BUS 370 CHAPTER 3 EXAM QUESTIONS WITH CORRECT ANSWERS LATEST UPDATE 2026

BUS 370 CHAPTER 3 EXAM QUESTIONS WITH CORRECT ANSWERS LATEST UPDATE 2026 Which of the basic financial statements is best used to answer the question, "How profitable is the business?" A. Accounts receivable aging schedule B. Statement of shareholder's equity C. Income statement D. Balance sheet - Answers C. Income Statement Who owns the retained earnings of a public firm? A. The IRS B. Bondholders C. Preferred stockholders D. Common stockholders - Answers D. Common stockholders Which of the following represents an attempt to measure the earnings of the firm's operations over a given time period? A. Cash flow statement B. Income statement C. Balance sheet D. None of the above - Answers B. Income statement Stock that is repurchased by the issuing company is called A. treasury stock. B. retained capital. C. par value stock. D. paid in capital. - Answers A. treasury stock. Which of the basic financial statements is best used to answer the questions "What does the company own and how is it financed?" A. Income statement B. Statement of shareholder's equity C. Balance sheet D. Cash flow statement - Answers C. Balance sheet Which of the basic financial statements is best used to answer the questions "Where did the company's money come from and how was it spent over the preceding year?" A. Statement of shareholder's equity B. Income statement C. Cash flow statement D. Balance sheet - Answers C. Cash flow statement The revenue recognition principle requires that A. only the amount of revenue for which cash will be received in the current fiscal year be recognized in the current year. B. allows considerable latitude in the timing of revenue recognition. C. revenue be recognized in the period when the firm becomes entitled to payment for goods or services delivered. D. revenue be recognized only after cash payment has been received. - Answers C. revenue be recognized in the period when the firm becomes entitled to payment for goods or services delivered. The historical cost principle requires that A. assets be be valued at their average cost over the last three years. B. historical costs be used on both the income statement and the balance sheet. C. raw materials costs be recognized at their average price over the last three years. D. assets be valued at their cost when they were acquired. - Answers D. assets be valued at their cost when they were acquired. International Financial Reporting Standards (IFRS) A. are growing in acceptance for use by U.S. companies. B. are not acceptable for use by U.S. companies. C. have completely replaced GAAP since 2007. D. are far more complicated and rigid than GAAP. - Answers B. are not acceptable for use by U.S. companies. The income statement shows a company's earnings since it has been in business. True False - Answers False The balance includes information about the company's assets and liabilities. True False - Answers True The cash flow statement is an alternative term for the balance sheet. True False - Answers False On the income statement, sales revenue, minus cost of goods sold and operating expenses, equals A. Net profit. B. Net income available to preferred shareholders. C. Net operating income (EBIT). D. Retained earnings. - Answers C. Net operating income (EBIT). Which of the following is NOT included in computing EBT (earnings before taxes)? A. Cost of goods sold B. Depreciation expense C. Dividends D. Marketing expenses - Answers C. Dividends Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm's EBIT? A. $5,110,000 B. $4,630,000 C. $15,552,000 D. $58,000,000 - Answers A. $5,110,000 Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm's gross profit? A. $15,225,000 B. $6,632,000 C. $5,000,110 D. $18,000,000 - Answers A. $15,225,000 Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm's income before tax? A. $25,115,000 B. $750,000 C. $10,865,000 D. $4,360,000 - Answers D. $4,360,000 Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $8,750,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm's net income? A. $2,616,000 B. $7,775,000 C. $4,731,000 D. $255,223 - Answers C. $4,731,000 Your firm has the following income statement items: sales of $52,000,000; income tax of $1,880,000; operating expenses of $9,000,000; cost of goods sold of $36,000,000; and interest expense of $800,000. Compute the firm's gross profit margin. A. 8.3% B. 30.8% C. 69.2% D. 13.5% - Answers B. 30.8% Use the information to answer the question below. Jones Company Financial Information Net income $1,500 $3,000 Accounts receivable 750 750 Accumulated depreciation 1,125 1,500 Common stock 4,500 5,250 Capital surplus 7,500 8,250 Retained earnings 1,500 2,250 Accounts payable 750 750 Based on the information given in Table 1, calculate the dividends paid in 2017. A. $2,250 B. $3,000 C. $750 D. $3,750 - Answers C. $750 Use Bird Industry's summary financial statements to answer the following questions. Bird Industries, Inc. Balance Sheets Cash $1,000 $? Accounts receivable 5,000 6,000 Inventories 6,500 6,000 Land 10,000 12,000 Other fixed assets 8,000 9,000 Accumulated depreciation (1,000) (1,600) Total assets $29,500 $? Accounts payable $3,200 $ 6,800 Bonds 4,000 4,000 Common stock 17,000 16,000 Retained earnings 5,300 5,000 Total debt and equity $29,500 $? Bird Industries, Inc. Income Statement Sales $84,000 Cost of goods sold 66,400 Gross profit $17,600 Operating expenses (13,000) Depreciation (600) EBIT $4,000 Interest expense (500) EBT $3,500 Taxes (1,500) Net Income $2,000 Use Bird's financial statements to determine the total amount of Bird Industries' common stock dividend for 2017. A. $2,000 B. $800 C. $2,300 D. Cannot be determined with available information - Answers C. $2,300 Use Bird Industry's summary financial statements to answer the following questions. Bird Industries, Inc. Balance Sheets Cash $1,000 $? Accounts receivable 5,000 6,000 Inventories 6,500 6,000 Land 10,000 12,000 Other fixed assets 8,000 9,000 Accumulated depreciation (1,000) (1,600) Total assets $29,500 $? Accounts payable $3,200 $ 6,800 Bonds 4,000 4,000 Common stock 17,000 16,000 Retained earnings 5,300 5,000 Total debt and equity $29,500 $? Bird Industries, Inc. Income Statement Sales $84,000 Cost of goods sold 66,400 Gross profit $17,600 Operating expenses (13,000) Depreciation (600) EBIT $4,000 Interest expense (500) EBT $3,500 Taxes (1,500) Net Income $2,000 Use Bird Industries' financial statements to determine Bird's operating profit margin for 2017. A. 2.4% B. 4.2% C. 4.8% D. 21% - Answers C. 4.8% Which of the following best represents operating income? A. Income after financing activities B. Income from discontinued operations C. Earnings before interest and taxes D. Income from capital gains - Answers C. Earnings before interest and taxes Firms should compare their gross, operating and net profit margins to past years and other companies in order to A. evaluate the firm's performance. B. identify expenses that seem to be out−of−line C. better manage the reporting of the firm's earnings. D. Both A and B. - Answers D. Both A and B.