ACC 206 Week 10 Quiz – Strayer

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Quiz 8 Chapter18

FINANCIALSTATEMENTANALYSIS

CHAPTERSTUDYOBJECTIVES

1.Discusstheneedforcomparativeanalysis.

2.Identifythetoolsoffinancialstatementanalysis.

3.Explainandapplyhorizontal(trend)analysis.

4.Describeandapplyverticalanalysis.

5.Identifyandcomputeratiosusedinanalyzingafirm'sliquidity,profitability,andsolvency.

6.Understandtheconceptofearningpower,andindicatehowirregularitemsarepresented.

7.Understandtheconceptofqualityofearnings.

TRUE-FALSESTATEMENTS

1.     Intracompanycomparisonsofthesamefinancialstatementitemscanoftendetect changes infinancialrelationships andsignificanttrends.

2.     Calculatingfinancialratiosisafinancialreportingrequirementundergenerallyaccepted accountingprinciples.

3.     Measuresofacompany'sliquidityareconcernedwiththefrequencyandamountsof dividend payments.

4.     Analysisof financialstatementsis enhancedwith theuseof comparativedata.

5.     Comparisonsofcompanydatawithindustryaveragescanprovidesomeinsightintothe company's relativepositionintheindustry.

6.     Verticalandhorizontalanalysesareconcernedwiththeformatusedtopreparefinancial statements.

7.     Horizontal,vertical,andcircularanalysesarethemostcommontoolsoffinancial statementanalysis.

8.     Horizontalanalysisisatechniqueforevaluatingafinancialstatementiteminthecurrent yearwith otheritemsinthecurrentyear.

9.     Anothernamefortrendanalysisishorizontalanalysis.

10.     Ifacompanyhassalesof$110in2008and$154in2009,thepercentageincreasein sales from2008to2009is140%.

11.     Inhorizontalanalysis,ifanitemhasanegativeamountinthebaseyear,andapositive amount inthefollowingyear,nopercentagechangeforthatitemcanbecomputed.

12.     Commonsizeanalysisexpresseseachitemwithinafinancialstatementintermsofa percent of a baseamount.

13.     Verticalanalysisisa moresophisticatedanalyticaltoolthanhorizontal analysis.

14.     Verticalanalysisisusefulinmakingcomparisonsofcompaniesofdifferentsizes.

15.     Meaningfulanalysisoffinancialstatementswillincludeeitherhorizontalorvertical analysis,butnotboth.

16.     Usingvertical analysisoftheincomestatement,acompany'snetincome asapercentage ofnetsalesis10%;therefore,thecostofgoodssoldasapercentageofsalesmustbe 90%.

17.     Intheverticalanalysisoftheincomestatement,eachitemisgenerallystatedasa percentage of net income.

18.     A ratiocanbeexpressedasapercentage,arate,oraproportion.

19.     Asolvencyratiomeasurestheincomeoroperatingsuccessofanenterpriseforagiven period of time.

20.     Thecurrentratiois ameasure of alltheratioscalculatedforthe currentyear.

21.     Inventoryturnovermeasuresthenumberoftimesontheaveragetheinventorywassold during theperiod.

22.     Profitabilityratiosarefrequentlyusedasabasisforevaluatingmanagement'soperating effectiveness.

23.     Therateofreturnontotalassetswillbegreaterthantherateofreturnoncommon stockholders' equity ifthe companyhas beensuccessful intrading ontheequityat again.

24.     Fromacreditor's pointofview,thehigherthetotaldebttototalassetsratio,thelowerthe risk that thecompanymaybeunableto payits obligations.

25.     Acurrentratioof1.2to1indicatesthatacompany'scurrentassetsexceeditscurrent liabilities.

26.     Usingborrowedmoneytoincreasetherateofreturnoncommonstockholders'equityis called "tradingontheequity."

27.     Whenthedisposalofasignificantsegmentoccurs,theincomestatementshouldreport both incomefromcontinuingoperationsandincome(loss)fromdiscontinuedoperations.

28.     Aneventortransactionshouldbeclassifiedasanextraordinaryitemifitisunusualin nature orifit occurs infrequently.

29.     Variationsamongcompaniesintheapplicationofgenerallyacceptedaccounting principles mayreducequalityofearnings.

30.     Proformaincomeusuallyexcludesitemsthatthecompanythinksareunusualor nonrecurring.

Additional True-FalseQuestions

31.     Thethreebasictoolsofanalysisarehorizontalanalysis,verticalanalysis,andratio analysis.

32.     A percentagechangecan becomputedonlyif thebaseamountiszeroorpositive.

33.     Inverticalanalysis, the baseamountinanincomestatementisusuallynetsales.

34.     Profitabilityratiosmeasuretheabilityoftheenterprisetosurviveoveralongperiodof time.

35.     Thedaysin inventoryiscomputedbymultiplyinginventoryturnoverby365.

36.     Extraordinaryitemsarereportednetofapplicabletaxesinaseparatesectionofthe income statement.

MULTIPLECHOICEQUESTIONS

37.     Whichoneof thefollowingisprimarilyinterestedintheliquidityof acompany? a.Federalgovernment

b.Stockholders

c.Long-termcreditors d.Short-termcreditors

38.     Whichoneof thefollowing isnot a characteristic generallyevaluatedin analyzingfinancial statements?

a.Liquidity

b.Profitabilityc.Marketability d.Solvency

39.     Inanalyzingthefinancialstatementsofacompany,asingleitemonthefinancial statements

a.shouldbereported inbold-facetype.

b.ismoremeaningfulif comparedtootherfinancialinformation. c.is significantonlyifit is large.

d.shouldbeaccompaniedbyafootnote.

40.     Short-termcreditorsareusuallymostinterestedinevaluating a.solvency.

b.liquidity.

c.marketability. d.profitability.

41.     Long-termcreditorsareusuallymostinterestedinevaluating a.liquidityandsolvency.

b.solvencyandmarketability. c.liquidityandprofitability.

d.profitabilityandsolvency.

42.     Stockholdersaremostinterestedinevaluating a.liquidityandsolvency.

b.profitabilityandsolvency. c.liquidityandprofitability.

d.marketabilityandsolvency.

FinancialStatementAnalysis      18-7

43.     A stockholderis interestedintheabilityof afirmto a.payconsistentdividends.

b.appreciateinshareprice.c.surviveovera longperiod. d.all of these.

44.     Comparisonsoffinancialdatamadewithina companyarecalled a.intracompanycomparisons.

b.interiorcomparisons.

c.intercompanycomparisons. d.intramuralcomparisons.

45.     Atechniqueforevaluatingfinancialstatementsthatexpressestherelationshipamong selected items offinancialstatementdatais

a.commonsizeanalysis. b.horizontalanalysis.

c.ratioanalysis.

d.verticalanalysis.

46.     Whichoneof thefollowingisnotatool infinancialstatementanalysis? a.Horizontalanalysis

b.Circularanalysis c.Verticalanalysis d.Ratioanalysis

47.     Inanalyzingfinancialstatements,horizontalanalysis is a a.requirement.

b.tool.

c.principle. d.theory.

48.     Horizontalanalysisis also called a.linearanalysis.

b.verticalanalysis. c.trendanalysis.

d.commonsizeanalysis.

49.    Verticalanalysisisalsoknownas a.perpendicularanalysis.

b.commonsizeanalysis. c.trendanalysis.

d.straight-lineanalysis.

50.     Inratioanalysis,theratiosareneverexpressedasa a.rate.

b.negativefigure. c.percentage.

d.simpleproportion.

18-8       

51.     Theformulaforhorizontalanalysisofchangessincethebaseperiodisthecurrentyear amount

a.dividedbythebaseyearamount.

b.minusthebaseyearamountdividedbythe base yearamount.c.minusthebase yearamountdividedbythe currentyearamount. d.plusthebaseyearamountdividedbythebase yearamount.

52.     Horizontalanalysisevaluatesaseriesoffinancialstatementdataovera periodof time a.that hasbeenarrangedfromthehighestnumbertothelowestnumber.

b.that hasbeenarrangedfromthelowestnumbertothehighestnumber. c.todeterminewhichitemsareinerror.

d.todeterminetheamountand/orpercentageincreaseordecreasethathastaken place.

53.     Horizontalanalysisevaluatesfinancialstatementdata a.withina periodof time.

b.overa periodof time. c.onacertaindate.

d.as it mayappearinthefuture.

54.     Assumethefollowingsalesdatafor a company:

2010                      $1,000,000 2009                          900,000 2008                          750,000 2007                          600,000

If2007isthebaseyear, whatis thepercentageincreaseinsalesfrom2007to 2009? a.100%

b.150% c.50%d.66.7%

55.     Comparativebalancesheetsareusuallypreparedfor a.oneyear.

b.twoyears.c.threeyears. d.four years.

56.     Horizontalanalysisisappropriatelyperformed a.onlyonthe incomestatement.

b.onlyonthebalancesheet.

c.onlyonthestatementof retainedearnings. d.onallthreeofthesestatements.

57.     Ahorizontalanalysisperformedonastatementofretainedearningswouldnotshowa percentagechangein

a.dividendspaid. b.netincome.

c.expenses.

d.beginningretained earnings.

FinancialStatementAnalysis      18-9

58.     Under whichofthefollowingcasesmaya percentagechangebecomputed? a.Thetrendofthe balancesisdecreasingbutallbalancesarepositive.

b.Thereis nobalanceinthebaseyear.

c.There is apositivebalancein thebaseyear andanegativebalancein thesubsequent year.

d.There is anegativebalancein thebaseyearandapositivebalanceinthe subsequent year.

59.     Assumethefollowingsalesdatafor a company:

2009                $945,000 2008                 780,000 2007                 650,000

If2007isthebaseyear,whatis thepercentageincreaseinsalesfrom2007to 2008? a.25%

b.20%c.125% d.143%

60.     Assumethefollowingcost ofgoodssolddatafora company:

2009             $1,500,000 2008              1,200,000 2007                 900,000

If2007isthebaseyear,whatisthepercentage increase incostofgoodssoldfrom2007 to2009?

a.167% b.67%c.60% d.40%

Usethefollowing informationforquestions61–62:

MoonBeam,Inc.hasthefollowingincomestatement(inmillions):

MOON BEAM, INC. IncomeStatement

FortheYearEndedDecember31,2008

NetSales                                                                    $180 CostofGoodsSold                                                120 GrossProfit                                                                 60 OperatingExpenses                                             33NetIncome                                                                                  $27

61.     Usingverticalanalysis,whatpercentageisassignedto Costof GoodsSold? a.    67%

b.     33% c.100%

d.Noneof theabove

18-10

62.     Usingverticalanalysis,whatpercentageis assignedto NetIncome? a.100%

b.85% c.15%

d.Noneof theabove

63.     Verticalanalysisisalsocalled a.commonsizeanalysis.

b.horizontalanalysis. c.ratioanalysis.

d.trendanalysis.

64.     Verticalanalysisisa techniquewhichexpresseseachitemwithinafinancialstatement a.in dollarsandcents.

b.intermsof apercentageoftheiteminthepreviousyear. c.in terms of apercentofa baseamount.

d.starting withthe highestvaluedowntothe lowestvalue.

65.     Incommonsizeanalysis,

a.a baseamountisrequired. b.abase amountisoptional.

c.thesamebaseisusedacross allfinancialstatementsanalyzed.

d.theresultsof thehorizontalanalysisarenecessaryinputsforperformingtheanalysis.

66.     Inperforminga verticalanalysis,thebaseforprepaid expensesis a.totalcurrentassets.

b.totalassets.

c.totalliabilitiesandstockholders'equity. d.prepaidexpenses.

67.     Inperforminga verticalanalysis,thebaseforsalesrevenuesontheincomestatementis a.netsales.

b.sales.

c.net income.

d.costof goodsavailablefor sale.

68.     Inperforminga verticalanalysis,thebaseforsalesreturnsandallowancesis a.sales.

b.salesdiscounts. c.netsales.

d.totalrevenues.

69.     Inperforminga verticalanalysis,thebaseforcost ofgoodssoldis a.totalsellingexpenses.

b.netsales.

c.totalrevenues. d.totalexpenses.

FinancialStatementAnalysis      18-11

70.     Eachof thefollowingisa liquidityratioexceptthe a.acid-testratio.

b.currentratio.

c.debttototal assetsratio. d.inventoryturnover.

71.     A ratiocalculatedinthe analysisof financialstatements

a.expressesamathematicalrelationshipbetweentwonumbers. b.showsthepercentageincreasefromone yeartoanother.

c.restatesallitemsonafinancialstatementintermsofdollarsofthesamepurchasing power.

d.ismeaningfulonlyifthenumeratorisgreaterthanthedenominator.

72.     A liquidityratiomeasuresthe

a.incomeoroperatingsuccessof anenterpriseovera periodoftime. b.abilityoftheenterpriseto surviveovera longperiodof time.

c.short-termabilityoftheenterprisetopayitsmaturingobligationsandtomeet unexpectedneedsforcash.

d.numberoftimesinterestisearned.

73.     Thecurrentratiois

a.calculatedbydividingcurrentliabilitiesbycurrentassets.

b.usedtoevaluateacompany'sliquidityandshort-termdebtpayingability. c.usedtoevaluate acompany's solvencyandlong-term debtpayingability. d.calculatedbysubtractingcurrentliabilitiesfromcurrentassets.

74.     Theacid-test(quick)ratio

a.isusedtoquickly determineacompany'ssolvencyand long-termdebtpayingability. b.relatescash, short-terminvestments,andnetreceivablestocurrentliabilities.

c.iscalculatedbytakingoneitemfromtheincomestatementandoneitemfromthe balance sheet.

d.isthesameasthecurrentratioexceptitis roundedtothenearest wholepercent.

75.     WalkerClothingStorehadabalanceintheAccountsReceivableaccountof$780,000at thebeginningoftheyearandabalanceof$820,000attheendoftheyear.Netcredit salesduringtheyearamountedto$8,000,000.Theaveragecollectionperiodofthe receivables interms ofdays was

a.30 days.b.365days. c.10days. d.37days.

76.     ParrHardwareStorehadnetcreditsalesof$5,200,000andcostofgoodssoldof $4,000,000fortheyear.TheAccountsReceivablebalancesatthebeginningandendof theyearwere$600,000and$700,000,respectively.Thereceivablesturnover was

a.7.4times. b.8.7times. c.6.2times. d.8times.

18-12

Usethefollowing informationforquestions77–78.

WatersDepartmentStorehadnetcreditsalesof$12,000,000andcostofgoodssoldof $9,000,000fortheyear.Theaverageinventoryfor the year amountedto $2,000,000.

77.     Inventoryturnoverforthe yearis a.6 times.

b.10.5times. c.4.5times. d.3times.

78.     Theaveragenumberof daysininventoryduringthe yearwas a.122days.

b.81days. c.61days. d.35days.

79.     Eachof thefollowingis includedincomputingtheacid-testratio except a.cash.

b.inventory.c.receivables.

d.short-terminvestments.

80.     Whichoneof thefollowing wouldnot beconsidereda liquidityratio? a.Currentratio

b.Inventoryturnover c.Acid-testratio

d.Returnonassets

81.     Assetturnovermeasures

a.howoftenacompanyreplacesitsassets.

b.howefficientlyacompanyusesits assetstogeneratesales.c.theportionof theassetsthathavebeenfinancedbycreditors. d.theoverallrateof returnonassets.

82.     Profitmarginis calculatedbydividing a.salesbycost ofgoodssold.

b.grossprofitbynetsales.

c.net incomebystockholders'equity. d.netincomebynetsales.

Usethefollowing informationforquestions83–84.

RaneyCorporationhadnetincomeof$200,000andpaiddividendstocommonstockholdersof $50,000in2008.Theweightedaveragenumberofsharesoutstandingin2008was50,000 shares.RaneyCorporation'scommonstockissellingfor$40pershareontheNewYorkStock Exchange.

83.     RaneyCorporation's price-earningsratiois a.2.5times.

b.10times.c.13.3times. d.4times.

FinancialStatementAnalysis      18-13