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Exam 5: Communicating and Interpreting Accounting Information

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Question 21

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

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.

E) C) and D)
F) A) and B)

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Question 22

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Which of the following statements is false?

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.

E) None of the above
F) B) and C)

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Question 23

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

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

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

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?

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

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

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.

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

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

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

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

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?

Which of the following is true?

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

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

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

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 _____