Gemology Certification Financial Management & Budgeting 2 — Questions and Answers
Question 1: A gem dealer purchases a parcel of sapphires for $8,400 and sells them for $14,700. What is the gross profit margin?
- 42.9% (Correct answer)
- 57.1%
- 75.0%
- 36.8%
Correct answer: 42.9%
Gross profit margin = (14,700 - 8,400) / 14,700 × 100 = 42.9%.
Question 2: Which financial document shows a gemology business's assets, liabilities, and equity at a specific point in time?
- Income statement
- Balance sheet (Correct answer)
- Cash flow statement
- Accounts receivable ledger
Correct answer: Balance sheet
The balance sheet (statement of financial position) presents assets, liabilities, and owner's equity on a given date.
Question 3: A gemologist sets a retail price using a keystone markup on a $2,200 diamond. What is the retail price?
- $3,300
- $4,400 (Correct answer)
- $2,750
- $3,960
Correct answer: $4,400
Keystone markup doubles the wholesale cost, so $2,200 × 2 = $4,400.
Question 4: When calculating the true cost of gem inventory, which of the following should be included beyond the purchase price?
- Advertising expenses only
- Freight, insurance, and import duties (Correct answer)
- Employee wages for sales staff
- Lease payments on the showroom
Correct answer: Freight, insurance, and import duties
Landed cost includes purchase price plus all freight, insurance, and import duties required to get inventory to your location.
Question 5: A jeweler's accounts receivable balance is $45,000 and annual credit sales are $270,000. What is the accounts receivable turnover ratio?
- 4.0
- 6.0 (Correct answer)
- 8.0
- 3.0
Correct answer: 6.0
AR turnover = $270,000 / $45,000 = 6.0, meaning receivables are collected six times per year.
Question 6: Which depreciation method allocates equal expense amounts across an asset's useful life?
- Double declining balance
- Sum-of-the-years' digits
- Straight-line (Correct answer)
- Units of production
Correct answer: Straight-line
Straight-line depreciation spreads cost evenly over the asset's useful life each accounting period.
Question 7: A gem retailer's current ratio is 0.8. What does this indicate?
- The business is highly profitable
- Current liabilities exceed current assets, signaling potential liquidity risk (Correct answer)
- The business has strong long-term solvency
- Current assets are 80% greater than liabilities
Correct answer: Current liabilities exceed current assets, signaling potential liquidity risk
A current ratio below 1.0 means current liabilities exceed current assets, indicating the firm may struggle to meet short-term obligations.
Gemology Certification Financial Management & Budgeting 2
A gem dealer purchases a parcel of sapphires for $8,400 and sells them for $14,700.
What is the gross profit margin?