Multiple Choice Question
1. If average total assets increase, but net income, net sales, and average stockholders’ equity remain the same, what is the impact on the return on assets ratio?
a. Increases.
b. Decreases
c. Remains the same..
d. Cannot be determined without additional information.
2. If a company plans to differentiate its products by offering low prices and discounts for items packaged in bulk (like a discount retailer that requires memberships for its customers), which component in the ROA profit driver analysis is the company attempting to boost?
a. Net profit margin.
b. Asset turnover.
c. Financial leverage.
d. All of the above.
3. If a company reported the following items on its income statement (cost of goods sold $5,000, income tax expense $2,000, interest expense $500, operating expenses $3,500, sales revenue
$14,000), what amount would be reported for the subtotal “income from operations”?
a. $9,000
b. $3,000
c. $5,000
d. $5,500
4. Which of the following is not one of the possible nonrecurring items that must be shown in a separate line item below the Income from Continuing Operations subtotal in the income statement?
a. Gains and losses from the sale of fixed assets.
c. Extraordinary items.
b. Discontinued operations.
d. Both a and b.
5. Which of the following reports is filed annually with the SEC?
a. Form 10-Q
b. Form 10-K
c. Form 8-K
d. Press release
6. Which of the following would normally not be found in the notes to the financial statements?
a. Accounting rules applied in the company’s financial statements.
b. Additional detail supporting numbers reported in the company’s financial statements.
c. Relevant financial information not presented in the company’s financial statements.
d. All of the above would be found in the notes to the financial statements.
7. Which of the following is not a normal function of a financial analyst?
a. Issue earnings forecasts.
b. Examine the records underlying the financial statements to certify their conformance with GAAP.
c. Make buy, hold, and sell recommendations on companies’ stock.
d. Advise institutional investors on their securities holdings.
8. The classified balance sheet format allows one to ascertain quickly which of the following?
a. The most valuable asset of the company.
b. The specific due date for all liabilities of the company.
c. What liabilities must be paid within the upcoming year.
d. None of the above.
9. When companies issue par value stock for cash, which accounts are normally affected?
a. Common Stock; Additional Paid-In Capital; and Property, Plant, and Equipment, Net.
b. Cash; and Property, Plant, and Equipment, Net.
c. Common Stock; Additional Paid-In Capital; and Retained Earnings.
d. Common Stock; Additional Paid-In Capital; and Cash.
10. Net income was $900,000. Beginning and ending assets were $8,000,000 and $9,600,000, respectively. What was the return on assets (ROA)?
a. 9.4%
b. 10.23%
c. 11.25%
d. 10.41%