Question

UNCLUT I LULL 12. Return on common equity 13. Gross profit margin Note: For ratios that call for using average balance sheet figures, compute the rates average balance sheet figures and year-end balance sheet figures. b. Briefly comment on profitability and trends indicated in profitability. Also commento difference in results between using the average balance sheet figures and year end figures P 8-13 Required Answer the following multiple-choice questions: a. Which of the following is not considered to be a nonrecurring item? 1. Discontinued operations 2. Extraordinary items 3. Cumulative effect of change in accounting principle 4. Interest expense 5. None of the above. b. Ideally, which of these ratios will indicate the highest return for an individual firm? 1. Return on assets 2. Return on assets variation 3. Return on investments 4. Return on total equity 5. Return on common equity c. If a firm's gross profit has declined substantially, this could be attributed to all but which of the following reasons? 1. The cost of buying inventory has increased more rapidly than selling prices. 2. Selling prices have declined due to competition. 3. Selling prices have increased due to competition. 4. The mix of goods has changed to include more products with lower margins. 5. Theft is occurring. d. Gross profit analysis could be of value for all but which of the following? 1. Projections of profitability 2. Estimating administrative expenses 3. Inventory for interim statements 4. Estimating inventory for insurance claims 5. Replacing the physical taking of inventory on an annual basis e. Total asset turnover measures 1. Net income dollars generated by each dollar of sales. 2. The ability of the firm to generate sales through the use of the assets. 1:06 PM Wed Nov 27 < 0

Answer 1

P.8.13

Answer to Question Numbers

(a.) : Interest Expenses - Interest Expenses is not considered as a non recurring rather, it is considered as recurring Expenses. All other options given are Non Recurring in nature.

(b) : Return on Common Equity : Ideally Common Equity holders need more return , since they take more risks therefore they expect More return for their Risks.

(c): Selling price has increased due to Competition : If selling price increased , naturally profit would have been gone up being other items/elements of financial statements are constant.

(d) : Estimating Administrative Expenses : has nothing to do with Gross profit analysis (can be used in Net profit Analysis), all other options are related to Gross profit.

(e) : The ability of a firm to generate sales through the use of Assets (Net Sales / Total Assets)

(f) : Equity earnings are not from operations.

(g) : Intangibles : are not operating assets

(h) :Non Controlling Interest (also Known as Minority Earnings/Interest)

(i) : DuPont return on Assets

(J) : Decline Decline : The Return on Assets cannot Rise if net profit margin and total asset turnover declines.

(k) : Equity earnings are usually less than the related cash flow

(l) : Return on Common Equity

(m) :Return on Total Assets

(n) : Gain from selling land : All other options are included in Other Comprehensive Income in an Income Statement

(o) : None of the above , Non controlling interest in earnings represents Minority Interest which is percent holding by outside shareholders of a consolidated subsidiary not non consolidated subsidiaries.

(p) : Purchase of Land at year end : This would not have contributed to profits because profits are for the whole year , this specific asset came to business at year end only.