Question 1

The accounting profession assumes that financial statement users have a reasonable knowledge of business.

Accepted Answer

A) True 
 B)False

Question 2

Explain the difference between horizontal analysis and vertical analysis of a company's financial statements.

Accepted Answer

Horizontal analysis means examining indi

Question 3

You are considering an investment in General Motors stock and wish to assess the firm's long-term debt-paying ability and its use of debt financing.All of the following ratios can be used to assess solvency except:

Accepted Answer

A) Number of times interest is earned. 
B) Net margin. 
C) Debt to equity ratio. 
D) Debt to assets ratio. 
A) Number of times interest is earned. 
B) Net margin. 
C) Debt to equity ratio. 
D) Debt to assets ratio.

Question 4

A company has an obligation to provide highly detailed information in its financial statements.

Accepted Answer

A) True 
 B)False

Question 5

You are considering an investment in Freedom Airlines stock and wish to assess the firm's earnings performance.All of the following ratios can be used to assess profitability except:

Accepted Answer

A) Net margin. 
B) Average days to collect receivables. 
C) Return on investment. 
D) Asset turnover. 
A) Net margin. 
B) Average days to collect receivables. 
C) Return on investment. 
D) Asset turnover.

Question 6

The following balance sheet information is provided for Victor Company:
What is the company's working capital?

Accepted Answer

A) $3,810 
B) $9,810 
C) $18,610 
D) $26,840 
A) $3,810 
B) $9,810 
C) $18,610 
D) $26,840

Question 7

On January 1,2015,Gatewood purchased merchandise on account for $6,000.Which of the following statements is true?

Accepted Answer

A) Gatewood's current ratio will increase and its quick ratio will decrease. 
B) Gatewood's quick ratio will increase. 
C) Gatewood's current ratio will decrease. 
D) Gatewood's current ratio will increase and its quick ratio will increase. 
A) Gatewood's current ratio will increase and its quick ratio will decrease. 
B) Gatewood's quick ratio will increase. 
C) Gatewood's current ratio will decrease. 
D) Gatewood's current ratio will increase and its quick ratio will increase.

Question 8

An analysis procedure that uses percentages to compare each of the parts of an individual statement to a key dollar amount from the financial statements is:

Accepted Answer

A) Ratio analysis. 
B) Contribution analysis. 
C) Horizontal analysis. 
D) Vertical analysis. 
A) Ratio analysis. 
B) Contribution analysis. 
C) Horizontal analysis. 
D) Vertical analysis.

Question 9

Which type of approach should be used when evaluating corporate results using horizontal analysis?

Accepted Answer

A) Study of absolute amounts. 
B) Percentages. 
C) Trends. 
D) All of these answer choices are correct. 
A) Study of absolute amounts. 
B) Percentages. 
C) Trends. 
D) All of these answer choices are correct.

Question 10

Jessup Company paid its sales employees $2,200 in sales commissions.What impact will this transaction have on working capital?

Accepted Answer

A) Increase it 
B) Decrease it 
C) No impact 
D) Not enough information is provided to answer the question. 
A) Increase it 
B) Decrease it 
C) No impact 
D) Not enough information is provided to answer the question.

Question 11

Select the incorrect statement regarding horizontal analysis.

Accepted Answer

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

Question 12

Which ratio measures how effectively a company is using assets to generate revenue?

Accepted Answer

A) Net margin 
B) Plant assets to long-term liabilities 
C) Asset turnover 
D) Inventory turnover 
A) Net margin 
B) Plant assets to long-term liabilities 
C) Asset turnover 
D) Inventory turnover

Question 13

Describe the differences between the liquidity ratios,solvency ratios and profitability ratios.Identify examples of each type of ratio as well.

Accepted Answer

Liquidity ratios indicate a company's ab

Question 14

The return on investment measure is also referred to as:

Accepted Answer

A) Net margin. 
B) Return on assets. 
C) Return on equity. 
D) Return on debt. 
A) Net margin. 
B) Return on assets. 
C) Return on equity. 
D) Return on debt.

Question 15

Blumenthal Company received cash of $2,000,000 by issuing 20-year bonds payable.As a result of this transaction,the company's current 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 16

The following balance sheet is provided for Saslaw Company:
The company's debt to equity ratio is closest to:

Accepted Answer

A) 33.4% 
B) 21.6% 
C) 54.4% 
D) 183.8% 
A) 33.4% 
B) 21.6% 
C) 54.4% 
D) 183.8%

Question 17

The following balance sheet information is provided for Kingsport Company:
The company's current ratio is closest to:

Accepted Answer

A) 0.4 
B) 1.4 
C) 1.1 
D) 2.3 
A) 0.4 
B) 1.4 
C) 1.1 
D) 2.3

Question 18

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 19

Long-term creditors are usually most interested in evaluating:

Accepted Answer

A) Liquidity 
B) Managerial effectiveness 
C) Solvency 
D) Profitability 
A) Liquidity 
B) Managerial effectiveness 
C) Solvency 
D) Profitability

Question 20

Which of the following is a factor involved in communicating useful information?

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 answer choices 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 answer choices are correct.

The accounting profession assumes that financial statement users have a reasonable knowledge of business.

Explain the difference between horizontal analysis and vertical analysis of a company's financial statements.

You are considering an investment in General Motors stock and wish to assess the firm's long-term debt-paying ability and its use of debt financing.All of the following ratios can be used to assess solvency except:

A company has an obligation to provide highly detailed information in its financial statements.

You are considering an investment in Freedom Airlines stock and wish to assess the firm's earnings performance.All of the following ratios can be used to assess profitability except:

The following balance sheet information is provided for Victor Company: What is the company's working capital?

On January 1,2015,Gatewood purchased merchandise on account for $6,000.Which of the following statements is true?

An analysis procedure that uses percentages to compare each of the parts of an individual statement to a key dollar amount from the financial statements is:

Which type of approach should be used when evaluating corporate results using horizontal analysis?

Jessup Company paid its sales employees $2,200 in sales commissions.What impact will this transaction have on working capital?

Select the incorrect statement regarding horizontal analysis.

Which ratio measures how effectively a company is using assets to generate revenue?

Describe the differences between the liquidity ratios,solvency ratios and profitability ratios.Identify examples of each type of ratio as well.

The return on investment measure is also referred to as:

Blumenthal Company received cash of $2,000,000 by issuing 20-year bonds payable.As a result of this transaction,the company's current ratio will:

The following balance sheet is provided for Saslaw Company: The company's debt to equity ratio is closest to:

The following balance sheet information is provided for Kingsport Company: The company's current ratio is closest to:

Current financial reporting standards assume that users of accounting information:

Long-term creditors are usually most interested in evaluating:

Which of the following is a factor involved in communicating useful information?

An Introduction to Accounting

Understanding the Accounting Cycle

The Double-Entry Accounting System

Accounting for Merchandising Businesses

Accounting for Inventories

Internal Control and Accounting for Cash

Accounting for Receivables

Accounting for Long-Term Operational Assets

Accounting for Current Liabilities and Payroll

Accounting for Long-Term Debt

Proprietorships,partnerships,and Corporations

Statement of Cash Flows

Filters

Exam 13: Financial Statement Analysis

The accounting profession assumes that financial statement users have a reasonable knowledge of business.

Explain the difference between horizontal analysis and vertical analysis of a company's financial statements.

You are considering an investment in General Motors stock and wish to assess the firm's long-term debt-paying ability and its use of debt financing.All of the following ratios can be used to assess solvency except:

A company has an obligation to provide highly detailed information in its financial statements.

You are considering an investment in Freedom Airlines stock and wish to assess the firm's earnings performance.All of the following ratios can be used to assess profitability except:

The following balance sheet information is provided for Victor Company: What is the company's working capital?

On January 1,2015,Gatewood purchased merchandise on account for $6,000.Which of the following statements is true?

An analysis procedure that uses percentages to compare each of the parts of an individual statement to a key dollar amount from the financial statements is:

Which type of approach should be used when evaluating corporate results using horizontal analysis?

Jessup Company paid its sales employees $2,200 in sales commissions.What impact will this transaction have on working capital?

Select the incorrect statement regarding horizontal analysis.

Which ratio measures how effectively a company is using assets to generate revenue?

Describe the differences between the liquidity ratios,solvency ratios and profitability ratios.Identify examples of each type of ratio as well.

The return on investment measure is also referred to as:

Blumenthal Company received cash of $2,000,000 by issuing 20-year bonds payable.As a result of this transaction,the company's current ratio will:

The following balance sheet is provided for Saslaw Company: The company's debt to equity ratio is closest to:

The following balance sheet information is provided for Kingsport Company: The company's current ratio is closest to:

Current financial reporting standards assume that users of accounting information:

Long-term creditors are usually most interested in evaluating:

Which of the following is a factor involved in communicating useful information?

An Introduction to Accounting

Understanding the Accounting Cycle

The Double-Entry Accounting System

Accounting for Merchandising Businesses

Accounting for Inventories

Internal Control and Accounting for Cash

Accounting for Receivables

Accounting for Long-Term Operational Assets

Accounting for Current Liabilities and Payroll

Accounting for Long-Term Debt

Proprietorships,partnerships,and Corporations

Statement of Cash Flows

Filters