The accrual of interest revenue increases both total assets and net income which are the two components of return on assets.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 05-03 Recognize and apply the different financial statement and disclosure formats used by companies in practice.
Learning Objective: 05-04 Analyze a companys performance based on return on assets and its components.
Libby - Chapter 05 #95 Topic Area: A Closer Look At Financial Statement Formats And Notes, Return On Assets Analysis
96. The balance sheet for Glenwood Corporation at December 31, 2011, showed the following subtotals:
Based on the above data, calculate the following amounts:
Answers will vary
Feedback: A. $140,000 + $420,000 + $70,000 = $630,000.
B. $210,000 - $80,000 = $130,000.
C. $420,000 - $120,000 = $300,000.
D. $210,000 + $420,000 = $630,000.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Remember Difficulty: Medium Learning Objective: 05-03 Recognize and apply the different financial statement and disclosure formats used by companies in practice.
Libby - Chapter 05 #96 Topic Area: A Closer Look At Financial Statement Formats And Notes
97. Ridgetop Corporation reported the following amounts on its balance sheet at December 31, 2011:
On January 1, 2011, total assets were $2,000,000, total liabilities were $1,200,000 and total equity was
$800,000. Calculate Ridgetop's return on assets.
Answers will vary
Feedback: $100,000 ÷ ($2,000,000 + $2,700,000*/2) = 4.26%.
*($1,800,000 + $900,000)
AACSB: Analytical AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: Medium Learning Objective: 05-04 Analyze a companys performance based on return on assets and its components.
Libby - Chapter 05 #97 Topic Area: Return On Assets Analysis
98. Complete the following balance sheet by entering the appropriate amounts in the blanks provided.
Answers will vary
Feedback: A. $40,000. ($90,000 Total Assets (F) - $35,000 Book Value of Building - $15,000 Cash) B. $25,000. ($60,000 Building - $35,000 Book Value)
C. $90,000. (Must equal to F.)
D. $2,000. ($25,000 Current liabilities - $11,000 Accounts Payable - $12,000 Notes payable) E. $40,000. ($25,000 Contributed capital + $15,000 Retained earnings)
F. $90,000. ($50,000 Total Liabilities + $40,000 Total Stockholders' Equity)
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 05-03 Recognize and apply the different financial statement and disclosure formats used by companies in practice.
Libby - Chapter 05 #98 Topic Area: A Closer Look At Financial Statement Formats And Notes
99. FocusMore, Inc., had the following alphabetical list of accounts taken from its adjusted trial balance at December 31, 2011:
Required:
Prepare a multiple step income statement for 2011. (Include gross profit, but ignore income taxes.) Answers will vary
Feedback:
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 05-03 Recognize and apply the different financial statement and disclosure formats used by companies in practice.
Libby - Chapter 05 #99 Topic Area: A Closer Look At Financial Statement Formats And Notes
100. The following data were taken from the adjusted trial balance of Kent Corporation.
Required:
Prepare a classified balance sheet in good form at December 31, 2011. (Ignore income taxes).
Answers will vary
Feedback:
*$23,000 (January 1 retained earnings) + $43,000 (net income) - $12,000 (dividends declared)
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 05-03 Recognize and apply the different financial statement and disclosure formats used by companies in practice.
Libby - Chapter 05 #100 Topic Area: A Closer Look At Financial Statement Formats And Notes
101. At the beginning of 2011, Jeffrey Company disposed of a segment of its business and incurred a pretax loss of $40,000 on the disposal. In the same year, a flood caused $15,000 of damages to the building.
The flood damage qualified as an extraordinary item. Income from continuing operations before taxes was $100,000 for 2011 and a 20% tax rate applied to all of the items above. Prepare a partial income statement starting with income from continuing operations before taxes for the year ending 2011 and concluding with net income.
Answers will vary
Feedback:
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 05-03 (S) Learning Objective: 05-03 Recognize and apply the different financial statement and disclosure formats used by companies in practice.
Libby - Chapter 05 #101 Topic Area: A Closer Look At Financial Statement Formats And Notes
102. Dakota Equipment, Inc issued 4,000 shares of its $1 par value common stock for $20 per share on January 1, 2011. On the same day, the company purchased a piece of land costing $10,000 and a building costing $40,000. The yearly depreciation on the building is $2,000.
Required: Prepare the general journal entries to record the stock issue and the purchase of the land and building on January 1 and the depreciation expense on December 31, 2011 (assuming that no adjusting entries were made during the year).
Answers will vary
Feedback:
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 05-03 Recognize and apply the different financial statement and disclosure formats used by companies in practice.
Libby - Chapter 05 #102 Topic Area: A Closer Look At Financial Statement Formats And Notes
103. Twin Lakes, Inc. reported the following December 31 amounts in its financial statements:
Compute the following for the 2011:
A. Net profit margin B. Asset turnover C. Return on assets Answers will vary
Feedback: A. ($28.0/$250.0) = .112 or 11.2%
B. ($250.0/$85.0*) = 2.94
C. ($28.0/$85.0) = .329 or 32.9%
Or, .329 = A (.112) × B (2.94)
*[($90.0 + $80.0) ÷ 2
AACSB: Analytical AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: Medium Learning Objective: 05-04 Analyze a companys performance based on return on assets and its components.
Libby - Chapter 05 #103 Topic Area: Return On Assets Analysis
104. The following information was taken from the income statement and balance sheet of The Mickey Company for the years 2010 and 2011:
Compute the following ratios for 2011: Net profit margin, Asset turnover, and Return on assets.
Answers will vary
Feedback: Net profit margin ($2,345/$30,752) = .076 or 7.6%
Asset turnover ($30,752/$51,945) = .59
Return on assets ($2,345/$51,945*) = .045 or 4.5%
*($49,988 + $53,902)/2
Or, Return on assets (.045) = Net profit margin (.076) × Asset turnover (.59)
AACSB: Analytical AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: Medium Learning Objective: 05-04 Analyze a companys performance based on return on assets and its components.
Libby - Chapter 05 #104 Topic Area: Return On Assets Analysis
105. Determine the effect of the following transactions on the identified financial statement components and ratios. Code your answers as follows:
A. If the transaction results in an increase in the financial statement component or ratio.
B. If the transaction results in a decrease in the financial statement component or ratio.
C. If the transaction does not affect the financial statement component or ratio.
Transaction 1: A company issued common stock at a price in excess of par value.
Revenues ______ Assets ______ Stockholders' equity ______ Return on assets ratio ______
Transaction 2: A company recorded depreciation expense at year-end.
Net income ______ Assets ______ Stockholders' equity ______ Asset turnover ratio ______
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 05-03 Recognize and apply the different financial statement and disclosure formats used by companies in practice.
Learning Objective: 05-04 Analyze a companys performance based on return on assets and its components.
Libby - Chapter 05 #105 Topic Area: A Closer Look At Financial Statement Formats And Notes, Return On Assets Analysis
106. Determine the effect of the following transactions on the identified financial statement components and ratios. Code your answers as follows:
A. If the transaction results in an increase in the financial statement component or ratio.
B. If the transaction results in a decrease in the financial statement component or ratio.
C. If the transaction does not affect the financial statement component or ratio.
Transaction 1: A company accrued interest expense at year-end.
Net income_____
Assets_____
Stockholders' equity_____
Asset turnover ratio_____
Transaction 2: A company declared and paid dividends to stockholders.
Net income_____
Assets_____
Stockholders' equity_____
Return on assets ratio_____
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 05-03 Recognize and apply the different financial statement and disclosure formats used by companies in practice.
Learning Objective: 05-04 Analyze a companys performance based on return on assets and its components.
Libby - Chapter 05 #106 Topic Area: A Closer Look At Financial Statement Formats And Notes, Return On Assets Analysis
107. Determine the effect of the following transactions on the identified financial statement components and ratios. Code your answers as follows:
A. If the transaction results in an increase in the financial statement component or ratio.
B. If the transaction results in a decrease in the financial statement component or ratio.
C. If the transaction does not affect the financial statement component or ratio.
Transaction 1: A company paid for research and development costs incurred to develop a patent.
Net income_____
Property, plant, and equipment_____
Stockholders' equity_____
Net profit margin ratio_____
Transaction 2: Inventory was purchased on account.
Net income_____
Current assets_____
Current liabilities_____
Return on assets ratio_____
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 05-03 Recognize and apply the different financial statement and disclosure formats used by companies in practice.
Learning Objective: 05-04 Analyze a companys performance based on return on assets and its components.
Libby - Chapter 05 #107 Topic Area: A Closer Look At Financial Statement Formats And Notes, Return On Assets Analysis
108. Determine the effect of the following transactions on the identified financial statement components and ratios. Code your answers as follows:
A. If the transaction results in an increase in the financial statement component or ratio.
B. If the transaction results in a decrease in the financial statement component or ratio.
C. If the transaction does not affect the financial statement component or ratio.
Transaction 1: A company acquired land by signing a long-term note payable.
Property, plant, and equipment_____
Asset turnover ratio_____
Net profit margin ratio_____
Return on assets ratio_____
Transaction 2: Cash was used to pay a current liability.
Net income_____
Asset turnover ratio_____
Net profit margin ratio_____
Return on assets ratio_____
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Hard Learning Objective: 05-03 Recognize and apply the different financial statement and disclosure formats used by companies in practice.
Learning Objective: 05-04 Analyze a companys performance based on return on assets and its components.
Libby - Chapter 05 #108 Topic Area: A Closer Look At Financial Statement Formats And Notes, Return On Assets Analysis
109. Determine the effect of the following transactions on the financial statements components identified.
Code your answers as follows:
A. If the transaction results in an increase in the financial statement component or ratio.
B. If the transaction results in a decrease in the financial statement component or ratio.
C. If the transaction does not affect the financial statement component or ratio.
Transaction 1: A company sold inventory for an amount greater than its cost.
Gross profit_____
Current assets_____
Stockholders' equity_____
Transaction 2: Advertising expense was recorded but has yet to be paid for.
Net income_____
Gross Profit_____
Stockholders' equity_____
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Blooms: Apply Difficulty: Medium Learning Objective: 05-03 Recognize and apply the different financial statement and disclosure formats used by companies in practice.
Libby - Chapter 05 #109 Topic Area: A Closer Look At Financial Statement Formats And Notes
110. Describe relevance and reliability as they pertain to financial reporting.
Answers will vary
Feedback: Financial data is considered to be relevant when the data has the ability to influence a decision. Relevant data is timely and has both predictive value and feedback value. Financial data is reliable when it is verifiable, accurate, and unbiased. For accounting information to be useful, the information should be both relevant and reliable.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Blooms: Remember Difficulty: Easy Learning Objective: 05-01 Recognize the people involved in the accounting communication process (regulators; managers; directors; auditors; information
intermediaries; and users); their roles in the process; and the guidance they receive from legal and professional standards.
Libby - Chapter 05 #110 Topic Area: Players In The Accounting Communication Process
111. Describe the return on assets ratio and the DuPont approach for calculating return on assets.
Answers will vary
Feedback: The return on assets ratio is calculated by dividing net income by average total assets. The ratio measures the amount of income earned for every dollar invested in assets and is a measure of profitability and management effectiveness with respect to asset management. The DuPont formula states that the return on assets ratio has two component ratios, net profit margin and asset turnover.
The net profit margin ratio measures the net income generated per sales dollar and the asset turnover ratio measures the net sales generated for average total assets. Return on assets equals net profit margin multiplied by asset turnover. The DuPont formula implies that return on assets can be improved through both earnings and efficiency of asset use.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Remember Difficulty: Medium Learning Objective: 05-04 Analyze a companys performance based on return on assets and its components.
Libby - Chapter 05 #111 Topic Area: Return On Assets Analysis
ch5 Summary
Category # of Questions
AACSB: Analytic 38
AACSB: Analytical 4
AACSB: Reflective Thinking 69
AICPA BB: Critical Thinking 102
AICPA BB: Legal 9
AICPA FN: Measurement 10
AICPA FN: Reporting 68
AICPA FN: Reporting, Measurement 33
Blooms: Apply 40
Blooms: Remember 71
Difficulty: Easy 46
Difficulty: Hard 10
Difficulty: Medium 55
Learning Objective: 05-01 Recognize the people involved in the accounting communication process (regulators;
managers; directors; auditors; information intermediaries; and users); their roles in the process; and the guidance they receive from legal and professional standards.
29
Learning Objective: 05-02 Identify the steps in the accounting communication process; including the issuance of press releases; annual reports; quarterly reports; and SEC filings; as well as the role of electronic information services in this process.
5
Learning Objective: 05-03 (S) 1
Learning Objective: 05-03 Recognize and apply the different financial statement and disclosure formats used by companies in practice.
59
Learning Objective: 05-04 Analyze a companys performance based on return on assets and its components. 22
Learning Objective: 05-S 2
Libby - Chapter 05 111
Topic Area: A Closer Look At Financial Statement Format And Notes 30
Topic Area: A Closer Look At Financial Statement Formats And Notes 22
Topic Area: A Closer Look At Financial Statement Formats And Notes, Return On Assets Analysis 6
Topic Area: A Closer Look At Financial Statement Formats And Notes. 1
Topic Area: Chapter Supplement 2
Topic Area: Players In The Accounting Communication Process 29
Topic Area: Return On Assets Analysis 16
Topic Area: The Disclosure Process 5