Chapter 3 Understanding Financial Statements and Cash Flows

13) Company A and Company B both report the same level of sales and net income. Therefore

A) both A and B will report the same Earnings Per Share.

B) both A and B will report the same Gross Profit Margin.

C) both A and B will report the same Net Profit Margin.

D) both A and C are true.

14) The A corporation has an operating profit margin of 20%, operating expenses of $500,000, and financing costs of $15,000. Therefore

A) the corporation's gross profit margin is less than 20%.

B) the corporation's net profit margin is greater than 20%.

C) the corporation's gross profit margin is greater than 20%.

D) the corporation's gross profit margin is equal to 20% because gross profit is not affected by operating expenses or financing costs.

15) The basic format of an income statement is

A) Sales - Expenses = Profits.

B) Income - Expenses = EBIT.

C) Sales - Liabilities = Profits.

D) Assets - Liabilities = Profits.

16) Rogue Industries reported the following items for the current year: Sales = $3,000,000; Cost of Goods Sold = $1,500,000; Depreciation Expense = $170,000; Administrative Expenses = $150,000; Interest Expense = $30,000; Marketing Expenses = $80,000; and Taxes = $300,000. Rogue's gross profit is equal to

A) $770,000.

B) $1,070,000.

C) $1,100,000.

D) $1,500,000.

17) Rogue Industries reported the following items for the current year: Sales = $3,000,000; Cost of Goods Sold = $1,500,000; Depreciation Expense = $170,000; Administrative Expenses = $150,000; Interest Expense = $30,000; Marketing Expenses = $80,000; and Taxes = $300,000. Rogue's operating income is equal to

A) $770,000.

B) $1,070,000.

C) $1,100,000.

D) $1,500,000.

18) Rogue Industries reported the following items for the current year: Sales = $3,000,000; Cost of Goods Sold = $1,500,000; Depreciation Expense = $170,000; Administrative Expenses = $150,000; Interest Expense = $30,000; Marketing Expenses = $80,000; and Taxes = $300,000. Rogue's net profit margin is equal to

A) 25.67%.

B) 35.67%.

C) 36.67%.

D) 50.00%.

19) Rogue Industries reported the following items for the current year: Sales = $3,000,000; Cost of Goods Sold = $1,500,000; Depreciation Expense = $170,000; Administrative Expenses = $150,000; Interest Expense = $30,000; Marketing Expenses = $80,000; and Taxes = $300,000; Rogue's operating profit margin is equal to

A) 25.67%

B) 35.67%

C) 36.67%

D) 50.00%

20) Use the following information to calculate the company's accounting net income for the year.

Credit Sales	$800,000
Cash Sales	$500,000
Operating Expenses on Credit	$200,000
Cash Operating Expenses	$700,000
Accounts Receivable (Beg. of Year)	$50,000
Accounts Receivable (End of Year)	$80,000
Accounts Payable (Beg. of Year)	$50,000
Accounts Payable (End of Year)	$100,000
Corporate Tax Rate	40%

A) $300,000

B) $240,000

C) $125,000

D) $120,000

21) A corporation's operating profit margin is equal to

A) net income divided by sales.

B) EBIT divided by sales.

C) EBIT divided by net income.

D) sales divided by EBIT.

22) Which of the following statements concerning net income is MOST correct?

A) Net income represents cash available to pay dividends.

B) Net income represents sales minus operating expenses at a specific point in time.

C) Negative net income reduces a company's cash balance.

D) Net income represents income that may be reinvested in the firm or distributed to its owners.