Question 1

A higher P/E ratio means that:

Accepted Answer

A) the stock is more reasonably priced. 
B) the stock is relatively expensive. 
C) investors are wary of the stock. 
D) earnings are expected to decrease. 
A) the stock is more reasonably priced. 
B) the stock is relatively expensive. 
C) investors are wary of the stock. 
D) earnings are expected to decrease. B

Question 2

An individual interested in making a judgment about the profitability of a company should:

Accepted Answer

A) review the trend of working capital for several years. 
B) calculate the company's ROI for the most recent year. 
C) review the trend of the company's ROI for several years. 
D) compare the company's ROI for the most recent year with the industry average ROI for the most recent year. 
A) review the trend of working capital for several years. 
B) calculate the company's ROI for the most recent year. 
C) review the trend of the company's ROI for several years. 
D) compare the company's ROI for the most recent year with the industry average ROI for the most recent year. C

Question 3

The following amounts were reported on the December 31, 2019, balance sheet:
 $$\begin{array} { l r } 
\text { Cash } & \$9,000 \
\text { Accounts receivable } & 33,000 \
\text { Common stock } & 50,000 \
\text { Wages payable } & 16,000 \
\text { Retained earnings } & 125,000 \
\text { Land } & 30,000 \
\text { Accounts payable } & 19,000 \
\text { Bonds payable } & 110,000 \
\text { Merchandise inventory } & 28,000 \
\text { Buildings and equipment, net of accumulated depreciation } & 220,000
\end{array}$$
 Required:
(a.)Calculate working capital at December 31, 2019.
(b.)Calculate the current ratio at December 31, 2019.
(c.)Calculate the acid-test ratio at December 31, 2019.

Accepted Answer

$$\begin{array} { l r } 
\text { Cash } & \$ 9,000 \
\text { Accounts receivable } & 33,000 \
\text { Merchandise irventory } &\underline{ 28,000} \
\text { Total current assets } & \underline{\$ 70,000} \
\text { Accounts payable } & \$ 19,000 \
\text { Wages payable } &\underline{ 16,000 }\
\text { Total curent liabilities } &\underline{ \$ 35,000}
\end{array}$$ (a) Working capital = CA $\$ 70,000 -$ CL $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\$ 35,000$
(b.) Current ratio = CA $\$ 70,000 /$ CL $\$ 35,000$ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\underline{2.0}$
(c) Acid-test ratio $= ( C A \$ 70,000 -$ Irventory $\$ 28,000 ) / C L$
$\$ 35,000$ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\underline{1.2}$

Question 4

The following information was available for the year ended December 31, 2019:
 $\begin{array}{lrr}
  \text {Net sales  } &\$438,000\
 \text {Cost of goods sold  } &350,400\
 \text {Average accounts receivable for the year  } &29,200\
 \text { Accounts receivable at year-end } &33,600\
 \text { Average inventory for the year } &116,800\
 \text {  Inventory at year-end} &110,400\
\end{array}$
 Required:
(a.)Calculate the inventory turnover for 2019.
(b.)Calculate the number of days' sales in inventory for 2019, using year-end inventories.
(c.)Calculate the accounts receivable turnover for 2019.
(d.)Calculate the number of days' sales in accounts receivable for 2019, using year-end accounts receivable.

Accepted Answer

(a.) Inventory turnover = Cost of goods

Question 5

Financial leverage:

Accepted Answer

A) arises because most borrowed funds have a fixed interest rate. 
B) arises because most borrowed funds have a variable interest rate. 
C) usually has no bearing on the risk associated with a company. 
D) is a concept that does not apply to individuals. 
A) arises because most borrowed funds have a fixed interest rate. 
B) arises because most borrowed funds have a variable interest rate. 
C) usually has no bearing on the risk associated with a company. 
D) is a concept that does not apply to individuals.

Question 6

The following amounts were reported on the December 31, 2019, balance sheet: $$\begin{array} { l r } 
\text { Cash } &\$ 8,000 \
\text { Land } & 20,000 \
\text { Accounts payable } & 15,000 \
\text { Bonds payable } & 120,000 \
\text { Merchardise irventory } & 30,000 \
\text { Retained earnirgs } & 80,000 \
\text { Buildings and equipment, net of accumulated depreciation } & 180,000 \
\text { Accounts receivable } & 22,000 \
\text { Common stock } & 40,000 \
\text { Wages payable } & 5,000
\end{array}$$ The current ratio at December 31, 2019 was:

Accepted Answer

A) 1.5 
B) 3.0 
C) 4.0 
D) 6.0 
A) 1.5 
B) 3.0 
C) 4.0 
D) 6.0

Question 7

Management's use of resources can best be evaluated by focusing on measures of:

Accepted Answer

A) liquidity. 
B) activity. 
C) leverage. 
D) book value. 
A) liquidity. 
B) activity. 
C) leverage. 
D) book value.

Question 8

Another term for the price/earnings ratio is:

Accepted Answer

A) cost ratio. 
B) sales multiple. 
C) earnings multiple. 
D) profit ratio. 
A) cost ratio. 
B) sales multiple. 
C) earnings multiple. 
D) profit ratio.

Question 9

The following information was available for the year ended December 31, 2019: $$\begin{array} { l r } 
\text { Net income } & \$ 50,000 \
\text { Average total assets } & 600,000 \
\text { Dividends per share } & 1.40 \
\text { Earnings per share } & 5.00 \
\text { Market price per share at year-end } & 70.00
\end{array}$$ The price/earnings ratio for 2019 was:

Accepted Answer

A) 12.0 
B) 14.0 
C) 28.0 
D) 50.0 
A) 12.0 
B) 14.0 
C) 28.0 
D) 50.0

Question 10

The price/earnings ratio:

Accepted Answer

A) is a measure of the relative expensiveness of a firm's common stock. 
B) does not usually change by more than 1.0 during the year. 
C) can be used to determine the cash dividend to be received during the year. 
D) is calculated by dividing the earnings multiple by net income. 
A) is a measure of the relative expensiveness of a firm's common stock. 
B) does not usually change by more than 1.0 during the year. 
C) can be used to determine the cash dividend to be received during the year. 
D) is calculated by dividing the earnings multiple by net income.

Question 11

An entity's current ratio will be influenced by:

Accepted Answer

A) the inventory cost flow assumption used. 
B) writing off an overdue account receivable against the allowance for uncollectible accounts. 
C) the depreciation method used. 
D) issuance of a stock dividend. 
A) the inventory cost flow assumption used. 
B) writing off an overdue account receivable against the allowance for uncollectible accounts. 
C) the depreciation method used. 
D) issuance of a stock dividend.

Question 12

The following information was available for the year ended December 31, 2019: $\begin{array}{lr}
\text { Earnings before interest and taxes (operating income) } & \$ 50,000 \
\text { Interest expense } & 10,000 \
\text { Income tax expense } & 12,000 \
\text { Net income } & 28,000 \
\text { Total assets at year-end } & 200,000 \
\text { Total liabilities at year-end } & 120,000
\end{array}$
 The debt ratio at December 31, 2019 was:

Accepted Answer

A) 40.0% 
B) 60.0% 
C) 66.7% 
D) 150.0% 
A) 40.0% 
B) 60.0% 
C) 66.7% 
D) 150.0%

Question 13

If the P/E ratio of a company's common stock were 12, and its earnings were $2.50 per common share:

Accepted Answer

A) the market value of the common stock would be $20.83 per share. 
B) the market value of the common stock would be $25.00 per share. 
C) an increase in earnings of $0.20 per share, with no change in the multiple, would result in a market price increase of $2.40 per share. 
D) an increase in earnings of $0.20 per share, with no change in the multiple, would result in a market price increase of $1.67 per share. 
A) the market value of the common stock would be $20.83 per share. 
B) the market value of the common stock would be $25.00 per share. 
C) an increase in earnings of $0.20 per share, with no change in the multiple, would result in a market price increase of $2.40 per share. 
D) an increase in earnings of $0.20 per share, with no change in the multiple, would result in a market price increase of $1.67 per share.

Question 14

Book value per share of common stock of a manufacturing company:

Accepted Answer

A) is not a very useful measure most of the time. 
B) is calculated by dividing market value per share by earnings per share. 
C) reflects the fair value of the company's stock. 
D) is the same as the total balance sheet asset value per share of common stock. 
A) is not a very useful measure most of the time. 
B) is calculated by dividing market value per share by earnings per share. 
C) reflects the fair value of the company's stock. 
D) is the same as the total balance sheet asset value per share of common stock.

Question 15

The following information was available for the year ended December 31, 2019: $$\begin{array} { l r } 
\text { Sales } & \$ 300,000 \
\text { Net incone } & 50,000 \
\text { Average total assets } & 750,000 \
\text { Average total stockholders' equity } & 500,000
\end{array}$$ ROI for the year ended December 31, 2019 was:

Accepted Answer

A) 6.7% 
B) 10.0% 
C) 16.7% 
D) 20.0% 
A) 6.7% 
B) 10.0% 
C) 16.7% 
D) 20.0%

Question 16

The comparison of activity measures of different companies is complicated by the fact that:

Accepted Answer

A) different inventory cost flow assumptions may be used. 
B) dollar amounts of assets may be significantly different. 
C) only one of the companies may have preferred stock outstanding. 
D) the number of shares of common stock issued may be significantly different. 
A) different inventory cost flow assumptions may be used. 
B) dollar amounts of assets may be significantly different. 
C) only one of the companies may have preferred stock outstanding. 
D) the number of shares of common stock issued may be significantly different.

Question 17

Which of the following is (are)an example of a measure of leverage?

Accepted Answer

A) Debt yield. 
B) Debt payout ratio. 
C) Preferred dividend coverage ratio. 
D) Debt/equity ratio. 
A) Debt yield. 
B) Debt payout ratio. 
C) Preferred dividend coverage ratio. 
D) Debt/equity ratio.

Question 18

For the year ended December 31, 2019, a company reported earnings per share of $1.95 and cash dividends per share of $0.30.During 2020, the company had a 3-for-2 stock split.In the annual report for the year ended December 31, 2020, earnings per share and cash dividends for 2019 would be reported, respectively, as:

Accepted Answer

A) $1.95 and $0.30 
B) $2.91 and $0.45 
C) $1.30 and $0.20 
D) $0.65 and $0.10 
A) $1.95 and $0.30 
B) $2.91 and $0.45 
C) $1.30 and $0.20 
D) $0.65 and $0.10

Question 19

The following information was available for the year ended December 31, 2019: $$\begin{array} { l r } 
\text { Sales } & \$ 300,000 \
\text { Net incone } & 50,000 \
\text { Average total assets } & 750,000 \
\text { Average total stockholders' equity } & 500,000
\end{array}$$ Turnover for the year ended December 31, 2019 was:

Accepted Answer

A) 0.2 
B) 0.4 
C) 0.5 
D) 0.8 
A) 0.2 
B) 0.4 
C) 0.5 
D) 0.8

Question 20

The following information was available for the year ended December 31, 2019: $$\begin{array} { l r } 
\text { Sales } & \$ 300,000 \
\text { Net incone } & 50,000 \
\text { Average total assets } & 750,000 \
\text { Average total stockholders' equity } & 500,000
\end{array}$$ Margin for the year ended December 31, 2019 was:

Accepted Answer

A) 6.7% 
B) 10.0% 
C) 16.7% 
D) 20.0% 
A) 6.7% 
B) 10.0% 
C) 16.7% 
D) 20.0%

A higher P/E ratio means that:

An individual interested in making a judgment about the profitability of a company should:

Financial leverage:

Management's use of resources can best be evaluated by focusing on measures of:

Another term for the price/earnings ratio is:

The following information was available for the year ended December 31, 2019: Net income \ 50,000 Average total assets 600,000 Dividends per share 1.40 Earnings per share 5.00 Market price per share at year-end 70.00 The price/earnings ratio for 2019 was:

The price/earnings ratio:

An entity's current ratio will be influenced by:

If the P/E ratio of a company's common stock were 12, and its earnings were $2.50 per common share:

Book value per share of common stock of a manufacturing company:

The following information was available for the year ended December 31, 2019: Sales \ 300,000 Net incone 50,000 Average total assets 750,000 Average total stockholders' equity 500,000 ROI for the year ended December 31, 2019 was:

The comparison of activity measures of different companies is complicated by the fact that:

Which of the following is (are)an example of a measure of leverage?

The following information was available for the year ended December 31, 2019: Sales \ 300,000 Net incone 50,000 Average total assets 750,000 Average total stockholders' equity 500,000 Turnover for the year ended December 31, 2019 was:

The following information was available for the year ended December 31, 2019: Sales \ 300,000 Net incone 50,000 Average total assets 750,000 Average total stockholders' equity 500,000 Margin for the year ended December 31, 2019 was:

Accountingpresent and Past

Financial Statements and Accounting Conceptsprinciples

Fundamental Interpretations Made From Financial Statement Data

The Bookkeeping Process and Transaction Analysis

Accounting for and Presentation of Current Assets

Accounting for and Presentation of Property, Plant, and Equipment,

Accounting for and Presentation of Liabilities

Accounting for and Presentation of Stockholders Equity

The Income Statement and the Statement of Cash Flows

Corporate Governance, Notes to the Financial Statements,

Managerial Accounting and Cost-Volume-Profit Relationships

Cost Accounting and Reporting

Cost Planning

Cost Control

Cost for Decision Making

Filters

Exam 11: Financial Statement Analysis

A higher P/E ratio means that:

An individual interested in making a judgment about the profitability of a company should:

Financial leverage:

Management's use of resources can best be evaluated by focusing on measures of:

Another term for the price/earnings ratio is:

The following information was available for the year ended December 31, 2019: Net income \ 50,000 Average total assets 600,000 Dividends per share 1.40 Earnings per share 5.00 Market price per share at year-end 70.00 The price/earnings ratio for 2019 was:

The price/earnings ratio:

An entity's current ratio will be influenced by:

If the P/E ratio of a company's common stock were 12, and its earnings were $2.50 per common share:

Book value per share of common stock of a manufacturing company:

The following information was available for the year ended December 31, 2019: Sales \ 300,000 Net incone 50,000 Average total assets 750,000 Average total stockholders' equity 500,000 ROI for the year ended December 31, 2019 was:

The comparison of activity measures of different companies is complicated by the fact that:

Which of the following is (are)an example of a measure of leverage?

The following information was available for the year ended December 31, 2019: Sales \ 300,000 Net incone 50,000 Average total assets 750,000 Average total stockholders' equity 500,000 Turnover for the year ended December 31, 2019 was:

The following information was available for the year ended December 31, 2019: Sales \ 300,000 Net incone 50,000 Average total assets 750,000 Average total stockholders' equity 500,000 Margin for the year ended December 31, 2019 was:

Accountingpresent and Past

Financial Statements and Accounting Conceptsprinciples

Fundamental Interpretations Made From Financial Statement Data

The Bookkeeping Process and Transaction Analysis

Accounting for and Presentation of Current Assets

Accounting for and Presentation of Property, Plant, and Equipment,

Accounting for and Presentation of Liabilities

Accounting for and Presentation of Stockholders Equity

The Income Statement and the Statement of Cash Flows

Corporate Governance, Notes to the Financial Statements,

Managerial Accounting and Cost-Volume-Profit Relationships

Cost Accounting and Reporting

Cost Planning

Cost Control

Cost for Decision Making

Filters