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Exam 5: Communicating and Interpreting Accounting Information

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Question 1

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Twin Lakes, Inc. reported the following December 31 amounts in its financial statements: $\begin{array} { | l | r | r | } \hline & \mathbf { 2 0 1 5 } & \mathbf { 2 0 1 4 } \\\hline \text { Sales revenue } & \mathbf { \$ 2 5 0 . 0 } & \mathbf { \$ 2 1 0 . 0 } \\\hline \text { Gross profit } & 75.0 & 68.0 \\\hline \text { Net income } & 28.0 & 21.0 \\\hline \text { Total assets } & 90.0 & 80.0 \\\hline \text { Total stockholders' equity } & 40.0 & 36.0 \\\hline\end{array}$ Compute the following for the 2015: A. Gross profit percentage B. Net profit margin C. Asset turnover D. Return on assets

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A. ($75.0 ÷ $250.0) = .30 or 3...

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Intangible assets have no physical existence and no life.

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B) False

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Determine the effect of the following transactions on the financial statements components identified. 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 sold inventory for an amount greater than its cost. Gross profit_____ Current assets_____ Stockholders' equity_____ Transaction 2: Advertising expense was recorded but has yet to be paid for. Net income_____ Gross Profit_____ Stockholders' equity_____

Describe the return on assets ratio and the DuPont approach for calculating return on assets.

The following information was taken from the income statement and balance sheet of The Mickey Company for the years 2014 and 2015: $\begin{array} { | l | r | r | } \hline & \mathbf { 2 0 1 5 } & \mathbf { 2 0 1 4 } \\\hline \text { Sales revenues } & \mathbf { \$ 3 0 , 7 5 2 } & \mathbf { \$ 2 7 , 0 6 1 } \\\hline \text { Net income } & 2,345 & 1,267 \\\hline \text { Total assets } & 53,902 & 49,988 \\\hline \text { Total stockholders' equity } & 26,081 & 23,791 \\\hline\end{array}$ Compute the following ratios for 2015: A. Net profit margin B. Asset turnover C. and Return on assets

Which of the following are the criteria used to determine whether an item is extraordinary?

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

The Securities & Exchange Commission (SEC) oversees the work of the Financial Accounting Standards Board (FASB).

A company has paid cash to repurchase its common stock that was previously issued. Where will this cash flow be reported on the statement of cash flows?

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

Marino Company has provided the following information: Net sales, $480,000 Net income, $24,000 Average total assets, $200,000 What is Marino's asset turnover ratio?

Discontinued operations and extraordinary items are reported on the income statement as a component of income from continuing operations.

Independent auditors are advisors who analyze financial statements and other economic information to formulate forecasts and stock recommendations.

The Callie Company has provided the following information: Operating expenses were $231,000; Cost of goods sold was $376,000; Net sales were $940,000; Interest expense was $32,000; Gain on sale of a building was $76,000; Income tax expense was $151,000. What was Callie's income before taxes?

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; Extraordinary loss was $29,000; Income tax expense was $199,000. What was Nellie's operating income?

The essence of nonrecurring items on an income statement is that they are not useful in predicting the future income of the reporting company.

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

The Willie Company has provided the following information: Operating expenses were $345,000; Income from operations was $215,000; Net sales were $1,100,000; Interest expense was $71,000; Discontinued operations loss was $87,000; Income tax expense was $58,000. What was Willie's income before taxes?

The gross profit percentage is calculated by dividing net sales by gross profit

Which of the following statements is false?