Consistency and Comparability – Test Bank 1st

View Product website:

https://selldocx.com/docx/consistency-and-comparability-test-bank-1st-1012

Chapter 12

Comparability and Consistency

Test Bank

True/False Questions

1. With the base-period approach to horizontal analysis, each period’s amounts are divided by the amounts for the first period.

Page: p641

1. With a period-to-period approach to horizontal analysis, each period’s amount are divided by the amounts for the first period.

Page: p642

1. Given the following sequence of numbers, the percentage for 2009 sales revenue under the base-period approach to horizontal analysis would be 119%.

Page: p654

1. Given the following sequence of numbers, the percentage for 2009 sales revenue under the period-to-period approach to horizontal analysis would be 119%.

Page: p654

1. With vertical analysis, amounts on the statement of income are divided by sales revenue for the same period.

Page: p651

1. With vertical analysis, amounts on the statement of financial position are divided by total equity for the same period.

Page: p663

1. Working capital is calculated by subtracting current liabilities from total assets.

Page: p666

1. When comparing two or more companies, working capital provides a better measure of liquidity than current ratio because one can easily see which company has the largest amount of working capital.

Page: p667

1. The current ratio is calculated by dividing current liabilities into current assets.

Page: p667

1. The acid-test ratio is calculated by dividing current liabilities into cash and cash equivalents plus trade receivables.

Page: p667

1. The cash ratio is calculated by dividing cash and cash equivalents plus marketable securities by current liabilities.

Page: p668

1. The receivable turnover ratio is calculated by dividing average receivables by net sales.

Page: p668

1. The current cash debt coverage ratio is calculated by dividing cash from operating activities by average total liabilities.

Page: p669

1. The debt ratio is calculated by dividing total liabilities by total assets.

Page: p670

1. The debt to equity ratio is calculated by dividing current liabilities by noncurrent liabilities plus equity.

Page: p679

1. The times interest earned ratio is calculated by dividing interest expense into profit plus interest expense plus tax expense.

Page: p671

1. The cash debt coverage ratio is calculated by dividing average current liabilities into cash from operating activities.

Page: p671

1. Free cash flow is calculated by subtracting capital expenditures and cash dividends from cash provided from operating activities.

Page: p672

1. Return on assets is calculated by dividing average total assets by profit.

Page: p673

1. Return on investment is calculated by dividing profit plus after tax interest by average noncurrent liabilities plus equity.

Page: p673

1. The profit margin ratio is calculated by dividing profit by net sales.

Page: p673

Multiple Choice Questions

1. Horizontal analysis of the statement of comprehensive income using the base period approach is described by which of the following? Assume that 2009 is the base year.
   1. 2011 cost of goods sold is divided by 2009 cost of goods sold
   2. 2011 cost of goods sold is divided by 2010 cost of goods sold
   3. 2011 cost of goods sold is divided by 2011 revenue
   4. 2011 cost of goods sold is divided by 2009 revenue

Page: p641

1. Horizontal analysis of the statement of comprehensive income using the period-to-period approach is described by which of the following? Assume that 2009 is the base year.
   1. 2011 cost of goods sold is divided by 2009 cost of goods sold
   2. 2011 cost of goods sold is divided by 2010 cost of goods sold
   3. 2011 cost of goods sold is divided by 2011 revenue
   4. 2011 cost of goods sold is divided by 2009 revenue

Page: p642

1. Horizontal analysis of the statement of financial position using the base period approach is described by which of the following? Assume that 2010 is the base year.
   1. 2012 cash and cash equivalents are divided by 2010 total assets
   2. 2012 cash and cash equivalents are divided by 2012 total assets
   3. 2012 cash and cash equivalents are divided by 2010 cash and cash equivalents
   4. 2012 cash and cash equivalents are divided by 2011 cash and cash equivalents

Page: p654

1. Horizontal analysis of the statement of financial position using the period-to-period approach is described by which of the following? Assume that 2010 is the base year.
   1. 2012 cash and cash equivalents are divided by 2010 total assets
   2. 2012 cash and cash equivalents are divided by 2012 total assets
   3. 2012 cash and cash equivalents are divided by 2010 cash and cash equivalents
   4. 2012 cash and cash equivalents are divided by 2011 cash and cash equivalents

Page: p654

1. Vertical analysis of the statement of financial position is described by which of the following? Assume that 2010 is the base year.
   1. 2012 cash and cash equivalents are divided by 2010 total assets
   2. 2012 cash and cash equivalents are divided by 2012 total assets
   3. 2012 cash and cash equivalents are divided by 2010 cash and cash equivalents
   4. 2012 cash and cash equivalents are divided by 2011 cash and cash equivalents

Page: p663

1. The availability of cash in the near future short-term financial commitments is which of the following?
   1. Solvency
   2. Profitability
   3. Equitability
   4. Liquidity

Page: p666

1. Company A reports working capital of £3 400 000 for fiscal 2011. Company B reports working capital of £239 900 000 for the same period. Company A’s current ratio is 1.57. Company B’s current ratio is .89. Which company has greater liquidity?
   1. Company A because it has a higher current ratio
   2. Company B because it has a higher amount of working capital
   3. Company B because the amount of working capital is higher even though its current ratio is lower
   4. Not enough information is available to answer this question

Page: p666

1. Company X has a current ratio of 1.4 for fiscal 2010 and an acid-test ratio of .94. Company Y has a current ratio of 1.3 with an acid-test ratio of .98. In the strictest sense, which company has greater liquidity?
   1. Company X because it has a higher current ratio
   2. Company Y because it has a higher acid-test ratio
   3. Company X because the difference between the two current ratios (0.1) is larger than the difference between the two acid-test ratios (0.04).
   4. Not enough information is available to answer this question

Page: p667

1. Which of the following ratios is the most stringent measure of liquidity?
   1. Acid-test ratio
   2. Current cash debt coverage ratio
   3. Cash ratio
   4. Current ratio

Page: p668

1. Which of the following is not a measure of solvency?
   1. Cash debt coverage ratio
   2. Receivable turnover ratio
   3. Times interest earned ratio
   4. Debt-to-equity ratio

Page: p670

1. Which of the following is not a measure of liquidity?
   1. Free cash flow
   2. Acid-test ratio
   3. Working capital
   4. Average collection period

Page: p666

1. Which of the following measures the excess amount of cash over the amount reinvested in the business and compensation to owners for the use of their capital?
   1. Return on assets
   2. Return on investments
   3. Current ratio
   4. Free cash flow

Page: p672

1. Which of the following is not a measure of profitability?
   1. Return on assets
   2. Times interest earned
   3. Profit margin ratio
   4. Return on investments

Page: p672

1. Which of the following are all measures of profitability?
   1. Profit margin ratio, free cash flow and working capital
   2. Profit margin ratio, return on assets and return on investment
   3. Times interest earned, return on assets and return on investments
   4. Return on assets, return on investments and free cash flow

Page: p672

1. Which of the following are all measures of liquidity?
   1. Profit margin ratio, free cash flow and working capital
   2. Current ratio, return on assets and working capital
   3. Cash ratio, receivables turnover ratio and cash debt coverage ratio
   4. Cash ratio, receivables turnover ratio and current cash debt coverage ratio

Page: p672

1. Which of the following are all measures of solvency?
   1. Profit margin ratio, free cash flow and working capital
   2. Current ratio, return on assets and working capital
   3. Debt-to-equity ratio, free cash flow and times interest earned ratio
   4. Cash ratio, receivables turnover ratio and current cash debt coverage ratio

Page: p672

Essay Questions

1. Briefly describe what is meant by the term “investment professionals”.
2. Briefly describe what is mean by the term “institutional investor.”