Question 1

Solvency ratio data are primarily concerned with the ability of a company to:

Accepted Answer

A)  produce profits.
B)  handle its debt.
C)  manage its cash flow.
D)  provide income for shareholders. B

Question 2

$\begin{array}{llcc}
  \text { Net sales reverule } &\$900,000  \
 \text { Expenses } &\$500,000\
 \text { Interest } &\$10,000\
 \text { Income tax expense } &\$90,000\
 \text {Net cash from operations  } &\$290,000\
 \text { Fixed Assets end of currert year } &\$600,000\
 \text { 
Liabilities end of current year } &\$100,000\
 \text { Stockholders ${ } ^ { ' }$ equity end of curent year } &\$500,000\
 \text { Fixed Assets end of previous year } &\$590,000\
 \text { Stockholders ${ } ^ { ' }$ equity end of previous year } &\$490,000\
 \text { 
Common stock outstanding} &40,000  \text {shares}\
 \text {Curent market price of stock  } &\$15 \text { share}\
\end{array}$

-According to the above Table.Calculate the company's fixed asset turnover ratio for the current year.

Accepted Answer

A)  2.00
B)  1.80
C)  1.51
D)  0.50   C

Question 3

In general,P/E ratios are fairly consistent across industries,regardless of the goods or services sold.

Accepted Answer

A) True 
 B)False  False

Question 4

Company X has net sales revenue of $436,000,cost of goods sold of $343,000,and all other expenses of $157,000,if interest expense is $16,000 and income tax expense is zero,the times interest earned ratio is:

Accepted Answer

A)  -3.0
B)  +5.0
C)  +6.8
D)  -4.8

Question 5

To arrive at comprehensive income,additional items are included

Accepted Answer

A)  after the calculation of net income on the income statement.
B)  before the calculation of net income,but categorized as separate line items.
C)  before the calculation of net income,and categorized within current line items.
D)  as described in the rules governing ASPE.

Question 6

A company has $72,500 in inventory at the beginning of the accounting period and $65,500 at the end of the accounting period.Sales revenue is $986,400,cost of goods sold is $572,700,and net income is $124,200 for the accounting period.On average,this company has inventory on hand for approximately:

Accepted Answer

A)  203 days.
B)  44 days.
C)  61 days.
D)  26 days.

Question 7

A company has $72,500 of inventory at the beginning of the year and $65,500 at the end of the year.Sales revenue is $986,400,cost of goods sold is $572,700,and net income is $124,200 for the year.The inventory turnover ratio is:

Accepted Answer

A)  1.8.
B)  8.3.
C)  6.0.
D)  14.3.

Question 8

Comprehensive income is used under ASPE,but not under IFRS.

Accepted Answer

A) True 
 B)False

Question 9

Industries differ greatly in terms of the percentage of sales made on credit.This means some measures of liquidity are less relevant to companies in some industries than in others.

Accepted Answer

A) True 
 B)False

Question 10

If the debt-to-assets ratio is 0.63,it means that 37% of the company's financing has been provided by shareholders' equity.

Accepted Answer

A) True 
 B)False

Question 11

The return on equity ratio compares the amount of net income to shareholders' equity:

Accepted Answer

A) True 
 B)False

Question 12

Unlike solvency rates,liquidity ratios relate to the company's long-run survival.

Accepted Answer

A) True 
 B)False

Question 13

A P/E ratio is calculated in the middle of the accounting year.For a given share price,the company could use the most recent annual EPS,or it could use the total of the most recent four quarterly EPS numbers.Which of the following statements is not true?

Accepted Answer

A)  The ratio will be larger if the most recent annual EPS is used when earnings are falling.
B)  The ratio will be smaller if the EPS for the last four quarters are used when earnings are rising.
C)  The ratio will be smaller if the most recent annual EPS is used when earnings are falling.
D)  The ratio will be larger if the EPS for the last four quarters are used when earnings are falling

Question 14

Match the term and the definition.Not all definitions will be used.
-Separate entity assumption

Accepted Answer

A)  The concept that the activities of the business are separate from the activities of the owners of the business.
B)  The practice of reporting accounting data in the national monetary unit.
C)  A nonrecurring item associated with abandoning or selling an operation that does not appear in any financial statement but is covered in the notes.
D)  The earnings of a company before taxes.
E)  An increase in an asset or a decrease in a liability that results from peripheral activities.F) The ratio of a product's price to the net profit margin.G) Net income adjusted for gains and losses that may disappear before they are realized.H) The characteristic that the reported financial information is of value in making decisions.I) The concept that a company's financial data in any one year should be able to be compared with the company's same financial data in other years.J) The ratio of the price of a share to the earnings per share.K) Also known as ratio analysis.L) A nonrecurring item on the income statement that reflects gains and losses associated with abandoning or selling an operation.M) Another name for a trend analysis.N) The assumption that a business will separate financial results according to the type of activity that generated them.O) The concept that a company's financial data should be able to be compared with other companies' data.P) The practice of reporting information in percent terms rather than monetary ones.Q) A nonrecurring item on the income statement that reflects gains and losses associated with highly unusual events such as natural disasters.

Question 15

A current ratio of 2.5 means that for every dollar of:

Accepted Answer

A)  accounts payable,there is $2.50 of cash.
B)  current liabilities,there is $2.50 of current assets.
C)  current assets,there is $2.50 of current liabilities.
D)  total liabilities,there is $2.50 of current liabilities.

Question 16

How competitors calculate depreciation is most likely to affect comparisons between competitors if property,plant,and equipment:

Accepted Answer

A)  makes up a large percent of assets and average useful lives are fairly different.
B)  makes up a small percent of assets and assets are financed in a different way.
C)  makes up a small percent of assets and average useful lives are fairly similar.
D)  is primarily leased in the industry,not purchased.

Question 17

When using ratio data for comparison to other companies,analysts should:

Accepted Answer

A)  not assume that all companies in the industry are in direct competition.
B)  not interpret the data as a way of determining which companies will survive and outperform others.
C)  only use data from one time period.
D)  use industry averages,rather than individual companies,for the comparison.

Question 18

The P/E ratio indicates how much investors are willing to pay for a share as a multiple of current earnings.

Accepted Answer

A) True 
 B)False

Question 19

Company X has net sales revenue of $780,000,cost of goods sold of $343,200,and all other expenses of $327,600.The gross profit percentage is:

Accepted Answer

A)  32%
B)  56%
C)  86%
D)  14%

Question 20

Net income was $364,000 in 2017 and $418,600 in 2018.The year- to-year $\bold{\text{percent change}}$ in net income is:

Accepted Answer

A)  15%.
B)  $54,600.
C)  87%.
D)  13%. (418600-364000) /364000 = 15%.

Exam 13: Measuring and Evaluating Financial Performance

Solvency ratio data are primarily concerned with the ability of a company to:

In general,P/E ratios are fairly consistent across industries,regardless of the goods or services sold.

Company X has net sales revenue of $436,000,cost of goods sold of $343,000,and all other expenses of $157,000,if interest expense is $16,000 and income tax expense is zero,the times interest earned ratio is:

To arrive at comprehensive income,additional items are included

A company has $72,500 in inventory at the beginning of the accounting period and $65,500 at the end of the accounting period.Sales revenue is $986,400,cost of goods sold is $572,700,and net income is $124,200 for the accounting period.On average,this company has inventory on hand for approximately:

A company has $72,500 of inventory at the beginning of the year and $65,500 at the end of the year.Sales revenue is $986,400,cost of goods sold is $572,700,and net income is $124,200 for the year.The inventory turnover ratio is:

Comprehensive income is used under ASPE,but not under IFRS.

Industries differ greatly in terms of the percentage of sales made on credit.This means some measures of liquidity are less relevant to companies in some industries than in others.

If the debt-to-assets ratio is 0.63,it means that 37% of the company's financing has been provided by shareholders' equity.

The return on equity ratio compares the amount of net income to shareholders' equity:

Unlike solvency rates,liquidity ratios relate to the company's long-run survival.

A P/E ratio is calculated in the middle of the accounting year.For a given share price,the company could use the most recent annual EPS,or it could use the total of the most recent four quarterly EPS numbers.Which of the following statements is not true?

Match the term and the definition.Not all definitions will be used. -Separate entity assumption

A current ratio of 2.5 means that for every dollar of:

How competitors calculate depreciation is most likely to affect comparisons between competitors if property,plant,and equipment:

When using ratio data for comparison to other companies,analysts should:

The P/E ratio indicates how much investors are willing to pay for a share as a multiple of current earnings.

Company X has net sales revenue of $780,000,cost of goods sold of $343,200,and all other expenses of $327,600.The gross profit percentage is:

Net income was $364,000 in 2017 and $418,600 in 2018.The year- to-year percent change\bold{\text{percent change}}percent change in net income is:

Net income was $364,000 in 2017 and $418,600 in 2018.The year- to-year $\bold{\text{percent change}}$ in net income is: