Question 1

The principle factors affecting the quality of working capital are:

Accepted Answer

A)  The nature of the current assets. 
B)  The length of time to convert current assets into cash. 
C)  Both the nature of the current assets and the length of time to convert current assets into cash. 
D)  Neither the nature of the current assets nor the length of time to convert current assets into cash. 
A)  The nature of the current assets. 
B)  The length of time to convert current assets into cash. 
C)  Both the nature of the current assets and the length of time to convert current assets into cash. 
D)  Neither the nature of the current assets nor the length of time to convert current assets into cash.

Question 2

Percentage changes
Selected information from the financial statements of Perfectly Baked Cake Co. appears below:
  
(a) Compute the percentage change in each of the above items from 2010 to 2011. Use a + or - to indicate increase or decrease.
  
(b) Compute net income as a percentage of net sales in each year. (Round to the nearest one-tenth of 1%)

Accepted Answer

The answer of Percentage changes
Selected information from the financial statements...

Question 3

The trend in ratios is usually more useful than looking at a single year's ratio.

Accepted Answer

A) True 
 B)False

Question 4

Current assets are those assets that can be converted into cash within:

Accepted Answer

A)  One year and never longer. 
B)  One year or the operating cycle, whichever is longer. 
C)  One year or the operating cycle, whichever is shorter. 
D)  Management's discretion. 
A)  One year and never longer. 
B)  One year or the operating cycle, whichever is longer. 
C)  One year or the operating cycle, whichever is shorter. 
D)  Management's discretion.

Question 5

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

Accepted Answer

A)  25. 
B)  22. 
C)  100. 
D)  4. 
A)  25. 
B)  22. 
C)  100. 
D)  4.

Question 6

The measurement of the relative size of each item included in a total is called:

Accepted Answer

A)  Money changes. 
B)  Trend percentages. 
C)  Component percentages. 
D)  Ratios. 
A)  Money changes. 
B)  Trend percentages. 
C)  Component percentages. 
D)  Ratios.

Question 7

Which of the following is not a measure of long-term credit risk?

Accepted Answer

A)  Quick ratio. 
B)  Debt ratio. 
C)  Interest coverage ratio. 
D)  Trend in net cash provided by operating activities. 
A)  Quick ratio. 
B)  Debt ratio. 
C)  Interest coverage ratio. 
D)  Trend in net cash provided by operating activities.

Question 8

Namekagon Corporation's interest coverage ratio for 2011 is:

Accepted Answer

A)  1.45. 
B)  1.69. 
C)  2.45. 
D)  4.92. 
A)  1.45. 
B)  1.69. 
C)  2.45. 
D)  4.92.

Question 9

A comparative financial statement:

Accepted Answer

A)  Places the balance sheet, the income statement, and the statement of cash flows side-by-side in order to compare the results. 
B)  Places two or more years of a financial statement side-by-side in order to compare results. 
C)  Places the financial statements of two or more companies side-by-side in order to compare results. 
D)  Places the dollar amounts next to the percentage amounts of a given year for the income statement. 
A)  Places the balance sheet, the income statement, and the statement of cash flows side-by-side in order to compare the results. 
B)  Places two or more years of a financial statement side-by-side in order to compare results. 
C)  Places the financial statements of two or more companies side-by-side in order to compare results. 
D)  Places the dollar amounts next to the percentage amounts of a given year for the income statement.

Question 10

Working capital is the excess of current assets over current liabilities.

Accepted Answer

A) True 
 B)False

Question 11

In a classified balance sheet, assets are subdivided into current assets, plant and equipment and other assets, while liabilities are all classified as current.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following transactions would cause a change in the amount of a company's working capital?

Accepted Answer

A)  Collection of an account receivable. 
B)  Payment of an account payable. 
C)  Borrowing cash over a 60-day period. 
D)  Selling merchandise at a price above its cost. 
A)  Collection of an account receivable. 
B)  Payment of an account payable. 
C)  Borrowing cash over a 60-day period. 
D)  Selling merchandise at a price above its cost.

Question 13

The quick ratio is especially useful in evaluating the liquidity of a company with fast moving inventories.

Accepted Answer

A) True 
 B)False

Question 14

Vertical analysis compares the results of financial information with a business in the same industry for a number of consecutive periods of time.

Accepted Answer

A) True 
 B)False

Question 15

All of the following captions or subtotals are typical of a multiple-step income statement, except for:

Accepted Answer

A)  Net sales. 
B)  Gross profit. 
C)  Total costs and expenses. 
D)  Operating income. 
A)  Net sales. 
B)  Gross profit. 
C)  Total costs and expenses. 
D)  Operating income.

Question 16

The quick ratio:

Accepted Answer

A)  Is computed by dividing current assets by current liabilities. 
B)  Is always higher than the current ratio. 
C)  Cannot be higher than the current ratio. 
D)  May be higher or lower than the current ratio. 
A)  Is computed by dividing current assets by current liabilities. 
B)  Is always higher than the current ratio. 
C)  Cannot be higher than the current ratio. 
D)  May be higher or lower than the current ratio.

Question 17

The debt ratio indicates the percentage of:

Accepted Answer

A)  Total assets financed by long-term mortgages. 
B)  Revenue consumed by interest expense. 
C)  Total assets financed by creditors. 
D)  Total liabilities classified as current. 
A)  Total assets financed by long-term mortgages. 
B)  Revenue consumed by interest expense. 
C)  Total assets financed by creditors. 
D)  Total liabilities classified as current.

Question 18

All of the following ratios are considered measures of liquidity except:

Accepted Answer

A)  Quick ratio. 
B)  Debt ratio. 
C)  Current ratio. 
D)  Receivables turnover rate. 
A)  Quick ratio. 
B)  Debt ratio. 
C)  Current ratio. 
D)  Receivables turnover rate.

Question 19

Return on assets measures the efficiency with which management:

Accepted Answer

A)  Generates earnings from the assets under its control, regardless of how these assets are financed. 
B)  Generates earnings from the assets under its control, giving consideration to any costs of financing these assets. 
C)  Generates cash from the assets under its control, regardless of accrual-based measures of profitability. 
D)  Converts its current assets into cash. 
A)  Generates earnings from the assets under its control, regardless of how these assets are financed. 
B)  Generates earnings from the assets under its control, giving consideration to any costs of financing these assets. 
C)  Generates cash from the assets under its control, regardless of accrual-based measures of profitability. 
D)  Converts its current assets into cash.

Question 20

A company cannot be increasing its market share if its net sales are declining.

Accepted Answer

A) True 
 B)False

Exam 14: Financial Statement Analysis

The principle factors affecting the quality of working capital are:

The trend in ratios is usually more useful than looking at a single year's ratio.

Current assets are those assets that can be converted into cash within:

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

The measurement of the relative size of each item included in a total is called:

Which of the following is not a measure of long-term credit risk?

Namekagon Corporation's interest coverage ratio for 2011 is:

A comparative financial statement:

Working capital is the excess of current assets over current liabilities.

In a classified balance sheet, assets are subdivided into current assets, plant and equipment and other assets, while liabilities are all classified as current.

Which of the following transactions would cause a change in the amount of a company's working capital?

The quick ratio is especially useful in evaluating the liquidity of a company with fast moving inventories.

Vertical analysis compares the results of financial information with a business in the same industry for a number of consecutive periods of time.

All of the following captions or subtotals are typical of a multiple-step income statement, except for:

The quick ratio:

The debt ratio indicates the percentage of:

All of the following ratios are considered measures of liquidity except:

Return on assets measures the efficiency with which management:

A company cannot be increasing its market share if its net sales are declining.

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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