Question 1

Alpha Company provided the following balance sheet for 2014:   What is the company's plant assets to long-term liabilities ratio?

Accepted Answer

A)  2.5 
B)  4.5 
C)  1.7 
D)  None of these answers is correct. 
A)  2.5 
B)  4.5 
C)  1.7 
D)  None of these answers is correct. B

Question 2

Indicate whether each of the following statements about financial statement analysis is true or false.
1. Vertical analysis of a company's balance sheet is useful in assessing its liquidity.
2. Common size financial statements are a form of vertical analysis, but the common size statements for two or more years may usefully be compared.
3. Vertical analysis of a balance sheet involves converting each component to a percentage of stockholders' equity.
4. Small percentage changes resulting from vertical analysis may still represent large dollar amounts; therefore, changes in both absolute dollar amounts and percentages should be examined.
5. A common size income statement is prepared by converting each component to a percentage of net income.

Accepted Answer

1. True
2. True
3. False
4. True
5. False

Question 3

The following balance sheet information is provided for Santana Company for 2014:   What is the company's debt to equity ratio?

Accepted Answer

A)  42% 
B)  130% 
C)  43% 
D)  77% 
A)  42% 
B)  130% 
C)  43% 
D)  77% D

Question 4

On December 31, 2013, Allen Company's total current assets were $600,000 and its total current liabilities were $380,000. On January 1, 2014, Allen paid $20,000 on accounts payable.
Required:
(a) Compute Allen's working capital before and after paying the account payable.
(b) Compute Allen's current ratio before and after paying the account payable. Round your answer to two decimal places.

Accepted Answer

(a) Working capital before paying the ac

Question 5

Discuss the limitations that affect financial statement analysis.

Accepted Answer

The results of financial statement analy

Question 6

The accounts receivable turnover ratio can be used to asses a firm's solvency.

Accepted Answer

A) True 
 B)False

Question 7

The study of an individual item or account over several periods in the same financial year or over many years is known as:

Accepted Answer

A)  Liquidity analysis 
B)  Ratio analysis 
C)  Vertical analysis 
D)  Horizontal analysis 
A)  Liquidity analysis 
B)  Ratio analysis 
C)  Vertical analysis 
D)  Horizontal analysis

Question 8

Various ratios are computed to assess different aspects of a company's financial condition and/or strength.
Required:
In the table below, indicate which aspect of financial condition each specified ratio is designed to assess:

Accepted Answer

The answer of Various ratios are computed to assess different...

Question 9

Long-term creditors are usually most interested in evaluating:

Accepted Answer

A)  Liquidity. 
B)  Managerial effectiveness. 
C)  Solvency. 
D)  Profitability. 
A)  Liquidity. 
B)  Managerial effectiveness. 
C)  Solvency. 
D)  Profitability.

Question 10

The following balance sheet information is provided for Gaynor Company: $\begin{array}{|l|r|r|}
\hline \text { Assets } &  2014  & 2013 \
\hline \text { Cash } & \$  4,000 & \$  2,000 \
\hline \text { Accounts receivable } &  15,000 &  12,000 \
\hline \text { Inventory } & \$  35,000 & \$  38,000 \
\hline
\end{array}$ Assuming 2014 cost of goods sold is $153,300, what is the company's inventory turnover?

Accepted Answer

A)  4.0 times 
B)  4.4 times 
C)  4.2 times 
D)  None of these answers is correct. 
A)  4.0 times 
B)  4.4 times 
C)  4.2 times 
D)  None of these answers is correct.

Question 11

The following information is from the financial records of Newton Company for 2014: $\begin{array}{|l|lc|}
\hline \text { Sales } & \$  620,000 \
\hline \text { Interest expense } & 26,000 \\hline \text { Income tax expense } & 46,000 \
\hline \text { Net income } & 104,000 \
\hline
\end{array}$ 
Required:
Calculate the number of times interest is earned for Newton in 2014. Round your answer to one decimal place.

Accepted Answer

Number of times interest is earned = Ear

Question 12

Lilly's Corporation has working capital of $620,000, and Harmon Corporation has working capital of $840,000. Which of the following statements is incorrect?

Accepted Answer

A)  Since working capital is an absolute amount, other factors such as size of the company and materiality will help to determine liquidity of these two companies. 
B)  Since Harmon's working capital exceeds Lilly's working capital, it is safe to conclude that Harmon is more liquid than Lilly. 
C)  If Lilly Corporation is smaller than Harmon or has lower current liabilities; Lilly could be more liquid than Harmon. 
D)  None of these answers is correct. 
A)  Since working capital is an absolute amount, other factors such as size of the company and materiality will help to determine liquidity of these two companies. 
B)  Since Harmon's working capital exceeds Lilly's working capital, it is safe to conclude that Harmon is more liquid than Lilly. 
C)  If Lilly Corporation is smaller than Harmon or has lower current liabilities; Lilly could be more liquid than Harmon. 
D)  None of these answers is correct.

Question 13

The Poole Company reported the following income for 2014:   What is the company's net margin?

Accepted Answer

A)  73% 
B)  40% 
C)  18% 
D)  27% 
A)  73% 
B)  40% 
C)  18% 
D)  27%

Question 14

If the company purchased a $60,000 piece of equipment by paying $30,000 and having the rest financed with a short-term note from the bank, then immediately after this transaction what is the expected impact on the current ratio?

Accepted Answer

A)  Current assets decrease and current liabilities increase by the same amount therefore, the current ratio decreases. 
B)  Current liabilities decrease therefore, the current ratio decreases. 
C)  Current assets and current liabilities decrease by the same amount therefore, the current ratio increases. 
D)  Current assets decrease therefore, the current ratio increases. 
A)  Current assets decrease and current liabilities increase by the same amount therefore, the current ratio decreases. 
B)  Current liabilities decrease therefore, the current ratio decreases. 
C)  Current assets and current liabilities decrease by the same amount therefore, the current ratio increases. 
D)  Current assets decrease therefore, the current ratio increases.

Question 15

The following information applies to Markham Company:   
Additional information: Net credit sales = $220,000; beginning accounts receivable = $11,000.
Required:
Compute Markham's
(a) Quick ratio
(b) Current ratio
(c) Working capital
(d) Accounts receivable turnover
(e) Average days to collect receivables
Round your answers to two decimal places.

Accepted Answer

(a) Quick ratio = ($6,000 + $13,000)/($5

Question 16

The following balance sheet information is provided for Patton Company: $\begin{array}{|l|r|r|}
\hline \text { Assets } &  2014  & 2013 \
\hline \text { Cash } & \$  4,000 & \$  2,000 \
\hline \text { Accounts receivable } &  15,000 &  12,000 \
\hline \text { Inventory } & \$  35,000 & \$  38,000 \
\hline
\end{array}$ Assuming 2014 cost of goods sold is $730,000, what is the company's average days to sell inventory? (Use 365 days in a year. Do not round your intermediate calculations.)

Accepted Answer

A)  17.5 days 
B)  18.25 days 
C)  19 days 
D)  20.86 days 
A)  17.5 days 
B)  18.25 days 
C)  19 days 
D)  20.86 days

Question 17

Gamma Company and Chi Company are similar and similar-sized companies operating in the same industry. At the end of the most recent year, Gamma's price/earnings ratio was 22.0, and Chi's price/earnings ratio was 14.2. What conclusion would you draw based on the difference in price/earnings ratios for the two companies?

Accepted Answer

The price/earnings ratio is a measure of

Question 18

Earnings before interest and taxes divided by interest expense is the formula for which of these analytical measures?

Accepted Answer

A)  Debt to assets ratio 
B)  Earnings per share 
C)  Return on investment 
D)  Number of times interest is earned 
A)  Debt to assets ratio 
B)  Earnings per share 
C)  Return on investment 
D)  Number of times interest is earned

Question 19

Which of the following statement is correct regarding the quick ratio?

Accepted Answer

A)  The numerator for the quick ratio is current assets - inventory - accounts receivable. 
B)  The numerator for the quick ratio is current assets. 
C)  The quick ratio is also called the working capital ratio. 
D)  The quick ratio is a more conservative variation of the current ratio. 
A)  The numerator for the quick ratio is current assets - inventory - accounts receivable. 
B)  The numerator for the quick ratio is current assets. 
C)  The quick ratio is also called the working capital ratio. 
D)  The quick ratio is a more conservative variation of the current ratio.

Question 20

Selected financial information for Martin Company for 2014 follows: $\begin{array}{|l|l|}
\hline \text { Sales } & \$ 498,000 \
\hline \text { Cost of goods sold } & 320,000 \
\hline \text { Merchandise inventory } & \\hline \text { Beginning of year } & 72,000 \
\hline \text { End of year } & 80,000 \
\hline
\end{array}$ 
Required:
How many times did Martin's merchandise inventory turnover during 2014? Round your answer to one decimal place.

Accepted Answer

Inventory turnover = cost of g

Alpha Company provided the following balance sheet for 2014: What is the company's plant assets to long-term liabilities ratio?

The following balance sheet information is provided for Santana Company for 2014: What is the company's debt to equity ratio?

Discuss the limitations that affect financial statement analysis.

The accounts receivable turnover ratio can be used to asses a firm's solvency.

The study of an individual item or account over several periods in the same financial year or over many years is known as:

Various ratios are computed to assess different aspects of a company's financial condition and/or strength. Required: In the table below, indicate which aspect of financial condition each specified ratio is designed to assess:

Long-term creditors are usually most interested in evaluating:

The following balance sheet information is provided for Gaynor Company: Assets 2014 2013 Cash \ 4,000 \ 2,000 Accounts receivable 15,000 12,000 Inventory \ 35,000 \ 38,000 Assuming 2014 cost of goods sold is $153,300, what is the company's inventory turnover?

The following information is from the financial records of Newton Company for 2014: Sales \ 620,000 Interest expense 26,000 Income tax expense 46,000 Net income 104,000 Required: Calculate the number of times interest is earned for Newton in 2014. Round your answer to one decimal place.

Lilly's Corporation has working capital of $620,000, and Harmon Corporation has working capital of $840,000. Which of the following statements is incorrect?

The Poole Company reported the following income for 2014: What is the company's net margin?

If the company purchased a $60,000 piece of equipment by paying $30,000 and having the rest financed with a short-term note from the bank, then immediately after this transaction what is the expected impact on the current ratio?

Earnings before interest and taxes divided by interest expense is the formula for which of these analytical measures?

Which of the following statement is correct regarding the quick ratio?

Selected financial information for Martin Company for 2014 follows: Sales \ 498,000 Cost of goods sold 320,000 Merchandise inventory Beginning of year 72,000 End of year 80,000 Required: How many times did Martin's merchandise inventory turnover during 2014? Round your answer to one decimal place.

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Long-Term Operational Assets

Accounting for Liabilities

Proprietorships, Partnerships, and Corporations

An Introduction to Management Accounting

Cost Behavior, Operating Leverage, and Profitability Analysis

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Planning for Capital Investments

Filters

Exam 9: Financial Statement Analysis

Alpha Company provided the following balance sheet for 2014: What is the company's plant assets to long-term liabilities ratio?

The following balance sheet information is provided for Santana Company for 2014: What is the company's debt to equity ratio?

Discuss the limitations that affect financial statement analysis.

The accounts receivable turnover ratio can be used to asses a firm's solvency.

The study of an individual item or account over several periods in the same financial year or over many years is known as:

Various ratios are computed to assess different aspects of a company's financial condition and/or strength. Required: In the table below, indicate which aspect of financial condition each specified ratio is designed to assess:

Long-term creditors are usually most interested in evaluating:

The following balance sheet information is provided for Gaynor Company: Assets 2014 2013 Cash \ 4,000 \ 2,000 Accounts receivable 15,000 12,000 Inventory \ 35,000 \ 38,000 Assuming 2014 cost of goods sold is $153,300, what is the company's inventory turnover?

The following information is from the financial records of Newton Company for 2014: Sales \ 620,000 Interest expense 26,000 Income tax expense 46,000 Net income 104,000 Required: Calculate the number of times interest is earned for Newton in 2014. Round your answer to one decimal place.

Lilly's Corporation has working capital of $620,000, and Harmon Corporation has working capital of $840,000. Which of the following statements is incorrect?

The Poole Company reported the following income for 2014: What is the company's net margin?

If the company purchased a $60,000 piece of equipment by paying $30,000 and having the rest financed with a short-term note from the bank, then immediately after this transaction what is the expected impact on the current ratio?

Earnings before interest and taxes divided by interest expense is the formula for which of these analytical measures?

Which of the following statement is correct regarding the quick ratio?

Selected financial information for Martin Company for 2014 follows: Sales \ 498,000 Cost of goods sold 320,000 Merchandise inventory Beginning of year 72,000 End of year 80,000 Required: How many times did Martin's merchandise inventory turnover during 2014? Round your answer to one decimal place.

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Long-Term Operational Assets

Accounting for Liabilities

Proprietorships, Partnerships, and Corporations

An Introduction to Management Accounting

Cost Behavior, Operating Leverage, and Profitability Analysis

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Planning for Capital Investments

Filters