FA-Ch 14
A 15% change in sales will result in a 15% change in net income
FALSE
A clean audit opinion is not the same as an unmodified opinion
FALSE
An advantage of the current ratio is that is considers the makeup of the current assets
FALSE
An extraordinary item must be either unusual in nature or infrequent in occurrence.
FALSE
An unusual item is often related to current operations and occurs infrequently
FALSE
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.
FALSE
Comparable financial statements are designed to compare the financial statements of two or more corporations.
FALSE
Comparative financial statements are designed to compare the financial statements of two or more corporations
FALSE
If Epsilon company price-earnings ratio on common stock is greater than Iota Companys, then Iota company would be expected to have the best potential for future common stock price appreciation
FALSE
If a company has issued only one class of stock, the earnings per share are determined by dividing net income plus interest expense by the number of shares outstanding
FALSE
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.
FALSE
If a firm has a quick ratio of 1, the subsequent payment of an account payable will cause the ratio to increase.
FALSE
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.
FALSE
If two companies have the same current ratio, their ability to pay short-term debt is the same
FALSE
In a common-sized income statement, each item is expressed as a percentage of net income
FALSE
In computing the rate earned on total assets, interest expense is subtracted from net income before dividing by average total assets.
FALSE
In computing the return on total assets, interest expense is subtracted from net income before dividing by average total assets
FALSE
In horizontal analysis, the current year is the base year
FALSE
In the vertical analysis of a balance sheet, the base for current liabilities is total liabilities
FALSE
In the vertical analysis of an income statement, each item is generally stated as a percentage of total assets
FALSE
On a common-sized income statement, all items are stated as a percent of total assets or equities at year-end
FALSE
The auditors report is where the auditor certifies that the financial statements are correct and accurate
FALSE
The dividend yield is equal to the dividends per share divided by the par value per share of common stock
FALSE
The effects of differences in accounting methods are of little importance when analyzing comparable data from competing businesses
FALSE
The ratio of fixed assets to long-term liabilities provides a measure of a firms ability to pay dividends
FALSE
The ratio of the sum of cash, receivables, and marketable securities to current liabilities is referred to as the current ratio
FALSE
The report on internal control required by the Sarbanes-Oxley Act of 2002 may be prepared by either management of the companys auditors
FALSE
Unusual items affecting the current period's income statement consist of changes in accounting principles and discontinued operations.
FALSE
Using vertical analysis of the income statement, a companys net income as a percentage of sales is 15%; therefore, the cost of golds sold as a percentage of sales must be 85%
FALSE
Vertical analysis refers to comparing the financial statements of a single company over several years
FALSE
When a corporation discontinues a segment of its operations at a loss, the loss should be reported as a separate item after income from continuing operations on the income statement
FALSE
When the return on total assets is greater than the return on common stockholders' equity, the management of the company has effectively used leverage
FALSE
A balance sheet shows cash, $75,000; marketable securities, $115,000; receivables, $150,000; and inventories, $222,500. Current liabilities are $225,000. The current ratio is 2.5 to 1.
TRUE
A company can use comparisons of its financial data to the data of other companies and industry values to evaluate its position.
TRUE
A decrease in the ratio of liabilities to stockholders equity indicates an improvement in the margin of safety for creditors
TRUE
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
TRUE
A firm selling food should have a higher inventory turnover rate than a firm selling office furniture
TRUE
An extraordinary loss of $300,000 that results in income tax savings of $90,000 should be reported as an extraordinary loss (net of tax) of $210,000 on the income statement.
TRUE
An increase in the accounts receivable turnover may be due to a change in how credit is granted and/or in collection practices
TRUE
Analyzing a companys performance should take into account conditions peculiar to the industry and the general economic conditions
TRUE
Comparing dividends per share to earnings per share indicates the extent to which the corporation is retaining its earnings for use in operations
TRUE
Current position analysis indicates a company's ability to liquidate current liabilities.
TRUE
Dollar amount of working capital are difficult to assess when comparing companies of different sizes or in comparing such amounts with industry figures.
TRUE
Earnings per share amounts are only required to be presented for income from continuing operations and net income on the face of the statement
TRUE
Factors that reflect the ability of a business to pay its debt and earn a reasonable amount of income are referred to as solvency, profitability, and liquidity
TRUE
Factors which reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred to as solvency and profitability.
TRUE
In a company's annual report, the section called Management Discussion and Analysis provides critical information for interpreting the financial statements and assessing the future of the company
TRUE
In computing the asset turnover ratio, long-term investments are excluded from average total assets
TRUE
In computing the ratio of net sales to assets, long-term investments are excluded from average total assets.
TRUE
Interpreting financial analysis should be considered in light of conditions peculiar to the industry and the general economic conditions.
TRUE
Ratios and various other analytical measures are not a substitute for sound judgment, nor do they provide definitive guides for action.
TRUE
Reporting unusual items separately on the income statement allows investors to isolate the effects of these items on income and cash flows.
TRUE
Solvency analysis focuses on the ability of a business to pay its long-term liabilities
TRUE
The denominator of the return on total assets ratio is the average total assets
TRUE
The excess of current assets over current liabilities is referred to as working capital
TRUE
The number of days in receivables is one means of expressing the relationship between average daily sales and accounts receivable
TRUE
The number of days sales in inventory is one means of expressing the relationship between the COGS and inventory
TRUE
The percentage analysis of increases and decrease in the amount and percentage of comparative financial statement items is referred to as horizontal analysis
TRUE
The rate earned on total assets measures the profitability of total assets, without considering how the assets are financed.
TRUE
The ratio of the market price per share of common stock on a specific date to the annual earnings per share is referred to as the price-earnings ratio
TRUE
The relationship of each asset item as a percent of total assets is an example of vertical analysis
TRUE
The return on total assets measures the profitability of total assets without considering how the assets are financed
TRUE
Those unusual items reported as deductions from income from continuing operations should be listed net of the related income tax.
TRUE
Unusual items affecting the prior period's income statement consist of errors and change in accounting principles.
TRUE
Unusual items affecting the prior periods income statement consists of changes in or errors in applying accounting principles
TRUE
Using measures to assess a business's ability to pay its current liabilities is called current position analysis.
TRUE
When computing the return on common stockholders' equity, preferred stock dividends are subtracted from net income
TRUE
When you are interpreting financial ratios, it is useful to compare a company's ratio to the same ratios from a prior period or to the ratios of another company in the same industry
TRUE
When you are interpreting financial ratios, it is useful to compare a company's ratios to some form of standard.
TRUE
current position analysis is used by short-term creditors to assess how quickly they will be repaid
TRUE