MC Chapter 9

Which of the following are included in annual reports of a publicly held corporation. A. Report on Internal Control B. Report on Fairness of the Financial Statements C. Management's Discussion and Analysis (MD&A) D. All of these choices are correct.

D. All of these choices are correct.

________ is useful comparing a company with industry average. A. Horizontal Analysis B. Vertical Analysis C. Profitability Analysis D. Common-Sized Statements

D. Common-Sized Statements

Which of the following is true about liquidity? A. It is the ability of a company to pay its debts as they become due over a long period of time. B. It is a means of evaluating whether a company's stock price will increase. C. It is the ability of a company to generate net income related to its invested assets. D. It is a means of evaluating a company's ability to pay its short-term debt.

D. It is a means of evaluating a company's ability to pay its short-term debt.

All of the following are measures of solvency except ________. A. Net Assets B. Debt Ratio C. Times Interest Earned D. Price-Earnings Ratio

D. Price-Earnings Ratio

Which of the following items is included in the Management's Discussion and Analysis (MD&A)? A. Methods adopted by the company to safeguard its assets and resources B. Management's responsibility for establishing and maintaining internal control C. Summary of inward and outward movement of cash into the company D. Significant risk exposures that might affect the company

D. Significant risk exposures that might affect the company

A percentage analysis of the relationship of each component in a financial statement to a total within the statement is called _____. A. common-sized analysis B. horizontal analysis C. component analysis D. vertical analysis

D. vertical analysis

All publicly held corporations are required to have an independent audit (examination) of their financial statements on their fairness.

False

Income Statement is used while evaluating profitability, but the Balance Sheet is ignored.

False

The percentage analysis of increases and decreases in related items in comparative financial statements is called vertical analysis.

False

_____ is the formula to calculate times interest earned. A. (Income before income tax + Interest expense) ÷ Interest expense B. Income after income tax ÷ Interest expense C. Cost of goods sold ÷ Average inventory D. (Fixed assets ÷ Long-term liabilities) ÷ Interest expense

A. (Income before income tax + Interest expense) ÷ Interest expense

Which of the following provides useful information about the profitability of a company? A. An income statement B. A statement of cash flows C. A fund flow statement D. A statement of stockholder's equity

A. An income statement

The _____ measures the rate of income earned on the amount invested by the stockholders. A. return on stockholders' equity B. average total stockholders' equity C. dividends per share D. earnings per share on common stock

A. return on stockholders' equity

Dividends per share measures: A. the extent to which earnings are being distributed to common shareholders. B. the rate of return to common stockholders from cash dividends. C. the share of profits earned per share of common stock outstanding. D. a company's future earnings prospects.

A. the extent to which earnings are being distributed to common shareholders.

The comparative income statement of a company shows that the cost of goods sold is stated as a percent of sales. This is an example of: A. vertical analysis. B. horizontal analysis. C. current position analysis. D. component analysis.

A. vertical analysis.

Calculate the Accounts Receivable Turnover if Boston Retail made a sales of $500,000 in Year 2, and the accounts receivable amount reported on the balance sheet of Year 1 and Year 2 were $50,000 and 69,500. Round-off the answer to the nearest one decimal point. A. 10.0 B. 8.4 C. 4.2 D. 7.2

B. 8.4 → ($50,000 + $69,500) / 2 = $59,750 → $500,000 / $59,750 = 8.4

Which of the following ratios indicate a company's ability to pay current liabilities? A. The cash ratio B. The current ratio C. The net assets ratio D. The debt ratio

B. The current ratio

The _____ provides a measure of whether noteholders or bondholders will be paid. A. ratio of fixed assets to short-term liabilities B. ratio of fixed assets to long-term liabilities C. debt ratio D. times interest earned

B. ratio of fixed assets to long-term liabilities

An opinion stating that the financial statements present fairly the financial position, results of operations, and cash flows of the company is said to be a(n) _____. A. disqualified opinion B. unqualified opinion C. extraordinary opinion D. unambiguous opinion

B. unqualified opinion

Consider the following information and compute the ratio of liabilities to stockholders' equity. (Round the answer to two decimal places.) Total liabilities → $280,000 Total stockholders equity → $880,000 A. 1.32 B. 4.14 C. 0.32 D. 2.14

C. 0.32 → $280,000 / $880,000 = 0.32

Which of the following metrics measures the instant debt-paying ability of a company? A. The debt ratio B. The working capital C. The quick ratio D. The times interest earned

C. The quick ratio

A company's financial condition and performance are normally analyzed and interpreted by focusing upon liquidity, solvency, and profitability.

True

The working capital is used to evaluate a company's ability to pay current liabilities.

True