Question 1

The return on assets ratio is affected by the

Accepted Answer

A)  profit margin and debt to total assets ratios.
B)  profit margin and asset turnover ratios.
C)  times interest earned and debt to total assets ratios.
D)  profit margin and free cash flow.

Question 2

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.

Question 3

All of the following statements about vertical analysis are true except

Accepted Answer

A)  Vertical analysis makes it easier to for intercompany comparisons.
B)  Vertical analysis is seldom performed on the income statement.
C)  Vertical analysis makes it easier to compare companies of different sizes.
D)  Vertical analysis is seldom performed on the cash flow statement.

Question 4

Horizontal analysis of comparative financial statements includes the

Accepted Answer

A)  development of vertically analyzed statements.
B)  calculation of liquidity ratios.
C)  calculation of dollar amount changes and percentage changes from the previous to the current year.
D)  evaluation of financial statement data that expresses each item in the current period's financial statement as a percentage of a base amount.

Question 5

The current ratio is

Accepted Answer

A)  calculated by dividing current liabilities by current assets.
B)  used to evaluate a company's liquidity and short-term debt paying ability.
C)  used to evaluate a company's solvency and long-term debt paying ability.
D)  calculated by subtracting current liabilities from current assets.

Question 6

Ideally, all changes in accounting policy are applied retrospectively, but on occasion may be reported prospectively.

Accepted Answer

A) True 
 B)False

Question 7

Free cash flow is the cash available after a company pays dividends.

Accepted Answer

A) True 
 B)False

Question 8

When a mandatory change in accounting policy occurs

Accepted Answer

A)  all prior years' financial statements must be changed to reflect the newly adopted policy.
B)  it is always accounted for prospectively.
C)  the new policy is used in reporting the results of operating activities for the current year.
D)  the cumulative effect of the change in policy should be reflected on the current income statement.

Question 9

A company with $60,000 in current assets and $40,000 in current liabilities pays a $1,000 current liability. As a result of this transaction, the current ratio and working capital will

Accepted Answer

A)  both decrease.
B)  both increase.
C)  increase and remain the same, respectively.
D)  remain the same and decrease, respectively.

Question 10

Jasper Electrical reported net credit sales of $4,500,000 and cost of goods sold of $2,700,000 for the year. The Accounts Receivable balances at the beginning and end of the year were $450,000 and $480,000, respectively. The receivables turnover ratio was

Accepted Answer

A)  5.8 times.
B)  9.4 times.
C)  9.7 times.
D)  10.0 times.

Question 11

Comparisons of company data with industry averages provide information about a company's relative position within the industry.

Accepted Answer

A) True 
 B)False

Question 12

A weakness of the current ratio is

Accepted Answer

A)  the difficulty of the calculation.
B)  that it doesn't take into account the composition of the current assets.
C)  that it is rarely used by sophisticated analysts.
D)  that it can be expressed as a percentage, as a rate, or as a proportion.

Question 13

Horizontal analysis can be carried out on statement of financial position data but not on income statement data.

Accepted Answer

A) True 
 B)False

Question 14

Many firms today are so diversified that they cannot be classified by industry.

Accepted Answer

A) True 
 B)False

Question 15

If a company has a current ratio of 1.3:1, what effects will the borrowing of cash by short-term debt and collection of accounts receivable have on the ratio?

Accepted Answer

The answer of If a company has a current ratio...

Question 16

Ideally, all changes in accounting policy are applied

Accepted Answer

A)  prospectively.
B)  retrospectively.
C)  proactively.
D)  regressively.

Question 17

Use the following information to answer questions 
Green Thumb Garden Supplies reported the following information for 2012 and 2013. 
-What is the return on assets for 2013?

Accepted Answer

A)  27.1%
B)  10.0%
C)  9.2%
D)  8.6%

Question 18

All of the following statements about vertical analysis are true except

Accepted Answer

A)  Vertical analysis is also called common size analysis.
B)  Amounts on the income statement are expressed as a percentage of net sales.
C)  Vertical analysis shows the relative size of each item in the statement of financial position.
D)  Vertical analysis is also called trend analysis.

Question 19

If a company has sales of $220 in 2012 and $560 in 2013, the percentage increase in sales from 2012 to 2013 is 155%.

Accepted Answer

A) True 
 B)False

Question 20

If a company has sales of $100 in 2012 (the base period) and $560 in 2013 (the analysis period), the percentage of the base period is 460%.

Accepted Answer

A) True 
 B)False

Exam 14: Performance Measurement

The return on assets ratio is affected by the

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If a company has sales of $100 in 2012 (the base period) and $560 in 2013 (the analysis period), the percentage of the base period is 460%.

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Comparisons of company data with industry averages provide information about a company's relative position within the industry.

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Jasper Electrical reported net credit sales of $4,500,000 and cost of goods sold of $2,700,000 for the year. The Accounts Receivable balances at the beginning and end of the year were $450,000 and $480,000, respectively. The receivables turnover ratio was

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Horizontal analysis of comparative financial statements includes the

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Free cash flow is the cash available after a company pays dividends.

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If a company has sales of $220 in 2012 and $560 in 2013, the percentage increase in sales from 2012 to 2013 is 155%.

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Horizontal analysis can be carried out on statement of financial position data but not on income statement data.

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Asset turnover measures

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Many firms today are so diversified that they cannot be classified by industry.

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When a mandatory change in accounting policy occurs

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A company with $60,000 in current assets and $40,000 in current liabilities pays a $1,000 current liability. As a result of this transaction, the current ratio and working capital will

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All of the following statements about vertical analysis are true except

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Ideally, all changes in accounting policy are applied retrospectively, but on occasion may be reported prospectively.

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Use the following information to answer questions Green Thumb Garden Supplies reported the following information for 2012 and 2013. -What is the return on assets for 2013?

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The current ratio is

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Ideally, all changes in accounting policy are applied

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If a company has a current ratio of 1.3:1, what effects will the borrowing of cash by short-term debt and collection of accounts receivable have on the ratio?

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A weakness of the current ratio is

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All of the following statements about vertical analysis are true except

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