Question

i) Which of the following would be the most useful indicator to measure the effect of a business reducing its prices while the cost of materials remained constant?

A) The trend in gross profit margins

B) The trend in sales to fixed assets

C) The trend in net profit margins

D) The trend in the quick ratio

ii) Which of the following statements about business tax returns is true?

A) Business tax return forms are identical regardless of the type of entity or ownership.

B) The amount shown on the business return as the tax due for the year should match the amount shown on the GAAP financial statement.

C) The balance sheet included in a tax return shows the same amount of gross fixed asset as the balance sheet on the GAAP financial statements.

D) Business tax returns include notes to the statements similar to those found in a set of GAAP financial statements.

Answer 1

i) Which of the following would be the most useful indicator to measure the effect of a business reducing its prices while the cost of materials remained constant?

Answer: (A) The trend in gross profit margins.

Gross profit = (Net sales-COGS)/Net sales

As the ratio relates the two items of Net sales and COGS, the effect of reduction in sales price, COGS being constant, will be directly revealed by the change in the ratio.

ii) Which of the following statements about business tax returns is true?

C) The balance sheet included in a tax return shows the same amount of gross fixed asset as the balance sheet on the GAAP financial statements.