Question 1

It would be easiest to see the company's 2014 interest expense, as a percentage of revenues for the year, by looking at a

Accepted Answer

A)  Common size balance sheet 
B)  Common size income statement 
C)  Percentage change balance sheet 
D)  Percentage change income statement 
A)  Common size balance sheet 
B)  Common size income statement 
C)  Percentage change balance sheet 
D)  Percentage change income statement

Question 2

In general, compared to a company with no leverage, a company with high operating leverage will have

Accepted Answer

A)  Lower operating profits in periods of high sales 
B)  No difference in operating profits, regardless of the level of sales 
C)  Higher operating profits in periods of high sales 
A)  Lower operating profits in periods of high sales 
B)  No difference in operating profits, regardless of the level of sales 
C)  Higher operating profits in periods of high sales

Question 3

"Operating leverage" arises due to the presence of fixed operating costs at a company.

Accepted Answer

A) True 
 B)False

Question 4

In a typical cash flow statement, prepared using the indirect method, which of the following statements about depreciation is correct?

Accepted Answer

A)  Depreciation expense usually appears in the investing section, as a reduction to investing cash flows. 
B)  Depreciation expense usually appears in the investing section, as an addition to investing cash flows. 
C)  Depreciation expense usually appears in the operating section, as a reduction to operating cash flows. 
D)  Depreciation expense usually appears in the operating section, as an addition to operating cash flows. 
A)  Depreciation expense usually appears in the investing section, as a reduction to investing cash flows. 
B)  Depreciation expense usually appears in the investing section, as an addition to investing cash flows. 
C)  Depreciation expense usually appears in the operating section, as a reduction to operating cash flows. 
D)  Depreciation expense usually appears in the operating section, as an addition to operating cash flows.

Question 5

When a financial statement analyst compares various figures on a company's income statement for a single year, and notes that a particular expense is 23% of sales, the analyst is performing

Accepted Answer

A)  Vertical analysis 
B)  Horizontal analysis 
C)  Credit analysis 
D)  Solvency analysis 
A)  Vertical analysis 
B)  Horizontal analysis 
C)  Credit analysis 
D)  Solvency analysis

Question 6

Assume a company acquires land, using borrowed money. Assume the land earns no income during the year. Which of the following statements is correct regarding the effect of buying the land and borrowing the money?

Accepted Answer

A)  Capital structure leverage will increase. 
B)  Its interest coverage ratio will increase. 
C)  Its current ratio will increase. 
D)  Its return on assets will increase. 
A)  Capital structure leverage will increase. 
B)  Its interest coverage ratio will increase. 
C)  Its current ratio will increase. 
D)  Its return on assets will increase.

Question 7

The Coda Corp. in 2016 had an operating leverage effect = 3, and a financial leverage effect = 1.333. The total leverage effect is

Accepted Answer

A)  1.667 
B)  4 
C)  4.333 
D)  Cannot be determined 
A)  1.667 
B)  4 
C)  4.333 
D)  Cannot be determined

Question 8

Assume that during the year, the Grey Company had net income of $300,000. Its inventory increased by $6,000 and its accounts payable decreased by $7,000. Based on this information, net operating cash flows for the year equal

Accepted Answer

A)  287000 
B)  299000 
C)  301000 
D)  313000 
A)  287000 
B)  299000 
C)  301000 
D)  313000

Question 9

Which of the following is one of the useful features of financial statements?

Accepted Answer

A)  GAAP statements always clearly separately disclose fixed and variable costs. 
B)  GAAP statements include adjustments for the effects of inflation. 
C)  GAAP statements are prepared and issued weekly, so they are the most timely sources of information to investors. 
D)  GAAP financial statements are produced periodically, and contain information that can be used to analyze company profitability and solvency. 
A)  GAAP statements always clearly separately disclose fixed and variable costs. 
B)  GAAP statements include adjustments for the effects of inflation. 
C)  GAAP statements are prepared and issued weekly, so they are the most timely sources of information to investors. 
D)  GAAP financial statements are produced periodically, and contain information that can be used to analyze company profitability and solvency.

Question 10

One ratio used to assess company profitability is "return on assets."

Accepted Answer

A) True 
 B)False

Question 11

Under the Du Pont framework of analysis, which of the following relationships is true?

Accepted Answer

A)  Return on assets = return on common equity + capital structure leverage 
B)  Return on common equity = asset turnover ÷ capital structure leverage 
C)  Return on common equity = asset turnover × profit margin × capital structure leverage 
D)  Return on assets = asset turnover + return on equity 
A)  Return on assets = return on common equity + capital structure leverage 
B)  Return on common equity = asset turnover ÷ capital structure leverage 
C)  Return on common equity = asset turnover × profit margin × capital structure leverage 
D)  Return on assets = asset turnover + return on equity

Question 12

Limitations of the usefulness of financial statements prepared under GAAP include:

Accepted Answer

A)  The statements are often not the most timely source of information. 
B)  Statements from different companies may follow different accounting methods. 
C)  The statements are not designed to show the current market value of the company. 
D)  All of the above 
A)  The statements are often not the most timely source of information. 
B)  Statements from different companies may follow different accounting methods. 
C)  The statements are not designed to show the current market value of the company. 
D)  All of the above

Question 13

An important role of financial reports is to confirm that prior reports were correct.

Accepted Answer

A) True 
 B)False

Question 14

The profit margin used in analyzing return on common equity is the same as the profit margin used in analyzing return on assets.

Accepted Answer

A) True 
 B)False

Question 15

The method of comparing financial statement information that involves comparing the same accounts, across two or more time periods, is called "horizontal analysis."

Accepted Answer

A) True 
 B)False

Question 16

Assume a company buys inventory with cash, just before year end. Assume the inventory has not been sold before the end of the year. Which of the following statements is correct regarding the effect of buying the inventory?

Accepted Answer

A)  Its current ratio will increase. 
B)  Its inventory turnover ratio will decrease. 
C)  Capital structure leverage will decrease. 
D)  Its return on assets will decrease. 
A)  Its current ratio will increase. 
B)  Its inventory turnover ratio will decrease. 
C)  Capital structure leverage will decrease. 
D)  Its return on assets will decrease.

Question 17

The proper denominator to use in computing return on common equity is

Accepted Answer

A)  Beginning total shareholders' equity, including both common and preferred shares 
B)  Beginning total shareholders' equity, including common but not preferred shares 
C)  Average total shareholders' equity, including both common and preferred shares 
D)  Average total shareholders' equity, including common but not preferred shares 
A)  Beginning total shareholders' equity, including both common and preferred shares 
B)  Beginning total shareholders' equity, including common but not preferred shares 
C)  Average total shareholders' equity, including both common and preferred shares 
D)  Average total shareholders' equity, including common but not preferred shares

Question 18

The Alpert Corp. in 2016 had total revenues = $20 million, variable costs = $8 million, operating income = $9 million, and net income = 6 million. The financial leverage effect is

Accepted Answer

A)  0.67 
B)  1.5 
C)  2 
D)  3.33 
A)  0.67 
B)  1.5 
C)  2 
D)  3.33

Question 19

In general, when a company has greater operating leverage, and its sales increase, profits

Accepted Answer

A)  Increase proportionally with sales 
B)  Increase proportionately faster than sales 
C)  Increase proportionately slower than sales 
A)  Increase proportionally with sales 
B)  Increase proportionately faster than sales 
C)  Increase proportionately slower than sales

Question 20

When a financial statement analyst compares figures for a company's revenues over a five-year period, this can best be describes as an example of

Accepted Answer

A)  Vertical analysis 
B)  Horizontal analysis 
C)  Credit analysis 
D)  Solvency analysis 
A)  Vertical analysis 
B)  Horizontal analysis 
C)  Credit analysis 
D)  Solvency analysis

It would be easiest to see the company's 2014 interest expense, as a percentage of revenues for the year, by looking at a

In general, compared to a company with no leverage, a company with high operating leverage will have

"Operating leverage" arises due to the presence of fixed operating costs at a company.

In a typical cash flow statement, prepared using the indirect method, which of the following statements about depreciation is correct?

When a financial statement analyst compares various figures on a company's income statement for a single year, and notes that a particular expense is 23% of sales, the analyst is performing

Assume a company acquires land, using borrowed money. Assume the land earns no income during the year. Which of the following statements is correct regarding the effect of buying the land and borrowing the money?

The Coda Corp. in 2016 had an operating leverage effect = 3, and a financial leverage effect = 1.333. The total leverage effect is

Assume that during the year, the Grey Company had net income of $300,000. Its inventory increased by $6,000 and its accounts payable decreased by $7,000. Based on this information, net operating cash flows for the year equal

Which of the following is one of the useful features of financial statements?

One ratio used to assess company profitability is "return on assets."

Under the Du Pont framework of analysis, which of the following relationships is true?

Limitations of the usefulness of financial statements prepared under GAAP include:

An important role of financial reports is to confirm that prior reports were correct.

The profit margin used in analyzing return on common equity is the same as the profit margin used in analyzing return on assets.

The method of comparing financial statement information that involves comparing the same accounts, across two or more time periods, is called "horizontal analysis."

Assume a company buys inventory with cash, just before year end. Assume the inventory has not been sold before the end of the year. Which of the following statements is correct regarding the effect of buying the inventory?

The proper denominator to use in computing return on common equity is

The Alpert Corp. in 2016 had total revenues = $20 million, variable costs = $8 million, operating income = $9 million, and net income = 6 million. The financial leverage effect is

In general, when a company has greater operating leverage, and its sales increase, profits

When a financial statement analyst compares figures for a company's revenues over a five-year period, this can best be describes as an example of

How Accounting Works

Selecting Your Business Structure

Choosing Accounting Software

Accounting for Inventory

Doing Business Day to Day

Tackling the General Ledger

Reconciling Bank and Credit Card Statements

Setting up New Team Members

Understanding Insurance

Other Benefits and Reimbursements

Payroll Taxes

Appendix

Filters

Exam 4: Managing Your Accounts

It would be easiest to see the company's 2014 interest expense, as a percentage of revenues for the year, by looking at a

In general, compared to a company with no leverage, a company with high operating leverage will have

"Operating leverage" arises due to the presence of fixed operating costs at a company.

In a typical cash flow statement, prepared using the indirect method, which of the following statements about depreciation is correct?

When a financial statement analyst compares various figures on a company's income statement for a single year, and notes that a particular expense is 23% of sales, the analyst is performing

Assume a company acquires land, using borrowed money. Assume the land earns no income during the year. Which of the following statements is correct regarding the effect of buying the land and borrowing the money?

The Coda Corp. in 2016 had an operating leverage effect = 3, and a financial leverage effect = 1.333. The total leverage effect is

Assume that during the year, the Grey Company had net income of $300,000. Its inventory increased by $6,000 and its accounts payable decreased by $7,000. Based on this information, net operating cash flows for the year equal

Which of the following is one of the useful features of financial statements?

One ratio used to assess company profitability is "return on assets."

Under the Du Pont framework of analysis, which of the following relationships is true?

Limitations of the usefulness of financial statements prepared under GAAP include:

An important role of financial reports is to confirm that prior reports were correct.

The profit margin used in analyzing return on common equity is the same as the profit margin used in analyzing return on assets.

The method of comparing financial statement information that involves comparing the same accounts, across two or more time periods, is called "horizontal analysis."

Assume a company buys inventory with cash, just before year end. Assume the inventory has not been sold before the end of the year. Which of the following statements is correct regarding the effect of buying the inventory?

The proper denominator to use in computing return on common equity is

The Alpert Corp. in 2016 had total revenues = $20 million, variable costs = $8 million, operating income = $9 million, and net income = 6 million. The financial leverage effect is

In general, when a company has greater operating leverage, and its sales increase, profits

When a financial statement analyst compares figures for a company's revenues over a five-year period, this can best be describes as an example of

How Accounting Works

Selecting Your Business Structure

Choosing Accounting Software

Accounting for Inventory

Doing Business Day to Day

Tackling the General Ledger

Reconciling Bank and Credit Card Statements

Setting up New Team Members

Understanding Insurance

Other Benefits and Reimbursements

Payroll Taxes

Appendix

Filters