Question 1

Select the incorrect statement regarding the analysis of absolute amounts of various accounts reported on the financial statements.

Accepted Answer

A)  Financial statement users with expertise in particular industries can look at absolute amounts and assess a company's performance in a certain area. 
B)  To correctly evaluate an absolute amount, the analyst must consider its relative importance. 
C)  Economic statistics such as the gross national product are built upon totals of absolute amounts reported by businesses. 
D)  Using absolute amounts eliminates the problem of varying materiality levels. 
A)  Financial statement users with expertise in particular industries can look at absolute amounts and assess a company's performance in a certain area. 
B)  To correctly evaluate an absolute amount, the analyst must consider its relative importance. 
C)  Economic statistics such as the gross national product are built upon totals of absolute amounts reported by businesses. 
D)  Using absolute amounts eliminates the problem of varying materiality levels.

Question 2

You are considering an investment in Frontier Airlines stock and wish to assess the firm's earnings performance. All of the following ratios can be used to assess profitability except:

Accepted Answer

A)  Return on equity. 
B)  Asset turnover. 
C)  Return on investment. 
D)  Times interest earned. 
A)  Return on equity. 
B)  Asset turnover. 
C)  Return on investment. 
D)  Times interest earned.

Question 3

Starwood Corporation has current assets of $200,000, total current liabilities of $750,000 net credit sales of $1,300,000, beginning accounts receivable of $65,000 and ending accounts receivable of $69,000. What is Starwood's accounts receivable turnover?

Accepted Answer

A)  21.8 times 
B)  19.4 times 
C)  22.4 times 
D)  5.8 times 
A)  21.8 times 
B)  19.4 times 
C)  22.4 times 
D)  5.8 times

Question 4

Indicate whether each of the following statements about financial statement analysis is true or false.
1. Having too little inventory can hurt a company's profitability because of lost sales.
2. Having too much inventory can hurt a company's profitability because of excess costs.
3. Generally, a lower inventory turnover indicates that merchandise is being handled more efficiently.
4. Average days to sell inventory is the number of times, on average, that inventory is replaced during the year.
5. Values for the inventory turnover ratio vary widely among different industries.

Accepted Answer

1. True
2.

Question 5

In vertical analysis, each item is expressed as a percentage of:

Accepted Answer

A)  Total expenses on the income statement. 
B)  Net income on the income statement. 
C)  Sales on the income statement. 
D)  None of these answers is correct. 
A)  Total expenses on the income statement. 
B)  Net income on the income statement. 
C)  Sales on the income statement. 
D)  None of these answers is correct.

Question 6

You are considering an investment in Facebook stock and wish to assess the company's position in the stock market. All of the following ratios can be used except:

Accepted Answer

A)  Dividend yield. 
B)  Earnings per share. 
C)  Working capital. 
D)  Price-earnings ratio. 
A)  Dividend yield. 
B)  Earnings per share. 
C)  Working capital. 
D)  Price-earnings ratio.

Question 7

Solvency ratios are used to analyze the long-term debt-paying ability and the composition of the financing structure of the firm.

Accepted Answer

A) True 
 B)False

Question 8

The drawback of studying absolute amounts reported in financial statements is the problem of differing materiality levels.

Accepted Answer

A) True 
 B)False

Question 9

The return on investment measure is also referred to as:

Accepted Answer

A)  Net margin. 
B)  Return on equity. 
C)  Return on debt. 
D)  Return on assets. 
A)  Net margin. 
B)  Return on equity. 
C)  Return on debt. 
D)  Return on assets.

Question 10

The quick ratio although similar to the current ratio is more conservative.

Accepted Answer

A) True 
 B)False

Question 11

Select the correct statement regarding vertical analysis.

Accepted Answer

A)  Vertical analysis of the income statement involves showing each item as a percentage of sales. 
B)  Vertical analysis of the balance sheet involves showing each asset as a percentage of total assets. 
C)  Vertical analysis examines two or more items from the financial statements of one accounting period. 
D)  All of these answers are correct. 
A)  Vertical analysis of the income statement involves showing each item as a percentage of sales. 
B)  Vertical analysis of the balance sheet involves showing each asset as a percentage of total assets. 
C)  Vertical analysis examines two or more items from the financial statements of one accounting period. 
D)  All of these answers are correct.

Question 12

As of December 31, 2013, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, 2014, Gant collected $5,200 of accounts receivable. As a result of this transaction, Gant's working capital will:

Accepted Answer

A)  Increase. 
B)  Decrease. 
C)  Remain the same. 
D)  Cannot be determined. 
A)  Increase. 
B)  Decrease. 
C)  Remain the same. 
D)  Cannot be determined.

Question 13

Rialto Company collected $5,000 on account. What impact will this transaction have on the firm's current ratio?

Accepted Answer

A)  No impact 
B)  Increase it 
C)  Decrease it 
D)  Not enough information is provided to answer the question. 
A)  No impact 
B)  Increase it 
C)  Decrease it 
D)  Not enough information is provided to answer the question.

Question 14

Which of the following is not included in the computation of the quick ratio?

Accepted Answer

A)  Cash 
B)  Prepaid expenses 
C)  Accounts receivable 
D)  Marketable securities 
A)  Cash 
B)  Prepaid expenses 
C)  Accounts receivable 
D)  Marketable securities

Question 15

Sable Company is seeking a short-term loan from its local bank. The banker needs assurance that the company will be able to repay the loan. Describe three financial ratios the banker should consider including in the loan approval process. What information does each of your selected ratios provide?

Accepted Answer

The banker needs to assess the

Question 16

Which of the following is/are objective(s) of ratio analysis?

Accepted Answer

A)  Assessing past performance. 
B)  Assessing the prospects for future performance. 
C)  Analyzing how a company finances its operations. 
D)  All of these answers are correct. 
A)  Assessing past performance. 
B)  Assessing the prospects for future performance. 
C)  Analyzing how a company finances its operations. 
D)  All of these answers are correct.

Question 17

As of December 31, 2013, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, 2014 Gant paid $3,600 on accounts payable. Which of the following statements is incorrect?

Accepted Answer

A)  Gant's quick ratio will increase and its current ratio will decrease. 
B)  Gant's quick ratio will increase. 
C)  Gant's working capital will remain the same. 
D)  Gant's current ratio will increase. 
A)  Gant's quick ratio will increase and its current ratio will decrease. 
B)  Gant's quick ratio will increase. 
C)  Gant's working capital will remain the same. 
D)  Gant's current ratio will increase.

Question 18

Denver Corporation and Cheyenne Company are in different industries. Denver's current ratio is 1.89, while Cheyenne's current ratio is 1.65. Therefore, is it safe to conclude that Denver's liquidity position is better than that of Cheyenne?

Accepted Answer

The acceptable (or desirable) level of l

Question 19

The following balance sheet information was provided by O'Connor 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 that net credit sales for the year 2014 totaled $270,000, what is the company's most recent accounts receivable turnover?

Accepted Answer

A)  18 times 
B)  20 times 
C)  22.5 times 
D)  7.7 times 
A)  18 times 
B)  20 times 
C)  22.5 times 
D)  7.7 times

Question 20

For Perez Corporation, return on equity is substantially higher than return on investment. What does that tell you about the company?

Accepted Answer

Return on equity is higher tha

Select the incorrect statement regarding the analysis of absolute amounts of various accounts reported on the financial statements.

You are considering an investment in Frontier Airlines stock and wish to assess the firm's earnings performance. All of the following ratios can be used to assess profitability except:

Starwood Corporation has current assets of $200,000, total current liabilities of $750,000 net credit sales of $1,300,000, beginning accounts receivable of $65,000 and ending accounts receivable of $69,000. What is Starwood's accounts receivable turnover?

In vertical analysis, each item is expressed as a percentage of:

You are considering an investment in Facebook stock and wish to assess the company's position in the stock market. All of the following ratios can be used except:

Solvency ratios are used to analyze the long-term debt-paying ability and the composition of the financing structure of the firm.

The drawback of studying absolute amounts reported in financial statements is the problem of differing materiality levels.

The return on investment measure is also referred to as:

The quick ratio although similar to the current ratio is more conservative.

Select the correct statement regarding vertical analysis.

Rialto Company collected $5,000 on account. What impact will this transaction have on the firm's current ratio?

Which of the following is not included in the computation of the quick ratio?

Sable Company is seeking a short-term loan from its local bank. The banker needs assurance that the company will be able to repay the loan. Describe three financial ratios the banker should consider including in the loan approval process. What information does each of your selected ratios provide?

Which of the following is/are objective(s) of ratio analysis?

Denver Corporation and Cheyenne Company are in different industries. Denver's current ratio is 1.89, while Cheyenne's current ratio is 1.65. Therefore, is it safe to conclude that Denver's liquidity position is better than that of Cheyenne?

For Perez Corporation, return on equity is substantially higher than return on investment. What does that tell you about the company?

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

Select the incorrect statement regarding the analysis of absolute amounts of various accounts reported on the financial statements.

You are considering an investment in Frontier Airlines stock and wish to assess the firm's earnings performance. All of the following ratios can be used to assess profitability except:

Starwood Corporation has current assets of $200,000, total current liabilities of $750,000 net credit sales of $1,300,000, beginning accounts receivable of $65,000 and ending accounts receivable of $69,000. What is Starwood's accounts receivable turnover?

In vertical analysis, each item is expressed as a percentage of:

You are considering an investment in Facebook stock and wish to assess the company's position in the stock market. All of the following ratios can be used except:

Solvency ratios are used to analyze the long-term debt-paying ability and the composition of the financing structure of the firm.

The drawback of studying absolute amounts reported in financial statements is the problem of differing materiality levels.

The return on investment measure is also referred to as:

The quick ratio although similar to the current ratio is more conservative.

Select the correct statement regarding vertical analysis.

Rialto Company collected $5,000 on account. What impact will this transaction have on the firm's current ratio?

Which of the following is not included in the computation of the quick ratio?

Sable Company is seeking a short-term loan from its local bank. The banker needs assurance that the company will be able to repay the loan. Describe three financial ratios the banker should consider including in the loan approval process. What information does each of your selected ratios provide?

Which of the following is/are objective(s) of ratio analysis?

Denver Corporation and Cheyenne Company are in different industries. Denver's current ratio is 1.89, while Cheyenne's current ratio is 1.65. Therefore, is it safe to conclude that Denver's liquidity position is better than that of Cheyenne?

For Perez Corporation, return on equity is substantially higher than return on investment. What does that tell you about the company?

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