Deck 17: Company Performance: Profitability

Question 1

The gain resulting from a company selling off a component of its business is reported on the company's income statement as:

A)an extraordinary item
B)discontinued operations
C)a prior period adjustment
D)a cumulative accounting adjustment

Answer 1

discontinued operations

Question 2

Product line income reports:

A)are a type of current cost income statement
B)show the costs of each division on a full-costing basis
C)make it more difficult to evaluate the performance of a division manager
D)include only those costs controlled by a given product-line or division manager

Answer 2

include only those costs controlled by a given product-line or division manager

Question 3

Under throughput costing,

A)companies can increase income by increasing the number of units produced
B)all product and period costs are included in cost of goods sold
C)only costs that vary per unit are included in cost of goods sold
D)only direct material costs are included in cost of goods sold

Answer 3

only direct material costs are included in cost of goods sold

Question 4

A loss on the sale of equipment would be included in which element of net income:

A)operating income
B)prior period adjustments
C)nonoperating section
D)net of tax item

Question 5

The income from operations of a discontinued division would be included in which section of the income statement:

A)Income from operations
B)prior period adjustments
C)Net of tax item
D)Nonoperating section of income statement

Question 6

Which of the following statements is false about earnings per share:

A)is a required disclosure on the face of the income statement
B)is a common size measure of a company's earnings performance
C)is the amount that each stockholder will receive as dividends that period
D)reflects the amount of a company's earnings belonging to each shareholder on a per share basis

Question 7

For the year ended December 31,2010,Running,Inc.had a pre-tax extraordinary gain of $395,000,while income before extraordinary items equaled $2,376,000.Assuming Running Inc.had no discontinued operations and an effective tax rate of 40%,the net income reported by the company was:

A)$2,771,000
B)$2,613,000
C)$2,534,000
D)$1,662,600

Question 8

For each of the following indicate whether the item is an operating item on the income statement (O),a nonoperating item on the income statement (N),considered other comprehensive income (C),or a balance sheet item (B).
_____ 1.Sales
_____ 2.Cash
_____ 3.Unrealized Gains
_____ 4.Gain on sale of equipment
_____ 5.Tax Expense
_____ 6.Advertising Expense
_____ 7.Loss due to fire damage
_____ 8.Interest Payable
_____ 9.Cost of Goods Sold
_____ 10.Accumulated Depreciation

Question 9

Comprehensive income includes all of the following except:

A)gains
B)expenses
C)distributions to owners
D)unrealized gains on investment

Question 10

The effect of a switch from Average Costing to FIFO would affect which section of the income statement:

A)Cost of Goods Sold
B)Net of Tax Adjustment
C)Comprehensive Income
D)cumulative accounting adjustments

Question 11

Mountain Industries has machinery that cost $100,000,with an estimated salvage value of $15,000 and a 5 year useful life.At the start of the third year of the machinery's life,the company switched from the straight-line method of depreciation to the double-declining balance method.What will be the new depreciation for the year.

A)$17,000
B)$40,000
C)$24,000
D)$14,400

Question 12

Income tax expense is deducted in determining:

A)total revenue
B)gross margin
C)income from operations
D)income from continuing operations

Question 13

Jackson,Inc.had 360,000 shares of common stock outstanding on January 1,2010 and issued 60,000 additional shares on July 1,2010.There was no preferred stock.If net income for the year ended December 31,2010 was $1,072,500,the earnings per share were:

A)$2.23
B)$2.55
C)$2.75
D)$2.98

Question 14

Comprehensive income is also referred to as:

A)earnings
B)net income
C)income from continuing operations
D)none of the above

Question 15

Alamo,Inc.had 480,000 shares of common stock outstanding on January 1,2010.An additional 150,000 shares were issued on May 1,2010,and 60,000 shares were repurchased on October 1,2010.The weighted average number of shares outstanding during 2010 was:

A)475,000
B)565,000
C)570,000
D)630,000

Question 16

Under full-absorption costing,

A)companies can increase income by increasing the number of units produced
B)all product and period costs are included in cost of goods sold
C)only costs that vary per unit are included in cost of goods sold
D)only direct material costs are included in cost of goods sold

Question 17

In calculating earnings per share,the numerator is:

A)income from continuing operations
B)net income plus common dividends
C)net income minus preferred dividends
D)income before taxes plus preferred dividends

Question 18

During prior periods the Rocket Company used the double-declining balance method for depreciating its equipment,but in 2010 it decided to switch to the straight-line method.
The equipment was purchased in 2008 for $1,000,000 and had a 10 year life.The
Balance in the accumulated depreciation account for equipment at the beginning of 2010
Was $360,000.How will 2010's net income be changed by switching to the new
Depreciation if Rocket has an effective tax rate of 40%.

A)$ 60,000 smaller
B)$16,800 larger
C)$28,000 larger
D)$40,000 smaller

Question 19

Advance Systems,Inc.had 840,000 shares of common stock outstanding on January 1,2010,and repurchased 75,000 shares on June 1,2010.Net income for the year ended December 31,2010,was $2,662,625,and preferred stock dividends for the year amounted to $35,000.The earnings per share for 2010 were:

A)$3.30
B)$3.34
C)$3.48
D)$3.53

Question 20

Under unit-variable costing,

A)companies can increase income by increasing the number of units produced
B)all product and period costs are included in cost of goods sold
C)only costs that vary per unit are included in cost of goods sold
D)only direct material costs are included in cost of goods sold

Question 21

What is compromised when a firm changes from one accepted accounting method to another?

A)matching
B)objectivity
C)conservatism
D)consistency

Question 22

Use the following to answer questions
Spectrum Corporation sold its Specialties Division during 2010. The company's accountants determined that the division had a pre-tax loss $770,000 during 2010 prior to disposal. The sale resulted in a $235,000 gain before taxes. The company had neither extraordinary items nor any cumulative accounting adjustments. Spectrum's income from continuing operations for 2010 amounted to $23,460,000. The company's effective tax rate is 38%.
The amount of loss from operations of the Specialties Division that would appear on the 2010 income statement of Spectrum Corporation is:

A)$770,000
B)$477,400
C)$331,700
D)$292,600

Question 23

Use the following to answer questions
James Company had the following income statement for the year ended December 31, 2010:

The firm's operating income for 2010 was:

A)$200,000
B)$120,000
C)$115,000
D)unable to determine from the information given

Question 24

Use the following to answer questions
Kaiser Corporation sold its Telecommunications Division during 2010. The company's accountants determined that the division earned $850,000 of pre-tax income during 2008 prior to disposal. The sale resulted in a $370,000 loss before taxes. Kaiser's income from continuing operations for 2008 amounted to $4,138,000. The company's effective tax rate is 35%.
Kaiser Corporation's net income for 2010 is:

A)$3,001,700
B)$4,306,000
C)$4,450,000
D)$4,618,000

Question 25

Bob Inc.has gross profit equal to $1,000,000.During the year Bob Inc.purchased $300,000 worth of inventory.The sales recorded during the year equaled $1,500,000.What is the value of Bob Inc.'s cost of goods sold?

A)no answer possible
B)$ 300,000
C)$ 500,000
D)$ 800,000
E)$ 1,800,000

Question 26

Use the following to answer questions
Kaiser Corporation sold its Telecommunications Division during 2010. The company's accountants determined that the division earned $850,000 of pre-tax income during 2008 prior to disposal. The sale resulted in a $370,000 loss before taxes. Kaiser's income from continuing operations for 2008 amounted to $4,138,000. The company's effective tax rate is 35%.
The amount of income from operations of the Telecommunications Division that would appear on the 2010 income statement of Kaiser Corporation is:

A)$297,500
B)$312,000
C)$552,500
D)$850,000

Question 27

Use the following to answer questions
Spectrum Corporation sold its Specialties Division during 2010. The company's accountants determined that the division had a pre-tax loss $770,000 during 2010 prior to disposal. The sale resulted in a $235,000 gain before taxes. The company had neither extraordinary items nor any cumulative accounting adjustments. Spectrum's income from continuing operations for 2010 amounted to $23,460,000. The company's effective tax rate is 38%.
Spectrum Corporation's net income for 2010 is:

A)$14,213,500
B)$22,925,000
C)$23,128,300
D)$23,256,700

Question 28

Use the following to answer questions
Kaiser Corporation sold its Telecommunications Division during 2010. The company's accountants determined that the division earned $850,000 of pre-tax income during 2008 prior to disposal. The sale resulted in a $370,000 loss before taxes. Kaiser's income from continuing operations for 2008 amounted to $4,138,000. The company's effective tax rate is 35%.
The amount of gain (loss)from disposal of the Telecommunications Division that would appear on the 2010 income statement of Kaiser Corporation is:

A)$129,500 loss
B)$240,500 loss
C)$370,000 loss
D)$312,000 gain

Question 29

Use the following to answer questions
Kaiser Corporation sold its Telecommunications Division during 2010. The company's accountants determined that the division earned $850,000 of pre-tax income during 2008 prior to disposal. The sale resulted in a $370,000 loss before taxes. Kaiser's income from continuing operations for 2008 amounted to $4,138,000. The company's effective tax rate is 35%.
The amount of extraordinary items that would appear on the 2010 income statement of Kaiser Corporation is:

A)$0
B)$312,000
C)$552,500
D)$850,000

Question 30

Use the following to answer questions
Spectrum Corporation sold its Specialties Division during 2010. The company's accountants determined that the division had a pre-tax loss $770,000 during 2010 prior to disposal. The sale resulted in a $235,000 gain before taxes. The company had neither extraordinary items nor any cumulative accounting adjustments. Spectrum's income from continuing operations for 2010 amounted to $23,460,000. The company's effective tax rate is 38%.
The amount of gain(loss)from disposal of the Specialties Division that would appear on the 2010 income statement of Spectrum Corporation is:

A)$331,700 loss
B)$ 89,300 gain
C)$145,700 gain
D)$235,000 gain

Question 31

Which of the following are firms not required to disclose for identifiable business segments?

A)revenues from external customers
B)revenues from internal customers
C)comprehensive income
D)segment profit or loss

Question 32

Use the following to answer questions
James Company had the following income statement for the year ended December 31, 2010:

The firm's income before income tax for 2008 was:

A)$200,000
B)$120,000
C)$115,000
D)unable to determine from the information given

Question 33

What items should be included in comprehensive income but not in net income?

A)net income
B)foreign currency translations
C)unrealized gains on investments
D)all of the above should be included

Question 34

Which of the following is not an objective of financial reporting?

A)useful for making investment & credit decisions
B)useful for assessing cash flow prospects
C)useful for evaluating enterprise resources
D)all of the above are objectives of financial reporting

Question 35

Use the following to answer questions
James Company had the following income statement for the year ended December 31, 2010:

The firm's net income for 2010 was:

A)$110,000
B)$102,000
C)$ 80,000
D)unable to determine from the information given

Question 36

Use the following to answer questions
James Company had the following income statement for the year ended December 31, 2010:

The firm's comprehensive income for 2008 was:

A)$110,000
B)$102,000
C)$ 80,000
D)unable to determine from the information given

Question 37

What item would be included in "other revenue" found on an income statement?

A)sales
B)income from operations
C)interest income
D)extraordinary gain

Question 38

Which of the following statements about earnings per share is false?

A)Diluted earnings per share reflects the maximum possible dilution that could result from turning convertible and nonconvertible securities into common stock
B)Net income is reduced by applicable preferred dividends in determining earnings per share
C)Earning per share permits useful comparison of the performance of firms of different size
D)Firms with convertible securities present both basic and diluted earnings per share

Question 39

River Inc.had an extraordinary gain equal to $ 15,000 (before taxes).The net income for River Inc.equals $ 48,000 and the tax rate was 30%.What was the value of "income from continuing operations?"

A)$ 63,000
B)$ 58,500
C)$ 37,500
D)no answer can be determined

Question 40

River Inc.had an extraordinary gain equal to $ 15,000 (before taxes).The net income for River Inc.equals $ 48,000.What was the value of "income from continuing operations?"

A)$ 48,000
B)$ 36,000
C)$ 60,000
D)no answer can be determined

Question 41

Speed Inc.reported a net income equal to $15,000.The dividends declared & paid to the preferred shareholders equaled $ 5,000 and paid the common stockholders a dividend of $8,000.Speed Inc.had 10,000 shares outstanding all year long.What value is Speed Inc.'s earnings per share?

A)$ .50
B)$ 1.00
C)$ 1.50
D)$ .20

Question 42

A company using the throughput costing method will only place __________ into cost of goods sold.

A)labor
B)overhead
C)materials
D)sales

Question 43

Bob's Bait Shop wants to calculate a division's return on investment.The profit from the division equals $10,000.The equity found in the division equals $ 50,000.This division has assets equal to $35,000.Calculate the return the division is generating.

A)143 %
B)70 %
C)29 %
D)20 %

Question 44

How can full-absorption costing hurt a company?

A)business leaders might spread variable costs over more inventory
B)material costs might be expensed too quickly
C)fixed costs might be spread over more inventory
D)fixed costs might change to variable costs

Question 45

Macroteledyne,Inc.'s income from continuing operations before taxes was $2,000,000 for the year ended December 31,2010.The company's effective tax rate is 40% and during the year the following events also took place:
The company sold one of its divisions at a gain of $250,000.The division had an operating loss of $185,000 through the date of disposal.
A flood destroyed a warehouse owned by the company.The amount of the uninsured loss was $375,000.This was the first flood ever in this area.
Required: Prepare the lower portion of the income statement,from "income from continuing operations before taxes" through "net income",for the year ended 12/31/10.

Question 46

Fishing Lures Inc.reported a net income of $15,000.The dividends declared & paid to the common shareholders equaled $5,000.Fishing Lures Inc.had 10,000 shares outstanding all year long.What is Fishing Lures Inc.'s earnings per share?

A)$ .50
B)$ 1.00
C)$ 1.50
D)$ 2.00

Question 47

Why might the use of return on assets to evaluate investment centers lead to bad decisions?

Question 48

What information is provided by business internal profitability reporting that is not provided by the financial statements?

Question 49

Assume a company has no dilutive securities.What number will be greater?

A)basic earnings per share
B)diluted earnings per share
C)question cannot be answered
D)A & B should be the same

Question 50

What is comprehensive income and how does it differ from net income?

Question 51

Explain how a firm can manipulate income by increasing inventory under full absorption costing.

Question 52

What item would not be part of the cost of inventory under the variable costing method?

A)depreciation on the manufacturing building
B)direct materials
C)direct labor
D)all of the above would be included in the variable cost of inventory

Question 53

Riegle Inc.'s income from continuing operations before taxes was $4,000,000 for the year ended December 31,2010.The company's effective tax rate is 30% and during the year the following events also took place:
The company sold one of its divisions at a gain of $500,000.The division had an operating loss of $325,000 through the date of disposal.
Riegle is located in Chicago and a small earthquake damaged a warehouse owned by the company.The amount of the uninsured loss was $575,000.
Required: Prepare the lower portion of the income statement,from "income from continuing operations before taxes" through "net income",for the year ended 12/31/10.All during 2010 1,000,000 shares of stock were authorized and 850,000 were issued and 800,000 were outstanding.

Question 54

Given the below data,create the inventory cost per unit using:
a.full-absorption costing
b.variable costing
Direct labor per part = $ 5.00
Direct materials per part = $ 3.00
Selling & Administration per part = $ 10.00
Shop Overhead per part = $ 15.00

Question 55

A manufacturing company using full-absorption costing can increase net income by which of the following.

A)Increasing production and increasing ending inventory at the end of the year.
B)Decreasing the inventory
C)Writing ending inventory down to its fair value.
D)All of the above.

Question 56

Big Cat Inc.has the below balances (Year Ending: Dec.31,2010).Using the below accounts and amounts,create a multi-step income statement (Tax Rate = 20%).Big Cat had 100,000 shares authorized,90,000 issued and 80,000 outstanding all year long.

Question 57

Some analysts prefer to evaluate firms on the basis of operating income,but other analysts prefer net income.Which do you believe is more appropriate and why do you believe that?

Question 58

Alpine,Inc.gathered the following information for its year ended December 31,2010:
The common stock was outstanding the entire year and the company's effective tax rate is 40%.Prepare a multiple step income statement,including earnings per share,for the year ended December 31,2010.

Question 59

Big Red Inc.has the below balances (Year Ending: Dec.31,2010).Using the below accounts and amounts,create a multi-step income statement (Tax Rate = 20%).Big Red had 100,000 shares authorized,50,000 issued and 40,000 outstanding all year long.

Question 60

MMM Inc.had 5,000 shares outstanding on January 1,2010.MMM Inc.issued 8,000 shares on May 1 and an additional 9,000 shares on August 1,2010.How many shares will be used to calculated earnings per share (2010).

A)5,000
B)14,083
C)15,225
D)15,301
E)22,000

Question 61

Given the below data,create the inventory cost per unit using:
a.full-absorption costing
b.variable costing
c.throughput costing
Direct labor per part = $10.00
Direct materials per part = $ 6.00
Selling & Administration per part = $ 5.00
Shop Overhead per part = $ 30.00