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Exam 12: Financial Statement Analysis

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Question 21

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The type of analysis used to analyze trends in financial statement data over time is:

A) Horizontal analysis
B) Vertical analysis
C) Diagonal analysis

D) A) and C)
E) All of the above

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Question 22

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What is the correct order to present the following items in the income statement?

A) Other revenues and expenses,income tax expense,discontinued operations,net income.
B) Other revenues and expenses,income tax expense,net income,discontinued operations.
C) Discontinued operations,net income,other revenues and expenses,income tax expense.

D) B) and C)
E) All of the above

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Question 23

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The acid-test ratio is always smaller than the current ratio.

Which of the following ratios is most useful in evaluating liquidity?

Which of the following is not a solvency ratio?

Which of the following is an example of horizontal analysis?

Examples of discontinued operations include all of the following except:

Which of the following is a conservative accounting practice?

We use horizontal analysis to analyze trends in financial statement data,such as the dollar amount of change and the percentage change,for one company over time.

The acid-test ratio is most similar to the:

A partial balance sheet for Captain D's Sportswear is shown below.(dollars in thousands) The acid-test ratio is (rounded to two decimal places) : $\begin{array} { | l | r | l | r | } \hline \text { Assets: } & & \text { Liabilities: } & \\\hline \text { Cash } & \$ 60 & \text { Accounts payable } & \$ 240 \\\hline \text { Accounts receivable (net) } & 170 & \text { Other liabilities } & \underline{ 80 } \\\hline \text { Investments } & 50 & \text { Total current liabilities } & 320 \\\hline \text { Inventory } & 200 & \text { Long-term liabilities } & \underline { 110 } \\\hline \text { Prepaid rent } & \underline{25} & \text { Total liabilities } & \underline { 430 } \\\hline \text { Total current assets } & \underline { 505 } & \text { Stockholders' equity: } & \\\hline \text { Property \& Equipment, (net) } & \underline { 255 } & \text { Common stock } & 150 \\\hline & & \text { Retained earnings } & \underline { 180 } \\\hline &\_\_\_ & \text { Total stockholders' equity } & \underline { 330 } \\\hline \text { Total assets } & \underline{\$ 760} & \text { Total liabilities and equity } & \underline{\$ 760} \\\hline\end{array}$

When using a company's current earnings to estimate future earnings performance,investors normally should exclude discontinued operations.

Horizontal analysis is used to analyze trends in financial statement data over time:

Excerpts from Stealth Company's December 31,2018 and 2017,financial statements are presented below: Stealth Company's 2018 average collection period is: $\begin{array} { | l | r | r | } \hline & \mathbf { 2 0 1 8 } & \mathbf { 2 0 1 7 } \\\hline \text { Accounts receivable } & \$ 40,000 & \$ 36,000 \\\hline \text { Inventory } & 28,000 & 36,000 \\\hline \text { Net sales } & 190,000 & 186,000 \\\hline \text { Cost of goods sold } & 114,000 & 108,000 \\\hline \text { Total assets } & 425,000 & 405,000 \\\hline \text { Total stockholders' equity } & 240,000 & 225,000 \\\hline \text { Net income } & 32,500 & 28,000 \\\hline\end{array}$

Which of the following is a sign that a company cannot quickly turn its receivables into cash?

Ratios that compare an income statement account with a balance sheet account should express the balance sheet account as an average of the beginning and ending balances.

The receivables turnover ratio measures how many times,on average,a company collects its receivables during the year.

Excerpts from Stealth Company's December 31,2018 and 2017,financial statements are presented below: Stealth Company's 2018 profit margin is (rounded to one decimal place) : $\begin{array} { | l | r | r | } \hline & \mathbf { 2 0 1 8 } & \mathbf { 2 0 1 7 } \\\hline \text { Accounts receivable } & \$ 40,000 & \$ 36,000 \\\hline \text { Inventory } & 28,000 & 36,000 \\\hline \text { Net sales } & 190,000 & 186,000 \\\hline \text { Cost of goods sold } & 114,000 & 108,000 \\\hline \text { Total assets } & 425,000 & 405,000 \\\hline \text { Total stockholders' equity } & 240,000 & 225,000 \\\hline \text { Net income } & 32,500 & 28,000 \\\hline\end{array}$

Curry Footwear reports net income of $500,000,earnings per share of $1.50,and has a stock price of $45.00 at the end of the year.What is Curry Footwear's price-earnings ratio?

Excerpts from Stealth Company's December 31,2018 and 2017,financial statements are presented below: Stealth Company's 2018 gross profit ratio is: $\begin{array} { | l | r | r | } \hline & \mathbf { 2 0 1 8 } & \mathbf { 2 0 1 7 } \\\hline \text { Accounts receivable } & \$ 40,000 & \$ 36,000 \\\hline \text { Inventory } & 28,000 & 36,000 \\\hline \text { Net sales } & 190,000 & 186,000 \\\hline \text { Cost of goods sold } & 114,000 & 108,000 \\\hline \text { Total assets } & 425,000 & 405,000 \\\hline \text { Total stockholders' equity } & 240,000 & 225,000 \\\hline \text { Net income } & 32,500 & 28,000 \\\hline\end{array}$