QUIZ 2 STUDY GUIDE

Topics: Generally Accepted Accounting Principles, Depreciation, Balance sheet Pages: 6 (546 words) Published: October 21, 2013
According to the depreciation rates used by the company and described in the Production Cost Report, if a company adds 50 new workstations at a cost of $250,000 each and also spends $5 million for an addition to its assembly plant to accommodate the new workstations, then its annual depreciation costs will rise by

$1,750,000
$700,000
$350,000
$17,500,000
None of these

Income Statement Data
Quarter 1

(in 000s)

Sales Revenues
$50,000

Operating Profit
14,400

Net Income
$ 9,555

Balance Sheet Data

Total Current Assets
$70,000

Total Assets
139,000

Total Current Liabilities
26,000

L-T Debt (draw against credit line)
23,000

Total Equity
90,000

Other Financial Data

Depreciation
$4,000

Dividend payments
$2,250

Based on the above figures, the company’s current ratio (defined as current assets divided by current liabilities, as per the Help screen for the Comparative Financial Performance page of the GSR) is

2.69
$44,000
5.38
0.371
None of these

Assume a company’s Income Statement for a given quarter is as follows:

Income Statement Data
Quarter 1

(in 000s)

Sales Revenues
$50,000

Production Costs
26,500

Delivery Costs
1,600

Marketing Costs
8,500

Administrative Expenses
2,000

Operating Profit
14,400

Net Interest
750

Income Before Taxes
13,650

Taxes
4,095

Net Income
$9,555

Based on the above data, which of the following statements is false?

Production costs are 53% of revenues, thus resulting in a gross profit margin (sales revenues less costs of goods sold) of 47%

Delivery costs are 2.8% of revenues and represent the company’s smallest cost component

Marketing costs are 17.0% of revenues

Administrative expenses are 4.0% of revenues

Net interest costs are 1.5% of revenues

Income Statement Data
Quarter 1

(in 000s)

Sales Revenues
$50,000

Operating Profit
14,400

Net Income
$9,555

Balance Sheet Data

Total Current Assets
$70,000

Total Assets
159,000

Total Current Liabilities
26,000

L-T Debt (draw against credit line)
43,000

Total Equity
91,400

Other Financial Data

Depreciation
$4,000

Dividend payments
$2,250

Based on the above figures, the company's capital structure (defined as the sum of total debt outstanding and total stockholder's equity) consists of what percentages of debt and equity? The percentages of total capital invested that are debt-financed and equity-financed are among the factors used to determine a company's credit rating, as explained in the Help section for the Comparative Financial Performances presented on p. 7 of the GLO-BUS Statistical Review.)

47% debt and 53% equity or 47:53.

25% debt and 75% equity or 25:75.

32% debt and 68% equity or 32:68.

29% debt and 71% equity or 29:71.

None of these.

According to the cost allocation methods used in the company’s accounting system and described in the Help section for the Operations Report for any of the four geographic regions, if a company spends $5 million to advertise its camera lines in North America, assembles and ships 300,000 entry-level cameras and 200,000 multi-featured cameras to its North American dealers, derives revenues of $80 million from its sales of entry-level cameras and $120 million from the sales of its multi-featured cameras in North America, then

50% of the $5 million in advertising expenditures will be allocated to the costs of advertising for entry-level cameras and 50% will be allocated to the costs of multi-featured cameras.

70% of the $5 million in advertising expenditures will be allocated to the costs of advertising for entry-level cameras and 30% will be allocated...
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