Analyzing And Interpreting | Test Questions & Answers Ch.13

Financial Accounting, 9e (Wild)

Chapter 13 Analyzing and Interpreting Financial Statements

1) Financial statement analysis applies analytical tools to financial statements and related data for making business decisions.

2) The purpose of financial statement analysis for internal users is to provide information to improve efficiency and effectiveness.

3) The purpose of financial statement analysis for external users is to provide information to improve efficiency and effectiveness.

4) External users of accounting information manage and operate the company.

5) The evaluation of company performance and financial condition focuses solely on past performance.

6) The evaluation of company performance and financial condition includes evaluation of (1) past and current performance, (2) current financial position, and (3) future performance and risk.

7) External users of accounting information make the strategic and operating decisions of a company.

8) Internal users of accounting information make the strategic and operating decisions of a company.

9) One purpose of financial statement analysis for internal users is to provide strategic information to improve company efficiency and effectiveness in providing products and services.

10) Evaluation of company performance does not include analysis of (1) past and current performance, (2) current financial position, and (3) future performance and risk.

11) A company's board of directors analyzes financial statements to assess future company prospects for making operating decisions.

12) Suppliers use financial statement information in establishing credit terms.

13) Financial analysis only refers to the communication of relevant financial information to decision makers.

14) Profitability is the ability to generate future revenues and meet long-term obligations.

15) Profitability is the ability to provide financial rewards sufficient to attract and retain financing.

16) Liquidity and efficiency are the ability to meet short-term obligations and to efficiently generate revenue.

17) Market prospects are the ability to provide financial rewards sufficient to attract and retain financing.

18) Market prospects are the ability to generate positive market expectations.

19) Profitability is the ability to generate positive market expectations.

20) Profitability is the ability to provide financial rewards to attract and retain financing.

21) Financial reporting includes not only general purpose financial statements, but also information from SEC filings, press releases, shareholders' meetings, forecasts, management letters, auditor's reports, and Webcasts.

22) The building blocks of financial statement analysis include (1) liquidity, (2) salability, (3) solvency, and (4) profitability.

23) The building blocks of financial statement analysis include (1) liquidity, (2) solvency, (3) profitability, and (4) market prospects.

24) General-purpose financial statements include the (1) income statement, (2) balance sheet, (3) statement of stockholders' equity (or statement of retained earnings), (4) statement of cash flows, and (5) notes to these statements.

25) Standards for comparison are not generally necessary when making judgments about a company's performance.

26) Standards for comparison when interpreting financial statement analysis include competitor and industry performance data.

27) Measures taken from a selected competitor or a group of competitors are often excellent standards of comparison for analysis.

28) Intra-company analysis is based on comparisons with competitors.

29) Intra-company analysis compares a company's current performance to its own prior performance.

30) General standards of comparisons, developed from experience, include the 2:1 level for the current ratio and 1:1 level for the acid-test ratio.

31) Vertical analysis is the comparison of a company's financial condition and performance across time.

32) Horizontal analysis is the comparison of a company's financial condition and performance across time.

33) If a company is comparing its financial condition or performance to a base amount in the same time period, it is using vertical analysis.

34) Horizontal analysis is the comparison of a company's financial condition and performance to a base amount in the same time period.

35) If a company is comparing this year's financial performance to last year's financial performance, it is using horizontal analysis.

36) When a negative amount is in the base period and a positive amount is in the analysis period (or vice versa), a meaningful percent change cannot be calculated.

37) When no value is in the base period, no percent change is computable.

38) When an item has a value in the base period and zero in the analysis period, the decrease is 100 percent.

39) When an item has a value in the base period and zero in the analysis period, the decrease is 0 percent.

40) Three of the most common tools of financial analysis include horizontal analysis, vertical analysis, and ratio analysis.

41) A financial statement analysis report helps to reduce uncertainty in business decisions through a rigorous and sound evaluation.

42) A good financial report does not link interpretations and conclusions of analysis with the underlying information.

43) A good financial statement analysis report often includes the following sections: executive summary, analysis overview, evidential matter, assumptions, key factors, and inferences.

44) Earnings per share are calculated only on income from continuing operations.

45) Analysis of a single financial number is often of limited value.

46) Comparative financial statements are reports that show financial amounts in side by side columns on a single statement for analysis purposes.

47) Vertical analysis is used to reveal patterns in data covering two or more successive periods.

48) Horizontal analysis is used to reveal patterns in data covering two or more successive periods.

49) Trend analysis is a form of horizontal analysis that can reveal patterns in data across successive periods.

50) Trend analysis of financial statement items can include comparisons of relations between items on different financial statements.

51) Horizontal analysis is used to reveal patterns in data covering successive periods.

52) A trend percent, or index number, is calculated by dividing the analysis period amount by the base period amount and multiplying the result by 100.

53) The percent change of a comparative financial statement item is computed by subtracting the analysis period amount from the base period amount, dividing the result by the base period amount and multiplying that result by 100.

54) The percent change of a comparative financial statement item is computed by subtracting the base period amount from the analysis period amount, dividing the result by the base period amount and multiplying that result by 100.

55) Vertical analysis is a tool to evaluate individual financial statement items or groups of items in terms of a specific base amount.

56) Horizontal analysis is used to reveal changes in the relative importance of each financial statement item.

57) The base amount for a common-size balance sheet is usually total assets.

58) An advantage of common-size statements is that they reflect the dollar magnitude (size) of the different companies under analysis.

59) Graphical analysis of the balance sheet can be useful in assessing sources of financing.

60) A corporation reported cash of $14,000 and total assets of $178,300. Its common-size percent for cash equals 7.85%.

61) A ratio expresses a mathematical relation between two quantities and can be expressed as a percent, rate, or proportion.

62) Ratios must refer to economically important relationships, such as a sale price compared to its cost.

63) Liquidity refers to the availability of resources to meet short-term cash requirements.

64) Working capital is computed as current liabilities minus current assets.

65) Working capital is computed as current assets minus current liabilities.

66) The current ratio is calculated as current liabilities divided by current assets.

67) The current ratio is calculated as current assets divided by current liabilities.

68) Total asset turnover reflects a company's ability to use its assets to generate sales and is an important indication of operating efficiency.

69) Capital structure refers to a company's long-run financial viability and its ability to cover long-term obligations.

70) The use of debt is sometimes described as financial leverage because debt can have the effect of increasing the return on equity.

71) The greater the times interest earned ratio, the greater the risk a company is exposed to.

72) Efficiency refers to how productive a company is in using its assets, and is usually measured relative to how much revenue is generated from a certain level of assets.

73) The higher the accounts receivable turnover, the less quickly accounts receivable are collected.

74) The higher the accounts receivable turnover, the more quickly accounts receivable are collected.

75) A company with a high inventory turnover requires a smaller investment in inventory than one producing the same sales with a lower turnover.

76) A company with a low inventory turnover requires a smaller investment in inventory than one producing the same sales with a higher turnover.

77) A company that has days' sales uncollected of 30 days and days' sales in inventory of 18 days implies that inventory will be converted to cash in about 12 days.

78) The return on total assets can be calculated as profit margin times total asset turnover.

79) The return on common stockholder's equity measures a company's success in earning net income for its owners.

80) A high level of expected risk suggests a low price-earnings (PE) ratio.

81) The return on total assets ratio is a profitability measure.

82) A company reports basic earnings per share of $3.50, cash dividends per share of $0.75, and a market price per share of $64.75. The company's dividend yield equals 21.4%.

83) Financial statement analysis involves all of the following except:

A) The application of analytical tools to general-purpose financial statements and related data for making business decisions.

B) Transforming accounting data into useful information for decision-making.

C) Helping users to make better decisions.

D) Helping to reduce uncertainty in decision-making.

E) Assuring that the company will be more profitable in the future.

84) Evaluation of company performance can include comparison and/or assessment of all but which of the following:

A) Past performance.

B) Current performance.

C) Current financial position.

D) Future performance and risk.

E) External user needs and demands.

85) External users of financial information:

A) Are those individuals involved in managing and operating the company.

B) Include internal auditors and consultants.

C) Are not directly involved in operating the company.

D) Make strategic decisions for a company.

E) Make operating decisions for a company.

86) Internal users of financial information:

A) Are not directly involved in operating a company.

B) Are those individuals involved in managing and operating the company.

C) Include shareholders and lenders.

D) Include directors and customers.

E) Include suppliers, regulators, and the press.

87) The building blocks of financial statement analysis do not include:

A) External analyst services.

B) Solvency.

C) Profitability.

D) Market prospects.

E) Liquidity and efficiency.

88) Financial reporting refers to:

A) The application of analytical tools to general-purpose financial statements.

B) The communication of financial information useful for decision making.

C) General-purpose financial statements only.

D) Ratio analysis only.

E) Profitability.

89) The ability to meet short-term obligations and to efficiently generate revenues is called:

A) Liquidity and efficiency.

B) Solvency.

C) Profitability.

D) Market prospects.

E) Creditworthiness.

90) The ability to generate future revenues and meet long-term obligations is referred to as:

A) Liquidity and efficiency.

B) Solvency.

C) Profitability.

D) Market prospects.

E) Creditworthiness.

91) The ability to provide financial rewards sufficient to attract and retain financing is called:

A) Liquidity and efficiency.

B) Solvency.

C) Profitability.

D) Market prospects.

E) Creditworthiness.

92) The ability to generate positive market expectations is called:

A) Liquidity and efficiency.

B) Liquidity and solvency.

C) Profitability.

D) Market prospects.

E) Creditworthiness.

93) Standards for comparisons in financial statement analysis do not include:

A) Intra-company standards.

B) Competitors' standards.

C) Industry standards.

D) Management standards.

E) Guidelines (rules of thumb).

94) Intra-company standards for financial statement analysis:

A) Are based on a company's prior performance and relations between its financial items.

B) Are often set by competitors.

C) Are set by the company's industry through published statistics.

D) Are based on rules of thumb.

E) Are published by analyst services such as Standard & Poor's.

95) Industry standards for financial statement analysis:

A) Are based on a single competitor's financial performance.

B) Are set by the government.

C) Are available for the financial performance and condition of the company's industry.

D) Are based on rules of thumb.

E) Compare a company's income with its prior year's income.

96) Guidelines (rules-of-thumb) are general standards of comparison developed from:

A) Industry statistics from the government.

B) Past experience.

C) Analysis of competitors.

D) Relations between financial items.

E) Dun and Bradstreet.

97) Three of the most common tools of financial analysis are:

A) Financial reporting, ratio analysis, vertical analysis.

B) Ratio analysis, horizontal analysis, financial reporting.

C) Horizontal analysis, vertical analysis, ratio analysis.

D) Trend analysis, financial reporting, ratio analysis.

E) Vertical analysis, political analysis, horizontal analysis.

98) The comparison of a company's financial condition and performance across time is known as:

A) Horizontal analysis.

B) Vertical analysis.

C) Political analysis.

D) Financial reporting.

E) Investment analysis.

99) The measurement of key relations among financial statement items is known as:

A) Financial reporting.

B) Horizontal analysis.

C) Investment analysis.

D) Ratio analysis.

E) Risk analysis.

100) The comparison of a company's financial condition and performance to a base amount is known as:

A) Financial reporting.

B) Horizontal ratios.

C) Investment analysis.

D) Risk analysis.

E) Vertical analysis.

101) A financial statement analysis report does not include:

A) An auditor statement.

B) An analysis overview.

C) Evidential matter.

D) Qualitative and quantitative key factors.

E) Inferences such as forecasts.

102) The background on a company, its industry, and its economic setting is usually included in which of the following sections of a financial statement analysis report?

A) Executive summary.

B) Analysis overview.

C) Evidential conclusions.

D) Factor analysis.

E) Inferences.

103) A brief focus on important analysis results and conclusions is usually included in which of the following sections of a financial statement analysis report:

A) Executive summary.

B) Analysis overview.

C) Evidential conclusions.

D) Factor analysis.

E) Inferences.

104) All of the following are true of a financial statement analysis report, except:

A) Contains ambiguities and qualifications.

B) Forces preparers to organize their reasoning and to verify the logic of analysis.

C) Serves as a method of communication to users.

D) Helps users and preparers to refine conclusions based on evidence from key building blocks.

E) Enables readers to see the process and rationale of analysis.

105) Gains and losses that are normal and frequent are reported as:

A) Part of continuing operations in after-tax dollars.

B) A prior period adjustment on the statement of retained earnings.

C) A gain or loss from disposing of the discontinued segment's net assets.

D) A gain or loss from operation of a discontinued segment.

E) Part of continuing operations in before tax dollars.

106) Which of the following items is typically not included as a separate item after normal revenues and expenses?

A) Write down of inventories.

B) Condemnation of property by the city government.

C) Loss of use of property due to a new and unexpected environmental regulation.

D) Loss due to an unusual and infrequent calamity.

E) Loss of property taken by a foreign government.

107) Financial statements with data for two or more successive accounting periods placed in columns side by side, sometimes with changes shown in both dollar amounts and percentages, are referred to as:

A) Period-to-period statements.

B) Controlling statements.

C) Successive statements.

D) Comparative statements.

E) Serial statements.

108) Horizontal analysis:

A) Is a method used to evaluate changes in financial data across time.

B) Is also called vertical analysis.

C) Is the presentation of financial ratios.

D) Is a tool used to evaluate financial statement items relative to industry statistics.

E) Evaluates financial data across industries.

109) The dollar change for a comparative financial statement item is calculated by:

A) Subtracting the analysis period amount from the base period amount.

B) Subtracting the base period amount from the analysis period amount.

C) Subtracting the analysis period amount from the base period amount, dividing the result by the base period amount, then multiplying that amount by 100.

D) Subtracting the base period amount from the analysis period amount, dividing the result by the base period amount, then multiplying that amount by 100.

E) Subtracting the base period amount from the analysis amount, then dividing the result by the base amount.

110) A company's sales in Year 1 were $250,000 and in Year 2 were $287,500. Using Year 1 as the base year, the percent change for Year 2 compared to the base year is:

A) 87%.

B) 100%.

C) 115%.

D) 15%.

E) 13%.

111) Yeats Corporation's sales in Year 1 were $396,000 and in Year 2 were $380,000. Using Year 1 as the base year, the percent change for Year 2 compared to the base year is:

A) −104%

B) 100%

C) −4%

D) 96%

E) 4.2%

112) Ash Company reported sales of $400,000 for Year 1, $450,000 for Year 2, and $500,000 for Year 3. Using Year 1 as the base year, what is the revenue trend percent for Years 2 and 3?

A) 80% for Year 2 and 90% for Year 3.

B) 88% for Year 2 and 80% for Year 3.

C) 88% for Year 2 and 90% for Year 3.

D) 112.5% for Year 2 and 125% for Year 3.

E) 125% for Year 2 and 112.5% for Year 3.

113) In horizontal analysis the percent change is computed by:

A) Subtracting the analysis period amount from the base period amount.

B) Subtracting the base period amount from the analysis period amount.

C) Subtracting the analysis period amount from the base period amount, dividing the result by the base period amount, then multiplying that amount by 100.

D) Subtracting the base period amount from the analysis period amount, dividing the result by the base period amount, then multiplying that amount by 100.

E) Subtracting the base period amount from the analysis amount, then dividing the result by the analysis period amount.

114) To compute trend percentages the analyst should:

A) Select a base period, assign each item in the base period statement a weight of 100%, and then express financial numbers from other periods as a percent of their base period number.

B) Subtract the analysis period number from the base period number.

C) Subtract the base period amount from the analysis period amount, divide the result by the analysis period amount, then multiply that amount by 100.

D) Compare amounts across industries using Dun and Bradstreet.

E) Compare amounts to a competitor.

115) Comparative financial statements in which each individual financial statement amount is expressed as a percentage of a base amount are called:

A) Asset comparative statements.

B) Percentage comparative statements.

C) Common-size comparative statements.

D) Sales comparative statements.

E) General-purpose financial statements.

116) Common-size statements:

A) Reveal changes in the relative importance of each financial statement item to a base amount.

B) Do not emphasize the relative importance of each item.

C) Compare financial statements over time.

D) Show the dollar amount of change for financial statement items.

E) Reveal patterns in data across successive periods.

117) The common-size percent is computed by:

A) Dividing the analysis amount by the base amount.

B) Dividing the base amount by the analysis amount.

C) Dividing the analysis amount by the base amount and multiplying the result by 100.

D) Dividing the base amount by the analysis amount and multiplying the result by 1,000.

E) Subtracting the base amount from the analysis amount and multiplying the result by 100.

118) A corporation reported cash of $14,000 and total assets of $178,300 on its balance sheet. Its common-size percent for cash equals:

A) 0.0785%.

B) 7.85%.

C) 12.73%.

D) 1273%.

E) 7850%.

119) A corporation reported cash of $27,000 and total assets of $461,000 on its balance sheet. Its common-size percent for cash equals:

A) 17.1%.

B) 58.6%.

C) 100%.

D) 5.86%.

E) 1707%.

120) Current assets minus current liabilities is:

A) Profit margin.

B) Financial leverage.

C) Current ratio.

D) Working capital.

E) Quick assets.

121) Jones Corp. reported current assets of $193,000 and current liabilities of $137,000 on its most recent balance sheet. The working capital is:

A) 141%.

B) 71%.

C) ($56,000).

D) $56,000.

E) 41%.

122) Jones Corp. reported current assets of $193,000 and current liabilities of $137,000 on its most recent balance sheet. The current ratio is:

A) 1.4:1.

B) 0.7:1.

C) 0.3:1.

D) 1:1.

E) 0.4:1.

123) Jones Corp. reported current assets of $193,000 and current liabilities of $137,000 on its most recent balance sheet. The current assets consisted of $62,000 Cash; $43,000 Accounts Receivable; and $88,000 of Inventory. The acid-test (quick) ratio is:

A) 1.4:1.

B) 0.77:1.

C) 0.54:1.

D) 1:1.

E) 0.64:1.

124) Current assets divided by current liabilities is the:

A) Current ratio.

B) Quick ratio.

C) Debt ratio.

D) Liquidity ratio.

E) Solvency ratio.

125) Quick assets divided by current liabilities is the:

A) Acid-test ratio.

B) Current ratio.

C) Working capital ratio.

D) Current liability turnover ratio.

E) Quick asset turnover ratio.

126) Net sales divided by Average accounts receivable, net is the:

A) Days' sales uncollected.

B) Average accounts receivable ratio.

C) Current ratio.

D) Profit margin.

E) Accounts receivable turnover ratio.

127) Powers Company reported Net sales of $1,200,000 and average Accounts Receivable, net of $78,500. The accounts receivable turnover ratio is:

A) 0.65 times.

B) 14.3 times.

C) 28.6 times.

D) 15.3 times.

E) 16.3 times.

128) Powers Company reported Net sales of $1,200,000 and Accounts Receivable, net of $78,500. The Day's sales uncollected (rounded to whole days) is:

A) 24 days.

B) 15 days.

C) 4 days.

D) 56 days.

E) 48 days.

129) Dividing Accounts receivable, net by Net sales and multiplying the result by 365 is the:

A) Profit margin.

B) Days' sales uncollected.

C) Accounts receivable turnover ratio.

D) Average accounts receivable ratio.

E) Current ratio.

130) Dividing ending inventory by cost of goods sold and multiplying the result by 365 is the:

A) Inventory turnover ratio.

B) Profit margin.

C) Days' sales in inventory.

D) Current ratio.

E) Total asset turnover.

131) Zhang Company reported Cost of goods sold of $835,000, beginning Inventory of $37,200 and ending Inventory of $46,300. The average Inventory amount is:

A) $37,200.

B) $46,300.

C) $83,500.

D) $41,750.

E) $9,100.

132) Zhang Company reported Cost of goods sold of $835,000, beginning Inventory of $37,200 and ending Inventory of $46,300. The Inventory turnover ratio is:

A) 0.5 times.

B) 418 times.

C) 20 times.

D) 56 times.

E) 19 times.

133) Stories Company reported Cost of goods sold of $835,000, beginning Inventory of $37,200, and ending Inventory of $41,750. The Days' sales in inventory (rounded to whole days) is:

A) 18 days.

B) 418 days.

C) 10 days.

D) 56 days.

E) 20 days.

134) Net sales divided by average total assets is the:

A) Profit margin.

B) Total asset turnover.

C) Current ratio.

D) Sales return ratio.

E) Return on total assets.

135) Carducci Corporation reported net sales of $3.6 million and average total assets of $1.1 million. The total asset turnover is:

A) 0.31 times.

B) 3.27 times.

C) 4.30 times.

D) 2.27 times.

E) 0.77 times.

136) Carducci Corporation reported Net sales of $3.6 million and beginning total assets of $0.9 million and ending total assets of $1.3 million. The average total asset amount is:

A) $2.3 million.

B) $2.7 million.

C) $0.25 million.

D) $0.36 million.

E) $1.1 million.

137) Net income divided by net sales is the:

A) Return on total assets.

B) Profit margin.

C) Current ratio.

D) Total asset turnover.

E) Days' sales in inventory.

138) Martinez Corporation reported Net sales of $765,000 and Net income of $142,000. The Profit margin is:

A) 539.0%.

B) 5.39%.

C) 81.4%.

D) 1.86%.

E) 18.56%.

139) Net income divided by average total assets is:

A) Profit margin.

B) Total asset turnover.

C) Return on total assets.

D) Days' income in assets.

E) Current ratio.

140) Clairmont Industries reported Net income of $283,000 and average Total assets of $637,000. The Return on total assets is:

A) 55.6%.

B) 88.8%.

C) 61.5%.

D) 44.4%.

E) 125.1%.

141) Annual cash dividends per share divided by market price per share is the:

A) Price-earnings ratio.

B) Price-dividends ratio.

C) Profit margin.

D) Dividend yield ratio.

E) Earnings per share.

142) The market price of Horokhiv Corporation's common stock at the start of 2016 was $47.50 and it declared and paid cash dividends of $3.28 per share. The Dividend yield ratio is:

A) 14.5%.

B) 7.4%.

C) 6.5%.

D) 144.8%.

E) 6.9%.

143) How long a company holds inventory before selling it can be measured by dividing cost of goods sold by the average inventory balance to determine the:

A) Accounts receivable turnover.

B) Inventory turnover.

C) Days' sales uncollected.

D) Current ratio.

E) Price earnings ratio.

144) A component of operating efficiency and profitability, calculated by expressing net income as a percent of net sales, is the:

A) Acid-test ratio.

B) Merchandise turnover.

C) Price earnings ratio.

D) Accounts receivable turnover.

E) Profit margin ratio.

145) One of several ratios that reflects solvency includes the:

A) Acid-test ratio.

B) Current ratio.

C) Times interest earned ratio.

D) Total asset turnover.

E) Days' sales in inventory.

146) A company had a market price of $27.50 per share, earnings per share of $1.25, and dividends per share of $0.40. Its price-earnings ratio equals:

A) 3.1.

B) 22.0.

C) 93.8.

D) 32.0.

E) 3.3.

147) A company reports basic earnings per share of $3.50, cash dividends per share of $1.25, and a market price per share of $64.75. The company's dividend yield equals:

A) 1.93%.

B) 2.14%.

C) 4.67%.

D) 5.41%.

E) 18.50%.

148) Rajan Company's most recent balance sheet reported total assets of $1.9 million, total liabilities of $0.8 million, and total equity of $1.1 million. Its Debt to equity ratio is:

A) 0.42

B) 0.58

C) 1.38

D) 0.73

E) 1.00

149) Desjardin Landscaping's income statement reports net income of $75,300, which includes deductions for interest expense of $11,500 and income taxes of $34,900. Its times interest earned is:

A) 10.6 times

B) 7.5 times

C) 4.0 times

D) 6.5 times

E) 0.15 times

150) A corporation reports the following year-end balance sheet data. The company's working capital equals:

A) $80,000

B) $155,000

C) $75,000

D) $300,000

E) $190,000

151) A corporation reports the following year-end balance sheet data. The company's acid-test ratio equals:

A) 0.58

B) 1.27

C) 2.07

D) 0.37

E) 0.63

152) A corporation reports the following year-end balance sheet data. The company's current ratio equals:

A) 0.58

B) 1.27

C) 2.07

D) 0.37

E) 0.63

153) A corporation reports the following year-end balance sheet data. The company's debt ratio equals:

A) 0.58

B) 1.27

C) 2.07

D) 0.37

E) 0.63

154) A corporation reports the following year-end balance sheet data. The company's equity ratio equals:

A) 0.58

B) 1.27

C) 2.07

D) 0.37

E) 0.63

155) A corporation reports the following year-end balance sheet data. The company's debt-to-equity ratio equals:

A) 0.58

B) 1.27

C) 2.07

D) 0.37

E) 0.63

156) Selected current year company information follows:

The total asset turnover is:

A) 2.24 times

B) 2.81 times

C) 3.64 times

D) 4.67 times

E) 6.28 times

157) Selected current year company information follows:

The return on total assets is:

A) 2.24%

B) 2.81%

C) 3.64%

D) 4.67%

E) 6.28%

158) All of the following statements regarding a business segment are true except:

A) A business segment is a part of a company's operations that serves a particular product line.

B) A segment has assets, liabilities, and financial results of operations that can be distinguished from those of other parts of the company.

C) A company's gain or loss from selling or closing down a segment is reported separately.

D) The income tax effects of a discontinued segment are combined with income tax from continuing operations.

E) A segment's income for the period prior to the disposal and the gain or loss resulting from disposing of the segment's assets are reported separately.

159) Use the following selected information from Wheeler, LLC to determine the 2018 and 2017 common size percentages for cost of goods sold using Net sales as the base.

A) 36.4% for 2018 and 41.1% for 2017.

B) 55.0% for 2018 and 56.0% for 2017.

C) 119.4% for 2018 and 100.0% for 2017.

D) 117.2% for 2018 and 100.0% for 2017.

E) 65.1% for 2018 and 56.0% for 2017.

160) Use the following selected information from Wheeler, LLC to determine the 2018 and 2017 common size percentages for operating expenses using Net sales as the base.

A) 36.4% for 2018 and 41.1% for 2017.

B) 55.0% for 2018 and 56.0% for 2017.

C) 23.9% for 2018 and 23.0% for 2017.

D) 103.8% for 2018 and 100.0% for 2017.

E) 20.0% for 2018 and 23.0% for 2017.

161) Use the following selected information from Wheeler, LLC to determine the 2018 and 2017 trend percentages for net sales using 2017 as the base.

A) 36.4% for 2018 and 41.1% for 2017.

B) 55.0% for 2018 and 56.0% for 2017.

C) 119.4% for 2018 and 100.0% for 2017.

D) 117.2% for 2018 and 100.0% for 2017.

E) 65.1% for 2018 and 64.6% for 2017.

162) Use the following selected information from Wheeler, LLC to determine the 2018 and 2017 trend percentages for cost of goods sold using 2017 as the base.

A) 36.4% for 2018 and 41.1% for 2017.

B) 55.0% for 2018 and 56.0% for 2017.

C) 119.4% for 2018 and 100.0% for 2017.

D) 117.2% for 2018 and 100.0% for 2017.

E) 65.1% for 2018 and 64.6% for 2017.

163) Refer to the following selected financial information from McCormik, LLC. Compute the company's working capital for Year 2.

A) $232,700.

B) $220,600.

C) $147,200.

D) $111,700.

E) $142,700.

164) Refer to the following selected financial information from McCormik, LLC. Compute the company's current ratio for Year 2.

A) 2.26.

B) 1.98.

C) 2.95.

D) 3.05.

E) 1.88.

165) Refer to the following selected financial information from McCormik, LLC. Compute the company's acid-test ratio for Year 2.

A) 2.26.

B) 1.98.

C) 2.95.

D) 3.05.

E) 1.88.

166) Refer to the following selected financial information from McCormik, LLC. Compute the company's accounts receivable turnover for Year 2.

A) 8.62.

B) 8.28.

C) 8.94.

D) 5.78.

E) 7.90.

167) Refer to the following selected financial information from McCormik, LLC. Compute the company's inventory turnover for Year 2.

A) 4.72.

B) 4.33.

C) 3.28.

D) 5.78.

E) 3.86.

168) Refer to the following selected financial information from McCormik, LLC. Compute the company's days' sales uncollected for Year 2. (Use 365 days a year.)

A) 43.9.

B) 42.3.

C) 46.2.

D) 80.0.

E) 113.3.

169) Refer to the following selected financial information from McCormik, LLC. Compute the company's days' sales in inventory for Year 2. (Use 365 days a year.)

A) 43.9.

B) 42.3.

C) 46.2.

D) 80.0.

E) 113.2.

170) Refer to the following selected financial information from Frankle Corp. Compute the company's working capital.

A) $536,650.

B) $230,200.

C) $568,200.

D) $198,650.

E) $231,450.

171) Refer to the following selected financial information from Frankle Corp. Compute the company's current ratio.

A) 6.44.

B) 2.84.

C) 6.27.

D) 3.60.

E) 1.44.

172) Refer to the following selected financial information from Dodge Company. Compute the company's acid-test ratio.

A) 2.75.

B) 2.66.

C) 0.92.

D) 1.12.

E) 1.63.

173) Refer to the following selected financial information from Marston Company. Compute the company's accounts receivable turnover for Year 2.

A) 8.36.

B) 8.37.

C) 4.78.

D) 8.59.

E) 8.54.

174) Refer to the following selected financial information from Marston Company. Compute the company's days' sales uncollected for Year 2. (Use 365 days a year.)

A) 43.9.

B) 43.7.

C) 46.2.

D) 85.4.

E) 42.7.

175) Refer to the following selected financial information from Graceworks Corp. Compute the company's inventory turnover for Year 2.

A) 1.79.

B) 1.71.

C) 1.85.

D) 0.93.

E) 1.75.

176) Refer to the following selected financial information from Graceworks, Corp. Compute the company's days' sales in inventory for Year 2. (Use 365 days a year.)

A) 203.4.

B) 228.4.

C) 179.5.

D) 215.1.

E) 113.3.

177) Refer to the following selected financial information from Shakley's Incorporated. Compute the company's profit margin for Year 2.

A) 14.1%.

B) 11.7%.

C) 9.6%.

D) 16.7%.

E) 33.9%.

178) Refer to the following selected financial information from Shakley's Incorporated. Compute the company's return on total assets for Year 2.

A) 9.6%.

B) 15.2%.

C) 2.6%.

D) 22.2%.

E) 14.5%.

179) Refer to the following selected financial information from Shakley's Incorporated. Compute the company's debt-to-equity ratio for Year 2.

A) 1.75.

B) 2.34.

C) 0.75.

D) 1.34.

E) 2.63.

180) Refer to the following selected financial information from Shakley's Incorporated. Compute the company's times interest earned for Year 2.

A) 6.9.

B) 4.8.

C) 5.8.

D) 14.0.

E) 7.9.

181) Refer to the following selected financial information from Graphics, Inc. Compute the company's times interest earned.

A) 6.2.

B) 2.5.

C) 8.7.

D) 9.7.

E) 3.7.

182) Refer to the following selected financial information from Keller Company. Compute the company's debt to equity for Year 2.

A) 0.9.

B) 1.1.

C) 0.5.

D) 1.9.

E) 2.1.

Match each of the following terms with the appropriate definitions.

A) Debt to equity ratio

B) Financial statement analysis

C) Common-size financial statement

D) Profitability

E) Comparative financial statement

F) Solvency

G) Vertical analysis

H) Market prospects

I) Horizontal analysis

J) Liquidity and efficiency

183) A company's ability to generate positive market expectations.

184) The application of analytical tools to general-purpose financial statements and related data for making business decisions.

185) A measure of solvency presented as the ratio of total liabilities to total equity.

186) A statement with data for two or more successive accounting periods placed in side-by-side columns, often with changes shown in dollar amounts and percentages.

187) A company's ability to provide financial rewards sufficient to attract and retain capital.

188) A statement where each amount is expressed as a percent of a base amount to reveal the relative importance of each financial statement item.

189) The comparison of a company's financial condition and performance to a base amount.

190) Examination of financial data across time.

191) A company's ability to generate future revenues and meet long-term obligations.

192) The availability of resources to meet short-term obligations and to efficiently generate revenues.

193) Match each of the following terms with the appropriate formulas.

A. Days' sales in inventory

B. Dividend yield

C. Total asset turnover

D. Inventory turnover

E. Return on common stockholders’ equity

F. Gross margin ratio

G. Days' sales uncollected

H. Profit margin ratio

I. Times interest earned

J. Debt ratio

__________ (1) Net income — Preferred dividends

Average common stockholders' equity

__________(2) Accounts receivable * 365

Net sales

__________(3) Total liabilities

Total assets

__________ (4) Income before interest expense and income taxes

Interest expense

__________ (5) Annual cash dividends per share

Market price per share

__________ (6) Net sales — Cost of goods sold

Net sales

__________ (7) Cost of goods sold

Average inventory

__________ (8) Net sales

Average total assets

__________(9) Net income

Net sales

__________(10) Ending inventory * 365

Cost of goods sold

Identify the financial analysis building block most appropriately associated with each ratio listed below. Each building block may be used more than once.

A) Market Prospects

B) Profitability

C) Liquidity and Efficiency

D) Solvency

194) Price Earnings Ratio

195) Dividend Yield

196) Accounts Receivable Turnover

197) Days' Sales in Inventory

198) Return on Total Assets

199) Equity Ratio

200) Debt Ratio

201) Inventory Turnover

202) Basic Earnings per Share

203) Times Interest Earned

204) Explain the purpose of financial statement analysis for both external and internal users.

205) Identify and explain the four building blocks of financial statement analysis.

206) What are the four standards for comparisons in financial analysis? Give an example of each.

207) Identify and describe three common tools of financial statement analysis.

208) What is the purpose of a good financial statement analysis report? What are the key components?

209) Describe the purpose of horizontal financial statement analysis and how it is applied.

210) Describe the purpose of vertical financial statement analysis and how it is applied.

211) Describe ratio analysis including its purpose, application, and interpretation.

212) A company's sales in Year 1 were $280,000, and its sales in Year 2 were $341,600. Using Year 1 as the base year, what is the sales trend percent for Year 2?

213) Calculate the percent increase or decrease for each of the following financial statement items:

214) Comparative statements for Warmer Corporation are shown below:

Calculate trend percentages for all income statement amounts shown and comment on the results. Use 2016 as the base year.Comment on the results.

215) Calculate the percent increases for each of the following selected balance sheet items.

216) For the following financial statement items, calculate trend percentages using Year 1 as the base year:

217) Express the following income statement information in common-size percentages and in trend percentages using Year 1 as the base year.

218) The comparative balance sheet for Silverlight Co. is shown below. Express the balance sheet in common-size percentages.

219) Express the following balance sheets for Safety Company in common-size percentages.

220) Express the following income statement information in common-size percentages (round to nearest whole percent). Comment on the results.

221) Use the balance sheets of Glover shown below to calculate the following ratios for Year 2 (round to the hundredths):

(a) Current ratio.

(b) Acid-test ratio.

(c) Debt ratio.

(d) Equity ratio.

222) The following information is available for the Starr Corporation:

Calculate the company's inventory turnover and its days' sales in inventory.

223) The following current year information is available from a manufacturing company:

Calculate the company's accounts receivable turnover and its days' sales uncollected.

224) Information from a manufacturing company's current year income statement follows. Calculate the company's (a) profit margin ratio, (b) gross margin ratio, and (c) times interest earned.

225) A company reported net income of $78,000 and had 15,000 common shares outstanding throughout the current year. At year-end, the price per share of the company's stock was $49.40. What is the company's year-end price-earnings ratio?

226) A company paid cash dividends on its preferred stock of $40,000 in the current year when its net income was $120,000 and its average common stockholders' equity was $640,000. What is the company's return on common stockholders' equity?

227) Use the financial data shown below to calculate the following ratios for the current year:

(a) Current ratio.

(b) Acid-test ratio.

(c) Accounts receivable turnover.

(d) Days' sales uncollected.

(e) Inventory turnover.

(f) Days' sales in inventory.

Sales (all on credit)………………………………… $650,000

Cost of goods sold…………………………………. 425,000

Income before taxes……………………………….. 78,000

Net income………………………………………… 54,600

228) A company's calendar-year financial data are shown below. The company had total assets of $339,000 and total equity of $144,400 for the prior year. No additional shares of common stock were issued during the year. The December 31 market price per share is $49.50. Cash dividends of $19,500 were paid during the year. Calculate the following ratios for the company:

(a) profit margin ratio

(b) gross margin ratio

(c) return on total assets

(d) return on common stockholders' equity

(e) book value per common share

(f) basic earnings per share

(g) price earnings ratio

(h) dividend yield.

229) A company's calendar-year financial data are shown below. The company had total assets of $339,000 and total equity of $144,400 for the prior year. No additional shares of common stock were issued during the year. The December 31 market price per share is $49.50. Cash dividends of $19,500 were paid during the year. Calculate the following ratios for the company:

(a) debt ratio

(b) equity ratio

(c) debt-to-equity ratio

(d) times interest earned

(e) total asset turnover

230) Comparative calendar-year financial data for a company are shown below. Calculate the following ratios for the company for Year 2:

(a) accounts receivable turnover

(b) day's sales uncollected

(c) inventory turnover

(d) days' sales in inventory

231) Comparative calendar year financial data for a company are shown below. Calculate the following ratios for 20X2:

(a) return on total assets

(b) return on common stockholders' equity.

232) The current year-end balance sheet data for a company are shown below. Calculate the company's:

(a) working capital

(b) current ratio

(c) acid-test ratio.

Assets:

Cash $ 38,000

Marketable securities 45,000

Accounts receivable (net) 127,500

Merchandise inventory 149,500

Long-term investments 135,000

Plant assets (net) 517,500

Total assets $ 1,012,500

Liabilities and equity:

Accounts payable $ 148,700

Accrued liabilities 90,000

Notes payable (secured by plant assets) 254,800

Common stock ($12 par) 180,000

Contributed capital in excess of par 135,000

Retained earnings 204,000

Total liabilities and equity $1,012,500

233) The comparative income statements for Silverlight Company are shown below. Calculate the following ratios for Year 2:

(a) profit margin

(b) gross margin

(c) times interest earned.

234) A corporation reports the following year-end balance sheet data. Calculate the following ratios:

(a) working capital

(b) acid-test ratio

(c) current ratio

(d) debt ratio

(e) equity ratio

(f) debt-to-equity ratio

Cash……………………….. $ 50,000 Current liabilities $ 64,000

Accounts receivable………. 35,000 Long-term liabilities………. 72,000

Inventory………………….. 60,000 Common stock…………….. 100,000

Equipment………………… 140,000 Retained earnings…………. 49,000

Total assets……………….. $285,000 Total liabilities and equity $285,000

235) Selected balances from a company's financial statements are shown below. Calculate the following ratios for 20X2:

(a) accounts receivable turnover

(b) inventory turnover

(c) days' sales uncollected

(d) days' sales in inventory

(d) profit margin.

(e) return on total assets.

236) The following selected financial information for a company was reported for the current year end. Calculate the following company ratios:

(a) Accounts receivable turnover.

(b) Inventory turnover.

(c) Days' sales uncollected

Accounts receivable, beginning-year……………. $170,000

Accounts receivable, year-end…………………… 190,000

Merchandise inventory, beginning-year…………. 80,000

Merchandise inventory, year-end………………… 60,000

Cost of goods sold………………………………... 580,000

Credit sales………………………………………... 1,000,000

237) Selected current year end financial information for a company is presented below. Calculate the following company ratios:

(a) Profit margin.

(b) Total asset turnover.

(c) Return on total assets.

(d) Return on common stockholders' equity (assume the company has no preferred stock).

Net income……………………………….. $ 325,000

Net sales………………………………….. 4,700,000

Total liabilities, beginning-year………….. 550,000

Total liabilities, end-of-year……………… 530,000

Total stockholders' equity, beginning-year. 760,000

Total stockholders' equity, end-of-year….. 745,000

238) Use the following information from the current year financial statements of a company to calculate the ratios below:

(a) Current ratio.

(b) Accounts receivable turnover. (Assume the prior year's accounts receivable balance was $100,000.)

(c) Days' sales uncollected.

(d) Inventory turnover. (Assume the prior year's inventory was $50,200.)

(e) Times interest earned ratio.

(f) Return on common stockholders' equity. (Assume the prior year's common stock balance was $480,000 and the retained earnings balance was $128,000.)

(g) Earnings per share (assuming the corporation has a simple capital structure, with only common stock outstanding).

(h) Price earnings ratio. (Assume the company's stock is selling for $26 per share.)

(i) Divided yield ratio. (Assume that the company paid $1.25 per share in cash dividends.)

239) Financial information for Sigma Company is presented below. Calculate the following ratios for Year 2:

(a) Inventory turnover.

(b) Accounts receivable turnover.

(c) Return on total assets.

(d) Times interest earned.

(e) Total asset turnover.

240) The following summaries from the income statements and balance sheets of Kouris Company and Brittania, Inc. are presented below.

(1) For both companies for Year 2, compute the:

(a) Current ratio

(b) Acid-test ratio

(c) Accounts receivable turnover

(d) Inventory turnover

(e) Days' sales in inventory

(f) Days' sales uncollected

Which company do you consider to be the better short-term credit risk? Explain.

(2) For both companies for Year 2, compute the:

(a) Profit margin ratio

(b) Return on total assets

(c) Return on common stockholders' equity

Which company do you consider to have better profitability ratios?

241) ________ applies analytical tools to general-purpose financial statements and related data for making business decisions.

242) A common focus of financial statement users in evaluating a company's performance and financial condition includes evaluating its (1) ________, (2) ________, and (3) ________.

243) General-purpose financial statements include the (1)________, (2) ________, (3) ________, (4) ________ and (5) ________.

244) The four building blocks of financial analysis are (1)________, (2) ________, (3) ________ and (4) ________.

245) The standards for comparisons when interpreting measures from financial statement analysis include (1) ________, (2) ________, (3) ________, and (4) ________.

246) The comparison of a company's financial condition and performance across time is known as ________.

247) The comparison of a company's financial condition and performance to a base amount is known as ________.

248) The measurement of key relationships between financial statement items is known as ________.

249) Three of the most common tools of financial analysis are (1) ________, (2) ________, and (3) ________.

250) A good financial statement analysis report usually includes the following six sections: (1) ________, (2) ________, (3) ________, (4) ________ (5) ________, and (6) ________.

251) ________ financial statements are reports where financial amounts are placed side-by-side in columns on a single statement for analytical purposes.

252) Trend percentage is calculated by dividing ________ by ________ and multiplying the result by 100.

253) ________ is a method of analysis used to evaluate individual financial statement items or groups of items in terms of a specific base amount.

254) The current ratio and acid-test ratio are used to reflect the ________ of a business.

255) The debt ratio, the equity ratio, pledged assets to secured liabilities, and times interest earned are all ________ ratios.

256) The gross margin ratio, return on total assets, and basic earnings per share are all ________ ratios.

257) ________ ratios include the price-earnings ratio and dividend yield.

258) Ratios may be expressed as (1) ________, (2) ________, or (3) ________.

259) In order to be classified as an extraordinary gain or loss, the item must be both (1) ________ and (2) ________.

260) The income level most likely to continue into the future and is commonly used in PE ratios and other market-based measures of performance is the ________.