Question 1

Vertical analysis is useful in making comparisons of companies of different sizes.

Accepted Answer

A) True 
 B)False

Question 2

Hansen Corporation had net income for the year of $200,000 and a profit margin of 25%. If total average assets were $400,000, the asset turnover ratio was ____________ times.

Accepted Answer

The answer of Hansen Corporation had net income for the...

Question 3

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

Accepted Answer

A)  4.8% 
B)  9.7% 
C)  6.5% 
D)  12.9% 
A)  4.8% 
B)  9.7% 
C)  6.5% 
D)  12.9%

Question 4

Horizontal analysis evaluates a series of financial statement data over a period of time

Accepted Answer

A)  that has been arranged from the highest number to the lowest number. 
B)  that has been arranged from the lowest number to the highest number. 
C)  to determine which items are in error. 
D)  to determine the amount and/or percentage increase or decrease that has taken place. 
A)  that has been arranged from the highest number to the lowest number. 
B)  that has been arranged from the lowest number to the highest number. 
C)  to determine which items are in error. 
D)  to determine the amount and/or percentage increase or decrease that has taken place.

Question 5

Match the ratios with the appropriate ratio computation by entering the appropriate letter in the space provided.
A. Current ratio F. Times interest earned
B. Acid-test ratio G. Inventory turnover
C. Profit margin H. Average collection period
D. Asset turnover I. Days in inventory
E. Price-earnings ratio J. Payout ratio

Accepted Answer

1. G 6. H
2. C 7. E

Question 6

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 return on assets for Soho?

Accepted Answer

A)  8.0% 
B)  7.0% 
C)  18.0% 
D)  16.0% 
A)  8.0% 
B)  7.0% 
C)  18.0% 
D)  16.0%

Question 7

If inventory turnover is 10 times, and the average inventory was $400,000, the cost of goods sold during the year was $______________ and the days in inventory was ______________ days.

Accepted Answer

4,000,000,

Question 8

Horizontal analysis is appropriately performed

Accepted Answer

A)  only on the income statement. 
B)  only on the balance sheet. 
C)  only on the statement of retained earnings. 
D)  on all three of these statements. 
A)  only on the income statement. 
B)  only on the balance sheet. 
C)  only on the statement of retained earnings. 
D)  on all three of these statements.

Question 9

Using borrowed money to increase the rate of return on common stockholders' equity is called "trading on the equity."

Accepted Answer

A) True 
 B)False

Question 10

Berman Company reported the following financial information:   
Compute (a) the receivables turnover and (b) the average collection period for 2010.

Accepted Answer

a) Receivables turnover = $2,5

Question 11

A horizontal analysis performed on a statement of retained earnings would not show a percentage change in

Accepted Answer

A)  dividends paid. 
B)  net income. 
C)  expenses. 
D)  beginning retained earnings. 
A)  dividends paid. 
B)  net income. 
C)  expenses. 
D)  beginning retained earnings.

Question 12

In analyzing the financial statements of a company, a single item on the financial statements

Accepted Answer

A)  should be reported in bold-face type. 
B)  is more meaningful if compared to other financial information. 
C)  is significant only if it is large. 
D)  should be accompanied by a footnote. 
A)  should be reported in bold-face type. 
B)  is more meaningful if compared to other financial information. 
C)  is significant only if it is large. 
D)  should be accompanied by a footnote.

Question 13

A weakness of the current ratio is

Accepted Answer

A)  the difficulty of the calculation. 
B)  that it doesn't take into account the composition of the current assets. 
C)  that it is rarely used by sophisticated analysts. 
D)  that it can be expressed as a percentage, as a rate, or as a proportion. 
A)  the difficulty of the calculation. 
B)  that it doesn't take into account the composition of the current assets. 
C)  that it is rarely used by sophisticated analysts. 
D)  that it can be expressed as a percentage, as a rate, or as a proportion.

Question 14

Rasmus Company has income before taxes of $330,000 and an extraordinary loss of $100,000. If the income tax rate is 30% on all items, the income statement should show income before irregular items and an extraordinary loss, respectively, of:

Accepted Answer

A)  $330,000 and ($100,000) 
B)  $231,000 and ($30,000) 
C)  $231,000 and ($70,000) 
D)  $99,000 and ($30,000) 
A)  $330,000 and ($100,000) 
B)  $231,000 and ($30,000) 
C)  $231,000 and ($70,000) 
D)  $99,000 and ($30,000)

Question 15

The current assets of Kile Company are $150,000. The current liabilities are $100,000. The current ratio expressed as a proportion is

Accepted Answer

A)  150%. 
B)  1.5 : 1 
C)  .67 : 1 
D)  $150,000 ÷ $100,000. 
A)  150%. 
B)  1.5 : 1 
C)  .67 : 1 
D)  $150,000 ÷ $100,000.

Question 16

Using vertical analysis of the income statement, a company's net income as a percentage of net sales is 10%; therefore, the cost of goods sold as a percentage of sales must be 90%.

Accepted Answer

A) True 
 B)False

Question 17

The financial statements of Grogan Company appear below:   
   
Additional information:
a. Cash dividends of $23,000 were declared and paid in 2011.
b. Weighted-average number of shares of common stock outstanding during 2011 was 30,000 shares.
c. Market value of common stock on December 31, 2011, was $21 per share.
Instructions
Using the financial statements and additional information, compute the following ratios for Grogan Company for 2011. Show all computations.
Computations
1. Current ratio _________.
2. Return on common stockholders' equity _________.
3. Price-earnings ratio _________.
4. Acid-test ratio _________.
5. Receivables turnover _________.
6. Times interest earned _________.
7. Profit margin _________.
8. Days in inventory _________.
9. Payout ratio _________.
10. Return on assets _________. 
a. Cash dividends of $23,000 were declared and paid in 2011.
b. Weighted-average number of shares of common stock outstanding during 2011 was 30,000 shares.
c. Market value of common stock on December 31, 2011, was $21 per share.
Instructions
Using the financial statements and additional information, compute the following ratios for Grogan Company for 2011. Show all computations.
Computations

Accepted Answer

The answer of The financial statements of Grogan Company appear...

Question 18

An extraordinary item is one that

Accepted Answer

A)  occurs infrequently and is uncontrollable in nature. 
B)  occurs infrequently and is unusual in nature. 
C)  is material and is unusual in nature. 
D)  is material and is uncontrollable in nature. 
A)  occurs infrequently and is uncontrollable in nature. 
B)  occurs infrequently and is unusual in nature. 
C)  is material and is unusual in nature. 
D)  is material and is uncontrollable in nature.

Question 19

The rate of return on total assets will be greater than the rate of return on common stockholders' equity if the company has been successful in trading on the equity at a gain.

Accepted Answer

A) True 
 B)False

Question 20

Vertical analysis is a technique which expresses each item within a financial statement

Accepted Answer

A)  in dollars and cents. 
B)  in terms of a percentage of the item in the previous year. 
C)  in terms of a percent of a base amount. 
D)  starting with the highest value down to the lowest value. 
A)  in dollars and cents. 
B)  in terms of a percentage of the item in the previous year. 
C)  in terms of a percent of a base amount. 
D)  starting with the highest value down to the lowest value.

Exam 18: Financial Analysis: the Big Picture

Vertical analysis is useful in making comparisons of companies of different sizes.

Hansen Corporation had net income for the year of $200,000 and a profit margin of 25%. If total average assets were $400,000, the asset turnover ratio was ____________ times.

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

Horizontal analysis evaluates a series of financial statement data over a period of time

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 return on assets for Soho?

If inventory turnover is 10 times, and the average inventory was $400,000, the cost of goods sold during the year was $______________ and the days in inventory was ______________ days.

Horizontal analysis is appropriately performed

Using borrowed money to increase the rate of return on common stockholders' equity is called "trading on the equity."

Berman Company reported the following financial information: Compute (a) the receivables turnover and (b) the average collection period for 2010.

A horizontal analysis performed on a statement of retained earnings would not show a percentage change in

In analyzing the financial statements of a company, a single item on the financial statements

A weakness of the current ratio is

Rasmus Company has income before taxes of $330,000 and an extraordinary loss of $100,000. If the income tax rate is 30% on all items, the income statement should show income before irregular items and an extraordinary loss, respectively, of:

The current assets of Kile Company are $150,000. The current liabilities are $100,000. The current ratio expressed as a proportion is

Using vertical analysis of the income statement, a company's net income as a percentage of net sales is 10%; therefore, the cost of goods sold as a percentage of sales must be 90%.

An extraordinary item is one that

The rate of return on total assets will be greater than the rate of return on common stockholders' equity if the company has been successful in trading on the equity at a gain.

Vertical analysis is a technique which expresses each item within a financial statement

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

Filters

If inventory turnover is 10 times, and the average inventory was $400,000, the cost of goods sold during the year was $ and the days in inventory was days.