Question 1

Investors who are interested in purchasing a company's shares for growth potential will be interested in companies with a low payout ratio.

Accepted Answer

A) True 
 B)False  True

Question 2

Asset turnover measures how efficiently a company uses its sales to generate assets.

Accepted Answer

A) True 
 B)False  False

Question 3

Selected data from O'Brien Ltd. are presented below:   Instructions
Calculate the profitability ratios that can be derived from the above information.

Accepted Answer

With the information provided, the profitability ratios that can be calculated are as follows:
1. Profit margin = Profit ÷ Net sales
= $ 245,000 ÷ $ 1,400,000 = 17.5%
2. Asset turnover = Net sales ÷ Average assets
= $ 1,400,000 ÷ $ 1,750,000 = 80%
3. Return on assets = Profit ÷ Average assets
= $ 245,000 ÷ $ 1,750,000 = 14%
4. Return on equity = Profit ÷ Average shareholders' equity
= $ 245,000 ÷ $ 1,000,000 = 24.5%
5. Gross profit margin = (Net sales - Cost of goods sold) ÷ Net sales
= ($ 1,400,000 - $ 745,000) ÷ $ 1,400,000 = 46.8%

Question 4

In a vertical analysis of the balance sheet, all items are expressed as a percentage of total assets.

Accepted Answer

A) True 
 B)False

Question 5

Selected information from the comparative financial statements of Montero Corporation for the year ended December 31, appears below:   Instructions
Answer the following questions relating to the year ended December 31, 2021. Show calculations. 
a) The inventory turnover for 2021 is ______.
b) The interest coverage in 2021 is ______.
c) The debt to total assets for 2021 is ______.
d) The receivables turnover for 2021 is ______.
e) The return on assets for 2021 is ______.

Accepted Answer

The answer of Selected information from the comparative financial statements...

Question 6

The CEO and CFO of a publicly traded company must ensure and personally declare that the reported financial information is

Accepted Answer

A)  accurate. 
B)  relevant. 
C)  understandable. 
D)  all of the above. 
A)  accurate. 
B)  relevant. 
C)  understandable. 
D)  all of the above.

Question 7

A company has an average inventory on hand of $ 60,000 and the average days to sell inventory is 29.2 days. What is the cost of goods sold?

Accepted Answer

A)  $ 750,000 
B)  $ 1,752,000 
C)  $ 739,726 
D)  $ 876,000 
A)  $ 750,000 
B)  $ 1,752,000 
C)  $ 739,726 
D)  $ 876,000

Question 8

Stella Ltd. has provided you with the following selected information from 2020 and 2021: $$\begin{array} { l r r } 
&2021&2020 \\hline
\text { Sales } &{ \$ } &{ \$740,000 } \
 & 785,000 & \
\text { Sales returns and allowances } & 55,200 & 52,000 \
\text { Cost of goods sold } & 358,000 & 305,000 \
\text { Operating expenses } & 285,000 & 255,000 \
\text { Profit } & 86,800 & 128,000
\end{array}$$ Using a vertical trend analysis with net sales as a base, which of the following most accurately depicts the information stated above?

Accepted Answer

A)  Profit as a percentage of net sales decreased by 6.7 percentage points. 
B)  Cost of goods sold as a percentage of net sales decreased by 5 percentage points. 
C)  Profit as a percentage of net sales did not change significantly from 2020. 
D)  Cost of goods sold as a percentage of net sales remained consistent from 2020. 
A)  Profit as a percentage of net sales decreased by 6.7 percentage points. 
B)  Cost of goods sold as a percentage of net sales decreased by 5 percentage points. 
C)  Profit as a percentage of net sales did not change significantly from 2020. 
D)  Cost of goods sold as a percentage of net sales remained consistent from 2020.

Question 9

There are no standard ratio formulas incorporating

Accepted Answer

A)  comprehensive income. 
B)  profit. 
C)  net sales. 
D)  total assets. 
A)  comprehensive income. 
B)  profit. 
C)  net sales. 
D)  total assets.

Question 10

In a horizontal analysis, if an item has a small value in the base year and a large value in the next year, the percentage change will NOT be meaningful.

Accepted Answer

A) True 
 B)False

Question 11

Now We See You Security Corporation had $ 250,000 of current assets and $ 90,000 of current liabilities before borrowing $ 60,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on Now We See You Security's current ratio?

Accepted Answer

A)  The ratio remained unchanged. 
B)  The change in the current ratio cannot be determined. 
C)  The ratio decreased. 
D)  The ratio increased. 
A)  The ratio remained unchanged. 
B)  The change in the current ratio cannot be determined. 
C)  The ratio decreased. 
D)  The ratio increased.

Question 12

In performing a vertical analysis, a 10% increase in net sales combined with an 8% increase in total expenses will cause profit to

Accepted Answer

A)  increase by 10%. 
B)  decrease by 10%. 
C)  increase by 2%. 
D)  decrease by 2%. 
A)  increase by 10%. 
B)  decrease by 10%. 
C)  increase by 2%. 
D)  decrease by 2%.

Question 13

Although depreciation expense and the carrying amount of property, plant and equipment may be different in one or more periods because of the choice of depreciation methods, in total, over the life of the assets, there is no difference. This is called

Accepted Answer

A)  difference in assumptions. 
B)  permanent difference. 
C)  timing difference. 
D)  irrelevant differences. 
A)  difference in assumptions. 
B)  permanent difference. 
C)  timing difference. 
D)  irrelevant differences.

Question 14

The receivables turnover is used to assess the liquidity of the accounts receivable.

Accepted Answer

A) True 
 B)False

Question 15

Gilbert's Hydraulics has provided you with the following selected information from 2020 and 2021: $$\begin{array} { l r r } 
&2021 & 2020\\hline
\text { Sales } & { \$ } & { \$740,000 } \
& 785,000 & \
\text { Sales returns and allowances } & 55,200 & 52,000 \
\text { Cost of goods sold } & 358,000 & 305,000 \
\text { Operating expenses } & 285,000 & 255,000 \
\text { Profit } & 86,800 & 128,000
\end{array}$$ Which of the following best interprets Gilbert's profit margin?

Accepted Answer

A)  Profit margin has weakened compared to prior year, decreasing from 45.6% to 41.2%. 
B)  Profit margin has weakened compared to prior year, decreasing from 18.6% to 11.9%. 
C)  Profit margin has weakened compared to prior year, decreasing from 17.3% to 11.1%. 
D)  Profit margin has weakened compared to prior year, decreasing from 55.7% to 50.9%. 
A)  Profit margin has weakened compared to prior year, decreasing from 45.6% to 41.2%. 
B)  Profit margin has weakened compared to prior year, decreasing from 18.6% to 11.9%. 
C)  Profit margin has weakened compared to prior year, decreasing from 17.3% to 11.1%. 
D)  Profit margin has weakened compared to prior year, decreasing from 55.7% to 50.9%.

Question 16

Horizontal analysis is appropriately performed

Accepted Answer

A)  only on the income statement. 
B)  only on the balance sheet. 
C)  only on the statement of retained earnings. 
D)  on all three of these statements. 
A)  only on the income statement. 
B)  only on the balance sheet. 
C)  only on the statement of retained earnings. 
D)  on all three of these statements.

Question 17

The profit margin is calculated by dividing

Accepted Answer

A)  sales by cost of goods sold. 
B)  gross profit by net sales. 
C)  profit by shareholders' equity. 
D)  profit by net sales. 
A)  sales by cost of goods sold. 
B)  gross profit by net sales. 
C)  profit by shareholders' equity. 
D)  profit by net sales.

Question 18

An increase in the debt to total assets ratio indicates that the company is

Accepted Answer

A)  financing a greater portion of its assets with debt. 
B)  likely to have significant growth in the future. 
C)  having trouble meeting its debt payments. 
D)  increasing the amount of equity invested in the business. 
A)  financing a greater portion of its assets with debt. 
B)  likely to have significant growth in the future. 
C)  having trouble meeting its debt payments. 
D)  increasing the amount of equity invested in the business.

Question 19

An increase in a company's gross profit margin indicates that the company

Accepted Answer

A)  has increased sales volume. 
B)  has increased selling prices. 
C)  has decreased its cost of goods sold. 
D)  potentially any of the above could have occurred. 
A)  has increased sales volume. 
B)  has increased selling prices. 
C)  has decreased its cost of goods sold. 
D)  potentially any of the above could have occurred.

Question 20

An intracompany comparative analysis is the process of

Accepted Answer

A)  comparing an item or financial relationship within a company in the current year with one or more prior years. 
B)  comparing an item or financial relationship within a company to the internally prepared master budget in order to highlight variances. 
C)  comparing an item or financial relationship of one company with historical data compiled by one or more competing companies. 
D)  comparing an item or financial relationship of one company with the same item or relationship in one or more competing companies. 
A)  comparing an item or financial relationship within a company in the current year with one or more prior years. 
B)  comparing an item or financial relationship within a company to the internally prepared master budget in order to highlight variances. 
C)  comparing an item or financial relationship of one company with historical data compiled by one or more competing companies. 
D)  comparing an item or financial relationship of one company with the same item or relationship in one or more competing companies.

Investors who are interested in purchasing a company's shares for growth potential will be interested in companies with a low payout ratio.

Asset turnover measures how efficiently a company uses its sales to generate assets.

Selected data from O'Brien Ltd. are presented below: Instructions Calculate the profitability ratios that can be derived from the above information.

In a vertical analysis of the balance sheet, all items are expressed as a percentage of total assets.

The CEO and CFO of a publicly traded company must ensure and personally declare that the reported financial information is

A company has an average inventory on hand of $ 60,000 and the average days to sell inventory is 29.2 days. What is the cost of goods sold?

There are no standard ratio formulas incorporating

In a horizontal analysis, if an item has a small value in the base year and a large value in the next year, the percentage change will NOT be meaningful.

Now We See You Security Corporation had $ 250,000 of current assets and $ 90,000 of current liabilities before borrowing $ 60,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on Now We See You Security's current ratio?

In performing a vertical analysis, a 10% increase in net sales combined with an 8% increase in total expenses will cause profit to

Although depreciation expense and the carrying amount of property, plant and equipment may be different in one or more periods because of the choice of depreciation methods, in total, over the life of the assets, there is no difference. This is called

The receivables turnover is used to assess the liquidity of the accounts receivable.

Horizontal analysis is appropriately performed

The profit margin is calculated by dividing

An increase in the debt to total assets ratio indicates that the company is

An increase in a company's gross profit margin indicates that the company

An intracompany comparative analysis is the process of

Long-Lived Assets

Current Liabilities and Payroll

Financial Reporting Concepts

Accounting for Partnerships

Introduction to Corporations

Corporations: Additional Topics and IFRS

Non-Current Liabilities

Investments

The Cash Flow Statement

Understanding Interest, Annuities, and Bond Valuation

Filters

Exam 10: Financial Statement Analysis

Investors who are interested in purchasing a company's shares for growth potential will be interested in companies with a low payout ratio.

Asset turnover measures how efficiently a company uses its sales to generate assets.

Selected data from O'Brien Ltd. are presented below: Instructions Calculate the profitability ratios that can be derived from the above information.

In a vertical analysis of the balance sheet, all items are expressed as a percentage of total assets.

The CEO and CFO of a publicly traded company must ensure and personally declare that the reported financial information is

A company has an average inventory on hand of $ 60,000 and the average days to sell inventory is 29.2 days. What is the cost of goods sold?

There are no standard ratio formulas incorporating

In a horizontal analysis, if an item has a small value in the base year and a large value in the next year, the percentage change will NOT be meaningful.

Now We See You Security Corporation had $ 250,000 of current assets and $ 90,000 of current liabilities before borrowing $ 60,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on Now We See You Security's current ratio?

In performing a vertical analysis, a 10% increase in net sales combined with an 8% increase in total expenses will cause profit to

Although depreciation expense and the carrying amount of property, plant and equipment may be different in one or more periods because of the choice of depreciation methods, in total, over the life of the assets, there is no difference. This is called

The receivables turnover is used to assess the liquidity of the accounts receivable.

Horizontal analysis is appropriately performed

The profit margin is calculated by dividing

An increase in the debt to total assets ratio indicates that the company is

An increase in a company's gross profit margin indicates that the company

An intracompany comparative analysis is the process of

Long-Lived Assets

Current Liabilities and Payroll

Financial Reporting Concepts

Accounting for Partnerships

Introduction to Corporations

Corporations: Additional Topics and IFRS

Non-Current Liabilities

Investments

The Cash Flow Statement

Understanding Interest, Annuities, and Bond Valuation

Filters