Question 1

Which of the following items appear on the corporate income statement before income from continuing operations?

Accepted Answer

A)  cumulative effect of a change in accounting principle 
B)  income tax expense 
C)  presentation of earnings per share 
D)  loss on discontinued operations

Question 2

The analysis of increases and decreases in the amount and percentage of comparative financial statement items is referred to as horizontal analysis.

Accepted Answer

A) True 
 B)False

Question 3

A company reports the following: $$\begin{array} { l r } 
\text { Net income } & \$ 160,000 \
\text { Preferred dividends } & \$ 10,000 \
\text { Shares of common stock outstanding } & 20,000 \
\text { Market price per share of common stock } & \$ 35
\end{array}$$ 
 The company's earnings per share on common stock is

Accepted Answer

A)  $13.33 
B)  $8.50 
C)  $7.50 
D)  $35.00

Question 4

Which of the following is not included in the computation of the quick ratio?

Accepted Answer

A)  inventory 
B)  marketable securities 
C)  accounts receivable 
D)  cash

Question 5

Revenue and expense data for Young Technologies Inc. are as follows:
​ $\begin{array}{|l|r|r|}
\hline &{\text { Year 2 }} &{\text { Year 1 }} \
\hline \text { Sales } & \$ 500,000 & \$ 440,000 \
\hline \text { Cost of goods sold } & 325,000 & 242,000 \
\hline \text { Selling expenses } & 70,000 & 79,200 \
\hline \text { Administrative expenses } & 75,000 & 70,400 \
\hline \text { Income tax expense } & 10,500 & 16,400 \
\hline
\end{array}$ ​ (a) Prepare an income statement in comparative form, stating each item for both years as an amount and as a percent of sales. Round to the nearest whole percent.
(b) Comment on the significant changes disclosed by the comparative income statement.

Accepted Answer

The answer of Revenue and expense data for Young Technologies...

Question 6

In the vertical analysis of a balance sheet, the base for current liabilities is total liabilities.

Accepted Answer

A) True 
 B)False

Question 7

Match each definition that follows with the term (a-h) it defines.
-measures the risk that interest payments will not be made if earnings decrease

Accepted Answer

A) solvency 
B) leverage 
C) times interest earned 
D) horizontal analysis 
E) vertical analysis
F)common-sized financial statements
G)current position analysis
H)profitability analysis

Question 8

Unusual items affecting the current period's income statement consist of changes in accounting principles and discontinued operations.

Accepted Answer

A) True 
 B)False

Question 9

Horizontal analysis is a technique for evaluating financial statement data

Accepted Answer

A)  for one period of time 
B)  over a period of time 
C)  on a certain date 
D)  as it may appear in the future

Question 10

$$\begin{array} { l r } 
 { \text { Privett Company } } & \
\text { Accounts payable } & 30,000 \
\text { Accounts receivable } & 35,000 \
\text { Accrued liabilities } & 7,000 \
\text { Cash } & 25,000 \
\text { Intangible assets } & 40,000 \
\text { Inventory } & 72,000 \
\text { Long-term investments } & 100,000 \
\text { Long-term liabilities } & 75,000 \
\text { Marketable securities } & 36,000 \
\text { Notes payable (short-term) } & 20,000 \
\text { Property, plant, and equipment } & 400,000 \
\text { Prepaid expenses } & 2,000
\end{array}$$ ​
​
-Based on the data for Privett Company, what is the amount of quick assets?

Accepted Answer

A)  $168,000 
B)  $96,000 
C)  $60,000 
D)  $61,000

Question 11

Assuming that the quantities of inventory on hand during the current year were sufficient to meet all demands for sales, a decrease in the inventory turnover for the current year when compared with the turnover for the preceding year indicates an improvement in inventory management.

Accepted Answer

A) True 
 B)False

Question 12

The following data are taken from the financial statements:
​ $\begin{array}{lrr}&\text { Current } & \text { Preceding } \
&\text { Year } & \text { Year }\
\text { Current assets } & \$ 745,000 & \$ 820,000 \
\text { Property, plant, and equipment } & 1,510,000 & 1,400,000\\text { Current liabilities } &\\text { (non-interest-bearing) } & 160,000 & 140,000 \
\text { Long-term liabilities, } 12 \% & 400,000 & 400,000 \
\text { Preferred } 10 \% \text { stock } & 250,000 & 250,000 \
\text { Common stock, } \$ 25 \text { par } & 1,200,000 & 1,200,000\\text { Retained eamings, }\\text { beginning of year } & 230,000 & 160,000 \
\text { Net income for year } & 110,000 & 155,000 \
\text { Preferred dividends declared } & (25,000) & (25,000) \
\text { Common dividends declared } & (70,000) & (60,000)
\end{array}$ ​
Determine for the current year the (a) return on total assets, (b) return on stockholders' equity,
(c) return on common stockholders' equity, (d) earnings per share on common stock, (e) price-earnings
ratio on common stock, and (f) dividend yield. The current market price per share of
common stock is $25.
Round dollar values to two decimal places and other final answers to one decimal place.

Accepted Answer

The answer of The following data are taken from the...

Question 13

A company reports the following: $$\begin{array} { l r } 
\text { Sales } & \$ 2,400,000 \
\text { Average total assets (excluding long-term investments) } & 1,500,000
\end{array}$$ ​
Determine the asset turnover ratio. Round your answer to one decimal place.

Accepted Answer

The answer of A company reports the following: \[\begin{array} {...

Question 14

Match each ratio that follows to its use (items a-h). Items may be used more than once.
-return on common stockholders' equity

Accepted Answer

A) assess the profitability of the assets 
B) assess how effectively assets are used 
C) indicate the ability to pay current liabilities 
D) indicate how much of the company is financed by debt and equity 
E) indicate instant debt-paying ability
F)assess the profitability of the investment by common stockholders
G)indicate future earnings prospects
H)indicate the extent to which earnings are being distributed to common stockholders

Question 15

Leverage implies that a company

Accepted Answer

A)  contains debt financing 
B)  contains equity financing 
C)  has a high current ratio 
D)  has a high earnings per share

Question 16

A loss due to a discontinued operation should be reported on the income statement

Accepted Answer

A)  above income from continuing operations 
B)  without related tax effect 
C)  below income from continuing operations 
D)  as an operating expense

Question 17

The following information is available for Jase Company: $\begin{array}{lr}
\text { Market price per share of common stock } & \$ 25.00 \
\text { Earnings per share on common stock } & \$ 1.25
\end{array}$ 
 Which of the following statements is correct?

Accepted Answer

A)  The price-earnings ratio is 20 and a share of common stock was selling for 20 times the amount of earnings per share at the end of the year. 
B)  The price-earnings ratio is 5% and a share of common stock was selling for 5% more than the amount of earnings per share at the end of the year. 
C)  The price-earnings ratio is 10 and a share of common stock was selling for 125 times the amount of earnings per share at the end of the year. 
D)  The market price per share and the earnings per share are not statistically related to each other.

Question 18

The balance sheet data of Randolph Company for two recent years appears below:
​ $\begin{array}{|l|r|r|}
\hline\text { Assets: } & \text { Year 2 } & \text { Year 1 } \
\hline \text { Current assets } & \$ 445 & \$ 280 \
\hline \text { Plant assets } & 680 & 520 \
\hline \text { Total assets } & \$ 1,125 & \$ 800 \
\hline & & \\hline \begin{array}{l}
\text { Liabilities and stockholders' } \
\text { equity: }
\end{array} & \\hline \text { Current liabilities } & \$ 285 & \$ 120 \
\hline \text { Long-term debt } & 255 & 160 \
\hline \text { Common stock } & 325 & 320 \
\hline \text { Retained earnings } & 260 & 200 \\hline \text { Total liabilities and } \\text { stockholders' equity } &\$1,125&\$800\
\hline
\end{array}$ ​ (a) Using horizontal analysis, show the percentage change for each bal ance sheet item using Year 1 as a base year.
(b) Using vertical analysis, prepare a comparative balance sheet. Round percentages to one decimal place.

Accepted Answer

The answer of The balance sheet data of Randolph Company...

Question 19

Based on the following data for the current year, what is the number of days' sales in inventory
 $\begin{array}{lr}
\text { Sales on account during year } & \$ 1,204,500 \
\text { Cost of goods sold during year } & 657,000 \
\text { Accounts receivable, beginning of year } & 75,000 \
\text { Accounts receivable, end of year } & 85,000 \
\text { Inventory, beginning of year } & 85,600 \
\text { Inventory, end of year } & 98,600
\end{array}$

Accepted Answer

A)  51.2 
B)  44.4 
C)  6.5 
D)  7.5

Question 20

A loss on disposal of a segment would be reported in the income statement as a(n)

Accepted Answer

A)  administrative expense 
B)  other expense 
C)  deduction from income from continuing operations 
D)  selling expense

Exam 14: Financial Statement Analysis

Which of the following items appear on the corporate income statement before income from continuing operations?

The analysis of increases and decreases in the amount and percentage of comparative financial statement items is referred to as horizontal analysis.

Which of the following is not included in the computation of the quick ratio?

In the vertical analysis of a balance sheet, the base for current liabilities is total liabilities.

Match each definition that follows with the term (a-h) it defines. -measures the risk that interest payments will not be made if earnings decrease

Unusual items affecting the current period's income statement consist of changes in accounting principles and discontinued operations.

Horizontal analysis is a technique for evaluating financial statement data

Assuming that the quantities of inventory on hand during the current year were sufficient to meet all demands for sales, a decrease in the inventory turnover for the current year when compared with the turnover for the preceding year indicates an improvement in inventory management.

A company reports the following: $\begin{array} { l r } \text { Sales } & \$ 2,400,000 \\\text { Average total assets (excluding long-term investments) } & 1,500,000\end{array}$ Determine the asset turnover ratio. Round your answer to one decimal place.

Match each ratio that follows to its use (items a-h) . Items may be used more than once. -return on common stockholders' equity

Leverage implies that a company

A loss due to a discontinued operation should be reported on the income statement

The following information is available for Jase Company: $\begin{array}{lr}\text { Market price per share of common stock } & \$ 25.00 \\\text { Earnings per share on common stock } & \$ 1.25\end{array}$ Which of the following statements is correct?

A loss on disposal of a segment would be reported in the income statement as a(n)