Question 1

Assuming that the quantities of inventory on hand during the current year were sufficient to meet all demands for sales, a decrease in the inventory turnover for the current year when compared with the turnover for the preceding year indicates an improvement in inventory management.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following measures a company's ability to pay its current liabilities?

Accepted Answer

A)   earnings per share
B)   inventory turnover
C)   current ratio
D)   number of times interest charges earnedE) B) and D)
F) None of the above

Question 3

Unusual items affecting the current period's income statement consist of changes in accounting principles and discontinued operations.

Accepted Answer

A) True 
 B)False

Question 4

A company reports the following:

Accepted Answer

Determine the ratio of net sales to tota...

Question 5

Unusual items affecting the prior period's income statement consist of errors and change in accounting principles.

Accepted Answer

A) True 
 B)False

Question 6

Leveraging implies that a company

Accepted Answer

A)   contains debt financing.
B)   contains equity financing.
C)   has a high current ratio.
D)   has a high earnings per share.E) None of the above
F) B) and C)

Question 7

Under which of the following cases may a percentage change be computed?

Accepted Answer

A)   There is no amount in the base year.
B)   There is a negative amount in the base year and a negative amount in the subsequent year.
C)   The trend of the amounts is decreasing but all amounts are positive.
D)   There is a negative amount in the base year and a positive amount in the subsequent year.E) A) and B)
F) All of the above

Question 8

Which of the following should be reported net of the related income tax effect on the income statement?

Accepted Answer

A)   sale of an inventory item at a loss
B)   loss due to sale of fixed assets
C)   loss due to a discontinued operations of the business
D)   sale of a temporary investment at a lossE) A) and B)
F) A) and C)

Question 9

Ratios and various other analytical measures are a substitute for sound judgment, nor do they provide definitive guides for action.

Accepted Answer

A) True 
 B)False

Question 10

Percentage analyses, ratios, turnovers, and other measures of financial position and operating results are

Accepted Answer

A)   a substitute for sound judgment.
B)   useful analytical measures.
C)   enough information for analysis, industry information is not needed.
D)   unnecessary for analysis, but reaction is better.E) None of the above
F) C) and D)

Question 11

In horizontal analysis, each item is expressed as a percentage of the

Accepted Answer

A)   base year figure.
B)   retained earnings figure.
C)   total assets figure.
D)   net income figure.E) C) and D)
F) B) and D)

Question 12

The number of times interest expense is earned is computed as

Accepted Answer

A)   net income plus interest expense, divided by interest expense
B)   income before income tax plus interest expense, divided by interest expense
C)   net income divided by interest expense
D)   income before income tax divided by interest expenseE) B) and D)
F) A) and D)

Question 13

An increase in the accounts receivable turnover may be due to an improvement in the collection of receivables or to a change in the granting of credit and/or in collection practices.

Accepted Answer

A) True 
 B)False

Question 14

The following items are reported on a company's balance sheet:

Accepted Answer

Determine the (a) cu...

Question 15

A company reports the following:

Accepted Answer

Determine the (a) rate earned ...

Question 16

The independent auditor's report does which of the following?

Accepted Answer

A)   describes which financial statements are covered by the audit
B)   gives the auditor's opinion regarding the fairness of the financial statements
C)   summarizes what the auditor did
D)   states that the financial statements were presented on timeE) B) and C)
F) None of the above

Question 17

The following information is available for Taylor Company:  Which of the following statements is correct?

Accepted Answer

A)   The price-earnings ratio is 20 and a share of common stock was selling for 20 times the amount of earnings per share at the end of 2012.
B)   The price-earnings ratio is 5.0% and a share of common stock was selling for 5.0% more than the amount of earnings per share at the end of 2012.
C)   The price-earnings ratio is 10 and a share of common stock was selling for 125 times the amount of earnings per share at the end of 2012.
D)   The market price per share and the earnings per share are not statistically related to each other.E) A) and D)
F) None of the above

Question 18

Match each item with its definition.
-Extraordinary Items

Accepted Answer

A)  Useful for comparing one company to another or a company with industry averages
B)  Focuses on a company’s ability to generate net income
C)  The percentage analysis of the relationship of each component in a financial statement to a total within the statement.
D)  An analysis of a company’s ability to pay its current liabilities.
E)  Occurs when a company abandons a segment.F) A percentage analysis of increases and decreases in related items in comparative financial statements.G) Something that is both unusual and infrequent.H) This requires a restatement of prior period financial statements.I) All of the above
J) A) and H)

Question 19

Comparable financial statements are designed to compare the financial statements of two or more corporations.

Accepted Answer

A) True 
 B)False

Question 20

Factors which reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred to as solvency and profitability.

Accepted Answer

A) True 
 B)False

Exam 14: Financial Statement Analysis

The following information is available for Taylor Company: Which of the following statements is correct?

Correct AnswerverifiedShow Answer

An increase in the accounts receivable turnover may be due to an improvement in the collection of receivables or to a change in the granting of credit and/or in collection practices.

Correct AnswerverifiedShow Answer

Leveraging implies that a company

Correct AnswerverifiedShow Answer

Under which of the following cases may a percentage change be computed?

Correct AnswerverifiedShow Answer

Percentage analyses, ratios, turnovers, and other measures of financial position and operating results are

Correct AnswerverifiedShow Answer

The independent auditor's report does which of the following?

Correct AnswerverifiedShow Answer

Match each item with its definition. -Extraordinary Items

Correct AnswerverifiedShow Answer

Unusual items affecting the prior period's income statement consist of errors and change in accounting principles.

Correct AnswerverifiedShow Answer

A company reports the following:

Correct AnswerverifiedDetermine the (a) rate earned ...View AnswerShow Answer

Factors which reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred to as solvency and profitability.

Correct AnswerverifiedShow Answer

In horizontal analysis, each item is expressed as a percentage of the

Correct AnswerverifiedShow Answer

Which of the following should be reported net of the related income tax effect on the income statement?

Correct AnswerverifiedShow Answer

Assuming that the quantities of inventory on hand during the current year were sufficient to meet all demands for sales, a decrease in the inventory turnover for the current year when compared with the turnover for the preceding year indicates an improvement in inventory management.

Correct AnswerverifiedShow Answer

Unusual items affecting the current period's income statement consist of changes in accounting principles and discontinued operations.

Correct AnswerverifiedShow Answer

The number of times interest expense is earned is computed as

Correct AnswerverifiedShow Answer

A company reports the following:

Correct AnswerverifiedDetermine the ratio of net sales to tota...View AnswerShow Answer

Ratios and various other analytical measures are a substitute for sound judgment, nor do they provide definitive guides for action.

Correct AnswerverifiedShow Answer

Which of the following measures a company's ability to pay its current liabilities?

Correct AnswerverifiedShow Answer

The following items are reported on a company's balance sheet:

Correct AnswerverifiedDetermine the (a) cu...View AnswerShow Answer

Comparable financial statements are designed to compare the financial statements of two or more corporations.

Correct AnswerverifiedShow Answer

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Determine the (a) rate earned ...
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Determine the ratio of net sales to tota...
View Answer

Correct Answer
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Determine the (a) cu...
View Answer

Correct Answer
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