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1 | | A common-size income statement expresses all accounts as a percentage of: |
| | A) | sales. |
| | B) | EBIT. |
| | C) | EBIT plus depreciation. |
| | D) | taxable income. |
| | E) | net income. |
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2 | | Common-size statements are designed to primarily address the problems encountered when comparing firms of varying: |
| | A) | sizes. |
| | B) | industries. |
| | C) | geographic locations. |
| | D) | accounting standards. |
| | E) | management structures. |
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3 | | A common-size balance sheet expresses accounts as a percentage of: |
| | A) | current assets. |
| | B) | fixed assets. |
| | C) | total assets. |
| | D) | total liabilities. |
| | E) | total equity. |
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4 | | Iowa Farm Machine Sales has current assets of $368,450, net fixed assets of $1.23 million, and total liabilities of $674,230. On a common-size balance sheet, current assets will be expressed as _____ percent. |
| | A) | 23.1 |
| | B) | 0 |
| | C) | 3 |
| | D) | 8 |
| | E) | 9 |
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5 | | The net income as shown on the common-size income statement for the past three years for Connor and Company is 6.3 percent, 6.9 percent, and 7.1 percent, respectively. This indicates that the firm is: |
| | A) | increasing in size. |
| | B) | improving its profit per sales dollar. |
| | C) | increasing its total profits. |
| | D) | increasing its profits at the same rate as its sales growth. |
| | E) | paying less in taxes. |
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6 | | Avalon Manufacturing has a cost of goods sold of $680,130 and a net income of $41,409 on total sales of $1,211,407. Total assets are $981,500. A common-size income statement will show cost of goods sold of _____ percent and a net profit of _____ percent. |
| | A) | 56.1; 3.4 |
| | B) | 1; 3.9 |
| | C) | 1; 4.2 |
| | D) | 3; 3.9 |
| | E) | 31; 4.2 |
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7 | | Which one of the following statements concerning the current ratio is correct? |
| | A) | Using book values to compute the current ratio is unacceptable because the market values of the current assets tend to deviate significantly from the book values. |
| | B) | The current ratio is computed by dividing current liabilities by current assets. |
| | C) | The current ratio will always be greater than the quick ratio in companies that carry inventory. |
| | D) | The current ratio measures the long-run liquidity position of a firm. |
| | E) | The higher the current ratio, the more cash a firm has on hand. |
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8 | | The _____ is a liquidity ratio. |
| | A) | return on assets |
| | B) | total asset turnover |
| | C) | cash ratio |
| | D) | times interest earned ratio |
| | E) | profit margin |
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9 | | _____ ratios are designed to determine a firm's long-run ability to meet its obligations. |
| | A) | Liquidity |
| | B) | Asset turnover |
| | C) | Profitability |
| | D) | Financial leverage |
| | E) | Market value |
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10 | | The total asset turnover ratio measures the: |
| | A) | ability of the combined assets of a firm to generate sales. |
| | B) | length of time it takes a firm to completely replace its fixed assets. |
| | C) | amount of net income a firm generates per dollar of total assets. |
| | D) | operating income per dollar of assets owned by a firm. |
| | E) | amount of sales each dollar of fixed assets generates. |
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