Question 1

Which of the following ratios is used to evaluate solvency?

Accepted Answer

A)   Fixed asset turnover ratio
B)   Days to sell ratio
C)   Current ratio
D)   Times interest earnedE) A) and B)
F) None of the above

Question 2

Which events may indicate going-concern problems?

Accepted Answer

A)   An increase in research and development costs
B)   A decrease in barriers to expansion
C)   Additions of patents
D)   Loss of a key supplier or customerE) C) and D)
F) B) and C)

Question 3

Which of the following ratios is used to evaluate how efficient a company is in using its fixed assets to generate revenues?

Accepted Answer

A)   Current ratio
B)   Debt-to-assets ratio
C)   Return on fixed assets ratio
D)   Fixed asset turnover ratioE) A) and C)
F) All of the above

Question 4

Which of the following will increase earnings per share?

Accepted Answer

A)   A ten percent increase in net income and a ten percent increase in the average number of shares of common stock outstanding
B)   A ten percent decrease in net income and a ten percent increase in the average number of shares of common stock outstanding
C)   A ten percent increase in net income and a ten percent decrease in the average number of shares of common stock outstanding
D)   A ten percent decrease in net income and a ten percent decrease in the average number of shares of common stock outstandingE) A) and C)
F) B) and C)

Question 5

Often loan agreements require the borrower to comply with certain requirements, such as maintaining a particular current ratio or limiting future borrowing. To decide if a company has complied with its loan covenants, a creditor would look at the company's:

Accepted Answer

A)   financial statements.
B)   chart of accounts.
C)   bank statements.
D)   charter.E) A) and B)
F) B) and C)

Question 6

Cotton Products, Inc. prepared its income statement containing the information below. Using vertical analysis, what percentages would apply to cost of sales, gross profit, and interest expense, respectively?

Accepted Answer

A)   Option A
B)   Option B
C)   Option C
D)   Option DE) C) and D)
F) None of the above

Question 7

A company's sales are $285,000 and $200,000 during the current and prior years, respectively. The percentage change is:

Accepted Answer

A)   42.5%.
B)   70%.
C)   29.8%.
D)   130%.E) B) and C)
F) All of the above

Question 8

Extraordinary items:

Accepted Answer

A)   are rare because the rules are restrictive.
B)   include gains and losses from sales of noncurrent assets.
C)   are recurring and frequent in occurrence.
D)   are included in the determination of gross profit.E) B) and C)
F) A) and D)

Question 9

Which of the following actions would likely increase the Return on Equity (ROE) ?

Accepted Answer

A)   An increase in the cost of goods sold
B)   The purchase of treasury stock
C)   Issuing shares of preferred stock
D)   An increase in the income tax rateE) B) and D)
F) A) and B)

Question 10

To analyze changes in a company's net income over the last ten years, you should perform:

Accepted Answer

A)   horizontal analysis.
B)   vertical analysis.
C)   cross-section analysis.
D)   ratio analysis.E) A) and C)
F) None of the above

Question 11

A current ratio of 2.5 means that for every dollar of:

Accepted Answer

A)   accounts payable, there is $2.50 of cash.
B)   current liabilities, there is $2.50 of current assets.
C)   current assets, there is $2.50 of current liabilities.
D)   total liabilities, there is $2.50 of cash.E) A) and D)
F) None of the above

Question 12

The higher the receivables turnover, the slower accounts receivable are being collected

Accepted Answer

A) True 
 B)False

Question 13

Comprehensive income may be shown on:

Accepted Answer

A)   the balance sheet as a contra-asset account and reports the changes in investments' fair value.
B)   the income statement by adding or subtracting special items, such as changes in foreign currency exchange rates and certain investments.
C)   IFRS financial statements only.
D)   non-public companies' financial statements only.E) None of the above
F) A) and B)

Question 14

The ratio that measures the percentage of financing from creditors is the:

Accepted Answer

A)   current ratio.
B)   times interest earned ratio.
C)   debt-to-assets ratio.
D)   Price/Earnings ratio.E) A) and B)
F) All of the above

Question 15

Carson Inc. reported net sales revenue of $850,000 and paid no dividends during the current year. The following information is also available at the end of the current and prior years:  There was no preferred stock outstanding during the current year.
Required:
Part a. Calculate the return on equity for the current year.
Part b. Calculate the debt-to-assets ratio for the current year.
Part c. Calculate the fixed asset turnover ratio for the current year.
Part d. Calculate the current ratio for the current year.
Round all ratios to two decimal points.

Accepted Answer

Part a
Average common stockholders' equi...

Question 16

Which of the following analysis techniques does not pertain to changes over time?

Accepted Answer

A)   Trend analysis
B)   Horizontal analysis
C)   Time-series analysis
D)   Vertical analysisE) None of the above
F) A) and B)

Question 17

Which of the following statements about the Price/Earnings ratio is not correct?

Accepted Answer

A)   The Price/Earnings ratio indicates how much investors are willing to pay for a share of a company's stock as a multiple of current earnings.
B)   A high Price/Earnings ratio may mean that investors have pushed the price of the stock up in anticipation of higher future net income.
C)   If EPS decreases and there is no change in the market price of the stock, the Price/Earnings ratio will decrease.
D)   If the market price of the stock increases and there is no change in EPS, the Price/Earnings ratio will increase.E) A) and D)
F) A) and B)

Question 18

Horizontal analysis involves:

Accepted Answer

A)   Comparing individual financial statement line items with each other to understand the relationships between line items.
B)   Comparing individual financial statement line items to some benchmark, typically similar competitors' financial statement line items.
C)   Comparing individual financial statement line items over time.
D)   Comparing individual financial statement line items that have been arranged horizontally from highest to lowest dollar amounts.E) All of the above
F) A) and D)

Question 19

The following information is taken from the financial statements of a company for the current year:  On a common size income statement for the year, what is the percentage that would be shown next to the dollar amount of sales revenue?

Accepted Answer

A)   100%
B)   14%
C)   60%
D)   Cannot be determinedE) All of the above
F) B) and C)

Question 20

The primary objective of external financial reporting is to:

Accepted Answer

A)   enhance the ability of the company to acquire financial capital from external sources.
B)   accurately provide financial results for tax purposes.
C)   comply with external regulations and requirements of government and professional associations.
D)   provide useful information to decision makers, especially investors and creditors.E) All of the above
F) None of the above

Exam 13: Financial Statement Analysis

The higher the receivables turnover, the slower accounts receivable are being collected

Correct Answer
verified

The following information is taken from the financial statements of a company for the current year: On a common size income statement for the year, what is the percentage that would be shown next to the dollar amount of sales revenue?

Correct Answer
verified

Which events may indicate going-concern problems?

Correct Answer
verified

Which of the following ratios is used to evaluate solvency?

Correct Answer
verified

A company's sales are $285,000 and $200,000 during the current and prior years, respectively. The percentage change is:

Correct Answer
verified

The primary objective of external financial reporting is to:

Correct Answer
verified

Comprehensive income may be shown on:

Correct Answer
verified

To analyze changes in a company's net income over the last ten years, you should perform:

Correct Answer
verified

Which of the following statements about the Price/Earnings ratio is not correct?

Correct Answer
verified

Which of the following actions would likely increase the Return on Equity (ROE) ?

Correct Answer
verified

A current ratio of 2.5 means that for every dollar of:

Correct Answer
verified

Extraordinary items:

Correct Answer
verified

Often loan agreements require the borrower to comply with certain requirements, such as maintaining a particular current ratio or limiting future borrowing. To decide if a company has complied with its loan covenants, a creditor would look at the company's:

Correct Answer
verified

Which of the following ratios is used to evaluate how efficient a company is in using its fixed assets to generate revenues?

Correct Answer
verified

The ratio that measures the percentage of financing from creditors is the:

Correct Answer
verified

Cotton Products, Inc. prepared its income statement containing the information below. Using vertical analysis, what percentages would apply to cost of sales, gross profit, and interest expense, respectively?

Correct Answer
verified

Horizontal analysis involves:

Correct Answer
verified

Which of the following will increase earnings per share?

Correct Answer
verified

Correct Answer
verified
Part a
Average common stockholders' equi...
View Answer

Which of the following analysis techniques does not pertain to changes over time?

Correct Answer
verified

Exam 13: Financial Statement Analysis

The higher the receivables turnover, the slower accounts receivable are being collected

Correct AnswerverifiedShow Answer

The following information is taken from the financial statements of a company for the current year: On a common size income statement for the year, what is the percentage that would be shown next to the dollar amount of sales revenue?

Correct AnswerverifiedShow Answer

Which events may indicate going-concern problems?

Correct AnswerverifiedShow Answer

Which of the following ratios is used to evaluate solvency?

Correct AnswerverifiedShow Answer

A company's sales are $285,000 and $200,000 during the current and prior years, respectively. The percentage change is:

Correct AnswerverifiedShow Answer

The primary objective of external financial reporting is to:

Correct AnswerverifiedShow Answer

Comprehensive income may be shown on:

Correct AnswerverifiedShow Answer

To analyze changes in a company's net income over the last ten years, you should perform:

Correct AnswerverifiedShow Answer

Which of the following statements about the Price/Earnings ratio is not correct?

Correct AnswerverifiedShow Answer

Which of the following actions would likely increase the Return on Equity (ROE) ?

Correct AnswerverifiedShow Answer

A current ratio of 2.5 means that for every dollar of:

Correct AnswerverifiedShow Answer

Extraordinary items:

Correct AnswerverifiedShow Answer

Often loan agreements require the borrower to comply with certain requirements, such as maintaining a particular current ratio or limiting future borrowing. To decide if a company has complied with its loan covenants, a creditor would look at the company's:

Correct AnswerverifiedShow Answer

Which of the following ratios is used to evaluate how efficient a company is in using its fixed assets to generate revenues?

Correct AnswerverifiedShow Answer

The ratio that measures the percentage of financing from creditors is the:

Correct AnswerverifiedShow Answer

Cotton Products, Inc. prepared its income statement containing the information below. Using vertical analysis, what percentages would apply to cost of sales, gross profit, and interest expense, respectively?

Correct AnswerverifiedShow Answer

Horizontal analysis involves:

Correct AnswerverifiedShow Answer

Which of the following will increase earnings per share?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedPart aAverage common stockholders' equi...View AnswerShow Answer

Which of the following analysis techniques does not pertain to changes over time?

Correct AnswerverifiedShow Answer

Correct Answer
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Part a
Average common stockholders' equi...
View Answer

Correct Answer
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