72. Standards for comparisons in financial statement analysis include:
A. Intra-company standards.
B. Competitors’ standards.
C. Industry standards.
D. Guidelines (rules of thumb).
E. All of the choices are standards for comparisons.
73. Intra-company standards for financial statement analysis:
A. Are often based on a company’s prior performance.
B. Are often set by competitors.
C. Are set by the company’s industry.
D. Are based on rules of thumb.
E. Are published in Dun and Bradstreet.
74. Industry standards for financial statement analysis:
A. Are based on a company’s prior performance.
B. Are set by the government.
C. Are set by the financial performance and condition of the company’s industry.
D. Are based on rules of thumb.
E. Compare a company’s income with the prior year’s income.
75. Guidelines (rules-of-thumb) are developed from:
A. Industry statistics from the government.
B. Past experience.
C. Analysis of competitors.
D. Relations between financial items.
E. Dun and Bradstreet.
76. Three of the most common tools of financial analysis are:
A. Financial reporting, ratio analysis, vertical analysis.
B. Ratio analysis, horizontal analysis, financial reporting.
C. Horizontal analysis, vertical analysis, ratio analysis.
D. Trend analysis, financial reporting, ratio analysis.
E. Vertical analysis, political analysis, horizontal analysis.
77. The comparison of a company’s financial condition and performance across time is known
as:
A. Horizontal analysis.
B. Vertical analysis.
C. Political analysis.
D. Financial reporting.
E. Investment analysis.
78. The measurement of key relations among financial statement items is known as:
A. Financial reporting.
B. Horizontal analysis.
C. Investment analysis.
D. Ratio analysis.
E. Risk analysis.
79. The comparison of a company’s financial condition and performance to a base amount is
known as:
A. Financial reporting.
B. Horizontal ratios.
C. Investment analysis.
D. Risk analysis.
E. Vertical analysis.
80. A financial statement analysis report usually includes:
A. An executive summary.
B. An analysis overview.
C. Evidential matter.
D. Assumptions.
E. All of the mentioned items are included in a financial statement analysis report.
81. The background on a company, its industry, and its economic setting is usually included
in which of the following sections of a financial statement analysis report:
A. Executive summary.
B. Analysis overview.
C. Evidential conclusions.
D. Factor analysis.
E. Inferences.
82. A financial statement analysis report:
A. Enables readers to see the process and rationale of analysis.
B. Forces preparers to organize their reasoning and to verify the logic of analysis.
C. Serves as a method of communication to users.
D. Helps users and preparers to refine conclusions based on evidence from key building
blocks.
E. A financial statement analysis report entails all of the choices listed.
83. When a company’s activities include income-related events not part of normal, continuing
operations, the complete income statement could potentially have the following sections:
A. Items from continuing operations and earnings per share for a corporation.
B. Income or loss from operating a discontinued segment for the current period.
C. The loss from disposing of the discontinued segment’s net assets.
D. Extraordinary items.
E. Continuing operations, discontinued segments, extraordinary items, changes in accounting
principles, and earnings per share for a corporation.
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84. Which of the following items is not likely an extraordinary item?
A. Loss from an unexpected union strike.
B. Condemnation of property by the city government.
C. Loss of use of property due to a new and unexpected environmental regulation.
D. Loss due to an earthquake in Florida.
E. Expropriation of property by a foreign government.
85. Financial statements with data for two or more successive accounting periods placed in
columns side by side, sometimes with changes shown in dollar amounts and percents, are
referred to as:
A. Period-to-period statements.
B. Controlling statements.
C. Successive statements.
D. Comparative statements.
E. Serial statements.
86. Horizontal analysis:
A. Is a method used to evaluate changes in financial data across time.
B. Is also called vertical analysis.
C. Is the presentation of financial ratios.
D. Is a tool used to evaluate financial statement items relative to industry statistics.
E. Evaluates financial data across industries.
87. Trend analysis is also called:
A. Financial analysis.
B. Ratio analysis.
C. Index number trend analysis.
D. Industry analysis.
E. Output analysis.
88. The dollar change for a financial statement item is calculated by:
A. Subtracting the analysis period amount from the base period amount.
B. Subtracting the base period amount from the analysis period amount.
C. Subtracting the analysis period amount from the base period amount, dividing the result by
the base period amount, then multiplying that amount by 100.
D. Subtracting the base period amount from the analysis period amount, dividing the result by
the base period amount, then multiplying that amount by 100.
E. Subtracting the base period amount from the analysis amount, then dividing the result by
the base amount.
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89. A company’s sales in Year 1 were $250,000 and in Year 2 were $287,500. Using Year 1
as the base year, the sales trend percent for Year 2 is:
A. 87%.
B. 100%.
C. 115%.
D. 15%.
E. 13%.
90. Phoenix Company reported sales of $400,000 for Year 1, $450,000 for Year 2, and
$500,000 for Year 3. Using Year 1 as the base year, what were the percentage increases for
Year 2 and Year 3 compared to the base year?
A. 80% for Year 2 and 90% for Year 3.
B. 88% for Year 2 and 80% for Year 3.
C. 88% for Year 2 and 90% for Year 3.
D. 112.5% for Year 2 and 125% for Year 3.
E. 125% for Year 2 and 112.5% for Year 3.
91. In horizontal analysis the percent change is computed by:
A. Subtracting the analysis period amount from the base period amount.
B. Subtracting the base period amount from the analysis period amount.
C. Subtracting the analysis period amount from the base period amount, dividing the result by
the base period amount, then multiplying that amount by 100.
D. Subtracting the base period amount from the analysis period amount, dividing the result by
the base period amount, then multiplying that amount by 100.
E. Subtracting the base period amount from the analysis amount, then dividing the result by
the analysis period amount.
92. To compute trend percents the analyst should:
A. Select a base period, assign each item in the base period statement a weight of 100%, and
then express financial numbers from other periods as a percent of their base period number.
B. Subtract the analysis period number from the base period number.
C. Subtract the base period amount from the analysis period amount, divide the result by the
analysis period amount, then multiply that amount by 100.
D. Compare amounts across industries using Dun and Bradstreet.
E. Compare amounts to a competitor.
93. Comparative financial statements in which each individual financial statement amount is
expressed as a percentage of a base amount are called:
A. Asset comparative statements.
B. Percentage comparative statements.
C. Common-size comparative statements.
D. Sales comparative statements.
E. General-purpose financial statements.
94. Comparative financial statements in which each individual financial statement amount is
expressed as a percentage of a base amount, and in which the base amount is expressed as
100%, are called:
A. Comparative statements.
B. Common-size comparative statements.
C. General-purpose financial statements.
D. Base line statements.
E. Index statements.
95. Common-size statements:
A. Reveal changes in the relative importance of each financial statement item.
B. Do not emphasize the relative importance of each item.
C. Compare financial statements over time.
D. Show the dollar amount of change for financial statement items.
E. Reveal patterns in data across successive periods.
96. The common-size percent is computed by:
A. Dividing the analysis amount by the base amount.
B. Dividing the base amount by the analysis amount.
C. Dividing the analysis amount by the base amount and multiplying the result by 100.
D. Dividing the base amount by the analysis amount and multiplying the result by 1,000.
E. Subtracting the base amount from the analysis amount and multiplying the result by 100.
97. A corporation reported cash of $14,000 and total assets of $178,300. Its common-size
percent for cash equals:
A. .0785%.
B. 7.85%.
C. 12.73%.
D. 1273%.
E. 7850%.
98. Current assets minus current liabilities is:
A. Profit margin.
B. Financial leverage.
C. Current ratio.
D. Working capital.
E. Quick assets.
99. Current assets divided by current liabilities is the:
A. Current ratio.
B. Quick ratio.
C. Debt ratio.
D. Liquidity ratio.
E. Solvency ratio.
100. Quick assets divided by current liabilities is the:
A. Acid-test ratio.
B. Current ratio.
C. Working capital ratio.
D. Current liability turnover ratio.
E. Quick asset turnover ratio.
101. Net sales divided by average accounts receivable, net is the:
A. Days’ sales uncollected.
B. Average accounts receivable ratio.
C. Current ratio.
D. Profit margin.
E. Accounts receivable turnover ratio.
102. Dividing accounts receivable, net by net sales and multiplying the result by 365 is the:
A. Profit margin.
B. Days’ sales uncollected.
C. Accounts receivable turnover ratio.
D. Average accounts receivable ratio.
E. Current ratio.
103. Dividing ending inventory by cost of goods sold and multiplying the result by 365 is
the:
A. Inventory turnover ratio.
B. Profit margin.
C. Days’ sales in inventory.
D. Current ratio.
E. Total asset turnover.
104. Net sales divided by average total assets is the:
A. Profit margin.
B. Total asset turnover.
C. Current ratio.
D. Sales return ratio.
E. Return on total assets.
105. Net income divided by net sales is the:
A. Return on total assets.
B. Profit margin.
C. Current ratio.
D. Total asset turnover.
E. Days’ sales in inventory.
106. Net income divided by average total assets is:
A. Profit margin.
B. Total asset turnover.
C. Return on total assets.
D. Days’ income in assets.
E. Current ratio.
107. Annual cash dividends per share divided by market price per share is the:
A. Price-earnings ratio
B. Price-dividends ratio.
C. Profit margin.
D. Dividend yield ratio.
E. Earnings per share.
108. The average number of times a company’s inventory is sold during an accounting period,
calculated by dividing cost of goods sold by the average inventory balance, is the:
A. Accounts receivable turnover.
B. Inventory turnover.
C. Days’ sales uncollected.
D. Current ratio.
E. Price earnings ratio.
109. A component of operating efficiency and profitability, calculated by expressing net
income as a percent of net sales, is the:
A. Acid-test ratio.
B. Merchandise turnover.
C. Price earnings ratio.
D. Accounts receivable turnover.
E. Profit margin ratio.
110. One of several ratios that reflects solvency includes the:
A. Acid-test ratio.
B. Current ratio.
C. Times interest earned ratio.
D. Total asset turnover.
E. Days’ sales in inventory.
111. A company had a market price of $37.50 per share, earnings per share of $1.25, and
dividends per share of $0.40. Its price-earnings ratio equals:
A. 3.1.
B. 30.0.
C. 93.8.
D. 32.0.
E. 3.3.
112. A company reports basic earnings per share of $3.50, cash dividends per share of $0.75,
and a market price per share of $64.75. The company’s dividend yield equals:
A. 1.16%.
B. 2.14%.
C. 4.67%.
D. 5.41%.
E. 18.50%.
113. Selected current year company information follows:
Net income $ 15,953
Net sales 712,855
Total liabilities, beginning-year 83,932
Total liabilities, end–of–year 103,201
Total stockholders’ equity, beginning–year….. 198,935
Total stockholders’ equity, end-of-year 121,851
The total asset turnover is:
A. 2.24 times
B. 2.81 times
C. 3.64 times
D. 4.67 times
E. 6.28 times
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114. Selected current year company information follows:
Net income $ 15,953
Net sales 712,855
Total liabilities, beginning-year 83,932
Total liabilities, end–of–year 103,201
Total stockholders’ equity, beginning–year…… 198,935
Total stockholders’ equity, end-of-year 121,851
The return on total assets is:
A. 2.24%
B. 2.81%
C. 3.64%
D. 4.67%
E. 6.28%
115. All of the following statements regarding a business segment are true except:
A. A business segment is a part of a company’s operations that serves a particular product
line.
B. A segment has assets, liabilities, and financial results of operations that can be
distinguished from those of other parts of the company.
C. A company’s gain or loss from selling or closing down a segment is reported separately.
D. A segment’s income for the period prior to the disposal and the gain or loss resulting from
disposing of the segment’s assets are combined and reported.
E. A segment’s income for the period prior to the disposal and the gain or loss resulting from
disposing of the segment’s assets are reported separately.
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116. Use the following selected information from Farris, LLC to determine the Year 2 and
Year 1 common size percents for cost of goods sold using Year 1 net sales as the base.
Year 2 Year 1
Net sales $276,200 $231,400
Cost of goods sold 151,900 129,590
Operating expenses 55,240 53,240
Net earnings 27,820 19,820
A. 36.4% for Year 2 and 41.1% for Year 1.
B. 55.0% for Year 2 and 56.0% for Year 1.
C. 119.4% for Year 2 and 100.0% for Year 1.
D. 117.2% for Year 2 and 100.0% for Year 1.
E. 65.1% for Year 2 and 64.6% for Year 1.
117. Use the following selected information from Farris, LLC to determine the Year 2 and
Year 1 common size percents for operating expenses using Year 1 net sales as the base.
Year 2 Year 1
Net sales $276,200 $231,400
Cost of goods sold 151,900 129,590
Operating expenses 55,240 53,240
Net earnings 27,820 19,820
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A. 36.4% for Year 2 and 41.1% for Year 1.
B. 55.0% for Year 2 and 56.0% for Year 1.
C. 119.4% for Year 2 and 100.0% for Year 1.
D. 103.8% for Year 2 and 100.0% for Year 1.
E. 20.0% for Year 2 and 23.0% for Year 1.
118. Use the following selected information from Farris, LLC to determine the Year 2 and
Year 1 trend percents for net sales using Year 1 as the base.
Year 2 Year 1
Net sales $276,200 $231,400
Cost of goods sold 151,900 129,590
Operating expenses 55,240 53,240
Net earnings 27,820 19,820
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A. 36.4% for Year 2 and 41.1% for Year 1.
B. 55.0% for Year 2 and 56.0% for Year 1.
C. 119.4% for Year 2 and 100.0% for Year 1.
D. 117.2% for Year 2 and 100.0% for Year 1.
E. 65.1% for Year 2 and 64.6% for Year 1.
119. Use the following selected information from Farris, LLC to determine the Year 2 and
Year 1 trend percents for cost of goods sold using Year 1 as the base.
Year 2 Year 1
Net sales $276,200 $231,400
Cost of goods sold 151,900 129,590
Operating expenses 55,240 53,240
Net earnings 27,820 19,820