Use This Balance Sheet and Income Statement for the First

question 42

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. $\begin{array}{c} \text {Layton Novelties. Inc.}\\ \text {Income Statement}\\ \text {For the Year Ended December 31, 2010}\\\begin{array}{llr} \text { Net sales } &\$80,000\\ \text { Costs of goods sold } &32,000\\ \text { Gross margin } &\$48,000\\ \text { Operating expenses} &12,000\\ \text {Income before income taxes } &\$36,000\\ \text { Income taxes } &14,400\\ \text { Net income} &\$21,600\end{array}\end{array}$

The current ratio for Layton Novelties is

• A) 1.75.
• B) .57.
• C) 1.4.
• D) 2.0.

Understand the fundamental role of insurance in economy.

Grasp the implications of the efficient markets hypothesis for stock selection.

Comprehend the concept of utility and how it relates to financial decisions.

Recognize the characteristics and implications of being risk-averse.

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Definitions:

Independent Agency

An agency of the United States government that operates independently of the executive departments, responsible for oversight and administration of specific functions.

Federal Deposit Insurance Corporation

A U.S. government agency that provides deposit insurance to depositors in American commercial banks and savings institutions, up to a defined limit.

Consumer Product Safety Commission

A U.S. federal agency responsible for regulating the sale and manufacture of consumer products to ensure they do not pose any unreasonable risk of injury or death to consumers.

Legal Positivism

A theory of law that holds that laws are rules made by human beings and that there is no inherent or necessary connection between law and morality.