Question 1

Which of the following are the two primary concerns of creditors?

Accepted Answer

A) Security and the ability of the borrower to make payments 
B) Security and profitability 
C) Solvency and the ability of the borrower to make payments 
D) Solvency and profitability 
A) Security and the ability of the borrower to make payments 
B) Security and profitability 
C) Solvency and the ability of the borrower to make payments 
D) Solvency and profitability

Question 2

All of the following ratios would be useful in assessing an entity's liquidity except:

Accepted Answer

A) profit margin. 
B) current ratio. 
C) quick ratio. 
D) accounts receivable turnover. 
A) profit margin. 
B) current ratio. 
C) quick ratio. 
D) accounts receivable turnover.

Question 3

Aslam Company reported the following on its income statement for the year-ended June 30, 2014. $$\begin{array} { l r } 
\text { Earnings before income tax } & \$ 550,000 \
\text { Income tax expense } & \underline { 160,000 } \
\text { Net income } & \$ 390,000
\end{array}$$ An analysis of the income statement revealed that interest expense was $60,000 for the year.What was Aslam's interest coverage ratio closest to?

Accepted Answer

A) 6.5 times 
B) 9.2 times 
C) 9.9 times 
D) 10.2 times
($550,000 + $60,000)/$60,000 = 10.2 times 
A) 6.5 times 
B) 9.2 times 
C) 9.9 times 
D) 10.2 times
($550,000 + $60,000)/$60,000 = 10.2 times

Question 4

If you wanted to compare the increase in sales to the increase in assets, which of the following tools would you use?

Accepted Answer

A) Vertical analysis 
B) Horizontal analysis 
C) Return on asset 
D) Asset turnover 
A) Vertical analysis 
B) Horizontal analysis 
C) Return on asset 
D) Asset turnover

Question 5

Which of the following choices by a manager would increase net income, total assets and the return on assets ratio?

Accepted Answer

A) An increase in the allowance for doubtful accounts. 
B) The increase in the life of an asset. 
C) A decrease in the estimate for warranty expense. 
D) The classification of the damage from a flood as an extraordinary item. 
A) An increase in the allowance for doubtful accounts. 
B) The increase in the life of an asset. 
C) A decrease in the estimate for warranty expense. 
D) The classification of the damage from a flood as an extraordinary item.

Question 6

A company had the following partial list of assets and liabilities: $$\begin{array} { l r } 
\text { Cash } & \$ 5,000 \
\text { FVTOCI securities } & 15,000 \
\text { Accounts receivable } & 75,000 \
\text { Inventory } & 32,500 \
\text { Prepaid insurance } & 2,500 \
\text { Accounts payable } & 18,500 \
\text { Unearned revenue } & 20,000 \
\text { Current portion of long-term debt } & 5,000
\end{array}$$ What is their current ratio closest to?

Accepted Answer

A) 2.2 
B) 2.5 
C) 3.0 
D) 3.4 
A) 2.2 
B) 2.5 
C) 3.0 
D) 3.4

Question 7

Which of the following would you most likely expect when analyzing a successful grocery store?

Accepted Answer

A) A high level of receivables 
B) A high inventory turnover 
C) A high gross profit percentage 
D) A high profit margin 
A) A high level of receivables 
B) A high inventory turnover 
C) A high gross profit percentage 
D) A high profit margin

Question 8

An analyst is trying to value an advertising agency.The company recently announced the hiring of three well-known accounts managers from a rival agency.Which of the following limitations of financial ratios will hinder the valuation of the agency the most?

Accepted Answer

A) Financial statements are historical. 
B) Managers prepare financial statements. 
C) Financial statements are not comprehensive. 
D) Financial statements are not the only source of information. 
A) Financial statements are historical. 
B) Managers prepare financial statements. 
C) Financial statements are not comprehensive. 
D) Financial statements are not the only source of information.

Question 9

Which ratio gives an indication of how the market values an entity's earnings?

Accepted Answer

A) Return on equity 
B) Price-to-earnings ratio 
C) Dividend earnings ratio 
D) Earnings per share 
A) Return on equity 
B) Price-to-earnings ratio 
C) Dividend earnings ratio 
D) Earnings per share

Question 10

What does the profit margin measure?

Accepted Answer

A) The percentage of each sales dollar that the entity earns in profit. 
B) The amount of profit available to meet operating expenses. 
C) The amount of profit being generated by the company's assets. 
D) The average time it takes the company to turn inventory into profit. 
A) The percentage of each sales dollar that the entity earns in profit. 
B) The amount of profit available to meet operating expenses. 
C) The amount of profit being generated by the company's assets. 
D) The average time it takes the company to turn inventory into profit.

Question 11

What does the P/E ratio measure?

Accepted Answer

A) The value that the stock market places on a company's earnings and growth prospects. 
B) The relationship between dividends and market prices. 
C) The earnings for one common share of stock. 
D) The future prospects of the company. 
A) The value that the stock market places on a company's earnings and growth prospects. 
B) The relationship between dividends and market prices. 
C) The earnings for one common share of stock. 
D) The future prospects of the company.

Question 12

A company bought inventory for cash.Which of the following statements about their current ratio and quick ratio is true?

Accepted Answer

A) Both ratios would increase. 
B) The current ratio would not change, but the quick ratio would decrease. 
C) The current ratio would not change, but the quick ratio would increase. 
D) Both ratios would decrease. 
A) Both ratios would increase. 
B) The current ratio would not change, but the quick ratio would decrease. 
C) The current ratio would not change, but the quick ratio would increase. 
D) Both ratios would decrease.

Question 13

Bennett Company operates a large tour company in Atlantic Canada.Selected data from Bennett
Company for the year ended December 31, 2013, are presented below: $$\begin{array} { l r } 
\text { Total assets } & \$ 1,600,000 \
\text { Average total assets } & 1,750,000 \
\text { Average common shareholders' equity } & 280,000 \
\text { Net Sales } & 1,400,000 \
\text { Net earnings (including } \$ 70,000 \text { interest expense) } & 206,400 \
\text { Tax rate } & 35 \%
\end{array}$$ Required:
A) Calculate the return on assets, by calculating its components, profit margin and asset turnover, for Bennett
Company for the year ended December 31, 2013.
B) Comment on the ratios you prepared in part A, assuming the following averages for the charter industry: $$\begin{array} { l l } 
\text { Profit margin } & 8 \% \
\text { Return on Assets } & 14 \% \
\text { Asset turnover } & 1.75 \text { times }
\end{array}$$

Accepted Answer

A) @#IMG-DLM& Asset turnover = 1,400,000/1,750,000

Question 14

Entwhistle Ltd.supplied the following information for the years-ended December 31, 2013 and 2014: $\begin{array}{lcc}
 \text { Current Assets: } & 2014 & 2013 \
\text { Cash } & \$ 15,000 & 16,750 \
\text { Accounts Receivable } & 247,500 & 299,000 \
\text { Inventory } & 275,000 & 166,250 \
\text { Prepaid expenses } & 4,000 & 4,000 \\
\text { Current liabilities }&\$541,500&\$1,084,000\\\text { Net credit sales } & \$ 2,400,000 & \$ 2,255,000 \
\text { Purchases } & \$ 1,700,000 & \$ 1,590,000
\end{array}$ Entwhistle's credit terms are net 30 days On average Entwhistle holds inventory for how many days?

Accepted Answer

A) 47.4 days 
B) 50.6 days 
C) 59 days 
D) 65 days 
A) 47.4 days 
B) 50.6 days 
C) 59 days 
D) 65 days

Question 15

Which of the following types of income would be considered to be permanent earnings?

Accepted Answer

A) A gain on the sale of equipment resulting from the discontinuance of a business segment. 
B) Income from a business segment that is expected to be sold within the next year. 
C) Income resulting from the successful settlement of a major lawsuit. 
D) Income resulting from a store opened during the most recent fiscal year. 
A) A gain on the sale of equipment resulting from the discontinuance of a business segment. 
B) Income from a business segment that is expected to be sold within the next year. 
C) Income resulting from the successful settlement of a major lawsuit. 
D) Income resulting from a store opened during the most recent fiscal year.

Question 16

What are Kang's return on equity (ROE) and earnings per share (EPS) closest to? $\begin{array}{ll}\text { ROE } & \underline{E P S}\
\text { A) } 28.5 \% & \$ 13.125 \
\text { B) } 28.5 \% & \$ 14.55 \
\text { C) } 65.6 \% & \$ 13.125 \
\text { D) } 65.6 \% & \$ 14.55
\end{array}$

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D 
A) Option A 
B) Option B 
C) Option C 
D) Option D

Question 17

In performing a vertical analysis, what would accounts payable be expressed as a percentage of?

Accepted Answer

A) Total current liabilities 
B) Total assets 
C) Sales revenue 
D) Total shareholders' equity 
A) Total current liabilities 
B) Total assets 
C) Sales revenue 
D) Total shareholders' equity

Question 18

What is Kang's return on assets closest to?

Accepted Answer

A) 17.4% 
B) 19.5% 
C) 21.7% 
D) 22.4% 
A) 17.4% 
B) 19.5% 
C) 21.7% 
D) 22.4%

Question 19

For 2014, Pink Flamingo Products had net income of $1,000,000.On January 1, 2014, there were 1,000,000 shares outstanding.On July 1, 2014 the company issued 100,000 new
Shares for $20 per share.The company paid $200,000 in dividends to common shareholders.What is Pink Flamingo's basic earnings per share for 2014?

Accepted Answer

A) $0.76 
B) $0.91 
C) $0.95 
D) $1.00 
A) $0.76 
B) $0.91 
C) $0.95 
D) $1.00

Question 20

The type of analysis a creditor requires depends on the nature of the credit being provided.The nature of the credit means:

Accepted Answer

A) the amount of the credit. 
B) the value and type of security. 
C) whether the credit is for the short or long term. 
D) the ability of the borrower to pay interest. 
A) the amount of the credit. 
B) the value and type of security. 
C) whether the credit is for the short or long term. 
D) the ability of the borrower to pay interest.

Which of the following are the two primary concerns of creditors?

All of the following ratios would be useful in assessing an entity's liquidity except:

If you wanted to compare the increase in sales to the increase in assets, which of the following tools would you use?

Which of the following choices by a manager would increase net income, total assets and the return on assets ratio?

Which of the following would you most likely expect when analyzing a successful grocery store?

An analyst is trying to value an advertising agency.The company recently announced the hiring of three well-known accounts managers from a rival agency.Which of the following limitations of financial ratios will hinder the valuation of the agency the most?

Which ratio gives an indication of how the market values an entity's earnings?

What does the profit margin measure?

What does the P/E ratio measure?

A company bought inventory for cash.Which of the following statements about their current ratio and quick ratio is true?

Which of the following types of income would be considered to be permanent earnings?

What are Kang's return on equity (ROE) and earnings per share (EPS) closest to? ROE A) 28.5\% \ 13.125 B) 28.5\% \ 14.55 C) 65.6\% \ 13.125 D) 65.6\% \ 14.55

In performing a vertical analysis, what would accounts payable be expressed as a percentage of?

What is Kang's return on assets closest to?

The type of analysis a creditor requires depends on the nature of the credit being provided.The nature of the credit means:

The Accounting Environment: What Is Accounting and Why Is It Done

Financial Statements: a Window on an Entity

The Accounting Cycle

Income Measurement and the Objectives of Financial Reporting

Cash Flow, Profitability, and the Cash Flow Statement

Cash, Receivables, and the Time Value of Money

Inventory

Capital Assets

Liabilities

Owners Equity

Investments in Other Companies

Filters

Exam 12: Analyzing and Interpreting Financial Statements

Which of the following are the two primary concerns of creditors?

All of the following ratios would be useful in assessing an entity's liquidity except:

If you wanted to compare the increase in sales to the increase in assets, which of the following tools would you use?

Which of the following choices by a manager would increase net income, total assets and the return on assets ratio?

Which of the following would you most likely expect when analyzing a successful grocery store?

An analyst is trying to value an advertising agency.The company recently announced the hiring of three well-known accounts managers from a rival agency.Which of the following limitations of financial ratios will hinder the valuation of the agency the most?

Which ratio gives an indication of how the market values an entity's earnings?

What does the profit margin measure?

What does the P/E ratio measure?

A company bought inventory for cash.Which of the following statements about their current ratio and quick ratio is true?

Which of the following types of income would be considered to be permanent earnings?

What are Kang's return on equity (ROE) and earnings per share (EPS) closest to? ROE A) 28.5\% \ 13.125 B) 28.5\% \ 14.55 C) 65.6\% \ 13.125 D) 65.6\% \ 14.55

In performing a vertical analysis, what would accounts payable be expressed as a percentage of?

What is Kang's return on assets closest to?

The type of analysis a creditor requires depends on the nature of the credit being provided.The nature of the credit means:

The Accounting Environment: What Is Accounting and Why Is It Done

Financial Statements: a Window on an Entity

The Accounting Cycle

Income Measurement and the Objectives of Financial Reporting

Cash Flow, Profitability, and the Cash Flow Statement

Cash, Receivables, and the Time Value of Money

Inventory

Capital Assets

Liabilities

Owners Equity

Investments in Other Companies

Filters