Deck 16: How to Read, Analyze, and Interpret Financial Reports

Question 1

The income statement shows the financial condition of a business over a period of time.

Answer 1

False

Question 2

Assets represent things of value owed by the business.

Answer 2

False

Question 3

Vertical analysis cannot be done on a comparative statement.

Answer 3

False

Question 4

Reductions in the selling price for early payment are called sales returns and allowances.

Question 5

The computer is the only tool needed in monitoring a business's financial condition.

Question 6

Horizontal analysis need not be done using comparative reports.

Question 7

Cash is a liability.

Question 8

Vertical analysis need not be done only on comparative reports since calculations were within each period of time.

Question 9

A balance sheet shows the financial condition of a business at a particular date.

Question 10

Horizontal analysis can analyze balance sheets for two or more periods.

Question 11

Net income is equal to gross profit minus operating expenses.

Question 12

A comparative statement contains data for less than two successive accounting periods.

Question 13

Cash is recorded on the income statement.

Question 14

Cost of merchandise sold is equal to beginning inventory minus net purchases minus ending inventory.

Question 15

Land does not depreciate.

Question 16

Income statements are prepared only once a year.

Question 17

Net purchases are the cost of purchases minus purchase discounts minus purchase returns and allowances.

Question 18

Assets that last longer than one year are called plant and equipment.

Question 19

Retained earnings are the same as cash.

Question 20

Assets, liabilities, capital, and revenues are listed on the balance sheet.

Question 21

A current ratio is calculated by current assets times current liabilities.

Question 22

The return on equity ratio looks at how effectively assets are being utilized.

Question 23

Cost of merchandise sold equals beginning inventory:

A) Plus net purchases plus ending inventory
B) Plus net purchases minus ending inventory
C) Minus net purchases minus ending inventory
D) Minus net purchases plus ending inventory
E) None of these

Question 24

Selecting a base year and expressing each amount as a percent of the base year amount is called:

A) Trend analysis
B) Horizontal analysis
C) Vertical analysis
D) Ratio analysis
E) None of these

Question 25

The asset turnover is gross sales divided by total assets.

Question 26

In the acid test ratio, inventory and prepaid expenses are not excluded.

Question 27

From 2016 to 2017, accounts receivable increased from $4,000 to $4,800. The percent increase is:

A) 120%
B) 162/3%
C) 20%
D) 55%
E) None of these

Question 28

Debt management ratios show a company how well its assets are managed.

Question 29

"Could we speed up our collections?" could be one question raised about the average day's collection ratio.

Question 30

A relationship of one number to another is a ratio.

Question 31

The balance sheet lists:

A) Assets, liabilities, expenses
B) Assets, liabilities, equity
C) Assets, revenues, expenses
D) Assets, revenues, equity
E) None of these

Question 32

In horizontal analysis the oldest year is the base.

Question 33

Trend analysis expresses each number as a percent of the base year.

Question 34

When each asset is analyzed as a percent of total assets for a single period, this is known as:

A) Horizontal analysis
B) Comparative analysis
C) Ratio analysis
D) Vertical analysis
E) None of these

Question 35

Which one is not used to calculate net sales?

A) Purchases
B) Sales discount
C) Sales returns and allowance
D) Gross sales
E) None of these

Question 36

A return on equity of 17% implies which of the following?

A) For every 17 cents invested, a return of $1.00 results
B) For every $1.00 invested, a return of 17 cents results
C) For every $1.17 invested, a return of 17 cents results
D) For every $10.00 invested, a return of $1.17 results
E) None of the above

Question 37

A ratio of 4:5:2 mean that out of 11 parts it is divided up as 4/11, 5/11, 2/11.

Question 38

Which of the following is not a current asset?

A) Cash
B) Building
C) Prepaid expense
D) Accounts receivable
E) None of these

Question 39

The acid test ratio does not include:

A) Cash
B) Accounts receivable
C) Supplies
D) Inventory
E) None of these

Question 40

In using horizontal analysis, comparative reports are:

A) Always used
B) Never used
C) Infrequently used
D) Often used
E) None of these

Question 41

Complete:

A. $42,000;
B. 23.81%;
C. 16.67%;
D. 9.52%;
E. 50.00%

Question 42

In analyzing the income statement of Bob Company, cost of goods sold decreased from 2016 to 2017 by 8.2%. The cost of goods sold was $19,000 in 2016. The cost of goods sold to the nearest cent in 2017 was:

A) $20,697.17
B) $20,679.71
C) $20,769.71
D) $20,796.71
E) None of these

Question 43

Solve for (A) current ratio, (B) acid test (quick), (C) average day's collection, (D) asset turnover, and (E) profit margin on sales. Round to nearest hundredth or hundredth percent as needed.

A. 1.41;
B. 1.18;
C. 35 days;
D. 1.33;
E. 15.91%

Question 44

Bill's Pizza has an asset turnover of 3.5. The total assets of Bill's were $95,000. The net sales of Bill's Pizza is:

A) $27,142.85
B) $332,500.00
C) $271,428.50
D) $33,250.00
E) None of these

Question 45

Given gross sales of $40,000 and sales returns and allowances of $6,000, what are the net sales?

A) $50,000
B) $46,000
C) $34,500
D) $34,000
E) None of these

Question 46

Lee Company has a current ratio of 2.65. The acid test ratio is 2.01. The current liabilities of Lee are $45,000. The dollar amount of merchandise inventory is (assume no prepaid expenses):

A) $28,008
B) $28,800
C) $90,450
D) $90,540
E) None of these

Question 47

Complete the horizontal analysis below:

A) ($3,809), 4.1%
B) $3,809, 4.1%
C) $180,485, 51.1%
D) $8,300, 15%
E) None of these

Question 48

The asset turnover of Ryan Company is 7.2. The total assets of Ryan are $88,000. Ryan's net sales were:

A) $6,336
B) $63,360
C) $633,000
D) $633,600
E) None of these

Question 49

Complete the current ratio for the following: Total current assets = $12,000; current liabilities = $10,000

A) 1.5
B) 1.7
C) .7
D) 1.2
E) None of these

Question 50

Jay Corporation has earned $175,900 after tax. The accountant calculated the return on equity as 12.5%. Jay Corporation's stockholders' equity to the nearest dollar is:

A) $140,720
B) $14,720
C) $1,407,200
D) $140,720,000
E) None of these

Question 51

Complete the trend analysis for sales for year 3 (Round to nearest tenth percent):

A) 103.9%
B) 101.4%
C) 109.3%
D) 110.2%
E) None of these

Question 52

The total debt to total assets of Logan Company was .71. The total of Logan's assets was $270,000. The amount of total debt is:

A) $146,700
B) $191,700
C) $119,700
D) $461,700
E) None of these

Question 53

The asset turnover from the following is (round to nearest tenth):

A) 1.7
B) 1.5
C) 1.9
D) 1.6
E) None of these

Question 54

The company's gross profit based on the following is sales $48,000, sales returns and allowances $6,000, operating expenses $6,200, beginning inventory $900, net purchases $9,100, ending inventory $2,300.

A) $34,000
B) $43,000
C) $34,003
D) $34,300
E) None of these

Question 55

The cost of merchandise sold from the following data is as follows: sales $80,000, beginning inventory $5,000, purchases $21,800, purchase discounts $790, ending inventory $5,100.

A) $21,560
B) $20,190
C) $20,910
D) $21,650
E) None of these

Question 56

Complete:
A. _______________
B. _______________

Question 57

Complete

A. $6,000;
B. 50%

Question 58

Complete the following vertical analysis of a balance sheet: (Round to nearest tenth percent.)

A) 11.6%, 8.1%, 71.8%, 8.5%
B) 11.5%, 8.0%, 72%, 11.7%
C) 13%, 8.6%, 80%, 12.7%
D) 15%, 10.2%, 66.1%, 12.5%
E) None of these

Question 59

From the following, prepare a balance sheet for Roe Co. as of December 31, 2016.

Question 60

Given the following: By trend analysis (base year is 2010), sales in 2012 to the nearest percent of the base year is:

A) 117%
B) 116%
C) 118%
D) 119%
E) None of these

Question 61

Complete using trend analyses for sales. (Round to nearest percent and use 2010 as the base year.)

A. 32%;
B. 123%;
C. 56%;
D. 100%

Question 62

As the accountant of Roe Hairdresser, you have been asked to prepare an income statement from the following data for the month ended June 2012:

Question 63

Complete the following average day's collection:
Account receivables = $66,000; net sales = $360,000 (assume 360 days)

Question 64

Mel King has asked you to prepare a classified balance sheet for Pad Co. as of December 31, 2012. Ending merchandise inventory was $1,800:

Question 65

Solve for (A) current ratio, (B) acid test (quick), (C) average day's collection (360), (D) asset turnover, and (E) profit margin on sales. Round to nearest hundredth or hundredth percent as needed.

A. 1.31;
B. 1.09;
C. 37 days;
D. 1.28;
E. 14.63%

Question 66

Complete the following ratios:
Current assets = $13,000 Inventory = $4,400 Current liabilities = $10,000 Net income = $7,700
Net sales = $24,400
A. Profit margin on sales (round to nearest tenth percent)
B. Acid test

Question 67

Alice Co. has a current ratio of 2.7. The acid test ratio is 2.2. The current liabilities of Alice Co. are $46,000. Could you calculate the dollar amount of merchandise inventory?

Question 68

Al Flynn has gathered the following information. Could you help Al calculate his gross profit?