1. DeHoag Corporation provided the following information from its financial records:
Net income | $200,000 | Number of common shares outstanding 1/1 | 200,000 | |
Common stock dividends | $10,000 | Number of common shares outstanding 12/31 | 300,000 | |
Sales | $800,000 |
What is the amount of the company's earnings per share?
$0.72
$0.76
$0.80
$3.20
2. Which of the following is a factor involved in communicating useful financial information?
Attributes of the users
Purpose for which the information will be used
Process by which the information is analyzed
All of the above
3. Select the incorrect statement regarding the return on equity (ROE) measure.
ROE is used to measure the profitability of the firm in relation to the amount invested by stockholders.
A company’s ROE is lower than its return on investment because ROE does not consider that part of the business that is financed by debt.
ROE is affected by a company’s use of leverage.
ROE equals net income divided by average total stockholders' equity.
4. Select the incorrect decision rule from the following.
A 2:1 current ratio is generally preferred over a 1:1 current ratio.
A 30-day average collection period for accounts receivable is generally preferred over a 40-day average collection period.
A 2% dividend yield is generally preferred over a 3% dividend yield.
A 10% net margin is generally preferred over an 8% net margin.
5. Select the incorrect statement regarding net margin.
Net margin refers to the average amount of each sales dollar remaining after all expenses are subtracted.
Net margin may be calculated in several ways.
The smaller the net margin the better.
The amount of net margin is affected by a company’s choices of accounting principles.
6. Accrual accounting requires the use of many estimates, including:
uncollectible accounts expense.
warranty costs.
assets’ useful lives.
all of the above.
7. Select the correct statement regarding vertical analysis.
Vertical analysis of the income statement involves showing each item as a percentage of sales.
Vertical analysis of the balance sheet involves showing each asset as a percentage of total assets.
Vertical analysis examines two or more items from the financial statements of one accounting period.
All of the above are correct.
8. Otteman Company reported net income of $16,700 on gross sales of $80,000. The company has average total assets of $115,200, of which $100,000 is property, plant, and equipment. What is the company's return on investment?
69.4%
18.0%
14.5%
12.5%
9. Select the incorrect statement regarding horizontal analysis.
Percentage analysis involves establishing the relationship of one amount to another.
In doing horizontal analysis, an account is expressed as a percentage of the previous balance of the same account.
Percentage analysis attempts to eliminate the materiality problem of comparing firms of different sizes.
A horizontal analysis of cost of goods sold on the income statement would involve dividing cost of goods sold by total sales revenue.
10. You are considering an investment in Ingram Company stock and wish to assess the company's position in the stock market. All of the following ratios can be used for this purpose except:
current ratio.
earnings per share.
dividend yield.
price-earnings ratio.
11. Which of following practices is considered an effective means of re-engineering business systems?
Identifying the best practices used by world-class competitors
Improving the accuracy of cost allocations
Eliminating non-value added activities
All of the above
12. Howard Lumber Company mistakenly classified as an expense a product cost that totaled $20,000. The company produced 2,000 units of product and sold 1,000 of them during the year. Management is paid a bonus equal to 2% of net income. In the year in which the mistake was made:
product costs were overstated.
management bonuses were overstated.
the company's income statement portrayed a more favorable position than actually existed.
the company's net income was understated.
13. During its first year of operations, Martin Company paid $4,000 for direct materials and $8,500 for production workers' wages. Lease payments and utilities on the production facilities amounted to $7,500 while general, selling, and administrative expenses totaled $3,000. The company produced 5,000 units and sold 4,000 units at a price of $7.50 a unit.
What is the amount of gross margin for the first year?
$20,000
$12,000
$7,500
$14,000
14. Which of the following transactions would cause net income for the period to be lower?
Paid $1,600 cash for raw material cost
Paid administrative salaries of $2,500
Depreciated production equipment for $3,000
Purchased $5,000 of merchandise inventory
15. For a manufacturing company, product costs include all of the following except:
direct material costs.
direct labor costs.
research and development costs.
overhead costs.
16. During its first year of operations, Martin Company paid $4,000 for direct materials and $8,500 for production workers' wages. Lease payments and utilities on the production facilities amounted to $7,500 while general, selling, and administrative expenses totaled $3,000. The company produced 5,000 units and sold 4,000 units at a price of $7.50 a unit.
What was Martin’s net income for the first year in operation?
$11,000
$7,000
$14,000
$20,000
17. Which of the following costs would not be classified as overhead for a company that produces small appliances?
Assembly labor
Plant supervisory labor
Indirect material costs
Plant utilities costs
18. As a Certified Management Accountant, Zandra is bound by the standards of ethical conduct issued by the Institute of Management Accountants. During the course of business, Zandra learned that her company has decided to discontinue a major product line. If she mentions this fact to her brother, who is a stockbroker, Zandra could be in violation of the:
competence standard.
confidentiality standard.
integrity standard.
objectivity standard.
19. Susan Mason is the manager of one department in a large store. In this capacity, which of the following kinds of information would she be interested in?
Information that is local, relevant, and timely
Information that is global and pertains to the business as a whole
Information that meets cost/benefit criteria
Both A and C
20. Which of the following is not one of the four Standards of Ethical Conduct for Management Accountants?
Competence
Confidentiality
Integrity
Education
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