Chapter 17

In horizontal analysis, each item is expressed as a percentage of the A. base year figure B. retained earnings figure C. total assets figure D. net income figure

A. base year figure

the current ratio is A. used to evaluate a company's liquidity and short term debt paying ability B. a solvency measure that indicates the margin of of safety of a bondholder C. calculated by dividing current liabilities by current assets D. calculated by subtracting current liabilities from current assets A. used to evaluate a company's liquidity and short term debt

A. used to evaluate a company's liquidity and short term debt paying ability

The percent of fixed assets to total assets is an example of A. vertical analysis B. solvency analysis C. profitability analysis D. horizontal analysis

A. vertical analysis

Horizontal analysis is a technique for evaluating financial statement data A. for one period of time B. over a period of time C. on a certain date D. as it may appear in the future

B. over a period of time

In a vertical analysis the base for cost of goods sold is A. total selling expenses B. sales or Net Sales C. total expenses D. gross profit

B. sales or Net Sales

The ability of a business pay its debts as they come due and to earn a reasonable net income is A. solvency and leverage B. solvency and profitability C. solvency and liquidity D. solvency and equity

B. solvency and profitability

Horizontal analysis of comparative financial statements includes A. development of common sized statements B. calculation of liquidity ratios C. calculation of dollar amount changes and percentage changes from previous to the current year D. evaluation of each component in a financial statement to a total within the statement

C. calculation of dollar amount changes and percentage changes from previous to the current year

which of the following measures a company's ability to pay its current liabilities A. earnings per share B. inventory turnover C. current ratio D. number of times interest charges earned

C. current ratio

a balance sheet that displays only component percentages is a A. trend balance sheet B. comparative balance sheet C. condensed balance sheet D. common-sized balance sheet

D. common-sized balance sheet

an acceleration in the collection of receivables will tend to cause the accounts receivable turnover to A. decrease B. remain the same C. either increase or decrease D. increase

D. increase

One reason that a common sized statement is a useful tool in financial analysis is that it enables that user to A. judge the relative potential of two companies of similar size in different industries B. determine which companies in a single industry are of the same value C. determine which companies in a single industry are of the same size D. make a better comparison of two companies of different sizes in the same industry

D. make a better comparison of two companies of different sizes in the same industry

In a common sized income statement ,100% is the A. net cost of goods sold B. net income C. gross profit D. sales

D. sales

On a common sized balance sheet, 100% is A. total property, plant, equipment B. total current assets C. total liabilities D. total assets

D. total assets

A company that is leveraged is one that a. has a high earnings per share. b. contains debt financing. c. contains equity financing. d. contains no debt financing.

b. contains debt financing.

In performing a vertical analysis, the base for cost of goods sold is a. total selling expenses. b. net sales. c. total revenues. d. total expenses.

b. net sales.

The acid-test (quick) ratio a. is used to quickly determine a company's solvency and long-term debt paying ability. b. relates cash, short-term investments, and net receivables to current liabilities. c. is calculated by taking one item from the income statement and one item from the balance sheet. d. is the same as the current ratio except it is rounded to the nearest whole percent

b. relates cash, short-term investments, and net receivables to current liabilities.

In analyzing financial statements, horizontal analysis is a a. requirement. b. tool. c. principle. d. theory.

b. tool.

Waters Department Store had net credit sales of $8,000,000 and cost of goods sold of $6,000,000 for the year. The average inventory for the year amounted to $2,000,000. Inventory turnover for the year is a. 4 times. b. 7 times. c. 3 times. d. 2 times.

c. 3 times.

Assume the following sales data for a company: 2008 $1,000,000 2007 900,000 2006 750,000 2005 500,000 If 2005 is the base year, what is the percentage increase in sales from 2005 to 2007? a. 100% b. 180% c. 80% d. 55.5%

c. 80%

Which two reports on internal control are sometimes combined into a single report on internal control? a. The unqualified audit opinion report and the qualified audit opinion report b. The income statement and the balance sheet c. One report by management and one report by a public accounting firm regarding the adequacy of internal controls d. The MD&A and the Report of Independent Registered Public Accounting Firm

c. One report by management and one report by a public accounting firm regarding the adequacy of internal controls

Each of the following is a liquidity ratio except the a. acid-test ratio. b. current ratio. c. debt to total assets ratio. d. inventory turnover

c. debt to total assets ratio.

In performing a vertical analysis, the base for sales returns and allowances is a. sales. b. sales discounts. c. net sales. d. total revenues.

c. net sales.

Corporate annual reports typically do not contain which of the following? a. auditor's report. b. management discussion and analysis. c. next year's budget. d. accompanying footnotes.

c. next year's budget.

A technique for evaluating financial statements that expresses the relationship among selected items of financial statement data is a. common size analysis. b. horizontal analysis. c. ratio analysis. d. vertical analysis

c. ratio analysis.

A liquidity ratio measures the a. income or operating success of an enterprise over a period of time. b. ability of the enterprise to survive over a long period of time. c. short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash. d. number of times interest is earned

c. short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash.

Horizontal analysis is also called a. linear analysis. b. vertical analysis. c. trend analysis. d. common size analysis

c. trend analysis.

The current ratio is a. calculated by dividing current liabilities by current assets. b. used to evaluate a company's liquidity and short-term debt paying ability. c. used to evaluate a company's solvency and long-term debt paying ability. d. calculated by subtracting current liabilities from current assets.

c. used to evaluate a company's solvency and long-term debt paying ability.

. Walker Clothing Store had a balance in the Accounts Receivable account of $780,000 at the beginning of the year and a balance of $820,000 at the end of the year. Net credit sales during the year amounted to $5,840,000. The average collection period of the receivables in terms of days was a. 30 days. b. 365 days. c. 100 days. d. 50 days.

d. 50 days.

. Parr Hardware Store had net credit sales of $3,900,000 and cost of goods sold of $3,000,000 for the year. The Accounts Receivable balances at the beginning and end of the year were $600,000 and $700,000, respectively. The receivables turnover was a. 5.6 times. b. 6.5 times. c. 4.6 times. d. 6 times.

d. 6 times.

Which one of the following is primarily interested in the liquidity of a company? a. Federal government. b. Stockholders. c. Long-term creditors. d. Short-term creditors.

d. Short-term creditors.

the independent auditor's report does which of the following?

gives the auditor's opinion regarding the fairness of the financial statements

Comparisons of financial data made within a company are called a. intracompany comparisons. b. interior comparisons. c. intercompany comparisons. d. intramural comparisons.

a. intracompany comparisons.

In performing a vertical analysis, the base for sales revenues on the income statement is a. net sales. b. sales. c. net income d. cost of goods available for sale

a. net sales.

Which one of the following is not a tool in financial statement analysis? a. Horizontal analysis b. Circular analysis c. Vertical analysis d. Ratio analysis

b. Circular analysis

A change from straight-line depreciation to double-declining-balance depreciation would be reported as: a. None of these choices are correct. b. a prospective change in estimate. c. a restatement of the prior period statements only. d. an extraordinary item.

b. a prospective change in estimate.