Using the information provided, calculate net income for 2013. Assume a tax rate of 35 percent.

Using the information provided, calculate net income for 2013. Assume a tax rate of 35 percent.

                Year                                                      2013

                Inventory                                         $5,000

                Revenues                                      200,000

                Depreciation expense                    5,000

                Cost of goods sold                      100,000

                Interest expense                            10,000

                Operating expenses                     30,000

A) $35,750

B) $44,000

C) $50,000

D) $19,250

The practice of shifting income from good years to poor years in order to show a record of steady growth is

A) known as earnings management and is considered unethical.

B) highly recommended but not required by GAAP.

C) a basic requirement of accrual accounting.

D) impossible if Generally Accepted Accounting Principles are followed.

Firms should compare their gross, operating and net profit margins to past years and other companies in order to

A) evaluate the firm's performance.

B) identify expenses that seem to be out-of-line

C) better manage the reporting of the firm's earnings.

D) Both A and B.

The income statement represents a snapshot of account balances at one point in time.

Answer:  FALSE

Generally Accepted Accounting Principles (GAAP) require companies to smooth earnings by shifting some profits from good years to bad years.

Answer:  FALSE

The income statement describes the financial performance of a firm over a fixed period such as a quarter or a year.

Answer:  TRUE

On an accrual basis income statement, revenues and expenses always match the firm's cash flow.

Answer:  FALSE

Corporate income statements are usually compiled on an accrual, rather than cash, basis.

Answer:  TRUE

Based on the information contained in Table 3, what was the total amount of Snark Enterprise's common stock dividend for 2012

                                                       Table 3

                                      Snark Enterprises, Inc.

                                              Balance Sheets

                                                                    2011                           2012

Cash                                                         $1,000                            $?

Accounts receivable                               8,000                      9,000

Inventories                                                4,000                      7,000

Land                                                         10,000                   10,000

Other fixed assets                                   5,000                      5,500

Accumulated depreciation                 (1,600)                   (2,000)

Total assets                                          $26,400                            $?

Accounts payable                                 $4,200                  $ 7,000

Bonds                                                         4,000                      4,000

Common stock                                      15,000                   16,000

Retained earnings                                  3,200                      3,800

Total debt and equity                        $26,400                            $?

                                                          Snark Enterprises, Inc.

                                                              Income Statement

                                                Sales                                       $44,900

                                                Cost of goods sold               (22,000)

                                                Gross profit                          $12,900

                                                Operating expenses            (10,000)

                                                Depreciation                               (400)

                                                EBIT                                          $2,500

                                                Interest expense                         (500)

                                                EBT                                           $2,000

                                                Taxes                                         (1,000)

                                                Net Income                             $1,000

Based on the information contained in Table 3, what was the total amount of Snark Enterprise's common stock dividend for 2012?

A) $0

B) $400

C) $600

D) Cannot be determined with available information

Based on the information contained in Table 3, what is Snark Enterprise's gross profit margin in 2012.

A) 5.6%

B) 4.5%

C) 29.7%

D) 2.2%

Which of the following best represents operating income?

A) Income after financing activities

B) Earnings before interest and taxes

C) Income from capital gains

D) Income from discontinued operations

Which of the following best represents the stream of income that is available to stockholders?

A) Net profit after tax

B) Earnings before interest, taxes and dividends

C) Gross profit

D) Operating profit

Which of the following is NOT included in operating income?

A) Cost of goods sold

B) Sales

C) Taxes

D) Operating expenses

Based on the information contained in Table 2, what was the total amount of Bird Industries' common stock dividend for 2012

                                                      Table 2

                                         Bird Industries, Inc.

                                              Balance Sheets

                                                                    2011                          2012

Cash                                                         $1,000                            $?

Accounts receivable                               5,000                      6,000

Inventories                                                6,500                      6,000

Land                                                         10,000                   12,000

Other fixed assets                                   8,000                      9,000

Accumulated depreciation                 (1,000)                   (1,600)

Total assets                                          $29,500                            $?

Accounts payable                                 $3,200                  $ 6,800

Bonds                                                         4,000                      4,000

Common stock                                      17,000                   16,000

Retained earnings                                  5,300                      5,000

Total debt and equity                        $29,500                            $?

                                                             Bird Industries, Inc.

                                                               Income Statement

                                                Sales                                       $84,000

                                                Cost of goods sold                66,400

                                                Gross profit                          $17,600

                                                Operating expenses           (13,000)

                                                Depreciation                              (600)

                                                EBIT                                          $4,000

                                                Interest expense                        (500)

                                                EBT                                           $3,500

                                                Taxes                                         (1,500)

                                                Net Income                             $2,000

Based on the information contained in Table 2, what was the total amount of Bird Industries' common stock dividend for 2012?

A) $800

B) $2,300

C) $2,000

D) Cannot be determined with available information

Based on the information contained in Table 2, what was Bird Industries' operating profit margin for 22012?

A) 21%

B) 4.8%

C) 4.2%

D) 2.4%

Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000;

Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm's income before tax?

A) $4,360,000

B) $750,000

C) $10,865,000

D) $25,115,000

Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $8,750,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm's net income?

A) $255,223

B) $4,731,000

C) $2,616,000

D) $7,775,000

Your firm has the following income statement items: sales of $52,000,000; income tax of $1,880,000; operating expenses of $9,000,000; cost of goods sold of $36,000,000; and interest expense of $800,000.  Compute the firm's gross profit margin.

A) 13.5%

B) 8.3%

C) 30.8%

D) 69.2%

            Table 1

                                            Jones Company

                                      Financial Information

                                                                March 1995         March 1996

Net income                                             $1,500                    $3,000

Accounts receivable                                  750                         750

Accumulated depreciation                  1,125                      1,500

Common stock                                        4,500                      5,250

Capital surplus                                       7,500                      8,250

Retained earnings                                  1,500                      2,250

Accounts payable                                      750                         750

9) Based on the information given in Table 1, calculate the dividends paid in 1996.

A) $3,750

B) $3,000

C) $750

D) $2,250

Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000

Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm's EBIT?

A) $15,552,000

B) $58,000,000

C) $5,110,000

D) $4,630,000

 On the income statement, sales revenue, minus cost of goods sold and operating expenses, equals which of the following?

A) Net profit

B) Retained earnings

C) Net income available to preferred shareholders

D) EBIT

Which of the following streams of income is not affected by how a firm is financed (whether with debt or equity)?

A) Net profit after tax but before dividends

B) Net working capital

C) Operating income

D) Income before tax

Which of the following is not included in computing EBT (earnings before taxes)?

A) Marketing expenses

B) Depreciation expense

C) Cost of goods sold

D) Dividends

Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm's gross profit?

A) $18,000,000

B) $15,225,000

C) $5,000,110

D) $6,632,000

Which of the basic financial statements is best used to answer questions about changes in owner's equity

Which of the basic financial statements is best used to answer the questions "Where did the company's money come from and how was it spent over the preceding year?"

A) Balance sheet

B) Statement of shareholder's equity

C) Income statement

D) Cash flow statement

Which of the basic financial statements is best used to answer questions about changes in owner's equity that are not explained by the income statement?

A) Balance sheet

B) Statement of shareholder's equity

C) Income statement

D) Cash flow statement

The income statement shows a company's earnings since it has been in business.

Answer:  FALSE

The balance includes information about the company's assets and liabilities.

Answer:  TRUE

The cash flow statement shows amounts that the company has earned but for which it has not yet received cash.

Answer:  FALSE

The cash flow statement is an alternative term for the balance sheet.

Answer:  FALSE

Which of the basic financial statements is best used to answer the question, "How profitable is the business?"

Which of the basic financial statements is best used to answer the question, "How profitable is the business?"

A) Balance sheet

B) Statement of shareholder's equity

C) Income statement

D) Accounts receivable aging schedule

Who owns the retained earnings of a public firm?

A) The IRS

B) Common stockholders

C) Bondholders

D) Preferred stockholders

Which of the following represents an attempt to measure the earnings of the firm's operations over a given time period?

A) Balance sheet

B) Cash flow statement

C) Income statement

D) None of the above

Stock that is repurchased by the issuing company is called

A) paid in capital.

B) treasury stock.

C) retained capital.

D) par value stock.

Which of the basic financial statements is best used to answer the questions "What does the company own and how is it financed?"

A) Balance sheet

B) Statement of shareholder's equity

C) Income statement

D) Cash flow statement