Financial & Managerial Accounting for MBAs, 5th Edition
by Easton, Halsey, McAnally, Hartgraves & Morse
Practice Quiz Solutions
Module 1 – Financial Accounting for MBAs
1. Which of the following organizations does not contribute to the formation of GAAP?
a. FASB (Financial Accounting Standards Board)
b. IRS (Internal Revenue Service)
c. AICPA (American Institute of Certified Public Accountants)
d. SEC (Securities and Exchange Commission)
Answer: b
2. Rocky Beach reports the following dollar balances in its retained earnings account.
($ millions) 2017 2016
Retained earnings…………. 8,968.1 8,223.9
During 2017, Rocky Beach reported net income of $1,351.4 million. What amount of dividends, if
any, did Rocky Beach pay to its shareholders in 2017?
a. $607.2 million
b. No dividends paid
c. $301.2 million
d. $744.2 million
Answer: a
Computation of dividends
Beginning retained earnings, 2017 ............................................................................ $8,223.9
+ Net income ................................................................................................................. 1,351.4
– Cash dividends........................................................................................................... (?)
= Ending retained earnings, 2017 ................................................................................. $8,968.1
Thus, dividends were $607.2 million for 2017.
Cambridge Business Publishers, ©2018
Practice Quiz Solutions, Module 1 1-1
,3. At the beginning of a recent year, The Walt Disney Company’s liabilities equaled $26,197 million.
During the year, assets increased by $400 million and year-end assets equaled $50,388 million.
Liabilities decreased $100 million during the year.
What were beginning and ending amounts for Walt Disney’s equity?
a. $26,197 million beginning equity and $24,291 million ending equity
b. $23,791 million beginning equity and $27,042 million ending equity
c. $23,791 million beginning equity and $24,291 million ending equity
d. $27,042 million beginning equity and $25,183 million ending equity
Answer: c
Using the accounting equation at the beginning of the year:
Assets($50,388 - $400) = Liabilities($26,197) + Equity(?)
Thus: Beginning Equity = $23,791
Using the accounting equation at the end of the year:
Assets($50,388) = Liabilities($26,197 - $100) + Equity(?)
Thus: Ending Equity = $24,291
4. Assume that Starbucks reported net income for a recent year of $564 million. Its stockholders’
equity is $2,229 million and $2,090 million, respectively.
Compute its return on equity.
a. 13.0%
b. 22.8%
c. 26.1%
d. 32.7%
Answer: c
ROE = Net income / Average stockholders’ equity
= $564 million / [($2,229 million + $2,090 million) / 2] = 26.1%
5. Nokia manufactures, markets, and sells phones and other electronics. Assume that Nokia reported
net income of €3,582 on sales of €34,191 and total stockholders’ equity of €14,576 and €14,871,
respectively.
What is Nokia’s return on equity?
a. 24.3%
b. 42.3%
c. 17.7%
d. 10.5%
Answer: a
Return on equity is net income divided by the average total stockholders’ equity.
Nokia’s ROE: €3,582 / [(€14,576 + €14,871) / 2] = 24.3%.
Cambridges2Businesss2Publishers,s2©
2018s21-2 Financials2&s2Managerials2Accountings2fors2MBAs,s25
th
s2Edition
,6. Thes2totals2assetss2ofs2Dell,s2Inc.s2equals2$15,470s2millions2ands2itss2equitys2iss2$4,873s2m
illion.s 2 Whats2iss2thes2amounts2ofs2itss2liabilities,s2ands2whats2percentages2ofs2financings2is
s2provideds2bys2Dell’ss2owners?
a. $20,343s2million,s224.0%
b. $10,597s2million,s231.50%
c. $10,597s2million,s268.5%
d. $20,343s2million,s276.0%
Answer:s2
bs2($s2milli
Assets = Liabilities + Equity
ons)$15,470 $10,597 $4,873
Dells2receivess2mores2ofs2itss2financings2froms2nonownerss2($10,597s2million)s2versuss2ownerss2(
$4,873s2million).s2Itss2owners2financings2comprisess231.5%s2ofs2itss2totals2financings2($4,873s2mill
ion/s2$15,470s2million).
7. Thes2totals2assetss2ofs2Fords2Motors2Companys2equals2$315,920s2millions2ands2itss2liabilitiess
2equals2$304,269s2million.s 2 Whats2iss2thes2amounts2ofs2Ford’ss2equitys2ands2whats2percentag
es2ofs2financings2iss2provideds2bys2itss2owners?
a. $s 2 11,651s2million,s 2 3.9%
b. $620,189s2million,s249.1%
c. $620,189s2million,s250.9%
d. $s 2 11,651s2million,s 2 3.7%
Answer:s2
ds2($s2milli
Assets = Liabilities + Equity
ons)$315,920 $304,269 $11,651
Fords2receivess2mores2ofs2itss2financings2froms2nonownerss2($304,269s2million)s2versuss2ownerss
2($11,651s2million).s2Itss2owners2financings2comprisess23.7%s2ofs2itss2totals2financings2($11,651s2
million/s2$315,920s2million).s2Thes2relativelys2lows2levels2ofs2equitys2capitals2iss2primarilys2thes2re
sults2ofs2thes2facts2thats2Fords2iss2actuallys2as2blends2ofs2twos2companies:s2thes2automotives2ma
nufacturings2companys2ands2thes2financials2subsidiary.s2Thes2financials2subsidiarys2hass2as2balan
ces2sheets2similars2tos2thats2ofs2as2bank,s2thats2is,s2relativelys2littles2equitys2capital.s2Thes2blends
2ofs2theses2twos2operatings2entitiess2resultss2ins2as2balances2sheets2thats2iss2mores2dependents2
ons2borroweds2fundss2thans2woulds2bes2thes2cases2ifs2Fords2consisteds2solelys2ofs2thes2manufact
urings2company.
Cambridges2Businesss2Publishers,s2©
Practices2Quizs2Solutions,s2Mod 2018
ules21 1-3
, 8. Followings2ares2selecteds2ratioss2ofs2Canarys2Corp.s2fors22017s2ands22016.
Returns2ons2Assetss2(ROA)s2Component 2017 2016
Profitabilitys2(Nets2income/Sales)s 2 …………… 26% 22%
Productivitys2(Sales/Averages2nets2assets)s 2 … 1.2 1.1
….
Computes2thes2company’ss2returns2ons2assetss2(ROA)s2fors22017.
a. 30.0%
b. 19.2%
c. 12.1%
d. 31.2%
Answer:s2d
ROAs2=s2Profits2margins2s2assets2turnover.s22017s2ROAs2=s226%s2s21.2s2=s231.2%.
9. Nickles2Companys2reportss2nets2incomes2ofs2$800s2millions2fors2itss2fiscals2years2endeds2Janua
rys22017.s 2 Ats2thes2beginnings2ofs2thats2fiscals2year,s2Nickles2Companys2hads2$5,000s2millions2
ins2totals2assets.s 2 Bys2fiscals2year-ends22017,s2totals2assetss2hads2growns2tos2$6,500s2million.
Whats2iss2Nickle’ss2returns2ons2assetss2(ROA)?
a. 13.9%
b. 16.0%
c. 12.3%
d. 10.7%
Answer:s 2 a
Returns2ons2assetss2(RO = Nets2incomes2/s2Averages2as
A) sets
= $800s2/s2[($5,000s2+s2$6,500
)s2/s22]
= 13.9%
10. Thes2followings2tables2containss2financials2statements2informations2fors2Izzys2Corporation.
($s2millions) Totals2Assets Nets2Income Sales Equity
2016s 2 …………………………. $105,000 $10,000 $95,000 $30,000
.
2017s 2 …………………………. $125,000 $11,000 $100,000 $31,000
.
Computes2thes2returns2ons2equitys2(ROE)s2ands2returns2ons2assetss2(ROA)s2fors22017.
a. 25.5%s2ROE,s210.0%s2ROA
b. 31.9%s2ROE,s211.2%s2ROA
c. 36.1%s2ROE,s29.6%s2ROA
d. 37.2%s2ROE,s213.1%s2ROA
Answer:s 2 c
Cambridges2Businesss2Publishers,s2©
2018s21-4 Financials2&s2Managerials2Accountings2fors2MBAs,s25
th
s2Edition
by Easton, Halsey, McAnally, Hartgraves & Morse
Practice Quiz Solutions
Module 1 – Financial Accounting for MBAs
1. Which of the following organizations does not contribute to the formation of GAAP?
a. FASB (Financial Accounting Standards Board)
b. IRS (Internal Revenue Service)
c. AICPA (American Institute of Certified Public Accountants)
d. SEC (Securities and Exchange Commission)
Answer: b
2. Rocky Beach reports the following dollar balances in its retained earnings account.
($ millions) 2017 2016
Retained earnings…………. 8,968.1 8,223.9
During 2017, Rocky Beach reported net income of $1,351.4 million. What amount of dividends, if
any, did Rocky Beach pay to its shareholders in 2017?
a. $607.2 million
b. No dividends paid
c. $301.2 million
d. $744.2 million
Answer: a
Computation of dividends
Beginning retained earnings, 2017 ............................................................................ $8,223.9
+ Net income ................................................................................................................. 1,351.4
– Cash dividends........................................................................................................... (?)
= Ending retained earnings, 2017 ................................................................................. $8,968.1
Thus, dividends were $607.2 million for 2017.
Cambridge Business Publishers, ©2018
Practice Quiz Solutions, Module 1 1-1
,3. At the beginning of a recent year, The Walt Disney Company’s liabilities equaled $26,197 million.
During the year, assets increased by $400 million and year-end assets equaled $50,388 million.
Liabilities decreased $100 million during the year.
What were beginning and ending amounts for Walt Disney’s equity?
a. $26,197 million beginning equity and $24,291 million ending equity
b. $23,791 million beginning equity and $27,042 million ending equity
c. $23,791 million beginning equity and $24,291 million ending equity
d. $27,042 million beginning equity and $25,183 million ending equity
Answer: c
Using the accounting equation at the beginning of the year:
Assets($50,388 - $400) = Liabilities($26,197) + Equity(?)
Thus: Beginning Equity = $23,791
Using the accounting equation at the end of the year:
Assets($50,388) = Liabilities($26,197 - $100) + Equity(?)
Thus: Ending Equity = $24,291
4. Assume that Starbucks reported net income for a recent year of $564 million. Its stockholders’
equity is $2,229 million and $2,090 million, respectively.
Compute its return on equity.
a. 13.0%
b. 22.8%
c. 26.1%
d. 32.7%
Answer: c
ROE = Net income / Average stockholders’ equity
= $564 million / [($2,229 million + $2,090 million) / 2] = 26.1%
5. Nokia manufactures, markets, and sells phones and other electronics. Assume that Nokia reported
net income of €3,582 on sales of €34,191 and total stockholders’ equity of €14,576 and €14,871,
respectively.
What is Nokia’s return on equity?
a. 24.3%
b. 42.3%
c. 17.7%
d. 10.5%
Answer: a
Return on equity is net income divided by the average total stockholders’ equity.
Nokia’s ROE: €3,582 / [(€14,576 + €14,871) / 2] = 24.3%.
Cambridges2Businesss2Publishers,s2©
2018s21-2 Financials2&s2Managerials2Accountings2fors2MBAs,s25
th
s2Edition
,6. Thes2totals2assetss2ofs2Dell,s2Inc.s2equals2$15,470s2millions2ands2itss2equitys2iss2$4,873s2m
illion.s 2 Whats2iss2thes2amounts2ofs2itss2liabilities,s2ands2whats2percentages2ofs2financings2is
s2provideds2bys2Dell’ss2owners?
a. $20,343s2million,s224.0%
b. $10,597s2million,s231.50%
c. $10,597s2million,s268.5%
d. $20,343s2million,s276.0%
Answer:s2
bs2($s2milli
Assets = Liabilities + Equity
ons)$15,470 $10,597 $4,873
Dells2receivess2mores2ofs2itss2financings2froms2nonownerss2($10,597s2million)s2versuss2ownerss2(
$4,873s2million).s2Itss2owners2financings2comprisess231.5%s2ofs2itss2totals2financings2($4,873s2mill
ion/s2$15,470s2million).
7. Thes2totals2assetss2ofs2Fords2Motors2Companys2equals2$315,920s2millions2ands2itss2liabilitiess
2equals2$304,269s2million.s 2 Whats2iss2thes2amounts2ofs2Ford’ss2equitys2ands2whats2percentag
es2ofs2financings2iss2provideds2bys2itss2owners?
a. $s 2 11,651s2million,s 2 3.9%
b. $620,189s2million,s249.1%
c. $620,189s2million,s250.9%
d. $s 2 11,651s2million,s 2 3.7%
Answer:s2
ds2($s2milli
Assets = Liabilities + Equity
ons)$315,920 $304,269 $11,651
Fords2receivess2mores2ofs2itss2financings2froms2nonownerss2($304,269s2million)s2versuss2ownerss
2($11,651s2million).s2Itss2owners2financings2comprisess23.7%s2ofs2itss2totals2financings2($11,651s2
million/s2$315,920s2million).s2Thes2relativelys2lows2levels2ofs2equitys2capitals2iss2primarilys2thes2re
sults2ofs2thes2facts2thats2Fords2iss2actuallys2as2blends2ofs2twos2companies:s2thes2automotives2ma
nufacturings2companys2ands2thes2financials2subsidiary.s2Thes2financials2subsidiarys2hass2as2balan
ces2sheets2similars2tos2thats2ofs2as2bank,s2thats2is,s2relativelys2littles2equitys2capital.s2Thes2blends
2ofs2theses2twos2operatings2entitiess2resultss2ins2as2balances2sheets2thats2iss2mores2dependents2
ons2borroweds2fundss2thans2woulds2bes2thes2cases2ifs2Fords2consisteds2solelys2ofs2thes2manufact
urings2company.
Cambridges2Businesss2Publishers,s2©
Practices2Quizs2Solutions,s2Mod 2018
ules21 1-3
, 8. Followings2ares2selecteds2ratioss2ofs2Canarys2Corp.s2fors22017s2ands22016.
Returns2ons2Assetss2(ROA)s2Component 2017 2016
Profitabilitys2(Nets2income/Sales)s 2 …………… 26% 22%
Productivitys2(Sales/Averages2nets2assets)s 2 … 1.2 1.1
….
Computes2thes2company’ss2returns2ons2assetss2(ROA)s2fors22017.
a. 30.0%
b. 19.2%
c. 12.1%
d. 31.2%
Answer:s2d
ROAs2=s2Profits2margins2s2assets2turnover.s22017s2ROAs2=s226%s2s21.2s2=s231.2%.
9. Nickles2Companys2reportss2nets2incomes2ofs2$800s2millions2fors2itss2fiscals2years2endeds2Janua
rys22017.s 2 Ats2thes2beginnings2ofs2thats2fiscals2year,s2Nickles2Companys2hads2$5,000s2millions2
ins2totals2assets.s 2 Bys2fiscals2year-ends22017,s2totals2assetss2hads2growns2tos2$6,500s2million.
Whats2iss2Nickle’ss2returns2ons2assetss2(ROA)?
a. 13.9%
b. 16.0%
c. 12.3%
d. 10.7%
Answer:s 2 a
Returns2ons2assetss2(RO = Nets2incomes2/s2Averages2as
A) sets
= $800s2/s2[($5,000s2+s2$6,500
)s2/s22]
= 13.9%
10. Thes2followings2tables2containss2financials2statements2informations2fors2Izzys2Corporation.
($s2millions) Totals2Assets Nets2Income Sales Equity
2016s 2 …………………………. $105,000 $10,000 $95,000 $30,000
.
2017s 2 …………………………. $125,000 $11,000 $100,000 $31,000
.
Computes2thes2returns2ons2equitys2(ROE)s2ands2returns2ons2assetss2(ROA)s2fors22017.
a. 25.5%s2ROE,s210.0%s2ROA
b. 31.9%s2ROE,s211.2%s2ROA
c. 36.1%s2ROE,s29.6%s2ROA
d. 37.2%s2ROE,s213.1%s2ROA
Answer:s 2 c
Cambridges2Businesss2Publishers,s2©
2018s21-4 Financials2&s2Managerials2Accountings2fors2MBAs,s25
th
s2Edition
