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1 | |
A comparative financial statement for one company that shows two or more years in a side-by-side format is called a classified statement. |
| | A) | True |
| | B) | False |
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2 | |
A classified financial statement shows similar items arranged in groups, with subtotals shown to assist users in analyzing the statements. |
| | A) | True |
| | B) | False |
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3 | |
A corporation that does portions of its business through its subsidiaries is called a parent company. |
| | A) | True |
| | B) | False |
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4 | |
A company that is owned and operated by a parent company is called a subsidiary. |
| | A) | True |
| | B) | False |
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5 | |
A classified financial statement shows the combined activities of a parent company and its subsidiaries. |
| | A) | True |
| | B) | False |
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6 | |
A company that has no long-term debt in Year 1 and $50,000 of long-term debt in Year 2 had a 100% increase in long-term debt between Years 1 and 2. |
| | A) | True |
| | B) | False |
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7 | |
Component percentages indicate the relative size of each item included in a total. |
| | A) | True |
| | B) | False |
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8 | |
Vertical analysis refers to reviews of data of consecutive periods. |
| | A) | True |
| | B) | False |
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9 | |
One of the strengths of horizontal analysis is that comparisons with the past afford a basis for evaluation in absolute terms. |
| | A) | True |
| | B) | False |
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10 | |
The FASB requires that companies show the effects of inflation in supplementary disclosures. |
| | A) | True |
| | B) | False |
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11 | |
The FASB requires companies to report the effects of inflation on their financial statements when the inflation rate exceeds 6% per year. |
| | A) | True |
| | B) | False |
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12 | |
Current assets are those assets that can be converted into cash or will be used up within one year or the operating cycle (whichever is longer) without interfering with normal business operations. |
| | A) | True |
| | B) | False |
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13 | |
The operating cycle can be any 12-month period. |
| | A) | True |
| | B) | False |
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14 | |
Working capital = Current assets - Current liabilities. |
| | A) | True |
| | B) | False |
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15 | |
In a classified balance sheet, current assets are listed in alphabetical order. |
| | A) | True |
| | B) | False |
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16 | |
When a company writes off an account receivable through the allowance method, the current ratio decreases. |
| | A) | True |
| | B) | False |
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17 | |
Another term for quick ratio is acid-test ratio. |
| | A) | True |
| | B) | False |
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18 | |
It is possible for a firm to have a positive current ratio and a negative quick ratio. |
| | A) | True |
| | B) | False |
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19 | |
Current ratio = Current assets/Current liabilities. |
| | A) | True |
| | B) | False |
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20 | |
Debit ratio = Total liabilities/Total assets. |
| | A) | True |
| | B) | False |
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21 | |
The annual report is a document that includes audited comparative financial statements, management's discussion and analysis of performance and liquidity, and other information about the company. |
| | A) | True |
| | B) | False |
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22 | |
Measures taken by management to make a business look as strong as possible at the balance sheet date is called window dressing. |
| | A) | True |
| | B) | False |
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23 | |
The creditors of unincorporated businesses often depend on the financial position of the owners when making lending decisions. |
| | A) | True |
| | B) | False |
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24 | |
A company's percentage share of total dollar sales within its industry is called the company's industry share. |
| | A) | True |
| | B) | False |
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25 | |
Income resulting from the company's principal business activities is called operating income. |
| | A) | True |
| | B) | False |
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26 | |
The current market price per share of the company's stock divided by the annual earnings per share results in a measure called the price-earnings ratio. |
| | A) | True |
| | B) | False |
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27 | |
The multiple-step income statement is used in the annual reports of most publicly owned corporations. |
| | A) | True |
| | B) | False |
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28 | |
Operating income/Average total assets = Return on equity. |
| | A) | True |
| | B) | False |
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29 | |
In the formula used to determine the rate of return earned on the stockholders' equity, the denominator in the formula is average total stockholders' equity. |
| | A) | True |
| | B) | False |
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30 | |
Long-term creditors have an avid interest in the accounts receivable turnover rate. |
| | A) | True |
| | B) | False |
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31 | |
A short-term creditor would have an avid interest in the accounts receivable turn over rate. |
| | A) | True |
| | B) | False |
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32 | |
Operating income/Annual interest expense = Interest coverage. |
| | A) | True |
| | B) | False |
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33 | |
Working capital is $45,000. If the firm borrows $18,000 by issuing common stock, what will happen to the current ratio? |
| | A) | It will decrease |
| | B) | It will remain unchanged |
| | C) | It will increase |
| | D) | It will become less than 1 to 1 |
| | E) | None of the above |
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34 | |
Which of the following is true about the yield rate of bonds? |
| | A) | It varies inversely with changes in the bond's market price. |
| | B) | It is the bond rate at bond maturity. |
| | C) | It is computed in the same manner as the dividend yield on stocks. |
| | D) | A and B |
| | E) | A, B, and C |
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35 | |
Which of the following is calculated by a formula that uses net sales as the a denominator? |
| | A) | Operating expense ratio |
| | B) | Gross profit rate |
| | C) | Return on assets |
| | D) | A and B |
| | E) | A, B, and C |
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36 | |
Which of the following is not a measure of short-term liquidity? |
| | A) | Quick ratio |
| | B) | Free cash flow |
| | C) | Working capital |
| | D) | Operating income |
| | E) | Operating cycle |
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37 | |
Which of the following is not a measure of profitability? |
| | A) | Return on equity |
| | B) | Interest coverage ratio |
| | C) | Operating income |
| | D) | Operating expense ratio |
| | E) | Return on assets |
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38 | |
Which of the following is not a measure for evaluating the current market price of common stock? |
| | A) | Return on equity |
| | B) | Dividend yield |
| | C) | Book value per share |
| | D) | Price-earnings ratio |
| | E) | A and C |
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39 | |
Operating income/Annual interest expense = _____________. |
| | A) | Gross profit rate |
| | B) | Operating expense ratio |
| | C) | Return on assets |
| | D) | Return on equity |
| | E) | None of the above |
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40 | |
To compute the days to sell the average inventory, the numerator is 365 days and the denominator is which of the following? |
| | A) | Total assets |
| | B) | Inventory turnover rate |
| | C) | Average inventory |
| | D) | Net sales |
| | E) | None of the above |
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41 | |
To compute free cash flow, reduce net cash from operating activities by the cash used for investing activities and which other of the following? |
| | A) | Dividends |
| | B) | Interest expense |
| | C) | Taxes expense |
| | D) | B and C |
| | E) | A and B |
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42 | |
Dividend yield = Annual dividend / _____________. |
| | A) | Earnings per share |
| | B) | Net sales |
| | C) | Shares of common stock outstanding |
| | D) | Current stock price |
| | E) | Average total equity |
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43 | |
To determine the earnings per share, divide the average number of common shares outstanding into which of the following? |
| | A) | Net income |
| | B) | Net income + Interest expense |
| | C) | Net income - Preferred dividends |
| | D) | Net sales |
| | E) | Current market price of the stock |
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44 | |
Which of the following indicates a company's ability to cover currently maturing obligations from recurring operations? |
| | A) | Quick ratio |
| | B) | Free cash flow |
| | C) | Working capital |
| | D) | Current ratio |
| | E) | Cash flow from operations to current liabilities |
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2002 McGraw-Hill Higher Education