Deck 13: How to Read, Analyze, and Interpret Financial Reports

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

Retained earnings is the same as cash.

Answer 3

False

Question 4

Cash is a liability.

Question 5

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

Question 6

Land does not depreciate.

Question 7

Vertical analysis cannot be done on a comparative statement.

Question 8

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

Question 9

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

Question 10

Assets represent things of value owed by the business.

Question 11

Cash is recorded on the income statement.

Question 12

Horizontal analysis need not be done using comparative reports.

Question 13

Income statements are prepared only once a year.

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

Net income is equal to gross profit minus operating expenses.

Question 20

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

Question 21

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 22

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

Question 23

The acid test ratio does not include:

A) Cash
B) Accounts receivable
C) Supplies
D) 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

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

Question 26

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

Question 27

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 28

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

Question 29

Which of the following is not a current asset?

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

Question 30

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

Question 31

The asset turnover is gross sales divided by total assets.

Question 32

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 33

In using horizontal analysis, comparative reports are:

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

Question 34

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

Question 35

A relationship of one number to another is a ratio.

Question 36

In horizontal analysis the old year is the base.

Question 37

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

Question 38

A ratio of 2:2:1 means:

A) There are six parts
B) 2/4, 2/4, 1/4
C) 2/5, 2/5, 1/5
D) 2/4, 2/5, 1/4
E) None of these

Question 39

From 2013 to 2014, accounts receivable increased from $4,000 to $4,800. The percent increase is:

A) 120%
B) 16 2/3%
C) 20%
D) 55%
E) None of these

Question 40

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 41

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 42

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 43

As the accountant of Roe Hairdresser, you have been asked to prepare an income statement from the following data for the month ended June 2014:

Question 44

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 45

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 46

From the following, prepare a balance sheet for Roe Co. as of December 31, 2015.

Question 47

Mel King has asked you to prepare a classified balance sheet for Pad Co. as of December 31, 2014. Ending merchandise inventory was $1,800:

Question 48

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 49

In analyzing the income statement of Bob Company, cost of goods sold decreased from 2013 to 2014 by 8.2%. The cost of goods sold was $19,000 in 2014. The cost of goods sold to nearest dollar in 2013 was:

A) $20,697.17
B) $20,679.71
C) $20,769.71
D) $20,796.71
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

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 52

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 53

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