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Which of the following is calculated by dividing (net income less preferred dividends) by average common stockholders' equity?


A) Return on assets ratio
B) Return on equity ratio
C) Earnings per share
D) Net profit margin ratio

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

Correct Answer

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


A) Trend analysis
B) Horizontal analysis
C) Time-series analysis
D) Vertical analysis

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

Correct Answer

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Which of the following ratios is used to evaluate solvency?


A) Fixed asset turnover ratio
B) Days to sell ratio
C) Current ratio
D) Times interest earned

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

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Southport Industries has current assets of $900,000 and a current ratio is 2.50.Assume that the company prepays rent for 9 months in the amount of $40,000.The current ratio after this transaction is closest to:


A) 2.39.
B) 2.61.
C) 2.50.
D) 2.81.

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

Correct Answer

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If an analyst wants to examine a company's current ability to generate income,which of the following would best be considered?


A) Liquidity
B) Market share
C) Profitability
D) Solvency

E) None of the above
F) B) and C)

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


A) Current ratio
B) Debt-to-assets ratio
C) Return on fixed assets ratio
D) Fixed asset turnover ratio

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

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A debt-to-assets ratio of 0.50 indicates that the company has:


A) more liabilities than stockholders' equity.
B) equal amounts of liabilities and stockholders' equity.
C) more stockholders' equity than liabilities.
D) no liabilities.

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

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If earnings per share (EPS)increases,it must mean that the company's net income has increased.

A) True
B) False

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Which income statement line item had the largest percentage increase from the prior year to the current year?  Current Year  Prior Year  Sales $216,000$180,000 Cost of Goods Sold 144,00C108,000 Depreciation Expense 54,00C36,000 Interest Expense 3,6009,000\begin{array}{lrr}&\text { Current Year } & \text { Prior Year }\\\text { Sales } & \$ 216,000 & \$ 180,000 \\\text { Cost of Goods Sold } & 144,00 C & 108,000 \\\text { Depreciation Expense } & 54,00 C & 36,000 \\\text { Interest Expense } & 3,600 & 9,000\end{array}


A) Depreciation Expense
B) Cost of Goods Sold
C) Interest Expense
D) Sales

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

Correct Answer

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Which of the following could indicate bad news?


A) An increase in fixed asset turnover ratio.
B) A decrease in days to sell.
C) A decrease in EPS.
D) A decrease in the debt-to-assets ratio.

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

Correct Answer

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Another term for historical cost is:


A) entry price.
B) exit price.
C) fee price.
D) record price.

E) None of the above
F) B) and C)

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The comparative financial statements of Seward,Inc.include the following data:  Curyent Year Prior Year  Income Statement  Net Sales Revenue 234,000180,000 Cost of Goods Sold 99,00084,600 Operating Expenses 70,20057,600 Interest Expense 6,3006,300 Income Tax Expense 9,0007,200 Net Income 49,50024,300Balance Sheet  Current Assets 207,000171,000 Plant, Property and Equipment, Net 176,400189,000 Current Liabilities 81,00068,400 Long-Term Liabilities 77,40077,400 Stockholders’ Equity 225,000214,200 Total Liabilities & Stockholders’ Equity 383,400360,000\begin{array}{lrr}&\text { Curyent Year}&\text { Prior Year }\\\text { Income Statement }\\\text { Net Sales Revenue } & \mathbf{2 3 4 , 0 0 0} & \mathbf{1 8 0 , 0 0 0} \\\text { Cost of Goods Sold } & 99,000 & 84,600 \\\text { Operating Expenses } & 70,200 & 57,600 \\\text { Interest Expense } & 6,300 & 6,300 \\\text { Income Tax Expense } & 9,000 & 7,200 \\\text { Net Income } & 49,500 & 24,300\\ \text {Balance Sheet }\\\text { Current Assets } & \mathbf{2 0 7 , 0 0 0} & \mathbf{1 7 1 , 0 0 0} \\\text { Plant, Property and Equipment, Net } & 176,400 & 189,000 \\\text { Current Liabilities } & 81,000 & 68,400 \\\text { Long-Term Liabilities } & 77,400 & 77,400 \\\text { Stockholders' Equity } & 225,000 & 214,200 \\\text { Total Liabilities \& Stockholders' Equity } & 383,400 & 360,000\end{array} The gross profit percentage for the current year is closest to:


A) 42%.
B) 13.5%.
C) 57.7%.
D) 21.15%.

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

Correct Answer

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The following information pertains to Chestnut,Inc.:  Net Sales Revenue $96,460 Cost of Sales 63,458 Gross Profit 33,002 Operating and Other Expenses 25,430 Interest Expense 560 Income Tax Expense 2,622 Net Income $4,390\begin{array}{lr}\text { Net Sales Revenue } & \$ 96,460 \\\text { Cost of Sales } & 63,458 \\\text { Gross Profit } & 33,002 \\\text { Operating and Other Expenses } & 25,430 \\\text { Interest Expense } & 560 \\\text { Income Tax Expense } & 2,622 \\\text { Net Income } & \$ 4,390\end{array} What would be reported next to Interest Expense on a common sized income statement?


A) 12.7%
B) 1.7%
C) 0.6%
D) 0.9%

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

Correct Answer

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Which of the following statements about nonrecurring and other special items is correct?


A) Some special items,such as changes in the value of certain balance sheet accounts,are excluded from the calculation of net income.
B) Nonrecurring items such as discontinued operations are presented above the income tax expense line on the income statement.
C) Discontinued operations are reported net of tax as part of the income from continuing operations.
D) Interest Expense is shown net of tax as part of Other Comprehensive Income.

E) None of the above
F) A) and D)

Correct Answer

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The following information is taken from the financial statements of Burton Industries:  Total Assets $360,000 Total Liabilities 162,000 Total Stockholder’s’ Equity 198,000 Net Income 126,000 Income Tax Expense 37,800 Interest Expense 9,000\begin{array}{lr}\text { Total Assets } & \$ 360,000 \\\text { Total Liabilities } & 162,000 \\\text { Total Stockholder's' Equity } & 198,000 \\\text { Net Income } & 126,000 \\\text { Income Tax Expense } & 37,800 \\\text { Interest Expense } & 9,000\end{array} The company's times interest earned ratio is:


A) 19.2.
B) 4.7.
C) 15.0.
D) 18.2.

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

Correct Answer

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Horizontal analysis:


A) is used to identify trends over time.
B) identifies the relative contribution made by each financial statement line item.
C) provides an understanding of the relationships among various items on financial statements.
D) involves comparing amounts across different financial statements.

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

Correct Answer

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A trend analysis to determine a year-to-year dollar amount change is calculated by subtracting the:


A) previous period amount from the current amount.
B) current period amount from the previous period amount.
C) current period amount from the previous period amount and then dividing the result by the previous period amount.
D) previous period amount from the current period amount and then dividing the result by the current period amount.

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

Correct Answer

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Net income was $753,480 in the current year and $655,200 in the prior year.The year-to-year percentage change in net income is an increase of:


A) 15%.
B) 55%.
C) 87%.
D) 13%.

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

Correct Answer

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Horizontal analysis involves:


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) C) and D)

Correct Answer

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An unqualified opinion:


A) means the company's financial statements are fairly presented.
B) is rare because the rules are restrictive.
C) describes the elements to be measured and reported in financial statements.
D) underlies accounting rules.

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

Correct Answer

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