Question

In: Accounting

1 - On a common-sized income statement, 100% is the a.net income b.net cost of goods...

1 - On a common-sized income statement, 100% is the

a.net income

b.net cost of goods sold

c.sales

d.gross profit

2- The numerator of the return on total assets is

a.net income plus tax expense

b.net income plus interest expense

c.net income

d.net income minus preferred dividends

3-

The purpose of an audit is to

a.determine whether or not a company is a good investment

b.determine whether or not a company complies with corporate social responsibility

c.determine whether or not a company is a good credit risk

d.render an opinion on the fairness of the statements

4-  

The price-earnings ratio on common stock is calculated as

a.earnings per share of common stock, divided by market price per share of common stock

b.dividends per share of common stock, divided by earnings per share on common stock

c.market price per share of common stock, divided by earnings per share on common stock

d.market price per share of common stock, divided by dividends per share of common stock

5-

Solutions

Expert Solution

1. c Sales

This is because every other item except sales is shown as a percentage of sales, and sales is treated to be equal to 100%.

2. c Net Income

When we calculate return on total assets, then that return is on total assets, and not on any part of assets thus entire investment is considered in denominator, and therefore the return is also 100% that is net income, net of expenses and taxes but no appropriation on preference capital or equity capital is considered.

3. d.render an opinion on the fairness of the statements

The primary objective of audit is to assess whether the financial statements present true and fair view, of financial statements.

4. c.market price per share of common stock, divided by earnings per share on common stock

P/E Ratio is used to evaluate the price of a share in proportion to earnings in each period, or as to how much earnings are equivalent to the current market price or current value of share.

In computing price earning ratio, in numerator we put the market value of common stock per share,

In denominator we put the value of earnings per share. in this manner, price earning ratio is calculated.

ekkarill92 answered 1 year ago
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