Question 1

Use the following financial information to find the entry you would make on an income statement for COST OF GOODS SOLD for the year ended December 31, 2011: Gross Sales, $180,000; Sales Returns and Allowances, $9,000; Sales Discounts, $6,300; Merchandise Inventory, January 1, 2011, $60,900; Merchandise Inventory, December 31, 2011, $66,700; Net Purchases, $58,300; Freight In, $600; Salaries, $84,700; Rent, $22,000; Utilities, $1,125; Insurance, $2,025; and Income Tax, $17,750.
A) $45,985
B) $30,800
C) $53,100
D) $65,754

Accepted Answer

Cost of Goods Sold (COGS) is calculated as: Beginning Inventory + Net Purchases + Freight In - Ending Inventory. Thus, COGS = $60,900 + $58,300 + $600 - $66,700 = $53,100.

Question 2

Perform a vertical analysis for the entry "Sales Returns and Allowances" on the portion of an income statement shown below. (Round to the nearest tenth) $$\begin{array} { l l } 
\text { Revenue } & \
\text { Gross Sales } & \$ 288,000 \
\text { Less: Sales Returns and Allowances } & 7,600 \
\text { Net Sales } & 280,400 \
\text { Cost of Good Sold } & \
\text { Merchandise Inventory, Jan. } 1 & 47,500 \
\text { Net purchases } & 64,300 \
\text { Goods Available for Sale } & 112,375 \
\text { Less: Merchandise Inventory, Dec. } 31 & 77,800 \
\text { Cost of Goods Sold } & 34,575 \
\text { Gross Margin } & \$ 245,825
\end{array}$$
A) 2.6%
B) 2.7%
C) 3.9%
D) 3.1%

Accepted Answer

To perform a vertical analysis of "Sales Returns and Allowances," divide the amount of Sales Returns and Allowances ($7,600) by Gross Sales ($288,000) and multiply by 100 to convert to a percentage: $ \frac{7,600}{288,000} \times 100 = 2.64\%$, which rounds to 2.7%.

Question 3

Perform a horizontal analysis for the balance sheet entry "Accounts Receivable" given below. (Round to the nearest tenth) $$\begin{array} { l l l l } 
\hline \text { Assets } & \mathbf { 2 0 1 2 } & \mathbf { 2 0 1 1 } & \begin{array} { l } 
\text { Increase/Decrease } \
\text { Amount Percent }
\end{array} \
\hline \text { Current Assets } & & \
\text { Cash } & \$ 33,700 & \$ 43,500 \
\text { Accounts Receivables } & 40,000 & 40,800 \
\text { Merchandise Inventory } & 41,300 & 35,500 \
\text { Supplies } & 5,300 & 3,300 \
\text { Total Current Assets } & 120,300 & 123,100 \
\text { Property, Plant, and Equipment } & & \
\text { Machinery and Equipment } & 30,700 & 37,100 \
\text { Total Assets } & \$ 151,000 & \$ 160,200 \
\hline
\end{array}$$
A) (2.0%)
B) (19.6%)
C) (3.5%)
D) (8.9%)

Accepted Answer

The decrease in Accounts Receivable from 2011 to 2012 is from $40,800 to $40,000, which is a decrease of $800. The percentage decrease is calculated as ($800 / $40,800) * 100 = 1.96%, rounded to the nearest tenth is 2.0%.

Question 4

Perform a horizontal analysis for the entry "Sales Returns and Allowances" shown on the income statement portion below. (Round to the nearest tenth) $\begin{array}{c}
\begin{array}{lll}
\
\
  \hline\text { Revenue}\
 \text { Gross Sales}\
 \text { Less: Sales Returns and Allowances Net Sales}\
\text { Net Sales }\
 \text { Cost of Good Sold }\
 \text { Merchandise Inventory, Jan. 1 }\
 \text {Net purchases}\
 \text { Rent and Utilities}\
 \text { Goods Available for Sale }\
 \text { Less: Merchandise Inventory, Dec. 31}\
 \text { Cost of Goods Sold}\
 \text {Gross Margin }
\end{array}
\begin{array}{lll}
\
2012\
 \hline \
\$ 170,000 \
6,100 \
163,900 \
\
\
34,000 \
72,900 \
106,900 \
86,500 \
20,400 \
\$ 143,500 \ 
\end{array}
\begin{array}{lll}
\
2011\
 \hline\
\$ 205,700 \
4,300 \
201,400 \
\
\
30,600 \
70,000 \
100,600 \
60,600 \
40,000 \
\$ 161,400 
\end{array}
\begin{array}{lll}
 \text { Increase/Decrease }\
 \text { Amount Percent}\ 
 \hline\
 \
 \
 \
\
\
\
\
\
\
\
\
\end{array}
\end{array}$

A) 1.3%
B) 3.7%
C) 12.8%
D) 41.9%

Accepted Answer

The increase in "Sales Returns and Allowances" from 2011 to 2012 is from $4,300 to $6,100. The change is $1,800 ($6,100 - $4,300). To find the percentage increase: ($1,800 / $4,300) * 100 = 41.9%.

Question 5

Panhead's Bike Shop had net sales of $382,500 and the cost of goods sold were $172,300. Operating expenses were $107,645 and owner's equity is $437,645. Calculate the net profit margin. (Round to the nearest tenth)
A) 40.4%
B) 34.8%
C) 26.8%
D) 22.8%

Accepted Answer

Net profit margin is calculated as (Net Income / Net Sales) * 100. Net Income is found by subtracting both the cost of goods sold and operating expenses from net sales: ($382,500 - $172,300 - $107,645) = $102,555. Then, ($102,555 / $382,500) * 100 = 26.8%.

Question 6

Use the following financial information to find the entry you would make on an income statement for GROSS MARGIN for the year ended December 31, 2011: Gross Sales, $231,000; Sales Returns and Allowances, $7,700; Sales Discounts, $6,800; Merchandise Inventory, January 1, 2011, $55,200; Merchandise Inventory, December 31, 2011, $61,300; Net Purchases, $81,900; Freight In, $950; Salaries, $87,000; Rent, $20,600; Utilities, $1,500; Insurance, $2,350; and Income Tax, $17,350.
A) $216,500
B) $139,750
C) $128,800
D) $87,700

Accepted Answer

Gross Margin is calculated as Net Sales minus Cost of Goods Sold (COGS). Net Sales = Gross Sales - Sales Returns and Allowances - Sales Discounts = $231,000 - $7,700 - $6,800 = $216,500. COGS = Beginning Inventory + Net Purchases + Freight In - Ending Inventory = $55,200 + $81,900 + $950 - $61,300 = $76,750. Therefore, Gross Margin = Net Sales - COGS = $216,500 - $76,750 = $139,750.

Question 7

Perform a vertical analysis for the balance sheet entry "Accounts Receivable" given below. (Round to the nearest tenth) $$\begin{array} { | l l | } 
\hline \text { Assets } & \
\hline \text { Current Assets } & \$ 13,000 \
\text { Cash } & 26,000 \
\text { Accounts Receivables } & 40,000 \
\text { Merchandise Inventory } & 2,000 \
\text { Supplies } & 81,000 \
\text { Total Current Assets } & \
\text { Property, Plant, and Equipment } & 13,000 \
\text { Machinery and Equipment } & \$ 94,000 \
 \text { Total Assets } &
\end{array}$$
A) 42.6%
B) 13.8%
C) 37.7%
D) 27.7%

Accepted Answer

To perform a vertical analysis, divide the "Accounts Receivable" amount by the "Total Assets" amount. Total Assets = Current Assets + Property, Plant, and Equipment = $13,000 + $94,000 = $107,000. Accounts Receivable = $40,000. Vertical analysis percentage = ($40,000 / $144,000) * 100 = 27.7%.

Question 8

Perform a horizontal analysis for the entry "Gross Sales" shown on the income statement portion below. (Round to the nearest tenth) $\begin{array}{c}
\begin{array}{lll}
\
\
  \hline\text { Revenue}\
 \text { Gross Sales}\
 \text { Less: Sales Returns and Allowances Net Sales}\
\text { Net Sales }\
 \text { Taxes Payable}\
 \text { Operating Expenses }\
 \text { Salaries and Benefits}\
 \text { Rent and Utilities}\
 \text { Advertising and Promotions}\
 \text { Insurance}\
 \text { Miscellaneous Expenses}\
 \text {Total Operating Expenses}
\end{array}
\begin{array}{lll}
\
2012\
 \hline \
\$ 258,000 \
7,100 \
250,900 \
\
\
84,600 \
21,300 \
1,425 \
2,250 \
17,000 \
\$ 126,575 
\end{array}
\begin{array}{lll}
\
2011\
 \hline\
\$ 193,500 \
4,800 \
188,700 \
\
\
106,600 \
24,900 \
900 \
1,900 \
15,300 \
\$ 149,600 
\end{array}
\begin{array}{lll}
 \text { Increase/Decrease }\
 \text { Amount Percent}\ 
 \hline\
 \
 \
 \
\
\
\
\
\
\
\
\
\end{array}
\end{array}$

A) 33.3%
B) 10.5%
C) 3.3%
D) 23.9%

Accepted Answer

The horizontal analysis for "Gross Sales" is calculated as: $(258,000 - 193,500) / 193,500 \times 100 = 33.3\%$.

Question 9

Use the following financial information to find the entry you would make on an income statement for INCOME BEFORE TAXES for the year ended December 31, 2011: Gross Sales, $223,000; Sales Returns and Allowances, $11,200; Sales Discounts, $1,800; Merchandise Inventory, January 1, 2011, $67,600; Merchandise Inventory, December 31, 2011, $78,300; Net Purchases, $84,000; Freight In, $950; Salaries, $107,200; Rent, $19,500; Utilities, $1,450; Insurance, $2,150; and Income Tax, $14,900.
A) $130,300
B) $135,750
C) ($9,450)
D) $5,450

Accepted Answer

The answer of Use the following financial information to find...

Question 10

Use the following financial information to find the entry you would make on an income statement for NET INCOME (LOSS) for the year ended December 31, 2011: Gross Sales, $123,000; Sales Returns and Allowances, $9,300; Sales Discounts, $8,700; Merchandise Inventory, January 1, 2011, $89,000; Merchandise inventory, December 31, 2011, $109,500; Net Purchases, $74,700; Freight In, $575; Salaries, $107,800; Rent, $20,100; Utilities, $1,425; Insurance, $2,250; and Income Tax, $15,900.
A) $81,350
B) $97,250
C) ($97,250)
D) ($15,900)

Accepted Answer

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Question 11

Use the following financial information to find the entry you would make on an income statement for NET INCOME (LOSS) for the year ended December 31, 2011: Gross Sales, $223,000; Sales Returns and Allowances, $11,200; Sales Discounts, $1,800; Merchandise Inventory, January 1, 2011, $67,600; Merchandise Inventory, December 31, 2011, $78,300; Net Purchases, $84,000; Freight In, $950; Salaries, $107,200; Rent, $19,500; Utilities, $1,450; Insurance, $2,150; and Income Tax, $14,900.
A) $135,750
B) $210,000
C) $9,450
D) ($9,450)

Accepted Answer

To calculate the Net Income (Loss), follow these steps:1. Calculate Net Sales: Gross Sales - Sales Returns and Allowances - Sales Discounts = $223,000 - $11,200 - $1,800 = $210,000.2. Calculate Cost of Goods Sold (COGS): Beginning Inventory + Net Purchases + Freight In - Ending Inventory = $67,600 + $84,000 + $950 - $78,300 = $74,250.3. Gross Profit: Net Sales - COGS = $210,000 - $74,250 = $135,750.4. Calculate Total Expenses: Sum of Salaries, Rent, Utilities, Insurance, and Income Tax = $107,200 + $19,500 + $1,450 + $2,150 + $14,900 = $145,200.5. Net Income (Loss): Gross Profit - Total Expenses = $135,750 - $145,200 = -$9,450.The correct entry for Net Income (Loss) is a loss of $9,450, which is option D.

Question 12

Use the following financial information to find the entry you would make on an income statement for NET INCOME (LOSS) for the year ended December 31, 2011: Gross Sales, $110,000; Sales Returns and Allowances, $8,000; Sales Discounts, $2,400; Merchandise Inventory, January 1, 2011, $50,000; Merchandise Inventory, December 31, 2011, $43,100; Net Purchases, $80,500; Freight In, $975; Salaries, $92,900; Rent, $15,500; Utilities, $1,275; Insurance, $2,450; and Income Tax, $15,650.
A) $23,458
B) ($98,544)
C) $65,782
D) ($116,550)

Accepted Answer

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Question 13

Use the following financial information to find the entry you would make on an income statement for COST OF GOODS SOLD for the year ended December 31, 2011: Gross Sales, $241,000; Sales Returns and Allowances, $5,200; Sales Discounts, $1,000; Merchandise Inventory, January 1, 2011, $62,900; Merchandise Inventory, December 31, 2011, $70,200; net purchases, $95,800; Freight In, $525; Salaries, $93,200; Rent, $17,900; Utilities, $1,125; Insurance, $2,025; and Income Tax, $16,950.
A) $159,225
B) $70,200
C) $89,025
D) $114,250

Accepted Answer

The answer of Use the following financial information to find...

Question 14

What entry would you make on an income statement for NET SALES for the year ended December 31, 2011? Gross Sales, $200,000; Sales Returns and Allowances, $5,800; Sales Discounts, $5,700; Merchandise Inventory, January 1, 2011, $67,100; Merchandise Inventory, December 31, 2011, $51,900; Net Purchases, $89,200; Freight In, $700; Salaries, $81,800; Rent, $18,600; Utilities, $1,125; Insurance, $2,175; and Income Tax, $14,900.
A) $105,100
B) $118,600
C) $157,000
D) $188,500

Accepted Answer

Net Sales are calculated by subtracting Sales Returns and Allowances and Sales Discounts from Gross Sales. Therefore, Net Sales = $200,000 - $5,800 - $5,700 = $188,500.

Question 15

Find the entry you would make on an income statement for TOTAL OPERATING EXPENSES for the year ended December 31, 2011: Gross Sales, $141,000; Sales Returns and Allowances, $7,600; Sales Discounts, $9,600; Merchandise Inventory, January 1, 2011, $50,300; Merchandise Inventory, December 31, 2011, $42,400; Net Purchases, $62,100; Freight In, $1,000; Salaries, $80,500; Rent, $18,900; Utilities, $1,225; Insurance, $2,250; and Income Tax, $17,400.
A) $71,000
B) $102,875
C) $120,275
D) $123,800

Accepted Answer

Total Operating Expenses are calculated by adding up all the operational costs. These include Salaries, Rent, Utilities, and Insurance, but exclude Income Tax as it is not an operating expense. Therefore, the total is $80,500 (Salaries) + $18,900 (Rent) + $1,225 (Utilities) + $2,250 (Insurance) = $102,875.

Question 16

Use the following financial information to find the entry you would make on an income statement for GROSS MARGIN for the year ended December 31, 2011: Gross Sales, $241,000; Sales Returns and Allowances, $7,500; Sales Discounts, $7,800; Merchandise Inventory, January 1, 2011, $45,200; Merchandise Inventory, December 31, 2011, $71,300; Net Purchases, $91,900; Freight In, $1950; Salaries, $97,000; Rent, $30,600; Utilities, $2,500; Insurance, $2,450; and Income Tax, $19,350.
A) $206,500
B) $157,950
C) $138,800
D) $107,700

Accepted Answer

Gross Margin is calculated as Net Sales minus Cost of Goods Sold (COGS). Net Sales = Gross Sales - Sales Returns and Allowances - Sales Discounts = $241,000 - $7,500 - $7,800 = $225,700. COGS = Beginning Inventory + Net Purchases + Freight In - Ending Inventory = $45,200 + $91,900 + $1,950 - $71,300 = $67,750. Therefore, Gross Margin = Net Sales - COGS = $225,700 - $67,750 = $157,950.

Question 17

Perform a horizontal analysis for the balance sheet entry "Accounts Payable" given below. (Round to the nearest tenth) $\begin{array}{c}
\begin{array}{lll}
\
 \text { Liabilities and Owner's Equity}\
  \hline\text { Current Liabilities}\
 \text { Accounts Payable}\
 \text { Salaries Payable}\
 \text { Taxes Payable}\
 \text { Total Current Liabilities}\
 \text { Long-term Liabilities}\
 \text { Debenture Bond}\
 \text { Total Liabilities}\
 \text { Stockholder's Equity}\
 \text { Retained earnings}\
 \text { Total Liabilities and Stockholder's Equity}
\end{array}
\begin{array}{lll}
\
2012\
 \hline \
\$ 9,000 \
7,400 \
5,100 \
21,500\
\
17,000\
38,500\
\
28,000\
\$ 66,500 
\end{array}
\begin{array}{lll}
\
2011\
 \hline\
\$ 8,700 \
6,200 \
3,800 \
18,700\
\
15,700 \
34,400\
\
27,800\
\$ 62,200 
\end{array}
\begin{array}{lll}
 \text { Increase/Decrease }\
 \text { Amount Percent}\ 
 \hline\
 \
 \
 \
\
\
\
\
\
\
\
\end{array}
\end{array}$

A) (2.9%)
B) (3.0%)
C) 3.4%
D) (9.2%)

Accepted Answer

To perform a horizontal analysis for "Accounts Payable" from 2011 to 2012, calculate the percentage increase from \$8,700 in 2011 to \$9,000 in 2012. The increase is \$300 (\$9,000 - \$8,700). The percentage increase is $\frac{300}{8700} \times 100 = 3.4\%$.

Question 18

Perform a vertical analysis for the balance sheet entry "Accounts Payable" given below. (Round to the nearest tenth) $$\begin{array}{l}
\text { Liabilities and Owner's Equity }\
\begin{array} { l l } 
\hline \text { Current Liabilities } & \
\text { Accounts Payable } & \$ 8,100 \
\text { Sal aries Payable } & 14,600 \
\text { Taxes Payable } & 1,500 \
\text { Total Current Liabilities } & 24,200 \
\text { Long-term Liabilities } & \
\text { Debenture Bond } & 6,000 \
\text { Total Liabilities } & 30,200 \
\text { Stockholder's Equity } & \
\text { Retained earnings } & 6,700 \
\text { Total Liabilities and Stockholder's Equity } & \$ 36,900 \
\hline
\end{array}
\end{array}$$
A) 22.0%
B) 17.5%
C) 16.9%
D) 14.8%

Accepted Answer

The answer of Perform a vertical analysis for the balance...

Question 19

Perform a vertical analysis for the entry "Gross Sales" on the portion of an income statement shown below. (Round to the nearest tenth) $$\begin{array} { l l } 
\text { Revenue } & \
\text { Gross Sales } & \$ 290,000 \
\text { Less: Sales returns and Allowances } & 10,000 \
\text { Net Sales } & 280,000 \
\text { Operating Expenses } & \
\text { Salaries and Benefits } & 90,900 \
\text { Rent and Utilities } & 21,300 \
\text { Advertising and Promotions } & 1,250 \
\text { Insurance } & 2,500 \
\text { Miscellaneous Expenses } & 17,500 \
\text { Total Operating Expenses } & \$ 133,450 \
\hline
\end{array}$$
A) 105.9%
B) 103.6%
C) 13.1%
D) 3.6%

Accepted Answer

The answer of Perform a vertical analysis for the entry...

Question 20

Perform a vertical analysis for the balance sheet entry "Accounts Receivable" given below. (Round to the nearest tenth) $$\begin{array} { | l l | } 
\hline \text { Assets } & \
\hline \text { Current Assets } & \$ 23,000 \
\text { Cash } & 16,000 \
\text { Accounts Receivables } & 50,000 \
\text { Merchandise Inventory } & 2,500 \
\text { Supplies } & 91,500 \
\text { Total Current Assets } & \
\text { Property, Plant, and Equipment } & 23,000 \
\text { Machinery and Equipment } & \$ 114,500 \
 \text { Total Assets } &\
\hline
\end{array}$$
A) 14.6%
B) 13.8%
C) 17.7%
D) 14.0%

Accepted Answer

The answer of Perform a vertical analysis for the balance...

Quiz 15: Financial Statements and Ratios

Panhead's Bike Shop had net sales of $382,500 and the cost of goods sold were $172,300. Operating expenses were $107,645 and owner's equity is $437,645. Calculate the net profit margin. (Round to the nearest tenth)