Question 1

Solvency ratios are used to assess a company's:

Accepted Answer

A)  Long-term debt paying ability. 
B)  Profitability. 
C)  Short-term debt paying ability. 
D)  Efficiency in use of its assets. 
A)  Long-term debt paying ability. 
B)  Profitability. 
C)  Short-term debt paying ability. 
D)  Efficiency in use of its assets. A

Question 2

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. A

Question 3

Which of the following statements regarding net margin is incorrect?

Accepted Answer

A)  Net margin refers to the average amount of each sales dollar remaining after all expenses are subtracted. 
B)  Net margin may be calculated in several ways. 
C)  The amount of net margin is affected by a company's choices of accounting principles. 
D)  The smaller the net margin the better. 
A)  Net margin refers to the average amount of each sales dollar remaining after all expenses are subtracted. 
B)  Net margin may be calculated in several ways. 
C)  The amount of net margin is affected by a company's choices of accounting principles. 
D)  The smaller the net margin the better. D

Question 4

Working capital is defined as:

Accepted Answer

A)  Current assets divided by current liabilities. 
B)  Total assets minus total liabilities. 
C)  Current assets less current liabilities. 
D)  Current liabilities divided by total liabilities. 
A)  Current assets divided by current liabilities. 
B)  Total assets minus total liabilities. 
C)  Current assets less current liabilities. 
D)  Current liabilities divided by total liabilities.

Question 5

The return on investment measure is also referred to as:

Accepted Answer

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

Question 6

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

Accepted Answer

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

Question 7

Select the correct statement regarding vertical analysis.

Accepted Answer

A)  Vertical analysis of the income statement involves showing each item as a percentage of sales. 
B)  Vertical analysis of the balance sheet involves showing each asset as a percentage of total assets. 
C)  Vertical analysis examines two or more items from the financial statements of one accounting period. 
D)  All of these answers are correct. 
A)  Vertical analysis of the income statement involves showing each item as a percentage of sales. 
B)  Vertical analysis of the balance sheet involves showing each asset as a percentage of total assets. 
C)  Vertical analysis examines two or more items from the financial statements of one accounting period. 
D)  All of these answers are correct.

Question 8

Common methods of financial statement analysis include all of the following except:

Accepted Answer

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

Question 9

A vertical analysis uses percentages to compare each of the parts of an individual statement to a key statement figure. For example, on an income statement each item would be shown as a percentage of net sales.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Accrual accounting requires the use of many estimates, including:

Accepted Answer

A)  Uncollectible accounts expense. 
B)  Warranty costs. 
C)  Assets' useful lives. 
D)  All of these answers are correct. 
A)  Uncollectible accounts expense. 
B)  Warranty costs. 
C)  Assets' useful lives. 
D)  All of these answers are correct.

Question 12

The Poole Company reported the following income for Year 2:   What is the company's net margin? (Round your answers to the nearest whole percent.)

Accepted Answer

A)  73% 
B)  40% 
C)  18% 
D)  27% 
A)  73% 
B)  40% 
C)  18% 
D)  27%

Question 13

Solvency ratios are used to analyze the long-term debt-paying ability and the composition of the financing structure of the firm.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A)  Total assets on the balance sheet. 
B)  Total cash on the balance sheet. 
C)  Total current assets on the balance sheet. 
D)  None of these answers is correct. 
A)  Total assets on the balance sheet. 
B)  Total cash on the balance sheet. 
C)  Total current assets on the balance sheet. 
D)  None of these answers is correct.

Question 15

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 16

You are considering an investment in Frontier 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)  Average days to collect receivables. 
B)  Asset turnover. 
C)  Return on investment. 
D)  Net margin. 
A)  Average days to collect receivables. 
B)  Asset turnover. 
C)  Return on investment. 
D)  Net margin.

Question 17

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 18

The Bernard Company provided the following information from its financial records:   What is the company's book value per share?

Accepted Answer

A)  $0.50 
B)  $5.50 
C)  $6.67 
D)  $1.67 
A)  $0.50 
B)  $5.50 
C)  $6.67 
D)  $1.67

Question 19

The following balance sheet information is provided for Greene Company for Year 2:   What is the company's quick (acid-test) ratio?

Accepted Answer

A)  0.7 
B)  1.4 
C)  1.3 
D)  3.8 
A)  0.7 
B)  1.4 
C)  1.3 
D)  3.8

Question 20

Which of the following is not included in the computation of the quick ratio?

Accepted Answer

A)  Cash 
B)  Prepaid expenses 
C)  Accounts receivable 
D)  Marketable securities 
A)  Cash 
B)  Prepaid expenses 
C)  Accounts receivable 
D)  Marketable securities

Solvency ratios are used to assess a company's:

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

Which of the following statements regarding net margin is incorrect?

Working capital is defined as:

The return on investment measure is also referred to as:

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

Select the correct statement regarding vertical analysis.

Common methods of financial statement analysis include all of the following except:

A vertical analysis uses percentages to compare each of the parts of an individual statement to a key statement figure. For example, on an income statement each item would be shown as a percentage of net sales.

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

Accrual accounting requires the use of many estimates, including:

The Poole Company reported the following income for Year 2: What is the company's net margin? (Round your answers to the nearest whole percent.)

Solvency ratios are used to analyze the long-term debt-paying ability and the composition of the financing structure of the firm.

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

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

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

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

The Bernard Company provided the following information from its financial records: What is the company's book value per share?

The following balance sheet information is provided for Greene Company for Year 2: What is the company's quick (acid-test) ratio?

Which of the following is not included in the computation of the quick ratio?

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Long-Term Operational Assets

Accounting for Liabilities

Proprietorships, Partnerships, and Corporations

An Introduction to Management Accounting

Cost Behavior, Operating Leverage, and Profitability Analysis

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Planning for Capital Investments

Filters

Exam 9: Financial Statement Analysis

Solvency ratios are used to assess a company's:

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

Which of the following statements regarding net margin is incorrect?

Working capital is defined as:

The return on investment measure is also referred to as:

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

Select the correct statement regarding vertical analysis.

Common methods of financial statement analysis include all of the following except:

A vertical analysis uses percentages to compare each of the parts of an individual statement to a key statement figure. For example, on an income statement each item would be shown as a percentage of net sales.

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

Accrual accounting requires the use of many estimates, including:

The Poole Company reported the following income for Year 2: What is the company's net margin? (Round your answers to the nearest whole percent.)

Solvency ratios are used to analyze the long-term debt-paying ability and the composition of the financing structure of the firm.

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

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

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

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

The Bernard Company provided the following information from its financial records: What is the company's book value per share?

The following balance sheet information is provided for Greene Company for Year 2: What is the company's quick (acid-test) ratio?

Which of the following is not included in the computation of the quick ratio?

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Long-Term Operational Assets

Accounting for Liabilities

Proprietorships, Partnerships, and Corporations

An Introduction to Management Accounting

Cost Behavior, Operating Leverage, and Profitability Analysis

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Planning for Capital Investments

Filters