Question 1

In general, the more debt a firm uses, the smaller its financial leverage.

Accepted Answer

A) True 
 B)False

Question 2

Table 3.2
Dana Dairy Products Key Ratios  Income Statement
Dana Dairy Products
For the Year Ended December 31, 2013  Balance Sheet
Dana Dairy Products
December 31, 2013 
-The average collection period for Dana Dairy Products in 2013 was ________. (See Table 3.2)

Accepted Answer

A)  32.5 days. 
B)  11.8 days. 
C)  25.3 days. 
D)  35.9 days.

Question 3

The ________ is a popular approach for evaluating profitability in relation to sales by expressing each item on the income statement as a percent of sales.

Accepted Answer

A)  retained earnings statement 
B)  common-size balance sheet 
C)  common-size income statement 
D)  profit and loss statement

Question 4

________ ratios are a measure of the speed with which various accounts are converted into sales or cash.

Accepted Answer

A)  Activity 
B)  Liquidity 
C)  Debt 
D)  Profitability

Question 5

A firm with a gross profit margin which meets industry standard and a net profit margin which is below industry standard must have excessive ________.

Accepted Answer

A)  general and administrative expenses 
B)  cost of goods sold 
C)  dividend payments 
D)  principal payments

Question 6

Common stock dividends paid to stockholders is equal to the earnings available for common stockholders divided by the number of shares of common stock outstanding.

Accepted Answer

A) True 
 B)False

Question 7

The higher, the value of ________ ratio, the better able a firm is to fulfill its interest obligations.

Accepted Answer

A)  dividend payout 
B)  average collection period 
C)  times interest earned 
D)  average payment period

Question 8

Ratios merely direct an analyst to potential areas of concern and it does not provide conclusive evidence as to the existence of a problem.

Accepted Answer

A) True 
 B)False

Question 9

A single key ratio of a firm provides all the information required to judge the overall performance of the firm.

Accepted Answer

A) True 
 B)False

Question 10

Earnings available for common stockholders is calculated as net profits ________.

Accepted Answer

A)  before taxes minus preferred dividends 
B)  after taxes minus preferred dividends 
C)  after taxes minus common dividends 
D)  before taxes minus common dividends

Question 11

A firm's year-end retained earnings balances are $670,000 and $560,000, for 2014 and 2015 respectively. The firm paid $10,000 in dividends in 2015. The firm's net profit after taxes in 2015 was ________.

Accepted Answer

A)  -$100,000 
B)  -$110,000 
C)  $100,000 
D)  $110,000

Question 12

The use of differing accounting treatments-especially relative to inventory and depreciation-can distort the results of ratio analysis, regardless of whether cross-sectional or time-series analysis is used.

Accepted Answer

A) True 
 B)False

Question 13

The statement of cash flows ________.

Accepted Answer

A)  shows the financial position of a firm at a given point of time. 
B)  summarizes all the purchase and sale of fixed assets and raw materials 
C)  provides insight into a firm's operating, investment, and financing cash flows 
D)  classifies a firm's cash flows as operating, investing, financing, and other activities

Question 14

The financial leverage multiplier is the ratio of a firm's total assets to common stock equity.

Accepted Answer

A) True 
 B)False

Question 15

A firm's year-end retained earnings balances are $320,000 and $400,000, for 2014 and 2015 respectively. The firm reported net profits after taxes of $100,000 in 2015. The firm's dividend payment for 2015 is ________.

Accepted Answer

A)  $0 
B)  $20,000 
C)  $80,000 
D)  $100,000

Question 16

Two frequently cited ratios of profitability that can be read directly from the common-size income statement are ________.

Accepted Answer

A)  the earnings per share and the return on total assets 
B)  the gross profit margin and the earnings per share 
C)  the gross profit margin and the return on total assets 
D)  the gross profit margin and the net profit margin

Question 17

The ________ measures the activity, or liquidity, of a firm's stock of goods.

Accepted Answer

A)  average collection period 
B)  inventory turnover ratio 
C)  average payment period 
D)  total asset turnover ratio

Question 18

Nico Corporation has cost of goods sold of $300,000 and inventory of $30,000, then the inventory turnover is ________ and the average age of inventory is ________.

Accepted Answer

A)  36.5; 10 
B)  10; 36.5 
C)  36.0; 10 
D)  30; 36.0

Question 19

When preparing the retained earnings statement, ________ is(are) subtracted in order to derive at the ending balance of retained earnings.

Accepted Answer

A)  net profits after taxes 
B)  interest expense 
C)  depreciation 
D)  dividends

Question 20

The Sarbanes-Oxley Act of 2002 established the Private Company Accounting Oversight Board (PCAOB) which is a for-profit corporation that oversees CEOs of public corporations.

Accepted Answer

A) True 
 B)False

Exam 3: Financial Statements and Ratio Analysis

In general, the more debt a firm uses, the smaller its financial leverage.

Table 3.2 Dana Dairy Products Key Ratios Income Statement Dana Dairy Products For the Year Ended December 31, 2013 Balance Sheet Dana Dairy Products December 31, 2013 -The average collection period for Dana Dairy Products in 2013 was ________. (See Table 3.2)

The ________ is a popular approach for evaluating profitability in relation to sales by expressing each item on the income statement as a percent of sales.

________ ratios are a measure of the speed with which various accounts are converted into sales or cash.

A firm with a gross profit margin which meets industry standard and a net profit margin which is below industry standard must have excessive ________.

Common stock dividends paid to stockholders is equal to the earnings available for common stockholders divided by the number of shares of common stock outstanding.

The higher, the value of ________ ratio, the better able a firm is to fulfill its interest obligations.

Ratios merely direct an analyst to potential areas of concern and it does not provide conclusive evidence as to the existence of a problem.

A single key ratio of a firm provides all the information required to judge the overall performance of the firm.

Earnings available for common stockholders is calculated as net profits ________.

A firm's year-end retained earnings balances are $670,000 and $560,000, for 2014 and 2015 respectively. The firm paid $10,000 in dividends in 2015. The firm's net profit after taxes in 2015 was ________.

The use of differing accounting treatments-especially relative to inventory and depreciation-can distort the results of ratio analysis, regardless of whether cross-sectional or time-series analysis is used.

The statement of cash flows ________.

The financial leverage multiplier is the ratio of a firm's total assets to common stock equity.

A firm's year-end retained earnings balances are $320,000 and $400,000, for 2014 and 2015 respectively. The firm reported net profits after taxes of $100,000 in 2015. The firm's dividend payment for 2015 is ________.

Two frequently cited ratios of profitability that can be read directly from the common-size income statement are ________.

The ________ measures the activity, or liquidity, of a firm's stock of goods.

Nico Corporation has cost of goods sold of $300,000 and inventory of $30,000, then the inventory turnover is and the average age of inventory is .

When preparing the retained earnings statement, ________ is(are) subtracted in order to derive at the ending balance of retained earnings.

The Sarbanes-Oxley Act of 2002 established the Private Company Accounting Oversight Board (PCAOB) which is a for-profit corporation that oversees CEOs of public corporations.