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Question 1 Which one of the following is primarily interested in the liquidity of a company? Shortterm creditors Federal government Longterm creditors Stockholders Question 2 A stockholder is interested in the ability of a firm to pay consistent dividends. appreciate in share price. survive over a long period. all of these. Question 3 Horizontal analysis evaluates financial statement data over a period of time. on a certain date. as it may appear in the future. within a period of time. Question 4 Under which of the following cases may a percentage change be computed? The trend of the balances is decreasing but all balances are positive. There is no balance in the base year. There is a negative balance in the base year and a positive balance in the subsequent year. There is a positive balance in the base year and a negative balance in the subsequent year. Question 5 Vertical analysis is a technique which expresses each item within a financial statement in dollars and cents. in terms of a percentage of the item in the previous year. in terms of a percent of a base amount. starting with the highest value down to the lowest value. Question 6 Each of the following is a liquidity ratio except the acidtest ratio. current ratio. inventory turnover. debt to total assets ratio. Question 7 The acidtest (quick) ratio is the same as the current ratio except it is rounded to the nearest whole percent. is used to quickly determine a company's solvency and longterm debt paying ability. relates cash, shortterm investments, and net receivables to current liabilities. is calculated by taking one item from the income statement and one item from the balance sheet. Question 8 Asset turnover measures the portion of the assets that have been financed by creditors. the overall rate of return on assets. how often a company replaces its assets. how efficiently a company uses its assets to generate sales. Question 9 A weakness of the current ratio is that it can be expressed as a percentage, as a rate, or as a proportion. that it doesn't take into account the composition of the current assets. the difficulty of the calculation. that it is rarely used by sophisticated analysts. Question 10 A successful grocery store would probably have a high inventory turnover. a low inventory turnover. low volume. zero profit margin. Question 11 Earnings per share is calculated only for treasury stock. for common and preferred stock. only for common stock. only for preferred stock. Question 12 The disposal of a significant segment of a business is called discontinued operations. an other expense. an extraordinary item. a change in accounting principle. Question 13 Each of the following is an extraordinary item except the losses attributable to labor strikes. effects of major casualties, if rare in the area. expropriation of property by a foreign government. effects of a newly enacted law or regulation. Question 14 If an item meets one (but not both) of the criteria for an extraordinary item, it may be treated as sales revenue (if it is a gain) and as an operating expense (if it is a loss). only needs to be disclosed in the footnotes of the financial statements. is reported at its gross amount as an "other revenue or gain" or "other expense or loss." is reported as an "other revenue or gain" or "other expense and loss," net of tax. Question 15 In vertical analysis, the base amount for each income statement item is net sales. net income. sales. gross profit