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Match each term with the appropriate definition.Not all definitions will be used. -Management Discussion and Analysis


A) The practice of reporting information in percentages rather than monetary amounts.
B) A nonrecurring item on the income statement that reflects gains and losses associated with extraordinary events.
C) Another name for a trend analysis.
D) An increase in an asset or a decrease in a liability that results from peripheral activities.
E) A section of the annual report that can be used in interpreting the results of financial statement analysis.
F) The ratio calculated by dividing the price of a share of stock by the earnings per share.
G) After-tax earnings adjusted for gains and losses that may disappear before they are realized.
H) A nonrecurring item associated with abandoning or selling an operation.
I) The practice of reporting accounting data in the national monetary unit.
J) Also known as ratio analysis.
K) The ratio calculated by dividing the net income by the number of common shares outstanding.
L) The earnings of a company after taxes.

M) J) and L)
N) A) and L)

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To perform a vertical analysis of an income statement,you would divide each line item on the statement by:


A) sales.
B) cost of goods sold.
C) operating expenses.
D) net income.

E) A) and B)
F) B) and C)

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Which of the following nonfinancial factors is most likely to be a cause of a going-concern problem?


A) Hiring a new CEO.
B) Loss of a key patent.
C) Announcing a new stock issue.
D) Replacing an old product line.

E) B) and D)
F) A) and B)

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Which of the following would improve a current ratio that is now 1.2?


A) Selling long-term assets for cash.
B) Purchasing land for cash.
C) Buying equipment in exchange for a two-year note.
D) Purchasing inventory on account.

E) All of the above
F) C) and D)

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In a common size income statement,each item on the income statement is expressed as a percentage of:


A) net income.
B) gross profit.
C) total expenses.
D) sales revenue.

E) B) and C)
F) B) and D)

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Which of the measures below is used to measure liquidity?


A) Current ratio
B) Debt-to-assets ratio
C) Price ÷ Earnings ratio
D) Times interest earned

E) All of the above
F) A) and D)

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If you wish to examine how one aspect of a business is doing relative to other aspects of the business at the current time,you are most likely to use:


A) time-series analysis.
B) ratio analysis.
C) horizontal analysis.
D) cross-sectional analysis.

E) C) and D)
F) B) and C)

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Liquidity measures the ability of a company to meet its long-term financial obligations.

A) True
B) False

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The going-concern assumption is also known as the continuity assumption.

A) True
B) False

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Hubbard Company had 8,000 shares of common stock outstanding throughout the year.The following information is also available:  Stockholders’ equity, end of year $3,200,000 Net income for the year 800,000 Market price per share, end of year $112\begin{array} { | l | r| } \hline\text { Stockholders' equity, end of year } & \$ 3,200,000 \\\hline \text { Net income for the year } & 800,000 \\\hline \text { Market price per share, end of year } & \$ 112 \\\hline\end{array} Required: Calculate the Price/Earnings ratio at the end of the current year.

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EPS = Net income/Average commo...

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Horizontal analysis is the comparison of each financial statement amount to another amount on the same financial statement.

A) True
B) False

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Which of the following will increase earnings per share?


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 outstanding

E) A) and D)
F) A) and C)

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Vertical analysis:


A) identifies the relative contribution made by each financial statement line item.
B) identifies trends over time.
C) provides an understanding of the relationships among various items on financial statements by expressing the differences in terms of dollars.
D) involves comparing amounts across different financial statements.

E) B) and C)
F) A) and B)

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Campbell Co.has net sales revenue of $1,000,000,cost of goods sold of $680,000,and all other expenses of $232,000.The beginning balance of stockholders' equity is $320,000 and the beginning balance of fixed assets is $288,800.The ending balance of stockholders' equity is $480,000 and the ending balance of fixed assets is $311,200.The fixed asset turnover ratio is closest to:


A) 0.53.
B) 2.50.
C) 3.33.
D) 0.80.

E) C) and D)
F) B) and D)

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Match each term with the appropriate definition.Not all definitions will be used. -Full Disclosure Principle


A) Also known as time-series analysis.
B) The ability of a company to meet its short-run financial obligations.
C) The standard that companies should present all relevant information needed to interpret a company's financial position and performance.
D) A measure of current earnings performance.
E) Measures that relate financial variables reported in one or more of the financial statements from the same year.
F) A type of analysis that focuses on relationships within a single financial statement.
G) A result from comparing a company's results to other companies in the industry.
H) The standard that revenue should be recorded when earned,provided payment is reasonably expected.
I) A measure of long-run survivability.
J) The standard that expenses should be recognized when incurred.
K) The characteristic that financial information needs to be valuable to decision makers.
L) The standard that takes for granted a company's near term financial survival.

M) E) and H)
N) I) and K)

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Match each term with the appropriate definition.Not all definitions will be used. -Comprehensive Income


A) The practice of reporting information in percentages rather than monetary amounts.
B) A nonrecurring item on the income statement that reflects gains and losses associated with extraordinary events.
C) Another name for a trend analysis.
D) An increase in an asset or a decrease in a liability that results from peripheral activities.
E) A section of the annual report that can be used in interpreting the results of financial statement analysis.
F) The ratio calculated by dividing the price of a share of stock by the earnings per share.
G) After-tax earnings adjusted for gains and losses that may disappear before they are realized.
H) A nonrecurring item associated with abandoning or selling an operation.
I) The practice of reporting accounting data in the national monetary unit.
J) Also known as ratio analysis.
K) The ratio calculated by dividing the net income by the number of common shares outstanding.
L) The earnings of a company after taxes.

M) E) and F)
N) C) and H)

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The following information comes from the balance sheets and income statements of Crosby Co.:  As of or for the Year ended Decermber 31  Curent Year  Prior Year  Cash $24,000$20,000 Accourts receivable 38,00044,000 Irventory 64,00050,000 Property ard equipment 224,000218,000 Current liabilities 88,00080,000 Long-term liabilities 106,000100,000 Stockholders equity 156,000152,000 Net sales reverules 680,000630,000 Cost of goods sold 440,000420,000 Operating expenses 160,000150,000 Interest expense 10,0008,000 Income tax expense 18,00016,000\begin{array} { l r r } & \text { As of or for the Year ended Decermber 31 } \\& \text { Curent Year } & { \text { Prior Year } } \\\text { Cash } & \$ 24,000 & \$ 20,000 \\\text { Accourts receivable } & 38,000 & 44,000 \\\text { Irventory } & 64,000 & 50,000 \\\text { Property ard equipment } & 224,000 & 218,000 \\\text { Current liabilities } & 88,000 & 80,000 \\\text { Long-term liabilities } & 106,000 & 100,000 \\\text { Stockholders equity } & 156,000 & 152,000 \\\text { Net sales reverules } & 680,000 & 630,000 \\\text { Cost of goods sold } & 440,000 & 420,000 \\\text { Operating expenses } & 160,000 & 150,000 \\\text { Interest expense } & 10,000 & 8,000 \\\text { Income tax expense } & 18,000 & 16,000\end{array} What is the times interest earned ratio for the current year?


A) 2.2
B) 5.2
C) 6.2
D) 8.0

E) A) and B)
F) A) and C)

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A times interest earned ratio of 11 means that the company's:


A) net income is large enough to pay interest and taxes 11 times.
B) net cash flow from operations before taxes and interest is large enough to pay interest and taxes 11 times.
C) net cash flow from operations is large enough to pay interest and taxes 11 times.
D) income before taxes and interest is large enough to pay interest 11 times.

E) A) and D)
F) A) and B)

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To analyze changes in a company's sales over the last five years,you should perform:


A) vertical analysis.
B) ratio analysis.
C) horizontal analysis.
D) cross-sectional analysis.

E) None of the above
F) All of the above

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A company that has a current ratio less than one cannot cover:


A) current liabilities with its current cash flow.
B) current expenses with its current sales revenue.
C) expenses with its current revenues.
D) current liabilities with its current assets.

E) A) and B)
F) A) and C)

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