Question 1

Which of the following describes the profit margin ratio?

Accepted Answer

A) Average total assets divided by net income 
B) Net income plus income tax expense divided by average total assets 
C) Average total assets divided by net revenue 
D) Net income divided by net revenue 
A) Average total assets divided by net income 
B) Net income plus income tax expense divided by average total assets 
C) Average total assets divided by net revenue 
D) Net income divided by net revenue

Question 2

Which of the following describes the interest coverage ratio?

Accepted Answer

A) Income before income taxes plus interest expense divided by interest expense 
B) Income after income taxes plus interest expense divided by interest expense 
C) Income after income taxes divided by interest expense 
D) Income before income taxes minus interest expense divided by interest expense 
A) Income before income taxes plus interest expense divided by interest expense 
B) Income after income taxes plus interest expense divided by interest expense 
C) Income after income taxes divided by interest expense 
D) Income before income taxes minus interest expense divided by interest expense

Question 3

Profitability is the ability to pay bills when due and to meet unexpected needs for cash.

Accepted Answer

A) True 
 B)False

Question 4

A 20 percent change in net sales will result in a 20 percent change in net income.

Accepted Answer

A) True 
 B)False

Question 5

In a trend analysis,an index number of 139 for 20x5 sales indicates that

Accepted Answer

A) sales for 20x5 were 139 percent higher than sales for the same company in the base year. 
B) sales for 20x5 for this company were 139 percent of the sales figure of another company being used in the comparison. 
C) sales for 20x5 were 139 percent of the sales for the same company in the base year. 
D) actual sales for 20x5 exceeded budgeted sales for 20x5 by 39 percent. 
A) sales for 20x5 were 139 percent higher than sales for the same company in the base year. 
B) sales for 20x5 for this company were 139 percent of the sales figure of another company being used in the comparison. 
C) sales for 20x5 were 139 percent of the sales for the same company in the base year. 
D) actual sales for 20x5 exceeded budgeted sales for 20x5 by 39 percent.

Question 6

Lois Kent has owned and managed the operations of a small chain of sporting goods stores for the past two years.She has asked her administrative assistant to provide her with some annual reports of other companies that sell sporting goods as well as some published reports showing norms for the sporting goods industry so that Lois can compare the financial ratios of her company with those of other companies that sell sporting goods.Discuss the limitations of using comparisons with other companies and industry norms,which Lois needs to remember.

Accepted Answer

Lois can learn some important things abo

Question 7

The following information pertains to Patterson Corporation.Assume that all balance sheet amounts represent both average and ending figures.  
 
Patterson Corporation had 6,000 shares of common stock issued and outstanding.The market price of Patterson common stock on December 31,20x5,was $20.Patterson paid dividends of $0.90 per share during 20x5.
-What is the price/earnings (P/E)ratio for this corporation? Round your answer to two decimal places.

Accepted Answer

A) 5.47 times 
B) 7.13 times 
C) 4.80 times 
D) 6.13 times 
A) 5.47 times 
B) 7.13 times 
C) 4.80 times 
D) 6.13 times

Question 8

Financial statement analysis is used to show how items in a company's financial statements relate to the company's financial performance objectives.

Accepted Answer

A) True 
 B)False

Question 9

The ability to pay bills when due and to meet unexpected needs for cash most closely describes

Accepted Answer

A) cash flow adequacy. 
B) long-term solvency. 
C) liquidity. 
D) profitability. 
A) cash flow adequacy. 
B) long-term solvency. 
C) liquidity. 
D) profitability.

Question 10

To assess the quality of a company's reported earnings,it is necessary to know the estimates and methods it uses to compute income.

Accepted Answer

A) True 
 B)False

Question 11

What is the effect of the payment of an account payable on the current ratio and the quick ratio,respectively? (Assume the current ratio was 2.3 times and the quick ratio was 2.1 times before this transaction. )

Accepted Answer

A) Decrease in current ratio;no effect on quick ratio 
B) Increase in current ratio;increase in quick ratio 
C) No effect on current ratio;no effect on quick ratio 
D) Decrease in current ratio;decrease in quick ratio 
A) Decrease in current ratio;no effect on quick ratio 
B) Increase in current ratio;increase in quick ratio 
C) No effect on current ratio;no effect on quick ratio 
D) Decrease in current ratio;decrease in quick ratio

Question 12

Executive officers' compensation is typically comprised of all of the following except

Accepted Answer

A) incentive bonuses. 
B) declared dividends. 
C) stock option awards. 
D) annual base salaries. 
A) incentive bonuses. 
B) declared dividends. 
C) stock option awards. 
D) annual base salaries.

Question 13

Vertical analysis is the same as trend analysis.

Accepted Answer

A) True 
 B)False

Question 14

A company is referred to as a diversified company or a conglomerate if it operates in

Accepted Answer

A) many related industries. 
B) many unrelated industries. 
C) many and varied locations throughout the world. 
D) one single major industry. 
A) many related industries. 
B) many unrelated industries. 
C) many and varied locations throughout the world. 
D) one single major industry.

Question 15

Companies file their quarterly reports with the SEC on Form 8-Q.

Accepted Answer

A) True 
 B)False

Question 16

The sale of plant assets and the payment of dividends will increase free cash flow.

Accepted Answer

A) True 
 B)False

Question 17

Days' inventory on hand is used to analyze

Accepted Answer

A) cash flow adequacy. 
B) operating asset management. 
C) profitability. 
D) long-term solvency. 
A) cash flow adequacy. 
B) operating asset management. 
C) profitability. 
D) long-term solvency.

Question 18

In conducting horizontal analysis,it is important to focus attention on the changes in

Accepted Answer

A) the composition of the statements. 
B) dollar amounts and their percentages. 
C) dollar amounts. 
D) percentages. 
A) the composition of the statements. 
B) dollar amounts and their percentages. 
C) dollar amounts. 
D) percentages.

Question 19

A ratio of net income of $100,000 to sales of $1,000,000 can be stated as

Accepted Answer

A) Net income is 1/10,or 10 percent,of sales. 
B) For every dollar of sales,the company has an average net income of 10 cents. 
C) The ratio of sales to net income is 10 to 1 (10:1),or sales are 10 times net income. 
D) All of these choices. 
A) Net income is 1/10,or 10 percent,of sales. 
B) For every dollar of sales,the company has an average net income of 10 cents. 
C) The ratio of sales to net income is 10 to 1 (10:1),or sales are 10 times net income. 
D) All of these choices.

Question 20

One reason that a common-size statement is a useful tool in financial performance evaluation is that it enables the user to

Accepted Answer

A) make better comparisons of two companies of different sizes in the same industry. 
B) determine which companies in a single industry are of the same size. 
C) judge the relative potential of two companies of similar size in different industries. 
D) determine which companies in a single industry are of the same value. 
A) make better comparisons of two companies of different sizes in the same industry. 
B) determine which companies in a single industry are of the same size. 
C) judge the relative potential of two companies of similar size in different industries. 
D) determine which companies in a single industry are of the same value.

Exam 14: Financial Statement Analysis

Which of the following describes the profit margin ratio?

Which of the following describes the interest coverage ratio?

Profitability is the ability to pay bills when due and to meet unexpected needs for cash.

A 20 percent change in net sales will result in a 20 percent change in net income.

In a trend analysis,an index number of 139 for 20x5 sales indicates that

Financial statement analysis is used to show how items in a company's financial statements relate to the company's financial performance objectives.

The ability to pay bills when due and to meet unexpected needs for cash most closely describes

To assess the quality of a company's reported earnings,it is necessary to know the estimates and methods it uses to compute income.

What is the effect of the payment of an account payable on the current ratio and the quick ratio,respectively? (Assume the current ratio was 2.3 times and the quick ratio was 2.1 times before this transaction. )

Executive officers' compensation is typically comprised of all of the following except

Vertical analysis is the same as trend analysis.

A company is referred to as a diversified company or a conglomerate if it operates in

Companies file their quarterly reports with the SEC on Form 8-Q.

The sale of plant assets and the payment of dividends will increase free cash flow.

Days' inventory on hand is used to analyze

In conducting horizontal analysis,it is important to focus attention on the changes in

A ratio of net income of $100,000 to sales of $1,000,000 can be stated as

One reason that a common-size statement is a useful tool in financial performance evaluation is that it enables the user to

Uses of Accounting Information and the Financial Statements

Measurement Concepts: Recording Business Transactions

Measuring Business Income: Adjusting the Accounts

Foundations of Financial Reporting and the Classified Balance Sheet

Accounting for Merchandising Operations

Inventories

Cash and Internal Control

Receivables

Long-Term Assets

Current Liabilities and Fair Value Accounting

Long-Term Liabilities

Stockholders Equity

The Statement of Cash Flows

Managerial Accounting and Cost Concepts

Costing Systems: Job Order Costing

Costing Systems: Process Costing

Value-Based Systems: Activity-Based Costing and Lean Accounting

Cost-Volume-Profit Analysis

The Budgeting Process

Flexible Budgets and Performance Analysis

Standard Costing and Variance Analysis

Short-Run Decision Analysis

Capital Investment Analysis

Pricing Decisions, including Target Costing and Transfer Pricing

Quality Management and Measurement

Accounting for Unincorporated Businesses

Accounting for Investments

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