Question 1

What is the PE ratio? How is it calculated and why is it that the PE ratio for a privately held company often cannot be calculated?

Accepted Answer

The PE ratio is the price-earnings ratio. It compares the market value of common stock with the earnings per share of that stock. The market value per share is divided by the earnings per share and indicates the amount investors are willing to pay for stock based on future expectations for it. In order to calculate the PE ratio, a market value for the shares must be readily available. For privately-held corporations, a market value is often not available.

Question 2

Using the comparative income statement given below, prepare a horizontal analysis of all items. Carry all calculations to two decimal places and then round to one decimal place.

Accepted Answer

1. $30,000; 7.8%; 2. $16,800; 7.3%; 3. $13,200; 8.5%; 4. $4,200; 5.4%; 5. $9,000;11.8%; 6. $1,350; 11.8%; 7. $7,650; 11.8%

Question 3

If long-term liabilities are $62,000 and total assets are $480,000, what percentage of total assets are long-term liabilities?

Accepted Answer

A) 4)8 percent 
B) 14.8 percent 
C) 12.9 percent 
D) 14.3 percent 
A) 4)8 percent 
B) 14.8 percent 
C) 12.9 percent 
D) 14.3 percent C

Question 4

A firm has current liabilities of $60,000, stockholders' equity of $180,000 and total assets of $300,000. The percentage of total liabilities to total assets is:

Accepted Answer

A) 80 percent. 
B) 60 percent. 
C) 40 percent. 
D) 20 percent. 
A) 80 percent. 
B) 60 percent. 
C) 40 percent. 
D) 20 percent.

Question 5

The current ratio is a measure of the ability of a company to pay its currently maturing debts, which is also known as------------- .

Accepted Answer

The answer of The current ratio is a measure of...

Question 6

Trend analysis looks at:

Accepted Answer

A) two or more companies for comparison. 
B) two years of information for comparison. 
C) selected ratios and percentages over a period of time. 
D) profitability by industry. 
A) two or more companies for comparison. 
B) two years of information for comparison. 
C) selected ratios and percentages over a period of time. 
D) profitability by industry.

Question 7

The following financial information was taken from a firm's accounting records on December 31, 2019. Use this information to determine the items below.
$\begin{array}{ll}
\text { Cash } & \$ 55,000 \
\text { Accounts Receivable (Net) } & 140,000 \
\text { Merchandise Inventory } & 265,000 \
\text { Property, Plant, and Equipment (Net) } & 500,000 \
\text { Total Assets } & 960,000 \
\text { Accounts Payable } & 120,000 \
\text { Bonds Payable, 2028 } & 400,000 \
\text { Total Liabilities } & 520,000
\end{array}$ 
(1.) Working capital
(2.) Current ratio
(3.) Acid-test ratio
(4.) Ratio of stockholders' equity to total liabilities

Accepted Answer

1. $340,000; 2. 3:83

Question 8

Ratios provide useful, stand-alone tools to assess management performance and improvement efforts.

Accepted Answer

A) True 
 B)False

Question 9

Current assets divided by current liabilities is the---------- .

Accepted Answer

The answer of Current assets divided by current liabilities is...

Question 10

The excess of current assets minus current liabilities is known as----------- .

Accepted Answer

The answer of The excess of current assets minus current...

Question 11

Cost of goods sold divided by average inventory equals the----------- .

Accepted Answer

The answer of Cost of goods sold divided by average...

Question 12

Because the number of shares of common stock outstanding during the year can fluctuate, computing return on common stockholders' equity is not a useful indicator of profitability.

Accepted Answer

A) True 
 B)False

Question 13

Liquidity is the ability of a company to pay its debts when due.

Accepted Answer

A) True 
 B)False

Question 14

The price-earnings ratio compares the present market value of a corporation's common stock with the earnings per share of that stock.

Accepted Answer

A) True 
 B)False

Question 15

In a vertical analysis of the income statement data, the cost of goods sold most likely would be expressed as a percentage of:

Accepted Answer

A) net income. 
B) net sales. 
C) gross profit on sales. 
D) total expenses. 
A) net income. 
B) net sales. 
C) gross profit on sales. 
D) total expenses.

Question 16

In 2019, net sales were $672,000 and cost of goods sold was $450,000. In 2018, net sales amounted to $600,000 and cost of goods sold was $400,000. In a comparative income statement, using vertical analysis, the 12% increase in net sales will be presented in the percentage column.

Accepted Answer

A) True 
 B)False

Question 17

Where the current ratio measures a company's ability to pay its current debts using current assets on a dollar for dollar basis, working capital provides a similar measure by providing the actual margin of security afforded to short-term creditors.

Accepted Answer

A) True 
 B)False

Question 18

The following financial information was taken from a firm's accounting records on December 31, 2019. Use this information to determine the items below.
$\begin{array}{ll}
\text { Cash } & \$ 56,000 \
\text { Accounts Receivable (Net) } & 191,000 \
\text { Merchandise Inventory } & 362,000 \
\text { Property, Plant, and Equipment (Net) } & 454,000 \
\text { Accounts Payable } & 139,000 \
\text { Bonds Payable, 2028 } & 160,000
\end{array}$ 
(1.) Working capital
(2.) Current ratio
(3.) Acid-test ratio

Accepted Answer

1. $470,00

Question 19

All of the following are shortcomings of financial statement analyses except:

Accepted Answer

A) accounts reflect historical costs instead of market values. 
B) trend analysis uses a common base year for comparative purposes. 
C) the dollar is considered a stable monetary unit. 
D) accounting policies and procedures differ among companies. 
A) accounts reflect historical costs instead of market values. 
B) trend analysis uses a common base year for comparative purposes. 
C) the dollar is considered a stable monetary unit. 
D) accounting policies and procedures differ among companies.

Question 20

In horizontal analysis, the earlier period is called the ----------period.

Accepted Answer

The answer of In horizontal analysis, the earlier period is...

Exam 23: Financial Statement Analysis

What is the PE ratio? How is it calculated and why is it that the PE ratio for a privately held company often cannot be calculated?

Using the comparative income statement given below, prepare a horizontal analysis of all items. Carry all calculations to two decimal places and then round to one decimal place.

If long-term liabilities are $62,000 and total assets are $480,000, what percentage of total assets are long-term liabilities?

A firm has current liabilities of $60,000, stockholders' equity of $180,000 and total assets of $300,000. The percentage of total liabilities to total assets is:

The current ratio is a measure of the ability of a company to pay its currently maturing debts, which is also known as------------- .

Trend analysis looks at:

Ratios provide useful, stand-alone tools to assess management performance and improvement efforts.

Current assets divided by current liabilities is the---------- .

The excess of current assets minus current liabilities is known as----------- .

Cost of goods sold divided by average inventory equals the----------- .

Because the number of shares of common stock outstanding during the year can fluctuate, computing return on common stockholders' equity is not a useful indicator of profitability.

Liquidity is the ability of a company to pay its debts when due.

The price-earnings ratio compares the present market value of a corporation's common stock with the earnings per share of that stock.

In a vertical analysis of the income statement data, the cost of goods sold most likely would be expressed as a percentage of:

In 2019, net sales were $672,000 and cost of goods sold was $450,000. In 2018, net sales amounted to $600,000 and cost of goods sold was $400,000. In a comparative income statement, using vertical analysis, the 12% increase in net sales will be presented in the percentage column.

Where the current ratio measures a company's ability to pay its current debts using current assets on a dollar for dollar basis, working capital provides a similar measure by providing the actual margin of security afforded to short-term creditors.

All of the following are shortcomings of financial statement analyses except:

In horizontal analysis, the earlier period is called the ----------period.

Accounting: The Language of Business

Analyzing Business Transactions

Analyzing Business Transactions Using T Accounts

The General Journal and the General Ledger

Adjustments and the Worksheet

Closing Entries and Teh Postclosing Trial Balance

Accounting for Sales and Accounts Receivable

Accounting for Purchases and Accounts Payable

Cash Receipts, Cash Payments, and Banking Procedures

Payroll Computations, Records, and Payment

Payroll Taxes, Deposits, and Reports

Accruals, Deferrals, and the Worksheet

Financial Statements and Closing Procedures

Accounting Principles and Reporting Standards

Accounts Receivable and Uncollectible Accounts

Notes Payable and Notes Receivable

Merchandise Inventory

Property, Plant, and Equipment

Accounting for Partnerships

Corporations: Formation and Capital Stock Transactions

Corporate Earnings and Capital Transactions

Long-Term Bonds

The Statement of Cash Flows

Departmentalized Profit and Cost Centers

Accounting for Manufacturing Activities

Job Order Cost Accounting

Process Cost Accounting

Controlling Manufacturing Costs: Standard Costs

Cost-Revenue Analysis for Decision Making

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