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Exam 13: Financial Statement Analysis Available Online in the Connect Library

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Question 71

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Select the correct statement regarding vertical analysis.

A) Vertical analysis of the income statement involves showing each item as a percentage of sales.
B) Vertical analysis of the balance sheet involves showing each asset as a percentage of total assets.
C) Vertical analysis examines two or more items from the financial statements of one accounting period.
D) All of the other answers are correct.

E) None of the above
F) A) and B)

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Question 72

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Which of the following statement is correct regarding the quick ratio?

A) The numerator for the quick ratio is current assets.
B) The numerator for the quick ratio is current assets minus inventory minus-prepaid expenses.
C) The quick ratio is also called the working capital ratio.
D) The quick ratio is a less conservative variation of the current ratio.

E) A) and B)
F) None of the above

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Question 73

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The Crestar Company reported net income of $100,000 on 20,000 outstanding common shares. Preferred dividends total $12,000. On the most recent trading day, the preferred shares sold at $50 and the common shares sold at $80. What is this company's current price-earnings ratio? (rounded)

Accrual accounting requires the use of many estimates, including:

Which ratio measures the percentage of company's assets that are financed by debt?

Jones Company has cash of $20,000, accounts receivable of $30,000, inventory of $16,000, and equipment of $50,000. Assuming current liabilities of $24,000, this company's working capital is:

Which ratio would you use to examine a company's ability to pay its debts in the short term?

The accounting profession assumes that financial statement users have a reasonable knowledge of business.

Which of the following is a factor involved in communicating useful information?

Select the incorrect statement regarding the information disclosed in financial statements.

In vertical analysis, each item is expressed as a percentage of:

The Destin Company reported net income of $50,000 on sales of $300,000. The company has total assets of $500,000 and total liabilities of $100,000. What is the company's return on equity ratio?

The current ratio is one of the most common measures of liquidity.

Which of the following is an objective of ratio analysis?

The study of an individual item or account over several accounting periods, such as months, quarters or years is known as:

Croatan Company's current ratio for 2012 was 1.42, which was slightly above the current ratio for similar companies in its industry. Croatan's quick ratio for 2012 was 0.68, which is substantially lower than for similar companies in its industry. What conclusion would you reach based on this information?

For 2012, Wylie Corporation reported after-tax net income of $1,100,000. During the year, the number of outstanding shares of 6% $100 par preferred stock remained constant at 5,000, and 500,000 shares of common stock were outstanding all year. The company's total stockholders' equity at December 31, 2012, was $10,500,000. Wylie's common stock was selling at $38 per share at the end of the year. All dividends for the year were paid, including a dividend of $1.50 per share to common stockholders. Required: Compute the following: (a) Earnings per share (b) Book value per share of common stock (c) Price-earnings ratio (d) Dividend yield

The quick ratio although similar to the current ratio is more conservative.

The following information is from the financial records of Norfolk Company for 2012: Required: Calculate the number of times interest is earned for Norfolk in 2012.