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%.
Cambridge Business Publishers,
©2018 1-2 Financial & Managerial Accounting for MBAs, 5th Edition
,6. The total assets of Dell, Inc. equal $15,470 million and its equity is $4,873 million.
What is the amount of its liabilities, and what percentage of financing is provided
by Dell’s owners?
a. $20,343 million, 24.0%
b. $10,597 million, 31.50%
c. $10,597 million, 68.5%
d. $20,343 million, 76.0%
Answer:
b ($
Assets = Liabilities + Equity
millions)
$15,470 $10,597 $4,873
Dell receives more of its financing from nonowners ($10,597 million) versus owners
($4,873 million). Its owner financing comprises 31.5% of its total financing ($4,873
million/ $15,470 million).
7. The total assets of Ford Motor Company equal $315,920 million and its liabilities equal
$304,269 million. What is the amount of Ford’s equity and what percentage of
financing is provided by its owners?
a. $ 11,651 million, 3.9%
b. $620,189 million, 49.1%
c. $620,189 million, 50.9%
d. $ 11,651 million, 3.7%
Answer:
d ($
Assets = Liabilities + Equity
millions)
$315,920 $304,269 $11,651
Ford receives more of its financing from nonowners ($304,269 million) versus owners
($11,651 million). Its owner financing comprises 3.7% of its total financing ($11,651
million/ $315,920 million). The relatively low level of equity capital is primarily the result
of the fact that Ford is actually a blend of two companies: the automotive
manufacturing company and the financial subsidiary. The financial subsidiary has a
balance sheet similar to that of a bank, that is, relatively little equity capital. The blend
of these two operating entities results in a balance sheet that is more dependent on
borrowed funds than would be the case if Ford consisted solely of the manufacturing
company.
Cambridge Business Publishers, ©2018
Practice Quiz Solutions, Module 1 1-3
, 8. Following are selected ratios of Canary Corp. for 2017 and 2016.
Return on Assets (ROA) Component 2017 2016
Profitability (Net income/Sales) …………… 26% 22%
Productivity (Sales/Average net assets) 1.2 1.1
…….
Compute the company’s return on assets (ROA) for 2017.
a. 30.0%
b. 19.2%
c. 12.1%
d. 31.2%
Answer: d
ROA = Profit margin asset turnover. 2017 ROA = 26% 1.2 = 31.2%.
9. Nickle Company reports net income of $800 million for its fiscal year ended January
2017. At the beginning of that fiscal year, Nickle Company had $5,000 million in total
assets. By fiscal year-end 2017, total assets had grown to $6,500 million.
What is Nickle’s return on assets (ROA)?
a. 13.9%
b. 16.0%
c. 12.3%
d. 10.7%
Answer: a
Return on assets = Net income / Average
(ROA) assets
= $800 / [($5,000 + $6,500)
/ 2]
= 13.9%
10. The following table contains financial statement information for Izzy Corporation.
($ millions) Total Assets Net Income Sales Equity
2016 ………………………….. $105,000 $10,000 $95,000 $30,000
2017 ………………………….. $125,000 $11,000 $100,000 $31,000
Compute the return on equity (ROE) and return on assets (ROA) for 2017.
a. 25.5% ROE, 10.0% ROA
b. 31.9% ROE, 11.2% ROA
c. 36.1% ROE, 9.6% ROA
d. 37.2% ROE, 13.1% ROA
Answer: c
Cambridge Business Publishers,
©2018 1-4 Financial & Managerial Accounting for MBAs, 5th Edition
by Easton, Halsey, McAnally, Hartgraves & Morse
Practice Quiz Solutions
Module 1 – Financial Accounting for MBAs
1. Which of the following organizations does not contribute to the formation of GAAP?
a. FASB (Financial Accounting Standards Board)
b. IRS (Internal Revenue Service)
c. AICPA (American Institute of Certified Public Accountants)
d. SEC (Securities and Exchange
Commission) Answer: b
2. Rocky Beach reports the following dollar balances in its retained earnings account.
($ 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%.
Cambridge Business Publishers,
©2018 1-2 Financial & Managerial Accounting for MBAs, 5th Edition
,6. The total assets of Dell, Inc. equal $15,470 million and its equity is $4,873 million.
What is the amount of its liabilities, and what percentage of financing is provided
by Dell’s owners?
a. $20,343 million, 24.0%
b. $10,597 million, 31.50%
c. $10,597 million, 68.5%
d. $20,343 million, 76.0%
Answer:
b ($
Assets = Liabilities + Equity
millions)
$15,470 $10,597 $4,873
Dell receives more of its financing from nonowners ($10,597 million) versus owners
($4,873 million). Its owner financing comprises 31.5% of its total financing ($4,873
million/ $15,470 million).
7. The total assets of Ford Motor Company equal $315,920 million and its liabilities equal
$304,269 million. What is the amount of Ford’s equity and what percentage of
financing is provided by its owners?
a. $ 11,651 million, 3.9%
b. $620,189 million, 49.1%
c. $620,189 million, 50.9%
d. $ 11,651 million, 3.7%
Answer:
d ($
Assets = Liabilities + Equity
millions)
$315,920 $304,269 $11,651
Ford receives more of its financing from nonowners ($304,269 million) versus owners
($11,651 million). Its owner financing comprises 3.7% of its total financing ($11,651
million/ $315,920 million). The relatively low level of equity capital is primarily the result
of the fact that Ford is actually a blend of two companies: the automotive
manufacturing company and the financial subsidiary. The financial subsidiary has a
balance sheet similar to that of a bank, that is, relatively little equity capital. The blend
of these two operating entities results in a balance sheet that is more dependent on
borrowed funds than would be the case if Ford consisted solely of the manufacturing
company.
Cambridge Business Publishers, ©2018
Practice Quiz Solutions, Module 1 1-3
, 8. Following are selected ratios of Canary Corp. for 2017 and 2016.
Return on Assets (ROA) Component 2017 2016
Profitability (Net income/Sales) …………… 26% 22%
Productivity (Sales/Average net assets) 1.2 1.1
…….
Compute the company’s return on assets (ROA) for 2017.
a. 30.0%
b. 19.2%
c. 12.1%
d. 31.2%
Answer: d
ROA = Profit margin asset turnover. 2017 ROA = 26% 1.2 = 31.2%.
9. Nickle Company reports net income of $800 million for its fiscal year ended January
2017. At the beginning of that fiscal year, Nickle Company had $5,000 million in total
assets. By fiscal year-end 2017, total assets had grown to $6,500 million.
What is Nickle’s return on assets (ROA)?
a. 13.9%
b. 16.0%
c. 12.3%
d. 10.7%
Answer: a
Return on assets = Net income / Average
(ROA) assets
= $800 / [($5,000 + $6,500)
/ 2]
= 13.9%
10. The following table contains financial statement information for Izzy Corporation.
($ millions) Total Assets Net Income Sales Equity
2016 ………………………….. $105,000 $10,000 $95,000 $30,000
2017 ………………………….. $125,000 $11,000 $100,000 $31,000
Compute the return on equity (ROE) and return on assets (ROA) for 2017.
a. 25.5% ROE, 10.0% ROA
b. 31.9% ROE, 11.2% ROA
c. 36.1% ROE, 9.6% ROA
d. 37.2% ROE, 13.1% ROA
Answer: c
Cambridge Business Publishers,
©2018 1-4 Financial & Managerial Accounting for MBAs, 5th Edition
