1 Which of the following ratios would not be used to measure the extent of a firm's debt financing? a. Times interest earned. b. Debt to equity. c. Long-term debt to total capitalization. d. Debt ratio. Question 2 Which of the following items should be recorded as other comprehensive income? a. Realized gains and losses. b. All of the listed answers. c. Extraordinary gains and losses. d. Foreign currency translation effects. Question 3 Key financial ratios standardize financial data in terms of mathematical relationships and also they have limitations. True False Question 4 Suppose Ali started business on 1st. January, 2019. During the year ending 31 December, 2019, he bought a quantity of leather shoes at a uniform cost and sold 5,800 of them at $50 each. An inventory check on 31 December, 2019 established he holds 650 unsold pairs. Ali's gross profit for the year was $116,000. How much was the cost of a pair of shoes? a. $27. b. $20. c. $35. d. $30. Question 6 What is the first step in an analysis of financial statements? a. Specify the objectives of the analysis. b. Do a common-size analysis. c. Check the auditor's report. d. Check references containing financial information. Question 7 How are deferred taxes recorded on the balance sheet? a. As noncurrent assets or noncurrent liabilities. b. As current or noncurrent assets or liabilities. c. As current or noncurrent liabilities. d. As stockholders' equity. Question 9 If equal amounts are subtracted to the numerator and the denominator of the current ratio, the ratio will always a. stay the same. b. equal zero. c. increase. d. decrease. Question 10 Which ratio or ratios measure the overall efficiency of the firm in managing its investment in assets and in generating return to shareholders? a. Total asset turnover and operating profit margin. b. Gross profit margin and net profit margin. c. Return on investment. d. Return on investment and return on equity. Question 11 Financial leverage is the extent to which a firm finances with debt, measured by the relationship between total debt and total assets. True False Question 12 Which of the following is an internal source of liquidity? a. Borrowing. b. None of the listed answers. c. Sales of shares. d. Gifts and donations. Question 13 Profitability ratios measure returns to stockholders and the value the marketplace puts on a company's stock. True False Question 14 Which of the following will cause a change in the retained earnings account balance? a. Net profit or loss. b. All of the listed answers. c. Prior period adjustment. d. Payment of dividends. Question 15 What is the accrual basis of accounting? a. Matching expenses with revenue in the appropriate accounting period. b. Both (b) and (c). c. Recognition of revenue in the accounting period when the sale is made rather than when cash is received. d. Recognition of revenue when it is received in cash. Question 16 What is implied if the inventory account has decreased? a. Cash flow from operating activities has increased relative to net income. b. Cash flow from financing activities has increased relative to net income. c. Cash flow from operating activities has decreased relative to net income. d. Cash flow from financing activities has decreased relative to net income. Question 17 Additional information helpful to the analysis of accounts receivable and the allowance account is provided in the schedule of valuation and qualifying accounts. True False Question 18 How is a firm's average income tax rate calculated? a. Income taxes divided by profits before income taxes. b. Income taxes divided by net income. c. Income taxes divided by sales. d. Income taxes divided by gross profit. Question 19 Why is the quick ratio a more accurate test of short- run solvency than the current ratio? a. The quick ratio considers only cash and marketable securities as current assets. b. The quick ratio eliminates prepaid expenxes for the numerator. c. The quik ratio eliminates inventories from the numerator. d. The quick ratio eliminates prepaid expenses for the denominator. are Question 20 The gross profit margin and. complements of each other. a. None of the listed answers. b. Net profit. c. Operating profit. d. Cost of goods sold percentage. Question 21 Which of the following assets would be classified as current assets on the balance sheet? a. Accounts receivables, prepaid expenses, property, plant, and equipment. b. Inventory, goodwill, unearned revenue. c. Cash, accounts payable, deferred income taxes d. Cash equivalents, inventory, prepaid expenses. Question 22 Amortization is an allocation process applied to acquisition and development of natural resources, such as oil and gas, and other minerals. True False Question 23 What does an unqualified auditor's report indicate? a. The financial statements unfairly and inaccurately present the company's financial position for the accounting period. b. The financial statements present fairly the financial position, the results of operations, and the changes in cash flows for the company. c. There are certain factors that might impair the firm's ability to continue as a going concern. d. Certain managers within the firm are unqualified and, as such, are not fairly or adequately representing the interests of the shareholders. Question 24 Cost method for investment allows the investor proportionate recognition of the investee's net income, irrespective of the payment or nonpayment of cash dividends. True False Question 25 Which group of people would be the most concerned about the operating areas that have contributed to the success of the firm and which have not? a. Customers. b. Auditors. c. Creditors. d. Management. Question 26 The current ratio is a measure of all the ratios calculated for the current year. True False Question 27 Form 10-Q is an annually report filed with the Securities and Exchange Commission by companies that sell securities to the public. True False Question 28 Return on Investment (ROI) measures the overall efficiency of the firm in generating return to shareholders. True False Question 29 A depletion is the process of expense allocation applied to the cost expiration of natural resources. True False Question 31 What does the retained earnings account measure? a. All undistributed earnings. b. Financial resources currently available to satisfy financial obligations. c. Payments made to shareholders in the form of cash or stock dividends. d. Cash held by the company since its inception. Question 33 It is unlikely that management can manipulate the bottom line due to the regulations in place to enforce GAAP. True False Question 35 Dividend yield shows the relationship between cash dividends and market price. True False Question 36 What is a key limitation of financial ratios? a. Ratios are screening devices. b. Ratios indicate weaknesses only. c. Ratios can be used only by themselves. d. Ratios are not predictive. Question 37 Which of the following items would cause the cash conversion cycle to decrease? a. Increasing the average collection period. b. Increasing days payable outstanding. c. None of the listed answers. d. Increasing the days inventory held. Question 38 Which of the following is not a tool or technique used by a financial statement analyst? a. Common-size financial statements. b. Industry comparisons. c. Random sampling analysis. d. Trend analysis. Question 39 An impairment cost must be included under expenses when the book value of an asset exceeds the recoverable amount. True False Question 40 A decrease in accrued liabilities should be added to convert net income to cash flow from operating activities. True False Question 43 Operating expenses can be easily analyzed by preparing a common-size income statement. True False Question 44 How is a common-size income statement prepared? a. Each income statement item is expressed as a percentage of cash flow. b. Each income statement item is expressed as a percentage of total assets. c. Each income statement item is expressed as a percentage of net sales. d. Each income statement item is expressed as a percentage of net income. Question 45 A successful shopping mall would probably have a. a low inventory turnover. b. low volume. c. zero profit margin. d. a high inventory turnover. Question 46 Disclaimer of opinion rendered by an independent auditor of financial statements stating that the financial statements have been presented fairly in accordance with GAAP. True False Briefly explained what is Du Pont System and how this system is helpful to the analyst