Question 1

The current and quick ratios have two limitations.These ratios

Accepted Answer

A)  emphasize the ineffectiveness of analysts' calculations, and focus on liquid assets at a point in time instead of a period of time. 
B)  focus on cash instead of working capital, and they represent a point in time instead of covering a period of time. 
C)  focus on working capital instead of cash, and they represent a point in time instead of covering a period of time. 
D)  are ignored by most creditors, and focus on working capital instead of cash. 
A)  emphasize the ineffectiveness of analysts' calculations, and focus on liquid assets at a point in time instead of a period of time. 
B)  focus on cash instead of working capital, and they represent a point in time instead of covering a period of time. 
C)  focus on working capital instead of cash, and they represent a point in time instead of covering a period of time. 
D)  are ignored by most creditors, and focus on working capital instead of cash. C

Question 2

The base, or benchmark, on which all items on the income statement are compared is net sales.

Accepted Answer

A) True 
 B)False  True

Question 3

Select the term below most properly satisfies each statement.
-When using vertical analysis, accounts on the balance sheet should be stated as a percentage of this amount

Accepted Answer

A) total assets 
B) horizontal analysis 
C) vertical analysis 
D) net sales 
A) total assets 
B) horizontal analysis 
C) vertical analysis 
D) net sales A

Question 4

Return ratios are measures of the relationship between the

Accepted Answer

A)  income earned and the investment made in the company by the various groups. 
B)  revenue earned and the total equity of a company. 
C)  total equity of a company and its cash flows for the period. 
D)  profitability and liquidity aspects of a company. 
A)  income earned and the investment made in the company by the various groups. 
B)  revenue earned and the total equity of a company. 
C)  total equity of a company and its cash flows for the period. 
D)  profitability and liquidity aspects of a company.

Question 5

Which of the following is the most serious limitation to financial statement analysis of publicly traded companies?

Accepted Answer

A)  Some companies do not use GAAP. 
B)  Inflation can distort comparisons between years. 
C)  Some companies report nonoperating items such as extraordinary gains and losses, while others do not. 
D)  Different industries use different account names. 
A)  Some companies do not use GAAP. 
B)  Inflation can distort comparisons between years. 
C)  Some companies report nonoperating items such as extraordinary gains and losses, while others do not. 
D)  Different industries use different account names.

Question 6

Below is financial data for Fawnsworth Industries' current year. $\begin{array}{lr}
\text { Net sales on account during year } & \$ 500,000 \
\text { Cost of merchandise sold during year } & 300,000 \
\text { Accounts receivable, beginning of year } & 45,000 \
\text { Accounts receivable, end of year } & 35,000 \
\text { Inventory, beginning of year } & 90,000 \
\text { Inventory, end of year } & 110,000
\end{array}$
-Refer to the data for Fawnsworth Industries. Based on this information, what is the accounts receivable turnover for the current period?

Accepted Answer

A)  10.0 times 
B)  12.5 times 
C)  11.1 times 
D)  14.3 times 
A)  10.0 times 
B)  12.5 times 
C)  11.1 times 
D)  14.3 times

Question 7

The return on sales ratio is a variation of the profit margin ratio.

Accepted Answer

A) True 
 B)False

Question 8

You want to know whether selling and administrative expenses were reasonable for the past year, based on the level of sales.The best analysis for obtaining this information is:

Accepted Answer

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

Question 9

Treetop Company paid off a $100,000 two-year note payable.The effect of this transaction is that the

Accepted Answer

A)  earnings per share increased 
B)  current ratio decreased 
C)  debt-to-equity ratio increased 
D)  debt-to-equity ratio decreased 
A)  earnings per share increased 
B)  current ratio decreased 
C)  debt-to-equity ratio increased 
D)  debt-to-equity ratio decreased

Question 10

Below is financial data for Fawnsworth Industries' current year. $\begin{array}{lr}
\text { Net sales on account during year } & \$ 500,000 \
\text { Cost of merchandise sold during year } & 300,000 \
\text { Accounts receivable, beginning of year } & 45,000 \
\text { Accounts receivable, end of year } & 35,000 \
\text { Inventory, beginning of year } & 90,000 \
\text { Inventory, end of year } & 110,000
\end{array}$
-Refer to the data for Fawnsworth Industries. Based on this information, what is Fawnsworth's number of days' sales in receivables (assuming a 360 day year)?

Accepted Answer

A)  32.4 days 
B)  36.0 days 
C)  28.8 days 
D)  25.2 days 
A)  32.4 days 
B)  36.0 days 
C)  28.8 days 
D)  25.2 days

Question 11

In considering equity and debt financing, which of the following statements is true?

Accepted Answer

A)  Compared to equity financing, debt is a more expensive source of funding. 
B)  Interest and dividends payments are required to be made by the issuing corporation. 
C)  In general, the higher the proportion of total debt-to-equity ratio, the greater the likelihood the firm will have difficulty in meeting its obligations in some future period. 
D)  Most firms prefer to have no debt and rely on equity financing. 
A)  Compared to equity financing, debt is a more expensive source of funding. 
B)  Interest and dividends payments are required to be made by the issuing corporation. 
C)  In general, the higher the proportion of total debt-to-equity ratio, the greater the likelihood the firm will have difficulty in meeting its obligations in some future period. 
D)  Most firms prefer to have no debt and rely on equity financing.

Question 12

Because of its relationship to dividends and market price, which ratio is important to investors?

Accepted Answer

A)  current ratio 
B)  debt-to-equity ratio 
C)  price/earnings ratio 
D)  asset turnover ratio 
A)  current ratio 
B)  debt-to-equity ratio 
C)  price/earnings ratio 
D)  asset turnover ratio

Question 13

The current ratio

Accepted Answer

A)  is generally smaller than the quick ratio. 
B)  decreases when a company becomes more liquid. 
C)  increases when a company allows more customers to charge on account instead of collecting cash. 
D)  is larger when a company is more liquid. 
A)  is generally smaller than the quick ratio. 
B)  decreases when a company becomes more liquid. 
C)  increases when a company allows more customers to charge on account instead of collecting cash. 
D)  is larger when a company is more liquid.

Question 14

Solvency is the company's ability to pay its current debts when they become due.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following ratios is least useful in evaluating a company's ability to pay its current debts as they become due?

Accepted Answer

A)  current ratio 
B)  debt-to-equity ratio 
C)  debt service coverage ratio 
D)  acid-test ratio 
A)  current ratio 
B)  debt-to-equity ratio 
C)  debt service coverage ratio 
D)  acid-test ratio

Question 16

Which of the following is least useful in evaluating a company's financial statements?

Accepted Answer

A)  Comparison of the company's current period data with accounting data from 5 years ago 
B)  Comparison with other companies in the same industry 
C)  Comparison with government economic data for the economy as a whole. 
D)  Comparison of the company's current period data with that of the last year 
A)  Comparison of the company's current period data with accounting data from 5 years ago 
B)  Comparison with other companies in the same industry 
C)  Comparison with government economic data for the economy as a whole. 
D)  Comparison of the company's current period data with that of the last year

Question 17

Vertical analysis is a comparison of financial statement items for a single company over a period of time.

Accepted Answer

A) True 
 B)False

Question 18

Discontinued operations and extraordinary items are two components of the income statement that are reported after income from operations or are reported separately because of their unique nature.

Accepted Answer

A) True 
 B)False

Question 19

For each ratio listed, select whether an increase or decrease in the ratio is generally considered to be better.
-Asset turnover ratio

Accepted Answer

A) increase 
B) decrease 
A) increase 
B) decrease

Question 20

Solvency is concerned with the ability of a company to pay next year's debts as they come due.

Accepted Answer

A) True 
 B)False

The current and quick ratios have two limitations.These ratios

The base, or benchmark, on which all items on the income statement are compared is net sales.

Select the term below most properly satisfies each statement. -When using vertical analysis, accounts on the balance sheet should be stated as a percentage of this amount

Return ratios are measures of the relationship between the

Which of the following is the most serious limitation to financial statement analysis of publicly traded companies?

The return on sales ratio is a variation of the profit margin ratio.

You want to know whether selling and administrative expenses were reasonable for the past year, based on the level of sales.The best analysis for obtaining this information is:

Treetop Company paid off a $100,000 two-year note payable.The effect of this transaction is that the

In considering equity and debt financing, which of the following statements is true?

Because of its relationship to dividends and market price, which ratio is important to investors?

The current ratio

Solvency is the company's ability to pay its current debts when they become due.

Which of the following ratios is least useful in evaluating a company's ability to pay its current debts as they become due?

Which of the following is least useful in evaluating a company's financial statements?

Vertical analysis is a comparison of financial statement items for a single company over a period of time.

Discontinued operations and extraordinary items are two components of the income statement that are reported after income from operations or are reported separately because of their unique nature.

For each ratio listed, select whether an increase or decrease in the ratio is generally considered to be better. -Asset turnover ratio

Solvency is concerned with the ability of a company to pay next year's debts as they come due.

Accounting As a Form of Communication

Financial Statements and the Annual Report

Processing Accounting Information

Income Measurement and Accrual Accounting

Inventories and Cost of Goods Sold

Cash and Internal Control

Receivables and Investments

Operating Assets: Property, Plant and Equipment, and Intangibles

Current Liabilities, Contingencies, and the True Value of Money

Long-Term Liabilities

Stockholders Equity

The Statement of Cash Flows

Exploring Accounting Standards and Differences around the World

Filters

Exam 13: Financial Statement Analysis

The current and quick ratios have two limitations.These ratios

The base, or benchmark, on which all items on the income statement are compared is net sales.

Select the term below most properly satisfies each statement. -When using vertical analysis, accounts on the balance sheet should be stated as a percentage of this amount

Return ratios are measures of the relationship between the

Which of the following is the most serious limitation to financial statement analysis of publicly traded companies?

The return on sales ratio is a variation of the profit margin ratio.

You want to know whether selling and administrative expenses were reasonable for the past year, based on the level of sales.The best analysis for obtaining this information is:

Treetop Company paid off a $100,000 two-year note payable.The effect of this transaction is that the

In considering equity and debt financing, which of the following statements is true?

Because of its relationship to dividends and market price, which ratio is important to investors?

The current ratio

Solvency is the company's ability to pay its current debts when they become due.

Which of the following ratios is least useful in evaluating a company's ability to pay its current debts as they become due?

Which of the following is least useful in evaluating a company's financial statements?

Vertical analysis is a comparison of financial statement items for a single company over a period of time.

Discontinued operations and extraordinary items are two components of the income statement that are reported after income from operations or are reported separately because of their unique nature.

For each ratio listed, select whether an increase or decrease in the ratio is generally considered to be better. -Asset turnover ratio

Solvency is concerned with the ability of a company to pay next year's debts as they come due.

Accounting As a Form of Communication

Financial Statements and the Annual Report

Processing Accounting Information

Income Measurement and Accrual Accounting

Inventories and Cost of Goods Sold

Cash and Internal Control

Receivables and Investments

Operating Assets: Property, Plant and Equipment, and Intangibles

Current Liabilities, Contingencies, and the True Value of Money

Long-Term Liabilities

Stockholders Equity

The Statement of Cash Flows

Exploring Accounting Standards and Differences around the World

Filters