Question 1

Benchmarking is a type of cross-sectional analysis in which a firm's ratios are compared to a key competitor firm within the same industry,primarily to identify areas for improvement.

Accepted Answer

This statement accurately describes the definition of benchmarking.

Question 2

On December 31,2018,Bradshaw Corporation had $485,000 as an ending balance for its retained earnings account.During 2019,the corporation declared a $3.50/share dividend to its stockholders.The company has 35,000 shares of common stock outstanding.When the books were closed for 2019 year end,the corporation had a final retained earnings balance of $565,000.What was the net profit earned by Bradshaw Corporation during 2019?

Accepted Answer

The answer of On December 31,2018,Bradshaw Corporation had $485,000 as...

Question 3

Ag Silver Mining,Inc.has $500,000 of earnings before interest and taxes at the year end.Interest expenses for the year were $10,000.The firm expects to distribute $100,000 in dividends.Calculate the earnings after taxes for the firm assuming a 21 percent tax on ordinary income.

Accepted Answer

The answer of Ag Silver Mining,Inc.has $500,000 of earnings before...

Question 4

The use of differing accounting treatments-especially relative to inventory and depreciation-can distort the results of ratio analysis,regardless of whether cross-sectional or time-series analysis is used.

Accepted Answer

Different accounting treatments can result in differences in the values of inventory and depreciation, which can affect the accuracy of ratio analysis. This applies to both cross-sectional and time-series analysis. Therefore, the statement is true.

Question 5

Sunshine Corporation had a retained earnings balance of $850,000 at the beginning of 2019.By the end of 2019,the company's retained earnings balance stood at $950,000.During 2019,the company earned $245,000 as net profits after paying its taxes.The company was then able to pay its preferred stockholders a sum of $45,000.Compute the common stock dividend per share in 2019 assuming 10,000 shares of common stock outstanding.

Accepted Answer

The answer of Sunshine Corporation had a retained earnings balance...

Question 6

In ratio analysis,the financial statements being used for comparison should be dated at the same point in time during the year.If not,the effect of seasonality may produce erroneous conclusions and decisions.

Accepted Answer

Ratios can be affected by seasonality, so to ensure accurate comparisons between financial statements, they should be dated at the same point in time during the year.

Question 7

Ratios merely direct an analyst to potential areas of concern and it does not provide conclusive evidence as to the existence of a problem.

Accepted Answer

Ratios are tools used in financial analysis to help identify potential areas of concern, but they do not provide conclusive evidence of a problem. Other factors, such as industry trends and company-specific circumstances, must also be taken into consideration before drawing any conclusions about a company's financial health.

Question 8

FASB Standard No.52 mandates that U.S.-based companies must translate their foreign-currency-denominated assets and liabilities into dollars using the ________.

Accepted Answer

FASB Standard No.52 mandates that U.S.-based companies must translate their foreign-currency-denominated assets and liabilities into dollars using the current exchange rate at the balance sheet date.

Question 9

Time-series analysis is the evaluation of a firm's financial performance in comparison to other firm(s)at the same point in time.

Accepted Answer

Time-series analysis is the evaluation of a firm's financial performance over a period of time, rather than in comparison to other firms at the same point in time.

Question 10

Cross-sectional analysis involves the comparison of different firms' financial ratios at the same point in time.

Accepted Answer

Cross-sectional analysis compares financial ratios of different firms at the same time, allowing for benchmarking and identifying relative strengths and weaknesses between companies.

Question 11

At the end of 2019,Long Life Light Bulb Corporation announced a gross profit of $1 million.The company has also established that over the course of this year that it has incurred $345,000 in operating expenses and $125,000 in interest expenses.The company is subject to a 21% tax rate and has declared $57,000 of total preferred stock dividends.
(a)Calculate the earnings available for common stockholders?
(b)Compute the increased retained earnings for 2019 if the company were to declare a $4.25 common stock dividend.The company has 15,000 shares of common stock outstanding.

Accepted Answer

The answer of At the end of 2019,Long Life Light...

Question 12

A single key ratio of a firm provides all the information required to judge the overall performance of the firm.

Accepted Answer

A single key ratio cannot provide all the information required to judge the overall performance of a firm because there are various factors that influence a firm's performance and multiple ratios should be analyzed to get a comprehensive picture.

Question 13

Time-series analysis evaluates the performance of various firms at the same point in time using financial ratios.

Accepted Answer

Time-series analysis evaluates the performance of a single firm over different periods of time, rather than evaluating multiple firms at the same point in time.

Question 14

Both current and prospective shareholders are interested in the firm's current and future level of risk and return,which directly affect share price.

Accepted Answer

Share price is determined by the perceived level of risk and potential return of the company. Current and prospective shareholders are interested in these factors in order to assess the value of their investment and the potential for future growth or decline in share price.

Question 15

Reliable Auto Parts has 5,000 shares of common stock outstanding.The company also has the following amounts in revenue and expense accounts.  Calculate
(a)gross profits.
(b)operating profits.
(c)net profits before taxes.
(d)net profits after taxes (assume a 21 percent tax rate).
(e)earnings available to common stockholders.
(f)earnings per share.

Accepted Answer

The answer of Reliable Auto Parts has 5,000 shares of...

Question 16

Due to inflationary effects,inventory costs and depreciation write-offs can differ from their replacement values,thereby distorting profits.

Accepted Answer

Inflation can increase the cost of inventory and decrease the value of assets, which can lead to inaccurate reporting of profits if the company uses historical costs to measure inventory and assets. This distortion can occur because the cost of replacing inventory or assets may be different from their original cost or recorded value.

Question 17

Creditors are primarily interested in short-term liquidity of the company and its ability to make interest and principal payments.

Accepted Answer

Creditors lend money to a company and therefore are primarily interested in the company's ability to pay back the loan with interest and principal. This means they are focused on the company's short-term liquidity, or ability to meet current financial obligations.

Question 18

Colonial Furniture's net profits before taxes for 2019 totaled $354,000.The company's total retained earnings were $338,000 for 2018 year-end and $389,000 for 2019 year-end.Colonial is subject to a 21 percent tax rate.What was the cash dividend declared by Colonial Furniture in 2019?

Accepted Answer

The answer of Colonial Furniture's net profits before taxes for...

Question 19

The basic inputs to an effective financial analysis are the firm's income statement and the balance sheet.

Accepted Answer

The income statement and the balance sheet are two of the most important financial statements used in financial analysis. The income statement provides information on a company's revenue, expenses, and net income or loss over a period of time, while the balance sheet provides information on a company's assets, liabilities, and equity at a specific point in time. Both of these statements are essential for a thorough financial analysis of a company's performance and financial health.

Question 20

The use of the unaudited financial statements for ratio analysis is preferable because it reflects the firm's true financial condition.

Accepted Answer

The unaudited financial statements may contain errors or omissions and do not undergo the same level of scrutiny as audited financial statements, therefore, they may not accurately reflect the firm's true financial condition. Audited financial statements provide a more reliable basis for ratio analysis.

Quiz 3: Financial Statements and Ratio Analysis