ACC 206 Week 10 Quiz – Strayer


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Quiz 8 Chapter18


FINANCIALSTATEMENTANALYSIS


CHAPTERSTUDYOBJECTIVES


1.Discusstheneedforcomparativeanalysis.

2.Identifythetoolsoffinancialstatementanalysis.

3.Explainandapplyhorizontal(trend)analysis.

4.Describeandapplyverticalanalysis.

5.Identifyandcomputeratiosusedinanalyzingafirm'sliquidity,profitability,andsolvency.

6.Understandtheconceptofearningpower,andindicatehowirregularitemsarepresented.

7.Understandtheconceptofqualityofearnings.


TRUE-FALSESTATEMENTS

1.     Intracompanycomparisonsofthesamefinancialstatementitemscanoftendetect changes infinancialrelationships andsignificanttrends.

2.     Calculatingfinancialratiosisafinancialreportingrequirementundergenerallyaccepted accountingprinciples.

3.     Measuresofacompany'sliquidityareconcernedwiththefrequencyandamountsof dividend payments.

4.     Analysisof financialstatementsis enhancedwith theuseof comparativedata.

5.     Comparisonsofcompanydatawithindustryaveragescanprovidesomeinsightintothe company's relativepositionintheindustry.

6.     Verticalandhorizontalanalysesareconcernedwiththeformatusedtopreparefinancial statements.

7.     Horizontal,vertical,andcircularanalysesarethemostcommontoolsoffinancial statementanalysis.

8.     Horizontalanalysisisatechniqueforevaluatingafinancialstatementiteminthecurrent yearwith otheritemsinthecurrentyear.

9.     Anothernamefortrendanalysisishorizontalanalysis.

10.     Ifacompanyhassalesof$110in2008and$154in2009,thepercentageincreasein sales from2008to2009is140%.

11.     Inhorizontalanalysis,ifanitemhasanegativeamountinthebaseyear,andapositive amount inthefollowingyear,nopercentagechangeforthatitemcanbecomputed.

12.     Commonsizeanalysisexpresseseachitemwithinafinancialstatementintermsofa percent of a baseamount.

13.     Verticalanalysisisa moresophisticatedanalyticaltoolthanhorizontal analysis.

14.     Verticalanalysisisusefulinmakingcomparisonsofcompaniesofdifferentsizes.

15.     Meaningfulanalysisoffinancialstatementswillincludeeitherhorizontalorvertical analysis,butnotboth.

16.     Usingvertical analysisoftheincomestatement,acompany'snetincome asapercentage ofnetsalesis10%;therefore,thecostofgoodssoldasapercentageofsalesmustbe 90%.

17.     Intheverticalanalysisoftheincomestatement,eachitemisgenerallystatedasa percentage of net income.

18.     A ratiocanbeexpressedasapercentage,arate,oraproportion.

19.     Asolvencyratiomeasurestheincomeoroperatingsuccessofanenterpriseforagiven period of time.

20.     Thecurrentratiois ameasure of alltheratioscalculatedforthe currentyear.

21.     Inventoryturnovermeasuresthenumberoftimesontheaveragetheinventorywassold during theperiod.

22.     Profitabilityratiosarefrequentlyusedasabasisforevaluatingmanagement'soperating effectiveness.

23.     Therateofreturnontotalassetswillbegreaterthantherateofreturnoncommon stockholders' equity ifthe companyhas beensuccessful intrading ontheequityat again.

24.     Fromacreditor's pointofview,thehigherthetotaldebttototalassetsratio,thelowerthe risk that thecompanymaybeunableto payits obligations.

25.     Acurrentratioof1.2to1indicatesthatacompany'scurrentassetsexceeditscurrent liabilities.

26.     Usingborrowedmoneytoincreasetherateofreturnoncommonstockholders'equityis called "tradingontheequity."

27.     Whenthedisposalofasignificantsegmentoccurs,theincomestatementshouldreport both incomefromcontinuingoperationsandincome(loss)fromdiscontinuedoperations.

28.     Aneventortransactionshouldbeclassifiedasanextraordinaryitemifitisunusualin nature orifit occurs infrequently.

29.     Variationsamongcompaniesintheapplicationofgenerallyacceptedaccounting principles mayreducequalityofearnings.

30.     Proformaincomeusuallyexcludesitemsthatthecompanythinksareunusualor nonrecurring.



Additional True-FalseQuestions

31.     Thethreebasictoolsofanalysisarehorizontalanalysis,verticalanalysis,andratio analysis.

32.     A percentagechangecan becomputedonlyif thebaseamountiszeroorpositive.

33.     Inverticalanalysis, the baseamountinanincomestatementisusuallynetsales.

34.     Profitabilityratiosmeasuretheabilityoftheenterprisetosurviveoveralongperiodof time.

35.     Thedaysin inventoryiscomputedbymultiplyinginventoryturnoverby365.

36.     Extraordinaryitemsarereportednetofapplicabletaxesinaseparatesectionofthe income statement.



MULTIPLECHOICEQUESTIONS


37.     Whichoneof thefollowingisprimarilyinterestedintheliquidityof acompany? a.Federalgovernment
b.Stockholders
c.Long-termcreditors d.Short-termcreditors

38.     Whichoneof thefollowing isnot a characteristic generallyevaluatedin analyzingfinancial statements?
a.Liquidity
b.Profitabilityc.Marketability d.Solvency

39.     Inanalyzingthefinancialstatementsofacompany,asingleitemonthefinancial statements
a.shouldbereported inbold-facetype.
b.ismoremeaningfulif comparedtootherfinancialinformation. c.is significantonlyifit is large.
d.shouldbeaccompaniedbyafootnote.

40.     Short-termcreditorsareusuallymostinterestedinevaluating a.solvency.
b.liquidity.
c.marketability. d.profitability.

41.     Long-termcreditorsareusuallymostinterestedinevaluating a.liquidityandsolvency.
b.solvencyandmarketability. c.liquidityandprofitability.
d.profitabilityandsolvency.

42.     Stockholdersaremostinterestedinevaluating a.liquidityandsolvency.
b.profitabilityandsolvency. c.liquidityandprofitability.
d.marketabilityandsolvency.
FinancialStatementAnalysis      18-7

43.     A stockholderis interestedintheabilityof afirmto a.payconsistentdividends.
b.appreciateinshareprice.c.surviveovera longperiod. d.all of these.

44.     Comparisonsoffinancialdatamadewithina companyarecalled a.intracompanycomparisons.
b.interiorcomparisons.
c.intercompanycomparisons. d.intramuralcomparisons.

45.     Atechniqueforevaluatingfinancialstatementsthatexpressestherelationshipamong selected items offinancialstatementdatais
a.commonsizeanalysis. b.horizontalanalysis.
c.ratioanalysis.
d.verticalanalysis.

46.     Whichoneof thefollowingisnotatool infinancialstatementanalysis? a.Horizontalanalysis
b.Circularanalysis c.Verticalanalysis d.Ratioanalysis

47.     Inanalyzingfinancialstatements,horizontalanalysis is a a.requirement.
b.tool.
c.principle. d.theory.

48.     Horizontalanalysisis also called a.linearanalysis.
b.verticalanalysis. c.trendanalysis.
d.commonsizeanalysis.

49.    Verticalanalysisisalsoknownas a.perpendicularanalysis.
b.commonsizeanalysis. c.trendanalysis.
d.straight-lineanalysis.

50.     Inratioanalysis,theratiosareneverexpressedasa a.rate.
b.negativefigure. c.percentage.
d.simpleproportion.
18-8       

51.     Theformulaforhorizontalanalysisofchangessincethebaseperiodisthecurrentyear amount
a.dividedbythebaseyearamount.
b.minusthebaseyearamountdividedbythe base yearamount.c.minusthebase yearamountdividedbythe currentyearamount. d.plusthebaseyearamountdividedbythebase yearamount.

52.     Horizontalanalysisevaluatesaseriesoffinancialstatementdataovera periodof time a.that hasbeenarrangedfromthehighestnumbertothelowestnumber.
b.that hasbeenarrangedfromthelowestnumbertothehighestnumber. c.todeterminewhichitemsareinerror.
d.todeterminetheamountand/orpercentageincreaseordecreasethathastaken place.

53.     Horizontalanalysisevaluatesfinancialstatementdata a.withina periodof time.
b.overa periodof time. c.onacertaindate.
d.as it mayappearinthefuture.

54.     Assumethefollowingsalesdatafor a company:

2010                      $1,000,000 2009                          900,000 2008                          750,000 2007                          600,000

If2007isthebaseyear, whatis thepercentageincreaseinsalesfrom2007to 2009? a.100%
b.150% c.50%d.66.7%

55.     Comparativebalancesheetsareusuallypreparedfor a.oneyear.
b.twoyears.c.threeyears. d.four years.

56.     Horizontalanalysisisappropriatelyperformed a.onlyonthe incomestatement.
b.onlyonthebalancesheet.
c.onlyonthestatementof retainedearnings. d.onallthreeofthesestatements.

57.     Ahorizontalanalysisperformedonastatementofretainedearningswouldnotshowa percentagechangein
a.dividendspaid. b.netincome.
c.expenses.
d.beginningretained earnings.
FinancialStatementAnalysis      18-9

58.     Under whichofthefollowingcasesmaya percentagechangebecomputed? a.Thetrendofthe balancesisdecreasingbutallbalancesarepositive.
b.Thereis nobalanceinthebaseyear.
c.There is apositivebalancein thebaseyear andanegativebalancein thesubsequent year.
d.There is anegativebalancein thebaseyearandapositivebalanceinthe subsequent year.

59.     Assumethefollowingsalesdatafor a company:

2009                $945,000 2008                 780,000 2007                 650,000

If2007isthebaseyear,whatis thepercentageincreaseinsalesfrom2007to 2008? a.25%
b.20%c.125% d.143%

60.     Assumethefollowingcost ofgoodssolddatafora company:

2009             $1,500,000 2008              1,200,000 2007                 900,000

If2007isthebaseyear,whatisthepercentage increase incostofgoodssoldfrom2007 to2009?
a.167% b.67%c.60% d.40%

Usethefollowing informationforquestions61–62:

MoonBeam,Inc.hasthefollowingincomestatement(inmillions):

MOON BEAM, INC. IncomeStatement
FortheYearEndedDecember31,2008

NetSales                                                                    $180 CostofGoodsSold                                                120 GrossProfit                                                                 60 OperatingExpenses                                             33NetIncome                                                                                  $27

61.     Usingverticalanalysis,whatpercentageisassignedto Costof GoodsSold? a.    67%
b.     33% c.100%
d.Noneof theabove
18-10

62.     Usingverticalanalysis,whatpercentageis assignedto NetIncome? a.100%
b.85% c.15%
d.Noneof theabove

63.     Verticalanalysisisalsocalled a.commonsizeanalysis.
b.horizontalanalysis. c.ratioanalysis.
d.trendanalysis.

64.     Verticalanalysisisa techniquewhichexpresseseachitemwithinafinancialstatement a.in dollarsandcents.
b.intermsof apercentageoftheiteminthepreviousyear. c.in terms of apercentofa baseamount.
d.starting withthe highestvaluedowntothe lowestvalue.


65.     Incommonsizeanalysis,

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