Question 1

The only requirement involved in communicating useful information is that the information be accurate.

Accepted Answer

A) True 
 B)False

Question 2

Indicate whether each of the following statements about financial statement analysis is true or false.
_____ a)Having too little inventory can hurt a company's profitability because of lost sales.
_____ b)Having too much inventory can hurt a company's profitability because of excess costs.
_____ c)Generally,a lower inventory turnover indicates that merchandise is being handled more efficiently.
_____ d)Average days to sell inventory is the number of times,on average,that inventory is replaced during the year.
_____ e)Values for the inventory turnover ratio vary widely among different industries.

Accepted Answer

a)True b)T

Question 3

Which ratio measures the percentage of company's assets that are financed by debt?

Accepted Answer

A) Debt to assets ratio 
B) Asset turnover ratio 
C) Debt to equity ratio 
D) Return on investment 
A) Debt to assets ratio 
B) Asset turnover ratio 
C) Debt to equity ratio 
D) Return on investment

Question 4

Net income divided by sales is the formula for which of these analytical measures?

Accepted Answer

A) Earnings per share 
B) Return on equity 
C) Net margin 
D) Return on assets 
A) Earnings per share 
B) Return on equity 
C) Net margin 
D) Return on assets

Question 5

On January 1,2015 Gatewood sold inventory on account for $8,000 and recorded cost of goods sold of $6,100.Which of the following statement is incorrect?

Accepted Answer

A) Gatewood's current ratio will decrease. 
B) Gatewood's quick ratio will increase. 
C) Gatewood's working capital will decrease. 
D) Gatewood's current ratio and working capital will decrease are both incorrect statements 
A) Gatewood's current ratio will decrease. 
B) Gatewood's quick ratio will increase. 
C) Gatewood's working capital will decrease. 
D) Gatewood's current ratio and working capital will decrease are both incorrect statements

Question 6

A limitation of financial statement analysis stems from the discretion of management to choose accounting procedures that cast the best light on the firm's performance.

Accepted Answer

A) True 
 B)False

Question 7

The Valencia Company reported net income of $80,000 on 20,000 outstanding common shares.Preferred dividends total $12,000.On the most recent trading day,the preferred shares sold at $50 and the common shares sold at $68.This company's current price-earnings ratio is closest to:

Accepted Answer

A) 15 
B) 17 
C) 20 
D) None of these answer choices are correct. 
A) 15 
B) 17 
C) 20 
D) None of these answer choices are correct.

Question 8

Which of the following is a potential limitation of financial statement analysis?

Accepted Answer

A) Lack of comparability of firms in different industries 
B) The impact of changing economic conditions 
C) The impact of having more than one acceptable alternative accounting principle for accounting for a given transaction or economic event 
D) All of these answer choices are correct. 
A) Lack of comparability of firms in different industries 
B) The impact of changing economic conditions 
C) The impact of having more than one acceptable alternative accounting principle for accounting for a given transaction or economic event 
D) All of these answer choices are correct.

Question 9

Indicate whether each of the following statements about financial statement analysis is true or false.
_____ a)A common size income statement is prepared by converting each component to a percentage of net income.
_____ b)Common size financial statements are a form of vertical analysis,but the common size statements for two or more years may usefully be compared.
_____ c)Vertical analysis of a balance sheet involves converting each component to a percentage of stockholders' equity.
_____ d)Small percentage changes resulting from vertical analysis may still represent large dollar amounts;therefore,changes in both absolute dollar amounts and percentages should be examined.
_____ e)Vertical analysis of a company's balance sheet is useful in assessing its liquidity.

Accepted Answer

a)False b)

Question 10

The debt to equity ratio can be used to assess a firm's solvency.

Accepted Answer

A) True 
 B)False

Question 11

Which ratio would you use to examine a company's ability to pay its debts in the short- term?

Accepted Answer

A) Earnings per share 
B) Debt to assets ratio 
C) Return on equity 
D) Acid-test ratio 
A) Earnings per share 
B) Debt to assets ratio 
C) Return on equity 
D) Acid-test ratio

Question 12

The Phlegar Company reported the following income for 2015:
The company's net margin is closest to:

Accepted Answer

A) 12% 
B) 46% 
C) 20% 
D) 22% 
A) 12% 
B) 46% 
C) 20% 
D) 22%

Question 13

Beta Company provided the following balance sheet:
What is the company's plant assets to long-term liabilities ratio?

Accepted Answer

A) 1.8 
B) 2.2 
C) 3.4 
D) None of these answer choices are correct. 
A) 1.8 
B) 2.2 
C) 3.4 
D) None of these answer choices are correct.

Question 14

Gleason Company and Henry Company are similar and similar-sized companies operating in the same industry.At the end of the most recent year,Gleason's price/earnings ratio was 22.0,and Henry's price/earnings ratio was 14.2.What conclusion would you draw based on the difference in price/earnings ratios for the two companies?

Accepted Answer

The price/earnings ratio is a measure of

Question 15

The Marvin Company reported net income of $18,400 on gross sales of $80,000.The company has total average assets of $115,200,of which $100,000 is property,plant and equipment.The company's return on investment is closest to:

Accepted Answer

A) 69.4% 
B) 16.0% 
C) 23.0% 
D) 18.4% 
A) 69.4% 
B) 16.0% 
C) 23.0% 
D) 18.4%

Question 16

When debt is used to finance purchase of assets,the term or time span of the debt should be similar to the lifespan of the assets.

Accepted Answer

A) True 
 B)False

Question 17

Select the incorrect statement regarding the analysis of absolute amounts of various accounts reported on the financial statements.

Accepted Answer

A) To fully appreciate an absolute amount,the analyst must consider the size of other accounts of the business. 
B) Using absolute amounts eliminates the problem of varying materiality levels. 
C) Economic statistics such as the gross national product are built upon totals of absolute amounts reported by businesses. 
D) Financial statement users with expertise in particular industries can look at absolute amounts and assess a company's performance in a certain area. 
A) To fully appreciate an absolute amount,the analyst must consider the size of other accounts of the business. 
B) Using absolute amounts eliminates the problem of varying materiality levels. 
C) Economic statistics such as the gross national product are built upon totals of absolute amounts reported by businesses. 
D) Financial statement users with expertise in particular industries can look at absolute amounts and assess a company's performance in a certain area.

Question 18

Which of the following statements about specific ratios is incorrect?

Accepted Answer

A) The net margin ratio is a profitability ratio. 
B) The current ratio is a liquidity ratio. 
C) The debt to assets ratio is a liquidity ratio. 
D) The dividend yield is a stock market ratio. 
A) The net margin ratio is a profitability ratio. 
B) The current ratio is a liquidity ratio. 
C) The debt to assets ratio is a liquidity ratio. 
D) The dividend yield is a stock market ratio.

Question 19

If the company purchased a $50,000 piece of equipment by paying $20,000 and having the rest financed with a short-term note from the bank,then immediately after this transaction what is the expected impact on the current ratio?

Accepted Answer

A) Current assets decrease therefore,the current ratio increases. 
B) Current liabilities decrease therefore,the current ratio decreases. 
C) Current assets and current liabilities decrease by the same amount therefore,the current ratio increases. 
D) Current assets decrease and current liabilities increase by the same amount therefore,the current ratio decreases. 
A) Current assets decrease therefore,the current ratio increases. 
B) Current liabilities decrease therefore,the current ratio decreases. 
C) Current assets and current liabilities decrease by the same amount therefore,the current ratio increases. 
D) Current assets decrease and current liabilities increase by the same amount therefore,the current ratio decreases.

Question 20

Earnings before interest and taxes divided by interest expense is the formula for which of these analytical measures?

Accepted Answer

A) Number of times interest is earned 
B) Earnings per share 
C) Return on investment 
D) Debt to assets ratio 
A) Number of times interest is earned 
B) Earnings per share 
C) Return on investment 
D) Debt to assets ratio

The only requirement involved in communicating useful information is that the information be accurate.

Which ratio measures the percentage of company's assets that are financed by debt?

Net income divided by sales is the formula for which of these analytical measures?

On January 1,2015 Gatewood sold inventory on account for $8,000 and recorded cost of goods sold of $6,100.Which of the following statement is incorrect?

A limitation of financial statement analysis stems from the discretion of management to choose accounting procedures that cast the best light on the firm's performance.

The Valencia Company reported net income of $80,000 on 20,000 outstanding common shares.Preferred dividends total $12,000.On the most recent trading day,the preferred shares sold at $50 and the common shares sold at $68.This company's current price-earnings ratio is closest to:

Which of the following is a potential limitation of financial statement analysis?

The debt to equity ratio can be used to assess a firm's solvency.

Which ratio would you use to examine a company's ability to pay its debts in the short- term?

The Phlegar Company reported the following income for 2015: The company's net margin is closest to:

Beta Company provided the following balance sheet: What is the company's plant assets to long-term liabilities ratio?

The Marvin Company reported net income of $18,400 on gross sales of $80,000.The company has total average assets of $115,200,of which $100,000 is property,plant and equipment.The company's return on investment is closest to:

When debt is used to finance purchase of assets,the term or time span of the debt should be similar to the lifespan of the assets.

Select the incorrect statement regarding the analysis of absolute amounts of various accounts reported on the financial statements.

Which of the following statements about specific ratios is incorrect?

If the company purchased a $50,000 piece of equipment by paying $20,000 and having the rest financed with a short-term note from the bank,then immediately after this transaction what is the expected impact on the current ratio?

Earnings before interest and taxes divided by interest expense is the formula for which of these analytical measures?

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 only requirement involved in communicating useful information is that the information be accurate.

Which ratio measures the percentage of company's assets that are financed by debt?

Net income divided by sales is the formula for which of these analytical measures?

On January 1,2015 Gatewood sold inventory on account for $8,000 and recorded cost of goods sold of $6,100.Which of the following statement is incorrect?

A limitation of financial statement analysis stems from the discretion of management to choose accounting procedures that cast the best light on the firm's performance.

The Valencia Company reported net income of $80,000 on 20,000 outstanding common shares.Preferred dividends total $12,000.On the most recent trading day,the preferred shares sold at $50 and the common shares sold at $68.This company's current price-earnings ratio is closest to:

Which of the following is a potential limitation of financial statement analysis?

The debt to equity ratio can be used to assess a firm's solvency.

Which ratio would you use to examine a company's ability to pay its debts in the short- term?

The Phlegar Company reported the following income for 2015: The company's net margin is closest to:

Beta Company provided the following balance sheet: What is the company's plant assets to long-term liabilities ratio?

The Marvin Company reported net income of $18,400 on gross sales of $80,000.The company has total average assets of $115,200,of which $100,000 is property,plant and equipment.The company's return on investment is closest to:

When debt is used to finance purchase of assets,the term or time span of the debt should be similar to the lifespan of the assets.

Select the incorrect statement regarding the analysis of absolute amounts of various accounts reported on the financial statements.

Which of the following statements about specific ratios is incorrect?

If the company purchased a $50,000 piece of equipment by paying $20,000 and having the rest financed with a short-term note from the bank,then immediately after this transaction what is the expected impact on the current ratio?

Earnings before interest and taxes divided by interest expense is the formula for which of these analytical measures?

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