Question

Q1.

The following is an example of:

		Year								Increase(Decrease)
		2018				2017				Amount				%
Cash		$	300,000			$	800,000			$	(500,000	)			(62.5	)
Accounts receivable			500,000				200,000				300,000				150.0
Inventory			800,000				700,000				100,000				14.3
Equipment			1,200,000				900,000				300,000				33.3
Total assets		$	2,800,000			$	2,600,000			$	200,000				7.7

Multiple Choice

• Ratio analysis.

• Vertical analysis.

• Horizontal analysis.

• Diagonal analysis.

Q2.

The times interest earned ratio is classified as an indicator of a company's:

Multiple Choice

• Liquidity.

• Profitability.

• Solvency.

• Long-term survival.

Q3.

A partial balance sheet for Captain D's Sportswear is shown below.

(dollars in thousands)

Assets:				Liabilities:
Cash	$	64		Accounts payable	$	249
Accounts receivable (net)		176		Other liabilities		84
Investments		57		Total current liabilities		333
Inventory		202		Long-term liabilities		114
Prepaid rent		28		Total liabilities		447
Total current assets		527		Stockholders' equity:
Property & Equipment, (net)		260		Common stock		158
				Retained earnings		182
				Total stockholders’ equity		340
Total assets	$	787		Total liabilities and equity	$	787

The current ratio is: (Round your answer to 2 decimal places.)

Multiple Choice

• 2.61.

• 1.18.

• 0.67.

• 1.58.

Q4.

Excerpts from Stealth Company's December 31, 2021 and 2020, financial statements are presented below:

		2021		2020
Accounts receivable	$	29,500	$	45,000
Inventory		28,000		39,000
Net sales (all credit)		199,000		199,000
Cost of goods sold		122,000		114,000
Total assets		428,000		419,000
Total stockholders' equity		248,000		230,000
Net income		36,500		39,000

  
Stealth Company's 2021 receivables turnover ratio is:

Multiple Choice

• 4.14 times.

• 5.34 times.

• 14.51 times.

• 6.75 times.

Q5.

Excerpts from TPX Company's December 31, 2021 and 2020, financial statements are presented below:

		2021			2020
Accounts receivable	$	87,000		$	78,000
Inventory		85,000			71,000
Net sales		460,000			382,000
Cost of goods sold		255,000			222,000
Total assets		820,000			755,000
Total stockholders' equity		485,000			435,000
Net income		76,000			59,000

TPX Company's 2021 return on equity is: (Round your answer to 1 decimal place.)

Multiple Choice

• 3.3%.

• 15.7%.

• 16.5%.

• 1.6%.

Q6.

Ronaldo Soccer Shop's income statement reports sales of $100,000; cost of goods sold of $46,000, operating expenses of $34,000, interest expense of $15,000, income tax expense of $2,000, and net income of $3,000. If you were to perform a vertical analysis of this income statement, you would divide each of these income statement line items by:

Multiple Choice

• $100,000

• $46,000

• $34,000

• $3,000

Q7.

To calculate a year-to-year percentage change in any financial statement line item such as sales, you should take the current year's amount, subtract the prior year's amount, then divide by ______, and finally multiply the result by 100.

Multiple Choice

• net income

• total assets

• the current year's amount

• the prior year's amount

Q8.

Richard's Sporting Goods reports net income of $100,000, net sales of $500,000, and average assets of $1,000,000. The profit margin is:

Multiple Choice

• 10%.

• 20%.

• 50%.

• 5 times.

Q9.

Below is information related to two companies:

	Company 1				Company 2
Return on assets		8.2	%			6.3	%
Debt to equity		67.2	%			53.4	%

Based on the ratios above, what is generally true about these two companies?

Multiple Choice

• Company 1 has lower profitability and higher risk.

• Company 1 has higher profitability and higher risk.

• Company 1 has lower profitability and lower risk.

• Company 1 has higher profitability and lower risk.

Q10.

Quality of earnings refers to:

Multiple Choice

• Positive net income.

• Ability of reported earnings to reflect the company’s true earnings.

• An increasing trend in profitability.

• All of the other answer choices are correct.

Answer 1

1. Horizontal Analysis

Ratio Analysis is an analysis of financial statement with the help of accounting ratios.

Vertical Analysis is an analysis in which amount of an individual items of Balance Sheet or Statement of Profit and Loss are converted into percentage to a common base. The common base for Balance Sheet is Total Assets or Total of Equity and Liablities and for Statement of Profit and Loss is Net Sales.

Diagonal Analysis does not exist for Accounting.