1. Manero Company included the following information in its annual report:

	20X3				20X2				20X1
Sales	$	178,400			$	162,500			$	155,500
Cost of goods sold		115,000				102,500				100,000
Operating expenses		50,000				50,000				45,000
Operating income		13,400				10,000				10,500

In a common-size income statement for 20X3, the operating expenses are expressed as

• 28.0%

• 30.3%

• 43.8%

• 100.0%

2. A change in accounting principle that is implemented in 20X1 with full retrospective effect will result in which of the following, as reported in the financial statements presented in the 20X1 annual report?

• Net income for 20X1 that is determined under the same accounting method as the 20X0 amount (in the 20X1 report).

• Net income for 20X0 that is likely different from the amount originally reported for 20X0.

• Financial statements in 20X1 as if the company had always used the new accounting method.

• All of these answers are correct.

3. In a trend balance sheet, each balance sheet item is expressed as a percentage of

Multiple Choice

• total assets.

• the base year item.

• sales.

• equity.

4. Manero Company included the following information in its annual report:

	20X3				20X2				20X1
Sales	$	178,400			$	162,500			$	155,500
Cost of goods sold		115,000				102,500				100,000
Operating expenses		50,000				50,000				45,000
Operating income		13,400				10,000				10,500

In comparison to year 20X2 the increase in operating income of 20X3 was primarily caused by (ignore taxes):

Multiple Choice

• the effect of sales growth.

• the effect of cost of goods sold growth.

• the effect of margin growth.

• the answer cannot be derived from the information provided.

5. Condensed financial data are presented below for the Phoenix Corporation:

	20X2				20X1
Accounts receivable	$	267,500			$	230,000
Inventory		312,500				257,500
Total current assets		670,000				565,000
Intangible assets		50,000				60,000
Total assets		825,000				695,000
Current liabilities		252,500				200,000
Long-term liabilities		77,500				75,000
Sales		1,640,000
Cost of goods sold		982,500
Interest expense		10,000
Income tax expense		77,500
Net income		127,500
Cash flow from operations		71,000
Cash flow from investing activities		(6,000	)
Cash flow from financing activities		(62,500	)
Tax rate		30	%

The total asset turnover ratio for 20X2 is (rounded):

Multiple Choice

• 1.7 times.

• 2.0 times.

• 2.2 times.

• 2.4 times