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The study of an individual financial statement item over several accounting periods is called:


A) Horizontal analysis.
B) Vertical analysis.
C) Ratio analysis.
D) Time and motion analysis.

E) A) and D)
F) A) and C)

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Which of the following statements regarding the quick ratio is not true?


A) The quick ratio is also known as the acid-test ratio.
B) The quick ratio ignores some current assets that are less liquid than others.
C) The quick ratio is a conservative variation of the current ratio.
D) The quick ratio equals quick assets divided by total liabilities.

E) A) and B)
F) All of the above

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Grove Corporation had sales of $3,000,000,cost of sales of $2,250,000,and average inventory of $500,000.What was Grove's inventory turnover ratio for the period?


A) 1.6 times
B) 6 times
C) 4.5 times
D) 23 times

E) B) and C)
F) A) and B)

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Solvency ratios are used to analyze the long-term debt-paying ability and the composition of the financing structure of the firm.

A) True
B) False

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Which of the following statements regarding ratio analysis is not true?


A) Ratio analysis is a specific form of horizontal analysis.
B) There are many different ratios available for evaluating a firm's performance.
C) Some ratios involve an account from the balance sheet and one from the income statement.
D) Ratio analysis involves making comparisons between different accounts in the same set of financial statements.

E) A) and B)
F) A) and C)

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The return on investment measure is also referred to as:


A) Net margin.
B) Return on equity.
C) Return on debt.
D) Return on assets.

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

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A vertical analysis uses percentages to compare each of the parts of an individual statement to a key statement figure.For example,on an income statement each item would be shown as a percentage of net sales.

A) True
B) False

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You are considering an investment in Apple stock and wish to assess the firm's short-term debt-paying ability.All of the following ratios are used to assess liquidity except:


A) Debt to equity ratio.
B) Inventory turnover.
C) Quick ratio.
D) Accounts receivable turnover.

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

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Miller Company reported gross sales of $850,000,sales returns and allowances of $15,000 and sales discounts of $5,000.The company has average total assets of $500,000,of which $250,000 is property,plant,and equipment.What is the company's asset turnover ratio?


A) 3.32 times
B) 1.67 times
C) 1.66 times
D) 1.70 times

E) None of the above
F) C) and D)

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You are considering an investment in Frontier Airlines stock and wish to assess the firm's earnings performance.All of the following ratios can be used to assess profitability except:


A) Average days to collect receivables.
B) Asset turnover.
C) Return on investment.
D) Net margin.

E) B) and C)
F) A) and B)

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Financial analysis typically involves some form of comparison such as changes in the same item over a number of years.

A) True
B) False

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Which of the following statements regarding the analysis of absolute amounts of various accounts reported on the financial statements is not true?


A) Financial statement users with expertise in particular industries can look at absolute amounts and assess a company's performance in a certain area.
B) To correctly evaluate an absolute amount, the analyst must consider its relative importance.
C) Economic statistics such as the gross national product are built upon totals of absolute amounts reported by businesses.
D) Using absolute amounts eliminates the problem of varying materiality levels.

E) B) and C)
F) A) and B)

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Which of the following statements is true?


A) Investors need to understand that the value of a company's earnings per share is affected by its choices of accounting principles and assumptions.
B) Earnings per share is calculated for a company's preferred stock.
C) The most widely quoted measure of a company's earnings performance is return on equity.
D) The book value per share measures the market value of a corporation's stock.

E) B) and D)
F) A) and B)

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Alpha Company provided the following balance sheet for Year 2:  Assets  Cash $5,400 Accounts receivable 15,500 Inventory 18,000 Prepaid expenses 1,600 Plant and equipment, net of depreciation 25,000 Land 19,950 Total assets $85,450 Liabilities and Stockholders’ Equity  Accounts payable 4,500 Salaries payable 11,500 Bonds payable (due in ten years)  10,000 Common stock, no par 30,000 Retained earnings 29,450 Total liabilities and stockholders’ equity $85,450\begin{array}{lr}\text { Assets }\\\text { Cash }&\$5,400\\\text { Accounts receivable }&15,500\\\text { Inventory }&18,000\\\text { Prepaid expenses }&1,600\\\text { Plant and equipment, net of depreciation }&25,000\\\text { Land }&19,950\\\text { Total assets }&\$85,450\\\text { Liabilities and Stockholders' Equity }\\\text { Accounts payable } & 4,500 \\\text { Salaries payable } & 11,500 \\\text { Bonds payable (due in ten years) } & 10,000 \\\text { Common stock, no par } & 30,000 \\\text { Retained earnings } & 29,450\\\text { Total liabilities and stockholders' equity }&\$85,450\end{array} What is the company's plant assets to long-term liabilities ratio?


A) 2.5
B) 4.5
C) 1.7
D) None of these answers is correct.

E) C) and D)
F) B) and D)

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The following partial balance sheet is provided for Groom Company:  Liabilities and Stockholders’ Equity  Accounts payable $9,000 Salaries payable 12,000 Bonds payable (due in ten years)  20,000 Common stock, no par 30,000 Retained earnings 54,000 otal liabilities and stockholders’ equity $125,000\begin{array}{lcc}\text { Liabilities and Stockholders' Equity }\\\text { Accounts payable } &\$9,000\\\text { Salaries payable } &12,000\\\text { Bonds payable (due in ten years) } &20,000\\\text { Common stock, no par }&30,000 \\\text { Retained earnings } & 54,000 \\ \text { otal liabilities and stockholders' equity } & \$ 125,000\\\end{array} What is the company's debt to assets ratio? (Rounded to nearest whole percent.)


A) 49%
B) 16%
C) 33%
D) Cannot be determined with the information given.

E) C) and D)
F) A) and B)

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Which of the following statements regarding horizontal analysis is not true?


A) Percentage analysis involves computing the percentage relationship between two amounts.
B) A horizontal analysis of cost of goods sold on the income statement includes dividing net income by total revenue.
C) Horizontal analysis attempts to eliminate the materiality problem of comparing firms of different sizes.
D) In horizontal percentage analysis, a financial statement line item is expressed as a percentage of the previous balance of the same item.

E) C) and D)
F) None of the above

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The following balance sheet information is provided for Santana Company for Year 2:  Assets  Cash $5,400 Accounts receivable 15,500 Inventory 18,000 Prepaid expenses 1,600 Plant and equipment, net of depreciation 20,200 Land 19,950 Total assets $80,650 Liabilities and Stockholders’ Equity  Accounts payable 4,500 Salaries payable 11,500 Bonds payable (due in ten years)  19,000 Common stock, no par 30,000 Retained earnings 15,650 Total liabilities and stockholders’ equity $80,650\begin{array}{lr}\text { Assets }\\\text { Cash }&\$5,400\\\text { Accounts receivable }&15,500\\\text { Inventory }&18,000\\\text { Prepaid expenses }&1,600\\\text { Plant and equipment, net of depreciation }&20,200\\\text { Land }&19,950\\\text { Total assets }&\$80,650\\\text { Liabilities and Stockholders' Equity }\\\text { Accounts payable } & 4,500 \\\text { Salaries payable } & 11,500 \\\text { Bonds payable (due in ten years) } &19,000 \\\text { Common stock, no par } & 30,000 \\\text { Retained earnings } &15,650\\\text { Total liabilities and stockholders' equity }&\$80,650\end{array} What is the company's debt to equity ratio? (Rounded to nearest whole percent.)


A) 42%
B) 130%
C) 43%
D) 77%

E) None of the above
F) All of the above

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The following balance sheet information is provided for Gaynor Company:  Assets  Year 2  Year 1  Cash $4,000$2,000 Accounts receivable 15,00012,000 Inventory $35,000$38,000\begin{array}{lrr}\text { Assets } & \text { Year 2 } & \text { Year 1 } \\\text { Cash } & \$ 4,000 & \$ 2,000 \\\text { Accounts receivable } & 15,000 & 12,000 \\\text { Inventory } & \$ 35,000 & \$ 38,000\end{array} Assuming Year 2 cost of goods sold is $153,300,what is the company's inventory turnover?


A) 4.0 times
B) 4.4 times
C) 4.2 times
D) None of these answers is correct.

E) B) and D)
F) B) and C)

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Benson Company received cash of $1,000,000 from issuing common stock at par value.As a result of this transaction,the company's debt-to-equity ratio will:


A) Decrease.
B) Increase.
C) Remain the same.
D) Cannot be determined.

E) A) and B)
F) A) and C)

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Milton Company has total current assets of $46,000,including inventory of $10,000,and current liabilities of $20,000.The company's current ratio is:


A) 0.4.
B) 1.8.
C) 2.8.
D) 2.3.

E) B) and D)
F) B) and C)

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