Questions and Answers of Understanding Financial Accounting

Select a publicly traded company for analysis or use a company assigned by your instructor. Based on the firm’s most recent Form 10-K report (accessed through the SEC EDGAR database or from the
Each chapter in the textbook contains a continuation of this problem. The objective is to learn how to do a comprehensive financial statement analysis in steps as the content of each chapter is
Select a public company that has reported a goodwill impairment in its 10-K report.Possible companies to consider are Baker Hughes Co., A&T Inc., Uber Technologies, Carnival Corporation,
Which of the following is an acceptable method to report total comprehensive income according to U.S. GAAP?(a) On the face of the balance sheet.(b) In the discontinued operations section of the
What is a common-size income statement?(a) An income statement that provides intermediate profit measures.(b) An income statement that groups all items of revenue together, then deducts all
Why is it important to evaluate increases and decreases in operating expenses?(a) Increases in operating expenses may indicate inefficiencies, and decreases in operating expenses may be detrimental
How are costs of assets that benefit a firm for more than one year allocated?(a) Depreciation.(b) Depletion and amortization.(c) Costs are divided by service lives of assets and allocated to repairs
Why should the expenditures for repairs and maintenance correspond to the level of investment in capital equipment and to the age and condition of that equipment?(a) Repairs and maintenance expense
Why is the figure for operating profit important?(a) This is the figure used for calculating federal income tax expense.(b) The figure for operating profit provides a basis for assessing the success
Which of the following items should be recorded as other comprehensive income?(a) Foreign currency translation effects.(b) Extraordinary gains and losses.(c) Realized gains and losses.(d) All of the
When is a dual presentation of basic and diluted earnings per share required?(a) When a company has pension liabilities.(b) When convertible securities are in fact converted.(c) When a company has a
Match the following terms with the correct definitions:(a) Depreciation.(b) Depletion.(c) Amortization.(d) Gross profit.(e) Operating profit.(f) Net profit.(g) Equity method.(h) Cost method.(i)
The following categories appear on the income statement of Joshua Jeans Company:(a) Net sales.(b) Cost of sales.(c) Operating expenses.(d) Other revenue/expense.(e) Income tax expense.Classify the
How is a common-size income statement created?
Income statements for Yarrick Company for the years ending December 31, 2024, 2023, and 2022 are shown below. Prepare a common-size income statement and analyze the profitability of the company.
LA Theatres Inc. has two distinct revenue sources, ticket and concession revenues. The following information from LA Theatres Inc. income statements for the past three years is available:(a)
Income statements are presented for the Elf Corporation for the years ending December 31, 2024, 2023, and 2022.Required: Write a one-paragraph analysis of Elf Corporation’s profit performance for
Locate the income statement of a company in each of the following industries: pharmaceutical, technology, retailer—groceries, and automobile manufacturer. Calculate the gross profit margin,
Look up the FASB home page on the Internet at the following address: www.fasb.org. Find the list of technical projects that are currently on the board’s agenda. Choose one of the projects that will
Select a publicly traded company for analysis or use a company assigned by your instructor. Using the firm’s most recent Form 10-K report (accessed through the SEC EDGAR database or from the
Select two competing companies from the same industry, for example, Coke and Pepsi, Adidas and Nike, Verizon and AT&T, Intel and Samsung, General Motors and Ford, Costco and Kroger. Using
The statement of cash flows segregates cash inflows and outflows by:(a) Operating and financing activities.(b) Financing and investing activities.(c) Operating and investing activities.(d) Operating,
Which of the following statements is false?(a) Firms only have financial difficulties when both the net income and cash flow from operations are negative.(b) The statement of cash flows shows how
How would revenue from sales of goods and services be classified?(a) Operating outflow.(b) Operating inflow.(c) Investing inflow.(d) Financing inflow.
Which method of calculating cash flow from operations requires the adjustment of net income for deferrals, accruals, noncash, and nonoperating expenses?(a) The direct method.(b) The indirect
An inflow of cash would result from which of the following?(a) The increase in an asset account other than cash.(b) The decrease in an asset account other than cash.(c) The decrease in an equity
An outflow of cash would result from which of the following?(a) The decrease in an asset account other than cash.(b) The increase in a liability account.(c) The decrease in a liability account.(d)
Why has cash flow from operations become increasingly important as an analytical tool?(a) Inflation has distorted the meaningfulness of net income.(b) High interest rates can put the cost of
Which of the following statements is false?(a) A negative cash flow can occur in a year in which net income is positive.(b) An increase in accounts receivable represents accounts not yet collected in
What is net cash flow from operating activities?(a) ($3,000)(b) ($1,000)(c) $5,000(d) $13,000 The following information is available for Jacqui’s Jewelry and Gift Store: Net income Depreciation
What is net cash flow from investing activities?(a) $14,000(b) ($14,000)(c) $21,000(d) ($16,000)The following information is available for Jacqui’s Jewelry and Gift Store: Net income Depreciation
What is net cash flow from financing activities?(a) $15,000(b) ($15,000)(c) $17,000(d) ($14,000)The following information is available for Jacqui’s Jewelry and Gift Store: Net income Depreciation
What is the change in cash?(a) ($3,000)(b) $3,000(c) $2,000(d) ($2,000)The following information is available for Jacqui’s Jewelry and Gift Store: Net income Depreciation expense Increase in
The following comparative balance sheets and income statement are available for AddieMae Inc. Prepare a statement of cash flows for 2024 using the indirect method and analyze the statement. December
The following cash flows were reported by Techno Inc. in 2024 and 2023.(a) Explain the difference between net income and cash flow from operating activities for Techno in 2024.(b) Analyze Techno
Choose five companies from different industries and locate their statements of cash flows for the most recent year.(a) Create a table to compare the dollars provided or used by operating, investing,
Select a publicly traded company for analysis. Using the firm’s most recent 10-K Report, accessed through the SEC EDGAR database at sec.gov or from the company’s website, analyze the firm’s
What is the first step in an analysis of financial statements?(a) Check the auditor’s report.(b) Check references containing financial information.(c) Specify the objectives of the analysis.(d) Do
What is a creditor’s objective in performing an analysis of financial statements?(a) To decide whether the borrower has the ability to repay interest and principal on borrowed funds.(b) To
What is an investor’s objective in financial statement analysis?(a) To decide whether the borrower has the ability to repay interest and principal on borrowed funds.(b) To determine if the firm
What is a Form 10-K?(a) A document filed with the American Institute of Certified Public Accountants (AICPA) containing supplementary schedules showing management remuneration and elaborations of
What information can be gained from sources such as Industry Norms and Key Business Ratios and Annual Statement Studies?(a) The general economic condition.(b) Forecasts of earnings.(c) Elaborations
When can the times interest earned ratio be misleading?(a) When net profit is negative.(b) When interest rates are changing.(c) When a company does not generate enough cash to cover interest
Which profit margin measures the overall operating efficiency of the firm?(a) Gross profit margin.(b) Operating profit margin.(c) Net profit margin.(d) Return on equity.
JDL’s current ratio is:(a) 1.0 to 1.(b) 0.7 to 1.(c) 1.5 to 1.(d) 2.4 to 1. JDL Corporation Selected Financial Data, December 31, 2024 Current assets $150,000 Current liabilities 100,000
JDL’s quick ratio is:(a) 1.0 to 1.(b) 0.7 to 1.(c) 1.5 to 1.(d) 2.4 to 1. JDL Corporation Selected Financial Data, December 31, 2024 Current assets $150,000 Current liabilities 100,000 Inventories
JDL’s average collection period is:(a) 6 days.(b) 11 days.(c) 16 days.(d) 22 days. JDL Corporation Selected Financial Data, December 31, 2024 Current assets $150,000 Current liabilities 100,000
JDL’s inventory turnover is:(a) 1.25 times.(b) 13.5 times.(c) 3.0 times.(d) 37.5 times. JDL Corporation Selected Financial Data, December 31, 2024 Current assets $150,000 Current liabilities
RQM’s gross profit margin, operating profit margin, and net profit margin, respectively, are:(a) 40.00%, 22.50%, 19.50%.(b) 60.00%, 19.50%, 10.83%.(c) 60.00%, 22.50%, 19.50%.(d) 40.00%, 22.50%,
RQM’s return on equity is:(a) 26%.(b) 54%.(c) 42%.(d) 19%. RQM Corporation Selected Financial Data, December 31, 2024 Net sales $1,800,000 Cost of goods sold 1,080,000 Operating expenses 315,000
RQM’s return on investment is:(a) 22.5%.(b) 26.5%.(c) 19.5%.(d) 40.5%. RQM Corporation Selected Financial Data, December 31, 2024 Net sales $1,800,000 Cost of goods sold 1,080,000 Operating
RQM’s cash flow margin is:(a) 1.4%.(b) 2.5%.(c) 10.8%.(d) 12.8%. RQM Corporation Selected Financial Data, December 31, 2024 Net sales $1,800,000 Cost of goods sold 1,080,000 Operating expenses
Eleanor’s Computers is a retailer of computer products. Using the financial data provided, complete the financial ratio calculations for 2024. Advise management of any ratios that indicate
Using the ratios and information given for Retailers Unlimited, the largest brick-and-mortar U.S. retailer, analyze the short-term liquidity and operating efficiency of the firm as of January 31,
Using the ratios and information given for ABC Airways, an airline company, analyze the capital structure, long-term solvency, and profitability of ABC Airways as of 2024. Financial ratios 2024 2023
Sage Inc.’s staff of accountants finished preparing the financial statements for the most recent year and will meet next week with the company’s CEO as well as the Director of Investor Relations
How is a common-size balance sheet created?
Using the following amounts (in thousands) reported in Tiger Tech Inc.’s consolidated balance sheets and statements of income at December 31, 2024 and 2023, and the valuation schedule, analyze the
The following information is available for Chemco Inc.’s inventories as of June 30, 2024:We used the LIFO method of valuing our inventories for approximately 40% and 44% of total inventories at
Using the information below for Dean Corporation, calculate the amount of dividends Dean most likely paid to common stockholders in 2022, 2023, and 2024. Retained Earnings Net Balances Year Income
Locate the most recent Intel Corporation Form 10-K from the SEC EDGAR database (www.sec.gov). Using the financial statements and notes to the financial statements, determine if Intel has commitments
Exhibits 2.4 and 2.5 in the textbook show industry averages for inventories and net fixed assets as a percentage of total assets taken from The Risk Management Association, Annual Statement Studies.
Choose a publicly held corporation and find the balance sheet and notes to the financial statements in the most recent Form 10-K. This form can be located by going to the home page of the
Which of the following organizations write accounting rules?(a) FASB and Congress.(b) EDGAR and IASB.(c) FASB, SEC, and IASB.(d) SOX, SEC, and IASB.
Which of the following statements is false?(a) The Sarbanes-Oxley Act of 2002 was the cause of the demise of Enron.(b) The FASB and the IASB are working closely to develop a set of accounting rules
What does Section 404 of the Sarbanes-Oxley Act of 2002 require?(a) A 10-year jail sentence and $1 million fine for violations of the act.(b) Rotation of audit partners every five years.(c) A
Which information is hard to find or missing from the financial statements?(a) Total long-term debt.(b) Net income.(c) Statement of cash flows.(d) Reputation of the firm with its customers.
Where would you find the following information?(1) An attestation to the fairness of financial statements.(2) Summary of significant accounting policies.(3) Cash flow from operating, financing, and
What reports are required to be filed regularly with the SEC?
Research Problem Access the FASB website: https://fasb.org. Locate information about updates to accounting standards in the most recent year listed. Choose one of the updates and write a short essay
Select a publicly traded company for analysis or use a company assigned by your instructor. Using the firm’s most recent Form 10-K report (accessed through the SEC EDGAR database or from the
Each chapter in the textbook contains a continuation of this problem. The objective is to learn how to do a comprehensive financial statement analysis in steps as you learn the content of each
Select a publicly traded company or use a company assigned by your instructor.Using the firm’s most recent Form 10-K report (accessed through the SEC EDGAR database or from the company’s
Select a publicly traded company for analysis. Using the firm’s most recent 10-K Report (accessed through the SEC EDGAR database at sec.gov or from the company’s website), identify how financial
What type of firm generally has the highest proportion of inventory to total assets?(a) Retailers.(b) Wholesalers.(c) Manufacturers.(d) Service-oriented firms.
Why is the method of valuing inventory important?(a) Inventory valuation is based on the actual flow of goods.(b) Inventories always account for more than 50% of total assets and therefore have a
What are three major cost flow assumptions used by U.S. companies in valuing inventory?(a) LIFO, FIFO, average market.(b) LIFO, FIFO, actual cost.(c) LIFO, FIFO, average cost.(d) LIFO, FIFO,
Assuming a period of inflation, which statement is true?(a) The FIFO method understates balance sheet inventory.(b) The FIFO method understates cost of goods sold on the income statement.(c) The LIFO
Why would a company switch to the LIFO method of inventory valuation?(a) By switching to LIFO, reported earnings will be higher.(b) A new tax law requires companies using LIFO for reporting purposes
Where can one most typically find the cost flow assumption used for inventory valuation for a specific company?(a) In The Risk Management Association, Annual Statement Studies.(b) In the statement of
What type of firm generally has the highest proportion of fixed assets to total assets?(a) Manufacturers.(b) Retailers.(c) Wholesalers.(d) Retailers and wholesalers.
How is goodwill evaluated?(a) Goodwill must be amortized over a 40-year period.(b) Goodwill should be written up each year.(c) Companies should determine whether goodwill has lost value, and if so,
Which of the following liabilities would be included in the current liabilities section on the balance sheet?(a) Finance lease obligations, notes payable, common stock.(b) Accounts payable,
What do current liabilities and current assets have in common?(a) Current assets are claims against current liabilities.(b) If current assets increase, then there will be a corresponding increase in
Which of the following items could cause the recognition of accrued liabilities?(a) Sales, interest expense, rent.(b) Sales, taxes, interest income.(c) Salaries, rent, insurance.(d) Salaries,
Which statement is false?(a) Deferred taxes are the product of temporary differences in the recognition of revenue and expense for taxable income relative to reported income.(b) Deferred taxes arise
Which of the following would be classified as long-term debt?(a) Mortgages, current maturities of long-term debt, bonds.(b) Mortgages, long-term notes payable, bonds due in 10 years.(c) Accounts
What accounts are most likely to be found in the stockholders’ equity section of the balance sheet?(a) Common stock, long-term debt, preferred stock.(b) Common stock, additional paid-in capital,
What does the additional paid-in capital account represent?(a) The difference between the par and the stated value of common stock.(b) The price changes that result for stock trading subsequent to
What does the retained earnings account measure?(a) Cash held by the company since its inception.(b) Payments made to shareholders in the form of cash or stock dividends.(c) All undistributed
Listed below are balance sheet accounts for Elf’s Gift Shop. Mark current accounts with “C” and noncurrent accounts with “NC.”(a) Long-term debt.(b) Inventories.(c) Accounts payable.(d)
Dot’s Delicious Donuts has the following accounts on its balance sheet:(1) Current assets.(2) Property, plant, and equipment.(3) Intangible assets.(4) Other assets.(5) Current liabilities.(6)
Match the following terms to the correct definitions.(a) Consolidated financial statements.(b) Current assets.(c) Depreciation.(d) Deferred taxes.(e) Allowance for doubtful accounts.(f) Prepaid
The following information is available for Beauvalon Inc. for the preparation of its September 30, 2024, financial statements:Income before taxes
Banting Best Pharmaceuticals Ltd. is a large commercial insulin producer, with a number of manufacturing facilities across Canada. To finance the additional real estate and production facilities
Exhibit 9.5 is an extract from the University of Saskatchewan’s 019/20 annual report. (Most post-secondary institutions in Canada have a fiscal year that ends on March 31, so it includes
(Exhibit 9.6) of eyecare company New Look Vision Group Inc.’s 2020 financial statements discusses the company’s credit facilities.Required a. What does it mean that the company has a
On June 30, 2024, Kovacs Company borrowed $400,000 at a bank by signing a five-year, 10% loan. The terms of the loan require equal semi-annual principal payments plus interest beginning December 31,
Dominique, the CFO for Trattoria Inc., asked you to classify the following liabilities for the December 31, 2024, statement of financial position: 1. Trattoria declared a dividend in 2024 of
On May 1, 2024, Christina Fashions borrowed $100,000 at a bank by signing a four-year, 6% loan. The terms of the loan require equal principal payments of $25,000 and accrued interest at 6% due

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