1. On a common-sized income statement, all items are stated as a percent of total assets or equities at year-end.

1) True

2) False

2. A company can use comparisons of its financial data to the data of other companies and industry averages to evaluate its position.

1) True

2) False

3. If a firm has a current ratio of 2, the subsequent receipt of a 60-day note receivable on account will cause the ratio to decrease.

1) True

2) False

4. A decrease in the ratio of liabilities to stockholders' equity indicates an improvement in the margin of safety for creditors.

1) True

2) False

5. The independent auditor's report

a)

summarizes what the auditor did

b)

gives the auditor's opinion regarding the fairness of the financial statements

c)

describes which financial statements are covered by the audit

d)

states that the financial statements were presented on time

6. The numerator of the rate earned on total assets ratio is

a)

net income plus tax expense

b)

net income plus interest expense

c)

net income minus preferred dividends

d)

net income

7. Unusual items affecting the current period's income statement consist of changes in accounting principles and discontinued operations.

1) True

2) False

8. Balance sheet and income statement data indicate the following:

Bonds payable, 10% (due in two years) $1,000,000

Preferred 5% stock, $100 par (no change during year) 300,000

Common stock, $50 par (no change during year) 2,000,000

Income before income tax for year 550,000

Income tax for year 80,000

Common dividends paid 50,000

Preferred dividends paid 15,000

Based on the data presented above, what is the number of times bond interest charges were earned (round to one decimal point)?

a)

6.4

b)

6.5

c)

1.5

d)

5.5

9. The ratio of fixed assets to long-term liabilities provides a measure of a firm's ability to pay dividends

1) True

2) False

10.

Which of the following ratios provides a solvency measure that shows the margin of safety of bondholders and also gives an indication of the potential ability of the business to borrow additional funds on a long-term basis? Question 15 options:

a)

ratio of net sales to assets

b)

number of days' sales in receivables

c)

ratio of fixed assets to long-term liabilities

d)

rate earned on stockholders' equity