Question 1

Working capital is current assets minus current liabilities.

Accepted Answer

A) True 
 B)False

Question 2

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 3

Which of the following statements regarding the return on equity (ROE)measure is not true?

Accepted Answer

A) ROE is used to measure the profitability of the firm in relation to the amount invested by stockholders. 
B) ROE equals net income divided by average total stockholders' equity. 
C) ROE is affected by a company's use of leverage. 
D) A company's ROE is lower than its return on investment because ROE does not consider that part of the business that is financed by debt. 
A) ROE is used to measure the profitability of the firm in relation to the amount invested by stockholders. 
B) ROE equals net income divided by average total stockholders' equity. 
C) ROE is affected by a company's use of leverage. 
D) A company's ROE is lower than its return on investment because ROE does not consider that part of the business that is financed by debt.

Question 4

Profitability ratios attempt to assess the company's ability to generate earnings.

Accepted Answer

A) True 
 B)False

Question 5

Abel Company provided the following information from its financial records:
 
What is the amount of the company's earnings per share?

Accepted Answer

A) $0.82 
B) $1.00 
C) $0.90 
D) $0.75 
A) $0.82 
B) $1.00 
C) $0.90 
D) $0.75

Question 6

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 7

Benson Company declared and paid a cash dividend totaling $500,000 on its common stock.As a result of this transaction,the company's debt to assets 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 8

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 9

Which of the following statements regarding horizontal analysis is not true?

Accepted Answer

A) Percentage analysis involves computing the percentage relationship between two amounts. 
B) A horizontal analysis of cost of goods sold on the income statement includes dividing net income by total revenue. 
C) Horizontal analysis attempts to eliminate the materiality problem of comparing firms of different sizes. 
D) In horizontal percentage analysis,a financial statement line item is expressed as a percentage of the previous balance of the same item. 
A) Percentage analysis involves computing the percentage relationship between two amounts. 
B) A horizontal analysis of cost of goods sold on the income statement includes dividing net income by total revenue. 
C) Horizontal analysis attempts to eliminate the materiality problem of comparing firms of different sizes. 
D) In horizontal percentage analysis,a financial statement line item is expressed as a percentage of the previous balance of the same item.

Question 10

You are considering an investment in Facebook stock and wish to assess the company's position in the stock market.All of the following ratios can be used except:

Accepted Answer

A) Dividend yield. 
B) Earnings per share. 
C) Working capital. 
D) Price-earnings ratio. 
A) Dividend yield. 
B) Earnings per share. 
C) Working capital. 
D) Price-earnings ratio.

Question 11

The following partial balance sheet is provided for Groom Company:
 
What is the company's debt to assets ratio? (Rounded to nearest whole percent. )

Accepted Answer

A) 49% 
B) 16% 
C) 33% 
D) Cannot be determined with the information given. 
A) 49% 
B) 16% 
C) 33% 
D) Cannot be determined with the information given.

Question 12

Which ratios measure a company's long-term debt paying ability and its financing structure?

Accepted Answer

A) Solvency 
B) Liquidity 
C) Profitability 
D) None of these answers is correct. 
A) Solvency 
B) Liquidity 
C) Profitability 
D) None of these answers is correct.

Question 13

Jenkins Company's current ratio is higher than the average for its industry,while its quick ratio is below the industry average.One possible interpretation for these results is that Jenkins carries less inventory than most companies in its industry.

Accepted Answer

A) True 
 B)False

Question 14

As of December 31,Year 1,Gant Corporation had a current ratio of 1.29,quick ratio of 1.05,and working capital of $18,000.The company uses a perpetual inventory system and sells merchandise for more than it cost.On January 1,Year 2,Gant recorded cost of goods sold of $4,100.As a result of this transaction,Gant's quick 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 15

Financial statement analysis involves forms of comparison including:

Accepted Answer

A) Comparing changes in the same item over a number of periods. 
B) Comparing key relationships within the same year. 
C) Comparing key items to industry averages. 
D) All of these answers are correct. 
A) Comparing changes in the same item over a number of periods. 
B) Comparing key relationships within the same year. 
C) Comparing key items to industry averages. 
D) All of these answers are correct.

Question 16

A banker may perform a financial ratio analysis to assess a firm's ability to repay debt in a timely manner.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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

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 answers 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 answers are correct.

Question 20

The following balance sheet information is provided for Greene Company for Year 2:
 
What is the company's quick (acid-test)ratio? (Round your answer to 1 decimal place. )

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

Working capital is current assets minus current liabilities.

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

Which of the following statements regarding the return on equity (ROE)measure is not true?

Profitability ratios attempt to assess the company's ability to generate earnings.

Abel Company provided the following information from its financial records: What is the amount of the company's earnings per share?

Accrual accounting requires the use of many estimates,including:

Benson Company declared and paid a cash dividend totaling $500,000 on its common stock.As a result of this transaction,the company's debt to assets ratio will:

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.

Which of the following statements regarding horizontal analysis is not true?

You are considering an investment in Facebook stock and wish to assess the company's position in the stock market.All of the following ratios can be used except:

The following partial balance sheet is provided for Groom Company: What is the company's debt to assets ratio? (Rounded to nearest whole percent. )

Which ratios measure a company's long-term debt paying ability and its financing structure?

Jenkins Company's current ratio is higher than the average for its industry,while its quick ratio is below the industry average.One possible interpretation for these results is that Jenkins carries less inventory than most companies in its industry.

Financial statement analysis involves forms of comparison including:

A banker may perform a financial ratio analysis to assess a firm's ability to repay debt in a timely manner.

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

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

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

The following balance sheet information is provided for Greene Company for Year 2: What is the company's quick (acid-test)ratio? (Round your answer to 1 decimal place. )

An Introduction to Accounting

Accounting for Accruals and Deferrals

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

Working capital is current assets minus current liabilities.

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

Which of the following statements regarding the return on equity (ROE)measure is not true?

Profitability ratios attempt to assess the company's ability to generate earnings.

Abel Company provided the following information from its financial records: What is the amount of the company's earnings per share?

Accrual accounting requires the use of many estimates,including:

Benson Company declared and paid a cash dividend totaling $500,000 on its common stock.As a result of this transaction,the company's debt to assets ratio will:

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.

Which of the following statements regarding horizontal analysis is not true?

You are considering an investment in Facebook stock and wish to assess the company's position in the stock market.All of the following ratios can be used except:

The following partial balance sheet is provided for Groom Company: What is the company's debt to assets ratio? (Rounded to nearest whole percent. )

Which ratios measure a company's long-term debt paying ability and its financing structure?

Jenkins Company's current ratio is higher than the average for its industry,while its quick ratio is below the industry average.One possible interpretation for these results is that Jenkins carries less inventory than most companies in its industry.

Financial statement analysis involves forms of comparison including:

A banker may perform a financial ratio analysis to assess a firm's ability to repay debt in a timely manner.

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

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

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

The following balance sheet information is provided for Greene Company for Year 2: What is the company's quick (acid-test)ratio? (Round your answer to 1 decimal place. )

An Introduction to Accounting

Accounting for Accruals and Deferrals

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