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Exam 15: Financial Statement Analysis

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Question 1

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$\begin{array}{ll}530,000 & \text { Accounts payable } \\65,000 & \text { Accounts receivable } \\7,000 & \text { Accrued liabilities } \\25,000 & \text { Cash } \\40,000 & \text { Intangible assets } \\72,000 & \text { Inventory } \\100,000 & \text { Long-term investments } \\75,000 & \text { Long-term liabilities } \\36,000 & \text { Marketable securities } \\20,000 & \text { Notes payable (short-term) } \\625,000 & \text { Property, plant, and equipment } \\2,000 & \text { Prepaid expenses }\end{array}$ Based on the above data, what is the quick ratio, rounded to one decimal point?

A) 2.2
B) 3.5
C) 3.0
D) 1.6

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

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Question 2

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A loss on disposal of a segment would be reported in the income statement as a(n)

A) administrative expense
B) other expense
C) deduction from income from continuing operations
D) selling expense

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

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Question 3

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

A company reports the following income statement and balance sheet information for the current year: Determine the rate earned on total assets. Round your answer to one decimal place.

The effects of differences in accounting methods are of little importance when analyzing comparable data from competing businesses.

The current ratio is

If the accounts receivable turnover for the current year has decreased when compared with the ratio for the preceding year, there has been an acceleration in the collection of receivables.

Which of the following ratios provides a solvency measure that shows the margin of safety of noteholders or bondholders and also gives an indication of the potential ability of the business to borrow additional funds on a long-term basis?

What is a major advantage of using percentages rather than dollar changes in doing horizontal and vertical analysis?

The balance sheets at the end of each of the first two years of operations indicate the following: If net income is $115,000 and interest expense is $30,000 for 2012, what are the earnings per share on common stock for 2012, (round to two decimal places) ?

Vertical analysis refers to comparing the financial statements of a single company for several years.

A balance sheet shows cash, $75,000; marketable securities, $115,000; receivables, $150,000 and $222,500 of inventories. Current liabilities are $225,000. The current ratio is 2.5 to 1.

A common measure of liquidity is

All of the following are typically included in the Management's Discussion and Analysis in annual reports except:

Which of the following should be classified as an extraordinary item on the income statement?

The balance sheets at the end of each of the first two years of operations indicate the following: If net income is $115,000 and interest expense is $30,000 for 2012, and the market price is $30, What is the price-earnings ratio on common stock for 2012 (round to one decimal point) ?

The number of days' sales in inventory is one means of expressing the relationship between the cost of goods sold and inventory.

Horizontal analysis is a technique for evaluating financial statement data

If a firm has a quick ratio of 1, the subsequent payment of an account payable will cause the ratio to increase.

Current position analysis indicates a company's ability to liquidate current liabilities.