Question 1

Long-term creditors are usually most interested in evaluating:

Accepted Answer

A) Solvency 
B) Managerial effectiveness 
C) Liquidity 
D) Profitability. 
A) Solvency 
B) Managerial effectiveness 
C) Liquidity 
D) Profitability.

Question 2

Many companies have to monitor closely certain ratios, such as the current ratio, due to debt covenants. Selected transactions are provided below for a company that uses a perpetual inventory system; sells its merchandise at a selling price that exceeds cost; and had a current ratio of 1.85 and a quick ratio of 1.19 before the event occurred.   Required:
In the above table, indicate whether each transaction would increase (+), decrease (-), or not affect (0) the company's current ratio and quick ratio.

Accepted Answer

The answer of Many companies have to monitor closely certain...

Question 3

Morton Company has total current assets of $45,000, including inventory of $10,000, and current liabilities of $21,000. The company's current ratio is:

Accepted Answer

A) 0.4. 
B) 1.7. 
C) 2.1. 
D) 2.6. 
A) 0.4. 
B) 1.7. 
C) 2.1. 
D) 2.6.

Question 4

While horizontal analysis examines one item over many time periods, vertical analysis examines many items in the same interval of time.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) Increase. 
B) Decrease. 
C) Remain the same. 
D) Cannot be determineD.The transaction will increase assets (cash) and increase stockholders' equity (common stock). The debt to equity ratio is total debt/total stockholders' equity. The increase in cash will not affect the ratio, but the increase in common stock will cause the ratio to go down. 
A) Increase. 
B) Decrease. 
C) Remain the same. 
D) Cannot be determineD.The transaction will increase assets (cash) and increase stockholders' equity (common stock). The debt to equity ratio is total debt/total stockholders' equity. The increase in cash will not affect the ratio, but the increase in common stock will cause the ratio to go down.

Question 6

The Best Company provided the following information from its financial records:   What is the company's book value per share?

Accepted Answer

A) $1.67 
B) $6.67 
C) $5.42 
D) $1.58 
A) $1.67 
B) $6.67 
C) $5.42 
D) $1.58

Question 7

Select the incorrect statement regarding horizontal analysis.

Accepted Answer

A) Percentage analysis involves establishing the relationship of one amount to another. 
B) In doing horizontal analysis, an account is expressed as a percentage of the previous balance of the same account. 
C) Percentage analysis attempts to eliminate the materiality problem of comparing firms of different sizes. 
D) A horizontal analysis of cost of goods sold on the income statement includes dividing net income by total revenue. 
A) Percentage analysis involves establishing the relationship of one amount to another. 
B) In doing horizontal analysis, an account is expressed as a percentage of the previous balance of the same account. 
C) Percentage analysis attempts to eliminate the materiality problem of comparing firms of different sizes. 
D) A horizontal analysis of cost of goods sold on the income statement includes dividing net income by total revenue.

Question 8

You are considering an investment in Jet Blue Airlines stock and wish to assess the firm's earnings performance. All of the following ratios can be used to assess profitability except:

Accepted Answer

A) Net margin. 
B) Asset turnover. 
C) Return on investment. 
D) Average days to collect receivables. 
A) Net margin. 
B) Asset turnover. 
C) Return on investment. 
D) Average days to collect receivables.

Question 9

Barrett Company received cash of $5,000,000 by issuing 20-year bonds payable. As a result of the this transaction, the company's current ratio will:

Accepted Answer

A) Remain the same. 
B) Decrease. 
C) Increase. 
D) Cannot be determineD.The transaction will increase current assets (cash) and increase long-term liabilities (bonds payable). The current ratio is current assets/current liabilities. The ratio will not be affected by the increase in long-term liabilities, but the increase in current assets will cause the ratio to increase. 
A) Remain the same. 
B) Decrease. 
C) Increase. 
D) Cannot be determineD.The transaction will increase current assets (cash) and increase long-term liabilities (bonds payable). The current ratio is current assets/current liabilities. The ratio will not be affected by the increase in long-term liabilities, but the increase in current assets will cause the ratio to increase.

Question 10

The following balance sheet information is provided for Paris Company:   Assuming 2012 cost of goods sold is $365,000, what is the company's average days to sell inventory?

Accepted Answer

A) 25 days 
B) 15 days 
C) 100 days 
D) None of the other answers are correct. 
A) 25 days 
B) 15 days 
C) 100 days 
D) None of the other answers are correct.

Question 11

All of the following are considered to be measures of a company's short-term debt-paying ability except:

Accepted Answer

A) Current ratio. 
B) Inventory turnover. 
C) Earnings per share. 
D) Average collection perioD.Liquidity ratios indicate a firm's short-term ability to pay its current obligations. Liquidity ratios include: working capital, current ratio, acid test (quick) ratio, accounts receivable turnover, average days to collect ratio, inventory turnover and average days to sell inventory. Earnings per share is a stock market ratio. 
A) Current ratio. 
B) Inventory turnover. 
C) Earnings per share. 
D) Average collection perioD.Liquidity ratios indicate a firm's short-term ability to pay its current obligations. Liquidity ratios include: working capital, current ratio, acid test (quick) ratio, accounts receivable turnover, average days to collect ratio, inventory turnover and average days to sell inventory. Earnings per share is a stock market ratio.

Question 12

Solvency ratios are used to assess a company's:

Accepted Answer

A) Short-term debt paying ability. 
B) Profitability. 
C) Long-term debt paying ability. 
D) Efficiency in use of its assets. 
A) Short-term debt paying ability. 
B) Profitability. 
C) Long-term debt paying ability. 
D) Efficiency in use of its assets.

Question 13

As of December 31, 2012, Grove 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, 2012, Grove paid $250 for transportation costs on merchandise it had received. Which of the following statements is incorrect?

Accepted Answer

A) Grove's current ratio will decrease 
B) Grove's quick ratio will decrease 
C) Grove's working capital will remain the same 
D) Grove's quick ratio will decrease and its current ratio will remain the same. 
A) Grove's current ratio will decrease 
B) Grove's quick ratio will decrease 
C) Grove's working capital will remain the same 
D) Grove's quick ratio will decrease and its current ratio will remain the same.

Question 14

As of December 31, 2012, Grove 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, 2012 Grove sold inventory on account for $6,000 and recorded cost of goods sold of $4,100. Which of the following statement is incorrect?

Accepted Answer

A) Grove's current ratio will decrease. 
B) Grove's quick ratio will increase. 
C) Grove's working capital will decrease. 
D) A and C are both incorrect statements 
A) Grove's current ratio will decrease. 
B) Grove's quick ratio will increase. 
C) Grove's working capital will decrease. 
D) A and C are both incorrect statements

Question 15

The following information was provided by Jongeward Company as of December 31, 2012:   On the most recent trading date, Jongeward's common shares sold at $36 and the preferred shares sold at $14.
The following information on industry averages is provided:
Earnings per share $3.06
Price-earnings ratio 19.2:1
Required:
1) Calculate and compare Jongeward Company's ratios with the industry averages shown above.
2) Discuss whether you would invest in this company.

Accepted Answer

1) Earnings per share = ($528,000 - $8,0

Question 16

The Monticello Company reported net income of $14,400 on gross sales of $80,000. The company has total average assets of $115,200, of which $100,000 is property, plant and equipment. What is the company's return on investment?

Accepted Answer

A) 69.4% 
B) 18.0% 
C) 14.5% 
D) 12.5% 
A) 69.4% 
B) 18.0% 
C) 14.5% 
D) 12.5%

Question 17

Financial statement analysis involves forms of comparison including:

Accepted Answer

A) Comparing changes in the same item over a number of periods. 
B) Comparing key relationships within the same year. 
C) Comparing key items to industry averages. 
D) All of the other answers are correct. 
A) Comparing changes in the same item over a number of periods. 
B) Comparing key relationships within the same year. 
C) Comparing key items to industry averages. 
D) All of the other answers are correct.

Question 18

The return on investment measure is also referred to as:

Accepted Answer

A) Net margin. 
B) Return on equity. 
C) Return on assets. 
D) Return on debt. 
A) Net margin. 
B) Return on equity. 
C) Return on assets. 
D) Return on debt.

Question 19

Financial analysis typically involves some form of comparison such as changes in the same item over a number of years.

Accepted Answer

A) True 
 B)False

Question 20

Select the incorrect statement regarding the quick ratio:

Accepted Answer

A) The quick ratio is also known as the acid-test ratio. 
B) The quick ratio equals quick assets divided by total liabilities. 
C) The quick ratio is a conservative variation of the current ratio. 
D) The quick ratio ignores some current assets that are less liquid than others. 
A) The quick ratio is also known as the acid-test ratio. 
B) The quick ratio equals quick assets divided by total liabilities. 
C) The quick ratio is a conservative variation of the current ratio. 
D) The quick ratio ignores some current assets that are less liquid than others.

Long-term creditors are usually most interested in evaluating:

Morton Company has total current assets of $45,000, including inventory of $10,000, and current liabilities of $21,000. The company's current ratio is:

While horizontal analysis examines one item over many time periods, vertical analysis examines many items in the same interval of time.

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

The Best Company provided the following information from its financial records: What is the company's book value per share?

Select the incorrect statement regarding horizontal analysis.

You are considering an investment in Jet Blue Airlines stock and wish to assess the firm's earnings performance. All of the following ratios can be used to assess profitability except:

Barrett Company received cash of $5,000,000 by issuing 20-year bonds payable. As a result of the this transaction, the company's current ratio will:

The following balance sheet information is provided for Paris Company: Assuming 2012 cost of goods sold is $365,000, what is the company's average days to sell inventory?

All of the following are considered to be measures of a company's short-term debt-paying ability except:

Solvency ratios are used to assess a company's:

The Monticello Company reported net income of $14,400 on gross sales of $80,000. The company has total average assets of $115,200, of which $100,000 is property, plant and equipment. What is the company's return on investment?

Financial statement analysis involves forms of comparison including:

The return on investment measure is also referred to as:

Financial analysis typically involves some form of comparison such as changes in the same item over a number of years.

Select the incorrect statement regarding the quick ratio:

An Introduction to Accounting

Accounting for Accruals and Deferrals

The Double-Entry Accounting System

Accounting for Merchandising Businesses

Accounting for Inventories

Internal Control and Accounting for Cash

Accounting for Receivables

Accounting for Long-Term Operational Assets

Accounting for Current Liabilities and Payroll

Accounting for Long-Term Debt

Proprietorships, Partnerships, and Corporations

Statement of Cash Flows

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Exam 13: Financial Statement Analysis Available Online in the Connect Library

Long-term creditors are usually most interested in evaluating:

Morton Company has total current assets of $45,000, including inventory of $10,000, and current liabilities of $21,000. The company's current ratio is:

While horizontal analysis examines one item over many time periods, vertical analysis examines many items in the same interval of time.

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

The Best Company provided the following information from its financial records: What is the company's book value per share?

Select the incorrect statement regarding horizontal analysis.

You are considering an investment in Jet Blue Airlines stock and wish to assess the firm's earnings performance. All of the following ratios can be used to assess profitability except:

Barrett Company received cash of $5,000,000 by issuing 20-year bonds payable. As a result of the this transaction, the company's current ratio will:

The following balance sheet information is provided for Paris Company: Assuming 2012 cost of goods sold is $365,000, what is the company's average days to sell inventory?

All of the following are considered to be measures of a company's short-term debt-paying ability except:

Solvency ratios are used to assess a company's:

The Monticello Company reported net income of $14,400 on gross sales of $80,000. The company has total average assets of $115,200, of which $100,000 is property, plant and equipment. What is the company's return on investment?

Financial statement analysis involves forms of comparison including:

The return on investment measure is also referred to as:

Financial analysis typically involves some form of comparison such as changes in the same item over a number of years.

Select the incorrect statement regarding the quick ratio:

An Introduction to Accounting

Accounting for Accruals and Deferrals

The Double-Entry Accounting System

Accounting for Merchandising Businesses

Accounting for Inventories

Internal Control and Accounting for Cash

Accounting for Receivables

Accounting for Long-Term Operational Assets

Accounting for Current Liabilities and Payroll

Accounting for Long-Term Debt

Proprietorships, Partnerships, and Corporations

Statement of Cash Flows

Filters