Exam 14: Financial Statement Analysis Available Online in Connect

Indicate whether each of the following statements about financial statement analysis is true or false.________ a)Meaningful comparisons between two companies generally should be made using percentage analysis or ratio analysis, not absolute amounts.________ b)The materiality of accounting information refers to whether it is viewed as favorable (good news)or unfavorable (bad news).________ c)Companies must account for immaterial items in compliance with generally accepted accounting principles.________ d)To judge the materiality of an absolute financial statement amount, one must consider the size of the company reporting it.________ e)Comparing percentages derived from financial statement analysis has the drawback of varying materiality levels.

Profitability ratios attempt to assess the company's ability to generate earnings.

As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant recorded the sale of inventory. As a result of this transaction, Gant's quick ratio will:

Alpha Company provided the following balance sheet for Year 2: What is the company's plant assets to long-term liabilities ratio?

Benson Company received cash of $1,000,000 from issuing common stock at par value. As a result of this transaction, the company's debt-to-equity ratio will:

The Fortune Company reported the following income for Year 2: What is the company's number of times interest earned ratio?

Which of the following statements regarding the return on equity (ROE)measure is not true?

Knell Company paid its sales employees $15,000 in sales commissions. What impact will this transaction have on the firm's working capital?

On December 31, Year 1, Houston Company's total current assets were $560,000 and its total current liabilities were $420,000. On January 1, Year 2, Houston issued a long-term note to a bank for $30,000 cash.Required:(a)Compute Houston's working capital (1)before and (2)after issuing the note payable.(b)Compute Houston's current ratio (1)before and (2)after issuing the note payable. Round your answer to two decimal places.

The quick ratio although similar to the current ratio is more conservative.