Question 1

The return on common shareholders' equity is affected by both the return on assets and debt to total assets ratios.

Accepted Answer

A) True 
 B)False

Question 2

Assuming the number of units sold does not change, if a company wants to increase its profit margin it can do any of the following except

Accepted Answer

A)  raise the selling price.
B)  decrease the percentage markup on cost.
C)  reduce its cost of goods sold.
D)  reduce its operating expenses.E) A) and D)
F) A) and C)

Question 3

Short-term creditors are usually most interested in assessing

Accepted Answer

A)  solvency.
B)  liquidity.
C)  marketability.
D)  profitability.E) A) and C)
F) B) and C)

Question 4

Liquidity ratios measure the ability of the company to survive over a long period of time.

Accepted Answer

A) True 
 B)False

Question 5

Comparisons of financial data made within a company are called

Accepted Answer

A)  intracompany comparisons.
B)  interior comparisons.
C)  intercompany comparisons.
D)  intramural comparisons.E) None of the above
F) C) and D)

Question 6

When there is a disposal of a component of an entity, the statement of income should report both income from continuing operations and income (loss) from discontinued operations.

Accepted Answer

A) True 
 B)False

Question 7

Using vertical analysis on the statement of income, a company's net income as a percentage of sales is 15%; therefore, the cost of goods sold as a percentage of sales must be 85%.

Accepted Answer

A) True 
 B)False

Question 8

Asset turnover measures

Accepted Answer

A)  how often a company replaces its assets.
B)  how efficiently a company uses its assets to generate sales.
C)  the portion of the assets that have been financed by creditors.
D)  the overall rate of return on assets.E) B) and D)
F) None of the above

Question 9

Vertical analysis is a technique that expresses each item in a financial statement

Accepted Answer

A)  in dollars and cents.
B)  as a percentage of the item in the previous year.
C)  as a percentage of a base amount.
D)  starting with the highest value down to the lowest value.E) A) and D)
F) B) and C)

Question 10

Handles Corp.reported credit sales of $6,500,000 and cost of goods sold of $3,400,000 for the year.The Accounts Receivable balances at the beginning and end of the year were $525,000 and $575,000, respectively.The receivables turnover ratio was

Accepted Answer

A)  6.2 times.
B)  11.3 times.
C)  11.8 times.
D)  5.9 times.E) A) and B)
F) B) and C)

Question 11

An assessment of liquidity can be done based on only one ratio, such as the current ratio or the receivables ratio.

Accepted Answer

A) True 
 B)False

Question 12

An inventory turnover ratio

Accepted Answer

A)  measures the number of times, on average, the inventory was sold during the period.
B)  is a measure of solvency that focuses on efficient use of inventory.
C)  that is significantly lower than the industry average usually indicates difficulty with selling that inventory and the likelihood of incurring lower than average storage costs.
D)  that is significantly higher than the industry average may indicate that a company is maintaining inventory levels that are too high.E) A) and B)
F) A) and C)

Question 13

Afrikana Inc.had a balance in the Accounts Receivable account of $820,000 at the beginning of the year and a balance of $880,000 at the end of the year.Credit sales during the year were $5,920,000.The average collection period of the receivables was

Accepted Answer

A)  45 days.
B)  52 days.
C)  54 days.
D)  104 days.E) A) and B)
F) A) and C)

Question 14

All of the following profitability ratios relate more to the needs of investors than corporations except for

Accepted Answer

A)  basic earnings per share.
B)  payout ratio.
C)  profit margin.
D)  dividend yield.E) C) and D)
F) B) and D)

Question 15

Free cash flow is calculated as

Accepted Answer

A)  net income minus net capital expenditures minus dividends paid.
B)  net income minus dividends paid.
C)  net cash provided (used) by operating activities minus net capital expenditures minus dividends paid.
D)  net cash provided (used) by investing activities minus net capital expenditures minus dividends paid.E) A) and B)
F) None of the above

Question 16

Horizontal analysis

Accepted Answer

A)  is also called trend analysis.
B)  can be carried out on statement of financial position data but not on statement of income data.
C)  is a technique for evaluating a financial statement item in the current year with other items in the current year.
D)  uses the base year as the most current year being examined.E) C) and D)
F) None of the above

Question 17

Which of the following ratios are known as market measures of profitability?

Accepted Answer

A)  payout and dividend yield
B)  return on assets and debt to total assets
C)  basic earnings per share and price-earnings
D)  price-earnings and dividend yieldE) B) and D)
F) B) and C)

Question 18

Which one of the following ratios would not likely be used by a short-term creditor in evaluating whether to sell on credit to a company?

Accepted Answer

A)  current ratio
B)  dividend yield
C)  asset turnover
D)  receivables turnoverE) B) and D)
F) None of the above

Question 19

Dividend yield measures net income generated by each share, based on the market price per share.

Accepted Answer

A) True 
 B)False

Question 20

A solvency ratio measures the net income or operating success of a company for a given period of time.

Accepted Answer

A) True 
 B)False

Exam 14: Performance Measurement

Assuming the number of units sold does not change, if a company wants to increase its profit margin it can do any of the following except

Correct AnswerverifiedShow Answer

When there is a disposal of a component of an entity, the statement of income should report both income from continuing operations and income (loss) from discontinued operations.

Correct AnswerverifiedShow Answer

Using vertical analysis on the statement of income, a company's net income as a percentage of sales is 15%; therefore, the cost of goods sold as a percentage of sales must be 85%.

Correct AnswerverifiedShow Answer

A solvency ratio measures the net income or operating success of a company for a given period of time.

Correct AnswerverifiedShow Answer

Free cash flow is calculated as

Correct AnswerverifiedShow Answer

An assessment of liquidity can be done based on only one ratio, such as the current ratio or the receivables ratio.

Correct AnswerverifiedShow Answer

An inventory turnover ratio

Correct AnswerverifiedShow Answer

Handles Corp.reported credit sales of $6,500,000 and cost of goods sold of $3,400,000 for the year.The Accounts Receivable balances at the beginning and end of the year were $525,000 and $575,000, respectively.The receivables turnover ratio was

Correct AnswerverifiedShow Answer

Liquidity ratios measure the ability of the company to survive over a long period of time.

Correct AnswerverifiedShow Answer

Short-term creditors are usually most interested in assessing

Correct AnswerverifiedShow Answer

Horizontal analysis

Correct AnswerverifiedShow Answer

Dividend yield measures net income generated by each share, based on the market price per share.

Correct AnswerverifiedShow Answer

Asset turnover measures

Correct AnswerverifiedShow Answer

Which one of the following ratios would not likely be used by a short-term creditor in evaluating whether to sell on credit to a company?

Correct AnswerverifiedShow Answer

Which of the following ratios are known as market measures of profitability?

Correct AnswerverifiedShow Answer

All of the following profitability ratios relate more to the needs of investors than corporations except for

Correct AnswerverifiedShow Answer

Comparisons of financial data made within a company are called

Correct AnswerverifiedShow Answer

Afrikana Inc.had a balance in the Accounts Receivable account of $820,000 at the beginning of the year and a balance of $880,000 at the end of the year.Credit sales during the year were $5,920,000.The average collection period of the receivables was

Correct AnswerverifiedShow Answer

Vertical analysis is a technique that expresses each item in a financial statement

Correct AnswerverifiedShow Answer

The return on common shareholders' equity is affected by both the return on assets and debt to total assets ratios.

Correct AnswerverifiedShow Answer

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