Question 1

Which of the following would not be considered a change in accounting principle?

Accepted Answer

A)  Changing the estimated percentage used in calculating bad debt expense 
B)  Changing the inventory costing method used from FIFO to LIFO 
C)  Changing from straight-line depreciation to double-declining balance depreciation 
D)  Changing from the cost method of accounting for investments to the equity method 
A)  Changing the estimated percentage used in calculating bad debt expense 
B)  Changing the inventory costing method used from FIFO to LIFO 
C)  Changing from straight-line depreciation to double-declining balance depreciation 
D)  Changing from the cost method of accounting for investments to the equity method

Question 2

Which of the following is not an acceptable way of displaying the components of other comprehensive income?

Accepted Answer

A)  Combined statement of retained earnings 
B)  Second income statement 
C)  Combined statement of comprehensive income 
D)  All of these answer choices are acceptable. 
A)  Combined statement of retained earnings 
B)  Second income statement 
C)  Combined statement of comprehensive income 
D)  All of these answer choices are acceptable.

Question 3

Declining profitability and liquidity ratios are indications that a company may not survive.

Accepted Answer

A) True 
 B)False

Question 4

The following information pertains to Unique Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. $\begin{array}{lr}\text { Assets }\
\text { Cash and short-term investments } & \$ 40,000 \
\text { Accounts receivable (net) } & 30,000 \
\text { Inventory } & 20,000 \
\text { Property, plant and equipment } & 210,000 \
\text { Total Assets } & \$ 300,000 \\\text { Liabilities and Stockholders' Equity }\\text { Current liabilities } & \$ 60,000 \
\text { Long-term liabilities } & 90,000 \
\text { Stockholders' equity\_common } & 150,000
\end{array}$ Total Liabilities and Stockholders' Equity $300,000 $\begin{array}{lr}\text { Income Statement }\
\text { Sales revenue } & \$ 90,000 \
\text { Cost of goods sold } & 45,000 \
\text { Gross profit } & 45,000 \
\text { Operating expenses } & 20,000 \
\text { Net income } & \$ 25,000\\\text { Number of shares of common stock } & 6,000 \
\text { Market price of common stock } & \$ 20 \
\text { Dividends per share on common stock } & 0.90 \
\text { Cash provided by operations } & \$ 30,000
\end{array}$ What is the current ratio for this company?

Accepted Answer

A)  1.5 
B)  1.0 
C)  1.17 
D)  0.67 
A)  1.5 
B)  1.0 
C)  1.17 
D)  0.67

Question 5

Distinguishing normal levels of income from irregular items is of interest for the $\begin{array}{cc}
&&\text { FASB } & \text { IASB } \\end{array}$
A)$\begin{array}{cc}&& \text { no } && \text { no } \\end{array}$
B)$\begin{array}{cc}&&\text { yes } && \text { yes } \\end{array}$
C)$\begin{array}{cc}&&\text { yes } && \text { no }
 \\end{array}$
D)$\begin{array}{cc}&&\text { yes } && \text { yes } \\end{array}$

Accepted Answer

The answer of Distinguishing normal levels of income from irregular...

Question 6

In horizontal or trend analysis, each item is expressed as a(n)

Accepted Answer

A)  amount. 
B)  percentage. 
C)  rate. 
D)  amount or a percentage. 
A)  amount. 
B)  percentage. 
C)  rate. 
D)  amount or a percentage.

Question 7

Selected data taken from the 2014 financial statements of Phillips Card Company, Inc. are as follows (in millions). $$\begin{array} { l r } 
\text { Net sales } & \$ 295.9 \
\text { Current liabilities, February 28, } 2013 & 39.5 \
\text { Current liabilities, February 28, 2014 } & 47.5 \
\text { Net cash provided by operating activities } & 17.0 \
\text { Total liabilities, February 28, 2013 } & 64.2 \
\text { Total liabilities, February 28, } 2014 & 71.2 \
\text { Capital expenditures } & 2.6 \
\text { Cash dividends } & 6.5
\end{array}$$ Instructions
Compute these ratios at February 20, 2014:
(a) Current cash debt coverage
(b) Cash debt coverage
(c) Free cash flow
Provide a brief interpretation of your results.

Accepted Answer

(a) Current cash debt coverage @#LAT-DLM& \[
\frac

Question 8

Ratios are used as tools in financial analysis

Accepted Answer

A)  instead of horizontal and vertical analyses. 
B)  because they can provide information that may not be apparent from inspection of the individual components of the financial statements. 
C)  because even single ratios by themselves are quite meaningful. 
D)  because they are prescribed by GAAP. 
A)  instead of horizontal and vertical analyses. 
B)  because they can provide information that may not be apparent from inspection of the individual components of the financial statements. 
C)  because even single ratios by themselves are quite meaningful. 
D)  because they are prescribed by GAAP.

Question 9

The liquidity ratio, known as the _______________ ratio, has a disadvantage that it uses year-end balances for current assets and current liabilities. The ___________ partially corrects for this problem by using cash provided by operating activities and average current liabilities rather than point in time numbers.

Accepted Answer

current ,c

Question 10

Intracompany comparisons of the same financial statement items are often useful to detect changes in financial relationships and significant trends.

Accepted Answer

A) True 
 B)False

Question 11

Akers Corporation reported net income $48,000; net sales $480,000; and average assets $800,000 for 2014. What is the 2014 profit margin?

Accepted Answer

A)  6% 
B)  10% 
C)  48% 
D)  60% 
A)  6% 
B)  10% 
C)  48% 
D)  60%

Question 12

Assume the following sales data for a company: $\begin{array}{rr}
2015 & \$ 960,000 \
2014 & 720,000 \
2013 & 600,000
\end{array}$ If 2013 is the base year, what is the percentage increase in sales from 2013 to 2014?

Accepted Answer

A)  60% 
B)  20% 
C)  120% 
D)  160% 
A)  60% 
B)  20% 
C)  120% 
D)  160%

Question 13

Match the ratios with their formulas by entering the appropriate letter in the space provided. 
-$\frac{\text {Net sales }}{\text {Average total assets }}$

Accepted Answer

A) Current ratio 
B) Current cash debt coverage 
C) Profit margin 
D) Asset turnover 
E) Price-earnings ratio
F)Times interest earned
G)Inventory turnover
H)Average collection period
I)Average days in inventory
J)Payout ratio 
A) Current ratio 
B) Current cash debt coverage 
C) Profit margin 
D) Asset turnover 
E) Price-earnings ratio
F)Times interest earned
G)Inventory turnover
H)Average collection period
I)Average days in inventory
J)Payout ratio

Question 14

Comprehensive income includes all revenues, expenses, gains, losses, and dividends.

Accepted Answer

A) True 
 B)False

Question 15

A company has an average inventory on hand of $75,000 and its average days in inventory is 36.5 days. What is the cost of goods sold?

Accepted Answer

A)  $750,000 
B)  $1,752,000 
C)  $1,680,000 
D)  $876,000 
A)  $750,000 
B)  $1,752,000 
C)  $1,680,000 
D)  $876,000

Question 16

A primary purpose of vertical analysis is to observe trends over a three-year period.

Accepted Answer

A) True 
 B)False

Question 17

Vertical analysis is a technique that expresses each item in a financial statement

Accepted Answer

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

Question 18

Which of the following statements is true with respect to financial statement reporting for all cases when a company changes from one acceptable accounting method to another?

Accepted Answer

A)  Comparability across periods is impaired 
B)  Only a footnote is required to report the change 
C)  Changes in both depreciation methods and inventory methods are reported retroactively. 
D)  Management must indicate that the accounting method change is preferable to the old method. 
A)  Comparability across periods is impaired 
B)  Only a footnote is required to report the change 
C)  Changes in both depreciation methods and inventory methods are reported retroactively. 
D)  Management must indicate that the accounting method change is preferable to the old method.

Question 19

Horizontal and vertical analyses are analytical tools frequently used to analyze financial statements. What type of information or insights can be obtained by using these two techniques? Explain how the output of horizontal analysis and vertical analysis can be compared to industry averages and/or competitive companies.

Accepted Answer

Horizontal analysis allows an analyst to

Question 20

A solvency ratio measures the income or operating success of an enterprise for a given period of time.

Accepted Answer

A) True 
 B)False

Which of the following would not be considered a change in accounting principle?

Which of the following is not an acceptable way of displaying the components of other comprehensive income?

Declining profitability and liquidity ratios are indications that a company may not survive.

Distinguishing normal levels of income from irregular items is of interest for the FASB IASB A) no no B) yes yes C) yes no D) yes yes

In horizontal or trend analysis, each item is expressed as a(n)

Ratios are used as tools in financial analysis

The liquidity ratio, known as the _____ ratio, has a disadvantage that it uses year-end balances for current assets and current liabilities. The _ partially corrects for this problem by using cash provided by operating activities and average current liabilities rather than point in time numbers.

Intracompany comparisons of the same financial statement items are often useful to detect changes in financial relationships and significant trends.

Akers Corporation reported net income $48,000; net sales $480,000; and average assets $800,000 for 2014. What is the 2014 profit margin?

Assume the following sales data for a company: 2015 \ 960,000 2014 720,000 2013 600,000 If 2013 is the base year, what is the percentage increase in sales from 2013 to 2014?

Match the ratios with their formulas by entering the appropriate letter in the space provided. - $\frac{\text {Net sales }}{\text {Average total assets }}$

Comprehensive income includes all revenues, expenses, gains, losses, and dividends.

A company has an average inventory on hand of $75,000 and its average days in inventory is 36.5 days. What is the cost of goods sold?

A primary purpose of vertical analysis is to observe trends over a three-year period.

Vertical analysis is a technique that expresses each item in a financial statement

Which of the following statements is true with respect to financial statement reporting for all cases when a company changes from one acceptable accounting method to another?

A solvency ratio measures the income or operating success of an enterprise for a given period of time.

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Understanding Investments and Acquisitions in Accounting

Filters

Exam 13: Financial Analysis: The Big Picture

Which of the following would not be considered a change in accounting principle?

Which of the following is not an acceptable way of displaying the components of other comprehensive income?

Declining profitability and liquidity ratios are indications that a company may not survive.

Distinguishing normal levels of income from irregular items is of interest for the FASB IASB A) no no B) yes yes C) yes no D) yes yes

In horizontal or trend analysis, each item is expressed as a(n)

Ratios are used as tools in financial analysis

Intracompany comparisons of the same financial statement items are often useful to detect changes in financial relationships and significant trends.

Akers Corporation reported net income $48,000; net sales $480,000; and average assets $800,000 for 2014. What is the 2014 profit margin?

Assume the following sales data for a company: 2015 \ 960,000 2014 720,000 2013 600,000 If 2013 is the base year, what is the percentage increase in sales from 2013 to 2014?

Match the ratios with their formulas by entering the appropriate letter in the space provided. - Net sales Average total assets \frac{\text {Net sales }}{\text {Average total assets }}Average total assets Net sales ​

Comprehensive income includes all revenues, expenses, gains, losses, and dividends.

A company has an average inventory on hand of $75,000 and its average days in inventory is 36.5 days. What is the cost of goods sold?

A primary purpose of vertical analysis is to observe trends over a three-year period.

Vertical analysis is a technique that expresses each item in a financial statement

Which of the following statements is true with respect to financial statement reporting for all cases when a company changes from one acceptable accounting method to another?

A solvency ratio measures the income or operating success of an enterprise for a given period of time.

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Understanding Investments and Acquisitions in Accounting

Filters

Match the ratios with their formulas by entering the appropriate letter in the space provided. - $\frac{\text {Net sales }}{\text {Average total assets }}$