Test Bank for Financial Accounting, 16th Edition By Carl Warren, Christine Jonick, Jennifer Schneider (All Chapters 1-17)
All Chapters Arranged Reverse: 17-1
:
Chapter 17 - Financial Statement Analysis
Indicate whether the statement is true or false.
1. Factors that reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred to as
solvency, profitability, and liquidity.
a. True
b. Fals
e
2. When you are interpreting financial ratios, it is useful to compare a company's ratios to the same ratios from a prior
period or to the ratios of another company in the same industry.
a. True
b. Fals
e
3. Comparative financial statements are designed to compare the financial statements of two or more corporations.
a. True
b. Fals
e
4. In horizontal analysis, the current year is the base year.
a. True
b. Fals
e
5. On a common-sized income statement, all items are stated as a percent of total assets or equities at year-end.
a. True
b. Fals
e
6. The analysis of increases and decreases in the amount and percentage of comparative financial statement items is
referred to as horizontal analysis.
a. True
b. Fals
e
7. A 15% change in sales will result in a 15% change in net income.
a. True
b. Fals
e
8. A financial statement showing each item on the statement as a percentage of one key item on the statement is called a
common-sized financial statement.
a. True
b. Fals
e
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Chapter 17 - Financial Statement Analysis
9. The relationship of each asset item as a percent of total assets is an example of vertical analysis.
a. True
b. Fals
e
10. Vertical analysis refers to comparing the financial statements of a single company over several years.
a. True
b. Fals
e
11. In a common-sized income statement, each item is expressed as a percentage of net income.
a. True
b. Fals
e
12. In the vertical analysis of a balance sheet, the base for current liabilities is total liabilities.
a. True
b. Fals
e
13. Using vertical analysis of the income statement, a company's net income as a percentage of sales is 15%; therefore, the
cost of merchandise sold as a percentage of sales must be 85%.
a. True
b. Fals
e
14. In the vertical analysis of an income statement, each item is generally stated as a percentage of sales.
a. True
b. Fals
e
15. The excess of current assets over current liabilities is referred to as working capital.
a. True
b. Fals
e
16. Dollar amounts of working capital are difficult to assess when comparing companies of different sizes or in comparing
such amounts with industry figures.
a. True
b. Fals
e
17. Using measures to assess a business's ability to pay its current liabilities is called current position analysis.
a. True
b. Fals
e
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Chapter 17 - Financial Statement Analysis
18. Current position analysis is used by short-term creditors to assess how quickly they will be repaid.
a. True
b. Fals
e
19. An advantage of the current ratio is that it considers the makeup of the current assets.
a. True
b. Fals
e
20. If two companies have the same current ratio, their ability to pay short-term debt is the same.
a. True
b. Fals
e
21. The ratio of the sum of cash, receivables, and temporary investments to current liabilities is referred to as the current
ratio.
a. True
b. Fals
e
22. A balance sheet shows cash, $75,000; temporary investments, $115,000; accounts receivable, $150,000; inventories,
$222,500; and accounts payable, $225,000. The current ratio is 2.5.
a. True
b. Fals
e
23. If a firm has a current ratio of 2, the subsequent collection of a 60-day note receivable on account will cause the ratio
to decrease.
a. True
b. Fals
e
24. If a firm has a quick ratio of 1, the subsequent payment of an account payable will cause the ratio to increase.
a. True
b. Fals
e
25. If the accounts receivable turnover for the current year has decreased when compared with the ratio for the preceding
year, there has been an acceleration in the collection of receivables.
a. True
b. Fals
e
26. An increase in the accounts receivable turnover may be due to a change in how credit is granted and/or in collection
practices.
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Chapter 17 - Financial Statement Analysis
a. True
b. Fals
e
27. The number of days' sales in receivables is one means of expressing the relationship between average daily sales and
accounts receivable.
a. True
b. Fals
e
28. A firm selling food should have a higher inventory turnover rate than a firm selling office furniture.
a. True
b. Fals
e
29. The number of days' sales in inventory is one means of expressing the relationship between the cost of merchandise
sold and merchandise inventory.
a. True
b. Fals
e
30. Assuming that the quantities of inventory on hand during the current year were sufficient to meet all demands for
sales, a decrease in the inventory turnover for the current year when compared with the turnover for the preceding year
indicates an improvement in inventory management.
a. True
b. Fals
e
31. Solvency analysis focuses on the ability of a business to pay its long-term liabilities.
a. True
b. Fals
e
32. The ratio of fixed assets to long-term liabilities provides a measure of a firm’s ability to pay dividends.
a. True
b. Fals
e
33. A decrease in the ratio of liabilities to stockholders' equity indicates an improvement in the margin of safety for
creditors.
a. True
b. Fals
e
34. In computing the asset turnover ratio, the numerator is net income.
a. True
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All Chapters Arranged Reverse: 17-1
:
Chapter 17 - Financial Statement Analysis
Indicate whether the statement is true or false.
1. Factors that reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred to as
solvency, profitability, and liquidity.
a. True
b. Fals
e
2. When you are interpreting financial ratios, it is useful to compare a company's ratios to the same ratios from a prior
period or to the ratios of another company in the same industry.
a. True
b. Fals
e
3. Comparative financial statements are designed to compare the financial statements of two or more corporations.
a. True
b. Fals
e
4. In horizontal analysis, the current year is the base year.
a. True
b. Fals
e
5. On a common-sized income statement, all items are stated as a percent of total assets or equities at year-end.
a. True
b. Fals
e
6. The analysis of increases and decreases in the amount and percentage of comparative financial statement items is
referred to as horizontal analysis.
a. True
b. Fals
e
7. A 15% change in sales will result in a 15% change in net income.
a. True
b. Fals
e
8. A financial statement showing each item on the statement as a percentage of one key item on the statement is called a
common-sized financial statement.
a. True
b. Fals
e
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Chapter 17 - Financial Statement Analysis
9. The relationship of each asset item as a percent of total assets is an example of vertical analysis.
a. True
b. Fals
e
10. Vertical analysis refers to comparing the financial statements of a single company over several years.
a. True
b. Fals
e
11. In a common-sized income statement, each item is expressed as a percentage of net income.
a. True
b. Fals
e
12. In the vertical analysis of a balance sheet, the base for current liabilities is total liabilities.
a. True
b. Fals
e
13. Using vertical analysis of the income statement, a company's net income as a percentage of sales is 15%; therefore, the
cost of merchandise sold as a percentage of sales must be 85%.
a. True
b. Fals
e
14. In the vertical analysis of an income statement, each item is generally stated as a percentage of sales.
a. True
b. Fals
e
15. The excess of current assets over current liabilities is referred to as working capital.
a. True
b. Fals
e
16. Dollar amounts of working capital are difficult to assess when comparing companies of different sizes or in comparing
such amounts with industry figures.
a. True
b. Fals
e
17. Using measures to assess a business's ability to pay its current liabilities is called current position analysis.
a. True
b. Fals
e
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Chapter 17 - Financial Statement Analysis
18. Current position analysis is used by short-term creditors to assess how quickly they will be repaid.
a. True
b. Fals
e
19. An advantage of the current ratio is that it considers the makeup of the current assets.
a. True
b. Fals
e
20. If two companies have the same current ratio, their ability to pay short-term debt is the same.
a. True
b. Fals
e
21. The ratio of the sum of cash, receivables, and temporary investments to current liabilities is referred to as the current
ratio.
a. True
b. Fals
e
22. A balance sheet shows cash, $75,000; temporary investments, $115,000; accounts receivable, $150,000; inventories,
$222,500; and accounts payable, $225,000. The current ratio is 2.5.
a. True
b. Fals
e
23. If a firm has a current ratio of 2, the subsequent collection of a 60-day note receivable on account will cause the ratio
to decrease.
a. True
b. Fals
e
24. If a firm has a quick ratio of 1, the subsequent payment of an account payable will cause the ratio to increase.
a. True
b. Fals
e
25. If the accounts receivable turnover for the current year has decreased when compared with the ratio for the preceding
year, there has been an acceleration in the collection of receivables.
a. True
b. Fals
e
26. An increase in the accounts receivable turnover may be due to a change in how credit is granted and/or in collection
practices.
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Chapter 17 - Financial Statement Analysis
a. True
b. Fals
e
27. The number of days' sales in receivables is one means of expressing the relationship between average daily sales and
accounts receivable.
a. True
b. Fals
e
28. A firm selling food should have a higher inventory turnover rate than a firm selling office furniture.
a. True
b. Fals
e
29. The number of days' sales in inventory is one means of expressing the relationship between the cost of merchandise
sold and merchandise inventory.
a. True
b. Fals
e
30. Assuming that the quantities of inventory on hand during the current year were sufficient to meet all demands for
sales, a decrease in the inventory turnover for the current year when compared with the turnover for the preceding year
indicates an improvement in inventory management.
a. True
b. Fals
e
31. Solvency analysis focuses on the ability of a business to pay its long-term liabilities.
a. True
b. Fals
e
32. The ratio of fixed assets to long-term liabilities provides a measure of a firm’s ability to pay dividends.
a. True
b. Fals
e
33. A decrease in the ratio of liabilities to stockholders' equity indicates an improvement in the margin of safety for
creditors.
a. True
b. Fals
e
34. In computing the asset turnover ratio, the numerator is net income.
a. True
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