ACCT 202 FINANCIAL STATEMENT ANALYSIS & RATIOS
REVIEW EXAM QUESTIONS AND CORRECT VERIFIED
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<LATEST VERSION>
Question 1
A company reports the following current assets:
Cash: $45,000
Accounts Receivable: $70,000
Inventory: $110,000
Current Liabilities: $150,000
What is the company's current ratio?
A. 1.00
B. 1.20
C. 1.50
D. 1.67
Answer: C
Rationale:
Current Ratio = Current Assets ÷ Current Liabilities
= (45,000 + 70,000 + 110,000) ÷ 150,000
= 225,000 ÷ 150,000 = 1.50
,Question 2
An investor compares two companies with identical current ratios. Company A has
a much lower quick ratio than Company B.
Which conclusion is most appropriate?
A. Company A has stronger cash flow.
B. Company A relies more heavily on inventory to meet short-term obligations.
C. Company A has less debt.
D. Company A is more profitable.
Answer: B
Rationale:
The quick ratio excludes inventory. A much lower quick ratio indicates inventory
represents a significant portion of current assets, meaning liquidity depends more
on selling inventory.
Question 3
A firm's net sales increased from $1,200,000 to $1,500,000 during the year.
What is the horizontal analysis percentage increase?
A. 20%
B. 25%
C. 30%
D. 35%
Answer: B
Rationale:
1,500,000−1,200,0001,200,000×100=25%\frac{1,500,000-
1,200,000}{1,200,000}\times100=25\%1,200,0001,500,000−1,200,000×100=25%
,Question 4
When preparing a common-size income statement, every line item is expressed as
a percentage of:
A. Gross profit
B. Total assets
C. Net income
D. Net sales
Answer: D
Rationale:
Vertical analysis of an income statement expresses each item as a percentage of net
sales.
Question 5
Which ratio is primarily used to evaluate a company's immediate ability to pay
current liabilities without selling inventory?
A. Inventory turnover
B. Current ratio
C. Quick ratio
D. Debt ratio
Answer: C
Rationale:
The quick ratio removes inventory because inventory may not be readily converted
into cash.
, Question 6
A company reports:
Net Income = $180,000
Average Total Assets = $1,200,000
Return on Assets equals:
A. 10%
B. 12%
C. 15%
D. 18%
Answer: C
Rationale:
ROA = Net Income ÷ Average Total Assets
= 180,000 ÷ 1,200,000 = 15%
Question 7
A lender is most concerned about which ratio before approving a short-term
operating loan?
A. Earnings per share
B. Price-earnings ratio
C. Current ratio
D. Dividend payout ratio
Answer: C
Rationale:
Short-term lenders emphasize liquidity because it reflects the company's ability to
repay current obligations.
REVIEW EXAM QUESTIONS AND CORRECT VERIFIED
ANSWERS WITH RATIONALES || 100% GUARANTEED PASS!!
<LATEST VERSION>
Question 1
A company reports the following current assets:
Cash: $45,000
Accounts Receivable: $70,000
Inventory: $110,000
Current Liabilities: $150,000
What is the company's current ratio?
A. 1.00
B. 1.20
C. 1.50
D. 1.67
Answer: C
Rationale:
Current Ratio = Current Assets ÷ Current Liabilities
= (45,000 + 70,000 + 110,000) ÷ 150,000
= 225,000 ÷ 150,000 = 1.50
,Question 2
An investor compares two companies with identical current ratios. Company A has
a much lower quick ratio than Company B.
Which conclusion is most appropriate?
A. Company A has stronger cash flow.
B. Company A relies more heavily on inventory to meet short-term obligations.
C. Company A has less debt.
D. Company A is more profitable.
Answer: B
Rationale:
The quick ratio excludes inventory. A much lower quick ratio indicates inventory
represents a significant portion of current assets, meaning liquidity depends more
on selling inventory.
Question 3
A firm's net sales increased from $1,200,000 to $1,500,000 during the year.
What is the horizontal analysis percentage increase?
A. 20%
B. 25%
C. 30%
D. 35%
Answer: B
Rationale:
1,500,000−1,200,0001,200,000×100=25%\frac{1,500,000-
1,200,000}{1,200,000}\times100=25\%1,200,0001,500,000−1,200,000×100=25%
,Question 4
When preparing a common-size income statement, every line item is expressed as
a percentage of:
A. Gross profit
B. Total assets
C. Net income
D. Net sales
Answer: D
Rationale:
Vertical analysis of an income statement expresses each item as a percentage of net
sales.
Question 5
Which ratio is primarily used to evaluate a company's immediate ability to pay
current liabilities without selling inventory?
A. Inventory turnover
B. Current ratio
C. Quick ratio
D. Debt ratio
Answer: C
Rationale:
The quick ratio removes inventory because inventory may not be readily converted
into cash.
, Question 6
A company reports:
Net Income = $180,000
Average Total Assets = $1,200,000
Return on Assets equals:
A. 10%
B. 12%
C. 15%
D. 18%
Answer: C
Rationale:
ROA = Net Income ÷ Average Total Assets
= 180,000 ÷ 1,200,000 = 15%
Question 7
A lender is most concerned about which ratio before approving a short-term
operating loan?
A. Earnings per share
B. Price-earnings ratio
C. Current ratio
D. Dividend payout ratio
Answer: C
Rationale:
Short-term lenders emphasize liquidity because it reflects the company's ability to
repay current obligations.
