Question 1 2.5 / 2.5 points

Which of the following is an acceptable method to report total comprehensive income?

Question options:

On the face of the balance sheet

Total comprehensive income does not have to be reported

In the operating section of the cash flow statement

In the statement of stockholders’ equity

Question 2 2.5 / 2.5 points

Which items below would be classified as operating expenses?

Question options:

Depreciation, capital leases, and operating profit

Interest expense, interest income, and rent expense

Accounts payable, lease payments, and depreciation

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:

The overall gross profit margin should be calculated for all revenue sources.

Gross profit margin cannot be analyzed if a firm has multiple revenue sources.

A separate gross profit margin for each revenue source should be calculated.

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:

Assets = liabilities + stockholders’ equity

Cash in – cash out = net income

Revenues – expenses = net income

Beginning retained earnings + revenues – expenses = ending retained earnings

Question 5 2.5 / 2.5 points

How is earnings per common share calculated?

Question options:

Operating profit divided by the average number of common stock shares outstanding

Net profit divided by the average number of common and preferred stock shares outstanding

Operating profit divided by the average number of repurchased common stock shares

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:

Earnings before interest and taxes (EBIT)

Earnings before interest, taxes, depreciation and amortization (EBITDA)

Net profit

Earnings before interest (EBI)

Question 7 2.5 / 2.5 points

How does the equity method distort earnings?

Question options:

Income is recognized even though cash may never be received.

Equity earnings are recorded even if the investor cannot exercise influence over the investee’s policies.

Equity earnings are only recorded on a cash basis of accounting.

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:

Only service companies report both cost of goods sold and gross profit.

Cost of goods sold is the largest expense item for many firms.

Cost of goods sold is not affected by the choice of inventory valuation method.

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:

Salaries, insurance, and interest

Salaries, rent, and advertising

Rent, interest, and cost of goods

Advertising, research & development, and amortization

Question 10 2.5 / 2.5 points

Why is it important to assess operating profit?

Question options:

Operating profit represents the firm’s profits after consideration of all revenues, expenses and comprehensive income.

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.

Operating profit represents the firm’s profits after consideration of all revenues and expenses.

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:

The common-size income statement shows the relative magnitude of revenues and expenses to total assets.

The common-size income statement allows the analyst to compare the firm to itself from year-to-year, but not to its competitors.

The common-size income statement shows the relative magnitude of revenues and expenses relative to profits.

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:

50.0%, 32.5%, and 22.5% respectively.

29.2%, 12.5%, and 10.0%, respectively.

27.0%, 11.0%, and 10.5%, respectively.

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:

If cost of goods sold includes fixed costs which do not vary proportionately with volume changes

In industries with little capital

In industries having no fixed costs

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:

The firm has expenses that are not deductible for tax purposes.

Tax rates in foreign countries where the firm operates are higher.

Tax rates in foreign countries where the firm operates are lower.

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:

15.5% and 10.0%.

20.0% and 35.0%.

25.8% and 35.4%.

31.4% and 36.8%.

Question 16 2.5 / 2.5 points

Of what value is the calculation of gross profit margin?

Question options:

The gross profit margin helps the analyst assess the capital structure of the firm.

The gross profit margin allows the analyst to determine if the firm has been affected by inflation.

The gross profit margin indicates the profitability of a firm after considering all operating expenses.

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:

It is important to analyze operating expenses over which management exercises discretion and that have considerable impact on the firm’s profitability.

Impairment charges do not need to be analyzed since they are generally a non-recurring expense.

Operating expenses should be tracked in terms of trends, absolute amounts, relationship to sales, and relationship to industry competitors.

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:

Each revenue source should be reported separately, but all cost of goods sold should be added together and reported as a single amount.

The revenues and cost of goods sold should be netted together and reported as a single line item.

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.

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:

Reasons for retained earnings increases or decreases

A reconciliation of beginning to ending cash

The market value of the firm’s common stock

Assets = Liabilities + Stockholders’ Equity

Question 20 2.5 / 2.5 points

How is a common-size income statement prepared?

Question options:

Each income statement item is expressed as a percentage of total assets.

Each income statement item is expressed as a percentage of net sales.

Each income statement item is expressed as a percentage of net income.

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:

$195

$310

$210

$290

Question 22 2.5 / 2.5 points

What is implied if the accounts receivable account has increased?

Question options:

Cash flow from operating activities is greater relative to net income.

Cash flow from operating activities is less relative to net income.

The firm’s sales have increased relative to the prior year.

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:

Usual  (Incorrect)

unusual

customary

common

Question 24 2.5 / 2.5 points

Why is the statement of cash flows useful to the analyst?

Question options:

It is an additional source in financial statements for learning about cash generation.

Focusing on net income can be misleading if a company has a healthy profit, but cannot translate the profit into cash.

The statement of cash flows reveals why a company was able to generate a profit.

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:

profit

income summary

balance sheet

losses

Question 26 0 / 2.5 points

Which are examples of cash outflows for investing activities?

Question options:

Short-lived assets, purchases of securities, and loans to others (Incorrect)

Short-lived assets, sales of securities, and loans to others.

Long-lived assets, sales of securities, and loans to others.

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:

Payments for purchases of inventories, supplies, financing expenses, interest. and taxes

Payments for sales of inventories, supplies, investing expenses, interest. and taxes

Payments for purchases of inventories, supplies, operating expenses, interest. and taxes

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:

Depreciation results in an increase to cash.

Depreciation results in a decrease to cash.

Depreciation has no impact on the cash account.

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)

investing

operating

marketing

Question 30 2.5 / 2.5 points

What type of accounts are accounts receivable and accounts payable?

Question options:

Cash accounts

Operating accounts

Financing accounts

Investing accounts

Question 31 2.5 / 2.5 points

Which item may be of concern when analyzing cash flow from operating activities?

Question options:

Increasing inventories

Decreasing accounts receivable

Repayment of debt

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:

operations.

financing.

speculating.

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

realized

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:

The indirect method begins with net income and adds and subtracts adjustments to obtain cash flow from operating activities.

The direct method adjusts for deferrals and accruals.

Depreciation will be subtracted from net income.

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:

Purchases of long-lived assets, sales of securities, and returns from loans to others

Sales of long-lived assets, purchases of securities, and returns from loans to others

Sales of long-lived assets, sales of securities, and returns from loans to others

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

financing

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:

net income.

the change in cash.

cash outflow.

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

operating; investing; future

cash; investing; future

operating; investing; financing

Question 39 0 / 2.5 points

The four parts of a statement of cash flows include:

Question options:

operating, profit, and income activities.

operating, cost, and income activities.  (Incorrect)

financing, profit, and expenditure activities.

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:

Sale of property, purchase of equity securities, and loans to others

Sale of goods, receipt of dividends, and repurchase of firm’s own stock

Proceeds from borrowing, payment of dividends, and receipt of dividends

Payment to lenders, proceeds from issuing common stock, and revenue