Question 1

How many of the following balance sheet items are classified as a current asset or current liability? •Retained earnings
•Accounts payable
•Plant and equipment
•Inventory
•Common stock
•Bonds payable
•Accrued wages payable
•Accounts receivable
•Preferred stock

Accepted Answer

The current assets and current liabilities are items that are expected to be converted into cash or paid off within one year or one operating cycle (whichever is longer).

The current assets in this list are: inventory, accounts receivable, and accrued wages payable.

The current liabilities in this list are: accounts payable and accrued wages payable.

Therefore, there are four items that are classified as current assets or current liabilities: inventory, accounts receivable, accounts payable, and accrued wages payable.

Question 2

Candy Company had sales of $320,000 and cost of goods sold of $112,000. What is the gross profit margin (ratio of gross profit to sales)?

Accepted Answer

Gross profit margin is calculated as (Sales - Cost of Goods Sold) / Sales. Here, it is ($320,000 - $112,000) / $320,000 = $208,000 / $320,000 = 0.65 or 65%.

Question 3

A firm has $1,500,000 in its common stock account and $1,000,000 in its capital paid in excess of par account. The firm issued 100,000 shares of common stock. What was the issue price (market value) if only one stock has ever been sold?

Accepted Answer

The answer of A firm has $1,500,000 in its common...

Question 4

Density Farms Inc. had sales of $750,000, cost of goods sold of $200,000, selling and administrative expense of $70,000, and operating profit of $150,000. What was the value of depreciation expense?

Accepted Answer

The answer of Density Farms Inc. had sales of $750,000,...

Question 5

Increasing interest expense will have what effect on Earnings Before Interest and Taxes (EBIT)?

Accepted Answer

EBIT, or Earnings Before Interest and Taxes, is calculated before considering interest expenses. Therefore, changes in interest expenses do not affect EBIT.

Question 6

Reinvested funds into retained earnings theoretically belong to

Accepted Answer

Reinvested funds into retained earnings are used to fund business growth and expansion, which ultimately benefits the common stockholders by potentially increasing the value of their investment. Therefore, they theoretically belong to common stockholders. They do not belong to bondholders or employees.

Question 7

A firm has $4,000 in its common stock account and $10,000 in its paid-in capital account. The firm issued 1,000 shares of common stock. What is the par value of the common stock?

Accepted Answer

Par value = Common stock/number of shares outstanding = $4,000/1,000 = $4

Question 8

Earnings per share is

Accepted Answer

Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock. It is calculated as net income minus preferred dividends divided by the number of shares outstanding. Option A is incorrect because operating profit is not the same as net income. Option B is similar to the correct answer, but it does not take into account any preferred dividends that may be paid out. Option C is incorrect because stockholders' equity is not the same as the number of shares outstanding for EPS purposes.

Question 9

Which of the following would not be classified as a current asset?

Accepted Answer

Plant property and equipment are classified as a long-term asset, not a current asset, as they are not expected to be liquidated within one year. Marketable securities, prepaid expenses, and inventory are all examples of current assets as they are expected to be consumed or turned into cash within one year.

Question 10

Which of the following factors do not influence the firm's P/E ratio?

Accepted Answer

All the options listed (past earnings, shares outstanding, and volatility in business performance) influence a firm's Price-to-Earnings (P/E) ratio. Past earnings affect investor expectations for future earnings, shares outstanding impact earnings per share, and volatility in business performance can affect risk perceptions and future earnings predictability, all of which are factors in determining a firm's P/E ratio.

Question 11

Consider the following information for Ball Corp.  What is the operating profit for Ball Corp.?

Accepted Answer

The operating profit for Ball Corp. is given as $130,000 in the available information. Therefore, option C is the correct choice.

Question 12

When a firm's earnings are falling more rapidly than its stock price, its P/E ratio will

Accepted Answer

When a firm's earnings are falling more rapidly than its stock price, the price-to-earnings (P/E) ratio will go up. This is because the P/E ratio is calculated by dividing the current market price of the stock by its earnings per share (EPS). If earnings (the denominator) decrease faster than the stock price (the numerator), the ratio increases.

Question 13

Which of the following is not a primary source of raising money or capital for the firm?

Accepted Answer

While assets can be used as collateral for loans or can be sold for cash, they are not a primary source of raising money or capital for the firm. Primary sources include common stock, preferred stock, and bonds, which are issued by the company itself.

Question 14

Elgin Battery Manufacturers had sales of $1,000,000 in 2015 and their cost of goods sold is $700,000. Selling and administrative expenses were $100,000. Depreciation expense was $80,000 and interest expense for the year was $10,000. The firm's tax rate is 30 percent. What is the dollar amount of taxes paid in 2015?

Accepted Answer

First, we need to find the earnings before interest and taxes (EBIT):
EBIT = Sales - Cost of Goods Sold - Selling and Administrative Expenses - Depreciation Expense
EBIT = $1,000,000 - $700,000 - $100,000 - $80,000 = $120,000

Then, we subtract interest expense to get earnings before taxes (EBT):
EBT = EBIT - Interest Expense
EBT = $120,000 - $10,000 = $110,000

We can then calculate the amount of taxes paid by multiplying EBT by the tax rate:
Taxes = EBT x Tax Rate
Taxes = $110,000 x 0.30 = $33,000

Therefore, the dollar amount of taxes paid in 2015 is $33,000. Option C is the correct answer.

Question 15

Price-earnings (P/E) ratio is influenced by all of the following BUT

Accepted Answer

The P/E ratio is directly influenced by earnings per share (B) as it is a component of the ratio itself. Business risk (A) and quality of management (C) indirectly affect the P/E ratio through their impact on the company's future earnings potential and investor perception, but they are not direct components of the P/E ratio calculation. Therefore, all the options listed do influence the P/E ratio in some manner.

Question 16

A firm with earnings per share of $3 and a price-earnings (P/E) ratio of 24 will have a stock market price of

Accepted Answer

The stock market price can be determined by multiplying the earnings per share (EPS) by the price-earnings (P/E) ratio. Thus, for this firm, the stock market price would be 3 x 24 = $72.00.

Question 17

An item which may be converted to cash within one year or one operating cycle of the firm is classified as a

Accepted Answer

A current asset is an item that is expected to be converted to cash within one year or one operating cycle of the firm. Examples include cash, accounts receivable, and inventory.

Question 18

Asset accounts on the balance sheet are listed in order of

Accepted Answer

Asset accounts on the balance sheet are generally listed in order of liquidity, meaning the ease with which they can be converted into cash. The most liquid assets are typically listed first, followed by assets that are less liquid. This order provides valuable information to investors and analysts about a company's short-term financial strength and ability to meet its obligations.

Question 19

How many of the following items are found on the balance sheet, rather than the income statement? •Accounts receivable
•Retained earnings
•Income tax expense
•Accrued payable
•Cash
•Selling and administrative expenses
•Plant and equipment
•Operating expense
•Marketable securities
•Interest expense

Accepted Answer

The answer of How many of the following items are...

Question 20

Allen Lumber Company had earnings after taxes of $750,000 in the year 2015 with 300,000 shares outstanding on December 31, 2015. On January 1, 2016, the firm issued 50,000 new shares. The company took the proceeds from these new shares as well as other operating improvements and earned $937,500 earnings after taxes in 2016. Earnings per share for the year 2016 were

Accepted Answer

Earnings per share (EPS) for 2015 is calculated as:
EPS = Earnings after taxes / Number of shares outstanding
EPS = $750,000 / 300,000
EPS = $2.50

After issuing 50,000 new shares, the total number of shares outstanding is 350,000.
Earnings after taxes for 2016 are $937,500.
EPS for 2016 is calculated as:
EPS = Earnings after taxes / Number of shares outstanding
EPS = $937,500 / 350,000
EPS = $2.68

Quiz 2: Review of Accounting

How many of the following balance sheet items are classified as a current asset or current liability? •Retained earnings •Accounts payable •Plant and equipment •Inventory •Common stock •Bonds payable •Accrued wages payable •Accounts receivable •Preferred stock

Candy Company had sales of $320,000 and cost of goods sold of $112,000. What is the gross profit margin (ratio of gross profit to sales) ?