Question 1

Analyses that provide information about an entity's relative position within an industry are known as:
A) company standards.
B) industry boundaries.
C) industry averages.
D) comparative advantages.

Accepted Answer

Industry averages provide information about an entity's position within an industry.

Question 2

Comparisons with other entities that provide insight into an entity's competitive position are:
A) intra-industry analyses.
B) competitor data.
C) industry averages.
D) inter-entity comparisons.

Accepted Answer

Inter-entity comparisons provide insight into an entity's competitive position.

Question 3

Liquidity ratios are used to assess:
A) short-term ability of an entity to pay maturing obligations.
B) long-term solvency.
C) short-term sales levels.
D) ability of an entity to survive over a long term.

Accepted Answer

Liquidity ratios are used to assess the short-term ability of an entity to pay its obligations as they mature.

Question 4

The current ratio is calculated by dividing:
A) current liabilities by current assets.
B) current creditors by current accounts receivable.
C) current assets by current liabilities.
D) cash by inventory.

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities.

Question 5

Radiance Limited has cash of $35,000, marketable securities totaling $15,000, net receivables amounting to $20,000, and current liabilities of $55,000. The quick ratio for this company is:
A) 1.000.
B) 0.780.
C) 1.273.
D) 1.875.

Accepted Answer

($35,000 + 15,000 + 20,000)/55,000 = 1.273 or 1.273:1.

Question 6

Return on ordinary shareholders' equity is driven by:
A) gross profit rate.
B) profit margin and free cash flow.
C) times interest earned.
D) return on assets and leverage.

Accepted Answer

Return on ordinary shareholders' equity is driven by return on assets and leverage.

Question 7

Examples of estimates normally found in financial statements include all of the following except:
A) cash.
B) provision for warranties.
C) depreciation expense.
D) allowance for doubtful debts.

Accepted Answer

The cash figure found in financial statements is an actual figure, not an estimate.

Question 8

Traditional financial statements are normally based on:
A) market values.
B) net present values.
C) cost.
D) exit prices.

Accepted Answer

Traditional financial statements are normally based on cost and are not adjusted for price level changes.

Question 9

In a traditional set of financial statements, the values of items found in a statement of financial position will be:
A) lower than their current market value.
B) higher than their current market value.
C) the same as their current market value.
D) stated at a premium to their market value.

Accepted Answer

In a traditional set of financial statements the values of items found in a statement of financial position will usually be lower than their current market value.

Question 10

Comparative information taken from the Rugby Ltd's financial statements is shown below:
  Required: Using horizontal analysis, show the percentage change from 2019 to 2020 with 2019 as the base year.

Accepted Answer

The answer of Comparative information taken from the Rugby Ltd's...

Question 11

Button Ltd reported profit of $4,000,000 in 2019. Using 2019 as the base year, profit decreased by 70% in 2020 and increased by 180% in 2021.
Compute the profit reported by Button Ltd for 2020 and 2021.

Accepted Answer

The answer of Button Ltd reported profit of $4,000,000 in...

Question 12

The following items were taken from the financial statements of James Limited, over a three-year period:
  Required: Using horizontal analysis and 2019 as the base year, compute the trend percentages for net sales, cost of sales and gross profit. Explain whether the trends are favourable or unfavourable for each item.

Accepted Answer

The answer of The following items were taken from the...

Question 13

The following items were taken from the financial statements of Greenley Ltd over a three-year period:
  Required: Compute the following for each of the above time periods.
a. The amount and percentage change from 2019 to 2020.
b. The amount and percentage change from 2020 to 2021.

Accepted Answer

The answer of The following items were taken from the...

Question 14

The comparative statement of financial position of Grange Wine Ltd appears below:
  Instructions:
(a) Using horizontal analysis, show the percentage change for each statement of financial position item using 2019 as a base year.
(b) Using vertical analysis, prepare a common-size comparative statement of financial position.

Accepted Answer

The answer of The comparative statement of financial position of...

Question 15

The following information was taken from the financial statements of Genesis Ltd:
  Required:
(a) Compute the net sales for each year.
(b) Compute the cost of sales in dollars and as a percentage of net sales for each year.
(c) Compute operating expenses in dollars and as a percentage of net sales for each year. (Income taxes are not operating expenses).

Accepted Answer

The answer of The following information was taken from the...

Question 16

Selected information from the comparative financial statements of Dryman Ltd for the year ended 31 December appears below:
  Required: Answer the following questions relating to the year ended 31 December 2020. Show computations.
1. Inventory turnover for 2020 is __________.
2. The number of times interest earned ratio in 2020 is __________.
3. The debt to total assets ratio for 2020 is __________.
4. Receivables turnover for 2020 is __________.
5. Return on assets for 2020 is __________.
6. The cash return on sales ratio for 2020 is __________.
7. Current cash debt coverage for 2020 is __________.

Accepted Answer

The answer of Selected information from the comparative financial statements...

Question 17

The financial statements of Bloggs Ltd appear below:
  Additional information:
a. Cash dividends of $57,000 were declared and paid in 2020.
b. Weighted-average number of shares of ordinary shares outstanding during 2020 was 60,000 shares.
c. Market value of ordinary shares on 31 December 2020 was $18 per share.
d. Net cash provided by operating activities for 2020 was $63,000.
Required:Using the financial statements and additional information, compute the following ratios for the Boggs Ltd for 2020. Show all computations.

Accepted Answer

The answer of The financial statements of Bloggs Ltd appear...

Question 18

The following ratios have been computed for the Bently Bicycle Company for 2020
  The 2020 financial statements for James Ltd with missing information follows:
  Required: Use the above ratios and information from The Bently Bicycle Company financial statements to fill in the missing information on the financial statements. Follow the sequence indicated. Show computations that support your answers.

Accepted Answer

The answer of The following ratios have been computed for...

Question 19

Selected data for Marcy's Apparel appear below.
  Compute the following for 2020:
(a) Gross profit percentage
(b) Inventory turnover
(c) Receivables turnover

Accepted Answer

The answer of Selected data for Marcy's Apparel appear below.
...

Question 20

Willow Ltd has issued ordinary shares only. The company has been successful and has a gross profit rate of 20%. The information shown below was taken from the company's financial statements.
  Compute the following:
(a) Receivables turnover and the average number of days required to collect the accounts receivable.
(b) The inventory turnover and the average days in inventory.
(c) Return on ordinary shareholders' equity.

Accepted Answer

The answer of Willow Ltd has issued ordinary shares only....

Quiz 12: Financial Statement Analysis and Decision Making

Analyses that provide information about an entity's relative position within an industry are known as:

Comparisons with other entities that provide insight into an entity's competitive position are:

Liquidity ratios are used to assess:

The current ratio is calculated by dividing:

Radiance Limited has cash of $35,000, marketable securities totaling $15,000, net receivables amounting to $20,000, and current liabilities of $55,000. The quick ratio for this company is:

Return on ordinary shareholders' equity is driven by:

Examples of estimates normally found in financial statements include all of the following except:

Traditional financial statements are normally based on:

In a traditional set of financial statements, the values of items found in a statement of financial position will be:

Comparative information taken from the Rugby Ltd's financial statements is shown below: Required: Using horizontal analysis, show the percentage change from 2019 to 2020 with 2019 as the base year.

Button Ltd reported profit of $4,000,000 in 2019. Using 2019 as the base year, profit decreased by 70% in 2020 and increased by 180% in 2021. Compute the profit reported by Button Ltd for 2020 and 2021.

The following items were taken from the financial statements of Greenley Ltd over a three-year period: Required: Compute the following for each of the above time periods. a. The amount and percentage change from 2019 to 2020. b. The amount and percentage change from 2020 to 2021.

Selected data for Marcy's Apparel appear below. Compute the following for 2020: (a) Gross profit percentage (b) Inventory turnover (c) Receivables turnover