Question 1 2.5 / 2.5 points
Which of the following is an acceptable method to report total comprehensive income?
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?
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?
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?
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?
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?
Earnings before interest and taxes (EBIT)
Earnings before interest, taxes, depreciation and amortization (EBITDA)
Earnings before interest (EBI)
Question 7 2.5 / 2.5 points
How does the equity method distort earnings?
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?
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?
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?
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?
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.
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:
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?
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?
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.
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:
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?
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?
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?
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?
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?
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 22 2.5 / 2.5 points
What is implied if the accounts receivable account has increased?
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 24 2.5 / 2.5 points
Why is the statement of cash flows useful to the analyst?
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 26 0 / 2.5 points
Which are examples of cash outflows for investing activities?
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?
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?
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 30 2.5 / 2.5 points
What type of accounts are accounts receivable and accounts payable?
Question 31 2.5 / 2.5 points
Which item may be of concern when analyzing cash flow from operating activities?
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 33 2.5 / 2.5 points
Cash flow from operations represents the “__________” income from the company’s business operations.
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?
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?
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 37 2.5 / 2.5 points
If net cash provided or used by operating, financing and investing activities are added together, the result is:
the change in cash.
Question 38 2.5 / 2.5 points
Cash flows are segregated on a statement of cash flows by __________ activities, __________ activities, and __________ activities.
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:
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?
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
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