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Exam 4: Financial Reporting and Analysis

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Question 21

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Earnings per share,often called net income per share,is the net income earned on each share of common stock.

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Question 22

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Use this balance sheet and income statement for the first year of operations for Layton Novelties,Inc.to answer the following question.Use ending balances whenever average balances are required for computing ratios. $\begin{array}{c}\text {Abner Systems, Inc.}\\\text {Income Statement}\\\text {For the Year Ended December 31, 2010}\\\begin{array}{lr}\text { Net sales } & \$ 80,000 \\\text { Costs of goods sold } & \underline{32,000} \\\text { Gross margin } & \$ 48,000 \\\text { Operating expenses } & \underline{12,000}\\\text { Income before income taxes }&\$36,000 \\\text { Income taxes }& \underline{14,400}\\ \text {Net income } & \$21,600 \end{array}\end{array}$ The current ratio for Layton Novelties is

A) 1.75.
B) .57.
C) 1.4.
D) 2.0.

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Question 23

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Natural resources,such as coal mines and oil wells,are classified as intangible assets.

Contributed capital is shown on a corporate balance sheet as two amounts: the par value of the issued stock and additional paid-in capital.

Who is responsible for preparing financial statements?

Oil wells and coal mines used in the normal course of business would appear in which section of the balance sheet?

Gross margin equals the difference between net sales and

A company with a low debt to equity ratio is in a more vulnerable position during poor economic times than a company with a high debt to equity ratio.

Positive operating income will result if gross margin exceeds

The two parts of a corporation's stockholders' equity section are contributed capital and retained earnings.

Use the following information to calculate the liquidity and profitability ratios listed below.Round to two decimal places. $\begin{array} { l r l r } \text { Average stockholders' equity } & 9,250 & \text { Net income } & 1,500 \\\text { Average total as5ets } & 18,000 & \text { Net sales } & 15,625 \\\text { Curent as5ets } & 11,250 & \text { Tatal liabilities } & 8,750 \\\text { Current liabilities } & 7,500 &\end{array}$ a. Current ratio b. Working capital c. Return on equity d. Profit margin e. Debt to equity f. Return on assets g. Asset turnover

Use this balance sheet and income statement for the first year of operations for Layton Novelties,Inc.to answer the following question.Use ending balances whenever average balances are required for computing ratios. $\begin{array}{c}\text {Abner Systems, Inc.}\\\text {Income Statement}\\\text {For the Year Ended December 31, 2010}\\\begin{array}{lr}\text { Net sales } & \$ 80,000 \\\text { Costs of goods sold } & \underline{32,000} \\\text { Gross margin } & \$ 48,000 \\\text { Operating expenses } & \underline{12,000}\\\text { Income before income taxes }&\$36,000 \\\text { Income taxes }& \underline{14,400}\\ \text {Net income } & \$21,600 \end{array}\end{array}$ The return on assets for Layton Novelties is

Even when no errors have been made,accounting is never 100 percent accurate because of the extensive use of estimates.

The income statement of a company that provides a service only will contain gross margin.

The term net worth is a more accurate term than owner's equity because assets are recorded at original cost rather than at current value.

Which of the following appears on the balance sheet?

In accounting,$1,000 is considered the dividing line between material and immaterial amounts.

Use this balance sheet and income statement to answer the following question.Use ending balances whenever average balances are required for computing ratios. $\begin{array}{c}\text {Abner Systems, Inc.}\\\text {Income Statement}\\\text {For the Year Ended December 31, 2010}\\\begin{array}{lr}\text { Net sales } & \$ 24,000 \\\text { Costs of goods sold } & \underline{8,000} \\\text { Gross margin } & \$ 16,000 \\\text { Operating expenses } & \underline{8,000}\\\text { Income before income taxes }&\$8,000 \\\text { Income taxes }& \underline{3,200}\\ \text {Net income } & \$4,800 \end{array}\end{array}$ The asset turnover for Abner Systems is

Use this balance sheet and income statement to answer the following question.Use ending balances whenever average balances are required for computing ratios. $\begin{array}{c}\text {Abner Systems, Inc.}\\\text {Income Statement}\\\text {For the Year Ended December 31, 2010}\\\begin{array}{lr}\text { Net sales } & \$ 24,000 \\\text { Costs of goods sold } & \underline{8,000} \\\text { Gross margin } & \$ 16,000 \\\text { Operating expenses } & \underline{8,000}\\\text { Income before income taxes }&\$8,000 \\\text { Income taxes }& \underline{3,200}\\ \text {Net income } & \$4,800 \end{array}\end{array}$ The return on assets for Abner Systems is

Consistency in accounting means that a company uses the same generally accepted accounting principles from one accounting period to the next accounting period.