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)
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c. AICPA (American Institute of Certified Public Accountants)
d. SEC (Securities and Exchange Commission)
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Answer: b
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2. Rocky Beach reports the following dollar balances in its retained earnings account.
($ millions) 2017 2016
Retained earnings…………. 8,968.1 8,223.9
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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?
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a. $607.2 million
b. No dividends paid
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c. $301.2 million
d. $744.2 million
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Answer: a
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Computation of dividends
Beginning retained earnings, 2017 ............................................................................ $8,223.9
+ Net income ................................................................................................................. 1,351.4
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– Cash dividends........................................................................................................... (?)
= Ending retained earnings, 2017 ................................................................................. $8,968.1
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Thus, dividends were $607.2 million for 2017.
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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
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Using the accounting equation at the beginning of the year:
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Assets($50,388 - $400) = Liabilities($26,197) + Equity(?)
Thus: Beginning Equity = $23,791
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Using the accounting equation at the end of the year:
Assets($50,388) = Liabilities($26,197 - $100) + Equity(?)
Thus: Ending Equity = $24,291
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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.
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Compute its return on equity.
a. 13.0%
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b. 22.8%
c. 26.1%
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d. 32.7%
Answer: c
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ROE = Net income / Average stockholders’ equity
= $564 million / [($2,229 million + $2,090 million) / 2] = 26.1%
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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?
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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. $20,343 million, 76.0%
Answer: b
($ millions)
Assets = Liabilities + Equity
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$15,470 $10,597 $4,873
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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).
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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?
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a. $ 11,651 million, 3.9%
b. $620,189 million, 49.1%
c. $620,189 million, 50.9%
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d. $ 11,651 million, 3.7%
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Answer: d
($ millions)
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Assets = Liabilities + Equity
$315,920 $304,269 $11,651
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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).
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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
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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.
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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%
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c. 12.1%
d. 31.2%
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Answer: d
ROA = Profit margin asset turnover. 2017 ROA = 26% 1.2 = 31.2%.
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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)?
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a. 13.9%
b. 16.0%
c. 12.3%
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d. 10.7%
Answer: a
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Return on assets (ROA) = Net income / Average assets
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= $800 / [($5,000 + $6,500) / 2]
= 13.9%
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10. The following table contains financial statement information for Izzy Corporation.
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($ 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
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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
2017 ROE = $11,000 / [($31,000+$30,000) / 2] = 36.1%
2017 ROA = $11,000 / [($125,000+$105,000) / 2] = 9.6%
Cambridge Business Publishers, ©2018
1-4 Financial & Managerial Accounting for MBAs, 5th Edition
