Question 1

A primary objective of financial statements is to provide information to current and potential investors and creditors.

Accepted Answer

A) True 
 B)False

Question 2

Some analysts do not use the cash ratio because they see it as too stringent a test of liquidity and the ratio is very sensitive to small events.

Accepted Answer

A) True 
 B)False

Question 3

At the end of 2016, Jared Corporation reported a return on assets of 16%; net income of $42,000; average total assets of $365,000, and average total liabilities of $165,000.
Required:
What was Jared's financial leverage percentage?

Accepted Answer

Financial leverage percentage = 5% = Ret

Question 4

A high price/earnings ratio usually indicates the market is optimistic about the company's future earnings potential.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following transactions increases both the quick ratio and the current ratio assuming that both ratios are greater than 1?

Accepted Answer

A) Collecting an account receivable. 
B) Purchasing inventory on account. 
C) Accruing revenue earned at year-end. 
D) Selling inventory on account at the cost of the inventory. 
A) Collecting an account receivable. 
B) Purchasing inventory on account. 
C) Accruing revenue earned at year-end. 
D) Selling inventory on account at the cost of the inventory.

Question 6

The inventory turnover ratio is significantly affected by the choice of inventory accounting method.

Accepted Answer

A) True 
 B)False

Question 7

When considering an investment, which of the following is not one of the three critical factors used to evaluate future earnings potential of that investment?

Accepted Answer

A) Global event factors. 
B) Economy-wide factors. 
C) Industry factors. 
D) Individual company factors. 
A) Global event factors. 
B) Economy-wide factors. 
C) Industry factors. 
D) Individual company factors.

Question 8

The dividend yield ratio decreases when earnings per share increases.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following ratios are not affected by issuing long-term bonds payable in exchange for cash?

Accepted Answer

A) Debt-to-equity. 
B) Current. 
C) Cash Ratio. 
D) Earnings quality. 
A) Debt-to-equity. 
B) Current. 
C) Cash Ratio. 
D) Earnings quality.

Question 10

The cash coverage ratio measures a firm's ability to pay its current liabilities with its cash flows from operating activities.

Accepted Answer

A) True 
 B)False

Question 11

Baron Company reported the following data:   The quick ratio is closest to:

Accepted Answer

A) 3.57 
B) 1.67 
C) 1.19 
D) 1.14 
A) 3.57 
B) 1.67 
C) 1.19 
D) 1.14

Question 12

Trenton Company has provided the following information: • Net income, $240,000
• Preferred shares issued, 6,000
• Weighted average number of shares of common stock issued, 24,000
• Cash dividends declared and paid on common stock, $30,000
• Market price per share, $36
• Weighted average number of treasury shares of common stock, 4,000
What is Trenton's earnings per share?

Accepted Answer

A) $8.00. 
B) $7.00. 
C) $10.50. 
D) $12.00. 
A) $8.00. 
B) $7.00. 
C) $10.50. 
D) $12.00.

Question 13

The following data were reported for Favre Company:   Required:
Calculate each of the following ratios. Round your answers to two decimal places. 
A.Dividend yield
B.Price/earnings ratio
C.Earnings quality

Accepted Answer

A. Dividend yield = 3.0% = .60

Question 14

A negative financial leverage percentage occurs when a company has more debt than stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 15

The quick ratio decreases when the adjusting entry to record bad debt expense is recorded.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements is incorrect?

Accepted Answer

A) Purchasing fixed assets through equity financing decreases total asset turnover. 
B) Accruing an expense increases the financial leverage ratio. 
C) The return on equity ratio increases when treasury stock is purchased. 
D) The purchase of fixed assets will cause the total asset turnover to decrease. 
A) Purchasing fixed assets through equity financing decreases total asset turnover. 
B) Accruing an expense increases the financial leverage ratio. 
C) The return on equity ratio increases when treasury stock is purchased. 
D) The purchase of fixed assets will cause the total asset turnover to decrease.

Question 17

Financial statement analysis is very precise and does not involve judgment.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements is correct?

Accepted Answer

A) When cost of goods sold as a percentage of sales increases, the gross profit percentage will increase. 
B) It is possible that when cost of goods sold in dollars increases, cost of goods sold as a percentage of sales decreases. 
C) If gross profit percentage is the same for the current and past year, then sales and cost of goods sold in dollars did not change. 
D) If gross profit percentage increases from one year to the next, then the net income percentage will also increase from one year to the next. 
A) When cost of goods sold as a percentage of sales increases, the gross profit percentage will increase. 
B) It is possible that when cost of goods sold in dollars increases, cost of goods sold as a percentage of sales decreases. 
C) If gross profit percentage is the same for the current and past year, then sales and cost of goods sold in dollars did not change. 
D) If gross profit percentage increases from one year to the next, then the net income percentage will also increase from one year to the next.

Question 19

Time series analysis is a comparison of information for a specific company over a period of time to determine changes in operations.

Accepted Answer

A) True 
 B)False

Question 20

The year-end adjusting entry to adjust the unearned revenue account for revenue earned decreases which of the following ratios?

Accepted Answer

A) Current. 
B) Debt-to-equity. 
C) Quick. 
D) Net profit margin. 
A) Current. 
B) Debt-to-equity. 
C) Quick. 
D) Net profit margin.

A primary objective of financial statements is to provide information to current and potential investors and creditors.

Some analysts do not use the cash ratio because they see it as too stringent a test of liquidity and the ratio is very sensitive to small events.

At the end of 2016, Jared Corporation reported a return on assets of 16%; net income of $42,000; average total assets of $365,000, and average total liabilities of $165,000. Required: What was Jared's financial leverage percentage?

A high price/earnings ratio usually indicates the market is optimistic about the company's future earnings potential.

Which of the following transactions increases both the quick ratio and the current ratio assuming that both ratios are greater than 1?

The inventory turnover ratio is significantly affected by the choice of inventory accounting method.

When considering an investment, which of the following is not one of the three critical factors used to evaluate future earnings potential of that investment?

The dividend yield ratio decreases when earnings per share increases.

Which of the following ratios are not affected by issuing long-term bonds payable in exchange for cash?

The cash coverage ratio measures a firm's ability to pay its current liabilities with its cash flows from operating activities.

Baron Company reported the following data: The quick ratio is closest to:

The following data were reported for Favre Company: Required: Calculate each of the following ratios. Round your answers to two decimal places. A.Dividend yield B.Price/earnings ratio C.Earnings quality

A negative financial leverage percentage occurs when a company has more debt than stockholders' equity.

The quick ratio decreases when the adjusting entry to record bad debt expense is recorded.

Which of the following statements is incorrect?

Financial statement analysis is very precise and does not involve judgment.

Which of the following statements is correct?

Time series analysis is a comparison of information for a specific company over a period of time to determine changes in operations.

The year-end adjusting entry to adjust the unearned revenue account for revenue earned decreases which of the following ratios?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments, Financial Statements, and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Bond Securities

Reporting and Interpreting Stockholders Equity

Statement of Cash Flows

PPA: Reporting and Interpreting Investments in Other Corporations

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Exam 13: Analyzing Financial Statements

A primary objective of financial statements is to provide information to current and potential investors and creditors.

Some analysts do not use the cash ratio because they see it as too stringent a test of liquidity and the ratio is very sensitive to small events.

At the end of 2016, Jared Corporation reported a return on assets of 16%; net income of $42,000; average total assets of $365,000, and average total liabilities of $165,000. Required: What was Jared's financial leverage percentage?

A high price/earnings ratio usually indicates the market is optimistic about the company's future earnings potential.

Which of the following transactions increases both the quick ratio and the current ratio assuming that both ratios are greater than 1?

The inventory turnover ratio is significantly affected by the choice of inventory accounting method.

When considering an investment, which of the following is not one of the three critical factors used to evaluate future earnings potential of that investment?

The dividend yield ratio decreases when earnings per share increases.

Which of the following ratios are not affected by issuing long-term bonds payable in exchange for cash?

The cash coverage ratio measures a firm's ability to pay its current liabilities with its cash flows from operating activities.

Baron Company reported the following data: The quick ratio is closest to:

The following data were reported for Favre Company: Required: Calculate each of the following ratios. Round your answers to two decimal places. A.Dividend yield B.Price/earnings ratio C.Earnings quality

A negative financial leverage percentage occurs when a company has more debt than stockholders' equity.

The quick ratio decreases when the adjusting entry to record bad debt expense is recorded.

Which of the following statements is incorrect?

Financial statement analysis is very precise and does not involve judgment.

Which of the following statements is correct?

Time series analysis is a comparison of information for a specific company over a period of time to determine changes in operations.

The year-end adjusting entry to adjust the unearned revenue account for revenue earned decreases which of the following ratios?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments, Financial Statements, and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Bond Securities

Reporting and Interpreting Stockholders Equity

Statement of Cash Flows

PPA: Reporting and Interpreting Investments in Other Corporations

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