Question 1

Three of the most common tools of financial analysis include horizontal analysis, vertical analysis, and ratio analysis.

Accepted Answer

A) True 
 B)False

Question 2

Refer to the following selected financial information from Frankle Corp. Compute the company's current ratio. $$\begin{array} { | l | r | } 
\hline & \
\hline \text { Current assets } & 306,450 \
\hline \text { Plant assets } & 388,000 \
\hline \text { Current Liabilities } & 107,800 \
\hline \text { Net sales } & 676,000 \
\hline \text { Net Income } & 75,000 \
\hline
\end{array}$$

Accepted Answer

A)  1.44. 
B)  3.60. 
C)  6.27. 
D)  6.44. 
E)  2.84. 
A)  1.44. 
B)  3.60. 
C)  6.27. 
D)  6.44. 
E)  2.84.

Question 3

A good financial report does not link interpretations and conclusions of analysis with the underlying information.

Accepted Answer

A) True 
 B)False

Question 4

The comparison of a company's financial condition and performance across time is known as:

Accepted Answer

A)  Political analysis. 
B)  Investment analysis. 
C)  Financial reporting. 
D)  Horizontal analysis. 
E)  Vertical analysis. 
A)  Political analysis. 
B)  Investment analysis. 
C)  Financial reporting. 
D)  Horizontal analysis. 
E)  Vertical analysis.

Question 5

An advantage of common-size statements is that they reflect the dollar magnitude (size) of the different companies under analysis.

Accepted Answer

A) True 
 B)False

Question 6

Powers Company reported Net sales of $1,200,000 and Accounts Receivable, net of $78,500. The Day's sales uncollected (rounded to whole days) is:

Accepted Answer

A)  4 days. 
B)  56 days. 
C)  24 days. 
D)  48 days. 
E)  15 days. 
A)  4 days. 
B)  56 days. 
C)  24 days. 
D)  48 days. 
E)  15 days.

Question 7

For the following financial statement items, calculate trend percentages using 2016 as the base year:
 $\begin{array}{|l|c|c|c|c|c|}
\hline \text { Sales. } & |\$ 1,195,400| & |\$ 1,118,000| & |\$ 1,049,000| & \$ 963,200 & \$ 860,000 \
\hline \text { Cost of sales................ } & 752,400 & 704,000 & 671,000 & 616,700 & 559,000 \
\hline \text { Gross profit } & \$ 443,000 & \$ 414,000 & \$ 378,000 &\$346,500 &\$301,000 \
\hline
\end{array}$

Accepted Answer

\[\begin{array} { l | c | | c | | c | |

Question 8

Explain the purpose of financial statement analysis for both external and internal users.

Accepted Answer

The purpose of financial statement analy

Question 9

A corporation reports the following year-end balance sheet data. The company's equity ratio equals: $$\begin{array} { l | r | l | r } 
\text { Cash } & \$ 40,000 & \text { Current liabilities } & \$ 75,000 \
\hline \text { Accounts receivable } & 55,000 & \text { Long-term liabilities } & 35,000 \
\hline \text { Inventory } & 60,000 & \text { Common stock } & 100,000 \
\hline \text { Equipment } & \underline { 145,000 } & \text { Retained earnings } & \$ 90,000 \
\hline \text { Total assets } & \$ 300,000 & \text { Total liabilities and equity } & \$ 300,000 \
\hline
\end{array}$$

Accepted Answer

A)  0.58 
B)  2.07 
C)  0.63 
D)  1.27 
E)  0.37 
A)  0.58 
B)  2.07 
C)  0.63 
D)  1.27 
E)  0.37

Question 10

The standards for comparisons when interpreting measures from financial statement analysis include (1) ________, (2) ________, (3) ________, and (4) ________.

Accepted Answer

intra-company; compe

Question 11

In horizontal analysis the percent change is computed by:

Accepted Answer

A)  Subtracting the base period amount from the analysis amount, then dividing the result by the analysis period amount. 
B)  Subtracting the analysis period amount from the base period amount. 
C)  Subtracting the base period amount from the analysis period amount. 
D)  Subtracting the analysis period amount from the base period amount, dividing the result by the base period amount, then multiplying that amount by 100. 
E)  Subtracting the base period amount from the analysis period amount, dividing the result by the base period amount, then multiplying that amount by 100. 
A)  Subtracting the base period amount from the analysis amount, then dividing the result by the analysis period amount. 
B)  Subtracting the analysis period amount from the base period amount. 
C)  Subtracting the base period amount from the analysis period amount. 
D)  Subtracting the analysis period amount from the base period amount, dividing the result by the base period amount, then multiplying that amount by 100. 
E)  Subtracting the base period amount from the analysis period amount, dividing the result by the base period amount, then multiplying that amount by 100.

Question 12

A corporation reports the following year-end balance sheet data. The company's debt ratio equals: $$\begin{array} { l | r | l | r } 
\text { Cash } & \$ 40,000 & \text { Current liabilities } & \$ 75,000 \
\hline \text { Accounts receivable } & 55,000 & \text { Long-term liabilities } & 35,000 \
\hline \text { Inventory } & 60,000 & \text { Common stock } & 100,000 \
\hline \text { Equipment } & \underline { 145,000 } & \text { Retained earnings } & \$ 90,000 \
\hline \text { Total assets } & \$ 300,000 & \text { Total liabilities and equity } & \$ 300,000 \
\hline
\end{array}$$

Accepted Answer

A)  0.37 
B)  0.58 
C)  0.63 
D)  1.27 
E)  2.07 
A)  0.37 
B)  0.58 
C)  0.63 
D)  1.27 
E)  2.07

Question 13

Calculate the percent increase or decrease for each of the following financial statement items:
 $$\begin{array} { l | r | r } 
& { \text { Year 2 } } & \text { Year 1 } \
\hline \text { Cash } & \$ 37,500 & \$ 3 0 , 0 0 0 \
\hline \text { Accounts receivable } & 63,000 & 52,500 \
\hline \text { Inventory } & 67,500 & 90,000 \
\hline \text { Accounts payable } & 35,100 & 27,000 \
\hline \text { Sales } & 187,500 & 150,000 \
\hline \text { Equipment } & 165,000 & 125,000 \
& &
\end{array}$$

Accepted Answer

None

Question 14

Liquidity and efficiency are the ability to meet short-term obligations and to efficiently generate revenue.

Accepted Answer

A) True 
 B)False

Question 15

A corporation reports the following year-end balance sheet data. The company's acid-test ratio equals:$\begin{array} { l c c c } 
\text { Cash } & \$ 40,000 & \text { Current liabilities } & \$ 75,000 \
\text { Accounts receivable } & 55,000 & \text { Long-term liabilities } & 35,000 \
\text { Inventory } & 60,000 & \text { Common stock } & 100,000 \
& & & \
\text { Equipment } & 145,000 & \text { Retained earnings } & 90,000 \
\text { Total assets } & \$ 300,000 & \text { Total liabilities and equity } & \$ 300,000
\end{array}$

Accepted Answer

A)  2.07 
B)  0.37 
C)  0.58 
D)  1.27 
E)  0.63 
A)  2.07 
B)  0.37 
C)  0.58 
D)  1.27 
E)  0.63

Question 16

Zhang Company reported Cost of goods sold of $835,000 and ending Inventory of $41,750. The Days' sales in inventory (rounded to whole days) is:

Accepted Answer

A)  18 days. 
B)  20 days. 
C)  418 days. 
D)  10 days. 
E)  56 days. 
A)  18 days. 
B)  20 days. 
C)  418 days. 
D)  10 days. 
E)  56 days.

Question 17

When an item has a value in the base period and zero in the analysis period, the decrease is 100 percent.

Accepted Answer

A) True 
 B)False

Question 18

The greater the times interest earned ratio, the greater the risk a company is exposed to.

Accepted Answer

A) True 
 B)False

Question 19

A corporation reported cash of $27,000 and total assets of $461,000 on its balance sheet. Its common-size percent for cash equals:

Accepted Answer

A)  5.86%. 
B)  1707%. 
C)  100%. 
D)  58.6%. 
E)  17.1%. 
A)  5.86%. 
B)  1707%. 
C)  100%. 
D)  58.6%. 
E)  17.1%.

Question 20

The dollar change for a comparative financial statement item is calculated by:

Accepted Answer

A)  Subtracting the base period amount from the analysis period amount. 
B)  Subtracting the base period amount from the analysis period amount, dividing the result by the base period amount, then multiplying that amount by 100. 
C)  Subtracting the analysis period amount from the base period amount. 
D)  Subtracting the base period amount from the analysis amount, then dividing the result by the base amount. 
E)  Subtracting the analysis period amount from the base period amount, dividing the result by the base period amount, then multiplying that amount by 100. 
A)  Subtracting the base period amount from the analysis period amount. 
B)  Subtracting the base period amount from the analysis period amount, dividing the result by the base period amount, then multiplying that amount by 100. 
C)  Subtracting the analysis period amount from the base period amount. 
D)  Subtracting the base period amount from the analysis amount, then dividing the result by the base amount. 
E)  Subtracting the analysis period amount from the base period amount, dividing the result by the base period amount, then multiplying that amount by 100.

Exam 17: Analysis of Financial Statements

Three of the most common tools of financial analysis include horizontal analysis, vertical analysis, and ratio analysis.

Refer to the following selected financial information from Frankle Corp. Compute the company's current ratio. Current assets 306,450 Plant assets 388,000 Current Liabilities 107,800 Net sales 676,000 Net Income 75,000

A good financial report does not link interpretations and conclusions of analysis with the underlying information.

The comparison of a company's financial condition and performance across time is known as:

An advantage of common-size statements is that they reflect the dollar magnitude (size) of the different companies under analysis.

Powers Company reported Net sales of $1,200,000 and Accounts Receivable, net of $78,500. The Day's sales uncollected (rounded to whole days) is:

Explain the purpose of financial statement analysis for both external and internal users.

The standards for comparisons when interpreting measures from financial statement analysis include (1) ________, (2) ________, (3) ________, and (4) ________.

In horizontal analysis the percent change is computed by:

Calculate the percent increase or decrease for each of the following financial statement items: Year 2 Year 1 Cash \ 37,500 \ 30,000 Accounts receivable 63,000 52,500 Inventory 67,500 90,000 Accounts payable 35,100 27,000 Sales 187,500 150,000 Equipment 165,000 125,000

Liquidity and efficiency are the ability to meet short-term obligations and to efficiently generate revenue.

Zhang Company reported Cost of goods sold of $835,000 and ending Inventory of $41,750. The Days' sales in inventory (rounded to whole days) is:

When an item has a value in the base period and zero in the analysis period, the decrease is 100 percent.

The greater the times interest earned ratio, the greater the risk a company is exposed to.

A corporation reported cash of $27,000 and total assets of $461,000 on its balance sheet. Its common-size percent for cash equals:

The dollar change for a comparative financial statement item is calculated by:

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets Natural Resoures and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments

Reporting the Statement of Cash Flows

Managerial Accounting Concepts and Principles

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Present and Future Values in Accounting

Activity-Based Costing

Filters

The standards for comparisons when interpreting measures from financial statement analysis include (1) , (2) , (3) , and (4) .