Question 1

Financial stability refers to the ability of an entity to:

Accepted Answer

A) Earn a high rate of profit 
B) Reduce expenses 
C) Increase market share 
D) Meet long-term obligations 
A) Earn a high rate of profit 
B) Reduce expenses 
C) Increase market share 
D) Meet long-term obligations D

Question 2

This is Recker's Manufacturing's balance sheet at year-end. $$\begin{array} { l c } 
\text { Current assets } & \$ 200,000 \
\text { Long-term assets } & 400,000 \
\text { Current liabilities } & 50,000 \
\text { Long-term liabilities } & 100,000 \
\text { Share cap ital } & 200,000 \
\text { Retained earnings } & 250,000
\end{array}$$ The equity ratio is:

Accepted Answer

A) 33% 
B) 50% 
C) 75% 
D) 300% 
A) 33% 
B) 50% 
C) 75% 
D) 300% C

Question 3

Besides the information in annual reports how many of these are sources of financial information about companies which is useful for analysing their performance and financial position?
.The Internet
.The Stock Exchange
.Financial newspapers and journals
. Stock brokers
.Information on competitors

Accepted Answer

A) 2 
B) 3 
C) 4 
D) 5 
A) 2 
B) 3 
C) 4 
D) 5 D

Question 4

Buyer Co has ordered goods on credit from Seller Co.Before Seller ships the goods it would like to be sure that Buyer will be able to pay for them within the normal credit period.Assuming Seller has access to Buyer's financial statements,in which of the following ratios will Seller be most interested?

Accepted Answer

A) Dividend yield ratio 
B) Price earnings ratio 
C) Debt ratio 
D) Current ratio 
A) Dividend yield ratio 
B) Price earnings ratio 
C) Debt ratio 
D) Current ratio

Question 5

Leverage measures:

Accepted Answer

A) Whether the firm can pay its current liabilities 
B) Profit as a portion of equity 
C) Whether the firm can pay its long-term liabilities 
D) The proportion of borrowed funds compared to equity 
A) Whether the firm can pay its current liabilities 
B) Profit as a portion of equity 
C) Whether the firm can pay its long-term liabilities 
D) The proportion of borrowed funds compared to equity

Question 6

Schultz Consultancy reports: $$\begin{array} { l r } 
\text { Total assets } & \$ 950000 \
\text { Profit } & 30000 \
\text { Current liabilities } & 285000
\end{array}$$ If current assets = 60% of total assets Schultz's current ratio is:

Accepted Answer

A) 1 to 2 
B) 3 to 2 
C) 2 to 1 
D) 2 to 3 
A) 1 to 2 
B) 3 to 2 
C) 2 to 1 
D) 2 to 3

Question 7

The profit margin ratio measures:

Accepted Answer

A) The rate of return on total assets 
B) The difference between the purchase price and the selling price of inventory 
C) The proportion of each sales dollar that represents profit 
D) Return to shareholders 
A) The rate of return on total assets 
B) The difference between the purchase price and the selling price of inventory 
C) The proportion of each sales dollar that represents profit 
D) Return to shareholders

Question 8

E___________ per share is the conversion of the absolute dollar amount of profit after tax to a per-share basis.

Accepted Answer

The answer of E___________ per share is the conversion of...

Question 9

L______________ is the ability of a firm to meet its short-term obligations.

Accepted Answer

Liquidity

Question 10

The r__________ on total assets is a profitability ratio calculated by the formula,profit before income tax and finance costs dividing by average total assets.

Accepted Answer

The answer of The r__________ on total assets is a...

Question 11

R____________ turnover is a measure of how many times average accounts receivables are converted into cash during the year.

Accepted Answer

The answer of R____________ turnover is a measure of how...

Question 12

World Consulting has the following data available: $$\begin{array} { l r } 
\text { Sales } & \$ 2000000 \
\text { Selling expenses } & 200000 \
\text { Profit } & 400000
\end{array}$$ Using vertical analysis express selling expenses as a percentage of the base amount.

Accepted Answer

A) 50% 
B) 20% 
C) 10% 
D) 12% 
A) 50% 
B) 20% 
C) 10% 
D) 12%

Question 13

Profit less income tax,divided by revenue,is the formula for:

Accepted Answer

A) Return on assets 
B) Profit margin 
C) Earnings per share 
D) Return on equity 
A) Return on assets 
B) Profit margin 
C) Earnings per share 
D) Return on equity

Question 14

If the debt ratio is 54% the equity ratio must be _______%.

Accepted Answer

46%,46.for

Question 15

An increase in the inventory turnover ratio is normally considered to be favourable but could be unfavourable if it means:

Accepted Answer

A) Inventory is less likely to become obsolete 
B) Liquidity is greater 
C) The firm not carrying enough inventory to meet its customer's needs 
D) Storage costs of inventory are lower 
A) Inventory is less likely to become obsolete 
B) Liquidity is greater 
C) The firm not carrying enough inventory to meet its customer's needs 
D) Storage costs of inventory are lower

Question 16

The statement relating to the debt ratio of a company that is not true is:

Accepted Answer

A) It can be calculated by relating liabilities to total funds 
B) It is an indicator of a company's long-term solvency 
C) It is a measure of the extent of a company's gearing 
D) A higher level of debt is normally preferable from a creditor's point of view 
A) It can be calculated by relating liabilities to total funds 
B) It is an indicator of a company's long-term solvency 
C) It is a measure of the extent of a company's gearing 
D) A higher level of debt is normally preferable from a creditor's point of view

Question 17

When calculating the quick acid test)ratio which of these is normally deducted from current assets?

Accepted Answer

A) Inventory and accounts receivable 
B) Cash and prepayments 
C) Accounts receivable and inventory 
D) Inventory and prepaid expenses 
A) Inventory and accounts receivable 
B) Cash and prepayments 
C) Accounts receivable and inventory 
D) Inventory and prepaid expenses

Question 18

All of these are limitations of financial ratio analysis except:

Accepted Answer

A) Year-end data is not necessarily typical of the position during the year 
B) It is past performance that is being analysed 
C) Suitable yardsticks may not be available with which to compare results 
D) Excessive information disclosed in company annual reports 
A) Year-end data is not necessarily typical of the position during the year 
B) It is past performance that is being analysed 
C) Suitable yardsticks may not be available with which to compare results 
D) Excessive information disclosed in company annual reports

Question 19

All of these ratios are indicators of profitability except:

Accepted Answer

A) Return on total assets 
B) Earnings per share 
C) Equity ratio 
D) Profit margin 
A) Return on total assets 
B) Earnings per share 
C) Equity ratio 
D) Profit margin

Question 20

Financial statements in which each item is stated as a percentage of some specific base item in the same statement are known as:

Accepted Answer

A) Comparative statements 
B) Common size statements 
C) General purpose statements 
D) Base rate statements 
A) Comparative statements 
B) Common size statements 
C) General purpose statements 
D) Base rate statements

Exam 25: Analysis and Interpretation of Financial Statements

Financial stability refers to the ability of an entity to:

This is Recker's Manufacturing's balance sheet at year-end. Current assets \ 200,000 Long-term assets 400,000 Current liabilities 50,000 Long-term liabilities 100,000 Share cap ital 200,000 Retained earnings 250,000 The equity ratio is:

Besides the information in annual reports how many of these are sources of financial information about companies which is useful for analysing their performance and financial position? .The Internet .The Stock Exchange .Financial newspapers and journals . Stock brokers .Information on competitors

Leverage measures:

Schultz Consultancy reports: Total assets \ 950000 Profit 30000 Current liabilities 285000 If current assets = 60% of total assets Schultz's current ratio is:

The profit margin ratio measures:

E___________ per share is the conversion of the absolute dollar amount of profit after tax to a per-share basis.

L______________ is the ability of a firm to meet its short-term obligations.

The r__________ on total assets is a profitability ratio calculated by the formula,profit before income tax and finance costs dividing by average total assets.

R____________ turnover is a measure of how many times average accounts receivables are converted into cash during the year.

World Consulting has the following data available: Sales \ 2000000 Selling expenses 200000 Profit 400000 Using vertical analysis express selling expenses as a percentage of the base amount.

Profit less income tax,divided by revenue,is the formula for:

If the debt ratio is 54% the equity ratio must be _______%.

An increase in the inventory turnover ratio is normally considered to be favourable but could be unfavourable if it means:

The statement relating to the debt ratio of a company that is not true is:

When calculating the quick acid test)ratio which of these is normally deducted from current assets?

All of these are limitations of financial ratio analysis except:

All of these ratios are indicators of profitability except:

Financial statements in which each item is stated as a percentage of some specific base item in the same statement are known as:

Decision Making and the Role of Accounting

Financial Statements for Decision Making

Recording Transactions

Adjusting the Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Retailing

Accounting for Systems

Accounting for Manufacturing

Cost Accounting Systems

Cash Management and Internal Control

Cost-Volume-Profit Analysis for Decision Making

Budgeting for Planning and Control

Performance Evaluation for Managers

Differential Analysis,profitability Analysis and Capital Budgeting

Partnerships: Formation,operation and Reporting

Companies: Formation and Operations

Regulation and the Conceptual Framework

Receivables

Inventories

Non-Current Assets: Acquisition and Depreciation

Non-Current Assets: Revaluation,disposal and Other Aspects

Liabilities

Presentation of Financial Statements

Liabilities

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