Question 1

Ratios that measure the short-term ability of the company to pay its maturing obligations are

Accepted Answer

A)  liquidity ratios.
B)  profitability ratios.
C)  solvency ratios.
D)  trend ratios. A

Question 2

Vertical analysis is also called

Accepted Answer

A)  common size analysis.
B)  horizontal analysis.
C)  ratio analysis.
D)  trend analysis. A

Question 3

Comparisons of company data with industry averages can provide some insight into the company's relative position in the industry.

Accepted Answer

A) True 
 B)False  True

Question 4

Pan Inc.has an investment in available-for-sale securities of $70,000.This investment experienced an unrealized loss of $6,000 during the current year.Assuming a 35% tax rate, the effect of this loss on comprehensive income will be

Accepted Answer

A)  no effect.
B)  $70,000 increase.
C)  $24,500 decrease.
D)  $6,000 decrease.

Question 5

Blitzen Corporation had net income of $200,000 and paid dividends to common stockholders of $50,000 in 2017.The weighted average number of shares outstanding in 2017 was 40,000 shares.Blitzen Corporation's common stock is selling for $35 per share on the New York Stock Exchange.Blitzen Corporation's price-earnings ratio is

Accepted Answer

A)  5.6 times.
B)  7 times.
C)  5 times.
D)  9.3 times.

Question 6

A successful grocery store would probably have

Accepted Answer

A)  a low inventory turnover.
B)  a high inventory turnover.
C)  zero profit margin.
D)  low volume.

Question 7

The following financial statement information is available for James Corporation: $\begin{array}{lrr}&2017&2016\
\text { Net sales } & \$ 780,000 & \$ 697,000 \
\text { Cost of goods sold } & 406,000 & 377,000 \
\text { Net income } & 120,000 & 80,000 \
\text { Tax expense } & 48,000 & 29,000 \
\text { Interest expense } & 14,000 & 14,000
\end{array}$ The profit margin for 2017 is

Accepted Answer

A)  15.4%.
B)  47.9%.
C)  32.1%.
D)  13.5%.

Question 8

Which one of the following ratios would not likely be used by a short-term creditor in evaluating whether to sell on credit to a company?

Accepted Answer

A)  Current ratio
B)  Acid-test ratio
C)  Asset turnover
D)  Accounts receivable

Question 9

Net income does not appear in the numerator of the

Accepted Answer

A)  profit margin.
B)  return on assets.
C)  return on common stockholders' equity.
D)  payout ratio.

Question 10

In vertical analysis, the base amount for each income statement item is

Accepted Answer

A)  gross profit.
B)  net income.
C)  net sales.
D)  sales.

Question 11

A current ratio of 1.2 to 1 indicates that a company's current assets exceed its current liabilities.

Accepted Answer

A) True 
 B)False

Question 12

Country Company reported the following on its income statement: $\begin{array}{lr}
\text { Income before income taxes } & \$ 850,000 \
\text { Income tax expense } & 250,000 \
\text { Net income } & \$ 650.000
\end{array}$ An analysis of the income statement revealed that interest expense was $100,000.Country Company's times interest earned was

Accepted Answer

A)  3.4 times.
B)  9.5 times.
C)  6.5 times.
D)  8.5 times.

Question 13

Common size analysis expresses each item within a financial statement in terms of a percent of a base amount.

Accepted Answer

A) True 
 B)False

Question 14

In performing a vertical analysis, the base for prepaid expenses is

Accepted Answer

A)  total current assets.
B)  total assets.
C)  total liabilities and stockholders' equity.
D)  prepaid expenses.

Question 15

Stellar, Inc.decided on January 1 to discontinue its telescope manufacturing division.On July 1, the division's assets with a book value of $840,000 are sold for $600,000.Operating income from January 1 to June 30 for the division amounted to $130,000.Ignoring income taxes, what total amount should be reported on Stellar's income statement for the current year under the caption, Discontinued Operations?

Accepted Answer

A)  $130,000
B)  $110,000 loss
C)  $240,000 loss
D)  $370,000

Question 16

Swiss Clothing Store had a balance in the Accounts Receivable account of $820,000 at the beginning of the year and a balance of $780,000 at the end of the year.Net credit sales during the year amounted to $7,200,000.The accounts receivable turnover ratio was

Accepted Answer

A)  9.0 times.
B)  8.4 times.
C)  9.2 times.
D)  8.8 times.

Question 17

Blaney Clothing Store had a balance in the Accounts Receivable account of $437,500 at the beginning of the year and a balance of $500,000 at the end of the year.Net credit sales during the year amounted to $3,000,000.The average collection period of the receivables in terms of days was

Accepted Answer

A)  53.2 days.
B)  365 days.
C)  60.1 days.
D)  57 days.

Question 18

The following amounts were taken from the financial statements of Leaf Company: $\begin{array}{lrr}&2017&2016\
\text { Total assets } & \$ 800,000 & \$ 880,000 \
\text { Net sales } & 720,000 & 650,000 \
\text { Gross profit } & 352,000 & 320,000 \
\text { Net income } & 126,000 & 117,000 \
\text { Weighted average number of common shares outstanding } & 90,000 & 90,000 \
\text { Market price of common stock } & \$ 35 & \$ 39
\end{array}$ The return on assets for 2017 is

Accepted Answer

A)  15.8%.
B)  15%.
C)  14.3%.
D)  14.5%.

Question 19

Analysis of financial statements is enhanced with the use of comparative data.

Accepted Answer

A) True 
 B)False

Question 20

A technique for evaluating financial statements that expresses the relationship among selected items of financial statement data is

Accepted Answer

A)  common size analysis.
B)  horizontal analysis.
C)  ratio analysis.
D)  vertical analysis.

Exam 14: Managerial Accounting

Ratios that measure the short-term ability of the company to pay its maturing obligations are

Vertical analysis is also called

Comparisons of company data with industry averages can provide some insight into the company's relative position in the industry.

Pan Inc.has an investment in available-for-sale securities of $70,000.This investment experienced an unrealized loss of $6,000 during the current year.Assuming a 35% tax rate, the effect of this loss on comprehensive income will be

A successful grocery store would probably have

Which one of the following ratios would not likely be used by a short-term creditor in evaluating whether to sell on credit to a company?

Net income does not appear in the numerator of the

In vertical analysis, the base amount for each income statement item is

A current ratio of 1.2 to 1 indicates that a company's current assets exceed its current liabilities.

Common size analysis expresses each item within a financial statement in terms of a percent of a base amount.

In performing a vertical analysis, the base for prepaid expenses is

Swiss Clothing Store had a balance in the Accounts Receivable account of $820,000 at the beginning of the year and a balance of $780,000 at the end of the year.Net credit sales during the year amounted to $7,200,000.The accounts receivable turnover ratio was

Blaney Clothing Store had a balance in the Accounts Receivable account of $437,500 at the beginning of the year and a balance of $500,000 at the end of the year.Net credit sales during the year amounted to $3,000,000.The average collection period of the receivables in terms of days was

Analysis of financial statements is enhanced with the use of comparative data.

A technique for evaluating financial statements that expresses the relationship among selected items of financial statement data is