Question 1

Expressed as a common-size percentage, inventories are probably highest for companies in which industry?

Accepted Answer

Retail companies typically carry high levels of inventory due to the nature of their business, which involves stocking a wide range of products to meet customer demand. In contrast, companies in the finance, airline, and hospitality industries typically have lower levels of inventory as they primarily offer services rather than physical products.

Question 2

The following are all Undistributed Operating Expenses (all in the local currency). What is the total for Administrative and General? Electricity 5,000; HR department labor 15,000; Accounting department other expenses 1,000; Advertising 8,000; GM's salary + benefits 10,000

Accepted Answer

Administrative and General expenses include HR department labor, Accounting department other expenses, and GM's salary + benefits. Therefore, the total for Administrative and General is 15,000 + 1,000 + 10,000 = 26,000. Option B is the correct answer.

Question 3

Which of the following would be on a hotel income statement ABOVE Gross Operating Profit?

Accepted Answer

Sales and Marketing expenses are considered operating expenses and are deducted from total revenue to calculate Gross Operating Profit.

Question 4

Can one infer from the income statement if a hotel is third-party managed?

Accepted Answer

Third-party management fees are typically listed as an expense on a hotel's income statement, just below gross operating profit (GOP). This expense line item indicates that the hotel is managed by a third-party management company, rather than being self-managed by the hotel's ownership or management team. Therefore, one can infer from the income statement that a hotel is third-party managed if such fees are listed as an expense.

Question 5

The Recognition principle entails that revenues from selling goods or services are recognized in the period in which the goods are: __________ and ______________. For services the recognition for both revenues and expenses apply when these are _________________.

Accepted Answer

The recognition principle states that revenues must be recognized in the period in which the goods are sold and delivered. For services, both revenues and expenses are recognized when the services are performed.

Question 6

A company puts all of their sales in a given month in their income statement for that month, as revenues, even though some of those sales were credit sales. Of which accounting principle is this an example?

Accepted Answer

This is an example of the recognition principle, which states that revenues should be recognized (recorded in the books) when they are earned, even if payment is not received at the time of sale.

Question 7

The supplier to the school cafeteria is stuck with a lot of unsold whole turkeys just before Christmas 20X8. They shape the meat into slices to be put on bread and sell this at a discount. The F&B manager decides to buy a few pounds on December 23rd, the last day of school that year, and put it in the freezer for selling it sometime in January 20X9. She pays the bill on January 15th, 20X9. In which month will the cost of sales be recorded in the income statement of the cafeteria?

Accepted Answer

The cost of sales will be recorded in the income statement in the month they sell the meat, which is January 20X9 according to the scenario. This follows the matching principle in accounting, which requires expenses to be matched with the revenues they generate. Since the sliced turkey will be sold in January, the cost of the unsold whole turkeys should also be recognized in January when the revenue is earned.

Question 8

Each year, the 'Kappa Delta Phi' sorority pays a whole year's rent for their chapter house in advance on 1 September. Their payments for 20X1 and 20X2 are as follows: 1 September, 20X1: $ 25,000, and 1 September, 20X2: $ 26,000. What rent expense will be on their 20X2 income statement?

Accepted Answer

The rent expense for 20X2 is calculated by taking the average of the two payments: ($25,000 for 20X1 + $26,000 for 20X2) / 2 = $25,500. However, since the rent for 20X1 is paid in advance, it covers the period from 1 September 20X1 to 31 August 20X2. Therefore, the rent expense for 20X2 should include the four months of 20X1's rent that apply to 20X2 (September to December) and the eight months of 20X2's rent that apply within the same year. The correct calculation divides the year proportionally based on the payment amounts and their applicable periods, leading to the correct answer of $25,333, which accounts for the proportional monthly expenses across the two payment periods.

Question 9

When preparing common-size statements, items on the balance sheet are generally stated as a percentage of _________________ and items on the income statement are generally stated as a percentage of __________________

Accepted Answer

When preparing common-size statements, items on the balance sheet are generally stated as a percentage of Total Assets and items on the income statement are generally stated as a percentage of Revenue.

Question 10

Accounts receivable are $ 250,000. Accounts payable are $ 100,000. Actual revenue was 3,000,000; budgeted revenue was $ 2,850,000. Balance sheet total is $ 7,500,000. Vertical analysis would give which value for accounts payable?

Accepted Answer

The answer of Accounts receivable are $ 250,000. Accounts payable...

Question 11

A company borrows $ 100,000 on November 1st, 2039. The interest percentage is 4% annually, with interest and installment payments on the first of February, June and October of each year. What is the interest expense for January 2040?

Accepted Answer

The interest expense for January 2040 is calculated based on the annual interest rate of 4% applied to the principal amount of $100,000. Since interest is accrued monthly, we calculate the monthly interest by dividing the annual interest by 12. Therefore, for one month, the interest expense is $100,000 * 4% / 12 = $333.33.

Question 12

A company borrows $ 100,000 on October 1st, 2039. The interest percentage is 4% annually, with interest and installment payments on the first of February, June, and October of each year. The loan will be repaid over 5 years, straight-line. What is the interest payment on the first of February 2040?

Accepted Answer

The answer of A company borrows $ 100,000 on October...

Question 13

Which of the following percentages, if known for a hotel, add up to 100 by definition?

Accepted Answer

Sales mix percentages, by definition, add up to 100% because they represent the proportion of each product sold relative to total sales.

Question 14

In determining depreciation amounts, you need to know or establish:

Accepted Answer

The useful life of the asset, the chosen depreciation method, and the residual value need to be established in order to determine the depreciation amount. Salvage value is another term for residual value, so it is included in the list of necessary information in option C. Interest rate percentage is not relevant to determining depreciation amounts.

Question 15

A piece of equipment was purchased for € 10,000 on July 1st, 2019. Its useful life is expected to be 3 years and its residual value $1,000. Management uses a straight-line depreciation methodology. What is the asset book value on January 1st, 2020, and the depreciation expense for the month of December 2019?

Accepted Answer

To calculate the asset book value on January 1st, 2020, we need to calculate the depreciation expense for the period from July 1st, 2019 to December 31st, 2019.

Total Depreciation Expense = (Cost - Residual Value) / Useful life = (€10,000 - €1,000) / 3 = €3,000 per year

Depreciation Expense for July 1st, 2019 to December 31st, 2019 = (€3,000 / 12) x 6 months = €750

Asset Book Value on January 1st, 2020 = Cost - Depreciation Expense = €10,000 - €750 = €8,250

Therefore, the answer is C (8,500 and 250, respectively).

Quiz 1: Measuring Performance