Question 1

When an income statement does not show gross profit or operating income it is called a consolidated statement.

Accepted Answer

A) True 
 B)False

Question 2

If a retail store has a current ratio of 2.5 and current assets of $195,000, the amount of working capital is:

Accepted Answer

A)  $78,000. 
B)  $380.000. 
C)  $330,000. 
D)  $117,000. 
A)  $78,000. 
B)  $380.000. 
C)  $330,000. 
D)  $117,000.

Question 3

Noble's gross profit rate was:

Accepted Answer

A)  18%. 
B)  46%. 
C)  50%. 
D)  54%. 
A)  18%. 
B)  46%. 
C)  50%. 
D)  54%.

Question 4

The price-earnings ratio is measured by dividing:

Accepted Answer

A)  Book value by earnings per share. 
B)  Par value by earnings per share. 
C)  Market value by earnings per share. 
D)  Market value by total net income. 
A)  Book value by earnings per share. 
B)  Par value by earnings per share. 
C)  Market value by earnings per share. 
D)  Market value by total net income.

Question 5

The Piazza Company has working capital of $540,000 and current assets of $810,000. The current ratio is:

Accepted Answer

A)  0.67. 
B)  1.50. 
C)  2.00. 
D)  3.00. 
A)  0.67. 
B)  1.50. 
C)  2.00. 
D)  3.00.

Question 6

The changes in financial statement items from a base year to following years are 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

If a retail store has a current ratio of 2.5 and working capital of $117,000. What are the total of the current assets?

Accepted Answer

A)  $46,800. 
B)  $117,000. 
C)  $195,000. 
D)  $292,500. 
A)  $46,800. 
B)  $117,000. 
C)  $195,000. 
D)  $292,500.

Question 8

The quality of earnings tends to be higher for a company that uses straight-line depreciation and defers costs whenever possible than for a company which uses accelerated depreciation and defers costs only when necessary.

Accepted Answer

A) True 
 B)False

Question 9

Measures of solvency and credit risk
Shown below are selected items appearing in a recent balance sheet of Grant Products. (Dollar amounts are in thousands.)
 
(a) Compute the following:
(1) Total quick assets $____________
(2) Total current assets $____________
(3) Total current liabilities $____________
(4) Quick ratio ______ to 1
(5) Current ratio ______ to 1
(b) Research indicates an industry average quick ratio is 1.3 to 1, and a current ratio of 2.3 to 1. Based upon this information, does Grant Products appear more or less solvent than the average company in its industry? Explain briefly.

Accepted Answer

@#IMG-DLM&
(b) Grant Products' current ratio and q

Question 10

The current ratio:

Accepted Answer

A)  Is computed by dividing current assets by current liabilities. 
B)  Is computed by subtracting current liabilities from current assets. 
C)  Remains unchanged throughout the operating cycle. 
D)  Is a measure of short-term profitability. 
A)  Is computed by dividing current assets by current liabilities. 
B)  Is computed by subtracting current liabilities from current assets. 
C)  Remains unchanged throughout the operating cycle. 
D)  Is a measure of short-term profitability.

Question 11

Comparative financial statements compare the company's current statements with:

Accepted Answer

A)  Those of prior periods. 
B)  Those of other companies in the same industry. 
C)  Those of the company's principal competitor. 
D)  The budgeted level of performance for the period. 
A)  Those of prior periods. 
B)  Those of other companies in the same industry. 
C)  Those of the company's principal competitor. 
D)  The budgeted level of performance for the period.

Question 12

The inventory turnover rate indicates how quickly inventory sells.

Accepted Answer

A) True 
 B)False

Question 13

ROI: What and why?
In general terms, what do all "ROI" ratios measure? Why are such computations useful?

Accepted Answer

"ROI" ratios measure an investor's "retu

Question 14

Assume that net sales are increasing faster than the rate of inflation, and that the company's gross profit rate is rising. Of the following, the most logical conclusion is that:

Accepted Answer

A)  The company's cost of purchasing merchandise is rising rapidly. 
B)  Operating expenses are falling. 
C)  Demand for the company's products is very strong. 
D)  The company has achieved an increase in sales volume by reducing its sales prices. 
A)  The company's cost of purchasing merchandise is rising rapidly. 
B)  Operating expenses are falling. 
C)  Demand for the company's products is very strong. 
D)  The company has achieved an increase in sales volume by reducing its sales prices.

Question 15

Which of the following usually is least important as a measure of short-term liquidity?

Accepted Answer

A)  Quick ratio. 
B)  Debt ratio. 
C)  Current ratio. 
D)  Cash flow from operating activities. 
A)  Quick ratio. 
B)  Debt ratio. 
C)  Current ratio. 
D)  Cash flow from operating activities.

Question 16

Supreme's return on assets was:

Accepted Answer

A)  9.75%. 
B)  6.75%. 
C)  17.75%. 
D)  30.75%. 
A)  9.75%. 
B)  6.75%. 
C)  17.75%. 
D)  30.75%.

Question 17

Eleva Corporation's days to collect accounts receivable for 2011 is:

Accepted Answer

A)  54.7 days. 
B)  67.3 days. 
C)  88.0 days. 
D)  94.0 days. 
A)  54.7 days. 
B)  67.3 days. 
C)  88.0 days. 
D)  94.0 days.

Question 18

A company should carry the amount of working capital necessary to conduct operations, not necessarily maximize its working capital.

Accepted Answer

A) True 
 B)False

Question 19

A company's liquidity refers to its ability to remain profitable.

Accepted Answer

A) True 
 B)False

Question 20

The debt ratio is computed by dividing total liabilities by current assets.

Accepted Answer

A) True 
 B)False

Exam 14: Financial Statement Analysis

When an income statement does not show gross profit or operating income it is called a consolidated statement.

If a retail store has a current ratio of 2.5 and current assets of $195,000, the amount of working capital is:

Noble's gross profit rate was:

The price-earnings ratio is measured by dividing:

The Piazza Company has working capital of $540,000 and current assets of $810,000. The current ratio is:

The changes in financial statement items from a base year to following years are called:

If a retail store has a current ratio of 2.5 and working capital of $117,000. What are the total of the current assets?

The quality of earnings tends to be higher for a company that uses straight-line depreciation and defers costs whenever possible than for a company which uses accelerated depreciation and defers costs only when necessary.

The current ratio:

Comparative financial statements compare the company's current statements with:

The inventory turnover rate indicates how quickly inventory sells.

ROI: What and why? In general terms, what do all "ROI" ratios measure? Why are such computations useful?

Assume that net sales are increasing faster than the rate of inflation, and that the company's gross profit rate is rising. Of the following, the most logical conclusion is that:

Which of the following usually is least important as a measure of short-term liquidity?

Supreme's return on assets was:

Eleva Corporation's days to collect accounts receivable for 2011 is:

A company should carry the amount of working capital necessary to conduct operations, not necessarily maximize its working capital.

A company's liquidity refers to its ability to remain profitable.

The debt ratio is computed by dividing total liabilities by current assets.

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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