1. A company sold equipment with a book value of $9,000 at a gain of $2,500. How much will be reported in the investing activities section of the statement of cash flows as cash received upon the sale of the equipment? a. The cash received upon the sale of the equipment was $6,500. b. The cash received upon the sale of the equipment was $13,000. c. The cash received upon the sale of the equipment was $11,500. d. The cash received upon the sale of the equipment was $2,500. 2. A company uses the direct method to prepare the statement of cash flows. It presents the following amounts on its December 31, 2009 financial statements. December 31, 2009 December 31, 2008 Accounts receivable $110,000 $100,000 Cost of goods sold 560,000 Sales revenue 830,000 Accounts payable* 75,000 67,000 Inventory 86,000 105,000 Salary payable 13,000 10,000 Salary expense 49,000 45,000 *Relates solely to the acquisition of inventory What will appear in the operating activities section related to inventory? a. The decrease of $19,000 will be subtracted from cost of goods sold to determine payments to suppliers. b. The decrease of $19,000 will be subtracted from net income. c. The decrease of $19,000 will be added to net income. d. The decrease of $19,000 will be added to cost of goods sold to determine payments to suppliers. 3. Which of the following is the definition of trend percentage analysis? a. Trend percentage analysis is the study of percentage changes in comparative financial statements. b. Trend percentage analysis is the analysis in which percentages are computed by selecting a base year as 100% and expressing amounts for following years as a percentage of the base amount. c. Trend percentage analysis is the analysis of a financial statement that reveals the relationship of each statement item to a specified base, which is the 100% figure. d. Trend percentage analysis is the practice of comparing a company with other companies that are leaders. 4. Which of the following types of analysis would reveal that sales increased by $20,000 from 2005 to 2006? a. Profitability analysis b. Horizontal analysis c. Capital analysis d. Vertical analysis 5. The following is a summary of information presented on the financial statements of The Cake Company on December 31, 2007. Account 2007 2006 Current assets $65,000 $50,000 Accounts receivable 80,000 75,000 Merchandise inventory 50,000 40,000 Current liabilities 75,000 50,000 Long-term liabilities 30,000 50,000 Common stock (2007: 5,000 shares; 2006: 4,000 shares) 50,000 40,000 Retained earnings 40,000 25,000 Net sales revenue $525,000 $500,000 Cost of goods sold 400,000 395,000 Gross profit 125,000 105,000 Selling and general expenses 45,000 50,000 Net income before income tax expense 80,000 55,000 Income tax expense 24,000 16,500 Net income $56,000 $38,500 What would a horizontal analysis report with respect to current liabilities? a. Horizontal analysis would report current liabilities as 38.46% of total capital. b. Horizontal analysis would report 33.33% increase in current liabilities. c. Horizontal analysis would report a 50.00% increase in current liabilities. d. Horizontal analysis would report a current ratio of .87. 6. The net income for a company was $630,000 last year and $540,000 this year. The percentage of increase or decrease was from last year to this year is: a. 7.14%. b. 14.29%. c. 16.67%. d. 8.33%. 7. Which of the following is generally the base amount when performing vertical analysis of an income statement? a. Gross profit b. Net sales c. Total expenses d. Gross sales 8. The following is a summary of information presented on the income statement of HR Flowers for December 31, 2007. Account 2007 2006 Net sales revenue $487,000 100.00% $500,000 Cost of goods sold 330,000 67.76% 395,000 Gross profit 157,000 32.24% 105,000 Selling and general expenses 70,000 14.37% 50,000 Net income before income tax expense 87,000 17.86% 55,000 Income tax expense 24,000 4.93% 16,500 Net income $ 63,000 12.94% $ 38,500 What would vertical analysis report with respect to 2007 selling and general expenses? a. Vertical analysis would report a 40.00% decrease in selling and general expenses. b. Vertical analysis would report selling and general expenses as 10.00% of net sales revenue. c. Vertical analysis would report selling and general expenses as 14.37% of net sales revenue. d. Vertical analysis would report a 40.00% increase in selling and general expenses. 9. What type of analysis is illustrated in the following table? Company A Industry Average Account 2007 -- % 2006 -- % Current assets 33.33% 30.30% Accounts receivable 41.03% 45.45% Merchandise inventory 25.64% 24.24% Total assets 100.00% 100.00% Current liabilities 38.46% 30.30% Long-term liabilities 15.38% 30.30% Common stock 25.64% 24.24% Retained earnings 20.51% 15.15% Total liabilities and stockholders' equity 100.00% 100.00% a. The table illustrates vertical analysis. b. The table illustrates benchmarking. c. The table illustrates a common-size balance sheet d. The table illustrates horizontal analysis. 10. The following is a summary of information presented on the income statements of Haley Publications and Johnston Publications for December 31, 2007. Haley Publications Johnston Publications Account 2007 % 2007 % Net sales revenue $487,000 100.00% $500,000 100.00% Cost of goods sold 400,000 82.14% 395,000 79.00% Gross profit 87,000 17.86% 105,000 21.00% Selling and general expenses 30,000 6.16% 50,000 10.00% Income from operations 57,000 11.70% 55,000 11.00% Income tax expense 17,100 3.51% 16,500 3.30% Net income $39,900 8.19% $38,500 7.70% Based on the information presented, what steps should Johnston take to improve its performance to match or exceed Haley's performance? a. Johnston should reduce its cost of goods sold as a percentage of net sales revenue. b. Johnston should reduce its selling and general expenses as a percentage of net sales revenue. c. Johnston should reduce its income tax expense as a percentage of net sales revenue. d. All of these actions would improve Johnston's performance. 11. Which of the following balance sheets displays only percentages? a. A common-size balance sheet b. A comparative balance sheet c. A report form balance sheet d. An account form balance sheet 12. What are the two main ways to analyze financial statements? a. Benchmarking and common-size analysis b. Common-size analysis and vertical analysis c. Horizontal analysis and vertical analysis d. Benchmarking and horizontal analysis 13. The price/earnings ratio indicates the: a. percentage of common stock financed by debt. b. market price of $1 of earnings. c. ability for a stock to be sold. d. dividend yield of the company. 14. The net sales for a company were $3,600,000; gross profit was $600,000; and net income was $260,000. The rate of return on net sales would be: a. 0.2389. b. 0.4333. c. 0.1667. d. 0.0722. 15. A company has cash, $85,000; temporary investments, $30,000; net receivables, $60,000; and inventory, $350,000. Current liabilities are $300,000. The current ratio is: a. 1.86. b. 0.58. c. 0.74. d. 1.75. 16. A company has net sales on account of $1,750,000. Net accounts receivable at the beginning of the year are $147,000 and at the end of the year are $153,000. The days' sales in average receivables is: a. 30.67. b. 31.28. c. 32.02. d. 365.0. Save