Chapter 14 – Financial Statement Analysis
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ANSWER:
c
RATIONALE:
Quick assets = Accounts receivable + Cash + Marketable securities = $65,000 +
$30,000 + $36,000 = $131,000
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
PREFACE NAME:
data
LEARNING OBJECTIVES:
FNMN.WAJO.19.14–03 – LO: 14–03
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:35 PM
DATE MODIFIED:
10/16/2017 6:37 PM
79. Based on the data for Harding Company, what is the amount of working capital?
a.
$238,000
b.
$128,000
c.
$168,000
d.
$203,000
ANSWER:
b
RATIONALE:
Working capital = (Accounts receivable + Cash + Inventory + Marketable securities +
Prepaid expenses) – (Accounts payable + Accrued liabilities + Notes payable) =
($65,000 + $30,000 + $72,000 + $36,000 + $2,000) – ($40,000 + $7,000 + $30,000) =
$128,000
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
PREFACE NAME:
data
LEARNING OBJECTIVES:
FNMN.WAJO.19.14–03 – LO: 14–03
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:35 PM
DATE MODIFIED:
10/16/2017 6:37 PM
80. Based on the data for Harding Company, what is the quick ratio, rounded to one decimal point?
a.
2.7
b.
2.6
c.
1.7
d.
0.9
ANSWER:
c
RATIONALE:
Quick Ratio = Quick Assets / Current Liabilities = (Accounts receivable + Cash +
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Page 33
82. Which of the following measures a company’s ability to pay its current liabilities?
a.
b.
c.
d.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.14–03 – LO: 14–03
FNMN.WAJO.19.14–04 – LO: 14–04
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:35 PM
DATE MODIFIED:
10/16/2017 6:37 PM
83. Which of the following is not included in the computation of the quick ratio?
a.
inventory
b.
marketable securities
c.
accounts receivable
d.
cash
ANSWER:
a
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.14–03 – LO: 14–03
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:35 PM
DATE MODIFIED:
10/16/2017 6:37 PM
84. The numerator in calculating the accounts receivable turnover is
a.
total assets
b.
sales
c.
accounts receivable at year-end
d.
average accounts receivable
ANSWER:
b
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Chapter 14 – Financial Statement Analysis
Copyright Cengage Learning. Powered by Cognero.
Page 37
d.
return on stockholders’ equity
ANSWER:
a
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.14–04 – LO: 14–04
FNMN.WAJO.19.14–05 – LO: 14–05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:35 PM
DATE MODIFIED:
10/16/2017 6:37 PM
91. Times interest earned is computed as
a.
net income plus interest expense, divided by interest expense
b.
income before income tax plus interest expense, divided by interest expense
c.
net income divided by interest expense
d.
income before income tax divided by interest expense
ANSWER:
b
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.14–04 – LO: 14–04
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:35 PM
DATE MODIFIED:
10/16/2017 6:37 PM
92. Balance sheet and income statement data indicate the following:
Bonds payable, 10% (due in two years)
$1,000,000
Preferred 5% stock, $100 par (no change during year)
300,000
Common stock, $50 par (no change during year)
2,000,000
Income before income tax for year
550,000
Income tax for year
80,000
Common dividends paid
50,000
Preferred dividends paid
15,000
Based on the data presented, what is the times interest earned ratio? (Round to one decimal point.)
a.
1.5
b.
6.4
c.
6.5
Chapter 14 – Financial Statement Analysis
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Page 38
d.
5.5
ANSWER:
c
RATIONALE:
Number of Times Interest Charges Are Earned = (Income Before Income Tax +
Interest Expense) / Interest Expense = [$550,000 + ($1,000,000 × $10%)] /
($1,000,000 × 10%) = $650,000 / $100,000 = 6.5 times
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.14–04 – LO: 14–04
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:35 PM
DATE MODIFIED:
10/16/2017 6:37 PM
93. 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 safety for bondholders
c.
calculated by dividing current liabilities by current assets
d.
calculated by subtracting current liabilities from current assets
ANSWER:
a
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.14–03 – LO: 14–03
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:35 PM
DATE MODIFIED:
10/16/2017 6:37 PM
94. A company with $70,000 in current assets and $50,000 in current liabilities pays a $1,000 current liability. As a result
of this transaction, the current ratio and working capital will
a.
both decrease
b.
both increase
c.
increase and remain the same, respectively
d.
remain the same and decrease, respectively
ANSWER:
c
RATIONALE:
Before payment of current liability,
Current assets = $70,000
Current liabilities = $50,000
Current Ratio = Current Assets / Current Liabilities = $70,000 / $50,000 = 1.40
Chapter 14 – Financial Statement Analysis
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Page 40
Assets
Cash and short-term investments
$ 40,000
Accounts receivable (net)
30,000
Inventory
25,000
Property, plant, and equipment
215,000
Total assets
$310,000
Liabilities and Stockholders’ Equity
Current liabilities
$ 60,000
Long-term liabilities
95,000
Common stock, $10 par
60,000
Retained earnings
95,000
Total liabilities and stockholders’ equity
$310,000
Income Statement
Sales
$90,000
Cost of goods sold
45,000
Gross margin
$45,000
Operating expenses
20,000
Net income
$25,000
Number of shares of common stock
6,000
Market price of common stock
$20
What is the current ratio?
a.
1.42
b.
1.17
c.
1.58
d.
0.67
ANSWER:
c
RATIONALE:
Current Ratio = Current Assets / Current Liabilities = [Cash and short-term
investments + Accounts receivable (net) + Inventory] / Current Liability = ($40,000 +
$30,000 + $25,000) / $60,000 = $95,000 / $60,000 = 1.58
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.14–03 – LO: 14–03
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:35 PM
DATE MODIFIED:
10/16/2017 6:37 PM
Privett Company
Accounts payable
$ 30,000
Accounts receivable
35,000
Accrued liabilities
7,000
Cash
25,000