SOLUTION MANUAL FOR FINANCIAL
ACCOUNTING 12TH EDITION UPDATED SCRIPT
WITH COMPLETE ANSWERS
◉ Economic Entity.
Answer: one firm, one set of books
◉ Which of the following is an operating performance ratio?
Debt to total assets
Times interest earned
Payout ratio
Times interest earned and payout ratio
None.
Answer: Times interest earned and Payout Ratio
◉ Going Concern.
Answer: a firm has value beyond the liquidation value of its assets
◉ Horizontal analysis compares the components of a balance sheet
with a base item. T/F.
,Answer: False
◉ Monetary Unit.
Answer: financial transactions are denominated in a stable unit of
measure
◉ Since companies have different numbers of shares outstanding, it
is not useful to compare earnings per share ratios. T/F.
Answer: True
◉ Accounting Periods.
Answer: the result of operations for an entity must be reported on a
periodic basis, usually a year
◉ There are two ratios that help define the operating cycle. They
are:
receivables and inventory turnover
receivables and accounts payable
inventory and accounts payable turnover
,none of these.
Answer: Receivables and accounts payable
◉ Revenue/Epense matching.
Answer: accounting entities should aspire to recognize expenses in
the same accounting periods as the revenues they generate
◉ The ratio that shows the markup in price over the cost of goods
sold is
profit margins
gross margin ratio
return on assets
asset turnover
none.
Answer: Gross margin ratio
◉ Conservatism.
Answer: given an uncertain and imprecise environment, it is better
to understate than overstate economic well-being
◉ The ratio that shows how investors value the stock is
, payout ratio
earnings per share
return on equity
return on assets
none.
Answer: None
◉ Understandability.
Answer: Financial conditions and results should be communicated
so that they are understandable by an educated user of financial
information
◉ Relevance.
Answer: Financial data must also be relevant to a user to be of value,
extraneous information need not appear
◉ Financial strength ratios are utilized to help predict the long-run
solvency of a company. T/F.
Answer: True
◉ Ratio analysis is popular because ratios:
ACCOUNTING 12TH EDITION UPDATED SCRIPT
WITH COMPLETE ANSWERS
◉ Economic Entity.
Answer: one firm, one set of books
◉ Which of the following is an operating performance ratio?
Debt to total assets
Times interest earned
Payout ratio
Times interest earned and payout ratio
None.
Answer: Times interest earned and Payout Ratio
◉ Going Concern.
Answer: a firm has value beyond the liquidation value of its assets
◉ Horizontal analysis compares the components of a balance sheet
with a base item. T/F.
,Answer: False
◉ Monetary Unit.
Answer: financial transactions are denominated in a stable unit of
measure
◉ Since companies have different numbers of shares outstanding, it
is not useful to compare earnings per share ratios. T/F.
Answer: True
◉ Accounting Periods.
Answer: the result of operations for an entity must be reported on a
periodic basis, usually a year
◉ There are two ratios that help define the operating cycle. They
are:
receivables and inventory turnover
receivables and accounts payable
inventory and accounts payable turnover
,none of these.
Answer: Receivables and accounts payable
◉ Revenue/Epense matching.
Answer: accounting entities should aspire to recognize expenses in
the same accounting periods as the revenues they generate
◉ The ratio that shows the markup in price over the cost of goods
sold is
profit margins
gross margin ratio
return on assets
asset turnover
none.
Answer: Gross margin ratio
◉ Conservatism.
Answer: given an uncertain and imprecise environment, it is better
to understate than overstate economic well-being
◉ The ratio that shows how investors value the stock is
, payout ratio
earnings per share
return on equity
return on assets
none.
Answer: None
◉ Understandability.
Answer: Financial conditions and results should be communicated
so that they are understandable by an educated user of financial
information
◉ Relevance.
Answer: Financial data must also be relevant to a user to be of value,
extraneous information need not appear
◉ Financial strength ratios are utilized to help predict the long-run
solvency of a company. T/F.
Answer: True
◉ Ratio analysis is popular because ratios:
