58) To understand the components of a company’s profitability, an analyst may compute the ratio
of each major expense classification to total sales. This type of analysis is known as:
A) Cost analysis.
B) Horizontal analysis.
C) Comparative analysis.
D) Vertical analysis.
59) Which of the following would be an amount computed using horizontal analysis?
A) The ratio of cost of goods sold to total sales for the current year.
B) The percentage change in the cash balance from last year to this year.
C) The difference between current assets and current liabilities at the end of the year.
D) The ratio of inventory to total assets at the end of the year.
60) Liquidity refers to:
A) The amount of cash on hand at a given time.
B) The readiness of an asset to be converted to cash.
C) The period until cash is used and refinancing becomes necessary.
D) Financial leverage.
61) Lack of long-term solvency refers to:
A) Risk of nonpayment of long-term liabilities.
B) The length of time before long-term debt becomes due.
C) The ability to refinance long-term debt when it becomes due.
D) Long-term assets.
62) The current ratio is calculated as:
A) Current assets divided by long-term assets.
B) Current assets divided by total assets.
C) Current assets divided by current liabilities.
D) Current assets divided by total liabilities.
63) The acid-test ratio is also known as the:
A) Current ratio.
B) Debt to equity ratio.
C) Times interest earned ratio.
D) Quick ratio.
64) The quick ratio is:
A) The liquidity ratio divided by the equity ratio.
B) Current assets minus inventory divided by current liabilities minus accounts payable.
C) Current assets minus inventory and prepaid items divided by current liabilities.
D) Cash divided by accounts payable.
65) Working capital is equal to:
A) Current assets.
B) Current liabilities.
C) Current assets plus current liabilities.
D) Current assets minus current liabilities.
66) Which of the following is not used when analyzing long-term solvency?
A) Times interest earned ratio.
B) Debt to equity ratio.
C) Acid-test ratio.
D) Total liabilities.
67) When a company pays its bill from a plumber for previous services on account:
A) Its debt to equity ratio always decreases.
B) Its acid-test ratio always remains unchanged.
C) Its current ratio always remains unchanged.
D) Its working capital decreases.
68) When a company accrues salaries at the end of the accounting period:
A) Its acid-test ratio increases.
B) Its current ratio increases.
C) Its debt to equity ratio decreases.
D) Its debt to equity ratio increases.
69) Assume a company’s liquidity ratios all are less than 1.0 before it purchases inventory on
credit. When it makes the purchase:
A) Its current ratio decreases.
B) Its quick ratio decreases.
C) Its current ratio remains unchanged.
D) Its quick ratio remains unchanged.
70) When a company sells land for cash and recognizes a $25,000 gain:
A) Its acid-test ratio decreases.
B) Its current ratio decreases.
C) Its debt to equity ratio decreases.
D) Cannot determine from the given information.
71) The following partial balance sheet ($ in thousands) for Paisano Seafood Inc. is shown
below.
Assets
Liabilities and Equity
Current assets:
Current liabilities:
Cash
$
60
Accounts payable
$
240
Accounts receivable (net)
170
Other liabilities
80
Notes receivable
50
Total current liabilities
320
Inventories
200
Long-term liabilities
110
Prepaid expenses
25
Total liabilities
430
Total current assets
505
Shareholders’ equity:
Plant assets (net)
255
Capital stock
150
Retained earnings
180
Total shareholders’ equity
330
Total assets
$
760
Total liabilities and equity
$
760
The current ratio is (Round your answer to two decimal places.):
A) 1.98.
B) 1.58.
C) 1.17.
D) 0.66.
72) The following partial balance sheet ($ in thousands) for Paisano Seafood Inc. is shown
below.
Assets
Liabilities and Equity
Current assets:
Current liabilities:
Cash
$
60
Accounts payable
$
240
Accounts receivable (net)
170
Other liabilities
80
Notes receivable
50
Total current liabilities
320
Inventories
200
Long-term liabilities
110
Prepaid expenses
25
Total liabilities
430
Total current assets
505
Shareholders’ equity:
Plant assets (net)
255
Capital stock
150
Retained earnings
180
Total shareholders’ equity
330
Total assets
$
760
Total liabilities and equity
$
760
Working capital is:
A) $505 thousand.
B) $265 thousand.
C) $185 thousand.
D) $75 thousand.
73) The following partial balance sheet ($ in thousands) for Paisano Seafood Inc. is shown
below.
Assets
Liabilities and Equity
Current assets:
Current liabilities:
Cash
$
60
Accounts payable
$
240
Accounts receivable (net)
170
Other liabilities
80
Notes receivable
50
Total current liabilities
320
Inventories
200
Long-term liabilities
110
Prepaid expenses
25
Total liabilities
430
Total current assets
505
Shareholders’ equity:
Plant assets (net)
255
Capital stock
150
Retained earnings
180
Total shareholders’ equity
330
Total assets
$
760
Total liabilities and equity
$
760
Quick assets total:
A) $60 thousand.
B) $230 thousand.
C) $280 thousand.
D) $305 thousand.
74) The following partial balance sheet ($ in thousands) for Paisano Seafood Inc. is shown
below.
Assets
Liabilities and Equity
Current assets:
Current liabilities:
Cash
$
60
Accounts payable
$
240
Accounts receivable (net)
170
Other liabilities
80
Notes receivable
50
Total current liabilities
320
Inventories
200
Long-term liabilities
110
Prepaid expenses
25
Total liabilities
430
Total current assets
505
Shareholders’ equity:
Plant assets (net)
255
Capital stock
150
Retained earnings
180
Total shareholders’ equity
330
Total assets
$
760
Total liabilities and equity
$
760
The acid-test ratio is (Round your answer to two decimal places.):
A) 0.25.
B) 0.88.
C) 1.17.
D) 1.58.
75) Recent financial statement data for Harmony Health Foods (HHF) Inc. is shown below.
Current liabilities
$
180
Income before interest and taxes
$
125
10% Bonds, long-term
360
Interest expense
36
Total liabilities
540
Income before tax
89
Shareholders’ equity
Income tax
27
Capital stock
200
Net income
$
62
Retained earnings
280
Total shareholders’ equity
480
Total liabilities and equity
$
1,020
HHF’s debt to equity ratio is (Round your answer to two decimal places.):
A) 0.75.
B) 1.13.
C) 0.53.
D) 1.80.
76) Recent financial statement data for Harmony Health Foods (HHF) Inc. is shown below.
Current liabilities
$
180
Income before interest and taxes
$
125
10% Bonds, long-term
360
Interest expense
36
Total liabilities
540
Income before tax
89
Shareholders’ equity
Income tax
27
Capital stock
200
Net income
$
62
Retained earnings
280
Total shareholders’ equity
480
Total liabilities and equity
$
1,020
HHF’s times interest earned ratio is (Round your answer to two decimal places.):
A) 3.47.
B) 1.73.
C) 2.47.
D) 10.0.
77) Recent financial statement data for Harmony Health Foods (HHF) Inc. is shown below.
Current liabilities
$
180
Income before interest and taxes
$
125
10% Bonds, long-term
360
Interest expense
36
Total liabilities
540
Income before tax
89
Shareholders’ equity
Income tax
27
Capital stock
200
Net income
$
62
Retained earnings
280
Total shareholders’ equity
480
Total liabilities and equity
$
1,020
HHF’s long-term debt to equity ratio equity is:
A) 133.3%.
B) 75%.
C) 180%.
D) 0%.
78) Using borrowed funds to generate additional profits for shareholders is referred to as:
A) Liquidity management.
B) Operational expansion.
C) Capital budgeting.
D) Financial leverage.
79) A company that borrows funds at 6% and then generates a return on those funds of 9%
typically has:
A) Greater default risk.
B) Favorable financial leverage.
C) Higher return on equity.
D) All of the other answers are true.
80) Which of the following features is typical of a balance sheet prepared under IFRS?
A) A shareholders’ equity section often is not included.
B) Assets often are listed after liabilities.
C) Long-term items often are listed before current items.
D) Assets sometimes do not equal liabilities plus shareholders’ equity.
81) For a balance sheet prepared under IFRS, long-term liabilities typically are listed:
A) Just before the current assets section.
B) In the shareholders’ equity section.
C) In the long-term asset section.
D) Just before the current liabilities section.
82) Which of the following is not a required segment reporting disclosure according to U.S.
GAAP?
A) Segment profit or loss.
B) Segment assets.
C) Segment liabilities.
D) General information about the operating segment.
83) Which of the following is not a required segment reporting disclosure according to
International Financial Reporting Standards (IFRS)?
A) Segment profit or loss.
B) Segment assets.
C) Segment liabilities.
D) All are required disclosures.
84) Which of the following is not a characteristic that defines a reportable operating segment
according to U.S. GAAP?
A) Operating results are regularly reviewed by the enterprise‘s chief operating officer.
B) Discrete financial information is available.
C) Engages in business activities from which it may recognize revenues and incur expenses.
D) Represents more than 20% of total company revenues, assets, or net income.
Listed below are five terms followed by a list of phrases that describe or characterize each of the
terms. Match each phrase with the correct term.
A) Independent and professional report about the fairness of the financial statements.
B) Given by an auditor when there are substantial reporting errors and a qualified opinion is not
appropriate.
C) Given by an auditor when information is to insufficient to express an opinion.
D) Given by an auditor when there is a limitation of audit procedures or a departure from GAAP.
E) Given by an auditor when financial statements are presented fairly in conformity with GAAP.
85) Unqualified opinion
86) Disclaimer
87) Auditors’ report
88) Qualified opinion
89) Adverse opinion
Listed below are five terms followed by a list of phrases that describe or characterize each of the
terms. Match each phrase with the correct term.
A) Also know as the quick ratio.
B) Current assets divided by current liabilities.
C) Refers to riskiness of a company with regard to the amount of liabilities in its capital
structure.
D) Relates to the amount of time before an asset is converted to cash or a liability is paid.
E) If four to one, 80% of assets are debt-financed.
90) Current ratio
91) Acid-test ratio
92) Long-term solvency
93) Liquidity
94) Debt to equity ratio
Listed below are five terms followed by a list of phrases that describe or characterize each of the
terms. Match each phrase with the correct term.
A) Obligations payable in more than one year or longer than the operating cycle.
B) Includes buildings and land used in operations.
C) Obligations payable within one year or the operating cycle.
D) Ownership of an exclusive right.
E) Items expected to be converted to cash or consumed within one year or the operating cycle.
95) Long-term liabilities
96) Current liabilities
97) Intangible asset
98) Current assets
99) Property, plant, and equipment
Listed below are five terms followed by a list of phrases that describe or characterize each of the
terms. Match each phrase with the correct term.
A) Goods to be sold in the ordinary course of business
B) Insurance premiums paid in advance.
C) Due from customers in the ordinary course of business
D) Formal agreement that specifies customer’s payment terms.
E) Liquid investments not classified as cash equivalents.
100) Notes receivable
101) Short-term investments
102) Inventories
103) Accounts receivable
104) Prepaid expenses
Listed below are five terms followed by a list of phrases that describe or characterize each of the
terms. Match each phrase with the correct term.
A) Management’s views on its operations, liquidity, and capital resources.
B) Independent and professional opinion about the fairness of the financial statements.
C) Occurs after the fiscal year-end, but before the statements are issued.
D) Information about the company’s choices from among various alternative accounting methods.
E) Includes disclosures of executive compensation.
105) Subsequent events
106) Proxy statement
107) MD&A
108) Auditors’ report
109) Summary of significant accounting policies
Listed below are five terms followed by a list of phrases that describe or characterize each of the
terms. Match each phrase with the correct term.
A) Cash received from a customer for goods or services to be provided in a future period.
B) Accumulated net income less dividends since the inception of the corporation.
C) Converting cash to inventory to receivables to cash.
D) Cash paid in advance for a cost of the company.
E) Amounts invested by shareholders in the corporation.
110) Paid-in capital
111) Prepaid expense
112) Deferred revenue
113) Operating cycle
114) Retained earnings
Listed below are ten terms followed by a list of phrases that describe or characterize each of the
terms. Match each phrase with the correct term.
A) Asset recorded when an expense is paid for in advance.
B) Goods to be sold in the ordinary course of business.
C) Transactions with owners, managers, and affiliated companies.
D) An intangible asset.
E) Management’s views on significant events.
F) Net income less dividends since inception of the corporation.
G) Amounts due from customers.
H) Material events that occur after the end of the fiscal year and before the statements are issued.
I) Obligations to suppliers of merchandise or of services purchased on account.
J) Cash received from a customer in advance of providing a good or service.
115) Related-party transactions
116) Deferred revenues
117) Accounts receivable
118) Inventories