Question 1

In a horizontal analysis, if an item has a small value in the base year and a large value in the next year, the percentage change will not be meaningful.

Accepted Answer

A) True 
 B)False

Question 2

Which one of the following would NOT be considered a liquidity ratio?

Accepted Answer

A)  current ratio 
B)  inventory turnover ratio 
C)  receivables turnover ratio 
D)  return on assets ratio 
A)  current ratio 
B)  inventory turnover ratio 
C)  receivables turnover ratio 
D)  return on assets ratio

Question 3

Selected data from O'Brien Ltd. are presented below:   Instructions
Calculate the profitability ratios that can be derived from the above information.

Accepted Answer

With the information provided, the profi

Question 4

The profit margin is calculated by dividing

Accepted Answer

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

Question 5

Shareholders are most interested in evaluating

Accepted Answer

A)  liquidity and solvency. 
B)  profitability and solvency. 
C)  liquidity and profitability. 
D)  marketability and solvency. 
A)  liquidity and solvency. 
B)  profitability and solvency. 
C)  liquidity and profitability. 
D)  marketability and solvency.

Question 6

The following information for 2014 is provided for two public companies in the same industry:  
 Instructions
Answer the following questions about the two companies. Use the information provided to calculate the ratios needed to support your answers. 
a. Based on the above information, which company is more profitable?
b. About which company are investors more optimistic?
c. In which company would investors prefer to buy shares for growth potential? In which company would they prefer to buy shares if their goal is dividend income?

Accepted Answer

a. Fauna's profit margin is 9.7% ($970 ÷

Question 7

A successful grocery store would probably have

Accepted Answer

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

Question 8

Bradley Corporation had the following comparative current assets and current liabilities:   Instructions
Calculate the following liquidity measures for 2014: 
a. Current ratio
b. Acid-test ratio
c. Receivables turnover
d. Inventory turnover

Accepted Answer

The answer of Bradley Corporation had the following comparative current...

Question 9

The following are income statements of two companies that are both in the fast food industry. All amounts are in 000's and are for the year ended December 31, 2014.   Instructions
Using vertical analysis determine which corporation is the more profitable and identify the most significant cause of the difference.

Accepted Answer

@#IMG-DLM& Both companies have the same operating

Question 10

If a company has an acid-test ratio significantly higher than the current ratio, it means that the company has a significant amount of inventory.

Accepted Answer

A) True 
 B)False

Question 11

A liquidity ratio measures the

Accepted Answer

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

Question 12

Comparison with industry averages for diversified companies has

Accepted Answer

A)  less relevance than intracompany and intercompany comparisons. 
B)  more relevance than intracompany and intercompany comparisons. 
C)  the best results for investors. 
D)  the same amount of relevance as intracompany and intercompany comparisons. 
A)  less relevance than intracompany and intercompany comparisons. 
B)  more relevance than intracompany and intercompany comparisons. 
C)  the best results for investors. 
D)  the same amount of relevance as intracompany and intercompany comparisons.

Question 13

The higher the percentage of total debt to total assets, the greater the risk that the company will be unable to meet its maturing obligations.

Accepted Answer

A) True 
 B)False

Question 14

The use of alternative accounting principles

Accepted Answer

A)  is not a problem in ratio analysis because the notes to the statements disclose the principles used. 
B)  may be a problem in ratio analysis even if disclosed. 
C)  is not a problem in ratio analysis since eventually all principles will lead to the same end. 
D)  is only a problem in ratio analysis with respect to inventory. 
A)  is not a problem in ratio analysis because the notes to the statements disclose the principles used. 
B)  may be a problem in ratio analysis even if disclosed. 
C)  is not a problem in ratio analysis since eventually all principles will lead to the same end. 
D)  is only a problem in ratio analysis with respect to inventory.

Question 15

Profitability ratios measure a company's ability to survive over a long period of time.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is NOT a profitability ratio?

Accepted Answer

A)  payout ratio 
B)  profit margin 
C)  interest coverage 
D)  gross profit margin 
A)  payout ratio 
B)  profit margin 
C)  interest coverage 
D)  gross profit margin

Question 17

The 2014 income statements for two different companies are provided below:

Instructions

a. Are the two companies in the same or different industries? Use vertical analysis to support your answer.
b. Can vertical analysis be used to compare the profitability of the two companies that are in different industries to each other? Support your answer with examples based on your calculations in part

Accepted Answer

a.
 @#IMG-DLM& It appears that the companies are i

Question 18

The following selected ratios are available for Rainbow Corporation for the three most recent years: $\begin{array}{lccc}&2015&2014&2013\
\text { Debt to total assets } & \overline{48 \%} & \overline{52 \%} & \overline{60 \%} \
\text { Interest coverage } & 2.5 \text { times } & 2.6 \text { times } & 2.0 \text { times } \
\text { Free cash flow } & \$ 600,000 & \$ 590,000 & \$ 200,000
\end{array}$
 Instructions
Using each of the three ratios above to support your answer, explain whether or not Rainbow's solvency has improved over the last three years.

Accepted Answer

Rainbow's solvency has improved during t

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

The financial statements of Keans Plumbing Inc. appear below:   Additional information:
1. Cash dividends of $36,000 were declared and paid in 2014
2. Weighted average number of shares during 2014 was 60,000 shares.
3. Market value of common shares on December 31, 2014, was $18 per share.
4. Depreciation expense was $40,000 in 2014.
Instructions
Using the financial statements and additional information, calculate the following ratios for Keans Plumbing Inc. for 2014. Show all calculations.
Calculations
a. Current ratio _________
b. Return on equity _________
c. Price-earnings _________
d. Debt to total assets
e. Receivables turnover _________

Accepted Answer

The answer of The financial statements of Keans Plumbing Inc....

In a horizontal analysis, if an item has a small value in the base year and a large value in the next year, the percentage change will not be meaningful.

Which one of the following would NOT be considered a liquidity ratio?

Selected data from O'Brien Ltd. are presented below: Instructions Calculate the profitability ratios that can be derived from the above information.

The profit margin is calculated by dividing

Shareholders are most interested in evaluating

A successful grocery store would probably have

Bradley Corporation had the following comparative current assets and current liabilities: Instructions Calculate the following liquidity measures for 2014: a. Current ratio b. Acid-test ratio c. Receivables turnover d. Inventory turnover

If a company has an acid-test ratio significantly higher than the current ratio, it means that the company has a significant amount of inventory.

A liquidity ratio measures the

Comparison with industry averages for diversified companies has

The higher the percentage of total debt to total assets, the greater the risk that the company will be unable to meet its maturing obligations.

The use of alternative accounting principles

Profitability ratios measure a company's ability to survive over a long period of time.

Which of the following is NOT a profitability ratio?

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

Accounting in Action

The Recording Process

Adjusting the Accounts

Completion of the Accounting Cycle

Accounting for Merchandising Operations

Inventory Costing

Internal Control and Cash

Long-Lived Assets

Current Liabilities

Accounting Principles

Accounting for Partnerships

Introduction to Corporations

Corporations: Additional Topics and Ifrs

Non-Current Liabilities

The Cash Flow Statement

Investments

Filters

Exam 17: Financial Statement Analysis

In a horizontal analysis, if an item has a small value in the base year and a large value in the next year, the percentage change will not be meaningful.

Which one of the following would NOT be considered a liquidity ratio?

Selected data from O'Brien Ltd. are presented below: Instructions Calculate the profitability ratios that can be derived from the above information.

The profit margin is calculated by dividing

Shareholders are most interested in evaluating

A successful grocery store would probably have

Bradley Corporation had the following comparative current assets and current liabilities: Instructions Calculate the following liquidity measures for 2014: a. Current ratio b. Acid-test ratio c. Receivables turnover d. Inventory turnover

If a company has an acid-test ratio significantly higher than the current ratio, it means that the company has a significant amount of inventory.

A liquidity ratio measures the

Comparison with industry averages for diversified companies has

The higher the percentage of total debt to total assets, the greater the risk that the company will be unable to meet its maturing obligations.

The use of alternative accounting principles

Profitability ratios measure a company's ability to survive over a long period of time.

Which of the following is NOT a profitability ratio?

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

Accounting in Action

The Recording Process

Adjusting the Accounts

Completion of the Accounting Cycle

Accounting for Merchandising Operations

Inventory Costing

Internal Control and Cash

Long-Lived Assets

Current Liabilities

Accounting Principles

Accounting for Partnerships

Introduction to Corporations

Corporations: Additional Topics and Ifrs

Non-Current Liabilities

The Cash Flow Statement

Investments

Filters