FINANCIAL LATEST
ACCOUNTING IVY
SOFTWARE
Owners equity can also be shown on the balance sheet as ____
net worth
net assets
stockholders equity - ANSWERS-net worth, assets, and stockholder's
equity
Dividends can be paid to stockholders only following a year in which a
company has generated net income T/F - ANSWERS-False - a company
can pay dividends any time its board of directors chooses
Depreciation can be considered an allocated cost of using an asset with a
life of more than a year T/F - ANSWERS-True - depreciation is a
process of systematically and rationally allocating the cost of an asset
over its useful life
One purpose of the statement of retained earnings is to show _____. -
ANSWERS-distribution of earnings to the stockholders
END OF
PAGE
1
, FINANCIAL LATEST
ACCOUNTING IVY
SOFTWARE
T-accounts are called such because they resemble the shape of a T. T/F -
ANSWERS-TRUE
Increases in t-accounts are always shown on the right-hand side T/F -
ANSWERS-FALSE - "A=L+O";
asset accounts: L-H increase, R-H decrease
liability accounts: L-H decrease, R-H increase
owner's equity: L-H decrease, R-H increase
The total of all the right-hand sides of the t-accounts must equal the total
of all the eft-hand sides of the t-accounts T/F - ANSWERS-TRUE
Financial analysts interpret historical financial data in order to better
predict the future performance of the reporting entity. T/F - ANSWERS-
TRUE
END OF
PAGE
2
, FINANCIAL LATEST
ACCOUNTING IVY
SOFTWARE
Ratio analysis is unqualifiedly the best method of financial statement
analysis T/F - ANSWERS-False
Profit margin provides the user with a comprehensive profit picture of a
firm T/F - ANSWERS-FALSE
Current ratios and quick ratios indicate the relative liquidity of a
company. These two ratios are essential in that they provide an analyst
with information concerning a company's ability to meet its current
obligations - ANSWERS-True
Horizontal and vertical analysis are two key techniques used in
analyzing financial statements usually applied in tandem. Briefly stated,
vertical analysis requires that a significant element be measured as a
percentage of a base to which it is related. For example, the various
components of an income statement might be measured as a percentage
of sales. This technique can be applied to the balance sheet as well. T/F -
ANSWERS-True
Debt-to-equity and debt-to-assets ratios usually provide a clear picture of
the financial leverage employed by a firm. The higher the level of debt,
END OF
PAGE
3
, FINANCIAL LATEST
ACCOUNTING IVY
SOFTWARE
the higher the implied financial risk. An informed reader, however,
understands that it is appropriate to draw this general conclusion only
when comparing firms within the same, or very similar, industries. T/F -
ANSWERS-True
A company's operating cycle is measurement of the average length of
time from the point of a sale to the collection of an account receivable.
This measure is an important tool used in measuring operating efficiency
and in forecasting the cash requirements of the firm. T/F - ANSWERS-
TRUE
The inventory turnover ratio is one indicator of a firms operating
efficiency. Typically, faster turns means that management is doing a
better job of buying and controlling inventory. T/F - ANSWERS-True
Two major elements of return on assets are profit margin and asset
turnover. An analysis of these two component parts can provide valuable
insights into a firms performance T/F - ANSWERS-TRUE - ROA =
profit margin x asset turnover or
net income/assets = net income/sales x sales/assets
END OF
PAGE
4
ACCOUNTING IVY
SOFTWARE
Owners equity can also be shown on the balance sheet as ____
net worth
net assets
stockholders equity - ANSWERS-net worth, assets, and stockholder's
equity
Dividends can be paid to stockholders only following a year in which a
company has generated net income T/F - ANSWERS-False - a company
can pay dividends any time its board of directors chooses
Depreciation can be considered an allocated cost of using an asset with a
life of more than a year T/F - ANSWERS-True - depreciation is a
process of systematically and rationally allocating the cost of an asset
over its useful life
One purpose of the statement of retained earnings is to show _____. -
ANSWERS-distribution of earnings to the stockholders
END OF
PAGE
1
, FINANCIAL LATEST
ACCOUNTING IVY
SOFTWARE
T-accounts are called such because they resemble the shape of a T. T/F -
ANSWERS-TRUE
Increases in t-accounts are always shown on the right-hand side T/F -
ANSWERS-FALSE - "A=L+O";
asset accounts: L-H increase, R-H decrease
liability accounts: L-H decrease, R-H increase
owner's equity: L-H decrease, R-H increase
The total of all the right-hand sides of the t-accounts must equal the total
of all the eft-hand sides of the t-accounts T/F - ANSWERS-TRUE
Financial analysts interpret historical financial data in order to better
predict the future performance of the reporting entity. T/F - ANSWERS-
TRUE
END OF
PAGE
2
, FINANCIAL LATEST
ACCOUNTING IVY
SOFTWARE
Ratio analysis is unqualifiedly the best method of financial statement
analysis T/F - ANSWERS-False
Profit margin provides the user with a comprehensive profit picture of a
firm T/F - ANSWERS-FALSE
Current ratios and quick ratios indicate the relative liquidity of a
company. These two ratios are essential in that they provide an analyst
with information concerning a company's ability to meet its current
obligations - ANSWERS-True
Horizontal and vertical analysis are two key techniques used in
analyzing financial statements usually applied in tandem. Briefly stated,
vertical analysis requires that a significant element be measured as a
percentage of a base to which it is related. For example, the various
components of an income statement might be measured as a percentage
of sales. This technique can be applied to the balance sheet as well. T/F -
ANSWERS-True
Debt-to-equity and debt-to-assets ratios usually provide a clear picture of
the financial leverage employed by a firm. The higher the level of debt,
END OF
PAGE
3
, FINANCIAL LATEST
ACCOUNTING IVY
SOFTWARE
the higher the implied financial risk. An informed reader, however,
understands that it is appropriate to draw this general conclusion only
when comparing firms within the same, or very similar, industries. T/F -
ANSWERS-True
A company's operating cycle is measurement of the average length of
time from the point of a sale to the collection of an account receivable.
This measure is an important tool used in measuring operating efficiency
and in forecasting the cash requirements of the firm. T/F - ANSWERS-
TRUE
The inventory turnover ratio is one indicator of a firms operating
efficiency. Typically, faster turns means that management is doing a
better job of buying and controlling inventory. T/F - ANSWERS-True
Two major elements of return on assets are profit margin and asset
turnover. An analysis of these two component parts can provide valuable
insights into a firms performance T/F - ANSWERS-TRUE - ROA =
profit margin x asset turnover or
net income/assets = net income/sales x sales/assets
END OF
PAGE
4
