Chapter 17: Financial Statement Analysis
62.
What type of analysis is indicated by the following?
Increase (Decrease)
Current Year
Preceding Year
Amount
Percent
Current assets
$ 430,000
$ 500,000
$ (70,000)
(14%)
Fixed assets
1,740,000
1,500,000
240,000
16%
a.
vertical analysis
b.
horizontal analysis
c.
liquidity analysis
d.
common-size analysis
63.
An analysis in which all the components of an income statement are expressed as a percentage of sales is a
a.
vertical analysis
b.
horizontal analysis
c.
liquidity analysis
d.
solvency analysis
64.
A balance sheet that displays only component percentages is a
a.
trend balance sheet
b.
comparative balance sheet
c.
condensed balance sheet
d.
common-sized balance sheet
Chapter 17: Financial Statement Analysis
65.
One reason that a common-sized statement is a useful tool in financial analysis is that it enables the user to
a.
judge the relative potential of two companies of similar size in different industries
b.
determine which companies in a single industry are of the same value
c.
determine which companies in a single industry are of the same size
d.
make a better comparison of two companies of different sizes in the same industry
66.
Assume the following sales data for a company:
Current year $325,000
Preceding year 250,000
What is the percentage increase in sales from the preceding year to the current year?
a. 70%
b. 76.9%
c. 30%
d. 50%
67.
On a common-sized balance sheet, 100% is
a.
total property, plant, and equipment
b.
total current assets
c.
total liabilities
d.
total assets
Chapter 17: Financial Statement Analysis
68.
In a common-sized income statement, 100% is the
a.
net cost of goods sold
b.
net income
c.
gross profit
d.
sales
69.
Horizontal analysis is a technique for evaluating financial statement data
a.
for one period of time
b.
over a period of time
c.
on a certain date
d.
as it may appear in the future
70.
Horizontal analysis of comparative financial statements includes
a.
development of common-sized statements
b.
calculation of liquidity ratios
c.
calculation of dollar amount changes and percentage changes from the previous to the current year
d.
evaluation of each component in a financial statement to a total within the statement
Chapter 17: Financial Statement Analysis
71.
In horizontal analysis, each item is expressed as a percentage of the
a.
base year figure
b.
retained earnings figure
c.
total assets figure
d.
net income figure
72.
Assume the following sales data for a company:
Current year $1,025,000
Preceding year 820,000
What is the percentage increase in sales from the preceding year to the current year?
a. 100%
b. 25%
c. 125%
d. 75%
Chapter 17: Financial Statement Analysis
73.
Income statement information for Sadie Company is below:
Sales
$175,000
Cost of goods sold
115,000
Gross profit
$ 60,000
Using vertical analysis of the income statement for Sadie Company, determine the gross profit margin.
a. 100%
b. 66%
c. 34%
d. 29%
74.
In a vertical analysis, the base for cost of goods sold is
a.
total selling expenses
b.
sales
c.
total expenses
d.
gross profit
Chapter 17: Financial Statement Analysis
75.
Percentage analyses, ratios, turnovers, and other measures of financial position and operating results are
a.
a substitute for sound judgment
b.
useful analytical measures
c.
enough information for analysis; industry information is not needed
d.
unnecessary for analysis, but reaction is better
76.
The relationship of $325,000 to $125,000, expressed as a ratio, is
a. 2.0
b. 2.6
c. 2.5
d. 0.45
77.
The ability of a business to pay its debts as they come due and to earn a reasonable net income is
a.
solvency and leverage
b.
solvency and profitability
c.
solvency and liquidity
d.
solvency and equity
Chapter 17: Financial Statement Analysis
Accounts payable
$ 40,000
Accounts receivable
65,000
Accrued liabilities
7,000
Cash
30,000
Intangible assets
40,000
Inventory
72,000
Long-term investments
110,000
Long-term liabilities
75,000
Marketable securities
36,000
Notes payable (short-term)
30,000
Property, plant, and equipment
625,000
Prepaid expenses
2,000
78.
Based on the above data, what is the amount of quick assets?
a. $205,000
b. $203,000
c. $131,000
d. $66,000
79.
Based on the above data, what is the amount of working capital?
a. $238,000
b. $128,000
c. $168,000
d. $203,000
Chapter 17: Financial Statement Analysis
80.
Based on the above data, what is the quick ratio, rounded to one decimal point?
a. 2.7
b. 2.6
c. 1.7
d. 0.9
81.
A company with working capital of $720,000 and a current ratio of 2.2 pays a $125,000 short-term liability.
The
amount of working capital immediately after payment is
a. $845,000
b. $595,000
c. $720,000
d. $125,000
82.
Which of the following measures a company’s ability to pay its current liabilities?
a.
earnings per share
b.
inventory turnover
c.
current ratio
d.
number of times interest charges earned
Chapter 17: Financial Statement Analysis
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
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
Chapter 17: Financial Statement Analysis
85.
Based on the following data, what is the accounts receivable turnover?
Sales on account during year
$700,000
Cost of merchandise sold during year
270,000
Accounts receivable, beginning of year
45,000
Accounts receivable, end of year
35,000
Inventory, beginning of year
90,000
Inventory, end of year
a. 17.5
110,000
b. 2.6
c. 20.0
d. 15.5
86.
An acceleration in the collection of receivables will tend to cause the accounts receivable turnover to
a.
decrease
b.
remain the same
c.
either increase or decrease
d.
increase
Chapter 17: Financial Statement Analysis
87.
Based on the following data for the current year, what is the number of days’ sales in accounts receivable?
Sales on account during year
$584,000
Cost of merchandise sold during year
300,000
Accounts receivable, beginning of year
45,000
Accounts receivable, end of year
35,000
Inventory, beginning of year
90,000
Inventory, end of year
110,000
a.
7.3
b.
2.5
c.
14.6
d.
25
88.
Based on the following data for the current year, what is the inventory turnover?
Sales on account during year
$700,000
Cost of merchandise sold during year
270,000
Accounts receivable, beginning of year
45,000
Accounts receivable, end of year
35,000
Inventory, beginning of year
90,000
Inventory, end of year
a. 2.7
110,000
b. 9.7
c. 2.5
d. 3.0
Chapter 17: Financial Statement Analysis
89.
Based on the following data for the current year, what is the number of days’ sales in inventory?
Sales on account during year
$1,204,500
Cost of merchandise sold during year
657,000
Accounts receivable, beginning of year
75,000
Accounts receivable, end of year
85,000
Inventory, beginning of year
85,600
Inventory, end of year
a. 51.2
98,600
b. 44.4
c. 6.5
d. 7.5
90.
Which of the following ratios provides a solvency measure that shows the margin of safety of bondholders and
also
gives an indication of the potential ability of the business to borrow additional funds on a long-term basis?
a.
ratio of fixed assets to long-term liabilities
b.
ratio of net sales to assets
c.
number of days’ sales in receivables
d.
rate earned on stockholders’ equity
Chapter 17: Financial Statement Analysis
91.
The number of times interest expense is 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
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 above, what is the number of times bond interest charges were earned (round to one
decimal point)?
a. 1.5
b. 6.4
c. 6.5
d. 5.5
Chapter 17: Financial Statement Analysis
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 of a bondholder
c.
calculated by dividing current liabilities by current assets
d.
calculated by subtracting current liabilities from current assets
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
95. Hsu Company reported the following on its income statement:
Income before income taxes
$420,000
Income tax expense
120,000
Net income
$300,000
Interest expense was $80,000. Hsu Company‘s times interest earned is
a.
8 times
b.
6.25 times
c.
5.25 times
d.
5 times
Chapter 17: Financial Statement Analysis
96.
Brock Company’s financial information is listed below. Assume that all balance sheet amounts represent
both
average and ending balance figures and that all sales were on credit.
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
Stockholders’ equity—Common
155,000
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. 0.78
c. 1.58
d. 0.67
Chapter 17: Financial Statement Analysis
Accounts payable
$ 30,000
Accounts receivable
35,000
Accrued liabilities
7,000
Cash
25,000
Intangible assets
40,000
Inventory
72,000
Long-term investments
100,000
Long-term liabilities
75,000
Marketable securities
36,000
Notes payable (short-term)
20,000
Property, plant, and equipment
400,000
Prepaid expenses
2,000
97.
Based on the above data, what is the amount of quick assets?
a. $168,000
b. $96,000
c. $60,000
d. $61,000
98.
Based on the above data, what is the amount of working capital?
a. $213,000
b. $113,000
c. $153,000
d. $39,000
Chapter 17: Financial Statement Analysis
99.
Based on the above data, what is the quick ratio, rounded to one decimal point?
a. 1.7
b. 2.9
c. 1.1
d. 1.0
100.
The tendency of the rate earned on stockholders’ equity to vary disproportionately from the rate earned on
total
assets is
a.
leverage
b.
solvency
c.
yield
d.
quick assets
The balance sheets at the end of each of the first two years of operations indicate the following:
Year 2
Year 1
Total current assets
$600,000
$560,000
Total investments
60,000
40,000
Total property, plant, and equipment
900,000
700,000
Total current liabilities
125,000
65,000
Total long-term liabilities
350,000
250,000
Preferred 9% stock, $100 par
100,000
100,000
Common stock, $10 par
600,000
600,000
Paid-in capital in excess of par—Common stock
75,000
75,000
Retained earnings
310,000
210,000
Chapter 17: Financial Statement Analysis
101.
If net income is $150,000 and interest expense is $20,000 for Year 2, what is the rate earned on total assets for
the
year?
a. 10.4%
b. 11.9%
c. 10.5%
d. 8.4%
102.
If net income is $150,000 and interest expense is $20,000 for Year 2, what is the rate earned on
stockholders’
equity for Year 2?
a. 6.9%
b. 14.5%
c. 16.4%
d. 13.8%
103.
If net income is $250,000 and interest expense is $30,000 for Year 2, what are the earnings per share on
common
stock for Year 2?
a. $4.16
b. $4.32
c. $4.02
d. $2.49
Chapter 17: Financial Statement Analysis
104.
If net income is $250,000 and interest expense is $20,000 for Year 2, and the market price of common shares is
$30, what is the price-earnings ratio on common stock for Year 2? (Round intermediate calculation to two
decimal
places and final answers to one decimal place.)
a. 7.5
b. 13.4
c. 12.1
d. 8.5
105.
The numerator of the rate earned on common stockholders’ equity ratio is
a.
net income
b.
net income minus preferred dividends
c.
income before income tax
d.
operating income minus interest expense
106.
The numerator of the rate earned on total assets ratio is
a.
net income
b.
net income plus tax expense
c.
net income plus interest expense
d.
net income minus preferred dividends
Chapter 17: Financial Statement Analysis
107.
The following information is available for Jase Company:
Market price per share of common stock $25.00
Earnings per share on common stock $1.25
Which of the following statements is correct?
a.
The price-earnings ratio is 20 and a share of common stock was selling for 20 times the amount of
earnings
per share at the end of the year.
b.
The price-earnings ratio is 5% and a share of common stock was selling for 5% more than the amount
of
earnings per share at the end of the year.
c.
The price-earnings ratio is 10 and a share of common stock was selling for 125 times the amount of
earnings
per share at the end of the year.
d.
The market price per share and the earnings per share are not statistically related to each other.
108.
The following information is available for Meyer Company:
Dividends per share of common stock $1.80
Market price per share of common stock $30.00
Which of the following statements is correct?
a.
The dividend yield is 6.0%, which is of interest to investors seeking an increase in market price of
their
stocks.
b.
The dividend yield is 6.0%, which is of special interest to investors seeking to earn revenue on
their
investments.
c.
The dividend yield is 16.7%, which is of interest to bondholders.
d.
The dividend yield is 16.7% which is an important measure of solvency.