Deck 1: Financial Accounting for MBAS

Question 1

Shareholders demand financial information primarily to assess profitability and risk whereas bankers demand information primarily to assess cash flows to repay loan interest and principal.

Answer 1

True

Question 2

Publicly traded companies are required to provide quarterly financial reports directly to the public.

Answer 2

False

Question 3

Publicly traded companies provide financial information primarily to satisfy the SEC and the tax authorities (that is, the Internal Revenue Service).

Answer 3

False

Question 4

Publicly traded companies must provide to the Securities Exchange Commission annual audited financial statements (10-K reports) and quarterly audited financial statements (10-Q reports).

Question 5

If a company reports retained earnings of $175.3 million on its balance sheet, it must also report $175.3 million in cash.

Question 6

A balance sheet shows a company's position over a period of time, whereas an income statement, statement of stockholders' equity, and statement of cash flows show its position at a point in time.

Question 7

The income statement reports net income which is defined as the company's profit after all expenses and dividends have been paid.

Question 8

An increase in common stock would be reflected in the statement of stockholders' equity.

Question 9

Return on Assets (ROA) measures the profit the company makes on each dollar of total assets it uses.

Question 10

Return on Assets (ROA) = (Net Income / Sales) × Asset Turnover

Question 11

Consider two companies (A and B) with equal profit margins of 18%. Company A has an asset turnover of 1.2 and Company B has an asset turnover of 1.5. If all else is equal, Company B with its' higher asset turnover, is less profitable because it requires more revenue to turn its assets over.

Question 12

Financial statements are influenced by five important forces that determine a company's competitive intensity: (A) industry competition, (B) buyer power, (C) supplier power, (D) product substitutes, and (E) threat of entry.

Question 13

A "clean" audit report asserts-among other things-that (a) the auditor has prepared all necessary financial statements and (b) management has expressed its opinion that they are prepared in conformity with GAAP.

Question 14

Which of the following groups would likely not be interested in the financial statements of a large public company such as Procter & Gamble?

A) Shareholders
B) Employees
C) Competitors
D) Taxing agencies
E) None of the above

Question 15

The SEC adopted Regulation FD, to curb public companies' practice of:

A) Routinely filing extensions for annual reports (Form 10-K)
B) Selectively disclosing information
C) Reporting pro forma (non-GAAP) numbers
D) Hiring auditors for non-audit services such as consulting engagements
E) None of the above

Question 16

A list of assets, liabilities and equity can be found on which of the following?

A) Balance Sheet
B) Income Statement
C) Statement of Assets and Liabilities
D) Statement of Cash Flows
E) Statement of Stockholders' Equity

Question 17

Which of the following items would not be found on a balance sheet? (Select all that apply)

A) Stockholders' Equity
B) Property, plant and equipment
C) Nonowner financing
D) Cash
E) Dividends

Question 18

A company's net cash flow will equal its net income …

A) Almost always
B) Rarely
C) Occasionally
D) Only when the company has no investing cash flow for the period
E) Only when the company has no investing or financing cash flow for the period

Question 19

Which of the following statements are correct (select all that apply)?

A) A balance sheet reports on investing and financing activities.
B) An income statement reports on financing activities.
C) The statement of equity reports on changes in the accounts that make up equity.
D) The statement of cash flows reports on cash flows from operating, investing, and financing activities over a period of time.
E) A balance sheet reports on a company's assets and liabilities over a period of time.

Question 20

The Goodyear Tire & Rubber Company's December 31, 2016 financial statements reported the following (in millions):
What did Goodyear report for retained earnings at December 31, 2016?

A) $5,907 million
B) $5,752 million
C) $5,916 million
D) $5,834 million
E) There is not enough information to determine the answer.

Question 21

United Airlines' 2016 balance sheet reported the following (in millions)
What was United Airlines' total liabilities and stockholders' equity at December 31, 2016?

A) $ 36,518 million
B) $ 40,091 million
C) $35,058 million
D) $ 8,606 million

Question 22

On October 2, 2016 Starbucks Corporation reported, on its Form 10-K, the following (in millions):
What did Starbucks report as total liabilities on October 2, 2016?

A) $ 12,516.7 million
B) $ 6,377.3 million
C) $ 995.0 million
D) $ 8,438.8 million
E) None of the above

Question 23

In its 2016 annual report, Snap-On Incorporated reported the following (in millions):
What did Snap-On report as total assets at year-end 2016?

A) $3,885.8 million
B) $2,796.2 million
C) $4,723.2 million
D) $3,526.6 million
E) None of the above

Question 24

In its 2016 annual report, Kohl's Corporation reported the following (in millions):
What proportion of Kohl's Corporation is financed by nonowners?

A) 61.9%
B) 44.2%
C) 53.5%
D) 77.0%
E) None of the above

Question 25

In its 2016 annual report, Mattel Inc. reported the following (in millions):
What proportion of Mattel is financed by nonowners?

A) 64.6%
B) 53.0%
C) 78.6%
D) 62.9%
E) None of the above

Question 26

The Goodyear Tire & Rubber Company's December 31, 2016 financial statements reported the following (in millions)
What did Goodyear report for net income for the year ending December 31, 2016?

A) $ 29,032 million
B) $ 1,284 million
C) $ 4,186 million
D) $ 13,874 million
E) $ 8,070 million

Question 27

Intel Corporation reported the following on its 2016 income statement (in millions)
What did Intel report for cost of goods sold during 2016?

A) $ 23,196 million
B) $ 15,502 million
C) $ 36,478 million
D) $ 12,874 million
E) None of the above

Question 28

On October 2, 2016, Starbucks Corporation reported, on its Form 10-K, the following (in millions):
What amount of revenues did Starbucks report for the year ending October 2, 2016?

A) $24,883.4
B) $25,208.8
C) $24,558.0
D) $21,315.9
E) None of the above

Question 29

On October 2, 2016, Starbucks Corporation reported, on its Form 10-K, the following (in millions):
Calculate year-over-year increase or (decrease) in net earnings, in percentage terms.

A) (33.8)%
B) 22.0%
C) 16.5%
D) 2.2%
E) None of the above

Question 30

In its 2016 annual report, Caterpillar Inc. reported the following (in millions):
As a percentage of sales, did Caterpillar's gross profit increase or decrease during 2016?

A) Gross profit increased from 26.8% to 28.6%
B) Gross profit decreased from 28.6% to 26.5%
C) Gross profit increased from 71.4% to 73.2%
D) Gross profit decreased from 73.2% to 71.4%
E) There is not enough information to answer the question.

Question 31

The Goodyear Tire & Rubber Company's December 31, 2016, financial statements reported the following (in millions).
What did Goodyear report for cash on its December 31, 2015 balance sheet?

A) $1,476 million
B) $2,281 million
C) $3,711 million
D) $ 715 million
E) None of the above

Question 32

Procter & Gamble's June 30, 2016, financial statements reported the following (in millions):
What did Procter & Gamble report for cash from financing activities for the year ended June 30, 2016?

A) $ 9,514 million
B) $ 20,961 million
C) $ (20,961) million
D) $ (9,594) million
E) $ 7,067 million

Question 33

A company's return on assets (ROA) can be disaggregated to reveal which of the following (select all that apply):

A) Financial leverage
B) Profit margin
C) Sales growth
D) Asset growth
E) Asset turnover

Question 34

The ratio of net income to equity is also known as:

A) Total net equity ratio
B) Profit margin
C) Return on equity
D) Net income ratio
E) None of the above

Question 35

Sales for the year = $324,882, Net Income for the year = $36,610, Income from equity investments = $8,603, and average Equity during the year = $123,650. Return on equity (ROE) for the year is:

A) 29.6%
B) 11.3%
C) 22.7%
D) 127.6%
E) There is not enough information to answer the question.

Question 36

Sales for the year = $246,687, Net Income for the year = $22,965, and average Assets during the year = $136,357. Return on Assets (ROA) for the year is:

A) 53.8%
B) 16.8%
C) 9.3%
D) There is not enough information to calculate ROA.
E) None of the above

Question 37

Sales for the year = $831,066, Profit margin =18%, and average Assets during the year = $647,770. Return on Assets (ROA) for the year is:

A) 17.1%
B) 23.1%
C) 64.0%
D) There is not enough information to calculate ROA.
E) None of the above

Question 38

On December 31, 2016, Harley-Davidson, Inc., reported, on its Form 10-K, the following (in millions):
Calculate return on assets (ROA) for 2016.

A) 7.0%
B) 62.8%
C) 71.5%
D) 7.5%
E) None of the above

Question 39

Which of the following are not one of the five forces that determine a company's competitive intensity? (Select as many as apply)

A) Bargaining power of suppliers
B) Threat of substitution
C) Ability to obtain financing
D) Threat of entry
E) Threat of regulatory intervention

Question 40

Which of the following are relevant in an analysis of a company's business environment? (Select as many as apply)

A) Financing
B) Labor
C) Buyers
D) Governance
E) All of the above

Question 41

A clean audit opinion includes which of the following assertions: (Select as many as apply)

A) Financial statements present fairly the company's financial condition
B) The auditor certifies the financials to be error free
C) The financial statements are management's responsibility
D) Management has handled transactions efficiently in all material respects
E) All of the above

Question 42

The audit report is addressed to:

A) The audit committee
B) The board of directors
C) The shareholders
D) The board of directors and the shareholders
E) The Securities and Exchange Commission (SEC)

Question 43

Generally Accepted Accounting Principles (GAAP) are created by: (select all that apply)

A) The Securities and Exchange Commission
B) The Generally Accepted Accounting Principles Task Force
C) The Sarbanes Oxley Act
D) The Financial Accounting Standards Board
E) The Public Company Accounting Oversight Board

Question 44

Match the item with each sentence

-Resources that a company owns or controls are called _________________.

A) liabilities
B) return on assets
C) assets
D) income statement
E) net income

Question 45

Match the item with each sentence

-The difference between a company's assets and its equity is equal to _______________.

A) liabilities
B) return on assets
C) assets
D) income statement
E) net income

Question 46

Match the item with each sentence

-Net income divided by average assets is known as ____________.

A) liabilities
B) return on assets
C) assets
D) income statement
E) net income

Question 47

Match the item with each sentence

-Sales, cost of goods sold and all other expenses are necessary to calculate a company's ______________.

A) liabilities
B) return on assets
C) assets
D) income statement
E) net income

Question 48

Match the item with each sentence

-Companies report assets, liabilities, and equity on the _________________.

A) income statement
B) balance sheet
C) statement of cash flows
D) statement of stockholders' equity
E) financial statements

Question 49

Match the item with each sentence

-Sales, cost of goods sold, and net income are found on the _______________.

A) income statement
B) balance sheet
C) statement of cash flows
D) statement of stockholders' equity
E) financial statements

Question 50

Match the item with each sentence

-Changes in contributed capital during the period are explained on the ____________.

A) income statement
B) balance sheet
C) statement of cash flows
D) statement of stockholders' equity
E) financial statements

Question 51

Match the item with each sentence

-The _______________ reports cash from financing activities.

A) income statement
B) balance sheet
C) statement of cash flows
D) statement of stockholders' equity
E) financial statements

Question 52

Fill in the blanks to complete Whole Foods' Income Statement ($ millions).

Question 53

Fill in the blanks to complete Procter & Gamble's Income Statement ($ millions).

Question 54

Fill in the blanks to complete Whole Food's Statement of Cash Flows ($ millions).

Question 55

Fill in the blanks to complete Whole Foods' Balance Sheet ($ millions).

Question 56

Fill in the blanks to complete the Procter & Gamble Balance Sheet ($ millions).

Question 57

Whole Foods reports the following balances in its stockholders' equity accounts. Fill in the blanks.

Question 58

Procter & Gamble reports the following items in their financial statements. Fill in the blanks.

Question 59

Whole Foods reports the following items in their financial statements. Fill in the blanks.

Question 60

In its October 2, 2016 annual report, Starbucks Corporation reports the following items.

a. Prepare the balance sheet for Starbucks for October 2, 2016.
b. Prepare the income statement for Starbucks for the year ended October 2, 2016.
c. Prepare the statement of cash flows for Starbucks for the year ended October 2, 2016.

Question 61

In its December 31, 2016 annual report, Mattel, Inc. reports the following items.

a. Prepare the balance sheet for Mattel, Inc. for December 31, 2016.
b. Prepare the income statement for Mattel, Inc. for the year ended December 31, 2016.
c. Prepare the statement of cash flows for Mattel, Inc. for the year ended December 31, 2016.

Question 62

In its December 31, 2016, annual report, Mattel, Inc. reports the following items:
Prepare the statement of stockholders' equity for Mattel, Inc. for the year ended December 31, 2016.

Question 63

Nike, Inc. has a fiscal year-end of May 31. On May 31, 2015, Nike, Inc. reported $21,597 million in assets and $12,707 million in equity. During fiscal 2016, Nike's assets decreased by $201 million while its equity decreased by $449 million.
What were Nike's total liabilities at May 31, 2015 and May 31, 2016?

Question 64

Use Southwest Airlines' 2016 financial statement information, below to answer the following:
a. Calculate Southwest Airlines' return on assets (ROA) for the year ending December 31, 2016.
b. Disaggregate Southwest Airlines' ROA into profit margin (PM) and asset turnover (AT). Explain what each ratio measures.

Question 65

Below are several financial statement items for fiscal year 2016 for two grocery chains, Whole Foods Market, an upscale organic grocer, and The Kroger Co. a mainstream grocer. ($ millions)

a. Calculate each company's return on assets (ROA) and return on equity (ROE). Comment on any differences you observe.
b. Disaggregate the ROA for each company into profit margin (PM) and asset turnover (AT). Explain why Whole Foods has a higher ROA, is it because of PM or AT or both?

Question 66

List three of the five competitive forces that confront the company and determine its competitive intensity. Briefly explain each force that you list.

Question 67

What potential conflicts of interests do auditing firms face in conducting audits of publicly traded companies?

Question 68

List three users of financial accounting information and explain how each might use financial information.

Question 69

What are the three broad groups that make up a balance sheet? List and define each.

Question 70

Investors and lenders place significant importance on management's effectiveness in generating a high return on assets (ROA). Explain how ROA is also important for managers' analysis of its own performance, particularly when ROA is disaggregated.

Question 71

Describe three corporate governance mechanisms that are in place to protect users of financial information.