Chapter 5: Corporate Financial Reporting and Analysis
Oct. 6, 2008
1. Using the following information, create a multi-step income statement.
Sales Revenue
$350,000
Other Revenue
$60,000
Rent Expense
$24,000
COGS
$210,000
Wages Expense
$10,000
Depreciation Expense $10,000
Other Expenses
$20,000
Selling Expense
$12,000
Tax Rate
35%
Shares Outstanding 100,000
___Sales Revenue____________
__350,000________
___COGS__________________
__210,000_______
___Gross Profit_______________
__140,000_______
___Selling Expense____________
__12,000________
___Rent Expense______________
__24,000________
___Wages Expense_____________
__10,000________
___Depreciation Expense_______
__10,000________
_Income from Operations______
__84,000_______
_Other Revenue____________
__60,000_______
_Other Expenses___________
__20,000_______
_Income Before Taxes__________
__124,000______
__Tax Expense____________
__43,400_______
__Net Income________________
__80,600__________
EPS (NI/Shares Outstanding)
___$0.806_______
3. Match the following with the appropriate definition.
a. Annual Report
b. Form 8-K
c. Press release
d. Form 10Q
e. Quarterly report
f. Form 10K
__A____1. Comprehensive report containing the four basic financial statements and
related notes, statements by management, and auditors, and other descriptions of the
company’s activities.
__F____2. Annual report filed by public companies with the SEC that contains detailed
financial information.
___D___3. Quarterly report filed by public companies with the SEC that contains
unaudited financial information.
__C____4. A company-prepared news announcement that is normally distributed to
major news agencies.
___E___5. Brief unaudited report for the quarter, normally containing condensed income
statement and balance sheet (unaudited).
___B___6. Report of special events (e.g. auditor changes, mergers, acquisitions) filed by
public companies with the SEC.
4. If total assets increase, but total liabilities remain the same, what is the impact on the
debt-to-assets ratio?
a. increases
b. decreases
c. remains the same
d. cannot be determined without additional information.
5. Which of the following reports is filed annually with the SEC?
a. Form 10Q
b. Form 10K
c. Form 8K
d. Press release
Net Sales
Net income
Total assets
Total
liabilities
$
$
$
2005
5,081
267
2,205
$
1,616
$
$
$
2004
4,841
337
2,517
$
$
$
2003
4,649
298
2,244
$
1,595
$
1,475
6. Compute the asset turnover ratio for 2005 and 2004. Was it a positive or negative
change?
2005: (5081/((2205+2517)/2)) = 2.152
2004: (4841/((2517+2244)/2)) = 2.034
Positive Increase
7. Compute the net profit margin ratio for 2005 and 2004. Was it a positive or negative
change?
2005: (267/5081) = 0.0525
2004: (337/4841) = 0.0696
Negative change
8. Compute the debt-to-assets ratio for 2005 and 2004. Was it a positive or negative
change?
2005: (1616/2205) = 0.733
2004: (1595/2517) =0.634
Negative due to relying more on debt; riskier
9. Information that is accurate, unbiased, and verifiable is called
A) relevant information.
B) reliable information.
C) consistent information.
D) comparable information.
10. Information that is timely and has predictive value and/or feedback is called
A) relevant information.
B) reliable information.
C) consistent information.
D) comparable information.
11. The information provided by companies that apply similar accounting methods is
called:
A) relevant information.
B) reliable information.
C) consistent information.
D) comparable information.
12. Information that can be compared over time because similar accounting methods have
been applied is called
A) relevant information.
B) reliable information.
C) consistent information.
D) comparable information.