Use This Balance Sheet and Income Statement for the First

question 98

Multiple Choice

Use this balance sheet and income statement for the first year of operations for Layton Novelties,Inc.to answer the following question.Use ending balances whenever average balances are required for computing ratios. $\begin{array}{c}\text {Abner Systems, Inc.}\\\text {Income Statement}\\\text {For the Year Ended December 31, 2010}\\\begin{array}{lr}\text { Net sales } & \$ 80,000 \\\text { Costs of goods sold } & \underline{32,000} \\\text { Gross margin } & \$ 48,000 \\\text { Operating expenses } & \underline{12,000}\\\text { Income before income taxes }&\$36,000 \\\text { Income taxes }& \underline{14,400}\\ \text {Net income } & \$21,600 \end{array}\end{array}$
The debt to equity ratio for Layton Novelties is

• A) 16-2/3 percent.
• B) 20 percent.
• C) 80 percent.
• D) 83-1/3 percent.

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Definitions:

Prefrontal Lobotomy

A surgical procedure that was once used to treat mental illness, involving the removal or destruction of parts of the prefrontal cortex of the brain.

Antonio de Egas Moniz

A Portuguese neurologist who is credited with the development of cerebral angiography and the controversial prefrontal leucotomy.

Frontal Lobes

Areas of the brain located at the front of each cerebral hemisphere, responsible for executive functions, decision making, problem-solving, and moderating social behavior.

Psychosis

A mental disorder characterized by a disconnection from reality, often including delusions and hallucinations.