1) The study of au individual financial statement item over several accounting p
ID: 2536082 • Letter: 1
Question
1) The study of au individual financial statement item over several accounting periods is called:
A) Time and motion analysis.C) Horizontal analysis. B) Ratio analysis. D) Ve1tical analysis.
2) Financial statement analysis involves forms of comparison including
A) Co111paring key relationships within the same year.
B) Comparing changes in the same item over a uu111ber of periods.
C)o111paring key items to industry averages.
D) All of these answer choices are correct.
3) Select the c01Tect statement regarding ve1tical analysis. 3)
a) Vertical analysis examines t:vo or 111ore items from the financial statements of one accounting period.
B) Ve1tical analysis of the income statement involves showing each ite111 as a percentage of sales.
C) Ve1tical analysis of the balance sheet involves showing each asset as a percentage of total assets.
D) All of these answer choices are correct.
4) Select the incorrect statement regarding ratio analysis.
A) Some ratios involve an account from the balance sheet and one from the income statement.
B) There are many different ratios available for evaluating a firm's performance.
C) Ratio analysis involves making comparisons between different accounts in the same set of financial statements.
D) Ratio analysis is a specific fonn of horizontal analysis.
Financial ratios can be used to assess which of the following aspects of a Finn's
performance?
A) Solvency
B) Profitability
C) Liquidity
D) All of these answer choices are correct.
The following balance sheet information is provided for Frederick Company:
Assets
Cash
$ 5,000
Accounts receivable
11,150
Inventmy
15,000
Prepaid expenses
1,800
Plant and equipment, net of depreciation
19,700
Land
13,600
Total assets
$ 66,250
Liabilities and Stockholders' Equity
Accounts payable
$ 4,310
Salaries payable
10,030
Bonds payable (due in 2022)
9,000
Common stock, no par
21,910
Retained earnings
21,000
Total liabilities and stocld1olders' equity
$ 66,250
The company's quick (acid-test) ratio is closest to:
A) 1.4 B) 2.3 C) 0.9 D) 1.1
The following balance sheet infonnation was provided by Owen Company:
Assets
2015
2014
Cash
$4,000
$2,000
Accounts receivable
15,000
9,000
Inventmy
42,000
45,000
Assmuing that net credit sales totaled $300,000 and cost of goods sold totaled
$175,000, what is the company's most recent accounts receivable turnover?
21 times B) 15 times C) 25 times D) 24 times
You are considering an investment in Microsoft stock and wish to assess the film's shmi-tenu debt-paying ability. All of the following ratios are used to assess liquidity except:
6)
7)
8)
Debt to equity ratio.
C) Quick ratio.
Explanation / Answer
Ans 1. Under Horizontal Analysis we compares two or more years of a company's financial statements.
So in this case option C is correct that is Horizontal Analysis is correct.
Ans 5. In general financial ratios are used to calculate solvency test of an organization and to test profitabilty of an organization and also to check the liquidity of an organization
So in this case all are correct, so option D is correct in this case.
Ans 6. Company Quick ratio = Current Assets/Current liabilties
Quick Ratio = ($5000 + $11150 + $15000 + $1800) / ($4310 + $10030) = 2.30 approx
So correct option is B that is 2.30
Ans 7. Accounts receivable turnover ratio(ARTR) = Net Credit Sales / Average accounts receivables
Average accounts receivables = opening receivables + closing receivables / 2
Average receivables = $15000 + $9000 / 2 = $12,000
Accounts receivables turnover ratio = $300,000 / $12,000 = 25 times
Hence option C is correct
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