Question 1

In vertical analysis

Accepted Answer

A) a base amount is required. 
B) a base amount is optional. 
C) the same base is used across all financial statements analyzed. 
D) the results of the horizontal analysis are necessary inputs for performing the analysis. 
A) a base amount is required. 
B) a base amount is optional. 
C) the same base is used across all financial statements analyzed. 
D) the results of the horizontal analysis are necessary inputs for performing the analysis. A

Question 2

If a company has a discontinued operation gain of $30,000 and a 32% tax rate, what is the effect on net income?

Accepted Answer

A) Increase of $30,000. 
B) Increase of $20,400. 
C) Increase of $9,600. 
D) No effect. 
A) Increase of $30,000. 
B) Increase of $20,400. 
C) Increase of $9,600. 
D) No effect. B

Question 3

If a company has sales of $130 in 2017 and $182 in 2016, the percentage decrease in sales from 2016 to 2017 is 40%.

Accepted Answer

A) True 
 B)False  False

Question 4

Ratios are used as tools in financial analysis

Accepted Answer

A) instead of horizontal and vertical analyses. 
B) because they can provide information that may not be apparent from inspection of the individual components of the financial statements. 
C) because even single ratios by themselves are quite meaningful. 
D) because they are prescribed by GAAP. 
A) instead of horizontal and vertical analyses. 
B) because they can provide information that may not be apparent from inspection of the individual components of the financial statements. 
C) because even single ratios by themselves are quite meaningful. 
D) because they are prescribed by GAAP.

Question 5

Ed's Drive-In had $175,000 of current assets and $80,000 of current liabilities before borrowing $60,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on Ed's Drive-In's current ratio?

Accepted Answer

A) The ratio remained unchanged. 
B) The change in the current ratio cannot be determined. 
C) The ratio decreased. 
D) The ratio increased. 
A) The ratio remained unchanged. 
B) The change in the current ratio cannot be determined. 
C) The ratio decreased. 
D) The ratio increased.

Question 6

Net sales are $3,250,000, beginning total assets are $1,400,000, and the asset turnover is 2.5 times. What is the ending total asset balance?

Accepted Answer

A) $1,300,000 
B) $1,200,000 
C) $1,400,000 
D) $1,500,000 
A) $1,300,000 
B) $1,200,000 
C) $1,400,000 
D) $1,500,000

Question 7

A general rule to use in assessing the average collection period is that it

Accepted Answer

A) should not exceed 30 days. 
B) can be any length as long as the customer continues to buy merchandise. 
C) should not greatly exceed the return period. 
D) should not greatly exceed the credit term period. 
A) should not exceed 30 days. 
B) can be any length as long as the customer continues to buy merchandise. 
C) should not greatly exceed the return period. 
D) should not greatly exceed the credit term period.

Question 8

Accounts receivable turnover is useful in assessing the profitability of receivables.

Accepted Answer

A) True 
 B)False

Question 9

Somen to Park Corporation had net credit sales of $5,075,000 and cost of goods sold of $3,750,000 for the year. The Accounts Receivable balances at the beginning and end of the year were $650,000 and $750,000, respectively. The accounts receivable turnover was

Accepted Answer

A) 7.8 times. 
B) 6.8 times. 
C) 7.3 times. 
D) 5.4 times. 
A) 7.8 times. 
B) 6.8 times. 
C) 7.3 times. 
D) 5.4 times.

Question 10

Which one of the following would be considered a long-term solvency ratio?

Accepted Answer

A) Accounts receivable turnover 
B) Return on assets 
C) Current ratio 
D) Debt to assets ratio 
A) Accounts receivable turnover 
B) Return on assets 
C) Current ratio 
D) Debt to assets ratio

Question 11

The following amounts were taken from the financial statements of Ando Company: $\begin{array}{lrr}&2017&2016\
\text { Total assets } & \$ 800,000 & \$ 1,000,000 \
\text { Net sales } & 720,000 & 650,000 \
\text { Gross profit } & 352,000 & 320,000 \
\text { Net income } & 108,000 & 117,000 \
\text { Weighted average number of } & & \
\quad \text { common shares outstanding } & 90,000 & 90,000 \
\text { Market price of common stock } & \$ 42 & \$ 39
\end{array}$ The profit margin ratio for 2017 is

Accepted Answer

A) 14%. 
B) 16%. 
C) 15%. 
D) 18%. 
A) 14%. 
B) 16%. 
C) 15%. 
D) 18%.

Question 12

Comprehensive income would not include

Accepted Answer

A) dividends declared. 
B) unrealized gains on available-for-sale securities. 
C) discontinued operations. 
D) other expenses and losses. 
A) dividends declared. 
B) unrealized gains on available-for-sale securities. 
C) discontinued operations. 
D) other expenses and losses.

Question 13

In performing a vertical analysis, the base for cost of goods sold is

Accepted Answer

A) total selling expenses. 
B) net sales. 
C) total revenues. 
D) total expenses. 
A) total selling expenses. 
B) net sales. 
C) total revenues. 
D) total expenses.

Question 14

All revenue and expense items are considered ordinary in nature under

Accepted Answer

A) both IFRS and GAAP. 
B) GAAP. 
C) IFRS. 
D) neither IFRS or GAAP. 
A) both IFRS and GAAP. 
B) GAAP. 
C) IFRS. 
D) neither IFRS or GAAP.

Question 15

When the disposal of a significant segment occurs, the income statement should report both income from continuing operations and income (loss) from discontinued operations.

Accepted Answer

A) True 
 B)False

Question 16

A supplier to a company would be most interested in the

Accepted Answer

A) asset turnover. 
B) profit margin. 
C) current ratio. 
D) earnings per share. 
A) asset turnover. 
B) profit margin. 
C) current ratio. 
D) earnings per share.

Question 17

Which of the following would not be considered an example of a discontinued operation?

Accepted Answer

A) Shifting production processes within an operation 
B) Elimination of a major class of customers 
C) Elimination of an entire activity 
D) Disposal of a significant component of a business 
A) Shifting production processes within an operation 
B) Elimination of a major class of customers 
C) Elimination of an entire activity 
D) Disposal of a significant component of a business

Question 18

Which of the following would be considered an "Other Comprehensive Income" item?

Accepted Answer

A) Net income 
B) Gain on disposal of discontinued operations 
C) Other revenues and gains 
D) Unrealized loss on available-for-sale securities 
A) Net income 
B) Gain on disposal of discontinued operations 
C) Other revenues and gains 
D) Unrealized loss on available-for-sale securities

Question 19

Which measure(s) is(are) an evaluation of a company’s ability to pay current liabilities?
1.	Current ratio.
2.	Free cash flow

Accepted Answer

A) Both 1 and 2. 
B) Neither 1 nor 2. 
C) 1 only. 
D) 2 only 
A) Both 1 and 2. 
B) Neither 1 nor 2. 
C) 1 only. 
D) 2 only

Question 20

The accounts receivable turnover and inventory turnover are used to analyze

Accepted Answer

A) long-term solvency. 
B) profitability. 
C) liquidity. 
D) leverage. 
A) long-term solvency. 
B) profitability. 
C) liquidity. 
D) leverage.

Exam 12: Financial Analysis: The Big Picture

In vertical analysis

If a company has a discontinued operation gain of $30,000 and a 32% tax rate, what is the effect on net income?

If a company has sales of $130 in 2017 and $182 in 2016, the percentage decrease in sales from 2016 to 2017 is 40%.

Ratios are used as tools in financial analysis

Ed's Drive-In had $175,000 of current assets and $80,000 of current liabilities before borrowing $60,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on Ed's Drive-In's current ratio?

Net sales are $3,250,000, beginning total assets are $1,400,000, and the asset turnover is 2.5 times. What is the ending total asset balance?

A general rule to use in assessing the average collection period is that it

Accounts receivable turnover is useful in assessing the profitability of receivables.

Somen to Park Corporation had net credit sales of $5,075,000 and cost of goods sold of $3,750,000 for the year. The Accounts Receivable balances at the beginning and end of the year were $650,000 and $750,000, respectively. The accounts receivable turnover was

Which one of the following would be considered a long-term solvency ratio?

Comprehensive income would not include

In performing a vertical analysis, the base for cost of goods sold is

All revenue and expense items are considered ordinary in nature under

When the disposal of a significant segment occurs, the income statement should report both income from continuing operations and income (loss) from discontinued operations.

A supplier to a company would be most interested in the

Which of the following would not be considered an example of a discontinued operation?

Which of the following would be considered an "Other Comprehensive Income" item?

Which measure(s) is(are) an evaluation of a company’s ability to pay current liabilities? 1. Current ratio. 2. Free cash flow

The accounts receivable turnover and inventory turnover are used to analyze

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

Filters