Question 1

Describe the factors involved in communicating useful financial information.

Accepted Answer

Answers will vary
The primary factors in

Question 2

The following information was provided by Joseph Company as of December 31,Year 2: $\begin{array}{|l|r|}
\hline \text { Net income } & \$ 528,000 \
\hline \text { Preferred stock, (20,000 shares at } \$ 10 \text { par, } 4 \%) & \$ 200,000 \
\hline \text { Common stock, (220,000 shares at } \$ 1 \text { par) } & \$ 220,000 \
\hline \text { Paid-in capital in excess of par-common } & \$ 2,475,500 \
\hline \text { Retained earnings } & \$ 3,824,500 \
\hline\
\hline
\end{array}$ On the most recent trading date,Joseph's common shares sold at $36 and the preferred shares sold at $14.
The following information on industry averages is provided:
Earnings per share $2.06
Price-earnings ratio 13.2:1
Required:
1)Calculate and compare Joseph Company's ratios with the industry averages shown above.Round your answer to two decimal places.
2)Discuss whether you would invest in this company.

Accepted Answer

Answers will vary
1)Earnings per share =

Question 3

Profitability ratios attempt to assess the company's ability to generate earnings.

Accepted Answer

A) True 
 B)False

Question 4

Factor(s)involved in communicating useful information is (are):

Accepted Answer

A)  Attributes of the users 
B)  Purpose for which the information will be used 
C)  Process by which the information is analyzed 
D)  All of these answers are correct. 
A)  Attributes of the users 
B)  Purpose for which the information will be used 
C)  Process by which the information is analyzed 
D)  All of these answers are correct.

Question 5

Which of the following statements is generally incorrect from an investor's perspective?

Accepted Answer

A)  A 1:1 current ratio is generally preferred over a 1.5:1 current ratio. 
B)  A 20-day average collection period for accounts receivable is generally preferred over a 30-day average collection period. 
C)  A 5% dividend yield is generally preferred over a 3% dividend yield. 
D)  A 10% net margin is generally preferred over an 8% net margin. 
A)  A 1:1 current ratio is generally preferred over a 1.5:1 current ratio. 
B)  A 20-day average collection period for accounts receivable is generally preferred over a 30-day average collection period. 
C)  A 5% dividend yield is generally preferred over a 3% dividend yield. 
D)  A 10% net margin is generally preferred over an 8% net margin.

Question 6

Select the term from the list provided that bests matches each of the following descriptions or definitions: \(\begin{array}{|l|l|l|}
\hline  \text { Your Answer } &  \text { Definition or Description } &\text {  Term } \
\hline &  \text { A. Another term for the current ratio} &  \text {1. Acconuts receivable tumover }  \
\hline &  \text { B. Calculated by dividing dividends per share by the manket price per share } &  \text {2. Acid-test ratio }  \
\hline &  \text {C. Presentation of too mach information may serve confuse nsers of the information  } &  \text {3. Dividend yield }  \
\hline &  \text { D. Measure of efficiency in using assets. calcubted as net sales divided by total assets  } &  \text {4. Eamings per share }  \
\hline &  \text {  E. Measure of inmediate debt paying ability } &  \text {5. Information overicat }  \
\hline &  \text {F. A profitability meastre, net ixcome divided by net sales  } &  \text {6. Inventory tumover }  \
\hline &  \text {G. Measures the profitability of a company's asset base, also known as return on assets   } &  \text {7. Net margin }  \
\hline &  \text { H. Analysis tecluique that compares an item from the financinl statements with a key amourt from the same year's financial statemens } &  \text {8. Average days to collect recervables }  \
\hline &  \text { I. Measturement of vohume of sales in relation to } &  \text {9. Retum on irvestment }  \
\hline &  \text { J. Net income available for common stock divided by average number of outstandiug shares } &  \text {10. Asset turnover }  \
\hline &  \text { K. Current assets mims current liabilties } &  \text {11. Vertical analysis }  \
\hline &  \text { L. Ratio that measures how quickly a company collects its accounts receivable, calculated by dividing net sales by average net receivables } &  \text {12. Working captal }  \
\hline &  \text {  M. Calculated by dividing 365 by the accounts receivable tumover ratio} &  \text {13. Working capial ratio }  \
\hline
\end{array}\)

Accepted Answer

@#IMG-DLM& D.Net sales divided by AVERAGE total as

Question 7

As of December 31,Year 1,Gant Corporation had a current ratio of 1.29,quick ratio of 1.05,and working capital of $18,000.The company uses a perpetual inventory system and sells merchandise for more than it cost.On January 1,Year 2,Gant recorded cost of goods sold of $4,100.As a result of this transaction,Gant's quick ratio will:

Accepted Answer

A)  Decrease. 
B)  Increase. 
C)  Remain the same. 
D)  Cannot be determined. 
A)  Decrease. 
B)  Increase. 
C)  Remain the same. 
D)  Cannot be determined.

Question 8

Which of the following statement is correct regarding the quick ratio?

Accepted Answer

A)  The numerator for the quick ratio is current assets minus inventory minus accounts receivable. 
B)  The numerator for the quick ratio is current assets. 
C)  The quick ratio is also called the working capital ratio. 
D)  The quick ratio is a more conservative variation of the current ratio. 
A)  The numerator for the quick ratio is current assets minus inventory minus accounts receivable. 
B)  The numerator for the quick ratio is current assets. 
C)  The quick ratio is also called the working capital ratio. 
D)  The quick ratio is a more conservative variation of the current ratio.

Question 9

For Perez Corporation,return on equity is substantially higher than return on investment.What does that tell you about the company?

Accepted Answer

Answers will vary
Return on equity is hi

Question 10

The quick ratio although similar to the current ratio is more conservative.

Accepted Answer

A) True 
 B)False

Question 11

Ratios can be used for different purposes.For example,a variety of ratios have been developed to assess a firm's liquidity.Similarly,ratios have been developed to assess solvency,profitability,and stock market strength.A sample of commonly used ratios for these purposes is provided in the table below.
Required:
In the middle column of the table,provide the formula to compute the specified ratio.In the final column,indicate the purpose (Liquidity,Solvency,Profitability,and Stock market strength)for which the ratio is most commonly used.The first item is completed as an example. $\begin{array}{|l|l|l|l|}
\hline \
\hline &  \text {Ratio}  &  \text {Computation }  &  \text {Pupose}  \
\hline \text { 1. } & \text { Accounts receivable turnover } &\text { Net credit sales/average receivables }&\text { Liquidity }\
\hline \text { 2. } & \text { Asset turnover } \
\hline \text { 3. } & \text { Current ratio } \
\hline \text { 4. } & \text { Debt to equity ratio } \
\hline \text { 5. } & \text { Dividend yield } \
\hline \text { 6. } & \text { Earnings per share } \
\hline \text { 7. } & \text { Inventory turnover } \
\hline \text { 8. } & \text { Net margin } \
\hline \text { 9. } & \text { Pnice-eamings ratio } \
\hline \text { 10. } & \text { Return on equity } \
\hline \text { 11. } & \text { Return on investment } \
\hline
\end{array}$

Accepted Answer

None

Question 12

In vertical analysis,each item is expressed as a percentage of:

Accepted Answer

A)  Total expenses on the income statement. 
B)  Net income on the income statement. 
C)  Sales on the income statement. 
D)  None of these answers is correct. 
A)  Total expenses on the income statement. 
B)  Net income on the income statement. 
C)  Sales on the income statement. 
D)  None of these answers is correct.

Question 13

The following partial balance sheet is provided for Groome Company: $\begin{array}{|l|r|}
\hline \text { Liabilities and Stockholders' Equity } & \
\hline \text { Accounts payable } & \$ \quad  9,000 \
\hline \text { Salaries payable } &  12,000 \
\hline \text { Bonds payable (Due in 2020) } & 20,000 \
\hline \text { Common stock, no par } & 30,000 \
\hline \text { Retained earnings } & \underline { 54,000} \
\hline \text { Total liabilities and stockholder' equity } &\underline {  \$ \quad 125,000} \
\hline
\end{array}$ What is the company's debt to assets ratio (rounded to nearest whole percent)?

Accepted Answer

A)  49% 
B)  16% 
C)  33% 
D)  Cannot be determined with the information given. 
A)  49% 
B)  16% 
C)  33% 
D)  Cannot be determined with the information given.

Question 14

Denver Corporation and Cheyenne Company are in different industries.Denver's current ratio is 1.89,while Cheyenne's current ratio is 1.65.Therefore,is it safe to conclude that Denver's liquidity position is better than that of Cheyenne?

Accepted Answer

Answers will vary
The acceptable (or des

Question 15

Which of the following statements regarding the quick ratio is incorrect?

Accepted Answer

A)  The quick ratio is also known as the acid-test ratio. 
B)  The quick ratio ignores some current assets that are less liquid than others. 
C)  The quick ratio is a conservative variation of the current ratio. 
D)  The quick ratio equals quick assets divided by total liabilities. 
A)  The quick ratio is also known as the acid-test ratio. 
B)  The quick ratio ignores some current assets that are less liquid than others. 
C)  The quick ratio is a conservative variation of the current ratio. 
D)  The quick ratio equals quick assets divided by total liabilities.

Question 16

Current financial reporting standards assume that users of accounting information:

Accepted Answer

A)  Have an expert's understanding of economic and financial events and conditions. 
B)  Have a reasonably informed knowledge of business. 
C)  Have widely differing levels of knowledge about business,and that financial reporting must meet these differing needs. 
D)  Have only minimal knowledge of business. 
A)  Have an expert's understanding of economic and financial events and conditions. 
B)  Have a reasonably informed knowledge of business. 
C)  Have widely differing levels of knowledge about business,and that financial reporting must meet these differing needs. 
D)  Have only minimal knowledge of business.

Question 17

Working capital is current assets minus current liabilities.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements regarding horizontal analysis is incorrect?

Accepted Answer

A)  Percentage analysis involves establishing the relationship of one amount to another. 
B)  A horizontal analysis of cost of goods sold on the income statement includes dividing net income by total revenue. 
C)  Percentage analysis attempts to eliminate the materiality problem of comparing firms of different sizes. 
D)  In doing horizontal analysis,an account is expressed as a percentage of the previous balance of the same account. 
A)  Percentage analysis involves establishing the relationship of one amount to another. 
B)  A horizontal analysis of cost of goods sold on the income statement includes dividing net income by total revenue. 
C)  Percentage analysis attempts to eliminate the materiality problem of comparing firms of different sizes. 
D)  In doing horizontal analysis,an account is expressed as a percentage of the previous balance of the same account.

Question 19

The following balance sheet information is provided for Patton Company: $\begin{array}{l}
\begin{array}{|l}
\hline  \text { Assets}\
\hline  \text { Cash}\
\hline  \text { Accounts receivable}\
\hline  \text { Inventory}\
\hline
\end{array}
\begin{array}{r|}
\hline  2014 \
\hline \$ \quad 4,000 \
\hline  15,000 \
\hline  \$ \quad 35,000\
\hline 
\end{array}
\begin{array}{r|}
\hline  2013 \
\hline  \$ \quad2,000 \
\hline 12,000 \
\hline  \$ \quad 38,000\
\hline 
\end{array}
\end{array}$ Assuming Year 2 cost of goods sold is $730,000,what is the company's average days to sell inventory? (Use 365 days in a year.Do not round your intermediate calculations. )

Accepted Answer

A)  17.5 days 
B)  18.25 days 
C)  19 days 
D)  20.86 days 
A)  17.5 days 
B)  18.25 days 
C)  19 days 
D)  20.86 days

Question 20

The Fortune Company reported the following income for Year 2: $\begin{array}{l}
\begin{array}{|l}
\hline \
\hline \text { Sales } & \
\hline \text { Cost of goods sold } & \
\hline \text { Gross margin }  \
\hline \text { Selling and administrative expense }  \
\hline \text { Operating income }  \
\hline \text { Interest expense }  \
\hline \text { Income before taxes }  \
\hline \text { Income tax expense } \
\hline \text { Net income } \
\hline \
\hline 
\end{array}
\begin{array}{|r|}
\hline \
\hline \$ \quad130,000 \
\hline \underline { 80,000} \
\hline \$ \quad50,000 \
\hline \underline { 15,000}  \
\hline \$ \quad35,000 \
\hline \underline { 5,000 } \
\hline \$ \quad30,000 \
\hline \underline { 10,000}  \
\hline \underline { \$ \quad 20,000}  \
\hline \
\hline 
\end{array}
\end{array}$ What is the company's number of times interest is earned ratio?

Accepted Answer

A)  7 times 
B)  6 times 
C)  4 times 
D)  None of these answers is correct. 
A)  7 times 
B)  6 times 
C)  4 times 
D)  None of these answers is correct.

Describe the factors involved in communicating useful financial information.

Profitability ratios attempt to assess the company's ability to generate earnings.

Factor(s)involved in communicating useful information is (are):

Which of the following statements is generally incorrect from an investor's perspective?

Which of the following statement is correct regarding the quick ratio?

For Perez Corporation,return on equity is substantially higher than return on investment.What does that tell you about the company?

The quick ratio although similar to the current ratio is more conservative.

In vertical analysis,each item is expressed as a percentage of:

Denver Corporation and Cheyenne Company are in different industries.Denver's current ratio is 1.89,while Cheyenne's current ratio is 1.65.Therefore,is it safe to conclude that Denver's liquidity position is better than that of Cheyenne?

Which of the following statements regarding the quick ratio is incorrect?

Current financial reporting standards assume that users of accounting information:

Working capital is current assets minus current liabilities.

Which of the following statements regarding horizontal analysis is incorrect?

Management Accounting and Corporate Governance

Cost Behavior, Operating Leverage, and Profitability Analysis

Analysis of Cost,Volume,and Pricing to Increase Profitability

Cost Accumulation,Tracing,and Allocation

Cost Management in an Automated Business Environment: ABC, ABM, and TQM

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Planning for Capital Investments

Product Costing in Service and Manufacturing Entities

Job-Order, Process, and Hybrid Costing Systems

Statement of Cash Flows

Filters

Exam 13: Financial Statement Analysis

Describe the factors involved in communicating useful financial information.

Profitability ratios attempt to assess the company's ability to generate earnings.

Factor(s)involved in communicating useful information is (are):

Which of the following statements is generally incorrect from an investor's perspective?

Which of the following statement is correct regarding the quick ratio?

For Perez Corporation,return on equity is substantially higher than return on investment.What does that tell you about the company?

The quick ratio although similar to the current ratio is more conservative.

In vertical analysis,each item is expressed as a percentage of:

Denver Corporation and Cheyenne Company are in different industries.Denver's current ratio is 1.89,while Cheyenne's current ratio is 1.65.Therefore,is it safe to conclude that Denver's liquidity position is better than that of Cheyenne?

Which of the following statements regarding the quick ratio is incorrect?

Current financial reporting standards assume that users of accounting information:

Working capital is current assets minus current liabilities.

Which of the following statements regarding horizontal analysis is incorrect?

Management Accounting and Corporate Governance

Cost Behavior, Operating Leverage, and Profitability Analysis

Analysis of Cost,Volume,and Pricing to Increase Profitability

Cost Accumulation,Tracing,and Allocation

Cost Management in an Automated Business Environment: ABC, ABM, and TQM

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Planning for Capital Investments

Product Costing in Service and Manufacturing Entities

Job-Order, Process, and Hybrid Costing Systems

Statement of Cash Flows

Filters