Question 1

The following partial balance sheet is provided for Trenton Company:
The company's debt to assets ratio is closest to:

Accepted Answer

The answer of The following partial balance sheet is provided...

Question 2

You are considering an investment in Techno Company stock and wish to assess the company's position in the stock market.All of the following ratios can be used except:

Accepted Answer

Working capital is a measure of a company's liquidity and ability to meet short-term financial obligations, and is not a ratio that assesses a company's position in the stock market. The other three options (Price-earnings ratio, Earnings per share, and Dividend yield) are commonly used ratios to evaluate a company's performance and position in the stock market.

Question 3

The Davis Company reported net income of $60,000 on sales of $300,000.The company has total assets of $500,000 and total liabilities of $100,000.What is the company's return on equity ratio?

Accepted Answer

The answer of The Davis Company reported net income of...

Question 4

The Valencia Company reported net income of $80,000 on 20,000 outstanding common shares.Preferred dividends total $12,000.On the most recent trading day,the preferred shares sold at $50 and the common shares sold at $68.This company's current price-earnings ratio is closest to:

Accepted Answer

The current price-earnings ratio is calculated by dividing the current market price per share by the annual earnings per share. The annual earnings per share is calculated by dividing the net income by the number of outstanding shares. In this case, the annual earnings per share is $80,000 / 20,000 = $4.00. The current market price per share is $68. Therefore, the current price-earnings ratio is $68 / $4.00 = 17.

Question 5

Accrual accounting requires the use of many estimates,including:

Accepted Answer

Accrual accounting requires the use of estimates such as uncollectible accounts expense, warranty costs, and assets' useful lives. Therefore, all of the answer choices are correct.

Question 6

Select the incorrect statement regarding net margin.

Accepted Answer

The statement "The smaller the net margin the better" is incorrect. Generally, a higher net margin is considered to be better as it indicates that the company is able to generate more profit from each sales dollar after covering all expenses.

Question 7

Beta Company provided the following balance sheet:
What is the company's plant assets to long-term liabilities ratio?

Accepted Answer

The answer of Beta Company provided the following balance sheet:
What...

Question 8

The Monticello Company reported gross sales of $800,000,sales returns and allowances of $5,000 and sales discounts of $10,000.The company has total average assets of $500,000,of which $250,000 is property,plant,and equipment.What is the company's asset turnover ratio?

Accepted Answer

The asset turnover ratio is calculated as net sales divided by average total assets. Net sales are $800,000 - $5,000 - $10,000 = $785,000. The average total assets are $500,000. Therefore, the asset turnover ratio is $785,000 / $500,000 = 1.57 times.

Question 9

The Marvin Company reported net income of $18,400 on gross sales of $80,000.The company has total average assets of $115,200,of which $100,000 is property,plant and equipment.The company's return on investment is closest to:

Accepted Answer

Return on investment (ROI) is calculated as Net Income divided by Total Average Assets. Here, ROI = $18,400 / $115,200 = 0.16 or 16.0%.

Question 10

Select the incorrect statement regarding the return on equity (ROE)measure.

Accepted Answer

The statement is incorrect because ROE does take into consideration the portion of the business that is financed by debt, as it is calculated by dividing net income by total equity (which includes both equity and debt). Therefore, a company's ROE can be higher or lower than its return on investment depending on how it has financed its operations.

Question 11

The accounting concept or principle that is perhaps the greatest single culprit in distorting the results of financial statement analysis is the:

Accepted Answer

The historical cost concept requires that assets and liabilities be recorded at the original cost paid to acquire them, without any adjustment for changes in their market value. This can lead to distorted asset and liability values, which in turn can lead to distorted ratios and metrics used in financial statement analysis. For example, a company that purchased a piece of property many years ago for a low price will show that property on its balance sheet at the historical cost, which may be far below the property's current market value. This could make the company appear less asset-rich than it truly is, and could skew ratios such as the debt-to-equity ratio.

Question 12

The Herald Company provided the following information from its financial records:
What is the company's book value per share?

Accepted Answer

The answer of The Herald Company provided the following information...

Question 13

Which of the following is a potential limitation of financial statement analysis?

Accepted Answer

All of the mentioned answer choices are potential limitations of financial statement analysis. Lack of comparability of firms in different industries makes it difficult to make meaningful comparisons, while changing economic conditions can impact a company's financial performance. Additionally, having more than one acceptable alternative accounting principle can lead to different financial statements for the same transaction or economic event, making comparisons inaccurate or misleading.

Question 14

You are considering an investment in Freedom Airlines stock and wish to assess the firm's earnings performance.All of the following ratios can be used to assess profitability except:

Accepted Answer

Average days to collect receivables is a ratio used to assess the effectiveness of the company's credit and collection policies, and is not directly related to profitability. Net margin, return on investment, and asset turnover are all commonly used ratios to assess a company's profitability.

Question 15

On January 1,2015 Gatewood issued common stock for $20,000 cash.Which of the following statement is true?

Accepted Answer

The issuance of common stock for cash does not have any impact on the current ratio, which is calculated by dividing current assets by current liabilities. This transaction does not affect the current assets or current liabilities of Gatewood. Therefore, the current ratio will remain the same.

Question 16

The Pittsburgh Company paid total cash dividends of $100,000 on 25,000 outstanding common shares.On the most recent trading day,the common shares sold at $80.What is this company's dividend yield?

Accepted Answer

The answer of The Pittsburgh Company paid total cash dividends...

Question 17

The Anchorage Company provided the following information from its financial records:
What is the amount of the company's earnings per share?

Accepted Answer

To calculate earnings per share, we divide net income ($1,728,000) by the number of outstanding shares (1,200,000). $1,728,000 ÷ 1,200,000 shares = $1.44 per share. Therefore, the correct answer is (B) $1.44.

Question 18

The return on investment measure is also referred to as:

Accepted Answer

The return on investment (ROI) measure refers to the effectiveness of an investment by calculating the ratio of the net profit or loss to the cost of investment. Return on assets (ROA) is a common way of calculating ROI, which is determined by dividing net income by total assets. Therefore, B is the best choice as it accurately reflects ROI. Choices A, C, and D are not accurate representations of ROI.

Question 19

The Phlegar Company reported the following income for 2015:
The company's net margin is closest to:

Accepted Answer

The answer of The Phlegar Company reported the following income...

Question 20

Which of the following statements is generally incorrect?

Accepted Answer

Generally, a shorter average collection period for accounts receivable is preferred as it implies that the company is collecting its dues faster. This helps in improving cash flow and reduces the risk of bad debts. Therefore, a 20-day average collection period is generally preferred over a 30-day average collection period.

Quiz 13: Financial Statement Analysis

The following partial balance sheet is provided for Trenton Company: The company's debt to assets ratio is closest to: