True/False - JustAnswer
True/False
Indicate whether the statement is true or false.
TF1.
Statements in which all items are expressed in relative terms are called common-size statements. True
TF2.
In the vertical analysis of a balance sheet, the base for current liabilities is total liabilities. False
TF3.
Using vertical analysis of the income statement, a company's net income as a percentage of net sales is 15%; therefore, the cost of goods sold as a percentage of sales must be 85%. False
TF4.
The denominator of the rate of return on total assets ratio is the average total assets. True
TF5.
The rate earned on current assets is one of the measures of solvency. False
Multiple Choice
Identify the choice that best completes the statement or answers the question.
ABCD1.
Which of the following below generally is the most useful in analyzing companies of different sizes
a. comparative statements
b. common-sized financial statements
c. price-level accounting
d. audit report
ABCD2.
What type of analysis is indicated by the following?
Increase (Decrease*)
2010 2009 Amount Percent
Current assets $380,000 $500,000 $120,000* 24%*
Fixed assets 1,680,000 1,500,000 180,00012%
a. vertical analysis
b. horizontal analysis
c. liquidity analysis
d. common-size analysis
ABCD3.
One reason that a common-size statement is a useful tool in financial analysis is that it enables the user to
a. judge the relative potential of two companies of similar size in different industries.
b. determine which companies in a single industry are of the same value.
c. determine which companies in a single industry are of the same size.
d. make a better comparison of two companies of different sizes in the same industry.
ABCD4.
The ability of a business to pay its debts as they come due and to earn a reasonable amount of income is referred to as
a. solvency and leverage
b. solvency and profitability
c. solvency and liquidity
d. solvency and equity
ABCD5.
Which of the following is not an analysis used in assessing solvency?
a. number of times interest charges are earned
b. current position analysis
c. ratio of net sales to assets
d. inventory analysis
Accounts payable $ 30,000
Accounts receivable 65,000
Accrued liabilities 7,000
Cash 20,000
Intangible assets 40,000
Inventory 72,000
Long-term investments 100,000
Long-term liabilities 75,000
Marketable securities 36,000
Notes payable (short-term) 20,000
Property, plant, and equipment 625,000
Prepaid expenses 2,000
ABCD6.
Based on the above data, what is the quick ratio, rounded to one decimal point?
a. 2.4
b. 3.4
c. 2.1
d. 1.5
ABCD7.
Which of the following is a measure of the liquid position of a corporation?
a. earnings per share
b. inventory turnover
c. current ratio
d. number of times interest charges earned
ABCD8.
Based on the following data for the current year, what is the inventory turnover?
Net sales on account during year $500,000
Cost of merchandise sold during year 330,000
Accounts receivable, beginning of year 45,000
Accounts receivable, end of year 35,000
Inventory, beginning of year 90,000
Inventory, end of year 110,000
a. 3.3
b. 8.3
c. 3.7
d. 3.0
ABCD9.
If inventory is excessive, which item below is not true?
a. Solvency is reduced.
b. Taxes increase.
c. Ordering costs increase.
d. Storage costs increase.
Accounts payable $ 30,000
Accounts receivable 65,000
Accrued liabilities 7,000
Cash 25,000
Intangible assets 40,000
Inventory 72,000
Long-term investments 100,000
Long-term liabilities 75,000
Marketable securities 36,000
Notes payable (short-term) 20,000
Property, plant, and equipment 625,000
Prepaid expenses 2,000
ABCD10.
Based on the above data, what is the amount of working capital?
a. $243,000
b. $143,000
c. $183,000
d. $69,000
ABCD11.
The tendency of the rate earned on stockholders' equity to vary disproportionately from the rate earned on total assets is sometimes referred to as
a. leverage
b. solvency
c. yield
d. quick assets
The balance sheets at the end of each of the first two years of operations indicate the following:
2010 2009
Total current assets $600,000 $560,000
Total investments 60,000 40,000
Total property, plant, and equipment 900,000 700,000
Total current liabilities 125,000 80,000
Total long-term liabilities 350,000 250,000
Preferred 9% stock, $100 par 100,000 100,000
Common stock, $10 par 600,000 600,000
Paid-in capital in excess of par-common stock 60,000 60,000
Retained earnings 325,000 210,000
ABCD12.
If net income is $115,000 and interest expense is $30,000 for 2010 what is the rate earned on total assets for 2010 (round percent to one decimal point)?
a. 9.3%
b. 10.1%
c. 8.0%
d. 7.4%
ABCD13.
If net income is $115,000 and interest expense is $30,000 for 2010, what are the earnings per share on common stock for 2010, (round to two decimal places)?
a. $1.92
b. $1.89
c. $1.77
d. $1.42
ABCD14.
The numerator of the rate earned on total assets ratio is equal to
a. net income
b. income before taxes
c. income before interest
d. net income minus preferred dividends
ABCD15.
The following information pertains to Raleigh Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments$ 40,000
Accounts receivable (net)30,000
Inventory25,000
Property, plant and equipment280,000
Total Assets $375,000
Liabilities and Stockholders' Equity
Current liabilities60,000
Long-term liabilities95,000
Stockholders' equity-common220,000
Total Liabilities and stockholders' equity $375,000
Income Statement
Sales$ 90,000
Cost of goods sold45,000
Gross margin45,000
Operating expenses10,000
Net income $ 35,000
Number of shares of common stock6,000000
Market price of common stock$20
Dividends per share1.00
Cash provided by operations$40,000
What is the rate earned on stockholders' equity? Round answer to a single decimal point.
a. 9.3%
b. 15.9%
c. 24.0%
d. 40.9%
ABCD16.
Which of the following should be reported net of the related income tax effect on the income statement?
a. Sale of an inventory item at a loss
b. Loss due to theft
c. Loss due to a discontinued operations of the business
d. Sale of a temporary investment at a loss
ABCD17.
An extraordinary item results from
a. a segment of the business being sold
b. corporate income tax being paid
c. a change from one accounting method to another acceptable accounting method
d. a transaction or event that is unusual and occurs infrequently.
ABCD18.
Which of the following is considered an unusual item affecting the prior period's income statement?
a. Change in accounting principles
b. Fixed asset impairments
c. Extraordinary item
d. Discontinued operations
ABCD19.
A loss due to a discontinued operation should be reported in the income statement
a. above income from continuing operations.
b. without related tax affect.
c. below income from continuing operations.
d. as an operating expense.
ABCD20.
When a company changes from one acceptable accounting method to another, the change is reported
a. in the statement of retained earnings, as a correction to the beginning balance.
b. in the income statement, below income from continuing operations.
c. in the income statement, above income from continuing operations
d. through a retroactive restatement of prior period earnings.
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