Question 1

An analysis in which all the components of an income statement are expressed as a percentage of sales is a

Accepted Answer

A)  vertical analysis 
B)  horizontal analysis 
C)  liquidity analysis 
D)  solvency analysis 
A)  vertical analysis 
B)  horizontal analysis 
C)  liquidity analysis 
D)  solvency analysis A

Question 2

Solvency analysis focuses on the ability of a business to pay its current and noncurrent liabilities.

Accepted Answer

A) True 
 B)False  True

Question 3

Dollar amounts of working capital are difficult to assess when comparing companies of different sizes or in comparing such amounts with industry figures.

Accepted Answer

A) True 
 B)False  True

Question 4

A change from one acceptable accounting method to another is reported

Accepted Answer

A)  on the statement of retained earnings, as a correction to the beginning balance 
B)  on the income statement, below income from continuing operations 
C)  on the income statement, above income from continuing operations 
D)  through a retroactive restatement of prior-period earnings 
A)  on the statement of retained earnings, as a correction to the beginning balance 
B)  on the income statement, below income from continuing operations 
C)  on the income statement, above income from continuing operations 
D)  through a retroactive restatement of prior-period earnings

Question 5

Match each definition that follows with the term a-h) it defines.
-focuses on a company's ability to generate net income

Accepted Answer

A) discontinued operations 
B) extraordinary items 
C) change from one generally accepted accounting principle to another 
D) horizontal analysis 
E) vertical analysis
F)common-sized financial statements
G)current position analysis
H)profitability analysis 
A) discontinued operations 
B) extraordinary items 
C) change from one generally accepted accounting principle to another 
D) horizontal analysis 
E) vertical analysis
F)common-sized financial statements
G)current position analysis
H)profitability analysis

Question 6

The numerator of the rate earned on common stockholders' equity ratio is

Accepted Answer

A)  net income 
B)  net income minus preferred dividends 
C)  income before income tax 
D)  operating income minus interest expense 
A)  net income 
B)  net income minus preferred dividends 
C)  income before income tax 
D)  operating income minus interest expense

Question 7

Match each ratio that follows to its use items a-h). Items may be used more than once.
-earnings per share EPS) on common stock

Accepted Answer

A) assess the profitability of the assets 
B) assess the effectiveness in the use of assets 
C) indicate the ability to meet currently maturing obligations 
D) indicate the margin of safety to creditors 
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 
A) assess the profitability of the assets 
B) assess the effectiveness in the use of assets 
C) indicate the ability to meet currently maturing obligations 
D) indicate the margin of safety to creditors 
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 8

Percentage analyses, ratios, turnovers, and other measures of financial position and operating results are

Accepted Answer

A)  a substitute for sound judgment 
B)  useful analytical measures 
C)  enough information for analysis; industry information is not needed 
D)  unnecessary for analysis, but reaction is better 
A)  a substitute for sound judgment 
B)  useful analytical measures 
C)  enough information for analysis; industry information is not needed 
D)  unnecessary for analysis, but reaction is better

Question 9

Vertical analysis refers to comparing the financial statements of a single company over several years.

Accepted Answer

A) True 
 B)False

Question 10

Match each definition that follows with the term a-h) it defines.
-requires a restatement of prior-period financial statements

Accepted Answer

A) discontinued operations 
B) extraordinary items 
C) change from one generally accepted accounting principle to another 
D) horizontal analysis 
E) vertical analysis
F)common-sized financial statements
G)current position analysis
H)profitability analysis 
A) discontinued operations 
B) extraordinary items 
C) change from one generally accepted accounting principle to another 
D) horizontal analysis 
E) vertical analysis
F)common-sized financial statements
G)current position analysis
H)profitability analysis

Question 11

Balance sheet and income statement data indicate the following: Bonds payable, 10% due in two years)$1,000,000
Preferred 5% stock, $100 par no change during year)300,000
Common stock, $50 par no change during year)2,000,000
Income before income tax for year
550,000
Income tax for year
80,000
Common dividends paid
50,000
Preferred dividends paid
15,000
Based on the data presented above, what is the number of times bond interest charges were earned round to one decimal point)?

Accepted Answer

A)  1.5 
B)  6.4 
C)  6.5 
D)  5.5 
A)  1.5 
B)  6.4 
C)  6.5 
D)  5.5

Question 12

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

Accepted Answer

A) assess the profitability of the assets 
B) assess the effectiveness in the use of assets 
C) indicate the ability to meet currently maturing obligations 
D) indicate the margin of safety to creditors 
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 
A) assess the profitability of the assets 
B) assess the effectiveness in the use of assets 
C) indicate the ability to meet currently maturing obligations 
D) indicate the margin of safety to creditors 
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 13

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 14

The ratio of the sum of cash, receivables, and marketable securities to current liabilities is referred to as the current ratio.

Accepted Answer

A) True 
 B)False

Question 15

Match each definition that follows with the term a-h) it defines.
-occurs when a company abandons a segment

Accepted Answer

A) discontinued operations 
B) extraordinary items 
C) change from one generally accepted accounting principle to another 
D) horizontal analysis 
E) vertical analysis
F)common-sized financial statements
G)current position analysis
H)profitability analysis 
A) discontinued operations 
B) extraordinary items 
C) change from one generally accepted accounting principle to another 
D) horizontal analysis 
E) vertical analysis
F)common-sized financial statements
G)current position analysis
H)profitability analysis

Question 16

Richards Corporation had net income of $250,000 and paid dividends to common stockholders of $50,000. It had 50,000 shares of common stock outstanding during the entire year. Richards Corporation's common stock is selling for $35 per share. The price-earnings ratio is

Accepted Answer

A)  7 times 
B)  14 times 
C)  2 times 
D)  5 times 
A)  7 times 
B)  14 times 
C)  2 times 
D)  5 times

Question 17

Unusual items affecting the prior period's income statement consist of errors and changes in accounting principles.

Accepted Answer

A) True 
 B)False

Question 18

What is a major advantage of using percentages rather than dollar changes in doing horizontal and vertical analysis?

Accepted Answer

When percentages are utilized rather tha

Question 19

The following data are taken from the financial statements:   a)b)Determine for each year 1) the inventory turnover, round answer to one decimal place.
2) the number of days' sales in inventory. Round intermediate calculations to two decimal places and the final answer to whole number.
Comment on the favorable and unfavorable trends revealed by the data.

Accepted Answer

a) @#IMG-DLM& ​
b) Sales decreased while

Question 20

Based on the following data for the current year, what is the inventory turnover? Sales on account during year
$700,000
Cost of merchandise sold during year
270,000
Accounts receivable, beginning of year
45,000
Accounts receivable, end of year
35,000
Inventory, beginning of year
90,000
Inventory, end of year

Accepted Answer

A)  2.7 110,000 
B)  9.7 
C)  2.5 
D)  3.0 
A)  2.7 110,000 
B)  9.7 
C)  2.5 
D)  3.0

Exam 15: Financial Statement Analysis

An analysis in which all the components of an income statement are expressed as a percentage of sales is a

Solvency analysis focuses on the ability of a business to pay its current and noncurrent liabilities.

Dollar amounts of working capital are difficult to assess when comparing companies of different sizes or in comparing such amounts with industry figures.

A change from one acceptable accounting method to another is reported

Match each definition that follows with the term a-h) it defines. -focuses on a company's ability to generate net income

The numerator of the rate earned on common stockholders' equity ratio is

Match each ratio that follows to its use items a-h). Items may be used more than once. -earnings per share EPS) on common stock

Percentage analyses, ratios, turnovers, and other measures of financial position and operating results are

Vertical analysis refers to comparing the financial statements of a single company over several years.

Match each definition that follows with the term a-h) it defines. -requires a restatement of prior-period financial statements

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

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

The ratio of the sum of cash, receivables, and marketable securities to current liabilities is referred to as the current ratio.

Match each definition that follows with the term a-h) it defines. -occurs when a company abandons a segment

Richards Corporation had net income of $250,000 and paid dividends to common stockholders of $50,000. It had 50,000 shares of common stock outstanding during the entire year. Richards Corporation's common stock is selling for $35 per share. The price-earnings ratio is

Unusual items affecting the prior period's income statement consist of errors and changes in accounting principles.

What is a major advantage of using percentages rather than dollar changes in doing horizontal and vertical analysis?

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting for Merchandising Businesses

Inventories

Sarbanes-Oxley, Internal Control, and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Corporations: Organization, Stock Transactions, and Dividends

Long-Term Liabilities: Bonds and Notes

Investments and Fair Value Accounting

Statement of Cash Flows

Managerial Accounting Concepts and Principles

Job Order Costing

Process Cost Systems

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing for Management Analysis

Budgeting

Performance Evaluation Using Variances From Standard Costs

Performance Evaluation for Decentralized Operations

Differential Analysis, Product Pricing, and Activity-Based Costing

Capital Investment Analysis

Cost Allocation and Activity-Based Costing

Lean Principles, Lean Accounting, and Activity Analysis

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