Accounting Chapter 17 Handout

The percent of fixed assets to total assets is an example of
A. vertical analysis
B. solvency analysis
C. profitability analysis
D. horizontal analysis

A. vertical analysis

An analysis is which all the components of an income statement are expresses as a percentage of sales is a
A. vertical analysis
B. horizontal analysis
C. liquidity analysis
D. solvency analysis

A. vertical analysis

a balance sheet that displays only component percentages is a
A. trend balance sheet
B. comparative balance sheet
C. condensed balance sheet
D. common-sized balance sheet

D. common-sized balance sheet

One reason that a common sized statement is a useful tool in financial analysis is that it enables that user to
A. judge the relative potential of two companies of similar size in different industries
B. determine which companies in a single industry are of the same value
C. determine which companies in a single industry are of the same size
D. make a better comparison of two companies of different sizes in the same industry

D. make a better comparison of two companies of different sizes in the same

On a common sized balance sheet, 100% is
A. total property, plant, equipment
B. total current assets
C. total liabilities
D. total assets

D. total assets

In a common sized income statement ,100% is the
A. net cost of goods sold
B. net income
C. gross profit
D. sales

D. sales

Horizontal analysis is a technique for evaluating financial statement data
A. for one period of time
B. over a period of time
C. on a certain date
D. as it may appear in the future

B. over a period of time

Horizontal analysis of comparative financial statements includes
A. development of common sized statements
B. calculation of liquidity ratios
C. calculation of dollar amount changes and percentage changes from previous to the current year
D. evaluation of each component in a financial statement to a total within the statement

C. calculation of dollar amount changes and percentage changes from previous to the current year

In horizontal analysis, each item is expressed as a percentage of the
A. base year figure
B. retained earnings figure
C. total assets figure
D. net income figure

A. base year figure

In a vertical analysis the base for cost of goods sold is
A. total selling expenses
B. sales
C. total expenses
D. gross profit

B. sales

Percentage analysis, ratios, turnovers, and other measures of financial position and operating results are
A. a substitute for sound judgement
B. useful analytical measures
C. enough information for analysis; industry information is not needed
D. unnecessary for analysis, but reaction is better

B. useful analytical measures

The ability of a business pay its debts as they come due and to earn a reasonable net income is
A. solvency and leverage
B. solvency and profitability
C. solvency and liquidity
D. solvency and equity

B. solvency and profitability

which of the following measures a company’s ability to pay its current liabilities
A. earnings per share
B. inventory turnover
C. current ratio
D. number of times interest charges earned

c. current ratio

Which of the following is not included in the computation of the quick ratio
A. inventory
B. marketable securities
C. accounts receivable
D. cash

a. inventory

the numerator in calculating the accounts receivable turnover is
A. total assets
B. sales
C. accounts receivable at year-end
D. average accounts receivable

b. sales

an acceleration in the collection of receivables will tend to cause the accounts receivable turnover to
A. decrease
B. remain the same
C. either increase or decrease
D. increase

D. increase

which of the following ratios provides a solvency measure that shows the margin of safety of bondholders and also gives an indication of the potential ability of the business to borrow additional funds on a long-term basis?
A. ratio of fixed assets to long-term liabilities
B. ratio of net sales to assets
C. number of days’ sales in receivables
D. rate earned on stockholders equity

A. ratio of fixed assets to long-term liabilities

the number of times interest expense is earned is computed as
A. net income plus interest expense, divided by interest expense
B.income before income tax plus interest expense, divided by interest expense
C. net income divided by interest expense
D. income before income tax divided by interest expense

B.income before income tax plus interest expense, divided by interest expense

the current ratio is
A. used to evaluate a company’s liquidity and short term debt paying ability
B. a solvency measure that indicates the margin of of safety of a bondholder
C. calculated by dividing current liabilities by current assets
D. calculated by subtracting current liabilities from current assets

A. used to evaluate a company’s liquidity and short term debt paying ability

A company with $70,000 in current assets and $50,000 in current liabilities pays a $1,000 current liability as a result of this transaction the current ration and working capital will
A. both decrease
B. both increase
C. increase and remain the same, respectively
D.remain the same and decrease, respectively

C. increase and remain the same, respectively