Question 1

The independent auditor's report

Accepted Answer

A)  describes which financial statements are covered by the audit 
B)  gives the auditor's opinion regarding the fairness of the financial statements 
C)  summarizes what the auditor did 
D)  states that the financial statements were presented on time 
A)  describes which financial statements are covered by the audit 
B)  gives the auditor's opinion regarding the fairness of the financial statements 
C)  summarizes what the auditor did 
D)  states that the financial statements were presented on time

Question 2

A change from one acceptable accounting method to another is reported

Accepted Answer

A)  on the statement of retained earnings, as a correction to the beginning balance 
B)  on the income statement, below income from continuing operations 
C)  on the income statement, above income tax expense 
D)  through a retroactive restatement of prior period earnings 
A)  on the statement of retained earnings, as a correction to the beginning balance 
B)  on the income statement, below income from continuing operations 
C)  on the income statement, above income tax expense 
D)  through a retroactive restatement of prior period earnings

Question 3

A common measure of liquidity is

Accepted Answer

A)  the asset turnover ratio 
B)  dividends per share of common stock 
C)  the accounts receivable turnover 
D)  the profit margin 
A)  the asset turnover ratio 
B)  dividends per share of common stock 
C)  the accounts receivable turnover 
D)  the profit margin

Question 4

A company with working capital of $720,000 and a current ratio of 2.2 pays a $125,000 short-term liability. The amount of working capital immediately after payment is

Accepted Answer

A)  $845,000 
B)  $595,000 
C)  $720,000 
D)  $125,000 
A)  $845,000 
B)  $595,000 
C)  $720,000 
D)  $125,000

Question 5

Rho, Sigma, and Tau companies have the following data for the current year:​​   Which company would be expected to have the best potential for future common stock price appreciation?

Accepted Answer

The price-earnings 
(P/E) ratio on commo

Question 6

Assume the following sales data for a company:?? $$\begin{array} { l r } 
\text { Current year } & \$ 325,000 \
\text { Preceding year } & 250,000
\end{array}$$ What is the percentage increase in sales from the preceding year to the current year?

Accepted Answer

A)  70% 
B)  76.9% 
C)  30% 
D)  50% 
A)  70% 
B)  76.9% 
C)  30% 
D)  50%

Question 7

The following information pertains to Diane Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. Use this information to answer the questions that follow.
​
  
-Using the data provided for Diane Company, what is the return on total assets?

Accepted Answer

A)  10% 
B)  8% 
C)  0.1% 
D)  1% 
A)  10% 
B)  8% 
C)  0.1% 
D)  1%

Question 8

Which of the following is not included in the computation of the quick ratio?

Accepted Answer

A)  inventory 
B)  marketable securities 
C)  accounts receivable 
D)  cash 
A)  inventory 
B)  marketable securities 
C)  accounts receivable 
D)  cash

Question 9

A balance sheet shows cash, $75,000; marketable securities, $115,000; receivables, $150,000; and inventories, $222,500. Current liabilities are $225,000. The current ratio is 2.5.

Accepted Answer

A) True 
 B)False

Question 10

If the accounts receivable turnover for the current year has decreased when compared with the ratio for the preceding year, there has been an acceleration in the collection of receivables.

Accepted Answer

A) True 
 B)False

Question 11

The excess of current assets over current liabilities is referred to as working capital.

Accepted Answer

A) True 
 B)False

Question 12

The relationship of each asset item as a percent of total assets is an example of vertical analysis.

Accepted Answer

A) True 
 B)False

Question 13

In a company's annual report, the section called Management Discussion and Analysis provides critical information for interpreting the financial statements and assessing the future of the company.

Accepted Answer

A) True 
 B)False

Question 14

Times interest earned is computed as

Accepted Answer

A)  net income plus interest expense, divided by interest expense 
B)  income before income tax plus interest expense, divided by interest expense 
C)  net income divided by interest expense 
D)  income before income tax divided by interest expense 
A)  net income plus interest expense, divided by interest expense 
B)  income before income tax plus interest expense, divided by interest expense 
C)  net income divided by interest expense 
D)  income before income tax divided by interest expense

Question 15

On a common-sized income statement, all items are stated as a percent of total assets or equities at year-end.

Accepted Answer

A) True 
 B)False

Question 16

Assume the following sales data for a company:Current year$1,025,000Preceding year820,000​What is the percentage increase in sales from the preceding year to the current year?

Accepted Answer

A)  100% 
B)  25% 
C)  125% 
D)  75% 
A)  100% 
B)  25% 
C)  125% 
D)  75%

Question 17

Match each definition that follows with the term (a-h) it defines.
-Useful for comparing one company to another or to industry averages

Accepted Answer

A) Solvency 
B) Leverage 
C) Times interest earned 
D) Horizontal analysis 
E) Vertical analysis
F)Common-sized financial statements
G)Current position analysis
H)Profitability analysis 
A) Solvency 
B) Leverage 
C) Times interest earned 
D) Horizontal analysis 
E) Vertical analysis
F)Common-sized financial statements
G)Current position analysis
H)Profitability analysis

Question 18

Match each ratio that follows to its use (items a-h). Items may be used more than once.
-Asset turnover ratio

Accepted Answer

A) Assess the profitability of the assets 
B) Assess how effectively assets are used 
C) Indicate the ability to pay current liabilities 
D) Indicate how much of the company is financed by debt and equity 
E) Indicate instant debt-paying ability
F)Assess the profitability of the investment by common stockholders
G)Indicate future earnings prospects
H)Indicate the extent to which earnings are being distributed to common stockholders 
A) Assess the profitability of the assets 
B) Assess how effectively assets are used 
C) Indicate the ability to pay current liabilities 
D) Indicate how much of the company is financed by debt and equity 
E) Indicate instant debt-paying ability
F)Assess the profitability of the investment by common stockholders
G)Indicate future earnings prospects
H)Indicate the extent to which earnings are being distributed to common stockholders

Question 19

Ratios and various other analytical measures are not a substitute for sound judgment, nor do they provide definitive guides for action.

Accepted Answer

A) True 
 B)False

Question 20

An analysis in which all the components of an income statement are expressed as a percentage of sales is a

Accepted Answer

A)  vertical analysis 
B)  horizontal analysis 
C)  liquidity analysis 
D)  solvency analysis 
A)  vertical analysis 
B)  horizontal analysis 
C)  liquidity analysis 
D)  solvency analysis

Exam 17: Financial Statement Analysis

The independent auditor's report

A change from one acceptable accounting method to another is reported

A common measure of liquidity is

A company with working capital of $720,000 and a current ratio of 2.2 pays a $125,000 short-term liability. The amount of working capital immediately after payment is

Rho, Sigma, and Tau companies have the following data for the current year:​​ Which company would be expected to have the best potential for future common stock price appreciation?

Assume the following sales data for a company:?? Current year \ 325,000 Preceding year 250,000 What is the percentage increase in sales from the preceding year to the current year?

Which of the following is not included in the computation of the quick ratio?

A balance sheet shows cash, $75,000; marketable securities, $115,000; receivables, $150,000; and inventories, $222,500. Current liabilities are $225,000. The current ratio is 2.5.

If the accounts receivable turnover for the current year has decreased when compared with the ratio for the preceding year, there has been an acceleration in the collection of receivables.

The excess of current assets over current liabilities is referred to as working capital.

The relationship of each asset item as a percent of total assets is an example of vertical analysis.

In a company's annual report, the section called Management Discussion and Analysis provides critical information for interpreting the financial statements and assessing the future of the company.

Times interest earned is computed as

On a common-sized income statement, all items are stated as a percent of total assets or equities at year-end.

Assume the following sales data for a company:Current year$1,025,000Preceding year820,000​What is the percentage increase in sales from the preceding year to the current year?

Match each definition that follows with the term (a-h) it defines. -Useful for comparing one company to another or to industry averages

Match each ratio that follows to its use (items a-h). Items may be used more than once. -Asset turnover ratio

Ratios and various other analytical measures are not a substitute for sound judgment, nor do they provide definitive guides for action.

An analysis in which all the components of an income statement are expressed as a percentage of sales is a

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting Systems

Accounting for Merchandising Businesses

Inventories

Internal Control and Cash

Receivables

Long-Term Assets: Fixed and Intangible

Current Liabilities and Payroll

Accounting for Partnerships and Limited Liability Companies

Corporations: Organization, Stock Transactions, and Dividends

Long-Term Liabilities: Bonds and Notes

Investments and Fair Value Accounting

Statement of Cash Flows

Introduction to Managerial Accounting

Job Order Costing

Process Cost Systems

Cost-Volume-Profit Analysis

Evaluating Variances From Standard Costs

Decentralized Operations

Differential Analysis, Product Pricing, and Activity-Based Costing

Capital Investment Analysis

Filters

Rho, Sigma, and Tau companies have the following data for the current year: Which company would be expected to have the best potential for future common stock price appreciation?

Assume the following sales data for a company:Current year$1,025,000Preceding year820,000What is the percentage increase in sales from the preceding year to the current year?