Question 1

Which would NOT be considered an extraordinary item?
A)Expropriation of a plant's assets in India
B)Tornado damage in Maine
C)Hurricane damage in Miami
D)Flood damage in Arizona

Accepted Answer

Hurricane damage in Miami would not be considered an extraordinary item because hurricanes are relatively common in Miami, making such events not unusual or infrequent for that area.

Question 2

The net working capital for a company with current assets of $70,000,quick assets of $30,000,total assets of $150,000,current liabilities of $50,000 and net sales of $80,000 would be:
A)$100,000.
B)$50,000.
C)$30,000.
D)$20,000.

Accepted Answer

Net working capital is calculated as current assets minus current liabilities. Here, it is $70,000 (current assets) - $50,000 (current liabilities) = $20,000.

Question 3

On the Income Statement,extraordinary items are reported:
A)immediately after the continuing operations section.
B)immediately before the discontinued operations section.
C)net of income tax or net of income tax savings.
D)before the operating income section.

Accepted Answer

Extraordinary items are reported net of income tax or net of income tax savings on the income statement.

Question 4

The net working capital for a company with current assets of $78,000,quick assets of $42,000,total assets of $177,000 current liabilities of $60,000 and net sales of $90,000 would be:
A)$60,000.
B)$30,000.
C)$18,000.
D)$117,000.

Accepted Answer

Net working capital is calculated as current assets minus current liabilities. Here, it is $78,000 (current assets) - $60,000 (current liabilities) = $18,000.

Question 5

Everyday business activities are reported in the:
A)continuing and discontinued operations section.
B)discontinued operations section.
C)continuing operations section.
D)extraordinary items section.

Accepted Answer

Everyday business activities are considered a part of continuing operations section in the financial statement. This section includes all of the revenues, expenses, gains, and losses that are incurred through a company's normal operations during the reporting period. It is separate from discontinued operations, which relates to the disposal of a business segment, and extraordinary items, which include unusual and non-recurring events.

Question 6

After income from continuing operations,the next section on an Income Statement is:
A)earnings per share data.
B)discontinued operations.
C)continuing operations.
D)extraordinary items.

Accepted Answer

The next section on an Income Statement after income from continuing operations is discontinued operations. This section is used to report any profits or losses from a segment or business that has been discontinued or sold within the current fiscal year.

Question 7

Which section of the Income Statement is NOT reported net of income taxes or net of income tax savings?
A)All sections are reported net of taxes.
B)Discontinued operations section
C)Continuing operations section
D)Extraordinary items section

Accepted Answer

The continuing operations section of the income statement is reported before income taxes, unlike discontinued operations and extraordinary items, which are reported net of taxes.

Question 8

Predictions about a company's future earnings can best be inferred from the:
A)earnings per share data.
B)discontinued operations section.
C)continuing operations section.
D)extraordinary items section.

Accepted Answer

The continuing operations section of a company's financial statements reports the ongoing revenue and expenses of the business, making it the most relevant section for analyzing future earnings potential. The earnings per share data is also important in analyzing a company's financial health, but it only provides a historical perspective and doesn't necessarily indicate future performance. The discontinued operations and extraordinary items sections are unlikely to provide meaningful information about a company's future earnings potential.

Question 9

Ironworks,Inc.has a cash balance of $80,000;short-term investments of $20,000;net receivables of $60,000;and inventory of $450,000.Current liabilities total $200,000.Red Line's current ratio is:
A)3)05 to 1.
B)2)75 to 1.
C)0)80 to 1.
D)0)70 to 1.

Accepted Answer

The current ratio is calculated as (Cash + Short-term investments + Net receivables + Inventory) / Current liabilities = ($80,000 + $20,000 + $60,000 + $450,000) / $200,000 = $610,000 / $200,000 = 3.05 to 1.

Question 10

Gains and losses on plant,property,and equipment are reported:
A)as a retrospective application.
B)in the discontinued operations section.
C)in the continuing operations section.
D)in the extraordinary items section.

Accepted Answer

Gains and losses on plant, property, and equipment are reported in the continuing operations section of the income statement. This is because the disposal or impairment of these assets is considered a regular part of the company's ongoing operations rather than an extraordinary or one-time event.

Question 11

The 2013 and 2014 balance sheets for Northwest Plumbing showed Cash of $6,500 and $8,000 respectively,Accounts Receivable of $15,000 and $18,000,respectively,Inventory of $12,500 and $9,500,respectively,and Accounts Payable of $5,000 and $8,000,respectively.Its 2014 Income Statement showed Net Sales of $116,000,Cost of Goods Sold of $58,000,and Net Income of $31,000.The cash conversion cycle for 2014 was (round calculations to two decimal places):
A)58.22 days.
B)80.24 days.
C)162.06 days.
D)23.60 days.

Accepted Answer

The cash conversion cycle (CCC) measures the time it takes a company to convert its investments in inventory and accounts receivable into cash. It is calculated as:

CCC = Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding

Days Inventory Outstanding (DIO) = (Average Inventory / Cost of Goods Sold) x 365
DIO = [(12500 + 9500) / 2 / 58000] x 365 = 29.79 days

Days Sales Outstanding (DSO) = (Accounts Receivable / Net Sales) x 365
DSO = (18000 / 116000) x 365 = 56.44 days

Days Payable Outstanding (DPO) = (Accounts Payable / Cost of Goods Sold) x 365
DPO = (8000 / 58000) x 365 = 50.34 days

Therefore, CCC = 29.79 + 56.44 - 50.34 = 35.89 days

The cash conversion cycle for 2014 was 35.89 days, which is closest to option B (80.24 days).

Question 12

On the Income Statement,the results of discontinued operations are reported:
A)as part of other income (expense).
B)immediately after the extraordinary items section.
C)net of income tax or net of income tax savings.
D)before the operating income section.

Accepted Answer

The results of discontinued operations are reported net of income tax or net of income tax savings. This means that the income or loss from discontinued operations is reported after taking into account the income tax effect.

Question 13

Other income (such as rental income)and other expenses (such as interest expense)are listed immediately after:
A)gross profit.
B)operating expenses.
C)operating income.
D)income tax expense.

Accepted Answer

Other income and other expenses are typically listed after operating income on the income statement.

Question 14

Business activities that are unusual and infrequent in occurrence are reported in the:
A)other income (expense)section.
B)discontinued operations section.
C)continuing operations section.
D)extraordinary items section.

Accepted Answer

Extraordinary items are defined as business events and transactions that are both unusual in nature and infrequent in occurrence. Such items are reported in the extraordinary items section of the income statement. Examples of extraordinary items include losses from natural disasters, expropriation of assets, or gains or losses from the early extinguishment of debt.

Question 15

The last section of an Income Statement report is:
A)extraordinary items.
B)discontinued operations.
C)continuing operations.
D)income tax expense.

Accepted Answer

The last section of an Income Statement usually shows extraordinary items. These items are events that are unusual or infrequent, and they are reported separately from the regular operating income. Examples of extraordinary items include insurance payouts from natural disasters, expropriations, or write-offs from lawsuits.

Question 16

When a company sells off part of the business,this would be reported:
A)as a retrospective application.
B)in the discontinued operations section.
C)in the continuing operations section.
D)in the extraordinary items section.

Accepted Answer

When a company sells off part of the business, it is reported in the discontinued operations section of the financial statements. This section displays any income or losses resulting from the disposal of a segment of the business that the company has either already discontinued or is planning to discontinue.

Question 17

A(n)________ is a distinguishable part of a business that is subject to a different set of risks and returns than other parts of the business.
A)extraordinary event
B)business segment
C)product line
D)manufacturing line

Accepted Answer

A business segment is a distinguishable part of a business that represents a different line of products or services, or operates in a distinct geographic area, and is subject to a different set of risks and returns. Product lines and manufacturing lines are part of a business segment, but not all business segments are defined solely by product or manufacturing lines. Extraordinary events are one-time occurrences and not a regular part of a business's operations.

Question 18

The current ratio for a company with current assets of $78,000,quick assets of $42,000,total assets of $177,000 current liabilities of $60,000 and net sales of $90,000 would be:
A)0)70.
B)2)95.
C)1)30.
D)1)50.

Accepted Answer

Current ratio is calculated by dividing current assets by current liabilities.

Current Ratio = Current assets / Current liabilities

Current assets = $78,000 
Current liabilities = $60,000

Current Ratio = $78,000 / $60,000 = 1.30

Therefore, the current ratio for the given company is 1.30.

Question 19

Perkins Company has $56,000 in cash;$12,000 in Accounts Receivable;$25,000 in short-term investments and $100,000 in merchandise inventory.The company also has $60,000 in current liabilities.The company's current ratio is:
A)0)933.
B)1)550.
C)1)133.
D)3)217.

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. Current assets are $56,000 (cash) + $12,000 (accounts receivable) + $25,000 (short-term investments) + $100,000 (inventory) = $193,000. Current liabilities are $60,000. So, the current ratio is $193,000 / $60,000 = 3.217.

Question 20

The 2013 and 2014 balance sheets for Shadow Industries showed Cash of $8,000 and $9,500 respectively,Accounts Receivable of $14,000 and $16,000,respectively,Inventory of $11,000 and $8,000,respectively,and Accounts Payable of $5,000 and $7,000,respectively.Its 2014 Income Statement showed Net Sales of $108,000,Cost of Goods Sold of $62,000,and Net Income of $27,000.The cash conversion cycle for 2014 was (round calculations to two decimal places):
A)141.94 days.
B)40.56 days.
C)30.08 days.
D)71.30 days.

Accepted Answer

The answer of The 2013 and 2014 balance sheets for...

Quiz 12: Financial Statement Analysis

Which would NOT be considered an extraordinary item?

The net working capital for a company with current assets of $70,000,quick assets of $30,000,total assets of $150,000,current liabilities of $50,000 and net sales of $80,000 would be:

On the Income Statement,extraordinary items are reported:

The net working capital for a company with current assets of $78,000,quick assets of $42,000,total assets of $177,000 current liabilities of $60,000 and net sales of $90,000 would be:

Everyday business activities are reported in the:

After income from continuing operations,the next section on an Income Statement is:

Which section of the Income Statement is NOT reported net of income taxes or net of income tax savings?

Predictions about a company's future earnings can best be inferred from the:

Ironworks,Inc.has a cash balance of $80,000;short-term investments of $20,000;net receivables of $60,000;and inventory of $450,000.Current liabilities total $200,000.Red Line's current ratio is:

Gains and losses on plant,property,and equipment are reported:

On the Income Statement,the results of discontinued operations are reported:

Other income (such as rental income) and other expenses (such as interest expense) are listed immediately after:

Business activities that are unusual and infrequent in occurrence are reported in the:

The last section of an Income Statement report is:

When a company sells off part of the business,this would be reported:

A(n) ________ is a distinguishable part of a business that is subject to a different set of risks and returns than other parts of the business.

The current ratio for a company with current assets of $78,000,quick assets of $42,000,total assets of $177,000 current liabilities of $60,000 and net sales of $90,000 would be:

Perkins Company has $56,000 in cash;$12,000 in Accounts Receivable;$25,000 in short-term investments and $100,000 in merchandise inventory.The company also has $60,000 in current liabilities.The company's current ratio is: