Question 1

One measure of a company's overall long-term financial health is the debt-to-equity ratio.

Accepted Answer

A) True 
 B)False

Question 2

The concept of leverage is

Accepted Answer

A)  it is appropriate to borrow if the return on the assets is greater than the cost of the financing. 
B)  it is appropriate to borrow as long as the lender approves the loan. 
C)  it is unfavorable to borrow funds rather than raise the capital from stockholders. 
D)  that a high debt-to-equity ratio is favorable. 
A)  it is appropriate to borrow if the return on the assets is greater than the cost of the financing. 
B)  it is appropriate to borrow as long as the lender approves the loan. 
C)  it is unfavorable to borrow funds rather than raise the capital from stockholders. 
D)  that a high debt-to-equity ratio is favorable.

Question 3

Kim Chen Corporation is a wholesaler of scuba gear. During 2016, Chen expanded its retail business by adding over 50 dive shops. The following information is obtained from the comparative financial statements included in the company's 2016 annual report all amounts are in thousands of dollars:
   A. Debt-to-equity ratio at each year-end
B. Times interest earned ratio
2 Comment briefly on the company's solvency.
3 What other ratios will help you assess the solvency? What information will they provide that you do not already have concerning the company's solvency?

Accepted Answer

1 A. Total liabilities/Total stockholder

Question 4

Refer to the financial information for St. Petersburg Corporation.
REQUIRED:
A Calculate the return on assets ratio for St. Petersburg for 2016. What is the reason for the adjustment of interest?
B Calculate the return on common stockholders' equity ratio for 2016 for St. Petersburg. What is the reason for the adjustment of preferred dividends?

Accepted Answer

A Net income + Interest expense, net of

Question 5

Select the term below most properly satisfies each statement.
-A comparison of financial statement items over a period of time

Accepted Answer

A) Total assets 
B) Horizontal analysis 
C) Vertical analysis 
D) Net sales 
A) Total assets 
B) Horizontal analysis 
C) Vertical analysis 
D) Net sales

Question 6

Pinecrest Company
Use the selected data from Pinecrest Company's financial statements to answer the following question.
  
-Refer to the data for Pinecrest Company. Competitors in Pinecrest Company's industry have an average inventory turnover of 20.8 times. Its inventory
Turnover for 2016

Accepted Answer

A)  indicates that the company has too little inventory on hand at the end of 2016. 
B)  indicates that the company is pricing its products too low. 
C)  is equal to the number of days' sales in the company's inventory. 
D)  indicates that the market may be reacting to problems in the sales department by reducing demand for the company's products. 
A)  indicates that the company has too little inventory on hand at the end of 2016. 
B)  indicates that the company is pricing its products too low. 
C)  is equal to the number of days' sales in the company's inventory. 
D)  indicates that the market may be reacting to problems in the sales department by reducing demand for the company's products.

Question 7

Return ratios are measures of the relationship between the

Accepted Answer

A)  income earned and the investment made in the company by the various groups. 
B)  revenue earned and the total equity of a company. 
C)  total equity of a company and its cash flows for the period. 
D)  profitability and liquidity aspects of a company. 
A)  income earned and the investment made in the company by the various groups. 
B)  revenue earned and the total equity of a company. 
C)  total equity of a company and its cash flows for the period. 
D)  profitability and liquidity aspects of a company.

Question 8

Which of the following statements is true regarding vertical analysis?

Accepted Answer

A)  Common-size financial statements can be used to compare businesses of different sizes. 
B)  Vertical analysis can only be used with balance sheet accounts. 
C)  Vertical analysis can only be used with income statement accounts. 
D)  Vertical analysis can only be used with retained earnings accounts. 
A)  Common-size financial statements can be used to compare businesses of different sizes. 
B)  Vertical analysis can only be used with balance sheet accounts. 
C)  Vertical analysis can only be used with income statement accounts. 
D)  Vertical analysis can only be used with retained earnings accounts.

Question 9

All line items in common-size comparative income statements are stated as a percentage of net income.

Accepted Answer

A) True 
 B)False

Question 10

Crimson Company declared and paid $1,000,000 in dividends to the common stockholders. The effect of this transaction is that the

Accepted Answer

A)  earnings per share decreased. 
B)  current ratio increased. 
C)  debt-to-equity ratio increased. 
D)  earnings per share increased. 
A)  earnings per share decreased. 
B)  current ratio increased. 
C)  debt-to-equity ratio increased. 
D)  earnings per share increased.

Question 11

Shoreville Corp.'s December 31, 2014, balance sheet reported current assets of $260,000 and current liabilities of
$200,000. The current ratio increased by 20% one year later, on December 31, 2015. Current liabilities on this date were $280,000. Determine current assets on December 31, 2015.

Accepted Answer

The current ratio on December 31, 2014,

Question 12

The following information is available from the balance sheets at the end of 2016 and 2015 for Riverside Company:
   Net income for 2016 and 2015 was $340,000 and $300,000, respectively. Answer the following:
A Calculate the return on common stockholders' equity ratio for 2016.
B What information is provided to users with the calculation in part A? Explain.
C What is the difference between the return on stockholders' equity ratio and the return on assets ratio?
A Net income - Preferred dividends/Average common stockholders' equity = $340,000 - $0/[$1,69

Accepted Answer

$1,055,000/2] = 24.7%
B This ratio provi

Question 13

A high P/E ratio always indicates that a stock is overpriced by the market.

Accepted Answer

A) True 
 B)False

Question 14

Refer to the financial information for St. Petersburg Corporation.
REQUIRED:
A Identify the two components of the return on assets ratio for St. Petersburg. Explain the change in the return on assets ratio during 2016 as it relates to these components.
B During 2016, how much is St. Petersburg's average cost of borrowed capital as compared to the cost of the
money provided by the preferred stockholders? Which is the more profitable? Explain.

Accepted Answer

A The two components are the return on s

Question 15

Paint Company
Following are selected data from Paint Company's financial statements.
  
-Refer to the Paint Company data. Paint's debt­to­equity ratio for 2016 is:

Accepted Answer

A)  an indicator that Paint Company's ability to meet current interest payments to creditors is increasing. 
B)  increasing slightly from 2015 to 2016. 
C)  an indicator that for every $1 of capital that stockholders provided, creditors provided $0.83. 
D)  an indicator that Paint Company has relied on stockholders for funds more in 2015 than in 2016. 
A)  an indicator that Paint Company's ability to meet current interest payments to creditors is increasing. 
B)  increasing slightly from 2015 to 2016. 
C)  an indicator that for every $1 of capital that stockholders provided, creditors provided $0.83. 
D)  an indicator that Paint Company has relied on stockholders for funds more in 2015 than in 2016.

Question 16

Which of the following ratios is used to analyze a company's liquidity?

Accepted Answer

A)  Return on assets ratio 
B)  Inventory turnover ratio 
C)  Earnings per share 
D)  Asset turnover ratio 
A)  Return on assets ratio 
B)  Inventory turnover ratio 
C)  Earnings per share 
D)  Asset turnover ratio

Question 17

A gain or loss that qualifies for extraordinary treatment on the income statement must have which of the following qualities? I. Unusual in Nature
II. Discontinued Segment
III. Infrequent in Occurrence
IV. Nonoperating in Nature
V. Never Occurred

Accepted Answer

A)  I and V 
B)  III and IV 
C)  I and III 
D)  I, II, and III 
A)  I and V 
B)  III and IV 
C)  I and III 
D)  I, II, and III

Question 18

What importance is placed on a company's stock price in the ratio analysis of a company? Explain.

Accepted Answer

The desire of the investors to relate th

Question 19

What is the best way to assess solvency? Explain.

Accepted Answer

Evaluating leverage best assesses solven

Question 20

Use the following information that was obtained from the 2016 and 2015 financial statements of Lake Company, River Corporation, and Ocean Company to answer the questions that follow.
   REQUIRED: Compare the three companies and answer the following:
A Compute the accounts receivable turnover ratio for each company for 2016.
B Which company appears to have the best liquidity position based solely on the accounts receivable turnover? Explain.

Accepted Answer

A Net credit sales/Average accounts rece

One measure of a company's overall long-term financial health is the debt-to-equity ratio.

The concept of leverage is

Select the term below most properly satisfies each statement. -A comparison of financial statement items over a period of time

Pinecrest Company Use the selected data from Pinecrest Company's financial statements to answer the following question. -Refer to the data for Pinecrest Company. Competitors in Pinecrest Company's industry have an average inventory turnover of 20.8 times. Its inventory Turnover for 2016

Return ratios are measures of the relationship between the

Which of the following statements is true regarding vertical analysis?

All line items in common-size comparative income statements are stated as a percentage of net income.

Crimson Company declared and paid $1,000,000 in dividends to the common stockholders. The effect of this transaction is that the

Shoreville Corp.'s December 31, 2014, balance sheet reported current assets of $260,000 and current liabilities of $200,000. The current ratio increased by 20% one year later, on December 31, 2015. Current liabilities on this date were $280,000. Determine current assets on December 31, 2015.

A high P/E ratio always indicates that a stock is overpriced by the market.

Paint Company Following are selected data from Paint Company's financial statements. -Refer to the Paint Company data. Paint's debttoequity ratio for 2016 is:

Which of the following ratios is used to analyze a company's liquidity?

A gain or loss that qualifies for extraordinary treatment on the income statement must have which of the following qualities? I. Unusual in Nature II. Discontinued Segment III. Infrequent in Occurrence IV. Nonoperating in Nature V. Never Occurred

What importance is placed on a company's stock price in the ratio analysis of a company? Explain.

What is the best way to assess solvency? Explain.

Accounting As a Form of Communication

Financial Statements and the Annual Report

Processing Accounting Information

Income Measurement and Accrual Accounting

Inventories and Cost of Goods Sold

Cash and Internal Control

Receivables and Investments

Operating Assets: Property, Plant, and Equipment, and Intangibles

Current Liabilities, Contingencies, and the Time Value of Money

Long-Term Liabilities

Stockholders Equity

The Statement of Cash Flows

International-Financial-Reporting-Standards

Filters

Exam 13: Financial Statement Analysis

One measure of a company's overall long-term financial health is the debt-to-equity ratio.

The concept of leverage is

Select the term below most properly satisfies each statement. -A comparison of financial statement items over a period of time

Pinecrest Company Use the selected data from Pinecrest Company's financial statements to answer the following question. -Refer to the data for Pinecrest Company. Competitors in Pinecrest Company's industry have an average inventory turnover of 20.8 times. Its inventory Turnover for 2016

Return ratios are measures of the relationship between the

Which of the following statements is true regarding vertical analysis?

All line items in common-size comparative income statements are stated as a percentage of net income.

Crimson Company declared and paid $1,000,000 in dividends to the common stockholders. The effect of this transaction is that the

Shoreville Corp.'s December 31, 2014, balance sheet reported current assets of $260,000 and current liabilities of $200,000. The current ratio increased by 20% one year later, on December 31, 2015. Current liabilities on this date were $280,000. Determine current assets on December 31, 2015.

A high P/E ratio always indicates that a stock is overpriced by the market.

Paint Company Following are selected data from Paint Company's financial statements. -Refer to the Paint Company data. Paint's debt­to­equity ratio for 2016 is:

Which of the following ratios is used to analyze a company's liquidity?

A gain or loss that qualifies for extraordinary treatment on the income statement must have which of the following qualities? I. Unusual in Nature II. Discontinued Segment III. Infrequent in Occurrence IV. Nonoperating in Nature V. Never Occurred

What importance is placed on a company's stock price in the ratio analysis of a company? Explain.

What is the best way to assess solvency? Explain.

Accounting As a Form of Communication

Financial Statements and the Annual Report

Processing Accounting Information

Income Measurement and Accrual Accounting

Inventories and Cost of Goods Sold

Cash and Internal Control

Receivables and Investments

Operating Assets: Property, Plant, and Equipment, and Intangibles

Current Liabilities, Contingencies, and the Time Value of Money

Long-Term Liabilities

Stockholders Equity

The Statement of Cash Flows

International-Financial-Reporting-Standards

Filters

Paint Company Following are selected data from Paint Company's financial statements. -Refer to the Paint Company data. Paint's debttoequity ratio for 2016 is: