Question 1

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_____
Asset turnover ratio_____
Net profit margin ratio_____
Return on assets ratio_____
Transaction 2:
 Cash was used to pay a current liability.
Net income_____
Asset turnover ratio_____
Net profit margin ratio_____
Return on assets ratio_____

Accepted Answer

The answer of Determine the effect of the following transactions...

Question 2

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

Accepted Answer

A)  Increasing the sales price of the products sold.
B)  An increase in the net profit margin ratio.
C)  Purchasing land by signing a long-term note payable.
D)  Collecting cash from an account receivable.E) B) and C)
F) C) and D)

Question 3

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_____

Accepted Answer

The answer of Determine the effect of the following transactions...

Question 4

Dakota Equipment,Inc issued 4,000 shares of its $1 par value common stock for $20 per share on January 1,2011.On the same day,the company purchased a piece of land costing $10,000 and a building costing $40,000.The yearly depreciation on the building is $2,000.
Required:
 Prepare the general journal entries to record the stock issue and the purchase of the land and building on January 1 and the depreciation expense on December 31,2011 (assuming that no adjusting entries were made during the year).

Accepted Answer

January 1, 2011
Cash (4,000 shares x $20)          80,000
Common Stock ($1 par value x 4,000 shares)     4,000
Paid-in Capital in Excess of Par Value - Common Stock     76,000
To record the issuance of 4,000 shares of $1 par value common stock at $20 per share.

Land                                  10,000
Building                              40,000
Cash                                  50,000
To record the purchase of land and building.

December 31, 2011
Depreciation Expense             2,000
Accumulated Depreciation - Building     2,000
To record the depreciation expense on the building for the year.

Question 5

Which of the following statements does not accurately describe the affect of the sale of inventory at a profit on the financial statements?

Accepted Answer

A)  Income from operations and current assets both increase.
B)  Operating income and gross profit both increase.
C)  Net income and earnings per share both increase.
D)  Current assets don't change and stockholders' equity increases.E) A) and D)
F) B) and D)

Question 6

Which of the following statements is false?

Accepted Answer

A)  The board of directors meets with the external auditors to discuss management's compliance with their financial reporting obligations.
B)  The external auditors are selected by the Securities & Exchange Commission (SE
C)  .
C)  The Securities & Exchange Commission (SE
C)   requires publically traded companies to have their financial statements audited by an independent accountant.
D)  The external auditors assume some responsibility with respect to the fairness of the financial statements.E) C) and D)
F) A) and B) B

Question 7

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 paid for research and development costs incurred to develop a patent.
Net income_____
Property,plant,and equipment_____
Stockholders' equity_____
Net profit margin ratio_____
Transaction 2:
 Inventory was purchased on account.
Net income_____
Current assets_____
Current liabilities_____
Return on assets ratio_____

Accepted Answer

The answer of Determine the effect of the following transactions...

Question 8

Which of the following statements is false?

Accepted Answer

A)  A decrease in the asset turnover ratio results in a decrease in the return on assets ratio.
B)  An increase in average total assets results in a decrease in both the asset turnover ratio and return on assets ratio.
C)  A decrease in the asset turnover ratio results in a decrease in the net profit margin ratio.
D)  An increase in the net profit margin ratio results in an increase in the return on assets ratio.E) A) and B)
F) All of the above

Question 9

Polk Company suffered a loss from earthquake damage at its plant in Nebraska.The loss meets the criteria for an extraordinary item.Where will the company present the extraordinary item on the income statement?

Accepted Answer

A)  As a component of income from continuing operations.
B)  As a component of gross profit.
C)  After income from continuing operations but before net income.
D)  Prior to income from continuing operations before taxes.E) A) and B)
F) All of the above

Question 10

The following information was taken from the income statement and balance sheet of The Mickey Company for the years 2010 and 2011:
 $$\begin{array} { l r r } 
& \underline { 2011 } & \underline { 2010 } \
\text { Sales revenues } & \$ 30,752 & \$ 27,061 \
\text { Net income } & 2,345 & 1,267 \
\text { Total assets } & 53,902 & 49,988 \
\text { Total stockholders' equity } & 26,081 & 23,791
\end{array}$$ Compute the following ratios for 2011:
 Net profit margin,Asset turnover,and Return on assets.

Accepted Answer

To compute the financial ratios for The Mickey Company for the year 2011, we will use the information provided from the income statement and balance sheet. The ratios we will calculate are the Net Profit Margin, Asset Turnover, and Return on Assets.1. Net Profit Margin:
The Net Profit Margin is calculated by dividing Net Income by Sales Revenues and then multiplying by 100 to get a percentage.
$$ \text{Net Profit Margin} = \left( \frac{\text{Net Income}}{\text{Sales Revenues}} \right) \times 100 $$
For 2011:
$$ \text{Net Profit Margin} = \left( \frac{2,345}{30,752} \right) \times 100 $$
$$ \text{Net Profit Margin} = (0.0762) \times 100 $$
$$ \text{Net Profit Margin} = 7.62\% $$
2. Asset Turnover:
The Asset Turnover ratio measures how efficiently a company uses its assets to generate sales and is calculated by dividing Sales Revenues by Total Assets.
$$ \text{Asset Turnover} = \frac{\text{Sales Revenues}}{\text{Total Assets}} $$
For 2011:
$$ \text{Asset Turnover} = \frac{30,752}{53,902} $$
$$ \text{Asset Turnover} = 0.5706 $$
3. Return on Assets (ROA):
The Return on Assets ratio indicates how profitable a company is relative to its total assets and is calculated by dividing Net Income by Total Assets.
$$ \text{Return on Assets} = \left( \frac{\text{Net Income}}{\text{Total Assets}} \right) \times 100 $$
For 2011:
$$ \text{Return on Assets} = \left( \frac{2,345}{53,902} \right) \times 100 $$
$$ \text{Return on Assets} = (0.0435) \times 100 $$
$$ \text{Return on Assets} = 4.35\% $$
In summary, for the year 2011, The Mickey Company had a Net Profit Margin of 7.62%, an Asset Turnover of 0.5706, and a Return on Assets of 4.35%.

Question 11

For financial information to be relevant it must be verifiable and accurate.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is correct?

Accepted Answer

A)  Income from operations increases when common stock is sold for more than par value.
B)  The accrual of research and development costs does not affect the net profit margin ratio.
C)  The payment of an accrued liability decreases asset turnover.
D)  The declaration and payment of a cash dividend increases the return on assets ratio.E) B) and C)
F) A) and D)

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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?

Accepted Answer

A)  12.0
B)  8.33
C)  .42
D)  2.4E) A) and B)
F) B) and C)

Question 15

A listing of a company's directors and officers is a financial statement disclosure.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements is false when a company sells inventory costing $700 for $1,200?

Accepted Answer

A)  Cost of goods sold increases $700.
B)  Gross profit increases $500.
C)  Stockholders' equity increases $500.
D)  Net sales increases $500.E) All of the above
F) C) and D)

Question 17

Centex,Inc.issued 50,000 shares of its $1 par value common stock for $20 per share.The journal entry to record the stock issue would include which of the following?

Accepted Answer

A)  A credit to cash for $1,000,000.
B)  A credit to additional paid-in capital for $1,000,000.
C)  A credit to additional paid-in capital for $50,000.
D)  A credit to common stock for $50,000.E) All of the above
F) A) and D)

Question 18

What account is credited when a corporation issues stock at an amount over the stock's par value?

Accepted Answer

A)  Gain on sale of stock
B)  Loss on sale of stock
C)  Additional paid- in capital
D)  Retained earningsE) All of the above
F) C) and D)

Question 19

Complete the following balance sheet by entering the appropriate amounts in the blanks provided.

Accepted Answer

The answer of Complete the following balance sheet by entering...

Question 20

Superior has provided the following information for its recent year of operation:
 The common stock account balance at the beginning of the year was $20,000 and the year-end balance was $25,000.
The additional paid-in capital account balance increased $2,500 during the year.
 The retained earnings balance at the beginning of the year was $75,000 and the year-end balance was $91,000.
Net income was $26,000.
How much did Superior sell its common stock for during the year?

Accepted Answer

A)  $5,000.
B)  $2,500.
C)  $7,500.
D)  $25,000.E) A) and B)
F) A) and C)

Exam 5: Communicating and Interpreting Accounting Information

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

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Which of the following statements does not accurately describe the affect of the sale of inventory at a profit on the financial statements?

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Which of the following statements is false?

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B

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Which of the following statements is false?

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Polk Company suffered a loss from earthquake damage at its plant in Nebraska.The loss meets the criteria for an extraordinary item.Where will the company present the extraordinary item on the income statement?

Correct Answer
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For financial information to be relevant it must be verifiable and accurate.

Correct Answer
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Which of the following statements is correct?

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

Correct Answer
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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?

Correct Answer
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A listing of a company's directors and officers is a financial statement disclosure.

Correct Answer
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Which of the following statements is false when a company sells inventory costing $700 for $1,200?

Correct Answer
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Centex,Inc.issued 50,000 shares of its $1 par value common stock for $20 per share.The journal entry to record the stock issue would include which of the following?

Correct Answer
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What account is credited when a corporation issues stock at an amount over the stock's par value?

Correct Answer
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Complete the following balance sheet by entering the appropriate amounts in the blanks provided.

Correct Answer
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Exam 5: Communicating and Interpreting Accounting Information

Correct AnswerverifiedShow Answer

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

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Which of the following statements does not accurately describe the affect of the sale of inventory at a profit on the financial statements?

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Which of the following statements is false?

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Which of the following statements is false?

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Polk Company suffered a loss from earthquake damage at its plant in Nebraska.The loss meets the criteria for an extraordinary item.Where will the company present the extraordinary item on the income statement?

Correct AnswerverifiedShow Answer

For financial information to be relevant it must be verifiable and accurate.

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

A listing of a company's directors and officers is a financial statement disclosure.

Correct AnswerverifiedShow Answer

Which of the following statements is false when a company sells inventory costing $700 for $1,200?

Correct AnswerverifiedShow Answer

Centex,Inc.issued 50,000 shares of its $1 par value common stock for $20 per share.The journal entry to record the stock issue would include which of the following?

Correct AnswerverifiedShow Answer

What account is credited when a corporation issues stock at an amount over the stock's par value?

Correct AnswerverifiedShow Answer

Complete the following balance sheet by entering the appropriate amounts in the blanks provided.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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B

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