Question 1

The drawback of studying absolute amounts reported in financial statements is the problem of differing materiality levels.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements regarding the return on equity (ROE) measure is not true?

Accepted Answer

A)   ROE is used to measure the profitability of the firm in relation to the amount invested by stockholders.
B)   ROE equals net income divided by average total stockholders' equity.
C)   ROE is affected by a company's use of leverage.
D)   A company's ROE is lower than its return on investment because ROE does not consider that part of the business that is financed by debt.

Question 3

Horizontal analysis is also known as:

Accepted Answer

A)   Liquidity analysis.
B)   Trend analysis.
C)   Revenue analysis.
D)   Variance analysis.

Question 4

Which of the following statements about financial statement analysis is not true?

Accepted Answer

A)   In horizontal percentage analysis, an item from the financial statements is expressed as a percentage of the same item from a previous year's financial statements.
B)   Vertical analysis compares two or more financial statement items within the same time period.
C)   Horizontal analysis for several years can be done by choosing one year as a base year and calculating increases or decreases in relation to that year.
D)   The reason behind a financial statement ratio or percentage analysis result is usually self-evident and does not require further study or analysis.

Question 5

Select the correct statement regarding vertical analysis.

Accepted Answer

A)   Vertical analysis of the income statement involves showing each item as a percentage of sales.
B)   Vertical analysis of the balance sheet involves showing each asset as a percentage of total assets.
C)   Vertical analysis examines two or more items from the financial statements of one accounting period.
D)   All of these answers are correct.

Question 6

Jenkins Company's current ratio is higher than the average for its industry,while its quick ratio is below the industry average.One possible interpretation for these results is that Jenkins carries less inventory than most companies in its industry.

Accepted Answer

A) True 
 B)False

Question 7

Abel Company provided the following information from its financial records:
  Net income $250,000 Common shares outstanding 1/1200,000 Common stock dividends$20,000 Common shares outstanding 12/31300,000 Preferred stock dividends$25,000 Preferred shares outstanding 1/110,000 Sales $1,000,000 Preferred shares outstanding 12/316,000\begin{array}{lr}	ext { Net income }&\$250,000&	ext { Common shares outstanding }1/1&200,000\	ext { Common stock dividends}&\$20,000&	ext { Common shares outstanding }12/31&300,000\	ext { Preferred stock dividends}&\$25,000&	ext { Preferred shares outstanding }1/1&10,000\	ext { Sales }&\$1,000,000&	ext { Preferred shares outstanding }12/31&6,000\end{array} Net income  Common stock dividends Preferred stock dividends Sales ​$250,000$20,000$25,000$1,000,000​ Common shares outstanding 1/1 Common shares outstanding 12/31 Preferred shares outstanding 1/1 Preferred shares outstanding 12/31​200,000300,00010,0006,000​ 
 
What is the company's earnings per share?

Accepted Answer

A)   $0.82
B)   $1.00
C)   $0.90
D)   $0.75

Question 8

Which ratio measures the percentage of a company's assets that are financed by debt?

Accepted Answer

A)   Debt to assets ratio
B)   Asset turnover
C)   Debt to equity
D)   Return on investment

Exam 14: Financial Statement Analysis

Select the correct statement regarding vertical analysis.

Correct Answer
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Jenkins Company's current ratio is higher than the average for its industry,while its quick ratio is below the industry average.One possible interpretation for these results is that Jenkins carries less inventory than most companies in its industry.

Correct Answer
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Horizontal analysis is also known as:

Correct Answer
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Which of the following statements about financial statement analysis is not true?

Correct Answer
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Correct Answer
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The drawback of studying absolute amounts reported in financial statements is the problem of differing materiality levels.

Correct Answer
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Which ratio measures the percentage of a company's assets that are financed by debt?

Correct Answer
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Which of the following statements regarding the return on equity (ROE) measure is not true?

Correct Answer
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Exam 14: Financial Statement Analysis

Select the correct statement regarding vertical analysis.

Correct AnswerverifiedShow Answer

Jenkins Company's current ratio is higher than the average for its industry,while its quick ratio is below the industry average.One possible interpretation for these results is that Jenkins carries less inventory than most companies in its industry.

Correct AnswerverifiedShow Answer

Horizontal analysis is also known as:

Correct AnswerverifiedShow Answer

Which of the following statements about financial statement analysis is not true?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The drawback of studying absolute amounts reported in financial statements is the problem of differing materiality levels.

Correct AnswerverifiedShow Answer

Which ratio measures the percentage of a company's assets that are financed by debt?

Correct AnswerverifiedShow Answer

Which of the following statements regarding the return on equity (ROE) measure is not true?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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