Analysis of Financial statement Quiz
Question 1
A summary of significant accounting policies and explanations of specific items on the financial statements are included in ________.
Select one:
the balance sheet
the notes to financial statements
the report of the independent registered public accounting firm
the income statement
Question 2
Which of the following is NOT a part of a corporation’s annual report?
Select one:
report of independent registered public accounting firm
notes to financial statements
MD&A
employees’ pay rates
Question 3
Ratio analysis ________.
Select one:
cannot be used to evaluate a company’s financial condition
cannot be used to compare a company against other companies in the same industry because the necessary information is not available
cannot be used to evaluate a company’s performance
is used most effectively to compare a company against other companies in the same industry and to denote trends within the company
Question 4
Which of the following best describes trend analysis?
Select one:
expressing each year’s financial statement line item as a percentage of the base year amount
calculating key ratios to evaluate performance
comparing a company’s financial statements with that of other companies
expressing each financial statement amount as a percentage of a budgeted amount
Question 5
The trend analysis report of Poplar, Inc. is given below (in millions):
| |
2019 |
2018 |
2017 |
2016 |
2015 |
| Net income |
$700 |
$606 |
$470 |
$405 |
$402 |
| Trend percentages |
174% |
151% |
117% |
101% |
100% |
Which of the following is a correct conclusion from the above analysis?
Select one:
Net income for 2018 decreased by 151% from 2017.
Net income for 2019 increased by 174% from 2018.
Net income for 2019 is 174% of net income for 2015.
Net income for 2018 is 151% of the previous year.
Question 6
The following is a summary of information presented on the financial statements of a company on December 31, 2019.
| Account |
2019 |
2018 |
| Net Sales Revenue |
$605,000 |
$504,000 |
| Cost of Goods Sold |
457,000 |
402,000 |
| Gross Profit |
$148,000 |
$102,000 |
| Selling Expenses |
50,000 |
53,000 |
| Net Income Before Income Tax Expense |
$98,000 |
$49,000 |
| Income Tax Expense |
37,000 |
20,000 |
| Net Income |
$61,000 |
$29,000 |
With respect to net income, a horizontal analysis reveals ________. (Round your answer to two decimal places.)
Select one:
a $29,000 increase in net income
a 110.34% increase in net income
a 110.34% decrease in net income
that net income is 11.03% of net sales revenue
Question 7
The vertical analysis of the income statement of Bates, Inc. is as shown below:
| Comparative Income Statement |
| Years Ended December 31, 2019 and 2018 |
| (In millions) |
2019 |
Percent of Total |
2018 |
Percent of Total |
| Net Sales |
$6,355 |
100.0% |
$4,920 |
100.0% |
| Cost of Goods Sold |
3,370 |
53.0 |
2,200 |
44.7 |
| Gross Profit |
2,985 |
47.0 |
2,720 |
55.3 |
| Operating Expenses: |
|
|
|
|
| Selling Expenses |
675 |
10.6 |
580 |
11.8 |
| Administrative Expenses |
410 |
6.5 |
425 |
8.6 |
| Total Operating Expenses |
1,085 |
17.1 |
1,005 |
20.4 |
| Operating Income |
1,900 |
29.9 |
1,715 |
34.9 |
| Other Income and (Expenses): |
|
|
|
|
| Interest Expense |
(400) |
(6.3) |
(695) |
(14.1) |
| Total Other Income and (Expenses) |
(400) |
(6.3) |
(695) |
(14.1) |
| Income Before Income Taxes |
1,500 |
23.6 |
1,020 |
20.7 |
| Income Tax Expense |
230 |
3.6 |
210 |
4.3 |
| Net Income |
$1,270 |
20.0% |
$810 |
16.5% |
The figure 47.0% shown for gross profit in 2019 signifies that the gross profit is ________.
Select one:
equal to 47.0% of net income
47.0% of net sales revenue
increased by 47.0% over the previous year
47.0% of cost of goods sold
Question 8
Shelcal, Inc. provides the following data for the year 2019:
| Net Sales Revenue |
437,690 |
| Cost of Goods Sold |
255,000 |
The cost of goods sold as a percentage of net sales revenue is ________. (Round your answer to two decimal places.)
Select one:
58.26%
58.46%
57.95%
58.57%
Question 9
Allstate Moving Company reported the following amounts on its balance sheet as of December 31, 2019 and December 31, 2018:
| |
2019 |
2018 |
| Cash and Receivables |
$165,000 |
$75,000 |
| Merchandise Inventory |
175,000 |
250,000 |
| Property, Plant and Equipment, net |
820,000 |
780,000 |
| Total Assets |
$1,160,000 |
$1,105,000 |
| Total Liabilities |
$475,000 |
$385,000 |
For the vertical analysis, what is the percentage of current assets as of December 31, 2019? (Round your answer to two decimal places.)
Select one:
29.31%
41.46%
29.41%
41.67%
Question 10
Common-size statements ________.
Select one:
create a dollar value bias
report dollar amounts and percentages
allow the users to compare numbers in relative terms rather than absolute amounts
show the same percentages that appear in a horizontal analysis
Question 11
The financial statements for Barrington Service Company include the following items:
| |
|
|
| |
2019 |
2018 |
| |
|
|
| Cash |
$49,500 |
$50,000 |
| Short-term Investments |
29,000 |
19,000 |
| Net Accounts Receivable |
60,000 |
46,000 |
| Merchandise Inventory |
156,000 |
48,000 |
| Total Assets |
532,000 |
544,000 |
| Accounts Payable |
133,500 |
127,000 |
| Salaries Payable |
20,000 |
15,000 |
| Long-term Note Payable |
59,000 |
54,000 |
| |
|
|
Compute the current ratio for 2018. (Round answer to two decimal places.)
Select one:
3.83
6.48
0.87
1.15
Question 12
The financial statements for Silver Service Company include the following items:
| |
2019 |
2018 |
| |
|
|
| Cash |
$49,500 |
$40,000 |
| Short-term Investments |
33,000 |
20,500 |
| Net Accounts Receivable |
52,000 |
53,000 |
| Merchandise Inventory |
132,000 |
45,000 |
| Total Assets |
530,000 |
547,000 |
| Accounts Payable |
131,500 |
122,000 |
| Salaries Payable |
15,000 |
18,000 |
| Long-term Note Payable |
58,000 |
57,000 |
| |
|
|
Compute the acid-test ratio for 2018. (Round your answer to two decimal places)
Select one:
0.93
0.66
0.81
0.92
Question 13
Which of the following items is a measure of a company’s ability to collect receivables?
Select one:
current ratio
inventory turnover ratio
days’ sales in receivables
account receivable balance
Question 14
Elephant, Inc.’s cost of goods sold for the year is $1,900,000, and the average merchandise inventory for the year is $132,000. Calculate the inventory turnover ratio of the company. (Round your answer to two decimal places.)
Select one:
9.31 times
7.20 times
6.95 times
14.39 times
Question 15
Danby, Inc. provides the following data from its income statement for 2018:
| Net Sales |
$540,000 |
| Cost of Goods Sold |
(190,000) |
| Gross Profit |
$350,000 |
Calculate the gross profit percentage. (Round your answer to two decimal places.)
Select one:
64.81%
18.42%
100.00%
35.19%
Question 16
A company reports total assets of $920,000 and stockholders’ equity of $540,000. Calculate the debt ratio. (Round your answer to two decimal places.)
Select one:
41.30%
36.99%
58.70%
70.37%
Question 17
The price/earnings ratio shows the ________.
Select one:
dividend yield of the company
market price of $1 of earnings
value that the stock market places on the dividends paid by the company
proportion of total assets financed by debt
Question 18
Commons, Inc. provides the following information for 2018:
| Net income |
$32,000 |
| Market price per share of common stock |
$19/share |
| Dividends paid |
$0.75/share |
| Common stock outstanding at Jan. 1, 2018 |
110,000 shares |
| Common stock outstanding at Dec. 31, 2018 |
165,000 shares |
The company has no preferred stock outstanding. Calculate the dividend yield for common stock. (Round your answer to two decimal places.)
Select one:
1.21%
4.11%
3.95%
2.74%
Question 19
The dividend yield can be calculated for both common and preferred stockholders.
Select one:
True
False
Question 20
Unexpected or inconsistent movements among sales, merchandise inventory, and receivables reflect normal market conditions and do not pose red flags in financial statements.
Select one:
True
False
Question 21
Days’ sales in inventory measures how quickly a company can collect its receivables.
Select one:
True
False
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