1) A decline in the acid-test ratio indicates a reduced ability to pay current liabilities
with funds from the sale of inventory.
2) To the extent that money does not remain stable, it loses its usefulness as the
standard for measuring financial transactions.
3) Real estate companies contend that conventional accounting, recognizing
depreciation but not the underlying value of the property, misleads investors.
4) Noncontrolling shareholders’ interest in earnings of subsidiaries are included in
earnings for the times interest earned coverage.
5) It is likely that particular attention should be paid to cash, accounts receivable, and
inventory when forecasting financial failure.
6) The accounting standard provides considerable flexibility in reporting
comprehensive income.
7) The conversion of long-term bonds into common stock is an example of a transaction
involving two financing activities with no cash flow effect.
8) The descriptive information in annual reports is not useful in statement analysis; only
the financial statements themselves are of value.
9) Advertising expense would be an administrative expense.
10) For insurance companies, unrealized gains and losses, not recognized on the income
statement, will be recorded in the account accumulated other comprehensive income.
11) Statutory accounting has emphasized the balance sheet in its concern for protecting
the policyholders by focusing on the financial solvency of the insurance corporation.
12) Cash flow per share is a better indication of a firm’s ability to make capital
expenditure decisions and pay dividends than is earnings per share.
13) When market value is below book value, this relationship indicates that the
investors view the company as having strong future potential.
14) Visually, a pie graph can mislead because of an illusion.
15) The point of cash receipt for revenue and cash disbursement for expenses is
important under the accrual basis when determining income.
16) There is a major effort to explain financial results by the disclosure of financial
ratios in annual reports.