Question 1

In using horizontal analysis, comparative reports are:
A)Always used
B)Never used
C)Infrequently used
D)Often used
E)None of these

Accepted Answer

The answer of In using horizontal analysis, comparative reports are:
A)Always...

Question 2

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

Accepted Answer

Vertical analysis is the technique of analyzing financial statements by expressing each item in a financial statement as a percentage of the same base, which is generally the total asset for the balance sheet and net sales for the income statement. It helps in comparing and evaluating the relative changes in different assets over the years.

Question 3

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

Accepted Answer

The answer of Selecting a base year and expressing each...

Question 4

The balance sheet lists:
A)Assets, liabilities, expenses
B)Assets, liabilities, equity
C)Assets, revenues, expenses
D)Assets, revenues, equity
E)None of these

Accepted Answer

The balance sheet lists assets, liabilities, and equity. Expenses and revenues are listed on the income statement. Therefore, option B is the correct answer. Options A, C, and D include at least one incorrect element listed on the balance sheet. Option E states that none of them are correct, which is incorrect as option B is correct.

Question 5

Which of the following is not a current asset?
A)Cash
B)Building
C)Prepaid expense
D)Accounts receivable
E)None of these

Accepted Answer

A building is a long-term asset and therefore classified as a non-current asset. The other options are all current assets.

Question 6

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

Accepted Answer

If the collection ratio is improved or accelerated, it would result in quicker collection of outstanding debts and hence lead to faster working capital turnover.

Question 7

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

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities, not multiplying them. The formula for current ratio is: Current Ratio = Current Assets / Current Liabilities.

Question 8

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

Accepted Answer

The answer of In the acid test ratio, inventory and...

Question 9

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

Accepted Answer

Net sales are calculated by deducting sales returns and allowances, sales discounts, and revenue from the gross sales. Purchases are not used in the calculation of net sales, as it refers to the inventory acquired by the business rather than the revenue generated from selling products or services.

Question 10

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

Accepted Answer

The answer of The asset turnover of Ryan Company is...

Question 11

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

Accepted Answer

The ratio 4:5:2 represents parts of a whole, which add up to 11 (4+5+2). Each part is a fraction of the total: 4/11, 5/11, and 2/11.

Question 12

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

Accepted Answer

The cost of merchandise sold is calculated by adding net purchases to the beginning inventory and then subtracting the ending inventory.

Question 13

The asset turnover is gross sales divided by total assets.

Accepted Answer

Asset turnover is calculated as net sales divided by average total assets, not gross sales divided by total assets.

Question 14

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

Accepted Answer

The return on equity (ROE) ratio measures a company's profitability by revealing how much profit a company generates with the money shareholders have invested, not how effectively assets are being utilized.

Question 15

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

Accepted Answer

The percent increase is calculated as ((4800 - 4000) / 4000) * 100 = 20%.

Question 16

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

Accepted Answer

The answer of Lee Company has a current ratio of...

Question 17

The acid test ratio does not include:
A)Cash
B)Accounts receivable
C)Supplies
D)Inventory
E)None of these

Accepted Answer

The acid test ratio (also known as the quick ratio) is used to measure a company's ability to pay its short-term liabilities using its most liquid assets. It does not include inventory, as this asset may take time to sell and convert to cash. The formula for the acid test ratio is (cash and cash equivalents + accounts receivable + short-term investments) / current liabilities. Supplies may be included in the calculation if they are considered highly liquid and easily converted to cash.

Question 18

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

Accepted Answer

The ratio 2:2:1 means there are 5 parts in total (2+2+1=5), so each part is 2/5, 2/5, and 1/5 respectively.

Question 19

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

Accepted Answer

Total Debt = Total Debt to Total Assets * Total Assets
Total Debt = 0.71 * $270,000
Total Debt = $191,700

Question 20

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

Accepted Answer

Debt management ratios assess a company's ability to manage its debt and financial obligations, not its assets. Asset management ratios, such as asset turnover and inventory turnover, show how effectively a company is utilizing its assets to generate revenue.

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

In using horizontal analysis, comparative reports are:

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

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

The balance sheet lists:

Which of the following is not a current asset?

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

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

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

Which one is not used to calculate net sales?

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

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

Cost of merchandise sold equals beginning inventory:

The asset turnover is gross sales divided by total assets.

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

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

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) :

The acid test ratio does not include:

A ratio of 2:2:1 means:

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:

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