Deck 17: Financial Statement Analysis

Question 1

Which of the following best describes horizontal analysis?

A)comparing figures from year to year for the same company
B)expressing each figure as a percentage of a budgeted figure
C)comparing a company's financial statements with other companies
D)calculating key ratios to evaluate performance

Answer 1

A

Question 2

A summary of significant accounting policies and explanations of specific items on the financial statements will be given in:

A)the balance sheet.
B)the income statement.
C)notes to financial statements.
D)the report of independent registered public accounting firm.

Answer 2

C

Question 3

An unqualified opinion in an audit report states that the financial statements are presented fairly, in all material respects.

Answer 3

True

Question 4

The following is summary of information presented on the financial statements of a company on December 31, 2015. What would a horizontal analysis report show with respect to current liabilities?

A)current liabilities are 38.46% of total capital
B)a 50.00% increase in current liabilities
C)a current ratio of .87
D)a 33.33% increase in current liabilities

Question 5

If an analyst wants to see how assets of a company have changed from one year to the next, horizontal analysis must be used.

Question 6

An external auditor is responsible for assessing the effectiveness of a company's internal controls.

Question 7

Which of the following types of financial statement analysis would be used to see how sales revenue of a company has changed from one year to the next?

A)vertical analysis of balance sheet
B)horizontal analysis of income statement
C)horizontal analysis of balance sheet
D)vertical analysis of income statement

Question 8

The audit report attests to the fairness of the presentation of the financial statements.

Question 9

Management's discussion and analysis section of the annual report is the company's attempt to explain its financial statements and to discuss its performance.

Question 10

Trend analysis is a form of horizontal analysis.

Question 11

An adverse opinion is issued if the auditor finds that the financial statements are not presented fairly.

Question 12

An annual report provides information about a company's financial condition.

Question 13

The audit report is prepared by an internal auditor of a company.

Question 14

The study of percentage changes in comparative financial statements is called horizontal analysis.

Question 15

Horizontal analysis compares each item in the income statement to the net sales amount.

Question 16

Which of the following best describes trend analysis?

A)calculating key ratios to evaluate performance
B)expressing each figure as a percentage of a budgeted figure
C)comparing a company's financial statements with that of other companies
D)expressing each year's figures as a percentage of the base year figures

Question 17

The following is summary of information presented on the financial statements of a company on December 31, 2015. What would a horizontal analysis report show with respect to net income?

A)both net income before income tax expense and net income are 45.45% of net sales revenue
B)a $25,000 increase in net income
C)a 45.45% increase in net income
D)a 103% increase in net income

Question 18

If an analyst wants to see how gross profit of a company has changed from one year to the next, vertical analysis would be used.

Question 19

The income statement is also known as the:

A)statement of operations.
B)statement of cash flows.
C)statement of stockholders' equity.
D)statement of financial position.

Question 20

A quarterly report filed with the Securities and Exchange Commission is called a Form 10-K.

Question 21

Atlantis Inc. reported the following data: The horizontal report shows that the amount of total liabilities has:

A)increased by $22,700.
B)increased by $2,500.
C)decreased by $2,500.
D)increased by $24,000.

Question 22

Vertical analysis involves comparing each figure in the financial statements with a corresponding figure of the previous year.

Question 23

Data for Atlantis Inc. is given below: Prepare a horizontal analysis of the comparative balance sheet of Atlantis Inc. Round percentage changes to one decimal place.

Question 24

The following is summary of information presented on the financial statements of a company on December 31, 2015. What would a horizontal analysis report show with respect to long-term liabilities?

A)long-term liabilities decreased by $30,000
B)long-term liabilities decreased by 40%
C)long-term liabilities decreased by 13.33%
D)long-term liabilities decreased by $10,000

Question 25

The trend analysis report of Doppler Inc. is given below: Which of the following is a correct conclusion from the above analysis?

A)Net income for the year 2015 has increased by 115% over that for the year 2013.
B)Net income for the year 2015 has decreased by 15% over that for the year 2013.
C)Net income for the year 2015 has decreased by 115% over that for the year 2013
D)Net income for the year 2015 has increased by 15% over that for the year 2013.

Question 26

Data for Nobell Inc. follow: Prepare a horizontal analysis of the comparative income statement of Nobell Inc. Round percentage changes to one decimal place. Please use a multiple step income statement.

Question 27

Benchmarking is often done by comparing a company against either a key competitor or against the industry average.

Question 28

An analysis of a financial statement that reveals the relationship of each statement item to its base amount, which is the 100% figure, is known as vertical analysis.

Question 29

The following is summary of information presented on the financial statements of a company on December 31, 2015. What would a horizontal analysis report show with respect to net sales revenue?

A)a 20% increase in net sales revenue
B)a 120% decrease in net sales revenue
C)a decrease of $ 50,000 in net sales revenue
D)an increase of $50,000 in net sales revenue

Question 30

Data for Nobell Inc. is as follows: Prepare a horizontal analysis of the comparative balance sheet of Nobell Inc. Round percentage changes to one decimal place.

Question 31

Atlantis Inc. provides the following historical data: Prepare the trend analysis report Use 2011 as the base year, and round answers to the nearest percent.

Question 32

The trend analysis report of Doppler Inc. is given below: Which of the following is a correct conclusion from the above analysis?

A)Net income for the year 2016 is 151% of that for the year 2013.
B)Net income for the year 2016 is 151% of previous year.
C)Net income for the year 2016 decreased by 151% from 2015.
D)Net income for the year 2017 increased by 163% from 2016.

Question 33

Benchmarking is the comparison of a company's current year results with an earlier year's performance.

Question 34

In a vertical analysis of the income statement, each line item is shown as a percentage of net sales.

Question 35

In a vertical analysis of the balance sheet, each line item is shown as a percentage of shareholders' equity.

Question 36

Benchmarking is the practice of comparing a company with other leading companies.

Question 37

Donald Corp. reported the following on its comparative income statement: Prepare a horizontal analysis of revenues and cost of goods sold, both in dollar amounts and in percentages, for 2016 and 2017. Round your percentage answers to two decimal places.

Question 38

Atlantis Inc. reported the following data: The horizontal analysis report shows that the cost of goods sold has:

A)increased by 29.2%.
B)decreased by 29.2%.
C)increased by 53.2%.
D)decreased by 53.2%

Question 39

Data for Atlantis Inc. follow: Prepare a horizontal analysis of the comparative income statement of Atlantis Inc. Round percentage changes to one decimal place. Use a multiple step format for the income statement.

Question 40

Donald Corp. reported the following revenues and net income amounts. Calculate Donald's trend analysis for revenues and cost of goods sold. Use 2013 as the base year, and round to the nearest percent.

Question 41

A high current ratio indicates that current liabilities are more than current assets.

Question 42

Prepare the vertical analysis report of the balance sheet data given below: Round off the percentages to two decimal places

Question 43

Prepare a vertical analysis report of the income statement shown below. Round off the percentages to two decimal places.

Question 44

The vertical analysis statement of Nobell Inc. is as below: The figure 16.5% shown for net income in 2015 signifies that:

A)net income is 16.5% of net sales revenues.
B)net income is increased by 16.5% over the previous year.
C)net income is 16.5% of gross profit.
D)net income is equal to 16.5 times of the income before income tax.

Question 45

Working capital measures the ability to meet long-term obligations with current assets.

Question 46

Atlantis Inc. has the following data: Perform a vertical analysis of Atlantis's balance sheet for each year. Round your percentage answers to one decimal place.

Question 47

Acid-test ratio helps to measure a company's ability to pay all its current liabilities if they came due immediately.

Question 48

Which of the following is the base amount when performing vertical analysis of an income statement?

A)total expenses
B)net sales
C)sales revenue
D)gross profit

Question 49

A common-size statement reports only percentages that appear in a:

A)horizontal analysis report.
B)financial statement.
C)vertical analysis report.
D)ratio analysis report.

Question 50

The vertical analysis statement of Nobell Inc. is as below: The figure 47.0% shown for gross profit in 2016 signifies that:

A)gross profit is equal to 47.0% of net income.
B)gross profit is increased by 47.0% over the previous year.
C)gross profit is 47.0% of net sales revenue.
D)gross profit is 47.0% of cost of goods sold.

Question 51

Prepare a comparative common-size income statement for Nobell Inc. using the 2015 and 2014 data. Round off the percentages to one decimal place.

Question 52

To calculate the acid-test ratio, merchandise inventory and prepaid expenses are ignored.

Question 53

Olivera Inc. provides the following data for the year 2015: On vertical analysis report, gross profit as a percentage of net sales will be:

A)35.9%
B)41.67%
C)56.1%
D)44.1%

Question 54

The cash ratio helps to determine a company's ability to meet its short-term obligations using cash and cash equivalents.

Question 55

Data for Martin Corp and Tortoize Inc. as follows: Prepare a comparative common-size income statement for Martin Corp and Tortoize Inc. for the year ending December 31, 2016. Round off the percentages to two decimal places. Use a multiple step format for the income statement.

Question 56

Which of the following is the base amount when performing vertical analysis of a balance sheet?

A)total assets
B)total cash and cash equivalents
C)net income
D)gross profit

Question 57

The current ratio is calculated as the total current assets divided by the total current liabilities.

Question 58

The merchandise inventory turnover ratio measures how profitably a company sells its average level of merchandise inventory during a year.

Question 59

Shelcal Inc. provides the following data for the year 2015: On vertical analysis report, cost of goods sold as a percentage of net sales will amount to:

A)59.42%
B)61.15%
C)63.48%
D)64.07%

Question 60

Which of the following types of financial statement analysis would be used to see how a company's operating expenses as a percentage of net sales have changed from one year to the next?

A)vertical analysis
B)horizontal analysis
C)ratio analysis
D)analysis of internal control system

Question 61

The ratio of the market price of a share of stock to the dividends paid per share is called the earnings per share.

Question 62

The times-interest-earned ratio is also known as interest-coverage ratio.

Question 63

Which of the following items is a measure of a company's ability to collect receivables?

A)inventory turnover ratio
B)current ratio
C)day's sales in receivables
D)account receivable balance

Question 64

The current ratio is a key indicator of a company's ability to pay current liabilities.

Question 65

As per FASB guidelines, earnings per share should appear on the face of the income statement.

Question 66

The debt to equity ratio shows the proportion of total liabilities relative to total equity.

Question 67

The net income of a company for the year ended was $500,000. The company has no preferred stock. Common stockholders' equity was $1,000,000 at the beginning of the year and $2,000,000 at the end of the year. Calculate the return on common stockholders' equity.

A)18.75%
B)20.00%
C)21.43%
D)33.33%

Question 68

The gross profit percentage is an indicator of how well a company is positioned to pay off its short-term liabilities.

Question 69

Rate of return on common stockholders' equity shows how much income is earned for each $1 invested by the common shareholders.

Question 70

The dividend payout ratio indicates the amount of the dividend as a proportion of a share's market price.

Question 71

Rate of return on assets measures how efficiently the assets are used to earn a profit.

Question 72

The price/earnings ratio indicates the:

A)dividend yield of the company.
B)market price of $1 of earnings.
C)proportion of total assets financed by debt.
D)ease of selling merchandise inventory.

Question 73

The price/earnings ratio shows the market price of $1 of earnings.

Question 74

The asset turnover rate is a way to evaluate how well a company can pay its short-term liabilities.

Question 75

Days' sales in inventory is a ratio measure that shows how quickly a company can collect its receivables.

Question 76

The debt ratio is the ratio of total debt divided by total equity.

Question 77

Days' sales in receivables measures the return on average receivables using credit sales.

Question 78

A corporation has 2,000 shares, 10% preferred stock of $50 par, and 6,000 shares of common stock outstanding. The net income for the year is $250,000. Calculate earnings per share.

A)$50
B)$40
C)$42
D)$125

Question 79

The times-interest-earned ratio measures the number of times that operating income can pay interest expense.

Question 80

The accounts receivable turnover is an indicator of the ability of a company to collect cash from its credit customers.