Question 1

Short-term creditors are most likely to use the quick ratio instead of the current ratio in evaluating the solvency of a company with large, slow-moving:

Accepted Answer

A)  Plant and equipment. 
B)  Receivables. 
C)  Inventories. 
D)  Employees. 
A)  Plant and equipment. 
B)  Receivables. 
C)  Inventories. 
D)  Employees.

Question 2

The quick ratio is considered more useful than the current ratio for:

Accepted Answer

A)  Evaluating the profitability of a business that sells inventory very quickly, such as a restaurant. 
B)  Evaluating the solvency of a business that turns inventory into cash very slowly, such as a shipbuilder. 
C)  Evaluating long-term credit risk. 
D)  Evaluating investors' expectations concerning future earnings. 
A)  Evaluating the profitability of a business that sells inventory very quickly, such as a restaurant. 
B)  Evaluating the solvency of a business that turns inventory into cash very slowly, such as a shipbuilder. 
C)  Evaluating long-term credit risk. 
D)  Evaluating investors' expectations concerning future earnings.

Question 3

In each of the last five years, the net sales of Plaza Co. have increased at about half the rate of inflation, but net income has increased at approxi?mately twice the rate of inflation. During this period, the company's total assets, liabilities, and equity have remained almost unchanged; dividends are approximately equal to net income. These relationships suggest (indicate all correct answers):

Accepted Answer

A)  Management is successfully controlling costs and expenses. 
B)  The company is selling more merchandise every year. 
C)  The annual return on assets has been increasing. 
D)  Financing activities are likely to result in a net use of cash. 
A)  Management is successfully controlling costs and expenses. 
B)  The company is selling more merchandise every year. 
C)  The annual return on assets has been increasing. 
D)  Financing activities are likely to result in a net use of cash.

Question 4

Noble's price-earnings ratio at year end was:

Accepted Answer

A)  .07. 
B)  13.5. 
C)  17. 
D)  1.42. 
A)  .07. 
B)  13.5. 
C)  17. 
D)  1.42.

Question 5

Eleva Corporation's accounts receivable turnover for 2011 is closest to:

Accepted Answer

A)  4.63 times. 
B)  2.91 times. 
C)  5.42 times. 
D)  68 days. 
A)  4.63 times. 
B)  2.91 times. 
C)  5.42 times. 
D)  68 days.

Question 6

Amalgamated Corporation's net income was $2,400,000 in 2009 and $800,000 in 2010. What percentage increase in net income must Amalgamated achieve in 2011 to offset the decline in profits in 2010?

Accepted Answer

A)  75%. 
B)  300%. 
C)  33.33%. 
D)  800%. 
A)  75%. 
B)  300%. 
C)  33.33%. 
D)  800%.

Question 7

Shown below are data taken from a recent annual report of, Topaz, Inc. (Dollar amounts in millions.)
 
Instructions Compute the following:
a. Current ratio at year-end (round to nearest tenth) ________ to 1
b. Working capital at the beginning of the year (in millions) $____________
c. Gross profit rate for the year (round to the nearest 1 percent) ______%
d. Return on average total assets for the year (round to the nearest 1 percent) ______%
e. Return on average total equity for the year (round to the nearest 1 percent) ______%

Accepted Answer

a. $700 F1F1F1S1F1F1F10 $175 = 4
b. $62

Question 8

Supreme's return on equity was:

Accepted Answer

A)  11%. 
B)  25%. 
C)  7.5%. 
D)  16.3%. 
A)  11%. 
B)  25%. 
C)  7.5%. 
D)  16.3%.

Question 9

The current ratio will be _______________ the quick ratio.

Accepted Answer

A)  less than 
B)  greater than or equal to 
C)  the same as 
D)  always different than 
A)  less than 
B)  greater than or equal to 
C)  the same as 
D)  always different than

Question 10

In a single-step income statement, all revenue items are listed, then all expense items are combined and deducted from total revenue.

Accepted Answer

A) True 
 B)False

Question 11

The interest coverage ratio is computed by dividing:

Accepted Answer

A)  Operating income by annual interest expense. 
B)  Net income by annual interest expense. 
C)  Carrying value of bonds by cash interest payments. 
D)  Earnings per share by the prime interest rate. 
A)  Operating income by annual interest expense. 
B)  Net income by annual interest expense. 
C)  Carrying value of bonds by cash interest payments. 
D)  Earnings per share by the prime interest rate.

Question 12

Profitability measures
Shown below is a recent income statement for B-D Electric.
  
Net Income $970,000
Assume that comparative balance sheets for B-D Electric indicate average total assets for the year of $2,500,000, and average total equity of $2,050,000. Compute the following:

Accepted Answer

The answer of Profitability measures
Shown below is a recent income...

Question 13

A company whose sales are growing at less than the rate of inflation may actually be selling less merchandise every year.

Accepted Answer

A) True 
 B)False

Question 14

Financial ratios
Shown below are some key figures from the balance sheets of Minuteman Gas Company for two successive years:
$$\begin{array} { | l | r | r | } 
\hline & \text { December } 31,2010 & \text { December } 31,2009 \
\hline \text { Total assets (of which } 30 \% \text { are current) } & \$ 2,820,000 & \$ 2,220,000 \
\hline \text { Current liabilities } & \$ 336,000 & \$ 372,000 \
\hline \text { Bonds payable (long term) } & \$ 1,080,000 & \$ 840,000 \
\hline \text { Capital stock, } \$ 6 \text { par value } & \$ 660,000 & 4660,000 \
\hline \text { Retained Earnings } & \$ 828,000 & \$ 480,000 \
\hline
\end{array}$$ 
Dividends of $96,000 were declared and paid in 2010. Compute the following:
$\begin{array}{|l|l|l|}
\hline \text { Current ratio at end of } 2009 &\quad\quad\quad&\quad\quad\
\hline \text { Current ratio at end of } 2010 \
\hline \text { Working capital at end of } 2009 \
\hline \text { Working capital at end of } 2010 \
\hline \text { Debt ratio at end of } 2009 \
\hline \text { Debt ratio at end of } 2010 \
\hline \text { Earnings per share for } 2010 \
\hline
\end{array}$

Accepted Answer

The answer of Financial ratios
Shown below are some key figures...

Question 15

Computation of profitability ratios
Shown below are selected data from a recent annual report of Tall Oaks Co. (Dollar amounts are in thousands.)
  
Compute for the year the company's:

Accepted Answer

The answer of Computation of profitability ratios
Shown below are selected...

Question 16

The amount of working capital at the beginning of the year (in millions) was:

Accepted Answer

A)  $785. 
B)  $1,193. 
C)  $479. 
D)  Some other answer. 
A)  $785. 
B)  $1,193. 
C)  $479. 
D)  Some other answer.

Question 17

The following information is available from the annual report of Frixell, Inc.: Which of the following statements are correct? (More than one statement may be correct.)

Accepted Answer

A)  The return on equity exceeds the return on assets. 
B)  The current ratio is .625 to 1. 
C)  Working capital is $1,200,000. 
D)  None of the above answers is correct. 
A)  The return on equity exceeds the return on assets. 
B)  The current ratio is .625 to 1. 
C)  Working capital is $1,200,000. 
D)  None of the above answers is correct.

Question 18

Claret Corporation's return on assets for 2009 rounded to the nearest tenth of a percent is:

Accepted Answer

A)  9.9%. 
B)  4.1%. 
C)  5.9%. 
D)  16.9%. 
A)  9.9%. 
B)  4.1%. 
C)  5.9%. 
D)  16.9%.

Question 19

Income statement classifications
Simon Hardware and Garfunkel Foods are sole proprietorships with similar amounts of total assets. Also, both businesses earn similar amounts of revenue, incur similar amounts of operating expenses, and report similar net incomes. However, Simon has a higher cost of goods sold, while Garfunkel Foods has higher interest expense.
Indicate which of these companies has the higher (a) gross profit rate, and (b) return on assets. In each case, explain the reasons for each answer.

Accepted Answer

(a) Both companies earn similar amounts

Question 20

The acid test ratio includes marketable securities but does not include accounts receivable.

Accepted Answer

A) True 
 B)False

Exam 14: Financial Statement Analysis

Short-term creditors are most likely to use the quick ratio instead of the current ratio in evaluating the solvency of a company with large, slow-moving:

The quick ratio is considered more useful than the current ratio for:

Noble's price-earnings ratio at year end was:

Eleva Corporation's accounts receivable turnover for 2011 is closest to:

Amalgamated Corporation's net income was $2,400,000 in 2009 and $800,000 in 2010. What percentage increase in net income must Amalgamated achieve in 2011 to offset the decline in profits in 2010?

Supreme's return on equity was:

The current ratio will be _______________ the quick ratio.

In a single-step income statement, all revenue items are listed, then all expense items are combined and deducted from total revenue.

The interest coverage ratio is computed by dividing:

Profitability measures Shown below is a recent income statement for B-D Electric. Net Income $970,000 Assume that comparative balance sheets for B-D Electric indicate average total assets for the year of $2,500,000, and average total equity of $2,050,000. Compute the following:

A company whose sales are growing at less than the rate of inflation may actually be selling less merchandise every year.

Computation of profitability ratios Shown below are selected data from a recent annual report of Tall Oaks Co. (Dollar amounts are in thousands.) Compute for the year the company's:

The amount of working capital at the beginning of the year (in millions) was:

The following information is available from the annual report of Frixell, Inc.: Which of the following statements are correct? (More than one statement may be correct.)

Claret Corporation's return on assets for 2009 rounded to the nearest tenth of a percent is:

The acid test ratio includes marketable securities but does not include accounts receivable.

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Inventories and the Cost of Goods Sold

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Global Business and Accounting

Management Accounting: a Business Partner

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Capital Budgeting

Forms of Business Organization

The Time Value of Money: Future Amounts and Present Values Answer Key

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