Question 1

The return on investment measure is also referred to as:

Accepted Answer

A)  Net margin.
B)  Return on assets.
C)  Return on equity.
D)  Return on debt.

Question 2

You are considering an investment in General Motors stock and wish to assess the firm's long-term debt-paying ability and its use of debt financing.All of the following ratios can be used to assess solvency except:

Accepted Answer

A)  Number of times interest is earned.
B)  Net margin.
C)  Debt to equity ratio.
D)  Debt to assets ratio.

Question 3

Current financial reporting standards assume that users of accounting information:

Accepted Answer

A)  have an expert's understanding of economic and financial events and conditions.
B)  have a reasonably informed knowledge of business.
C)  have widely differing levels of knowledge about business,and that financial reporting must meet these differing needs.
D)  have only minimal knowledge of business.

Question 4

You are considering an investment in Freedom Airlines stock and wish to assess the firm's earnings performance.All of the following ratios can be used to assess profitability except:

Accepted Answer

A)  Net margin.
B)  Average days to collect receivables.
C)  Return on investment.
D)  Asset turnover.

Question 5

Long-term creditors are usually most interested in evaluating:

Accepted Answer

A)  Liquidity
B)  Managerial effectiveness
C)  Solvency
D)  Profitability

Question 6

The accounting profession assumes that financial statement users have a reasonable knowledge of business.

Accepted Answer

A) True 
 B)False

Question 7

Which ratio measures how effectively a company is using assets to generate revenue?

Accepted Answer

A)  Net margin
B)  Plant assets to long-term liabilities
C)  Asset turnover
D)  Inventory turnover

Question 8

Select the incorrect statement regarding horizontal analysis.

Accepted Answer

A)  Percentage analysis involves establishing the relationship of one amount to another.
B)  In doing horizontal analysis,an account is expressed as a percentage of the previous balance of the same account.
C)  A horizontal analysis of cost of goods sold on the income statement includes dividing net income by total revenue.
D)  Percentage analysis attempts to eliminate the materiality problem of comparing firms of different sizes.

Question 9

The following balance sheet information is provided for Victor Company:
What is the company's working capital?

Accepted Answer

A)  $3,810
B)  $9,810
C)  $18,610
D)  $26,840

Question 10

The following balance sheet is provided for Saslaw Company:
The company's debt to equity ratio is closest to:

Accepted Answer

A)  33.4%
B)  21.6%
C)  54.4%
D)  183.8%

Question 11

The following balance sheet information is provided for Kingsport Company:
The company's current ratio is closest to:

Accepted Answer

A)  0.4
B)  1.4
C)  1.1
D)  2.3

Question 12

On January 1,2015,Gatewood purchased merchandise on account for $6,000.Which of the following statements is true?

Accepted Answer

A)  Gatewood's current ratio will increase and its quick ratio will decrease.
B)  Gatewood's quick ratio will increase.
C)  Gatewood's current ratio will decrease.
D)  Gatewood's current ratio will increase and its quick ratio will increase.

Question 13

Which of the following is a factor involved in communicating useful information?

Accepted Answer

A)  Attributes of the users
B)  Purpose for which the information will be used
C)  Process by which the information is analyzed
D)  All of these answer choices are correct.

Question 14

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 answer choices are correct.

Question 15

Blumenthal Company received cash of $2,000,000 by issuing 20-year bonds payable.As a result of this transaction,the company's current ratio will:

Accepted Answer

A)  Decrease.
B)  Increase.
C)  Remain the same.
D)  Cannot be determined.

Question 16

A company has an obligation to provide highly detailed information in its financial statements.

Accepted Answer

A) True 
 B)False

Question 17

An analysis procedure that uses percentages to compare each of the parts of an individual statement to a key dollar amount from the financial statements is:

Accepted Answer

A)  Ratio analysis.
B)  Contribution analysis.
C)  Horizontal analysis.
D)  Vertical analysis.

Question 18

Explain the difference between horizontal analysis and vertical analysis of a company's financial statements.

Accepted Answer

Horizontal analysis means examining indi...

Question 19

Describe the differences between the liquidity ratios,solvency ratios and profitability ratios.Identify examples of each type of ratio as well.

Accepted Answer

Liquidity ratios indicate a company's ab...

Question 20

Jessup Company paid its sales employees $2,200 in sales commissions.What impact will this transaction have on working capital?

Accepted Answer

A)  Increase it
B)  Decrease it
C)  No impact
D)  Not enough information is provided to answer the question.

Exam 13: Financial Statement Analysis

The following balance sheet information is provided for Kingsport Company: The company's current ratio is closest to:

Correct AnswerverifiedShow Answer

The following balance sheet information is provided for Victor Company: What is the company's working capital?

Correct AnswerverifiedShow Answer

Select the incorrect statement regarding horizontal analysis.

Correct AnswerverifiedShow Answer

A company has an obligation to provide highly detailed information in its financial statements.

Correct AnswerverifiedShow Answer

Long-term creditors are usually most interested in evaluating:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Current financial reporting standards assume that users of accounting information:

Correct AnswerverifiedShow Answer

Explain the difference between horizontal analysis and vertical analysis of a company's financial statements.

Correct AnswerverifiedHorizontal analysis means examining indi...View AnswerShow Answer

Blumenthal Company received cash of $2,000,000 by issuing 20-year bonds payable.As a result of this transaction,the company's current ratio will:

Correct AnswerverifiedShow Answer

Jessup Company paid its sales employees $2,200 in sales commissions.What impact will this transaction have on working capital?

Correct AnswerverifiedShow Answer

You are considering an investment in Freedom Airlines stock and wish to assess the firm's earnings performance.All of the following ratios can be used to assess profitability except:

Correct AnswerverifiedShow Answer

The return on investment measure is also referred to as:

Correct AnswerverifiedShow Answer

The accounting profession assumes that financial statement users have a reasonable knowledge of business.

Correct AnswerverifiedShow Answer

On January 1,2015,Gatewood purchased merchandise on account for $6,000.Which of the following statements is true?

Correct AnswerverifiedShow Answer

Describe the differences between the liquidity ratios,solvency ratios and profitability ratios.Identify examples of each type of ratio as well.

Correct AnswerverifiedLiquidity ratios indicate a company's ab...View AnswerShow Answer

An analysis procedure that uses percentages to compare each of the parts of an individual statement to a key dollar amount from the financial statements is:

Correct AnswerverifiedShow Answer

Which ratio measures how effectively a company is using assets to generate revenue?

Correct AnswerverifiedShow Answer

The following balance sheet is provided for Saslaw Company: The company's debt to equity ratio is closest to:

Correct AnswerverifiedShow Answer

Which of the following is a factor involved in communicating useful information?

Correct AnswerverifiedShow Answer

You are considering an investment in General Motors stock and wish to assess the firm's long-term debt-paying ability and its use of debt financing.All of the following ratios can be used to assess solvency except:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Horizontal analysis means examining indi...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Liquidity ratios indicate a company's ab...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified