Question 1

Measures of a company's liquidity are concerned with the frequency and amounts of dividend payments.

Accepted Answer

A) True 
 B)False

Question 2

Evers, Inc. disposes of an unprofitable segment of its business. The operation of the segment suffered a $360,000 loss in the year of disposal. The loss on disposal of the segment was $180,000. If the tax rate is 30%, and income before income taxes was $2,250,000,

Accepted Answer

A)  the income tax expense on the income before discontinued operations is $513,000. 
B)  the income from continuing operations is $1,575,000. 
C)  net income is $1,710,000. 
D)  the losses from discontinued operations are reported net of income taxes at $270,000. 
A)  the income tax expense on the income before discontinued operations is $513,000. 
B)  the income from continuing operations is $1,575,000. 
C)  net income is $1,710,000. 
D)  the losses from discontinued operations are reported net of income taxes at $270,000.

Question 3

Which of the following is not a profitability ratio?

Accepted Answer

A)  Payout ratio 
B)  Profit margin 
C)  Times interest earned 
D)  Return on common stockholders' equity 
A)  Payout ratio 
B)  Profit margin 
C)  Times interest earned 
D)  Return on common stockholders' equity

Question 4

Profitability ratios measure the ability of the enterprise to survive over a long period of time.

Accepted Answer

A) True 
 B)False

Question 5

Comparisons of financial data made within a company are called

Accepted Answer

A)  intracompany comparisons. 
B)  interior comparisons. 
C)  intercompany comparisons. 
D)  intramural comparisons. 
A)  intracompany comparisons. 
B)  interior comparisons. 
C)  intercompany comparisons. 
D)  intramural comparisons.

Question 6

Under which of the following cases may a percentage change be computed?

Accepted Answer

A)  The trend of the balances is decreasing but all balances are positive. 
B)  There is no balance in the base year. 
C)  There is a positive balance in the base year and a negative balance in the subsequent year. 
D)  There is a negative balance in the base year and a positive balance in the subsequent year. 
A)  The trend of the balances is decreasing but all balances are positive. 
B)  There is no balance in the base year. 
C)  There is a positive balance in the base year and a negative balance in the subsequent year. 
D)  There is a negative balance in the base year and a positive balance in the subsequent year.

Question 7

The following amounts were taken from the financial statements of Palmer Company:   The price-earnings ratio for 2010 is

Accepted Answer

A)  25 times. 
B)  30 times. 
C)  14 times. 
D)  8 times. 
A)  25 times. 
B)  30 times. 
C)  14 times. 
D)  8 times.

Question 8

The following financial statement information is available for Houser Corporation:   The current ratio for 2010 is

Accepted Answer

A)  .37:1. 
B)  2.7:1. 
C)  .79:1. 
D)  4.24:1. 
A)  .37:1. 
B)  2.7:1. 
C)  .79:1. 
D)  4.24:1.

Question 9

The following amounts were taken from the financial statements of Palmer Company:   The return on assets ratio for 2010 is

Accepted Answer

A)  16%. 
B)  14%. 
C)  32%. 
D)  28%. 
A)  16%. 
B)  14%. 
C)  32%. 
D)  28%.

Question 10

Davis Corporation reported net income $36,000, net sales $400,000, and average assets $800,000 for 2010. The 2010 profit margin was:

Accepted Answer

A)  4.5%. 
B)  9%. 
C)  50%. 
D)  200%. 
A)  4.5%. 
B)  9%. 
C)  50%. 
D)  200%.

Question 11

Horizontal analysis is also called

Accepted Answer

A)  linear analysis. 
B)  vertical analysis. 
C)  trend analysis. 
D)  common size analysis. 
A)  linear analysis. 
B)  vertical analysis. 
C)  trend analysis. 
D)  common size analysis.

Question 12

Baden Company had $375,000 of current assets and $150,000 of current liabilities before borrowing $75,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on Baden Company'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 13

An aircraft company would most likely have

Accepted Answer

A)  a high inventory turnover. 
B)  low profit margin. 
C)  high volume. 
D)  a low inventory turnover. 
A)  a high inventory turnover. 
B)  low profit margin. 
C)  high volume. 
D)  a low inventory turnover.

Question 14

Patrick, Inc. decided on January 1 to discontinue its telescope manufacturing division. On July 1, the division's assets with a book value of $1,050,000 are sold for $750,000. Operating income from January 1 to June 30 for the division amounted to $125,000. Ignoring income taxes, what total amount should be reported on Patrick's income statement for the current year under the caption, Discontinued Operations?

Accepted Answer

A)  $125,000 
B)  $175,000 loss 
C)  $300,000 loss 
D)  $425,000 
A)  $125,000 
B)  $175,000 loss 
C)  $300,000 loss 
D)  $425,000

Question 15

Profit margin is calculated by dividing

Accepted Answer

A)  sales by cost of goods sold. 
B)  gross profit by net sales. 
C)  net income by stockholders' equity. 
D)  net income by net sales. 
A)  sales by cost of goods sold. 
B)  gross profit by net sales. 
C)  net income by stockholders' equity. 
D)  net income by net sales.

Question 16

If the average collection period is 30 days, what is the receivables turnover?

Accepted Answer

A)  11.1 times 
B)  12.2 times 
C)  6.1 times 
D)  None of these 
A)  11.1 times 
B)  12.2 times 
C)  6.1 times 
D)  None of these

Question 17

Variations among companies in the application of generally accepted accounting principles may reduce quality of earnings.

Accepted Answer

A) True 
 B)False

Question 18

Miley Corporation had net income of $250,000 and paid dividends to common stockholders of $50,000 in 2010. The weighted average number of shares outstanding in 2010 was 50,000 shares. Miley Corporation's common stock is selling for $30 per share on the New York Stock Exchange.
Miley Corporation's price-earnings ratio is

Accepted Answer

A)  4 times. 
B)  6 times. 
C)  7.5 times. 
D)  5 times. 
A)  4 times. 
B)  6 times. 
C)  7.5 times. 
D)  5 times.

Question 19

For each of the ratios listed below, indicate by the appropriate code letter, whether it is a liquidity ratio (L), a profitability ratio (P), or a solvency ratio (S).
____ 1. Times interest earned ratio
____ 2. Asset turnover
____ 3. Receivables turnover
____ 4. Debt to total assets ratio
____ 5. Current ratio
____ 6. Payout ratio

Accepted Answer

1. S
2. P

Question 20

For its fiscal year ending October 31, 2010, Conrad Corporation reported the following partial data   
The flood loss is considered an extraordinary item. The income tax rate is 30% on all items.
Instructions
Prepare a correct income statement, beginning with income before income taxes.

Accepted Answer

The answer of For its fiscal year ending October 31,...

Exam 18: Financial Analysis: the Big Picture

Measures of a company's liquidity are concerned with the frequency and amounts of dividend payments.

Evers, Inc. disposes of an unprofitable segment of its business. The operation of the segment suffered a $360,000 loss in the year of disposal. The loss on disposal of the segment was $180,000. If the tax rate is 30%, and income before income taxes was $2,250,000,

Which of the following is not a profitability ratio?

Profitability ratios measure the ability of the enterprise to survive over a long period of time.

Comparisons of financial data made within a company are called

Under which of the following cases may a percentage change be computed?

The following amounts were taken from the financial statements of Palmer Company: The price-earnings ratio for 2010 is

The following financial statement information is available for Houser Corporation: The current ratio for 2010 is

The following amounts were taken from the financial statements of Palmer Company: The return on assets ratio for 2010 is

Davis Corporation reported net income $36,000, net sales $400,000, and average assets $800,000 for 2010. The 2010 profit margin was:

Horizontal analysis is also called

Baden Company had $375,000 of current assets and $150,000 of current liabilities before borrowing $75,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on Baden Company's current ratio?

An aircraft company would most likely have

Profit margin is calculated by dividing

If the average collection period is 30 days, what is the receivables turnover?

Variations among companies in the application of generally accepted accounting principles may reduce quality of earnings.

For its fiscal year ending October 31, 2010, Conrad Corporation reported the following partial data The flood loss is considered an extraordinary item. The income tax rate is 30% on all items. Instructions Prepare a correct income statement, beginning with income before income taxes.

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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