Question 1

While horizontal analysis examines one item over many time periods, vertical analysis examines many items in the same interval of time.

Accepted Answer

A) True 
 B)False

Question 2

As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2 Gant paid $3,600 on accounts payable. Which of the following statements is incorrect?

Accepted Answer

A)   Gant's quick ratio will increase and its current ratio will decrease.
B)   Gant's quick ratio will increase.
C)   Gant's working capital will remain the same.
D)   Gant's current ratio will increase.E) B) and C)
F) C) and D)

Question 3

Which ratio compares the earnings per share of a company to the market price for a share of the company's stock?

Accepted Answer

A)   Price-earnings ratio
B)   Dividend yield
C)   Book value per share
D)   Return on equityE) A) and B)
F) A) and C)

Question 4

Which ratio measures the percentage of company's assets that are financed by debt?

Accepted Answer

A)   Debt to assets ratio
B)   Asset turnover
C)   Debt to equity
D)   Return on investmentE) A) and B)
F) A) and C)

Question 5

Short-term creditors are usually most interested in assessing:

Accepted Answer

A)   Liquidity.
B)   Solvency.
C)   Managerial effectiveness.
D)   Profitability.E) A) and B)
F) B) and D)

Question 6

Knoell Company paid its sales employees $15,000 in sales commissions. What impact will this transaction have on the firm's working capital?

Accepted Answer

A)   No impact
B)   Increase it
C)   Decrease it
D)   Not enough information is provided to answer the question.E) None of the above
F) A) and D)

Question 7

Assume that you are considering purchasing some of a company's long-term bonds as an investment. Which of the company's financial statement ratios would you probably be most interested in?

Accepted Answer

A)   Debt to assets ratio
B)   Debt to equity
C)   Plant assets to long-term liabilities
D)   All of these answers are correct.E) A) and B)
F) A) and C)

Question 8

Jenkins Company's current ratio is higher than the average for its industry, while its quick ratio is below the industry average. One possible interpretation for these results is that Jenkins carries less inventory than most companies in its industry.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements regarding ratio analysis is incorrect?

Accepted Answer

A)   Ratio analysis is a specific form of horizontal analysis.
B)   There are many different ratios available for evaluating a firm's performance.
C)   Some ratios involve an account from the balance sheet and one from the income statement.
D)   Ratio analysis involves making comparisons between different accounts in the same set of financial statements.E) B) and C)
F) None of the above

Question 10

The accounting profession assumes that financial statement users have an expert knowledge of business.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is an (are)  objective(s)  of ratio analysis?

Accepted Answer

A)   Assessing past performance.
B)   Assessing the prospects for future performance.
C)   Analyzing how a company finances its operations.
D)   All of these answers are correct.E) All of the above
F) A) and B)

Question 12

The following balance sheet information is provided for Santana Company for Year 2:  What is the company's debt to equity ratio? (Round your answers to the nearest whole percent.)

Accepted Answer

A)   42%
B)   130%
C)   43%
D)   77%E) B) and C)
F) C) and D)

Question 13

You are considering an investment in Facebook stock and wish to assess the company's position in the stock market. All of the following ratios can be used except:

Accepted Answer

A)   Dividend yield.
B)   Earnings per share.
C)   Working capital.
D)   Price-earnings ratio.E) B) and C)
F) C) and D)

Question 14

Which of the following statements regarding the information disclosed in financial statements is incorrect?

Accepted Answer

A)   The costs of providing all possible information about a firm would be prohibitively high for the business.
B)   Some information disclosed in financial statements may be irrelevant to some users.
C)   Financial statements should be detailed enough to answer any financial-related question an investor might have.
D)   When too much information is presented users may suffer from information overload.E) All of the above
F) A) and C)

Question 15

A limitation of financial statement analysis stems from the discretion of management to choose accounting procedures that cast the best light on the firm's performance.

Accepted Answer

A) True 
 B)False

Question 16

The Phibbs Company paid total cash dividends of $200,000 on 25,000 outstanding common shares. On the most recent trading day, the common shares sold at $80. What is this company's dividend yield?

Accepted Answer

A)   25%
B)   6.4%
C)   16.9%
D)   10%E) A) and D)
F) All of the above

Question 17

Working capital is current assets minus current liabilities.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements about financial statement analysis is incorrect?

Accepted Answer

A)   In horizontal percentage analysis, an item from the financial statements is expressed as a percentage of the same item from a previous year's financial statements.
B)   Vertical analysis compares two or more financial statement items within the same time period.
C)   Horizontal analysis for several years can be done by choosing one year as a base year and calculating increases or decreases in relation to that year.
D)   The reason behind a financial statement ratio or percentage analysis result is usually self-evident and does not require further study or analysis.E) A) and C)
F) A) and D)

Question 19

Which type of approach should be used when evaluating corporate results using horizontal analysis?

Accepted Answer

A)   Study of absolute amounts.
B)   Percentages.
C)   Trends.
D)   All of these answers are correct.E) B) and C)
F) A) and C)

Question 20

Benson Company received cash of $1,000,000 from issuing common stock at par value. As a result of this transaction, the company's debt to equity ratio will:

Accepted Answer

A)   Decrease.
B)   Increase.
C)   Remain the same.
D)   Cannot be determined.E) B) and C)
F) None of the above

Exam 9: Financial Statement Analysis

Which of the following is an (are) objective(s) of ratio analysis?

Correct Answer
verified

Working capital is current assets minus current liabilities.

Correct Answer
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Jenkins Company's current ratio is higher than the average for its industry, while its quick ratio is below the industry average. One possible interpretation for these results is that Jenkins carries less inventory than most companies in its industry.

Correct Answer
verified

Which ratio compares the earnings per share of a company to the market price for a share of the company's stock?

Correct Answer
verified

Which of the following statements regarding ratio analysis is incorrect?

Correct Answer
verified

Which ratio measures the percentage of company's assets that are financed by debt?

Correct Answer
verified

Short-term creditors are usually most interested in assessing:

Correct Answer
verified

You are considering an investment in Facebook stock and wish to assess the company's position in the stock market. All of the following ratios can be used except:

Correct Answer
verified

While horizontal analysis examines one item over many time periods, vertical analysis examines many items in the same interval of time.

Correct Answer
verified

The accounting profession assumes that financial statement users have an expert knowledge of business.

Correct Answer
verified

Assume that you are considering purchasing some of a company's long-term bonds as an investment. Which of the company's financial statement ratios would you probably be most interested in?

Correct Answer
verified

Benson Company received cash of $1,000,000 from issuing common stock at par value. As a result of this transaction, the company's debt to equity ratio will:

Correct Answer
verified

Correct Answer
verified

Which of the following statements regarding the information disclosed in financial statements is incorrect?

Correct Answer
verified

Knoell Company paid its sales employees $15,000 in sales commissions. What impact will this transaction have on the firm's working capital?

Correct Answer
verified

The following balance sheet information is provided for Santana Company for Year 2: What is the company's debt to equity ratio? (Round your answers to the nearest whole percent.)

Correct Answer
verified

The Phibbs Company paid total cash dividends of $200,000 on 25,000 outstanding common shares. On the most recent trading day, the common shares sold at $80. What is this company's dividend yield?

Correct Answer
verified

Which of the following statements about financial statement analysis is incorrect?

Correct Answer
verified

Which type of approach should be used when evaluating corporate results using horizontal analysis?

Correct Answer
verified

A limitation of financial statement analysis stems from the discretion of management to choose accounting procedures that cast the best light on the firm's performance.

Correct Answer
verified

Exam 9: Financial Statement Analysis

Which of the following is an (are) objective(s) of ratio analysis?

Correct AnswerverifiedShow Answer

Working capital is current assets minus current liabilities.

Correct AnswerverifiedShow Answer

Jenkins Company's current ratio is higher than the average for its industry, while its quick ratio is below the industry average. One possible interpretation for these results is that Jenkins carries less inventory than most companies in its industry.

Correct AnswerverifiedShow Answer

Which ratio compares the earnings per share of a company to the market price for a share of the company's stock?

Correct AnswerverifiedShow Answer

Which of the following statements regarding ratio analysis is incorrect?

Correct AnswerverifiedShow Answer

Which ratio measures the percentage of company's assets that are financed by debt?

Correct AnswerverifiedShow Answer

Short-term creditors are usually most interested in assessing:

Correct AnswerverifiedShow Answer

You are considering an investment in Facebook stock and wish to assess the company's position in the stock market. All of the following ratios can be used except:

Correct AnswerverifiedShow Answer

While horizontal analysis examines one item over many time periods, vertical analysis examines many items in the same interval of time.

Correct AnswerverifiedShow Answer

The accounting profession assumes that financial statement users have an expert knowledge of business.

Correct AnswerverifiedShow Answer

Assume that you are considering purchasing some of a company's long-term bonds as an investment. Which of the company's financial statement ratios would you probably be most interested in?

Correct AnswerverifiedShow Answer

Benson Company received cash of $1,000,000 from issuing common stock at par value. As a result of this transaction, the company's debt to equity ratio will:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements regarding the information disclosed in financial statements is incorrect?

Correct AnswerverifiedShow Answer

Knoell Company paid its sales employees $15,000 in sales commissions. What impact will this transaction have on the firm's working capital?

Correct AnswerverifiedShow Answer

The following balance sheet information is provided for Santana Company for Year 2: What is the company's debt to equity ratio? (Round your answers to the nearest whole percent.)

Correct AnswerverifiedShow Answer

The Phibbs Company paid total cash dividends of $200,000 on 25,000 outstanding common shares. On the most recent trading day, the common shares sold at $80. What is this company's dividend yield?

Correct AnswerverifiedShow Answer

Which of the following statements about financial statement analysis is incorrect?

Correct AnswerverifiedShow Answer

Which type of approach should be used when evaluating corporate results using horizontal analysis?

Correct AnswerverifiedShow Answer

A limitation of financial statement analysis stems from the discretion of management to choose accounting procedures that cast the best light on the firm's performance.

Correct AnswerverifiedShow Answer

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