Revision – Midterm Exam

1. The simplest form of business ownership is a:

a. proprietorship.
b. partnership.
c. corporation.
d. cooperative.

2. A__________ provides for the greatest degree of continuity:

a. general partnership.
b. joint venture.
c. corporation.
d. sole proprietorship.

3. The decisions relating to how much and what types of assets to acquire, how to raise
the capital needed to purchase assets, and how to run the firm is known as
__________.
a. financial management
b. capital market
c. investment
d. finance
4. Which one of the following is the financial statement that shows a financial snapshot,
taken at a point in time, of all the assets the company owns and all the claims against
those assets?
a. income statement
b. creditor's statement
c. balance sheet
d. cash flow statement

5. Which of the following goals is the best long-term interest of stockholders?

a. Profit maximization
b. Risk minimization
c. Maximizing of the market value of shareholders' common stock
d. Maximizing sales revenues

6. The largest stock exchange in Vietnam which was established in 2000 and it is the
administrative agency of the State Security Commission of Vietnam is _______.
a. Hanoi Securities Trading Center
b. Bank for Investment and Development
c. Ho Chi Minh City Stock Exchange
d. State Bank of Vietnam

7. The statement of financial position is also known as the ________.

a. balance sheet
b. statement of stockholders’ equity.
c. income statement.
d. statement of cash flows.

8. Which of the basic financial statements attempts to measure the earnings of the
firm’s operations over a given time period?
a. Balance sheet
b. Income statement
c. Cash flow statement
d. None of the above
9. Which is NOT an example of current assets?
a. Marketable securities
b. Intangible assets
c. Prepaid expenses
d. Trade receivables

10. Which is NOT an example of current liabilities?

a. Notes payable
b. Accounts receivable
c. Current portion of long-term debt
d. Taxes payable

11. Which of the following is a contra account?

a. Premium on bonds payable
b. Unearned revenue
c. Patents
d. Accumulated depreciation

12. Which of the following is NOT be included as equity in a balance sheet?

a. Paid in capital
b. Cash
c. Common stock
d. Retained earnings

13. Stock that is repurchased by the issuing company is called _______.

a. paid in capital.
b. retained capital.
c. treasury stock.
d. par value stock.

14. The sources and uses of cash over a stated period of time are reflected on the:
a. income statement.
b. balance sheet.
c. shareholders' equity statement.
d. cash flow statement.

15. Which of the following is a current asset?

a. machinery
b. land
c. inventory
d. accounts payable

16. Which of the following would NOT be included as an asset on a balance sheet?
a. Accounts receivable
b. Preferred stock
c. Inventory
d. Buildings

17. A ratio that measures the firm’s ability to pay off maturing short-term obligations is
______.
a. Liquidity Ratio
b. Asset management ratio
c. Debt management ratio
d. Profitability ratio

18. A ratio that measures how efficiently the firm is using its assets is called _____.
a. Liquidity Ratio
b. Asset management ratio
c. Debt management ratio
d. Financial analysis

19. Noncurrent assets are expected to be converted to cash over

A. a month.
B. a quarter.
C. a half of a year.
D. a year.
E. a period of time greater than a year
20. A ratio that measures how effectively a firm manages its debt is ______.
a. Liquidity ratio
b. Asset management ratio
c. Debt management ratio
d. Profitability ratio

21. A ratio that measures the company’s ability to generate income refers to ______.
a. Liquidity Ratio
b. Asset management ratio
c. Debt management ratio
d. Profitability ratio

22. A firm reports the following balance sheet items; total current liabilities of $535,000;
total assets of $2,500,000; net working capital of $115,000; and long-term debt of
$200,000. What is the amount of the firm’s current assets?
a. $1,315,000
b. $1,965,000
c. $650,000 (net working capital = current assets - current liabilities)
d. $735,00
23. Duytan Enterprise has current assets of $12,000 and current liabilities of $6,500.
Fixed assets is 15,500 and total liabilities is $14,000. The working capital is _______.
a. $18,500
b. $5,500
c. $27,500
d. $ 9,000

24. Based on question 23 above, how much is the total equity?

a. $27,500
b. $13,500 (CA+FA) – Total L
c. $7,000
d. Other amount $_____________.

25. An income statement of the Honor Company shows operating income of

$2,055,000. The income tax payable is $1,080,000 and other income is $360,000. The
income before income tax is _______.
a. $3,135,000
b. $2,415,000 ($2,055,000+$360,000)
c. $1,440,000
d. other amount $__________

26. Based on problem question number 25, what is the income after tax?
a. $1,335,000
b. $3,135,000
c. $975,000
d. other amount $__________

27. The operating income for Danang Company is $50,000, interest expense is
$20,000 and tax is 20%. What is the net income?
a. $6,000
b. $56,000
c. $24,000 ($50,000-$20,000)*80%
d. other amount $__________

28. Danang Company has credit sales of $200,000. It is the policy of the company to
allocate 20% allowance for bad debts. How much is the net accounts receivables?
a. $200,000
b. $40,000
c. $160,000
d. other amount $__________
29. Danang Company has buildings amounting to $60,000; Equipment of 20,000; Land
of $40,000; & machines of $30,000. Allowance for depreciation for buildings,
equipment, machines is set at 20% as a policy of the Danang Company. What is the net
fixed assets for the current year?
a. $128,000
b. $150,000
c. $110,000
d. other amount $__________

30. Based on problem question number 29, what is the net amount for building?
a. $12,000
b. $48,000
c. $16,000
d. other amount $__________

31. Based on problem question number 29, what is the net amount for Equipment?
a. $12,000
b. $48,000
c. $16,000
d. other amount $__________

32. Based on problem question number 29, what is the net amount for machines?
a. $24,000
b. $48,000
c. $16,000
d. other amount $__________

33. Gross sales of Danang Company is $120,000. Sales discounts is 10% and sales
returns and allowances is 20%. What is the net sales?
a. $120,000
b. $84,000
c. $96,000
d. other amount $__________

34. An income statement of the Precious Company shows operating income of

$3,500,000. The income tax payable is $1,060,000 and other income is $350,000. The
income before income tax is _______.
a. $4,910,000
b. $3,850,000
c. $353,500
d. other amount $__________

35. Based on problem question number 34, what is the income after tax?
a. $2,790,000
b. $3,850,000
c. $4,560,000
d. other amount $__________

36. The operating income for NVL Company is $60,000, interest expense is $20,000
and tax is 20%. What is the net income?
a. $8,000
b. $32,000
c. $48,000
d. other amount $__________

37. NVL Company has credit sales of $300,000. It is the policy of the company to
allocate 20% allowance for bad debts. How much is the net accounts receivables?
a. $300,000
b. $240,000
c. $60,000
d. other amount $__________

38. NVL Company has buildings amounting to $50,000; Equipment of 20,000; Land of
$30,000; & machines of $40,000. Allowance for depreciation for buildings, equipment,
machines is set at 20% as a policy of the NVL Company. What is the net fixed assets
for the current year?
a. $130,000
b. $118,000
c. $110,000
d. other amount $__________

39. Gross sales of NVL Company is $100,000. Sales discounts is 10% and sales
returns and allowances is 20%. What is the net sales?
a. $70,000
b. $80,000
c. $90,000
d. other amount $__________

40. Stanton Company has the following items: common stock, $720,000; treasury
stock, $85,000; preferred stock, $63,000; deferred taxes, $100,000 and retained
earnings, $300,000. What total amount should Stanton Company report as
stockholders’ equity?
a. $898,000.
b. $998,000.
c. $1,098,000.
d. $1,198,000.
Total Stockholders' Equity = (Common Stock + Preferred Stock + Retained Earnings) -
Treasury Stock

41. Duytan Enterprise has current assets of $10,000 and current liabilities of $6,500.
Total liabilities is $8,000 and fixed assets is $14,500. The working capital is _______.
a. $3,500
b. $16,500
c. $14,500
d. Other amount $_____________.

42. Based on question 41 above, how much is the total equity?

a. $14,500
b. $10,00
c. $16,500
d. Other amount $_____________.

Problem 1. Ratio Analysis

Balance Sheet

Assets
Cash $ 70,000
Marketable securities 150,000
Accounts Receivable 50,000
Notes receivable 380,000
Inventory 120,000
Stocks investment 350,000
Bond investment 350,000
Land 200,000
Building (net) 320,000
Equipment (net) 120,000
Machines (net) 90,000
Total Assets $ 2,200,000
=========

Liabilities and Equity

Accounts Payable $ 160,000
Notes Payable 120,000
Wages payable 20,000
Tax payable 40,000
Mortgage payable, due March 2022 180,000
Bonds Payable, due April 2025 200,000
10% Preferred stock 580,000
Common Stock (2000 shares) 850,000
Retained earnings 50,000
Total Liabilities & Equity $ 2,200,000
========
Income Statement

Sales (30% credit sales) $ 2,830,000

Cost of Goods Sold 1,030,000
Profit Margin 1,800,000
Salaries and Wages 30,000
Rent Expense 45,000
Licensing Expenses 20,000
Advertising Expense 5,000
Operating Expenses 100,000
Operating Income $ 1,700,000
Interest expense 60,000
Net Income before tax $ 1,640,000
Less: Tax 40,000
Net income after tax $ 1,600,000
========

1. Current Ratio = Current Assets / Current Liabilities

Current Assets = Cash + Marketable securities + Accounts receivable + Notes

receivable + Inventory = $70,000 + $150,000 + $50,000 + $380,000 + $120,000
= $770,000

Current Liabilities = Accounts payable + Notes payable + Wages payable + Tax

payable = $160,000 + $120,000 + $20,000 + $40,000 = $340,000

Current Ratio = $770,000 / $340,000 = 2.26

2. Quick ratio = (Current Assets - Inventory) / Current Liabilities

Quick Ratio = ($770,000 - $120,000) / $340,000 = $650,000 / $340,000 = 1.91

3. Accounts receivable turnover = Net credit sales/AR = 849,000/50,000 = 16.98

(times)

4. Inventory turnover = Net sales/inventories = 2,830,000/120,000= 23.58

5. Total asset turnover = Net Sales / Total Assets

Net Sales = $2,830,000 (from the income statement) Total Assets = $2,200,000 (from
the balance sheet)

Total Asset Turnover = $2,830,000 / $2,200,000 = 1.29

6. Total debt to total capital = Total Liabilities / Total Equity

720,000/ 2,200,000 = 0.33

7. Profit margin = Net income/ net sales = 1,600,000/ 2,830,000 =0.5654

8. Return on total assets = Net income/total assets = 1,600,000/2,200,000 = 0.7273

9. Times interest earned ratio = Earnings Before Interest Taxes (EBIT) / Interest Expense
= 1,700,000/60,000 = 28.33

10. Operating margin ratio = Operating income/net sales = 1,700,000/2,830,000

= 0.6

11. Average collection period = 365/ Accounts Receivable turnover = 365/16.98 =

21.49

Problem 2. Kawi Company. Prepare classified income statement and balance

sheet as of December 31, 2020. Assume tax of 20%. Stock Dividend is 30%.

Sales $ 430,000
Cost of Goods Sold 86,000
Salaries and Wages 35,000
Rent Expense 15,000
Cash 80,000
Licensing Expenses 20,000
Advertising Expense 4,000
Interest expense 5,000
Accounts Receivable 55,000
Inventory 85,000
Stocks investment 180,000
Property, Plant, and Equipment 280,000
Accounts Payable $50,000
Mortgage payable $40,000
Bonds Payable 80,000
10% Preferred stock 180,000
Common Stock (100 shares) 160,000
Notes Payable 50,000
Bond investment 120,000
Retained earnings ?

Based on your balance sheet and income statement, compute the Liquidity ratios,
asset management ratios, debt ratios, and profitability ratios. Compute only the ratios
that has the data in your balance sheet and income statement.

ANSWER
INCOME STATEMENT

Income Statement

Sales $430,000

Cost of Goods Sold $86,000

Gross Profit $344,000

Operating Expenses

Salaries and Wages $35,000

Rent Expense $15,000

Licensing Expenses $20,000

Advertising Expense $4,000

Total Operating Expenses $74,000

Income Statement

Operating Income $270,000

Interest Expense $5,000

Net Income before Tax $265,000

Tax (20%) $53,000

Net Income $212,000

BALANCE SHEET

Balance Sheet:

Assets:

 Current Assets:
o Cash $80,000
o Accounts Receivable $55,000
o Inventory $85,000
o Total Current Assets $220,000
 Investment Assets:
o Stocks investment $180,000
o Bond investment $120,000
o Total Investment Assets $300,000
 Property, Plant, and Equipment $280,000
 Total Assets $800,000

Liabilities & Stockholders' Equity:

 Current Liabilities:
o Accounts Payable $50,000
o Notes Payable $50,000
o Total Current Liabilities $100,000
 Long-Term Liabilities:
o Mortgage payable $40,000
o Bonds Payable $80,000
o Total Long-Term Liabilities $120,000
 Total Liabilities $220,000
 Stockholders' Equity:
o 10% Preferred stock $180,000
o Common Stock (100 shares) $160,000
o Retained Earnings $164,000
o Total Stockholders' Equity $504,000
 Total Liabilities & Stockholders' Equity $800,000