Answer the following questions:

1. What item is not included in the notes to the financial statements?

a. Details about inventory and property, plant and equipment.
b. Information about major acquisitions or divestitutures.
c. The management discussion and analysis.
d. A summary of the firm's accounting policies.
e. none of the above

2. What type of audit report indicates that the financial statements have been presented fairly?
a. An unqualified report.
b. A disclaimer of opinion.
c. A qualified report.
d. An adverse opinion.

3. What types of information cannot be found in the financial statements?

a. Details about officer and employee retirement, pension, and stock option plans.
b. Pending legal proceedings.
c. Reputation of the firm, morale of employees and prestige in the community.
d. Disclosures about segments of an enterprise.

4. Why does the management discussion and analysis help the analyst?
a. It contains information that cannot be found in the financial data.
b. It provides predictions of all future financial statement numbers.
c. It outlines the accounting choices made by the firm.
d. It explains the market valuation of the firm’s stock.
5. What could be the cause of an increase in a firm's sales number?
a. The firm has decreased prices.
b. Fewer units of product have been sold.
c. The firm has increased prices and volume of sales.
d. The firm has decreased prices and volume of sales.

6. Which of the following statements is true?

a. Only service companies report both cost of goods sold and gross profit.
b. Cost of goods sold is the largest expense item for many firms.
c. Cost of goods sold is not affected by the choice of inventory valuation method.
d. Cost of goods sold equals gross profit.

7. Using the following information calculate the ending inventory balance and the cost of goods sold
expense that would be reported at the end of the year if the following inventory valuation methods are
used:
a. FIFO
b. LIFO
 c. Average cost
d. Specific identification (assuming that the remaining items were purchased at the beginning of the year)

Units Purchase Price

Beginning inventory 20 $12
Purchase #1 100 $11
Purchase #2 85 $10
Purchase #3 90 $ 9
Sales 235

FIFO :

COGS= 20x12 + 100x11 + 85 x10 + 30x9 = 2460

EI = 60x9 = 540

LIFO:

COGS = 90X9 + 85X10 + 60X11 = 2320

EI = 40X11 + 20X12 = 680

WA:
WA PRICE = 3000/295 = 10.17
COGS 235 X 10.17 = 2390
EI = 60X10.17 = 610.2

Specific Identification:

COGS = 20X12 + 40X11 + 85X10 + 90X9 = 2340

EI = 60X11 = 660

8. Prepare an income statement using the following information:

Gross profit margin 42%

Cost of goods sold $5,800
Tax rate 30%
Operating profit $600
 Sales 10000
- COGS 5800
= GP 4200
- Op exp 3600
= op profit 600
- Taxes 180
= NI 420

9. What is another term frequently used when referring to operating profit?

a. Earnings before interest and taxes (EBIT).
b. Earnings before interest, taxes, depreciation and amortization (EBITDA).
c. Net profit.
d. Earnings before interest (EBI).
10. Which items below would be classified as operating expenses?
a. Depreciation, capital leases, operating profit.
b. Interest expense, interest income, rent expense.
c. Accounts payable, lease payments, depreciation.
d. Advertising, selling and administrative, repairs and maintenance.
11. Which phase in the financial statement analysis framework is most likely to involve producing updated
reports and recommendations?
a. Follow-up
b. Analyse/interpret the processed data
c. Develop and communicate conclusions and recommendation
12. When a reliable estimate of costs exists, ultimate payment is assured, and revenue is earned as costs
are incurred, which of the following revenue recognition methods should be used?
a. Cost recovery method.
b. Percentage-of-completion method.
c. Instalment sales method.

13. During 2021, XYZ Co. reported net income of $2.4 million and 2 million shares of common stock. XYZ
paid cash dividends of $14,000 to its preferred shareholders and $30,000 to its common shareholders.
In 2021, XYZ issued 900, $1,000 par, 5.5% bonds for $900,000. Each bond is convertible to 50 shares
of common stock. Assume the tax rate is 40%. Compute XYZ’s basic and diluted EPS.

Basic = 2.4M – 14000/ 2 M = 1.193

Diluted = 2.4M – 14000 + 0 + 49500(60%)/ 2 M + 0 + 4500 +0 = 1.181
14. XYZ Corp.’s stock transactions during the year were as follows:
January 1: 320,000 shares outstanding.
April 1: 1-for-2 reverse stock split occurred.
July 1: Acquisition of Smith, Inc. in exchange for issuance of 60,000 shares.
October 1: 30,000 shares issued for cash.
What is XYZ’s weighted average number of shares outstanding?

Reverse split = 320000/ 2 = 160000

Jan 1 : 160000 x 12/12 = 160000
July 1: Acq 60000 x 6/12 = 30000
Oct : Additional issuance 30000x 3/12 = 7500

15. For an organization with a simple capital structure, the computation of earnings per share is least
likely to consider:
a. net income.
b. the weighted average number of preferred shares outstanding.
c. the weighted average number of common shares outstanding.