Question 1

Limitations in ratio analysis include all of the following except for

Accepted Answer

A)  seasonality. 
B)  diversity of operations. 
C)  potential manipulation. 
D)  cross-sectional analysis. 
A)  seasonality. 
B)  diversity of operations. 
C)  potential manipulation. 
D)  cross-sectional analysis.

Question 2

The financial statements of Remco Distributors Inc. appear below:     Additional information for 2020:
1. Cash dividends of $45,000 were declared and paid.
2. Average number of common shares was 60,000 shares.
3. Market value of common shares on December 31 was $20 per share.
Instructions
Using the financial statements and the additional information, calculate the following ratios for 2020:
a) Current ratio
b) Return on equity
c) Price/earnings ratio
d) Accounts Receivables turnover
e) Profit margin

Accepted Answer

a) Current ratio: $160,250 / $60,000 = 2

Question 3

Two companies have an identical amount of current assets and current liabilities. Donald Inc. has 40% of its current assets invested in inventory, whereas Mickey Corp. has 30% of its current assets invested in inventory. Which of the following statements is true?

Accepted Answer

A)  Donald will have the higher quick ratio. 
B)  Donald will have the higher current ratio. 
C)  The companies are equally liquid because their current ratios are the same. 
D)  Donald is less liquid than Mickey. 
A)  Donald will have the higher quick ratio. 
B)  Donald will have the higher current ratio. 
C)  The companies are equally liquid because their current ratios are the same. 
D)  Donald is less liquid than Mickey.

Question 4

Financial measures or ratios that are not prepared using information taken directly from these financial statements are referred to as or GAAP financial measures.

Accepted Answer

A) True 
 B)False

Question 5

Accounting policy choices will affect the financial statement but do not impact the ratios determined.

Accepted Answer

A) True 
 B)False

Question 6

The current ratio is an activity ratio.

Accepted Answer

A) True 
 B)False

Question 7

Historic financial results

Accepted Answer

A)  help a lender determine the company's ability to service debt. 
B)  predict future cash flows with accuracy. 
C)  are not really needed for a financial analysis. 
D)  replace the need for financial projections. 
A)  help a lender determine the company's ability to service debt. 
B)  predict future cash flows with accuracy. 
C)  are not really needed for a financial analysis. 
D)  replace the need for financial projections.

Question 8

When preparing common-size analysis of a statement of income, the base is normally

Accepted Answer

A)  Net income. 
B)  Operating expenses. 
C)  Revenues. 
D)  Cost of goods sold. 
A)  Net income. 
B)  Operating expenses. 
C)  Revenues. 
D)  Cost of goods sold.

Question 9

A company is required to disclose information related to the segment(s) in a note to the financial statements if it has only one distinctive operating segment.

Accepted Answer

A) True 
 B)False

Question 10

Piroutte Inc. has come to the bank you work for looking for a $250,000 long-term loan. The loan committee has asked you to review the following data submitted with Piroutte's loan application:   Instructions 
a) Calculate the solvency ratios: debt/equity, interest coverage, and cash flows to total liabilities for all three years.
b) Write a brief report giving your recommendation on granting the loan. Provide support for your position.

Accepted Answer

@#IMG-DLM& b) The debt/equity ratio has increased

Question 11

Changes in the profit margin ratio could indicate changes in any of the following except changes in

Accepted Answer

A)  sales volume. 
B)  product profitability. 
C)  the cost structure. 
D)  the pricing policy. 
A)  sales volume. 
B)  product profitability. 
C)  the cost structure. 
D)  the pricing policy.

Question 12

The auditor's report guarantees the accuracy of the information presented in the financial statements.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is not a general category of ratios?

Accepted Answer

A)  liquidity 
B)  activity 
C)  solvency 
D)  leverage 
A)  liquidity 
B)  activity 
C)  solvency 
D)  leverage

Question 14

Non-IFRS financial measures can only be taken from unaudited financial information.

Accepted Answer

A) True 
 B)False

Question 15

How are prepaid expenses used in each of the following ratios?

Accepted Answer

The answer of How are prepaid expenses used in each...

Question 16

A banker assessing a loan application and an equity analyst making an investment decision would perform the same type of analysis of a company.

Accepted Answer

A) True 
 B)False

Question 17

When calculating the EPS, the cumulative preferred dividends must be removed even if the dividends have not been declared and paid.

Accepted Answer

A) True 
 B)False

Question 18

Abbreviated versions of the financial statements for George Industries are presented below:   Instructions
Calculate the following: 
a) Net profit margin ratio
b) Return on assets
c) Return on equity

Accepted Answer

The answer of Abbreviated versions of the financial statements for...

Question 19

The quick ratio will be negatively impacted by

Accepted Answer

A)  tying up cash in inventory. 
B)  increasing accounts receivable. 
C)  decreasing the level of prepaid accounts. 
D)  increasing levels of long-term debt. 
A)  tying up cash in inventory. 
B)  increasing accounts receivable. 
C)  decreasing the level of prepaid accounts. 
D)  increasing levels of long-term debt.

Question 20

Fully diluted earnings per share is a worst case scenario.

Accepted Answer

A) True 
 B)False

Limitations in ratio analysis include all of the following except for

Two companies have an identical amount of current assets and current liabilities. Donald Inc. has 40% of its current assets invested in inventory, whereas Mickey Corp. has 30% of its current assets invested in inventory. Which of the following statements is true?

Financial measures or ratios that are not prepared using information taken directly from these financial statements are referred to as or GAAP financial measures.

Accounting policy choices will affect the financial statement but do not impact the ratios determined.

The current ratio is an activity ratio.

Historic financial results

When preparing common-size analysis of a statement of income, the base is normally

A company is required to disclose information related to the segment(s) in a note to the financial statements if it has only one distinctive operating segment.

Changes in the profit margin ratio could indicate changes in any of the following except changes in

The auditor's report guarantees the accuracy of the information presented in the financial statements.

Which of the following is not a general category of ratios?

Non-IFRS financial measures can only be taken from unaudited financial information.

How are prepaid expenses used in each of the following ratios?

A banker assessing a loan application and an equity analyst making an investment decision would perform the same type of analysis of a company.

When calculating the EPS, the cumulative preferred dividends must be removed even if the dividends have not been declared and paid.

Abbreviated versions of the financial statements for George Industries are presented below: Instructions Calculate the following: a) Net profit margin ratio b) Return on assets c) Return on equity

The quick ratio will be negatively impacted by

Fully diluted earnings per share is a worst case scenario.

Overview of Corporate Financial Reporting

Analyzing Transaction and Their Effect on Financial Statement

Double-Entry Accounting and the Accounting Cycle

Revenue Recognition and the Statement of Income

The Statement of Cash Flows

Cash and Accounts

Inventory

Long-Term Assets

Current Liabilities

Long-Term Liabilities

Shareholders Equity

Filters

Exam 12: Financial Statement Analysis

Limitations in ratio analysis include all of the following except for

Two companies have an identical amount of current assets and current liabilities. Donald Inc. has 40% of its current assets invested in inventory, whereas Mickey Corp. has 30% of its current assets invested in inventory. Which of the following statements is true?

Financial measures or ratios that are not prepared using information taken directly from these financial statements are referred to as or GAAP financial measures.

Accounting policy choices will affect the financial statement but do not impact the ratios determined.

The current ratio is an activity ratio.

Historic financial results

When preparing common-size analysis of a statement of income, the base is normally

A company is required to disclose information related to the segment(s) in a note to the financial statements if it has only one distinctive operating segment.

Changes in the profit margin ratio could indicate changes in any of the following except changes in

The auditor's report guarantees the accuracy of the information presented in the financial statements.

Which of the following is not a general category of ratios?

Non-IFRS financial measures can only be taken from unaudited financial information.

How are prepaid expenses used in each of the following ratios?

A banker assessing a loan application and an equity analyst making an investment decision would perform the same type of analysis of a company.

When calculating the EPS, the cumulative preferred dividends must be removed even if the dividends have not been declared and paid.

Abbreviated versions of the financial statements for George Industries are presented below: Instructions Calculate the following: a) Net profit margin ratio b) Return on assets c) Return on equity

The quick ratio will be negatively impacted by

Fully diluted earnings per share is a worst case scenario.

Overview of Corporate Financial Reporting

Analyzing Transaction and Their Effect on Financial Statement

Double-Entry Accounting and the Accounting Cycle

Revenue Recognition and the Statement of Income

The Statement of Cash Flows

Cash and Accounts

Inventory

Long-Term Assets

Current Liabilities

Long-Term Liabilities

Shareholders Equity

Filters