Question 1

A vertical analysis of a financial statement reveals the relationship of each statement item to its base amount,which is the 100% figure.

Accepted Answer

A) True 
 B)False

Question 2

Ratio analysis is used most effectively to measure a company against other companies in different industries.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is TRUE for financial leverage?

Accepted Answer

A)  The asset turnover ratio measures financial leverage. 
B)  Financial leverage always increases profitability. 
C)  Financial leverage is measured in the proportion of total assets relative to total equity. 
D)  The higher the debt to equity ratio, the higher the financial leverage. 
A)  The asset turnover ratio measures financial leverage. 
B)  Financial leverage always increases profitability. 
C)  Financial leverage is measured in the proportion of total assets relative to total equity. 
D)  The higher the debt to equity ratio, the higher the financial leverage.

Question 4

A common-size statement reports the same percentages that appear in a ________.

Accepted Answer

A)  horizontal analysis 
B)  financial statement 
C)  vertical analysis 
D)  cost statement 
A)  horizontal analysis 
B)  financial statement 
C)  vertical analysis 
D)  cost statement

Question 5

Use the following to calculate the inventory turnover ratio for the year 2019.
 $$\begin{array} { l l l } 
& \underline { 2019 } & \underline { 2018 } \
\text { Cost of Goods Sold } & 585,000 & 475,000 \
\text { Merchandise Inventory } & 320,000 & 295,000
\end{array}$$

Accepted Answer

Inventory turnover ratio = Cos

Question 6

Merchandise inventory and prepaid expenses are excluded from the acid-test ratio.

Accepted Answer

A) True 
 B)False

Question 7

A common-size statement reports the same percentages that appear in a vertical analysis.

Accepted Answer

A) True 
 B)False

Question 8

Allstate Moving Company reported the following amounts on its balance sheet as of December 31,2019 and December 31,2018: $$\begin{array} { | l | r | r | } 
\hline & { 2019 } &  { 2018 } \
\hline \text { Cash and Receivables } & \$ 165,000 & \$ 75,000 \
\hline \text { Merchandise Inventory } & 175,000 & 250,000 \
\hline \text { Property, Plant and Equipment, net } & 820,000 & 780,000 \
\hline \text { Total Assets } & \$ 1,160,000 & \$ 1,105,000 \
\hline \text { Total Liabilities } & \$ 475,000 & \$ 385,000 \
\hline
\end{array}$$ For the vertical analysis,what is the percentage of current assets as of December 31,2019? (Round your answer to two decimal places.)

Accepted Answer

A)  29.31% 
B)  29.41% 
C)  41.67% 
D)  41.46% 
A)  29.31% 
B)  29.41% 
C)  41.67% 
D)  41.46%

Question 9

The price/earnings ratio shows the market price of $1 of earnings.

Accepted Answer

A) True 
 B)False

Question 10

A high current ratio indicates that current liabilities are greater than current assets.

Accepted Answer

A) True 
 B)False

Question 11

Provide a description of the contents of each of the following components of the annual report.
 $$\begin{array} { | l | l | } 
\hline \text { Annual Report Component } & \text { Description of the contents } \
\hline \text { Financial statements } & \
\hline \text { Report of independent } & \
\text { registered public accounting } & \
\text { firm } & \
\hline
\end{array}$$

Accepted Answer

\[\begin{array} { | l | l | } 
\hline \t

Question 12

The dividend payout ratio measures the annual dividend per share as a proportion of the market price per share.

Accepted Answer

A) True 
 B)False

Question 13

Prepare a vertical analysis of the income statement shown below.(Round to two decimal places.)
 Buckner, Inc.
Income Statement
For the Year Ended December 31, 2019 $$\begin{array} { l l } 
\text { Net Sales } & \$ 7,000 \
\text { Cost of Goods Sold } & 3,800 \
\text { Gross Profit } & 3,200
\end{array}$$ Operating Expenses:
 $$\begin{array} { l l } 
\text { Selling Expenses } & 950 \
\text { Administrative Expenses } & \underline { 670 } \
\text { Total Operating Expenses } & \underline { 1,620 } \
\text { Operating Income } & 1,580
\end{array}$$ Other Income and (Expenses):
 $\begin{array}{ll}
\text { Interest Expense } & \underline{(750)} \
\text { Total Other Income and (Expenses) } &\underline{(750)} \
\text { Income Before Income Taxes } & \underline{150}\
\text { Income Tax Expense } & \underline{\$ 680} \
\text { Net Income }
\end{array}$

Accepted Answer

@#IMG-DLM& \[\begin{array} { l l l } 
\text { Net

Question 14

The following is a summary of information presented on the financial statements of a company on December 31,2019. $$\begin{array} { | l | r | r | } 
\hline{ \text { Account } } & { \mathbf { 2 0 1 9 } } & { \mathbf { 2 0 1 8 } } \
\hline \text { Current Assets } & \$ 88,000 & \$ 80,000 \
\hline \text { Accounts Receivable } & 94,000 & 67,000 \
\hline \text { Merchandise Inventory } & 62,000 & 58,000 \
\hline \text { Current Liabilities } & 56,000 & 49,000 \
\hline \text { Long-term Liabilities } & 44,000 & 53,000 \
\hline \text { Common Stock } & 76,000 & 57,000 \
\hline \text { Retained Earnings } & 68,000 & 46,000 \
\hline
\end{array}$$ With respect to long-term liabilities,a horizontal analysis reveals ________.

Accepted Answer

A)  long-term liabilities decreased by $19,000 
B)  long-term liabilities decreased by 33.33% 
C)  long-term liabilities decreased by 16.98% 
D)  long-term liabilities decreased by $7000 
A)  long-term liabilities decreased by $19,000 
B)  long-term liabilities decreased by 33.33% 
C)  long-term liabilities decreased by 16.98% 
D)  long-term liabilities decreased by $7000

Question 15

The acid-test ratio measures a company's ability to pay all its current liabilities if they came due immediately.

Accepted Answer

A) True 
 B)False

Question 16

In regards to benchmarking,which of the following statements is incorrect?

Accepted Answer

A)  Benchmarking is the practice of comparing a company with other leading companies. 
B)  The industry average is not a useful benchmark for evaluating a company. 
C)  Providing common-size percentages in a graphical manner highlights differences. 
D)  The two main types of benchmarks in financial statement analysis include benchmarking against the industry average and benchmarking against a key competitor. 
A)  Benchmarking is the practice of comparing a company with other leading companies. 
B)  The industry average is not a useful benchmark for evaluating a company. 
C)  Providing common-size percentages in a graphical manner highlights differences. 
D)  The two main types of benchmarks in financial statement analysis include benchmarking against the industry average and benchmarking against a key competitor.

Question 17

Which of the following statements,regarding the management's discussion and analysis (MD&A)part of the annual report is NOT correct?

Accepted Answer

A)  Investors are not interested in the MD&A because it is written by the company and could present a biased view of the company's financial condition and performance. 
B)  It often contains information that is not found in the financial data. 
C)  It provides forward-looking formation. 
D)  The MD&A is the company's attempt to explain its financial statements and to discuss its performance. 
A)  Investors are not interested in the MD&A because it is written by the company and could present a biased view of the company's financial condition and performance. 
B)  It often contains information that is not found in the financial data. 
C)  It provides forward-looking formation. 
D)  The MD&A is the company's attempt to explain its financial statements and to discuss its performance.

Question 18

Investors and creditors cannot evaluate a company by examining only one year of data.

Accepted Answer

A) True 
 B)False

Question 19

A quarterly report filed with the Securities and Exchange Commission is called a Form 10-K.

Accepted Answer

A) True 
 B)False

Question 20

The horizontal analysis is computed by which of the following formulas?

Accepted Answer

A)  ((earlier period amount - later period amount)/base period amount) × 100 
B)  (later period amount/earlier period amount) × 100 
C)  (base period amount/dollar amount of change) × 100 
D)  (dollar amount of change/base period amount) × 100 
A)  ((earlier period amount - later period amount)/base period amount) × 100 
B)  (later period amount/earlier period amount) × 100 
C)  (base period amount/dollar amount of change) × 100 
D)  (dollar amount of change/base period amount) × 100

Exam 17: Financial Statement Analysis

A vertical analysis of a financial statement reveals the relationship of each statement item to its base amount,which is the 100% figure.

Ratio analysis is used most effectively to measure a company against other companies in different industries.

Which of the following statements is TRUE for financial leverage?

A common-size statement reports the same percentages that appear in a ________.

Use the following to calculate the inventory turnover ratio for the year 2019. Cost of Goods Sold 585,000 475,000 Merchandise Inventory 320,000 295,000

Merchandise inventory and prepaid expenses are excluded from the acid-test ratio.

A common-size statement reports the same percentages that appear in a vertical analysis.

The price/earnings ratio shows the market price of $1 of earnings.

A high current ratio indicates that current liabilities are greater than current assets.

Provide a description of the contents of each of the following components of the annual report. Annual Report Component Description of the contents Financial statements Report of independent registered public accounting firm

The dividend payout ratio measures the annual dividend per share as a proportion of the market price per share.

The acid-test ratio measures a company's ability to pay all its current liabilities if they came due immediately.

In regards to benchmarking,which of the following statements is incorrect?

Which of the following statements,regarding the management's discussion and analysis (MD&A)part of the annual report is NOT correct?

Investors and creditors cannot evaluate a company by examining only one year of data.

A quarterly report filed with the Securities and Exchange Commission is called a Form 10-K.

The horizontal analysis is computed by which of the following formulas?

Accounting and the Business Environment

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Merchandise Inventory

Accounting Information Systems

Internal Control and Cash

Receivables

Plant Assets,natural Resources,and Intangibles

Current Liabilities and Payroll

Partnerships

Corporations

Long-Term Liabilities

Investments

The Statement of Cash Flows

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets

Flexible Budgets and Standard Cost Systems

Cost Allocation and Responsibility Accounting

Short-Term Business Decisions

Capital Investment Decisions

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