Question 1

In common size 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

Milton Company has income from continuing operations of $480,000 for the year ended December 31, 2010. It also has the following items (before considering income taxes):
(1) An extraordinary fire loss of $150,000.
(2) A gain of $90,000 on the discontinuance of a major segment.
(3) A correction of an error in last year's financial statement that resulted in a $70,000 overstatement of 2009 net income.
Assume all items are subject to income taxes at a 30% tax rate.
Instructions
(a) Prepare an income statement, beginning with income from continuing operations.
(b) Indicate the statement presentation of any item not included in (a) above.

Accepted Answer

(a)
   (b) The correction of an error in last year's financial statements is a prior period adjustment. The correction is reported in the 2010 retained earnings statement as an adjustment that decreases the reported beginning balance of retained earnings by $49,000 [$70,000 - ($70,000 × 30%)].

Question 3

The ratios that are used to determine a company's short-term debt paying ability are

Accepted Answer

A)  asset turnover, times interest earned, current ratio, and receivables turnover. 
B)  times interest earned, inventory turnover, current ratio, and receivables turnover. 
C)  times interest earned, acid-test ratio, current ratio, and inventory turnover. 
D)  current ratio, acid-test ratio, receivables turnover, and inventory turnover. 
A)  asset turnover, times interest earned, current ratio, and receivables turnover. 
B)  times interest earned, inventory turnover, current ratio, and receivables turnover. 
C)  times interest earned, acid-test ratio, current ratio, and inventory turnover. 
D)  current ratio, acid-test ratio, receivables turnover, and inventory turnover. D

Question 4

The following information pertains to Soho Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.   What is the receivables turnover for Soho?

Accepted Answer

A)  2.1 times 
B)  2 times 
C)  4.8 times 
D)  9.6 times 
A)  2.1 times 
B)  2 times 
C)  4.8 times 
D)  9.6 times

Question 5

Profitability ratios are frequently used as a basis for evaluating management's operating effectiveness.

Accepted Answer

A) True 
 B)False

Question 6

The ratio that uses weighted average common shares outstanding in the denominator is the

Accepted Answer

A)  price-earnings ratio. 
B)  return on common stockholders' equity. 
C)  earnings per share. 
D)  payout ratio. 
A)  price-earnings ratio. 
B)  return on common stockholders' equity. 
C)  earnings per share. 
D)  payout ratio.

Question 7

In vertical analysis, the base amount in an income statement is usually net sales.

Accepted Answer

A) True 
 B)False

Question 8

The order of presentation of nontypical items that may appear on the income statement is

Accepted Answer

A)  Extraordinary items, Discontinued operations, Other revenues and expenses. 
B)  Discontinued operations, Extraordinary items, Other revenues and expenses. 
C)  Other revenues and expenses, Discontinued operations, Extraordinary items. 
D)  Other revenues and expenses, Extraordinary items, Discontinued operations. 
A)  Extraordinary items, Discontinued operations, Other revenues and expenses. 
B)  Discontinued operations, Extraordinary items, Other revenues and expenses. 
C)  Other revenues and expenses, Discontinued operations, Extraordinary items. 
D)  Other revenues and expenses, Extraordinary items, Discontinued operations.

Question 9

When performing vertical analysis, the base amount for administrative expense is generally

Accepted Answer

A)  administrative expense in a previous year. 
B)  net sales. 
C)  gross profit. 
D)  fixed assets. 
A)  administrative expense in a previous year. 
B)  net sales. 
C)  gross profit. 
D)  fixed assets.

Question 10

Calculating financial ratios is a financial reporting requirement under generally accepted accounting principles.

Accepted Answer

A) True 
 B)False

Question 11

Selected financial information for Bradley Corporation is presented below.   
Instructions
Prepare a schedule showing a horizontal analysis for 2011 using 2010 as the base year.

Accepted Answer

The answer of Selected financial information for Bradley Corporation is...

Question 12

Meaningful analysis of financial statements will include either horizontal or vertical analysis, but not both.

Accepted Answer

A) True 
 B)False

Question 13

If Parthenon Company had net income of $540,000 in 2011 and it experienced a 20% increase in net income over 2010, what was its 2010 net income?

Accepted Answer

The answer of If Parthenon Company had net income of...

Question 14

The acid-test ratio is also known as the

Accepted Answer

A)  current ratio. 
B)  quick ratio. 
C)  fast ratio. 
D)  times interest earned ratio. 
A)  current ratio. 
B)  quick ratio. 
C)  fast ratio. 
D)  times interest earned ratio.

Question 15

Horizontal analysis (trend analysis) percentages for Watson Company's sales, cost of goods sold, and expenses are listed here.
Instructions
Explain whether Watson's net income increased, decreased, or remained unchanged over the 3-year period.

Accepted Answer

Comparing the percentages presented resu

Question 16

A loss on the write down of obsolete inventory should be reported as

Accepted Answer

A)  "other expenses and losses." 
B)  part of discontinued operations. 
C)  an operating expense. 
D)  an extraordinary item. 
A)  "other expenses and losses." 
B)  part of discontinued operations. 
C)  an operating expense. 
D)  an extraordinary item.

Question 17

A liquidity ratio measures the

Accepted Answer

A)  income or operating success of an enterprise over a period of time. 
B)  ability of the enterprise to survive over a long period of time. 
C)  short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash. 
D)  number of times interest is earned. 
A)  income or operating success of an enterprise over a period of time. 
B)  ability of the enterprise to survive over a long period of time. 
C)  short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash. 
D)  number of times interest is earned.

Question 18

Vertical analysis is also called

Accepted Answer

A)  common size analysis. 
B)  horizontal analysis. 
C)  ratio analysis. 
D)  trend analysis. 
A)  common size analysis. 
B)  horizontal analysis. 
C)  ratio analysis. 
D)  trend analysis.

Question 19

Selected financial statement data for Holmes Company are presented below.   
Total assets at the beginning of the year were $750,000; total common stockholders' equity was $550,000 at the beginning of the period.
Instructions
Compute each of the following:
(a) Asset turnover
(b) Profit margin
(c) Return on assets
(d) Return on common stockholders' equity

Accepted Answer

(a) Asset turnover = 1.25 [$1,000,000 /

Question 20

The following information pertains to Soho Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
What is the profit margin for Soho?

Accepted Answer

A)  45.0% 
B)  40.0% 
C)  20.0% 
D)  17.5% 
A)  45.0% 
B)  40.0% 
C)  20.0% 
D)  17.5%

Exam 18: Financial Analysis: the Big Picture

In common size analysis,

The ratios that are used to determine a company's short-term debt paying ability are

The following information pertains to Soho Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. What is the receivables turnover for Soho?

Profitability ratios are frequently used as a basis for evaluating management's operating effectiveness.

The ratio that uses weighted average common shares outstanding in the denominator is the

In vertical analysis, the base amount in an income statement is usually net sales.

The order of presentation of nontypical items that may appear on the income statement is

When performing vertical analysis, the base amount for administrative expense is generally

Calculating financial ratios is a financial reporting requirement under generally accepted accounting principles.

Selected financial information for Bradley Corporation is presented below. Instructions Prepare a schedule showing a horizontal analysis for 2011 using 2010 as the base year.

Meaningful analysis of financial statements will include either horizontal or vertical analysis, but not both.

If Parthenon Company had net income of $540,000 in 2011 and it experienced a 20% increase in net income over 2010, what was its 2010 net income?

The acid-test ratio is also known as the

Horizontal analysis (trend analysis) percentages for Watson Company's sales, cost of goods sold, and expenses are listed here. Instructions Explain whether Watson's net income increased, decreased, or remained unchanged over the 3-year period.

A loss on the write down of obsolete inventory should be reported as

A liquidity ratio measures the

Vertical analysis is also called

The following information pertains to Soho Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. What is the profit margin for Soho?

Accounting in Action

The Recording Process

Adjusting the Accounts

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories

Accounting Information Systems

Fraud, Internal Control, and Cash

Accounting for Receivables

Plant Assets, Natural Resources, and Intangible Assets

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Corporations: Organization and Capital Stock Transactions

Corporations: Dividends, Retained Earnings, and Income Reporting

Long-Term Liabilities

Investments

Statement of Cash Flows

Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

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