Question 1

The accounting concept or principle that is perhaps the greatest single culprit in distorting the results of financial statement analysis is the:

Accepted Answer

A) Matching principle. 
B) Conservatism concept. 
C) Historic cost principle. 
D) Time value of money concept. 
A) Matching principle. 
B) Conservatism concept. 
C) Historic cost principle. 
D) Time value of money concept.

Question 2

While horizontal analysis examines one item over many time periods,vertical analysis examines many items in the same interval of time.

Accepted Answer

A) True 
 B)False

Question 3

The following balance sheet information was provided by Western Company:
 
Assuming Year 2 net credit sales totaled $270,000,what was the company's average days to collect receivables? (Use 365 days in a year.Do not round your intermediate calculations. )

Accepted Answer

A) 18.25 days 
B) 47.31 days 
C) 16.22 days 
D) 20.28 days 
A) 18.25 days 
B) 47.31 days 
C) 16.22 days 
D) 20.28 days

Question 4

Dennis Company reported net income of $50,000 on sales of $300,000.The company has average total assets of $500,000 and average total liabilities of $100,000.What is the company's return on equity ratio?

Accepted Answer

A) 10.0% 
B) 16.7% 
C) 12.5% 
D) 50.0% 
A) 10.0% 
B) 16.7% 
C) 12.5% 
D) 50.0%

Question 5

Darden Company has cash of $40,000,accounts receivable of $60,000,inventory of $32,000,and equipment of $100,000.Assuming current liabilities of $48,000,this company's working capital is:

Accepted Answer

A) $12,000. 
B) $52,000. 
C) $144,000. 
D) $84,000. 
A) $12,000. 
B) $52,000. 
C) $144,000. 
D) $84,000.

Question 6

Which ratio compares the earnings per share of a company to the market price for a share of the company's stock?

Accepted Answer

A) Price-earnings ratio 
B) Dividend yield 
C) Book value per share 
D) Return on equity 
A) Price-earnings ratio 
B) Dividend yield 
C) Book value per share 
D) Return on equity

Question 7

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 8

The current ratio is one of the most common measures of solvency.

Accepted Answer

A) True 
 B)False

Question 9

Lilly's Corporation has working capital of $620,000,and Harmon Corporation has working capital of $840,000.Which of the following statements is not true?

Accepted Answer

A) Since working capital is an absolute amount,other factors such as size of the company and materiality will help to determine liquidity of these two companies. 
B) Since Harmon's working capital exceeds Lilly's working capital,it is safe to conclude that Harmon is more liquid than Lilly. 
C) If Lilly Corporation is smaller than Harmon or has lower current liabilities;Lilly could be more liquid than Harmon. 
D) None of these answers is correct. 
A) Since working capital is an absolute amount,other factors such as size of the company and materiality will help to determine liquidity of these two companies. 
B) Since Harmon's working capital exceeds Lilly's working capital,it is safe to conclude that Harmon is more liquid than Lilly. 
C) If Lilly Corporation is smaller than Harmon or has lower current liabilities;Lilly could be more liquid than Harmon. 
D) None of these answers is correct.

Question 10

Martin Company reported net income of $15,000 on gross sales of $80,000.The company has average total assets of $135,000,of which $102,000 is property,plant and equipment.What is the company's return on investment? (Rounded to the nearest decimal point. )

Accepted Answer

A) 18.8% 
B) 11.1% 
C) 14.7% 
D) 12.5% 
A) 18.8% 
B) 11.1% 
C) 14.7% 
D) 12.5%

Question 11

Starwood Corporation has current assets of $200,000,total current liabilities of $750,000 net credit sales of $1,300,000,beginning accounts receivable of $65,000 and ending accounts receivable of $69,000.What is Starwood's accounts receivable turnover?

Accepted Answer

A) 21.8 times 
B) 19.4 times 
C) 22.4 times 
D) 5.8 times 
A) 21.8 times 
B) 19.4 times 
C) 22.4 times 
D) 5.8 times

Question 12

The Poole Company reported the following income for Year 2:
 
What is the company's net margin? (Rounded 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

Assume that you are considering purchasing some of a company's long-term bonds as an investment.Which of the company's financial statement ratios would you probably be most interested in?

Accepted Answer

A) Debt to assets ratio 
B) Debt to equity 
C) Plant assets to long-term liabilities 
D) All of these answers are correct. 
A) Debt to assets ratio 
B) Debt to equity 
C) Plant assets to long-term liabilities 
D) All of these answers are correct.

Question 14

The accounting profession assumes that financial statement users have an expert knowledge of business.

Accepted Answer

A) True 
 B)False

Question 15

The accounts receivable turnover ratio can be used to asses a firm's solvency.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements regarding the quick ratio is not true?

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 17

Which of the following statements regarding the information disclosed in financial statements is not true?

Accepted Answer

A) The costs of providing all possible information about a firm would be prohibitively high for the business. 
B) Some information disclosed in financial statements may be irrelevant to some users. 
C) Financial statements should be detailed enough to answer any financial-related question an investor might have. 
D) When too much information is presented users may suffer from information overload. 
A) The costs of providing all possible information about a firm would be prohibitively high for the business. 
B) Some information disclosed in financial statements may be irrelevant to some users. 
C) Financial statements should be detailed enough to answer any financial-related question an investor might have. 
D) When too much information is presented users may suffer from information overload.

Question 18

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 19

Which of the following statements regarding net margin is not true?

Accepted Answer

A) Net margin refers to the percentage 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 percentage 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.

Question 20

Benson Company received cash of $1,000,000 from issuing common stock at par value.As a result of this transaction,the company's debt-to-equity 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.

The accounting concept or principle that is perhaps the greatest single culprit in distorting the results of financial statement analysis is the:

While horizontal analysis examines one item over many time periods,vertical analysis examines many items in the same interval of time.

The following balance sheet information was provided by Western Company: Assuming Year 2 net credit sales totaled $270,000,what was the company's average days to collect receivables? (Use 365 days in a year.Do not round your intermediate calculations. )

Dennis Company reported net income of $50,000 on sales of $300,000.The company has average total assets of $500,000 and average total liabilities of $100,000.What is the company's return on equity ratio?

Darden Company has cash of $40,000,accounts receivable of $60,000,inventory of $32,000,and equipment of $100,000.Assuming current liabilities of $48,000,this company's working capital is:

Which ratio compares the earnings per share of a company to the market price for a share of the company's stock?

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:

The current ratio is one of the most common measures of solvency.

Lilly's Corporation has working capital of $620,000,and Harmon Corporation has working capital of $840,000.Which of the following statements is not true?

Martin Company reported net income of $15,000 on gross sales of $80,000.The company has average total assets of $135,000,of which $102,000 is property,plant and equipment.What is the company's return on investment? (Rounded to the nearest decimal point. )

Starwood Corporation has current assets of $200,000,total current liabilities of $750,000 net credit sales of $1,300,000,beginning accounts receivable of $65,000 and ending accounts receivable of $69,000.What is Starwood's accounts receivable turnover?

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

Assume that you are considering purchasing some of a company's long-term bonds as an investment.Which of the company's financial statement ratios would you probably be most interested in?

The accounting profession assumes that financial statement users have an expert knowledge of business.

The accounts receivable turnover ratio can be used to asses a firm's solvency.

Which of the following statements regarding the quick ratio is not true?

Which of the following statements regarding the information disclosed in financial statements is not true?

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

Which of the following statements regarding net margin is not true?

Benson Company received cash of $1,000,000 from issuing common stock at par value.As a result of this transaction,the company's debt-to-equity ratio will:

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

The accounting concept or principle that is perhaps the greatest single culprit in distorting the results of financial statement analysis is the:

While horizontal analysis examines one item over many time periods,vertical analysis examines many items in the same interval of time.

The following balance sheet information was provided by Western Company: Assuming Year 2 net credit sales totaled $270,000,what was the company's average days to collect receivables? (Use 365 days in a year.Do not round your intermediate calculations. )

Dennis Company reported net income of $50,000 on sales of $300,000.The company has average total assets of $500,000 and average total liabilities of $100,000.What is the company's return on equity ratio?

Darden Company has cash of $40,000,accounts receivable of $60,000,inventory of $32,000,and equipment of $100,000.Assuming current liabilities of $48,000,this company's working capital is:

Which ratio compares the earnings per share of a company to the market price for a share of the company's stock?

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:

The current ratio is one of the most common measures of solvency.

Lilly's Corporation has working capital of $620,000,and Harmon Corporation has working capital of $840,000.Which of the following statements is not true?

Martin Company reported net income of $15,000 on gross sales of $80,000.The company has average total assets of $135,000,of which $102,000 is property,plant and equipment.What is the company's return on investment? (Rounded to the nearest decimal point. )

Starwood Corporation has current assets of $200,000,total current liabilities of $750,000 net credit sales of $1,300,000,beginning accounts receivable of $65,000 and ending accounts receivable of $69,000.What is Starwood's accounts receivable turnover?

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

Assume that you are considering purchasing some of a company's long-term bonds as an investment.Which of the company's financial statement ratios would you probably be most interested in?

The accounting profession assumes that financial statement users have an expert knowledge of business.

The accounts receivable turnover ratio can be used to asses a firm's solvency.

Which of the following statements regarding the quick ratio is not true?

Which of the following statements regarding the information disclosed in financial statements is not true?

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

Which of the following statements regarding net margin is not true?

Benson Company received cash of $1,000,000 from issuing common stock at par value.As a result of this transaction,the company's debt-to-equity ratio will:

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