Question 1

The current ratio at year-end (rounded to the nearest tenth) is:

Accepted Answer

A)  2.3 to 1. 
B)  6 to 1. 
C)  3.5 to 1. 
D)  Some other answer. 
A)  2.3 to 1. 
B)  6 to 1. 
C)  3.5 to 1. 
D)  Some other answer.

Question 2

In evaluating the quality of a company's earnings, which of the following factors is least important?

Accepted Answer

A)  The accounting methods used by management. 
B)  The trend of the company's earnings over a period of years. 
C)  The dollar amount of earnings per share. 
D)  The stability and sources of the company's earnings. 
A)  The accounting methods used by management. 
B)  The trend of the company's earnings over a period of years. 
C)  The dollar amount of earnings per share. 
D)  The stability and sources of the company's earnings.

Question 3

How would a company's working capital be affected if a substantial amount of accounts payable were paid in cash?

Accepted Answer

A)  It would be unaffected. 
B)  It would fall. 
C)  It would increase. 
D)  The change would depend on the relationship between the payables liquidated and current liabilities. 
A)  It would be unaffected. 
B)  It would fall. 
C)  It would increase. 
D)  The change would depend on the relationship between the payables liquidated and current liabilities.

Question 4

Namekagon Corporation's return on common stockholders' equity for 2011 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 5

The financial ratio intended to measure the effectiveness with which management has utilized the resources of the business, regardless of how these resources are financed, is:

Accepted Answer

A)  Gross profit rate. 
B)  Current ratio. 
C)  Return on assets. 
D)  Return on equity. 
A)  Gross profit rate. 
B)  Current ratio. 
C)  Return on assets. 
D)  Return on equity.

Question 6

Noble's return on equity was:

Accepted Answer

A)  10%. 
B)  13%. 
C)  21%. 
D)  1.73. 
A)  10%. 
B)  13%. 
C)  21%. 
D)  1.73.

Question 7

What is the current ratio?

Accepted Answer

A)  1.2 to 1. 
B)  Less than 2 to 1, but not 1.2 to 1. 
C)  2.6 to 1. 
D)  More than 2 to 1, but not 2.6 to 1. 
A)  1.2 to 1. 
B)  Less than 2 to 1, but not 1.2 to 1. 
C)  2.6 to 1. 
D)  More than 2 to 1, but not 2.6 to 1.

Question 8

Noble's return on assets was:

Accepted Answer

A)  2.6%. 
B)  21%. 
C)  26%. 
D)  37%. 
A)  2.6%. 
B)  21%. 
C)  26%. 
D)  37%.

Question 9

Claret Corporation's inventory turnover for 2009 is:

Accepted Answer

A)  6.6 times. 
B)  3.9 times. 
C)  4.2 times. 
D)  94 days. 
A)  6.6 times. 
B)  3.9 times. 
C)  4.2 times. 
D)  94 days.

Question 10

The gross profit rate is gross profit expressed as a percentage of net sales.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is not a measure of short-term liquidity?

Accepted Answer

A)  Quick ratio. 
B)  Working capital. 
C)  Current ratio. 
D)  Debt ratio. 
A)  Quick ratio. 
B)  Working capital. 
C)  Current ratio. 
D)  Debt ratio.

Question 12

If a company has a current ratio of 2 to 1, and purchases inventory on credit, what will this do to its current ratio?

Accepted Answer

A)  Increase the current ratio. 
B)  Decrease the current ratio. 
C)  Does not change the current ratio. 
D)  Cannot be determined. 
A)  Increase the current ratio. 
B)  Decrease the current ratio. 
C)  Does not change the current ratio. 
D)  Cannot be determined.

Question 13

In an attempt to standardize financial practices worldwide, two areas of particular interest to the International Accounting Standards Committee are:

Accepted Answer

A)  Capitalizing and expensing. 
B)  Segments and consolidations. 
C)  Pensions and leases. 
D)  Partnerships and corporations. 
A)  Capitalizing and expensing. 
B)  Segments and consolidations. 
C)  Pensions and leases. 
D)  Partnerships and corporations.

Question 14

Operating income excludes each of the following, except:

Accepted Answer

A)  Interest expense. 
B)  Income taxes. 
C)  Depreciation. 
D)  Prepaid expenses. 
A)  Interest expense. 
B)  Income taxes. 
C)  Depreciation. 
D)  Prepaid expenses.

Question 15

Financial ratios
Given below are comparative balance sheets and an income statement for the Excellent Corporation:
  
All sales were made on account. Cash dividends declared during the year totaled $58,550. Compute the following:

Accepted Answer

The answer of Financial ratios
Given below are comparative balance sheets...

Question 16

A company whose future earnings are expected to rise substantially is likely to have a higher price-earnings ratio than a company whose future earnings are expected to decline.

Accepted Answer

A) True 
 B)False

Question 17

A high quality of earnings is indicated by:

Accepted Answer

A)  Earnings derived largely from newly introduced products. 
B)  Declaration of both cash and stock dividends. 
C)  Use of the FIFO method of inventory during sustained inflation. 
D)  A history of increasing earnings and conservative accounting methods. 
A)  Earnings derived largely from newly introduced products. 
B)  Declaration of both cash and stock dividends. 
C)  Use of the FIFO method of inventory during sustained inflation. 
D)  A history of increasing earnings and conservative accounting methods.

Question 18

The price-earnings ratio is calculated by dividing earnings per share by the current market price of a share of the company's stock.

Accepted Answer

A) True 
 B)False

Question 19

The more pessimistic investors' expectations regarding a company's future performance, the lower the price-earnings ratio is likely to be.

Accepted Answer

A) True 
 B)False

Question 20

Current assets are those assets that can be converted into cash within a year and never longer.

Accepted Answer

A) True 
 B)False

Exam 14: Financial Statement Analysis

The current ratio at year-end (rounded to the nearest tenth) is:

In evaluating the quality of a company's earnings, which of the following factors is least important?

How would a company's working capital be affected if a substantial amount of accounts payable were paid in cash?

Namekagon Corporation's return on common stockholders' equity for 2011 is:

The financial ratio intended to measure the effectiveness with which management has utilized the resources of the business, regardless of how these resources are financed, is:

Noble's return on equity was:

What is the current ratio?

Noble's return on assets was:

Claret Corporation's inventory turnover for 2009 is:

The gross profit rate is gross profit expressed as a percentage of net sales.

Which of the following is not a measure of short-term liquidity?

If a company has a current ratio of 2 to 1, and purchases inventory on credit, what will this do to its current ratio?

In an attempt to standardize financial practices worldwide, two areas of particular interest to the International Accounting Standards Committee are:

Operating income excludes each of the following, except:

Financial ratios Given below are comparative balance sheets and an income statement for the Excellent Corporation: All sales were made on account. Cash dividends declared during the year totaled $58,550. Compute the following:

A company whose future earnings are expected to rise substantially is likely to have a higher price-earnings ratio than a company whose future earnings are expected to decline.

A high quality of earnings is indicated by:

The price-earnings ratio is calculated by dividing earnings per share by the current market price of a share of the company's stock.

The more pessimistic investors' expectations regarding a company's future performance, the lower the price-earnings ratio is likely to be.

Current assets are those assets that can be converted into cash within a year and never longer.

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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