the calculation of gross profit margin?
Question options:
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| The gross profit margin helps the analyst assess the capital structure of the firm. | ||
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| The gross profit margin allows the analyst to determine if the firm has been affected by inflation. | ||
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| The gross profit margin indicates the profitability of a firm after considering all operating expenses. | ||
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| The gross profit margin is the first step of profit measurement indicating how much profit the firm generates after deducting cost of goods sold. | ||
| Question 17 | 2.5 / 2.5 points | ||
Which of the following statements is false?
Question options:
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| It is important to analyze operating expenses over which management exercises discretion and that have considerable impact on the firm's profitability. | ||
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| Impairment charges do not need to be analyzed since they are generally a non-recurring expense. | ||
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| Operating expenses should be tracked in terms of trends, absolute amounts, relationship to sales, and relationship to industry competitors. | ||
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| Operating expenses can be easily analyzed by preparing a common-size income statement. | ||
| Question 18 | 2.5 / 2.5 points | ||
How should companies with more than one revenue source report revenue and cost of goods sold?
Question options:
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| Each revenue source should be reported separately, but all cost of goods sold should be added together and reported as a single amount. | ||
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| The revenues and cost of goods sold should be netted together and reported as a single line item. | ||
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| All revenue sources should be added together and shown as one line item and all cost of goods sold should be added together and shown as one line item. | ||
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| Each revenue line should be shown separately with a corresponding cost of goods sold line for each revenue source. | ||
| Question 19 | 2.5 / 2.5 points | ||
Which of the following items could be found on a statement of shareholders' equity?
Question options:
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| Reasons for retained earnings increases or decreases | ||
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| A reconciliation of beginning to ending cash | ||
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| The market value of the firm's common stock | ||
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| Assets = Liabilities + Stockholders' Equity | ||
| Question 20 | 2.5 / 2.5 points | ||
How is a common-size income statement prepared?
Question options:
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| Each income statement item is expressed as a percentage of total assets. |
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| Each income statement item is expressed as a percentage of net sales. |
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| Each income statement item is expressed as a percentage of net income. |
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| Each income statement item is expressed as a percentage of cash flow. |
| Lesson 5 Exam | |
| Question 21 | 2.5 / 2.5 points |
Use the indirect method to answer the question below. The following information is available for Casey Company:
| Net income | $200 | Increase in plant and equip. | $90 |
| Depreciation expense | 50 | Payment of dividends | 25 |
| Increase in accts. receiv. | 30 | Increase in long-term debt | 100 |
| Decrease in inventories | 10 | Decrease in accounts payable | 20 |
What is cash flow from operating activities for Casey Company?
Question options:
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| $195 | ||
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| $310 | ||
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| $210 | ||
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| $290 | ||
| Question 22 | 2.5 / 2.5 points | ||
What is implied if the accounts receivable account has increased?
Question options:
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| Cash flow from operating activities is greater relative to net income. | ||
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| Cash flow from operating activities is less relative to net income. | ||
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| The firm's sales have increased relative to the prior year. | ||
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| Nothing can be implied from this information because the type of accounts receivables must first be determined. | ||
| Question 23 | 0 / 2.5 points | ||
Capital expenditures are a(n) __________ use of cash for firms.
Question options:
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| Usual (Incorrect) | ||
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| unusual | ||
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| customary | ||
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| common | ||
| Question 24 | 2.5 / 2.5 points | ||
Why is the statement of cash flows useful to the analyst?
Question options:
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| It is an additional source in financial statements for learning about cash generation. | ||
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| Focusing on net income can be misleading if a company has a healthy profit, but cannot translate the profit into cash. | ||
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| The statement of cash flows reveals why a company was able to generate a profit. | ||
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| The balance sheet is the only source in financial statements for learning about cash generation. | ||
| Question 25 | 2.5 / 2.5 points | ||
The statement of cash flows shows the changes in the __________ accounts between periods.
Question options:
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| profit | ||
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| income summary | ||
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| balance sheet | ||
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| losses | ||
| Question 26 | 0 / 2.5 points | ||
Which are examples of cash outflows for investing activities?
Question options:
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| Short-lived assets, purchases of securities, and loans to others (Incorrect) | ||
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| Short-lived assets, sales of securities, and loans to others. | ||
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| Long-lived assets, sales of securities, and loans to others. | ||
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| Long-lived assets, purchases of securities, and loans to others. | ||
| Question 27 | 2.5 / 2.5 points | ||
Which are examples of cash outflows for operating activities?
Question options:
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| Payments for purchases of inventories, supplies, financing expenses, interest. and taxes | ||
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| Payments for sales of inventories, supplies, investing expenses, interest. and taxes | ||
|
| Payments for purchases of inventories, supplies, operating expenses, interest. and taxes | ||
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| Payments for sales of inventories, supplies, operating expenses, interest. and taxes | ||
| Question 28 | 2.5 / 2.5 points | ||
What impact does depreciation have on the cash account?
Question options:
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| Depreciation results in an increase to cash. | ||
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| Depreciation results in a decrease to cash. | ||
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| Depreciation has no impact on the cash account. | ||
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| Depreciation only impacts the cash account if inflation has occurred. | ||
| Question 29 | 0 / 2.5 points | ||
Payments for purchases of inventory, dividends, and acquisitions are all examples of __________ cash flows.
Question options:
|
| Financing (Incorrect) | ||
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| investing | ||
|
| operating | ||
|
| marketing | ||
| Question 30 | 2.5 / 2.5 points | ||
What type of accounts are accounts receivable and accounts payable?
Question options:
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| Cash accounts | ||
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| Operating accounts | ||
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| Financing accounts | ||
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| Investing accounts | ||
| Question 31 | 2.5 / 2.5 points | ||
Which item may be of concern when analyzing cash flow from operating activities?
Question options:
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| Increasing inventories | ||
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| Decreasing accounts receivable | ||
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| Repayment of debt | ||
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| Payments of dividends | ||
| Question 32 | 2.5 / 2.5 points | ||
Temporary shortfalls of cash can be satisfied by borrowing or other means, such as selling long-lived assets, but ultimately a company must generate cash from:
Question options:
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| operations. | ||
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| financing. | ||
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| speculating. | ||
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| investments. | ||
| Question 33 | 2.5 / 2.5 points | ||
Cash flow from operations represents the "__________" income from the company's business operations.
Question options:
|
| cash | ||
|
| potential | ||
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| realized | ||
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| receivables | ||
| Question 34 | 2.5 / 2.5 points | ||
How would you know if a statement of cash flows had been prepared using the direct or the indirect method?
Question options:
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| The indirect method begins with net income and adds and subtracts adjustments to obtain cash flow from operating activities. | ||
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| The direct method adjusts for deferrals and accruals. | ||
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| Depreciation will be subtracted from net income. | ||
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| The direct method starts with cash flow from operating activities and adds and subtracts adjustments to obtain net income. | ||
| Question 35 | 2.5 / 2.5 points | ||
Which are examples of cash inflows for investing activities?
Question options:
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| Purchases of long-lived assets, sales of securities, and returns from loans to others | ||
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| Sales of long-lived assets, purchases of securities, and returns from loans to others | ||
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| Sales of long-lived assets, sales of securities, and returns from loans to others | ||
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| Purchases of long-lived assets, purchases of securities, and returns from loans to others | ||
| Question 36 | 0 / 2.5 points | ||
Generating cash from __________ activities is the preferred method for obtaining excess cash.
Question options:
|
| operating | ||
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| financing | ||
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| investing | ||
|
| sales | ||
| Question 37 | 2.5 / 2.5 points | ||
If net cash provided or used by operating, financing and investing activities are added together, the result is:
Question options:
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| net income. | ||
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| the change in cash. | ||
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| cash outflow. | ||
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| cash inflow. | ||
| Question 38 | 2.5 / 2.5 points | ||
Cash flows are segregated on a statement of cash flows by __________ activities, __________ activities, and __________ activities.
Question options:
|
| cash; investing; financing | ||
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| operating; investing; future | ||
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| cash; investing; future | ||
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| operating; investing; financing | ||
| Question 39 | 0 / 2.5 points | ||
The four parts of a statement of cash flows include:
Question options:
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| operating, profit, and income activities. | ||
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| operating, cost, and income activities. (Incorrect) | ||
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| financing, profit, and expenditure activities. | ||
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| operating, profit, and expenditure activities. | ||
| Question 40 | 2.5 / 2.5 points | ||
Which of the following items would be classified as investing activities on the statement of cash flows?
Question options:
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| Sale of property, purchase of equity securities, and loans to others |
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| Sale of goods, receipt of dividends, and repurchase of firm's own stock |
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| Proceeds from borrowing, payment of dividends, and receipt of dividends |
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| Payment to lenders, proceeds from issuing common stock, and revenue |
