Question 1

The measures most often used in evaluating solvency-the current ratio, quick ratio, and amount of working capital-are developed from amounts appearing in the:

Accepted Answer

A)  Balance sheet. 
B)  Income statement. 
C)  Statement of retained earnings. 
D)  Statement of cash flows. 
A)  Balance sheet. 
B)  Income statement. 
C)  Statement of retained earnings. 
D)  Statement of cash flows.

Question 2

The measurement that best reflects investors' expectations about future earnings is:

Accepted Answer

A)  Earnings per share. 
B)  Return on assets. 
C)  The price-earnings ratio. 
D)  Return on equity. 
A)  Earnings per share. 
B)  Return on assets. 
C)  The price-earnings ratio. 
D)  Return on equity.

Question 3

What is the quick ratio?

Accepted Answer

A)  1.5 to 1. 
B)  .7 to 1. 
C)  .45 to 1. 
D)  .8 to 1. 
A)  1.5 to 1. 
B)  .7 to 1. 
C)  .45 to 1. 
D)  .8 to 1.

Question 4

The term, classified financial statements, refers:

Accepted Answer

A)  To the financial statements of all companies working on government projects. 
B)  Only to the financial statements of defense contractors working on secret projects. 
C)  To financial statements prepared for use by management, but not for distribution outside of the organization. 
D)  To financial statements in which items with certain characteristics are placed together in a group in an effort to develop useful subtotals. 
A)  To the financial statements of all companies working on government projects. 
B)  Only to the financial statements of defense contractors working on secret projects. 
C)  To financial statements prepared for use by management, but not for distribution outside of the organization. 
D)  To financial statements in which items with certain characteristics are placed together in a group in an effort to develop useful subtotals.

Question 5

The return on average total stockholders' equity during the year (rounded to the nearest 1 percent) was:

Accepted Answer

A)  50%. 
B)  41%. 
C)  38%. 
D)  Some other answer. 
A)  50%. 
B)  41%. 
C)  38%. 
D)  Some other answer.

Question 6

If total current assets are $140,000 at the end of Year 1, increase by $50,000 by the end of Year 2, and increase by $50,000 in Year 3, the percentage increase over the preceding year is less in Year 3 than in Year 2.

Accepted Answer

A) True 
 B)False

Question 7

In a multiple-step income statement, income taxes are not classified as operating expenses because:

Accepted Answer

A)  Income taxes do not contribute to the production of revenue. 
B)  Income taxes stem from the manner in which assets are financed, not the manner in which they are used in business operations. 
C)  Not all forms of business organization are subject to income taxes. 
D)  The statement is incorrect; income taxes are classified as operating expenses. 
A)  Income taxes do not contribute to the production of revenue. 
B)  Income taxes stem from the manner in which assets are financed, not the manner in which they are used in business operations. 
C)  Not all forms of business organization are subject to income taxes. 
D)  The statement is incorrect; income taxes are classified as operating expenses.

Question 8

What is the amount of working capital?

Accepted Answer

A)  $225,000. 
B)  $300,000. 
C)  $150,000. 
D)  $450,000. 
A)  $225,000. 
B)  $300,000. 
C)  $150,000. 
D)  $450,000.

Question 9

Current ratio and working capital
The balance sheet of Red Missile Company contained the following items, among others:
$$\begin{array} { | l | r | } 
\hline \text { Cash } & \$ 180,000 \
\hline \text { Accounts Receivable } & \$ 84,000 \
\hline \text { Inventory } & \$ 124,000 \
\hline \text { Store Equipment (net) } & \$ 236,000 \
\hline \text { Other Assets } & \$ 67,500 \
\hline \text { Mortgage Payable (due in 3 years) } & \$ 169,000 \
\hline \text { Note Payable (due in 10 days) } & \$ 163,000 \
\hline \text { Accounts Payable } & \$ 96,000 \
\hline \text { Capital Stock } & \$ 67,500 \
\hline \text { Retained Earnings } & \$ 197,000 \
\hline
\end{array}$$
(a) From the above information compute:
(1) Current assets: $_______
(2) Current liabilities: $______
(3) The current ratio: ______ to 1
(4) Working capital: $______
(b) Assume that Red Missile Company pays the note payable of $163,000, thus reducing cash to $17,000. Compute the following after the completion of this transaction:
(1) The current ratio: ______ to 1
(2) Working capital: $______

Accepted Answer

The answer of Current ratio and working capital
The balance sheet...

Question 10

The current ratio is calculated by:

Accepted Answer

A)  Dividing current assets by total assets. 
B)  Dividing current assets by total liabilities. 
C)  Dividing current assets by stockholders' equity. 
D)  Dividing current assets by current liabilities. 
A)  Dividing current assets by total assets. 
B)  Dividing current assets by total liabilities. 
C)  Dividing current assets by stockholders' equity. 
D)  Dividing current assets by current liabilities.

Question 11

Given below are comparative balance sheets and an income statement for the Copper Corporation:
 
All sales were made on account. Cash dividends declared during the year totaled $29,300. Compute the following:
a. Average accounts receivable turnover times
b. Book value per share at the end of the current year $______________
c. Earnings per share of capital stock $______________
d. Return on assets %
e. Return on common stockholders' equity is computed by dividing $____________ by $______________

Accepted Answer

a. $936,000 F1F1F1S1F1F1F10 $234,000) =

Question 12

The gross profit rate usually is lowest on fast moving merchandise and highest on specialty and novelty products.

Accepted Answer

A) True 
 B)False

Question 13

Quick assets include which of the following?

Accepted Answer

A)  Cash, marketable securities, and receivables. 
B)  Cash, marketable securities, and inventories. 
C)  Cash, inventories, and receivables. 
D)  Market securities, receivables, and inventories. 
A)  Cash, marketable securities, and receivables. 
B)  Cash, marketable securities, and inventories. 
C)  Cash, inventories, and receivables. 
D)  Market securities, receivables, and inventories.

Question 14

In the long-run, it is most important for a business to generate an inflow of cash from its:

Accepted Answer

A)  Operating activities. 
B)  Stockholders. 
C)  Investing activities. 
D)  Creditors. 
A)  Operating activities. 
B)  Stockholders. 
C)  Investing activities. 
D)  Creditors.

Question 15

Namekagon Corporation's book value per share for 2011 is:

Accepted Answer

A)  $7.32. 
B)  $10.58. 
C)  $21.16. 
D)  $3.14. 
A)  $7.32. 
B)  $10.58. 
C)  $21.16. 
D)  $3.14.

Question 16

Claret Corporation's accounts receivable turnover for 2009 is:

Accepted Answer

A)  4.6 times. 
B)  2.9 times. 
C)  5.4 times. 
D)  68 days. 
A)  4.6 times. 
B)  2.9 times. 
C)  5.4 times. 
D)  68 days.

Question 17

Evaluating the adequacy of net income
Assume that Delta Corp. earns net income of $1,000,000 in the current year. Identify two important factors that investors should consider in evaluating the reasonableness of this dollar amount. Explain what investors may learn from each of these considerations.

Accepted Answer

Students are to identify two important f

Question 18

A single-step and multiple-step income statement are different in form and in the amount of net income reported.

Accepted Answer

A) True 
 B)False

Question 19

Multiple-step income statement
Shown below is a recent income statement for Phaeton, Inc.:
  
Prepare an income statement for the year in a multiple-step format. (Use the grid provided below.)

Accepted Answer

The answer of Multiple-step income statement
Shown below is a recent...

Question 20

The gross profit rate represents:

Accepted Answer

A)  Total sales revenue. 
B)  The percentage change in net sales from the prior period. 
C)  The percentage of sales revenue remaining after providing for the cost of the merchandise sold. 
D)  Net income stated as a percentage of total sales revenue. 
A)  Total sales revenue. 
B)  The percentage change in net sales from the prior period. 
C)  The percentage of sales revenue remaining after providing for the cost of the merchandise sold. 
D)  Net income stated as a percentage of total sales revenue.

Exam 14: Financial Statement Analysis

The measures most often used in evaluating solvency-the current ratio, quick ratio, and amount of working capital-are developed from amounts appearing in the:

The measurement that best reflects investors' expectations about future earnings is:

What is the quick ratio?

The term, classified financial statements, refers:

The return on average total stockholders' equity during the year (rounded to the nearest 1 percent) was:

If total current assets are $140,000 at the end of Year 1, increase by $50,000 by the end of Year 2, and increase by $50,000 in Year 3, the percentage increase over the preceding year is less in Year 3 than in Year 2.

In a multiple-step income statement, income taxes are not classified as operating expenses because:

What is the amount of working capital?

The current ratio is calculated by:

The gross profit rate usually is lowest on fast moving merchandise and highest on specialty and novelty products.

Quick assets include which of the following?

In the long-run, it is most important for a business to generate an inflow of cash from its:

Namekagon Corporation's book value per share for 2011 is:

Claret Corporation's accounts receivable turnover for 2009 is:

Evaluating the adequacy of net income Assume that Delta Corp. earns net income of $1,000,000 in the current year. Identify two important factors that investors should consider in evaluating the reasonableness of this dollar amount. Explain what investors may learn from each of these considerations.

A single-step and multiple-step income statement are different in form and in the amount of net income reported.

Multiple-step income statement Shown below is a recent income statement for Phaeton, Inc.: Prepare an income statement for the year in a multiple-step format. (Use the grid provided below.)

The gross profit rate represents:

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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