Question 1

Match the terms with the definitions.
-The ability to pay current debts when they come due.

Accepted Answer

A) profitability measures 
B) operating income ratio 
C) cost of goods sold ratio 
D) ratio of liabilities to stockholders' equity 
E) return on total assets
F)ratio of net sales to assets
G)horizontal analysis
H)leverage
I)net income ratio
J)liquidity
K)liquidity measures
L)merchandise inventory turnover 
A) profitability measures 
B) operating income ratio 
C) cost of goods sold ratio 
D) ratio of liabilities to stockholders' equity 
E) return on total assets
F)ratio of net sales to assets
G)horizontal analysis
H)leverage
I)net income ratio
J)liquidity
K)liquidity measures
L)merchandise inventory turnover J

Question 2

The debt-to-equity ratio measures the extent of leverage, or proportion of borrowed capital, with which a business operates.

Accepted Answer

A) True 
 B)False  True

Question 3

An expression of the amount of each item in a statement as a percentage of some designated total for comparative purposes is called

Accepted Answer

A)  vertical analysis. 
B)  return on total assets. 
C)  earnings per share. 
D)  horizontal analysis. 
A)  vertical analysis. 
B)  return on total assets. 
C)  earnings per share. 
D)  horizontal analysis. A

Question 4

Quick assets include cash, temporary investments, and receivables.

Accepted Answer

A) True 
 B)False

Question 5

Match the terms with the definitions.
-The ratio of net sales on account to the average amount of net accounts receivable.

Accepted Answer

A) accounts receivable turnover 
B) book value per share 
C) working capital 
D) current ratio (working capital ratio) 
E) earnings per share
F)gross profit ratio
G)vertical analysis
H)times interest earned ratio
I)leverage measures
J)return on common stockholders' equity
K)quick ratio (acid-test ratio)
L)profitability
M)operating expense ratio 
A) accounts receivable turnover 
B) book value per share 
C) working capital 
D) current ratio (working capital ratio) 
E) earnings per share
F)gross profit ratio
G)vertical analysis
H)times interest earned ratio
I)leverage measures
J)return on common stockholders' equity
K)quick ratio (acid-test ratio)
L)profitability
M)operating expense ratio

Question 6

The liabilities of a company at the end of the year are $500,000 and the total stockholders' equity at the end of the year is $1,500,000. The ratio of liabilities to stockholders' equity is

Accepted Answer

A)  0.50 to 1. 
B)  0.33 to 1. 
C)  0.67 to 1. 
D)  3 to 1. 
A)  0.50 to 1. 
B)  0.33 to 1. 
C)  0.67 to 1. 
D)  3 to 1.

Question 7

When there are preferred shares outstanding, the calculation of book value per share of common stock must first take into consideration the claims or equity of the preferred stock.

Accepted Answer

A) True 
 B)False

Question 8

Match the terms with the definitions.
-The ratio of earnings before interest and taxes to interest expense.

Accepted Answer

A) accounts receivable turnover 
B) book value per share 
C) working capital 
D) current ratio (working capital ratio) 
E) earnings per share
F)gross profit ratio
G)vertical analysis
H)times interest earned ratio
I)leverage measures
J)return on common stockholders' equity
K)quick ratio (acid-test ratio)
L)profitability
M)operating expense ratio 
A) accounts receivable turnover 
B) book value per share 
C) working capital 
D) current ratio (working capital ratio) 
E) earnings per share
F)gross profit ratio
G)vertical analysis
H)times interest earned ratio
I)leverage measures
J)return on common stockholders' equity
K)quick ratio (acid-test ratio)
L)profitability
M)operating expense ratio

Question 9

The gross profit ratio is computed by subtracting cost of goods sold from net sales and dividing by net sales.

Accepted Answer

A) True 
 B)False

Question 10

Asset turnover ratio measures how effectively a company uses assets to generate sales.

Accepted Answer

A) True 
 B)False

Question 11

The current ratio and the quick or acid-test ratio may be too high for the overall good of the business.

Accepted Answer

A) True 
 B)False

Question 12

The financial statements of a business are intended to supply information to several interested parties such as: management, present and potential owners, creditors, employees and their unions, governmental agencies, and sometimes the general public.

Accepted Answer

A) True 
 B)False

Question 13

Merchandise inventory turnover measures the relationship between sales and inventory.

Accepted Answer

A) True 
 B)False

Question 14

Match the terms with the definitions.
-The ratio of operating income to net sales.

Accepted Answer

A) profitability measures 
B) operating income ratio 
C) cost of goods sold ratio 
D) ratio of liabilities to stockholders' equity 
E) return on total assets
F)ratio of net sales to assets
G)horizontal analysis
H)leverage
I)net income ratio
J)liquidity
K)liquidity measures
L)merchandise inventory turnover 
A) profitability measures 
B) operating income ratio 
C) cost of goods sold ratio 
D) ratio of liabilities to stockholders' equity 
E) return on total assets
F)ratio of net sales to assets
G)horizontal analysis
H)leverage
I)net income ratio
J)liquidity
K)liquidity measures
L)merchandise inventory turnover

Question 15

The net income for the year ended was $720,000; total assets at the beginning of the year was $2,100,000; and total assets at the end of the was $2,300,000. The return on total assets would be

Accepted Answer

A)  1.1%. 
B)  3.1%. 
C)  11.2%. 
D)  32.7%. 
A)  1.1%. 
B)  3.1%. 
C)  11.2%. 
D)  32.7%.

Question 16

Match the terms with the definitions.
-Reporting the amount of each item in a statement as a percentage of some designated total.

Accepted Answer

A) accounts receivable turnover 
B) book value per share 
C) working capital 
D) current ratio (working capital ratio) 
E) earnings per share
F)gross profit ratio
G)vertical analysis
H)times interest earned ratio
I)leverage measures
J)return on common stockholders' equity
K)quick ratio (acid-test ratio)
L)profitability
M)operating expense ratio 
A) accounts receivable turnover 
B) book value per share 
C) working capital 
D) current ratio (working capital ratio) 
E) earnings per share
F)gross profit ratio
G)vertical analysis
H)times interest earned ratio
I)leverage measures
J)return on common stockholders' equity
K)quick ratio (acid-test ratio)
L)profitability
M)operating expense ratio

Question 17

The current ratio is calculated by dividing total current assets by total liabilities.

Accepted Answer

A) True 
 B)False

Question 18

Match the terms with the definitions.
-The proportion of debt to stockholders' equity.

Accepted Answer

A) profitability measures 
B) operating income ratio 
C) cost of goods sold ratio 
D) ratio of liabilities to stockholders' equity 
E) return on total assets
F)ratio of net sales to assets
G)horizontal analysis
H)leverage
I)net income ratio
J)liquidity
K)liquidity measures
L)merchandise inventory turnover 
A) profitability measures 
B) operating income ratio 
C) cost of goods sold ratio 
D) ratio of liabilities to stockholders' equity 
E) return on total assets
F)ratio of net sales to assets
G)horizontal analysis
H)leverage
I)net income ratio
J)liquidity
K)liquidity measures
L)merchandise inventory turnover

Question 19

Comparisons across companies are difficult due to the possible use of different accounting techniques.

Accepted Answer

A) True 
 B)False

Question 20

The debt-to-equity ratio is calculated by dividing the net income for the year by the average stockholders' equity for the year.

Accepted Answer

A) True 
 B)False

Exam 24: Analysis of Financial Statements

Match the terms with the definitions. -The ability to pay current debts when they come due.

The debt-to-equity ratio measures the extent of leverage, or proportion of borrowed capital, with which a business operates.

An expression of the amount of each item in a statement as a percentage of some designated total for comparative purposes is called

Quick assets include cash, temporary investments, and receivables.

Match the terms with the definitions. -The ratio of net sales on account to the average amount of net accounts receivable.

The liabilities of a company at the end of the year are $500,000 and the total stockholders' equity at the end of the year is $1,500,000. The ratio of liabilities to stockholders' equity is

When there are preferred shares outstanding, the calculation of book value per share of common stock must first take into consideration the claims or equity of the preferred stock.

Match the terms with the definitions. -The ratio of earnings before interest and taxes to interest expense.

The gross profit ratio is computed by subtracting cost of goods sold from net sales and dividing by net sales.

Asset turnover ratio measures how effectively a company uses assets to generate sales.

The current ratio and the quick or acid-test ratio may be too high for the overall good of the business.

The financial statements of a business are intended to supply information to several interested parties such as: management, present and potential owners, creditors, employees and their unions, governmental agencies, and sometimes the general public.

Merchandise inventory turnover measures the relationship between sales and inventory.

Match the terms with the definitions. -The ratio of operating income to net sales.

The net income for the year ended was $720,000; total assets at the beginning of the year was $2,100,000; and total assets at the end of the was $2,300,000. The return on total assets would be

Match the terms with the definitions. -Reporting the amount of each item in a statement as a percentage of some designated total.

The current ratio is calculated by dividing total current assets by total liabilities.

Match the terms with the definitions. -The proportion of debt to stockholders' equity.

Comparisons across companies are difficult due to the possible use of different accounting techniques.

The debt-to-equity ratio is calculated by dividing the net income for the year by the average stockholders' equity for the year.

Introduction to Accounting

Analyzing Transactions: the Accounting Equation

The Double-Entry Framework

Journalizing and Posting Transactions

Adjusting Entries and the Work Sheet

Financial Statements and the Closing Process

Accounting for Cash

Payroll Accounting: Employee Earnings and Deductions

Payroll Accounting: Employer Taxes and Reports

Accounting for Sales and Cash Receipts

Accounting for Purchases and Cash Payments

Special Journals

Accounting for Merchandise Inventory

Adjustments and the Work Sheet for a Merchandising Business

Financial Statements and Year-End Accounting for a Merchandising Business

Accounting for Accounts Receivable

Accounting for Notes and Interest

Accounting for Long-Term Assets

Accounting for Partnerships

Corporations: Organization and Capital Stocks

Corporations: Earnings, Taxes, Distributions, and the Retained Earnings Statement

Corporations: Bonds

Statement of Cash Flows

Departmental Accounting

Manufacturing Accounting: The Job Order Cost System

Manufacturing Accounting: The Work Sheet and Financial Statements

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