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Question(s) / Instruction(s):

ACCT 101   CH 13

 

1.            Net income adjusted for irregular items is referred to as earning power.           

A.           True

B.            False

 

                2.            Vertical analysis is a technique for evaluating a series of financial statement data over a period of time.               

A.           True

B.            False

 

                3.            The purpose of horizontal analysis is to determine the increase or decrease that has taken place, expressed as an amount or a percentage.

A.           True

B.            False

 

                4.            The inventory turnover ratio and the profit margin ratio are profitability ratios.              

A.           True

B.            False

 

 

                5.            The asset turnover ratio measures how efficiently a company uses its assets to generate sales.            

A.           True

B.            False

 

                6.            Which of the following is NOT considered to be an irregular item?        

A.           Changes in accounting principle.

B.            Discontinued operations.

C.            Extraordinary items.

D.           All of the above.

 

                7.            Comparisons can be made on all of the following bases except              

A.           Industry averages.

B.            Intercompany basis.

C.            Intracompany basis.

D.           All of these options are bases for comparison.

 

 

                8.            A technique for evaluating a series of financial statement data over a period of time is              

A.           Horizontal analysis.

B.            Ratio analysis.

C.            Vertical analysis.

D.           Common size analysis.

 

 

                9.            A technique for evaluating financial statements that expresses the relationship among selected financial statement data is           

A.           Horizontal analysis.

B.            Ratio analysis.

C.            Vertical analysis.

D.           Common size analysis.

 

 

                10.          Horizontal analysis is also called              

A.           Common size analysis.

B.            Ratio analysis.

C.            Trend analysis.

D.           Vertical analysis.

 

 

                11.          In vertical analysis, the base for each income statement item is             

A.           Gross profit.

B.            Net income.

C.            Net sales.

D.           Sales.

 

                12.          Users of ratio analysis include which of the following? 

A.           Creditors

B.            Financial analysts.

C.            Investors.

D.           All of these options.

 

                13.          Ratios that measure the short-term ability of the enterprise to pay its maturing obligations are             

A.           Liquidity ratios.

B.            Profitability ratios.

C.            Solvency ratios.

D.           Trend ratios.

 

                14.          A ratio that is a measure of a company\'s immediate short-term liquidity is the

A.           Acid-test ratio.

B.            Current ratio.

C.            Current cash debt coverage ratio.

D.           Receivables turnover ratio.

 

 

                15.          The current cash debt coverage ratio is computed by dividing 

A.           Net income by ending current liabilities.

B.            Net income by average current liabilities.

C.            Cash provided by operating activities by ending current liabilities.

D.           Cash provided by operating activities by average current liabilities.

 

 

                16.          An overall measure of profitability is the            

A.           Asset turnover.

B.            Profit margin.

C.            Return on assets.

D.           Return on common stockholders\' equity.

 

 

                17.          The return on common stockholders\' equity is computed by dividing  

A.           Net income by ending common stockholders\' equity.

B.            Net income by average common stockholders\' equity.

C.            Net income less preferred dividends by ending common stockholders\' equity.

D.           Net income less preferred dividends by average common stockholders\' equity.

 

 

                18.          All of the following are solvency ratios except the         

A.           Cash debt coverage ratio.

B.            Current ratio.

C.            Debt to total assets ratio.

D.           Times interest earned.

 

 

                19.          Times interest earned is computed by dividing interest expense into  

A.           Net income.

B.            Income before income taxes.

C.            Income before interest expense.

D.           Income before income taxes and interest expense.

 

                20.          Limitations of financial statement analysis include all of the following except   

A.           Atypical data.

B.            Common accounting methods.

C.            Estimates.

D.           Diversification of firms.

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