1.

The current ratio is a measure of all the ratios calculated for the current year.

A) True B) False

2.

In the vertical analysis of the income statement, each item is generally stated as a percentage of net income.

A) True B) False

3.

Horizontal analysis is a technique for evaluating a financial statement item in the current year with other items in the current year.

A) True B) False

4.

Another name for trend analysis is horizontal analysis.

A) True B) False

5.

Each of the following is a liquidity ratio except the

A) acid-test ratio. B) current ratio. C) debt to assets ratio. D) inventory turnover.

6.

Ratios that measure the short-term ability of the company to pay its maturing obligations are

A) liquidity ratios. B) profitability ratios. C) solvency ratios. D) trend ratios.

7.

Stockholders are most interested in evaluating

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

8.

The ratios that are used to determine a company's short-term debt paying ability are

A) asset turnover, times interest earned, current ratio, and accounts receivable turnover. B) times interest earned, inventory turnover, current ratio, and accounts receivable turnover. C) times interest earned, acid-test ratio, current ratio, and inventory turnover. D) current ratio, acid-test ratio, accounts receivable turnover, and inventory turnover.

9.

In performing a vertical analysis, the base for prepaid expenses is

A) total current assets. B) total assets. C) total liabilities and stockholders' equity. D) prepaid expenses.

10.

Vertical analysis is also called

A) common size analysis. B) horizontal analysis. C) ratio analysis. D) trend analysis.

11.

An investment is readily marketable if it is management's intent to sell the investment.

A) True B) False

12.

An unrealized gain or loss on trading securities is reported as a separate component of stockholders' equity.

A) True B) False

13.

If an investor owns between 20% and 50% of an investee's common stock, it is presumed that the investor has significant influence on the investee.

A) True B) False

14.

To be classified as a short-term investment, the investment must be readily marketable and intended to be converted into cash within the next year or operating cycle.

A) True B) False

15.

If one company owns more than 50% of the common stock of another company,

A) the cost method should be used to account for the investment. B) a partnership exists. C) a parent-subsidiary relationship exists. D) the company whose stock is owned must be liquidated.

16.

Short-term investments are securities held by a company that are

A) readily marketable. B) intended to be converted into cash within the next year. C) readily marketable and intended to be converted into cash within the next year or operating cycle, whichever is longer. D) readily marketable and intended to be held until maturity.

17.

When a company owns more than 50% of the common stock of another company,

A) affiliated financial statements are prepared. B) consolidated financial statements are prepared. C) controlling financial statements are prepared. D) significant financial statements are prepared.

18.

Securities bought and held primarily for sale in the near term to generate income on short-term price differences are

A) trading securities. B) available-for-sale securities. C) never-sell securities. D) held-to-maturity securities.

19.

A company that acquires less than 20% ownership interest in another company should account for the stock investment in that company using

A) the cost method. B) the equity method. C) the significant method. D) consolidated financial statements.

20.

Short-term investments are listed on the balance sheet immediately below

A) cash. B) inventory. C) accounts receivable. D) prepaid expenses.