Question 1

Solvency refers to a company's ability to pay its current liabilities while liquidity refers to a company's ability to pay its long-term liabilities.

Accepted Answer

A) True 
 B)False

Question 2

TPX Company's 2013 receivables turnover ratio is:

Accepted Answer

A)   5.3 times.
B)   5.6 times.
C)   5.0 times.
D)   0.2 times.E) C) and D)
F) None of the above

Question 3

Explain the difference between vertical and horizontal analysis.

Accepted Answer

For vertical analysis, we express each i...

Question 4

The receivables turnover ratio measures how many times, on average, a company collects its receivables during the year.

Accepted Answer

A) True 
 B)False

Question 5

What is the correct order to present the following items on the income statement?

Accepted Answer

A)   Other revenues and expenses, income tax expense, discontinued operations, extraordinary items.
B)   Other revenues and expenses, income tax expense, extraordinary items, discontinued operations.
C)   Discontinued operations, extraordinary items, other revenues and expenses, income tax expense.
D)   Discontinued operations, extraordinary items, income tax expense, other revenues and expenses.E) B) and D)
F) A) and B)

Question 6

We measure income statement accounts at a point in time and balance sheet accounts over a period of time.

Accepted Answer

A) True 
 B)False

Question 7

Richard's Sporting Goods reports net income of $100,000, net sales of $500,000, and average assets of $1,000,000. The asset turnover is:

Accepted Answer

A)   0.1 times.
B)   0.5 times.
C)   2 times.
D)   5 times.E) B) and C)
F) A) and D)

Question 8

Profit margin measures the income earned on each dollar of sales, and is calculated by dividing net income by net sales.

Accepted Answer

A) True 
 B)False

Question 9

Listed below are eight terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term placing the number designating the term in the space provided. 
-     A means to express each item in a financial statement as a percentage of a base amount.

Accepted Answer

A)   Liquidity 
B)   Conservative accounting practices 
C)   Solvency 
D)   Extraordinary item 
E)   Discontinued operation F)  Horizontal analysis G)  Vertical analysis H)  Aggressive accounting practices I) A) and E)
J) B) and G)

Question 10

Sideline Sports Products reports a return on assets of 6%, and a return on equity of 10%. Why do these two ratios differ?

Accepted Answer

The return on assets and the return on e...

Question 11

Listed below are eight terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term placing the number designating the term in the space provided. 
-     A company's ability to pay its current liabilities.

Accepted Answer

A)   Liquidity 
B)   Conservative accounting practices 
C)   Solvency 
D)   Extraordinary item 
E)   Discontinued operation F)  Horizontal analysis G)  Vertical analysis H)  Aggressive accounting practices I) C) and G)
J) B) and H)

Question 12

We use vertical analysis to express each income statement item as a percentage of sales.

Accepted Answer

A) True 
 B)False

Question 13

When a company sells land for cash and makes a $25,000 gain:

Accepted Answer

A)   Its acid-test ratio decreases.
B)   Its current ratio decreases.
C)   Its debt to equity ratio decreases.
D)   Cannot determine from the given information.E) A) and B)
F) All of the above

Question 14

A low receivables turnover ratio is a positive sign that a company can quickly turn its receivables into cash.

Accepted Answer

A) True 
 B)False

Question 15

TPX Company's 2013 gross profit ratio is:

Accepted Answer

A)   57.5%.
B)   36.5%.
C)   63.5%.
D)   60.0%.E) None of the above
F) A) and C)

Question 16

A low current ratio indicates that a company has sufficient current assets to pay current liabilities as they become due.

Accepted Answer

A) True 
 B)False

Question 17

For vertical analysis, we express each balance sheet item as a percentage of sales.

Accepted Answer

A) True 
 B)False

Question 18

The gross profit ratio is calculated as gross profit divided by net sales.

Accepted Answer

A) True 
 B)False

Question 19

Richard's Sporting Goods reports net income of $100,000, net sales of $500,000, and average assets of $1,000,000. The return on assets is:

Accepted Answer

A)   10%.
B)   20%.
C)   50%.
D)   5 times.E) B) and C)
F) A) and D)

Question 20

Assuming an acid-test ratio of 1.0, how will the purchase of inventory with cash affect the ratio?

Accepted Answer

A)   Increase the acid-test ratio.
B)   No change to the acid-test ratio.
C)   Decrease the acid-test ratio.
D)   Could either increase or decrease the acid-test ratio.E) C) and D)
F) A) and D)

Exam 12: Financial Statement Analysis

TPX Company's 2013 gross profit ratio is:

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The gross profit ratio is calculated as gross profit divided by net sales.

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We use vertical analysis to express each income statement item as a percentage of sales.

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Profit margin measures the income earned on each dollar of sales, and is calculated by dividing net income by net sales.

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We measure income statement accounts at a point in time and balance sheet accounts over a period of time.

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Richard's Sporting Goods reports net income of $100,000, net sales of $500,000, and average assets of $1,000,000. The asset turnover is:

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Listed below are eight terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term placing the number designating the term in the space provided. - A company's ability to pay its current liabilities.

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Solvency refers to a company's ability to pay its current liabilities while liquidity refers to a company's ability to pay its long-term liabilities.

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A low receivables turnover ratio is a positive sign that a company can quickly turn its receivables into cash.

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TPX Company's 2013 receivables turnover ratio is:

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Richard's Sporting Goods reports net income of $100,000, net sales of $500,000, and average assets of $1,000,000. The return on assets is:

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When a company sells land for cash and makes a $25,000 gain:

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Listed below are eight terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term placing the number designating the term in the space provided. - A means to express each item in a financial statement as a percentage of a base amount.

Correct AnswerverifiedShow Answer

Sideline Sports Products reports a return on assets of 6%, and a return on equity of 10%. Why do these two ratios differ?

Correct AnswerverifiedThe return on assets and the return on e...View AnswerShow Answer

The receivables turnover ratio measures how many times, on average, a company collects its receivables during the year.

Correct AnswerverifiedShow Answer

For vertical analysis, we express each balance sheet item as a percentage of sales.

Correct AnswerverifiedShow Answer

A low current ratio indicates that a company has sufficient current assets to pay current liabilities as they become due.

Correct AnswerverifiedShow Answer

Explain the difference between vertical and horizontal analysis.

Correct AnswerverifiedFor vertical analysis, we express each i...View AnswerShow Answer

Assuming an acid-test ratio of 1.0, how will the purchase of inventory with cash affect the ratio?

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What is the correct order to present the following items on the income statement?

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The return on assets and the return on e...
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For vertical analysis, we express each i...
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