Question 1

Explain the difference between conservative and aggressive accounting practices.Provide an example of a conservative accounting practice and explain why this practice is conservative.Provide an example of an aggressive accounting practice and explain why this practice is aggressive.

Accepted Answer

Conservative accounting practices are th...

Question 2

Which of the following is an aggressive accounting practice?

Accepted Answer

A)  The use of a shorter service life for depreciation.
B)  Waiting to record a litigation loss.
C)  Adjust the allowance for uncollectible accounts to a larger amount.
D)  The write-down of overvalued inventory.E) A) and B)
F) None of the above

Question 3

Which of the following is an example of vertical analysis?

Accepted Answer

A)  Comparing gross profit across companies.
B)  Comparing income statement items as a percentage of sales.
C)  Comparing debt with industry averages.
D)  Comparing the change in sales over time.E) B) and D)
F) B) and C)

Question 4

Explain the difference between vertical and horizontal analysis.

Accepted Answer

For vertical analysis,we express each it...

Question 5

Which of the following ratios is most useful in evaluating solvency?

Accepted Answer

A)  Debt to equity ratio.
B)  Current ratio.
C)  Receivables turnover ratio.
D)  Inventory turnover ratio.E) B) and D)
F) A) and D)

Question 6

The acid-test ratio is:

Accepted Answer

A)  The liquidity ratio divided by the equity ratio.
B)  Current assets minus inventory divided by current liabilities minus accounts payable.
C)  Cash,net receivables,and current investments divided by current liabilities.
D)  Cash divided by accounts payable.E) B) and C)
F) A) and D)

Question 7

An extremely high inventory turnover ratio may be a signal that the company is losing sales due to inventory shortages.

Accepted Answer

A) True 
 B)False

Question 8

Every liquidity ratio is calculated using one or more current asset accounts.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is a sign that a company cannot quickly turn its receivables into cash?

Accepted Answer

A)  A high receivables turnover ratio.
B)  A low receivables turnover ratio.
C)  A low average collection period.
D)  Both a high receivables turnover ratio and a low average collection period.E) A) and C)
F) C) and D)

Question 10

A low inventory turnover ratio usually is a positive sign and indicates that inventory is selling quickly.

Accepted Answer

A) True 
 B)False

Question 11

Asset turnover measures sales volume in relation to the investment in assets,and is calculated as net sales divided by average total assets.

Accepted Answer

A) True 
 B)False

Question 12

Assuming a current ratio of 1.0 and an acid-test ratio of 0.75,how will the purchase of inventory with cash affect each ratio?

Accepted Answer

A)  Increase the current ratio and increase the acid-test ratio.
B)  No change to the current ratio and decrease the acid-test ratio.
C)  Decrease the current ratio and decrease the acid-test ratio.
D)  Increase the current ratio and decrease the acid-test ratio.E) A) and B)
F) C) and D)

Question 13

Changes in accounting estimates usually have no effect on a company's underlying cash flows.

Accepted Answer

A) True 
 B)False

Question 14

Other things being equal,the higher the debt to equity ratio,the higher the risk of bankruptcy.

Accepted Answer

A) True 
 B)False

Question 15

Horizontal analysis analyzes trends in financial statement data for a single company over time.

Accepted Answer

A) True 
 B)False

Question 16

Use the following information to answer the next ten questions:
Excerpts from Stealth Company's December 31,2015 and 2014,financial statements are presented below:
 
-Stealth Company's 2015 asset turnover is:

Accepted Answer

A)  3.7 times.
B)  2.8 times.
C)  2.2 times.
D)  0.5 times.E) B) and D)
F) A) and D)

Question 17

Growth stocks have high expectations of future earnings growth,and therefore,usually trade at higher PE ratios.

Accepted Answer

A) True 
 B)False

Question 18

Assuming a current ratio of 1.0,how will the purchase of inventory with cash affect the ratio?

Accepted Answer

A)  Increase the current ratio.
B)  No change to the current ratio.
C)  Decrease the current ratio.
D)  Could either increase or decrease the current ratio.E) C) and D)
F) None of the above

Question 19

Which of the following ratios is most useful in evaluating liquidity?

Accepted Answer

A)  Return on assets.
B)  Return on equity.
C)  Debt to equity ratio.
D)  Current ratio.E) All of the above
F) B) and D)

Question 20

If a company's sales are $648,000 in 2015,and this represents an 8% increase over sales in 2014,what were sales in 2014?

Accepted Answer

$648,000 /...

Exam 12: Financial Statement Analysis

The acid-test ratio is:

Correct AnswerverifiedShow Answer

Other things being equal,the higher the debt to equity ratio,the higher the risk of bankruptcy.

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Explain the difference between conservative and aggressive accounting practices.Provide an example of a conservative accounting practice and explain why this practice is conservative.Provide an example of an aggressive accounting practice and explain why this practice is aggressive.

Correct AnswerverifiedConservative accounting practices are th...View AnswerShow Answer

Assuming a current ratio of 1.0,how will the purchase of inventory with cash affect the ratio?

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Which of the following ratios is most useful in evaluating liquidity?

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Which of the following is a sign that a company cannot quickly turn its receivables into cash?

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Horizontal analysis analyzes trends in financial statement data for a single company over time.

Correct AnswerverifiedShow Answer

Explain the difference between vertical and horizontal analysis.

Correct AnswerverifiedFor vertical analysis,we express each it...View AnswerShow Answer

Changes in accounting estimates usually have no effect on a company's underlying cash flows.

Correct AnswerverifiedShow Answer

Every liquidity ratio is calculated using one or more current asset accounts.

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A low inventory turnover ratio usually is a positive sign and indicates that inventory is selling quickly.

Correct AnswerverifiedShow Answer

Which of the following ratios is most useful in evaluating solvency?

Correct AnswerverifiedShow Answer

Growth stocks have high expectations of future earnings growth,and therefore,usually trade at higher PE ratios.

Correct AnswerverifiedShow Answer

If a company's sales are $648,000 in 2015,and this represents an 8% increase over sales in 2014,what were sales in 2014?

Correct Answerverified$648,000 /...View AnswerShow Answer

Which of the following is an aggressive accounting practice?

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Asset turnover measures sales volume in relation to the investment in assets,and is calculated as net sales divided by average total assets.

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Which of the following is an example of vertical analysis?

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Assuming a current ratio of 1.0 and an acid-test ratio of 0.75,how will the purchase of inventory with cash affect each ratio?

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Use the following information to answer the next ten questions: Excerpts from Stealth Company's December 31,2015 and 2014,financial statements are presented below: -Stealth Company's 2015 asset turnover is:

Correct AnswerverifiedShow Answer

An extremely high inventory turnover ratio may be a signal that the company is losing sales due to inventory shortages.

Correct AnswerverifiedShow Answer

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Conservative accounting practices are th...
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For vertical analysis,we express each it...
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$648,000 /...
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