Strayer ACC560 Week 11 Quiz 14

ACC 560 Week 11 Quiz 14TRUE-FALSE STATEMENTS 1. Intracompany comparisons of the same financial statement items can often detect changes in financial relationships and significant trends. 2. Calculating financial ratios is a financial reporting requirement under generally accepted accounting principles. 3. Measures of a company’s liquidity are concerned with the frequency and amounts of dividend payments. 4. Analysis of financial statements is enhanced with the use of comparative data. 5. Comparisons of company data with industry averages can provide some insight into the company’s relative position in the industry. 6. Vertical and horizontal analyses are concerned with the format used to prepare financial statement. 7. Horizontal, vertical, and circular analyses are the most common tools of financial statement analysis. 8. Horizontal analysis is a technique for evaluating a financial statement item in the current year with other items in the current year. 9. Another name for trend analysis is horizontal analysis. 10. If a company has sales of $110 in 2012 and $154 in 2013, the percentage increase in sales from 2012 to 2013 is 140%. 11. In horizontal analysis, if an item has a negative amount in the base year, and a positive amount in the following year, no percentage change for that item can be computed. 12. Common size analysis expresses each item within a financial statement in terms of a percent of a base amount. 13. Vertical analysis is a more sophisticated analytical tool than horizontal analysis. 14. Vertical analysis is useful in making comparisons of companies of different sizes. 15. Meaningful analysis of financial statements will include either horizontal or vertical analysis, but not both. 16. Using vertical analysis of the income statement, a company’s net income as a percentage of net sales is 10%; therefore, the cost of goods sold as a percentage of sales must be 90%. 17. In the vertical analysis of the income statement, each item is generally stated as a percentage of net income. 18. A ratio can be expressed as a percentage, a rate, or a proportion. 19. A solvency ratio measures the income or operating success of an enterprise for a given period of time. 20. The current ratio is a measure of all the ratios calculated for the current year. 21. Inventory turnover measures the number of times on the average the inventory was sold during the period. 22. Profitability ratios are frequently used as a basis for evaluating management’s operating effectiveness. 23. The rate of return on total assets will be greater than the rate of return on common stockholders’ equity if the company has been successful in trading on the equity at a gain. 24. From a creditor’s point of view, the higher the total debt to total assets ratio, the lower the risk that the company may be unable to pay its obligations. 25. A current ratio of 1.2 to 1 indicates that a company’s current assets exceed its current liabilities. 26. Using borrowed money to increase the rate of return on common stockholders’ equity is called “trading on the equity.” 27. When the disposal of a significant segment occurs, the income statement should report both income from continuing operations and income (loss) from discontinued operations. 28. An event or transaction should be classified as an extraordinary item if it is unusual in nature or if it occurs infrequently. 29. Variations among companies in the application of generally accepted accounting principles may reduce quality of earnings. 30. Pro forma income usually excludes items that the company thinks are unusual or nonrecurring. 31. The three basic tools of analysis are horizontal analysis, vertical analysis, and ratio analysis. 32. A percentage change can be computed only if the base amount is zero or positive. 33. In vertical analysis, the base amount in an income statement is usually net sales. 34. Profitability ratios measure the ability of the enterprise to survive over a long period of time. 35. The days in inventory is computed by multiplying inventory turnover by 365. 36. Extraordinary items are reported net of applicable taxes in a separate section of the income statement.MULTIPLE CHOICE QUESTIONS 37. Which one of the following is primarily interested in the liquidity of a company?a. Federal governmentb. Stockholdersc. Long-term creditorsd. Short-term creditors 38. Which one of the following is not a characteristic generally evaluated in analyzing financial statements?a. Liquidityb. Profitabilityc. Marketabilityd. Solvency 39. In analyzing the financial statements of a company, a single item on the financial statementsa. should be reported in bold-face type.b. is more meaningful if compared to other financial information.c. is significant only if it is large.d. should be accompanied by a footnote. 40. Short-term creditors are usually most interested in evaluatinga. solvency.b. liquidity.c. marketability.d. profitability. 41. Long-term creditors are usually most interested in evaluatinga. liquidity and solvency.b. solvency and marketability.c. liquidity and profitability.d. profitability and solvency. 42. Stockholders are most interested in evaluatinga. liquidity and solvency.b. profitability and solvency.c. liquidity and profitability.d. marketability and solvency. 43. A stockholder is interested in the ability of a firm toa. pay consistent dividends.b. appreciate in share price.c. survive over a long period.d. all of these. 44. Comparisons of financial data made within a company are calleda. intracompany comparisons.b. interior comparisons.c. intercompany comparisons.d. intramural comparisons. 45. A technique for evaluating financial statements that expresses the relationship among selected items of financial statement data isa. common size analysis.b. horizontal analysis.c. ratio analysis.d. vertical analysis. 46. Which one of the following is not a tool in financial statement analysis?a. Horizontal analysisb. Circular analysisc. Vertical analysisd. Ratio analysis 47. In analyzing financial statements, horizontal analysis is aa. requirement.b. tool.c. principle.d. theory. 48. Horizontal analysis is also calleda. linear analysis.b. vertical analysis.c. trend analysis.d. common size analysis. 49. Vertical analysis is also known asa. perpendicular analysis.b. common size analysis.c. trend analysis.d. straight-line analysis. 50. In ratio analysis, the ratios are never expressed as aa. rate.b. negative figure.c. percentage.d. simple proportion. 51. The formula for horizontal analysis of changes since the base period is the current year amounta. divided by the base year amount.b. minus the base year amount divided by the base year amount.c. minus the base year amount divided by the current year amount.d. plus the base year amount divided by the base year amount. 52. Horizontal analysis evaluates a series of financial statement data over a period of timea. that has been arranged from the highest number to the lowest number.b. that has been arranged from the lowest number to the highest number.c. to determine which items are in error.d. to determine the amount and/or percentage increase or decrease that has taken place. 53. Horizontal analysis evaluates financial statement dataa. within a period of time.b. over a period of time.c. on a certain date.d. as it may appear in the future. 54. Assume the following sales data for a company:2014 $1,050,0002013 950,0002012 800,0002011 550,000If 2011 is the base year, what is the percentage increase in sales from 2011 to 2013?a. 100%b. 90.9%c. 72.7%d. 52.4% 55. Comparative balance sheets are usually prepared fora. one year.b. two years.c. three years.d. four years. 56. Horizontal analysis is appropriately performeda. only on the income statement.b. only on the balance sheet.c. only on the statement of retained earnings.d. on all three of these statements. 57. A horizontal analysis performed on a statement of retained earnings would not show a percentage change ina. dividends paid.b. net income.c. expenses.d. beginning retained earnings. 58. Under which of the following cases may a percentage change be computed?a. The trend of the balances is decreasing but all balances are positive.b. There is no balance in the base year.c. There is a positive balance in the base year and a negative balance in the subsequent year.d. There is a negative balance in the base year and a positive balance in the subsequent year. 59. Assume the following sales data for a company:2014 $945,0002013 877,5002012 650,000If 2012 is the base year, what is the percentage increase in sales from 2012 to 2013?a. 24%b. 35%c. 76%d. 135% 60. Assume the following cost of goods sold data for a company:2014 $1,680,0002013 1,400,0002012 1,200,000If 2012 is the base year, what is the percentage increase in cost of goods sold from 2012 to 2014?a. 140%b. 40%c. 23%d. 17%More Questions are Included