Question 1

If an analyst wants to examine a company's current ability to generate income,which of the following would best be considered?

Accepted Answer

A) Liquidity 
B) Market share 
C) Profitability 
D) Solvency 
A) Liquidity 
B) Market share 
C) Profitability 
D) Solvency

Question 2

Which of the following analysis techniques does not pertain to changes over time?

Accepted Answer

A) Trend analysis 
B) Horizontal analysis 
C) Time-series analysis 
D) Vertical analysis 
A) Trend analysis 
B) Horizontal analysis 
C) Time-series analysis 
D) Vertical analysis

Question 3

Southport Industries has current assets of $900,000 and a current ratio is 2.50.Assume that the company prepays rent for 9 months in the amount of $40,000.The current ratio after this transaction is closest to:

Accepted Answer

A) 2.39. 
B) 2.61. 
C) 2.50. 
D) 2.81. 
A) 2.39. 
B) 2.61. 
C) 2.50. 
D) 2.81.

Question 4

A debt-to-assets ratio of 0.50 indicates that the company has:

Accepted Answer

A) more liabilities than stockholders' equity. 
B) equal amounts of liabilities and stockholders' equity. 
C) more stockholders' equity than liabilities. 
D) no liabilities. 
A) more liabilities than stockholders' equity. 
B) equal amounts of liabilities and stockholders' equity. 
C) more stockholders' equity than liabilities. 
D) no liabilities.

Question 5

The comparative financial statements of Seward,Inc.include the following data: $\begin{array}{lrr}
&\text { Curyent Year}&\text {  Prior Year }\
\text { Income Statement }\
\text { Net Sales Revenue } & \mathbf{2 3 4 , 0 0 0} & \mathbf{1 8 0 , 0 0 0} \
\text { Cost of Goods Sold } & 99,000 & 84,600 \
\text { Operating Expenses } & 70,200 & 57,600 \
\text { Interest Expense } & 6,300 & 6,300 \
\text { Income Tax Expense } & 9,000 & 7,200 \
\text { Net Income } & 49,500 & 24,300\
 \text {Balance Sheet }\
\text { Current Assets } & \mathbf{2 0 7 , 0 0 0} & \mathbf{1 7 1 , 0 0 0} \
\text { Plant, Property and Equipment, Net } & 176,400 & 189,000 \
\text { Current Liabilities } & 81,000 & 68,400 \
\text { Long-Term Liabilities } & 77,400 & 77,400 \
\text { Stockholders' Equity } & 225,000 & 214,200 \
\text { Total Liabilities \& Stockholders' Equity } & 383,400 & 360,000
\end{array}$ The gross profit percentage for the current year is closest to:

Accepted Answer

A) 42%. 
B) 13.5%. 
C) 57.7%. 
D) 21.15%. 
A) 42%. 
B) 13.5%. 
C) 57.7%. 
D) 21.15%.

Question 6

Net income was $753,480 in the current year and $655,200 in the prior year.The year-to-year percentage change in net income is an increase of:

Accepted Answer

A) 15%. 
B) 55%. 
C) 87%. 
D) 13%. 
A) 15%. 
B) 55%. 
C) 87%. 
D) 13%.

Question 7

A trend analysis to determine a year-to-year dollar amount change is calculated by subtracting the:

Accepted Answer

A) previous period amount from the current amount. 
B) current period amount from the previous period amount. 
C) current period amount from the previous period amount and then dividing the result by the previous period amount. 
D) previous period amount from the current period amount and then dividing the result by the current period amount. 
A) previous period amount from the current amount. 
B) current period amount from the previous period amount. 
C) current period amount from the previous period amount and then dividing the result by the previous period amount. 
D) previous period amount from the current period amount and then dividing the result by the current period amount.

Question 8

Which of the following ratios is used to evaluate how efficient a company is in using its fixed assets to generate revenues?

Accepted Answer

A) Current ratio 
B) Debt-to-assets ratio 
C) Return on fixed assets ratio 
D) Fixed asset turnover ratio 
A) Current ratio 
B) Debt-to-assets ratio 
C) Return on fixed assets ratio 
D) Fixed asset turnover ratio

Question 9

Which of the following statements about nonrecurring and other special items is correct?

Accepted Answer

A) Some special items,such as changes in the value of certain balance sheet accounts,are excluded from the calculation of net income. 
B) Nonrecurring items such as discontinued operations are presented above the income tax expense line on the income statement. 
C) Discontinued operations are reported net of tax as part of the income from continuing operations. 
D) Interest Expense is shown net of tax as part of Other Comprehensive Income. 
A) Some special items,such as changes in the value of certain balance sheet accounts,are excluded from the calculation of net income. 
B) Nonrecurring items such as discontinued operations are presented above the income tax expense line on the income statement. 
C) Discontinued operations are reported net of tax as part of the income from continuing operations. 
D) Interest Expense is shown net of tax as part of Other Comprehensive Income.

Question 10

Horizontal analysis involves:

Accepted Answer

A) Comparing individual financial statement line items with each other to understand the relationships between line items. 
B) Comparing individual financial statement line items to some benchmark,typically similar competitors' financial statement line items. 
C) Comparing individual financial statement line items over time. 
D) Comparing individual financial statement line items that have been arranged horizontally from highest to lowest dollar amounts. 
A) Comparing individual financial statement line items with each other to understand the relationships between line items. 
B) Comparing individual financial statement line items to some benchmark,typically similar competitors' financial statement line items. 
C) Comparing individual financial statement line items over time. 
D) Comparing individual financial statement line items that have been arranged horizontally from highest to lowest dollar amounts.

Question 11

The following information is taken from the financial statements of Burton Industries: $\begin{array}{lr}
\text { Total Assets } & \$ 360,000 \
\text { Total Liabilities } & 162,000 \
\text { Total Stockholder's' Equity } & 198,000 \
\text { Net Income } & 126,000 \
\text { Income Tax Expense } & 37,800 \
\text { Interest Expense } & 9,000
\end{array}$ The company's times interest earned ratio is:

Accepted Answer

A) 19.2. 
B) 4.7. 
C) 15.0. 
D) 18.2. 
A) 19.2. 
B) 4.7. 
C) 15.0. 
D) 18.2.

Question 12

Which income statement line item had the largest percentage increase from the prior year to the current year? $\begin{array}{lrr}&\text { Current Year } & \text { Prior Year }\
\text { Sales } & \$ 216,000 & \$ 180,000 \
\text { Cost of Goods Sold } & 144,00 C & 108,000 \
\text { Depreciation Expense } & 54,00 C & 36,000 \
\text { Interest Expense } & 3,600 & 9,000
\end{array}$

Accepted Answer

A) Depreciation Expense 
B) Cost of Goods Sold 
C) Interest Expense 
D) Sales 
A) Depreciation Expense 
B) Cost of Goods Sold 
C) Interest Expense 
D) Sales

Question 13

An unqualified opinion:

Accepted Answer

A) means the company's financial statements are fairly presented. 
B) is rare because the rules are restrictive. 
C) describes the elements to be measured and reported in financial statements. 
D) underlies accounting rules. 
A) means the company's financial statements are fairly presented. 
B) is rare because the rules are restrictive. 
C) describes the elements to be measured and reported in financial statements. 
D) underlies accounting rules.

Question 14

If earnings per share (EPS)increases,it must mean that the company's net income has increased.

Accepted Answer

A) True 
 B)False

Question 15

Horizontal analysis:

Accepted Answer

A) is used to identify trends over time. 
B) identifies the relative contribution made by each financial statement line item. 
C) provides an understanding of the relationships among various items on financial statements. 
D) involves comparing amounts across different financial statements. 
A) is used to identify trends over time. 
B) identifies the relative contribution made by each financial statement line item. 
C) provides an understanding of the relationships among various items on financial statements. 
D) involves comparing amounts across different financial statements.

Question 16

Which of the following is calculated by dividing (net income less preferred dividends)by average common stockholders' equity?

Accepted Answer

A) Return on assets ratio 
B) Return on equity ratio 
C) Earnings per share 
D) Net profit margin ratio 
A) Return on assets ratio 
B) Return on equity ratio 
C) Earnings per share 
D) Net profit margin ratio

Question 17

Another term for historical cost is:

Accepted Answer

A) entry price. 
B) exit price. 
C) fee price. 
D) record price. 
A) entry price. 
B) exit price. 
C) fee price. 
D) record price.

Question 18

The following information pertains to Chestnut,Inc.: $\begin{array}{lr}
\text { Net Sales Revenue } & \$ 96,460 \
\text { Cost of Sales } & 63,458 \
\text { Gross Profit } & 33,002 \
\text { Operating and Other Expenses } & 25,430 \
\text { Interest Expense } & 560 \
\text { Income Tax Expense } & 2,622 \
\text { Net Income } & \$ 4,390
\end{array}$ What would be reported next to Interest Expense on a common sized income statement?

Accepted Answer

A) 12.7% 
B) 1.7% 
C) 0.6% 
D) 0.9% 
A) 12.7% 
B) 1.7% 
C) 0.6% 
D) 0.9%

Question 19

Which of the following ratios is used to evaluate solvency?

Accepted Answer

A) Fixed asset turnover ratio 
B) Days to sell ratio 
C) Current ratio 
D) Times interest earned 
A) Fixed asset turnover ratio 
B) Days to sell ratio 
C) Current ratio 
D) Times interest earned

Question 20

Which of the following could indicate bad news?

Accepted Answer

A) An increase in fixed asset turnover ratio. 
B) A decrease in days to sell. 
C) A decrease in EPS. 
D) A decrease in the debt-to-assets ratio. 
A) An increase in fixed asset turnover ratio. 
B) A decrease in days to sell. 
C) A decrease in EPS. 
D) A decrease in the debt-to-assets ratio.

If an analyst wants to examine a company's current ability to generate income,which of the following would best be considered?

Which of the following analysis techniques does not pertain to changes over time?

Southport Industries has current assets of $900,000 and a current ratio is 2.50.Assume that the company prepays rent for 9 months in the amount of $40,000.The current ratio after this transaction is closest to:

A debt-to-assets ratio of 0.50 indicates that the company has:

Net income was $753,480 in the current year and $655,200 in the prior year.The year-to-year percentage change in net income is an increase of:

A trend analysis to determine a year-to-year dollar amount change is calculated by subtracting the:

Which of the following ratios is used to evaluate how efficient a company is in using its fixed assets to generate revenues?

Which of the following statements about nonrecurring and other special items is correct?

Horizontal analysis involves:

The following information is taken from the financial statements of Burton Industries: Total Assets \ 360,000 Total Liabilities 162,000 Total Stockholder's' Equity 198,000 Net Income 126,000 Income Tax Expense 37,800 Interest Expense 9,000 The company's times interest earned ratio is:

Which income statement line item had the largest percentage increase from the prior year to the current year? Current Year Prior Year Sales \ 216,000 \ 180,000 Cost of Goods Sold 144,00C 108,000 Depreciation Expense 54,00C 36,000 Interest Expense 3,600 9,000

An unqualified opinion:

If earnings per share (EPS)increases,it must mean that the company's net income has increased.

Horizontal analysis:

Which of the following is calculated by dividing (net income less preferred dividends)by average common stockholders' equity?

Another term for historical cost is:

Which of the following ratios is used to evaluate solvency?

Which of the following could indicate bad news?

Business Decisions and Financial Accounting

The Balance Sheet

The Income Statement

Adjustments,Financial Statements,and Financial Results

Fraud,Internal Control,and Cash

Merchandising Operations and the Multistep Income Statement

Inventory and Cost of Goods Sold

Receivables,Bad Debt Expense,and Interest Revenue

Long-Lived Tangible and Intangible Assets

Liabilities

Stockholders Equity

Statement of Cash Flows

Filters

Exam 13: Measuring and Evaluating Financial Performance

If an analyst wants to examine a company's current ability to generate income,which of the following would best be considered?

Which of the following analysis techniques does not pertain to changes over time?

Southport Industries has current assets of $900,000 and a current ratio is 2.50.Assume that the company prepays rent for 9 months in the amount of $40,000.The current ratio after this transaction is closest to:

A debt-to-assets ratio of 0.50 indicates that the company has:

Net income was $753,480 in the current year and $655,200 in the prior year.The year-to-year percentage change in net income is an increase of:

A trend analysis to determine a year-to-year dollar amount change is calculated by subtracting the:

Which of the following ratios is used to evaluate how efficient a company is in using its fixed assets to generate revenues?

Which of the following statements about nonrecurring and other special items is correct?

Horizontal analysis involves:

The following information is taken from the financial statements of Burton Industries: Total Assets \ 360,000 Total Liabilities 162,000 Total Stockholder's' Equity 198,000 Net Income 126,000 Income Tax Expense 37,800 Interest Expense 9,000 The company's times interest earned ratio is:

Which income statement line item had the largest percentage increase from the prior year to the current year? Current Year Prior Year Sales \ 216,000 \ 180,000 Cost of Goods Sold 144,00C 108,000 Depreciation Expense 54,00C 36,000 Interest Expense 3,600 9,000

An unqualified opinion:

If earnings per share (EPS)increases,it must mean that the company's net income has increased.

Horizontal analysis:

Which of the following is calculated by dividing (net income less preferred dividends)by average common stockholders' equity?

Another term for historical cost is:

Which of the following ratios is used to evaluate solvency?

Which of the following could indicate bad news?

Business Decisions and Financial Accounting

The Balance Sheet

The Income Statement

Adjustments,Financial Statements,and Financial Results

Fraud,Internal Control,and Cash

Merchandising Operations and the Multistep Income Statement

Inventory and Cost of Goods Sold

Receivables,Bad Debt Expense,and Interest Revenue

Long-Lived Tangible and Intangible Assets

Liabilities

Stockholders Equity

Statement of Cash Flows

Filters