Deck 22: Analyzing Financial Statements

Question 1

Net sales were $115,000 in Year 1 and $65,000 in Year 2. The percentage increase or decrease in net sales was: (Round your answer to two decimal places, X.XX%.)

A) (56.52%).
B) 56.52%.
C) (43.48%).
D) 43.48%.

Answer 1

C

Question 2

Amounts of items compared on the same line of comparative financial reports describes:

A) vertical analysis.
B) ratio analysis.
C) horizontal analysis.
D) size analysis.

Answer 2

C

Question 3

The sales of Mary's Services for Years 1, 2, and 3 are $25,000, $52,000, $64,000 respectively. The trend percentage for Year 2 is:

A) 39.06%.
B) 256.00%.
C) 208.00%.
D) 60.16%.

Answer 3

B

Question 4

To find the percent of increase or decrease of an item in a comparative balance sheet you use the formula: % change = amount of change/base (old year).

Question 5

In a comparative balance sheet, the ending Accounts Receivable for 2019 was $189,000 and is $301,000 for 2020. The net increase or decrease from 2019 to 2020 is: (Round your answer to two decimal places, X.XX%.)

A) (59.26%).
B) 59.26%.
C) 37.21%.
D) (37.21%).

Question 6

The Cost of Goods Sold for Years 1, 2, and 3 are $23,000, $48,000, $69,000, respectively. The trend percentage for Year 3 is:

A) (300%).
B) 300%.
C) 208.70%.
D) (208.70%).

Question 7

Which analysis compares line items on an income statement with those from the prior year?

A) Horizontal analysis
B) Vertical analysis
C) Statement analysis
D) None of the above are true.

Question 8

Net income was $65,000 in Year 1 and $50,000 in Year 2. The percentage increase or decrease in net income was:

A) 30.00%.
B) 76.92%.
C) -23.08%.
D) -30.00%.

Question 9

In a comparative balance sheet, the ending Cash for 2019 was $345,000 and is $333,000 for 2020. The net increase or decrease from 2019 to 2020 is: (Round the final answer to two decimal places.)

A) 96.52%.
B) 3.48%.
C) 3.60%.
D) -3.48%.

Question 10

Which analysis deals with comparing items in a financial report by expressing each item as a percentage of a certain base total?

A) Vertical analysis
B) Ratio analysis
C) Trend analysis
D) Common-size statement

Question 11

If Cash is $2,100 in 20X2 and $4,000 in 20X1, what is the percent of increase or (decrease) from 20X1 to 20X2?

A) -90%
B) 90%
C) 48%
D) -47%

Question 12

From the following balance sheet for Bricks Corporation, compute the common-size balance sheet amounts. (Round all percentages to nearest tenth of a percent.)

Question 13

When doing a vertical analysis, which of the following is a typical comparison item set at 100%?

A) Total liabilities
B) Total stockholders' equity
C) Total cash
D) Total assets

Question 14

What was the percentage of decrease in the Accounts Receivable account if the receivables were $87,000 in Year 1, and $67,000 in Year 2? (Round your answer two decimal places, X.XX%.)

A) -22.99%
B) 29.85%
C) -29.85%
D) 22.99%

Question 15

In a comparative balance sheet, the Accounts Payable balance for 2019 was $189,330 and total liabilities and equity was $459,265. What is the vertical analysis for Accounts Payable? (Round your answer to two decimal places, X.XX%.)

A) 41.22%
B) (41.22%)
C) 58.78%
D) (58.78%)

Question 16

In a common-size income statement, advertising expenses are 10%. This means that they are 10% of:

A) net income.
B) net sales.
C) gross profit.
D) net profit.

Question 17

For vertical analysis purposes, the base item on an income statement is:

A) net income.
B) net sales.
C) total expenses.
D) total sales.

Question 18

Complete the horizontal analysis of Soopy's Used Cars. (Round all percentages to the nearest tenth of a percent.)

Question 19

Comparative reports in which each item is expressed as a percentage of a base amount without dollar amounts are called:

A) comparative financial statements.
B) common-size statements.
C) cash flow analysis.
D) horizontal analysis.

Question 20

If total assets are $14,000, what is the vertical analysis for Cash when it has a balance of $8,000? (Round your answer two decimal places, X.XX%.)

A) 42.86%
B) 57.14%
C) 233.33%
D) 27.27%

Question 21

Define two types of comparative income statements and compare the information provided by them.

Question 22

A form of analysis in which each item on a report is shown as a percent of net sales is called a horizontal analysis of the income statement.

Question 23

Complete the following horizontal analysis comparative income statements of Webster Corporation. Round to one decimal place.

Question 24

The ratios that measures a company's mix of debt and equity financing are known as:

A) Liquidity Ratios.
B) Debt Management Ratios.
C) Profitability Ratios.
D) None of the above

Question 25

If Rick's sales increased from $49,000 to $81,000 and its cost of goods sold increased from $25,000 to $66,000, then vertical analysis based on sales would show the following for cost of goods sold for the two periods:

A) 81.48% and 51.02%.
B) 51.02% and 81.48%.
C) 122.73% and 196.00%.
D) 196.00% and 122.73%.

Question 26

Meranda Flower Corporation needs to develop a trend analysis for its sales and gross profit for the past three years to make decisions for the future. Compute the trend percentages with the information below and place your answers in the spaces provided.

Question 27

If Cara's Piano sales increased from $46,000 to $68,000 and its cost of goods sold decreased from $29,000 to $16,000, then vertical analysis based on sales would show the following for cost of goods sold (rounded to the nearest percent):

A) 63% and 24%.
B) 43% and 35%.
C) 55% and 68%.
D) 68% and 43%.

Question 28

An expression of the amount of each item in a statement shown as a percentage of some designated total for purposes of comparison is called:

A) horizontal analysis.
B) earnings per share analysis.
C) return on total assets.
D) vertical analysis.

Question 29

The current ratio for a company with current assets of $129,000, current liabilities of $51,000, total assets of $152,000, and net sales of $84,000, would be: (Round your answers two decimal places, X.XX%.)

A) 2.98.
B) 0.40.
C) 2.53.
D) 0.34.

Question 30

Common-size statements deal with the percentage of change in a certain item over several years.

Question 31

The current ratio is:

A) quick assets divided by current liabilities.
B) assets divided by liabilities.
C) current assets divided by current liabilities.
D) net sales divided by current liabilities.

Question 32

From the following, complete the common-size income statement for Isaiah's Sporting Goods using net sales as the base. (Round to nearest tenth of a percent.)

Question 33

The current ratio determines the ability of a company to:

A) pay off all payables.
B) pay off current payables.
C) manage its ability to earn profit.
D) use its equity.

Question 34

The ratios that measure a company's ability to earn profits are known as.

A) Liquidity Ratios.
B) Debt Management Ratios.
C) Profitability Ratios.
D) None of the above

Question 35

A vertical analysis of an income statement compares net income (loss) to net sales within the same year.

Question 36

Net income was $24,000 in Year 1 and $40,000 in Year 2. The percentage increase or decrease in net income was:

A) (66.67%).
B) (33.33%).
C) 33.33%.
D) 66.67%.

Question 37

The ratios that measure a company's ability to pay off short-term debt are known as:

A) Liquidity Ratios.
B) Debt Management Ratios.
C) Profitability Ratios.
D) None of the above

Question 38

A trend analysis is a type of horizontal analysis.

Question 39

A horizontal analysis for an income statement compares Cost of Goods Sold within the same year.

Question 40

An accountant is completing a trend analysis for a company by comparing sales for years 2013 through 2023. The base year for the calculations is 2023.

Question 41

If management wishes to measure how effectively the assets were used in generating a profit, they could use the:

A) rate of return on total assets.
B) rate of return on common stockholders' equity.
C) return on sales.
D) times interest earned.

Question 42

If management wishes to evaluate the ability of a business to use sales to cover the operating expenses, they could use the:

A) rate of return on total assets.
B) rate of return on common stockholders' equity.
C) gross profit rate.
D) times interest earned.

Question 43

The inventory turnover ratio calculates:

A) how many times the inventory turns over in one period.
B) number of times inventory is purchased in one period.
C) the dollar amount of change in inventory in one period.
D) None of these answers are correct.

Question 44

If beginning and ending inventories are $12,000 and $29,000, respectively, and cost of goods sold is $480,000, what is the inventory turnover ratio? (Round your answer two decimal places.)

A) 23.41
B) 11.71
C) 40.00
D) 16.55

Question 45

An acid test (quick) ratio of 0.75 to 1 would indicate:

A) a ratio that would not allow a company to pay off all current liabilities with quick assets.
B) for every $0.75 of short-term debt there is $1.00 of quick assets to meet short-term obligations.
C) for every $1 of current assets there is $0.75 of short-term debt.
D) Both A and B are correct.

Question 46

Alliance Plus has total liabilities of $181,000, current liabilities $46,000, and stockholders' equity $310,000. What is the debt to total stockholders' equity ratio? (Round your answer to two decimal places, X.XX%.)

A) 171.27%
B) 25.41%
C) 14.84%
D) 58.39%

Question 47

John's Market's total assets are $310,000, current assets $126,000, total liabilities $162,000, and current liabilities $51,000. What is the debt to total assets ratio? (Round your answer to the nearest percentage.)

A) 40.65%
B) 77.78%
C) 52.26%
D) 37.50%

Question 48

Orange Designers has net income before taxes of $4,480,000, total assets of $3,500,000, and net sales of $5,530,000. What is the return on net sales? (Round your answer to two decimal places, X.XX%.)

A) 23.44%
B) 81.01%
C) 63.29%
D) None of the above are correct.

Question 49

If the average collection period is 35 days, this means:

A) from the date of purchase to the date of payment is 35 days.
B) from the date of sale to the date of receipt of payment is 35 days.
C) from the date of discount to the date of receipt of payment is 35 days.
D) None of these answers are correct.

Question 50

The ratio that indicates how many days it takes to turn accounts receivable into cash is the:

A) accounts receivable turnover ratio.
B) average turnover ratio.
C) average collection period.
D) quick assets turnover ratio.

Question 51

May Cooperative has total assets of $456,000, current assets $133,000, total liabilities $263,000, and current liabilities 87,000. What is the debt to total assets ratio?

A) 24.33%
B) 19.08%
C) 197%
D) 57.68%

Question 52

May Cooperative has total liabilities of $263,000, current liabilities 87,000, and stockholders' equity $347,000. What is the debt to total stockholders' equity ratio?

A) 33.08%
B) 75.79%
C) 25.07%
D) 24.21%

Question 53

Profitability ratios:

A) measure a company's ability to earn a profit.
B) measure a company's ability to pay off short-term debts.
C) measure a company's mix of debt and equity financing.
D) All of the above are correct.

Question 54

With a beginning Accounts Receivable balance of $60,000, an ending balance of $66,000, and net credit sales of $520,000, compute accounts receivable turnover ratio. (Round your answer two decimal places.)

A) 0.12
B) 8.25
C) 8.67
D) 7.88

Question 55

Elegant Operators has net sales in the amount of $622,000, a cash amount of $333,000, and accounts receivables of $50,000. What is the asset turnover ratio?

A) 12.44 times
B) 1.87 times
C) 1.62 times
D) 0.08 times

Question 56

If management wishes to evaluate how effectively the assets of a business are being used, they could use the:

A) asset turnover ratio.
B) rate of return on common stockholders' equity.
C) acid test ratio.
D) debt to total stockholders' equity ratio.

Question 57

If management wishes to evaluate the amount of assets which were financed by creditors, they could use the:

A) debt to total assets.
B) rate of return on common stockholders' equity.
C) debt to total liabilities.
D) times interest earned.

Question 58

Accounts Receivable Turnover is an example of what type of ratio?

A) Liquidity
B) Asset Management
C) Debt Management
D) Profitability

Question 59

If management wishes to know how long it takes to collect from a charge customer, they could use the:

A) rate of return on total assets.
B) average collection period.
C) acid test ratio.
D) current ratio.

Question 60

A company has $54,000 in cash, $22,000 in accounts receivable, $33,000 in temporary investments and $134,000 in merchandise inventory. The company has $56,000 in current liabilities. The company's acid test (quick) ratio is: (Round your answer two decimal places, X.XX%.)

A) 1.36.
B) 0.51.
C) 4.34.
D) 1.95.

Question 61

The ratio that indicates the amount of assets that are financed by creditors is:

A) debt to stockholders' equity.
B) debt to total retained earnings ratio.
C) debts to total assets ratio.
D) None of the above

Question 62

The ratio that indicates how much profit is generated from each sales dollar to cover general and selling expenses is:

A) gross profit rate.
B) return on sales.
C) rate of return on total assets.
D) rate of return on common stockholders' equity.

Question 63

Ballard Inc. has net income before taxes of $3,280,000, total assets of $4,500,000, and net sales of $6,450,000. What is the return on sales?

A) 50.85%
B) 72.89%
C) 69.76%
D) None of the above are correct.

Question 64

Compute the gross profit rate when sales are $600,000; net sales are $460,000 and gross profits are $120,000. (Round your answer to the nearest whole percent.)

A) 26%
B) 20%
C) 0.26 to 1
D) 0.20 to 1

Question 65

Which of the following ratios helps evaluate how well a company is earning profit for the common stockholders?

A) Times interest earned ratio
B) Return on sales ratio
C) Return on total assets
D) Rate of return on common stockholders' equity

Question 66

Relationship of two quantities or numbers, one divided by the other describes:

A) summation.
B) trend percentage.
C) ratio.
D) common-size statement.

Question 67

Net sales for Aaron Company are $679,000 and total assets are $422,000. What is the asset turnover ratio?

A) 1.50 times
B) 1.61 times
C) 0.62 times
D) 2.32 times

Question 68

Saxon Corporation's beginning inventory was $15,000. The cost of goods sold was $410,000 for the year, with an ending inventory of $23,000. Inventory turnover for the year is: (Round your answer two decimal places.)

A) 21.58 times.
B) 10.79 times.
C) 13.67 times.
D) 8.91 times.

Question 69

Debt to total assets is an example of what type of ratio?

A) Liquidity
B) Asset Management
C) Debt Management
D) Profitability

Question 70

The risk of creditors in relation to the risk taken by stockholders is measured by:

A) debt to stockholders' equity ratio.
B) gross profit ratio.
C) rate of return to stockholders.
D) None of these answers are correct.

Question 71

Noble Company's accounts receivable turnover was 24.6 in Year 1 and 18.2 in Year 2. This change in accounts receivable turnover indicates:

A) the company is not selling its inventory as fast.
B) the company is selling its inventory faster.
C) the company's customers are paying faster.
D) the company's customers are paying slower.

Question 72

Ballard Screens has net sales in the amount of $470,000, a cash amount of $246,000, and accounts receivables of $47,000. What is the asset turnover ratio? (Round your answer to two decimal places.)

A) 1.60 times
B) 2.44 times
C) 1.91 times
D) 10.00 times

Question 73

The current ratio and quick ratio are example of this type of ratio.

A) Liquidity
B) Asset Management
C) Debt Management
D) Profitability

Question 74

Interest expense was $20,000, income tax expense $26,000, and net income after taxes is $44,000. The number of times interest was earned is: (Round your answer two decimal places.)

A) 2.20 times.
B) 1.69 times.
C) 4.50 times.
D) 3.50 times.

Question 75

Maynard Co. has income before taxes of $568,700 and an interest expense of $76,000. What is the times interest earned ratio? (Round your answer to two decimal places.)

A) 4.24 times
B) 8.48 times
C) 7.48 times
D) 6.48 times

Question 76

Which of the following ratios measures the earnings of a company on each sales dollar?

A) Return on assets
B) Return on sales
C) Return on inventory
D) Return on stockholders' equity

Question 77

Asset management ratios measure:

A) a company's ability to earn a profit.
B) a company's ability to meet short-term obligations.
C) how well a company is using debt versus equity.
D) how effectively a company is using its assets.

Question 78

The gross profit rate is an example of this type of ratio.

A) Liquidity
B) Asset Management
C) Debt Management
D) Profitability

Question 79

Accounts receivable on January 1 was $38,000 and, at the end of the year it was $53,000. Net credit sales were $168,000. Accounts receivable turnover is: (Round your answer two decimal places.)

A) 1.85 times.
B) 3.69 times.
C) 4.42 times.
D) 11.20 times.

Question 80

The lower the times interest earned ratio, the more likely:

A) a default in payment will occur.
B) a business can pay off their loan.
C) a business will produce a gain.
D) interest payments can be made.