In addition to the balance sheet, the income statement, and the statement of cash flows, a complete set of financial statements must include(Points : 5)

an auditor's opinion. a ten-year summary of operations. a note of disclosure of such items as accounting policies. historical, common size (percentage) summaries.

Question 3.3.(TCO 7) A comparison of each amount with a base amount for a selected base year is(Points : 5)

vertical analysis. common size analysis. horizontal analysis. None of the above

Question 4.4.(TCO 7) Denver Dynamics has a net income of $2,000,000. Oakland Enterprises has a net income of $2,500,000. Which of the following best compares the profitability of Denverto Oakland?(Points : 5)

Oakland Enterprises is 25% more profitable than Denver Dynamics. Oakland Enterprises is more profitable than Denver Dynamics, but the comparison can't be quantified. Oakland Enterprises is more profitable only if it is smaller than Denver Dynamics. Further information is needed for a reasonable comparison. Oakland Enterprises is more profitable if it is a larger firm than Denver Dynamics.

Question 5.5.(TCO 7) Which of the following is a false statement, as it relates to analysis?(Points : 5)

If merchandise with a 20% markup is sold on credit, it would take ten successful sales of the same amount to make up for one sale not collected. Equity capital provides creditors with a cushion against loss. There is a difference between the objectives sought by short-term grantors of credit and those sought by long-term grantors of credit. The financial structure of the entity is of interest to creditors.

Question 6.6.(TCO 7) Trend analysis focuses on(Points : 5)

the financial history of a company for comparison. future forecasted results for a firm. trends using current year numbers. None of the above

Question 7.7.(TCO 1) Who is responsible for the preparation and the integrity of financial statements?(Points : 5)

Cost accountant Auditor Management Public accountant

Question 8.8.(TCO 7) Which of the following is not a type of audit opinion?(Points : 5)

Unqualified opinion Qualified opinion Adverse opinion Clean opinion

Question 9.9.(TCO 2) Jones Company has long-term debt of $1,000,000, whereas Smith Company, Jones' competitor, has long-term debt of $200,000. Which of the following statements best represents an analysis of the long-term debt position of these two firms?(Points : 5)

Smith Company's times interest earned should be lower than Jones'. Jones obviously has too much debt, when compared to its competitor. Jones should sell more stock and use less debt. Smith has five times better long-term borrowing ability than Jones. There is not enough information to determine if any of the answersis correct.

Question 10.10.(TCO 2) Which of the following statements best compares long-term borrowing capacity ratios?(Points : 5)

The debt/equity ratio is more conservative than the debt ratio. The debt ratio is more conservative than the debt/equity ratio. The debt/equity ratio is more conservative than the debt to tangible net worth ratio. The debt to tangible net worth ratio is more conservative than the debt/equity ratio. The debt ratio is more conservative than the debt to tangible net worth ratio.

Question 11.11.(TCO 3) Times interest earned should be computed for a period of three to five years and should be compared to competitors in order to(Points : 5)

evaluate the adequacy of coverage. provide insight onthe stability ofinterest coverage. help compareindustry averages. All of the above

Question 12.12.(TCOs 2 and 3) The debt ratio indicates(Points : 5)

the ability ofa firm to pay its current obligations. the efficient use of total assets. the magnification of earnings caused by leverage. a comparison of liabilities with total assets.

Question 13.13.(TCO 2) Gross profit is the difference between(Points : 5)

net income and operating income. net income and expenses. sales and costs of goods sold. gross sales and sales discounts.

Question 14.14.(TCOs 1 and2) Which of the following is classified as an extraordinary item on the income statement?(Points : 5)

Loss from a strike Loss on a segment of the business Correction of an error related to prior period Loss from prohibition of a product

Question 15.15.(TCO 1) Industry averages should be reviewed against(Points : 5)

what degree of debt is acceptable for the industry. what degree of debt an individual firm should have. what degree of debt is acceptable by other industries. All of the above

Question 16.16.(TCO 3) The most popular depreciation method for financial reporting is(Points : 5)

straight line. double declining. units of production. sum of the years.

Question 17.17.(TCO 7) Which of the following would be included in operating income?(Points : 5)

Interest income for a manufacturing firm. Dividend income for a service firm. Gain from sale of marketable securities for a retailer. Rent income for a leasing subsidiary. None of the above

Question 18.18.(TCO 5) Working capital of a business is(Points : 5)

the excess of current liabilities over current assets. the excess of assets over liabilities. the excess of current assets over current liabilities. the excess of liabilities over assets.

Question 19.19.(TCO 5) Which of the following types of businesses normally have the shortest operating cycle?(Points : 5)

A retail clothing store A grocery store A wholesale furniture store A car manufacturer A car dealer

Question 20.20.(TCO 5) A comparison of current assets with current liabilities gives an indication of(Points : 5)

long-term debt paying ability. overall debt paying ability. short-term debt paying ability. no debt paying ability.

Question 21.21.(TCO 5) Investments classified as marketable securities should be(Points : 5)

temporary. long-term. permanent. None of the above

Question 22.22.(TCOs 5 and 6) The most important asset in determining the short-term paying ability of a firm is(Points : 5)

receivables. cash. inventory. current assets.

Question 23.23.(TCO 6) If days' sales in receivables are materially longer than the credit terms, this indicates(Points : 5)

a collection problem. a debt problem. an asset problem. None of the above

Question 24.24.(TCO 6) Which of the following ratios does not represent some form of comparison between accounts in current assets and accounts in current liabilities?(Points : 5)

Asset ratio Working capital ratio Current ratio Cash ratio Merchandise inventory turnover

Question 25.25.(TCO 6) Which of the following current assets will not generate cash in the future?(Points : 5)

Prepayments Accounts receivable Inventory Marketable securities Notes receivable

Question 26.26.(TCO 6) What is the rule of thumb for dividend yield?(Points : 5)

Review price appreciation. There is no rule of thumb. The higher, the better. What goes up must come down.

Question 27.27.(TCOs 5 and 6) Book value is of limited use to the investment analystbecause it is based on(Points : 5)

the book numbers. the actual numbers. the historical numbers. the forecasted numbers.

Question 28.28.(TCO 5) A firm might have a low dividend payout ratio if it plans(Points : 5)

to sell off assets. to sell stock. a major expansion. a wedding.

Question 29.29.(TCO 6) Stable dividend policy most commonly implies(Points : 5)

a high price/earnings ratio. a stable dividend yield. stable dividends per share. stable earnings per share.

Question 30.30.(TCO 6) What is the effect of the exercise of stock options?(Points : 5)

They generate cash to the issuing firm and, therefore, increase profit per share. They are an expense at the time of exercise. This lowers net income. They increase debt and lower borrowing capacity but have no effect on profit. They increase the numbers of shares outstanding.

Question 31.31.(TCO 6) What is important to a firm's long-term debt paying ability?(Points : 5)

Expenses Capital assets Long-term debt Profitability

Question 32.32.(TCOs 5 and 6) Which of the following is typically considered the most indicative of a firm's short-term debt paying ability?(Points : 5)

Working capital Current ratio Acid test Cash ratio Days' sales in receivables

Question 33.33.(TCO 5) Which of the following reasons should not be considered in order to explain why the receivables appear abnormally high?(Points : 5)

Sales volume expanded materially late in the year. Receivables have collectability problems and, possibly, some should have been written off. The company seasonally dates invoices. Material amount of receivables are on the installment basis. Sales volume decreases materially late in the year.