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Accounting
Q:
The return on total assets can be calculated as the profit margin times the total asset turnover.
Q:
A company that has days' sales uncollected of 30 days and days' sales in inventory of 18 days implies that inventory will be converted to cash in about 12 days.
Q:
A rough guideline states that for a company with no discounts offered, days' sales uncollected should not exceed 1u2153times the days in its credit period.
Q:
A company with a high inventory turnover requires a smaller investment in inventory than one producing the same sales with a lower turnover.
Q:
The higher the accounts receivable turnover, the slower the accounts receivable are collected.
Q:
Efficiency refers to how productive a company is in using its assets and is usually measured relative to how much revenue is generated from a certain level of assets.
Q:
The greater the times interest earned ratio, the more risk a company is exposed to.
Q:
The use of horizontal and vertical analysis eliminates many differences between GAAP and IFRS, but the user must exercise some caution when drawing conclusions from these reports.
Q:
Capital structure refers to a company's long-run financial viability and its ability to cover long-term obligations.
Q:
Total asset turnover reflects a company's ability to use its assets to generate sales and is an important indication of operating efficiency.
Q:
The current ratio is calculated as current liabilities divided by current assets.
Q:
Liquidity refers to the availability of resources to meet short-term cash requirements.
Q:
Ratios analysis eliminates all of the differences of GAAP versus IFRS financial reporting.
Q:
A corporation had cash of $14,000 and total assets of $178,300. On a common-size balance sheet, cash would be reported as 7.85%.
Q:
An advantage of common-size statements is that they reflect the relative sizes of different companies under analysis.
Q:
Horizontal analysis is used to reveal changes in the relative importance of each financial statement item.
Q:
Vertical analysis is a tool to evaluate individual financial statement items or groups of items in terms of a specific base amount.
Q:
The percent change is computed by subtracting the analysis period amount from the base period amount, then dividing the result by the base period amount and then multiplying that result by 100.
Q:
Comparative horizontal analysis is used to reveal patterns in data covering successive periods.
Q:
Trend analysis is a form of horizontal analysis that can reveal patterns in data across successive periods.
Q:
Comparative financial statements are reports that show financial amounts placed side by side in columns on a single statement for analysis purposes.
Q:
The "cumulative effect of a change in accounting principles" is shown below the extraordinary items section on the income statement.
Q:
Expropriation of property by a foreign government is considered an extraordinary item.
Q:
If a company's activities include operations that are being discontinued, the income or loss from the discontinued operations are included on the income statement as part of income from continuing operations.
Q:
A company can change from one acceptable accounting principle to another as long as the change improves the usefulness of information in its financial statements.
Q:
Extraordinary items are reported in the operating section of the income statement.
Q:
A good financial statement analysis report often includes the following sections: Executive summary, analysis overview, evidential matter, assumptions, key factors, and inferences.
Q:
A financial statement analysis report helps to reduce uncertainty in business decisions through a rigorous and sound evaluation.
Q:
A financial statement analysis report should include a brief table of contents to help users focus on those areas most relevant to their decisions.
Q:
Horizontal analysis is the comparison of a company's financial condition and performance to a base amount.
Q:
Vertical analysis is the comparison of a company's financial condition and performance through time.
Q:
General standards or guidelines of comparisons include the 2 to 1 level for the current ratio and 1 to 1 level for the acid-test ratio.
Q:
Measures taken from a selected competitor or a group of competitors are often excellent standards of comparison for analysis.
Q:
Standards for comparison are necessary when making judgments about a company's financial performance.
Q:
Financial reporting includes not only general purpose financial statements, but also information from SEC filings, press releases, shareholders' meetings, forecasts, management letters, auditor's reports, and Webcasts.
Q:
Market prospects are the ability to provide financial rewards sufficient to attract and retain financing.
Q:
Liquidity and efficiency are measures of a companys ability to meet short-term obligations.
Q:
Profitability is the companys ability to generate future revenues and meet long-term financial obligations.
Q:
For internal users, one purpose of financial statement analysis is to provide information helpful in improving the company's efficiency and effectiveness in providing products and services.
Q:
Financial statement analysis can be used for personal investment decisions.
Q:
Financial statement analysis is the application of analytical tools to general-purpose financial statements and related data for making business decisions.
Q:
______________________ ratios include the price-earnings ratio and dividend yield.
Q:
The gross margin ratio, return on total assets and basic earnings per share are all _____________ ratios.
Q:
The debt ratio, the equity ratio, pledged assets to secured liabilities, and times interest earned are all ___________________ ratios.
Q:
____________ is a method of analysis used to evaluate individual financial statement items or groups of items in terms of a specific base amount.
Q:
Trend percentage is calculated by dividing _________________________ by ___________________________ and multiplying the result by 100.
Q:
_______________ are reports where financial amounts are placed side-by-side in columns on a single statement for analytical purposes.
Q:
A company can change from one acceptable accounting principle to another as long as the change __________________________________________ in its financial statements.
Q:
An extraordinary gain or loss is one that is both ________________ and _________________.
Q:
A _____________________________ is a part of a company's operations that serves a particular line of business or class of customers.
Q:
A good financial statement analysis report usually includes the following six sections: (1) ________________________, (2) ______________________, (3) _________________, (4) __________________ (5) ____________________ and (6) ______________________.
Q:
The measurement of key relationships between financial statement items is known as _____________________________.
Q:
The comparison of a company's financial condition and performance to a base amount is known as _____________________________.
Q:
The comparison of a company's financial condition and performance across time is known as ________________________________.
Q:
The standards for comparisons in financial statement analysis include (1) _______________, (2) ________________, (3) _________________ and (4) _______________.
Q:
A common focus of financial statement users in evaluating a company's performance includes evaluation of its (1) ______________________________, (2) ________________________ and (3) ____________________________.
Q:
______________________________ applies analytical tools to general-purpose financial statements and related data for making business decisions.
Q:
A company has an inventory turnover ratio of 2.90, merchandise inventory for 2014 of $46,095, and cost of goods sold of $173,420. What is the average inventory?
Q:
A company has an inventory turnover ratio of 2.81, merchandise inventory for 2014 of $93,303, and average inventory of $83,397. What is the cost of goods sold?
Q:
A company has a current ratio of 1.92, total liabilities of $193,849, long-term notes payable of $85,791, and a quick ratio of .96. What are total quick assets for the company?
Q:
A company has a current ratio of 1.92, total liabilities of $193,849, long-term notes payable of $85,791, and a quick ratio of .96. What are total current assets for the company?
Q:
A company has a current ratio of 3.4, total liabilities of $350,240 and long-term notes payable of $120,000. What are total current assets for the company?
Q:
Explain where the following item should appear in the financial statements of a corporation: One of the company's plants was destroyed by an earthquake. The area has never reported an earthquake. The amount of the loss, net of tax, was $850,000.
Q:
Given the following information about a corporation's current year activities, answer the questions below: Debit
Credit Sales $250,000 Cost of goods sold
$90,000 Other operating expenses
54,000 Income from operation of discontinued Division W (net of $9,200 tax) 30,800 Extraordinary loss from hurricane damage (net of $11,000 tax benefit)
37,000 Loss from disposal of Division W (net of $15,000 tax benefit)
45,000 Unusual loss on sale of equipment
12,000 Effect on prior years income of changing depreciation methods (net of $4,000 tax)
13,500 Compute the amounts that should be reported on the income statement as:
(1) Income from continuing operations.
(2) Income before extraordinary items and cumulative effect of changes in accounting principles.
(3) Net income.
Q:
The following information is from Omega Corporation's balance sheets as of December 31, 2013 and 2014 and its income statement for 2014: 2014
2013 Assets: Cash
$ 18,000
$ 22,000 Marketable securities
25,000
0 Accounts receivable
38,000
42,000 Inventory
61,000
52,000 Prepaid insurance
6,000
9,000 Long-term investments
49,000
20,000 Plant assets, net
218,000
225,000 Total assets
$415,000
$370,000 Net income
$ 62,250 Sales (all on credit)
305,000 Cost of goods sold
123,000 Interest expense
15,600 Income tax expense
27,000 From the above information, calculate the following ratios for 2014:
(a) Inventory turnover.
(b) Accounts receivable turnover.
(c) Return on total assets.
(d) Times interest earned.
(e) Total asset turnover.
Q:
Use the following information from the current year financial statements of a company to calculate the ratios below:
(a) Current ratio.
(b) Accounts receivable turnover. (Assume the prior year's accounts receivable balance was $100,000.)
(c) Days' sales uncollected.
(d) Inventory turnover. (Assume the prior year's inventory was $50,200.)
(e) Times interest earned ratio.
(f) Return on common stockholders' equity. (Assume the prior year's common stock balance was $480,000 and the retained earnings balance was $128,000.)
(g) Earnings per share (assuming the corporation has a simple capital structure, with only common stock outstanding).
(h) Price earnings ratio. (Assume the company's stock is selling for $26 per share.)
(i) Divided yield ratio. (Assume that the company paid $1.25 per share in cash dividends.) Income statement data: Sales (all on credit)
$1,075,000 Cost of goods sold
575,000 Gross profit on sales
$ 500,000 Operating expenses
305,000 Operating income
$ 195,000 Interest expense
20,400 Income before taxes
$ 174,600 Income taxes
74,000 Net income
$ 100,600 Balance sheet data: Cash
$ 38,400 Accounts receivable
120,000 Inventory
56,700 Prepaid Expenses
24,000 Total current assets
$239,100 Total plant assets
708,900 Total assets
$948,000 Accounts payable
$ 91,200 Interest payable
4,800 Long-term liabilities
204,000 Total liabilities
$300,000 Common stock, $10 par
480,000 Retained earnings
168,000 Total liabilities and equity
$948,000
Q:
Selected current year company information follows: Net income $ 325,000 Net sales 4,700,000 Total liabilities, beginning-year 550,000 Total liabilities, end-of-year 530,000 Total stockholders equity, beginning-year 760,000 Total stockholders equity, end-of-year 745,000 Calculate the following company ratios:
(a) Profit margin.
(b) Total asset turnover.
(c) Return on total assets.
(d) Return on common stockholders' equity (assume the company has no preferred stock).
Q:
Use the following information and the indirect method to calculate the net cash provided or used by operating activities: Net income
$12,300 Depreciation expense
12,000 Payment on mortgage payable
15,000 Gain on sale of land
7,500 Increase in merchandise inventory
2,050 Increase in accounts payable
6,150 Proceeds from sale of land
8,000 A. $12,700
B. $13,900
C. $20,900
D. $28,400
E. $35,900
Q:
A company's income statement showed the following: net income, $124,000; depreciation expense, $30,000, and gain on sale of plant assets, $14,000. An examination of the company's current assets and current liabilities showed the following changes as a result of operating activities: accounts receivable decreased $9,400; merchandise inventory increased $18,000; prepaid expenses decreased $6,200; accounts payable increased $3,400. Calculate the net cash provided or used by operating activities.
A. $139,000
B. $141,000
C. $145,800
D. $155,000
E. $167,000
Q:
Use the following information about the current year's operations of a company to calculate the cash paid for merchandise. Cost of good sold
$536,000 Merchandise inventory, January 1
64,800 Merchandise inventory, December 31
57,000 Accounts payable, January 1
64,400 Accounts payable, December 31
59,000 A. $522,800
B. $533,600
C. $528,200
D. $536,000
E. $543,800
Q:
Assume the following information was available for the current year's operations of the shoe company founded by Blake Mycoskie, TOMS. Use these data to calculate the cash paid for merchandise. Cost of goods sold
$226,000 Merchandise inventory, January 1
54,800 Merchandise inventory, December 31
57,400 Accounts payable, January 1
54,400 Accounts payable, December 31
59,800 A. $218,000
B. $223,200
C. $220,000
D. $228,800
E. $234,000
Q:
A company's inventory balance was $200,000 at 12/31/11 and $188,000 at 12/31/12. Its accounts payable balance was $80,000 at 12/31/11 and $84,000 at 12/31/12, and its cost of goods sold for 2012 was $720,000. The company's total amount of cash payments for merchandise in 2012 equals:
A. $704,000
B. $712,000
C. $720,000
D. $728,000
E. $736,000
Q:
When using the indirect method to calculate and report net cash provided or used by operating activities, which of the following is subtracted from net income?
A. Decrease in income taxes payable.
B. Depreciation expense.
C. Amortization of intangible assets.
D. Bad debts expense.
E. Decrease in merchandise inventory.
Q:
Use the following information to calculate cash paid for salaries: Salaries expense
$79,000 Salaries payable, January 1
6,400 Salaries payable, December 31
3,320 A. $75,680
B. $82,080
C. $79,000
D. $85,400
E. $82,320
Q:
Use the following information to calculate cash paid for wages and salaries: Salaries expense
$168,000 Salaries payable, January 1
6,400 Salaries payable, December 31
10,600 A. $157,400
B. $163,800
C. $168,000
D. $172,200
E. $174,400
Q:
Use the following information to calculate cash received from dividends: Dividends revenue
$29,800 Dividends receivable, January 1
2,600 Dividends receivable, December 31
3,400 A. $26,400
B. $29,000
C. $29,800
D. $30,600
E. $32,400
Q:
If a company borrows money from a bank, the interest paid on this loan should be reported on the statement of cash flows as a(n):
A. Operating activity.
B. Investing activity.
C. Financing activity.
D. Noncash investing and financing activity.
E. None of these. This is not reported in the statement of cash flows.
Q:
The direct method of reporting operating cash flows:
A. Is recommended but not required by the FASB.
B. Must be used by all companies.
C. Is used by most companies.
D. Is considered supplementary disclosure.
E. Is not recommended by the FASB, but is commonly used.
Q:
The indirect method for the preparation of the operating activities section of the statement of cash flows:
A. Separately lists each major item of operating cash receipts.
B. Separately lists each major item of operating cash payments.
C. Reports net income and then adjusts it for items necessary to determine net cash provided or used by operating activities.
D. Is required if the company is a merchandiser.
E. Must not be used in all circumstances.
Q:
The direct method for the preparation of the operating activities section of the statement of cash flows:
A. Separately lists each major item of operating cash receipts and cash payments.
B. Reports adjustments to reconcile net income to net cash provided or used by operating activities in the statement.
C. Reports an amount of cash flows from operations different from the amound determined using the indirect method.
D. Is required if the company is a merchandiser.
E. Is required by the FASB.