Question 1

The return on total assets ratio is a profitability measure.

Accepted Answer

A) True 
 B)False

Question 2

Profitability is the ability to generate positive market expectations.

Accepted Answer

A) True 
 B)False

Question 3

What is the purpose of a good financial statement analysis report? What are the key components?

Accepted Answer

A good financial statement analysis repo

Question 4

The comparative income statements for Golden Company are shown below. Calculate the following ratios for 2012:
(a) profit margin.
(b) gross margin.
(c) times interest earned.

Accepted Answer

The answer of The comparative income statements for Golden Company...

Question 5

Use the financial data shown below to calculate the following ratios for the current year:
(a) Current ratio.
(b) Acid-test ratio.
(c) Accounts receivable turnover.
(d) Days' sales uncollected.
(e) Inventory turnover.
(f) Days' sales in inventory.
(g) Accounts payable turnover.

Accepted Answer

(a) Current ratio:
($19,500 + $65,000 +

Question 6

Financial statement analysis is the application of analytical tools to general-purpose financial statements and related data for making business decisions.

Accepted Answer

A) True 
 B)False

Question 7

The building blocks of financial statement analysis include:

Accepted Answer

A)  Liquidity and efficiency. 
B)  Solvency. 
C)  Profitability. 
D)  Market prospects. 
E)  All of these. 
A)  Liquidity and efficiency. 
B)  Solvency. 
C)  Profitability. 
D)  Market prospects. 
E)  All of these.

Question 8

Industry standards for financial statement analysis:

Accepted Answer

A)  Are based on a company's prior performance. 
B)  Are set by the government. 
C)  Are set by the financial performance and condition of the company's industry. 
D)  Are based on rules of thumb. 
E)  Compare a company's income with the prior year's income. 
A)  Are based on a company's prior performance. 
B)  Are set by the government. 
C)  Are set by the financial performance and condition of the company's industry. 
D)  Are based on rules of thumb. 
E)  Compare a company's income with the prior year's income.

Question 9

Comparative financial statements are reports that show financial amounts placed side by side in columns on a single statement for analysis purposes.

Accepted Answer

A) True 
 B)False

Question 10

One of several ratios that reflects solvency includes the:

Accepted Answer

A)  Acid-test ratio. 
B)  Current ratio. 
C)  Times interest earned ratio. 
D)  Total asset turnover. 
E)  Days' sales in inventory. 
A)  Acid-test ratio. 
B)  Current ratio. 
C)  Times interest earned ratio. 
D)  Total asset turnover. 
E)  Days' sales in inventory.

Question 11

Selected current year company information follows:   Total shareholders' equity, beginning-year.. 198,935
Total shareholders' equity, end-of-year…… 121,851
The return on total assets is:

Accepted Answer

A)  2.24% 
B)  2.81% 
C)  3.64% 
D)  4.67% 
E)  6.28% 
A)  2.24% 
B)  2.81% 
C)  3.64% 
D)  4.67% 
E)  6.28%

Question 12

A high level of expected risk suggests a low price-earnings ratio.

Accepted Answer

A) True 
 B)False

Question 13

Guidelines (rules-of-thumb) are developed from:

Accepted Answer

A)  Industry statistics from the government. 
B)  Past experience. 
C)  Analysis of competitors. 
D)  Relations between financial items. 
E)  Dun and Bradstreet. 
A)  Industry statistics from the government. 
B)  Past experience. 
C)  Analysis of competitors. 
D)  Relations between financial items. 
E)  Dun and Bradstreet.

Question 14

The dollar change for a financial statement item is calculated by:

Accepted Answer

A)  Subtracting the analysis period amount from the base period amount. 
B)  Subtracting the base period amount from the analysis period amount. 
C)  Subtracting the analysis period amount from the base period amount, dividing the result by the base period amount, then multiplying that amount by 100. 
D)  Subtracting the base period amount from the analysis period amount, dividing the result by the base period amount, then multiplying that amount by 100. 
E)  Subtracting the base period amount from the analysis amount, then dividing the result by the base amount. 
A)  Subtracting the analysis period amount from the base period amount. 
B)  Subtracting the base period amount from the analysis period amount. 
C)  Subtracting the analysis period amount from the base period amount, dividing the result by the base period amount, then multiplying that amount by 100. 
D)  Subtracting the base period amount from the analysis period amount, dividing the result by the base period amount, then multiplying that amount by 100. 
E)  Subtracting the base period amount from the analysis amount, then dividing the result by the base amount.

Question 15

Standards for comparisons in financial statement analysis include:

Accepted Answer

A)  Intracompany standards. 
B)  Competitors' standards. 
C)  Industry standards. 
D)  Guidelines (rules of thumb). 
E)  All of these. 
A)  Intracompany standards. 
B)  Competitors' standards. 
C)  Industry standards. 
D)  Guidelines (rules of thumb). 
E)  All of these.

Question 16

The current ratio is calculated as current liabilities divided by current assets.

Accepted Answer

A) True 
 B)False

Question 17

Standards for comparison are necessary when making judgments about a company's performance.

Accepted Answer

A) True 
 B)False

Question 18

To compute trend percents the analyst should:

Accepted Answer

A)  Select a base period, assign each item in the base period statement a weight of 100%, and then express financial numbers from other periods as a percent of their base period number. 
B)  Subtract the analysis period number from the base period number. 
C)  Subtract the base period amount from the analysis period amount, divide the result by the analysis period amount, then multiply that amount by 100. 
D)  Compare amounts across industries using Dun and Bradstreet. 
E)  All of these. 
A)  Select a base period, assign each item in the base period statement a weight of 100%, and then express financial numbers from other periods as a percent of their base period number. 
B)  Subtract the analysis period number from the base period number. 
C)  Subtract the base period amount from the analysis period amount, divide the result by the analysis period amount, then multiply that amount by 100. 
D)  Compare amounts across industries using Dun and Bradstreet. 
E)  All of these.

Question 19

A financial statement analysis report usually includes:

Accepted Answer

A)  An executive summary. 
B)  An analysis overview. 
C)  Evidential matter. 
D)  Assumptions. 
E)  All of these. 
A)  An executive summary. 
B)  An analysis overview. 
C)  Evidential matter. 
D)  Assumptions. 
E)  All of these.

Question 20

Market prospects are the ability to provide financial rewards sufficient to attract and retain financing.

Accepted Answer

A) True 
 B)False

Exam 17: Analysis of Financial Statements

The return on total assets ratio is a profitability measure.

Profitability is the ability to generate positive market expectations.

What is the purpose of a good financial statement analysis report? What are the key components?

The comparative income statements for Golden Company are shown below. Calculate the following ratios for 2012: (a) profit margin. (b) gross margin. (c) times interest earned.

Use the financial data shown below to calculate the following ratios for the current year: (a) Current ratio. (b) Acid-test ratio. (c) Accounts receivable turnover. (d) Days' sales uncollected. (e) Inventory turnover. (f) Days' sales in inventory. (g) Accounts payable turnover.

Financial statement analysis is the application of analytical tools to general-purpose financial statements and related data for making business decisions.

The building blocks of financial statement analysis include:

Industry standards for financial statement analysis:

Comparative financial statements are reports that show financial amounts placed side by side in columns on a single statement for analysis purposes.

One of several ratios that reflects solvency includes the:

Selected current year company information follows: Total shareholders' equity, beginning-year.. 198,935 Total shareholders' equity, end-of-year…… 121,851 The return on total assets is:

A high level of expected risk suggests a low price-earnings ratio.

Guidelines (rules-of-thumb) are developed from:

The dollar change for a financial statement item is calculated by:

Standards for comparisons in financial statement analysis include:

The current ratio is calculated as current liabilities divided by current assets.

Standards for comparison are necessary when making judgments about a company's performance.

To compute trend percents the analyst should:

A financial statement analysis report usually includes:

Market prospects are the ability to provide financial rewards sufficient to attract and retain financing.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Long-Term Assets

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Statement of Cash Flows

Managerial Accounting Concepts and Principles

Job Order Cost Accounting

Process Cost Accounting

Cost Allocation and Performance Measurement

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Capital Budgeting and Managerial Decisions

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