1. A common - size statement reports only percentages that appear in a ______.
a) Financial statement
b) Cost statement
c) Vertical analysis report
d) Horizontal analysis report
2. Which of the following is the correct formula for calculating the cash ratio?
a) Cash ratio= (Cash + Bank) + Total liabilities
b) Cash ratio= (Cash + Cash equivalents) + total current liabilities
c) Cash ratio= (Cash + Cash equivalents) + total assets
d) Cash ratio= (Bank + Cash equivalents) + total current liabilities
3. If an investor wants to know the amount of cash available with the company for new opportunities, such as expanding into a new sales region, they would most likely look at ______.
a) Acid ratio
b) Net cash flow from investing activities
c) Earnings per share
d) Free cash flow
4. The following is a summary of information presented on the financial statements of a company on December 31, 2015.
Account 2015 2016
Current Assets $70,000 $53,000
Accounts Receivable 83,000 78,000
Merchandise inventory 52,000 42,000
Current liabilities 74,000 51,000
Long- term liabilities 32,000 51,000
Common stock 54,000 44,000
Retained earnings 45,000 27,000
Net sales revenue 528,000 504,000
Cost of goods sold 405,000 402,000
Gross profit 123,000 102,000
Selling expenses 45,000 54,000
Net income before income tax expense 78,000 48,000
Income tax expense 27,000 16,800
Net income 51,000 31,200
What would a horizontal analysis report show with respect to current liabilities?
a) A 31.08% increase in current liabilities
b) A 45.1% increase in current liabilities
c) Current liabilities are 36.1% of total capital
d) A current ratio of 0.95
5. Which of the following statements is true for leverage?
a) Assets turnover ratio measures financial leverage
b) Leverage always increases profitability
c) Leverage is shown in proportion of total assets relative to total equity
d) Higher the debt ratio, higher the leverage.
6. Which of the following is a cash outflow for a financing activity on the statement of cash flows?
a) Purchase of land
b) Purchase of treasury stock
c) Loans made to another party
d) Purchase of long - term investments, such as the stock of another company
7. Shelcal Inc. provides the following data for the year 2015.
Sales revenue $400,000
Sales returns and allowances 1,200
Sales discounts 800
Net sales revenue $398,000
Cost of goods sold $255,000
On a vertical analysis report, the cost of goods sold as a percentage of net sales revenue will amount to: _______
a) 63.48%
b) 61.15%
c) 59.42%
d) 64.07%
8. Avatar Company
Comparative Balance Sheet
December 31, 2014 and 2013 2014 2013 increase/decrease
Accounts payable $4,000 $5,000 $1,000
Accrued liabilities 4,000 1,300 2,700
Long- term notes and payable 55,000 67,000 (12,000)
Total liabilities 63,000 73,300 (10,300)
Additional information provided by the company includes following:
1) During 2014, the company repaid $38,000 of long - term notes payable
2) During 2014, the company borrowed $26,000 on a new Note Payable.
Based on the above information only, what amount of net cash flow would be shown in the financing section of the statement of cash flows?
a) $12,000
b) $(12,000)
c) $64,000
d) $(64,000)
9. The only part that differs in a statement of cash flows prepared by the direct method from one prepared by the indirect method is the ______.
a) Financing activities section
b) Operating activities section
c) Non- cash investing and financing activities section
d) Investing activities section
10. Nobell Inc. provides the following data:
2015 2014
Cash $21,000 18,000
Accounts receivable, net 31,000 35,000
Merchandise inventory 53,000 25,000
Property, plant, and equipment, net 120,000 90,000
Total assets 225,000 168,000
Net credit sales $240,000
Cost of goods sold (110,000)
Gross profit $130,000
Calculate inventory 2015:
a) 176.3
b) 129.4
c) 252.2
d) 0.008
11. Walker Corp. uses the indirect method to prepare the statement of cash flows. Refer to the following section of the comparative balance sheet:
Walker Corp.
Comparative Balance sheet
December 31, 2014 and 2013
2014 2013 increase/decrease
Cash $45,000 $27,000 $18,000
Accounts receivable 48,000 45,000 3,000
Inventory 180,000 132,000 48,000
Total assets 273,000 204,000 69,000
How will the change in accounts receivable be shown on the statement of cash flow?
a) Negative cash flow under the operating activities section
b) Negative cash flow under the investing activities section
c) Positive cash flow under the financing activities section
d) Positive cash flow under the operating activities section
12. A corporation has 2,000 shares, 10% preferred stock of $50 par, and 6,000 shares of common stock outstanding. The net income for the year is $250,000. Calculate earnings
per share.
a) $125
b) $50
c) $40
d) $42
13. A net income of a company for the year ended was $500,000. The company has no preferred stock. Common stockholders' equity was $1,000,000 at the beginning of the year and $2,000,000 at the end of the year. Calculate the return on common stockholders' equity.
a) 21.43%
b) 33.33%
c) 18.75%
d) 20.00%
14. Which of the following items is a measure of a company's ability to collect receivables?
a) Days' sale in receivables
b) Account receivable balance
c) Current ratio
d) Inventory turnover ratio
15. Which of the following accurately describes working capital?
a) Total debt minus stockholders' equity
b) Current assets minus current liabilities
c) Current assets minus merchandise inventory
d) Cost of goods sold divided by average merchandise inventory
16. Which of the following statements is true of the direct and indirect methods of preparing the statement of cash flows?
a) The indirect method and the direct method will produce the same amount of net cash flow from operating activities.
b) The operating activities section of both the direct and the indirect methods are the same.
c) The investing activities section is the only section that differs between the direct and the indirect methods.
d) The indirect method shows three types of cash flows, but the direct method does not.
17. The trend analysis report of Doppler Inc. is given below:
(in millions) 2017 2016 2015 2014 2013
Net income $660 $606 $456 $406 $399
Trend percentages 165 152 114 102 100
Which of the following is a correct conclusion from the above analysis?
a) Net income for the year of 2017 increased by 165% from 2016
b) Net income for the year of 2016 is 152% of previous year
c) Net income for the year of 2016 decreased by 152% from 2015
d) Net income for the year 2017 is 165% of that for the year 2013
18. E-Shop inc. provides the following information for the year 2015:
Net income $260,000
Market price per share of common stock $60 per share
Dividends paid $180,000
Common stock outstanding at Jan 1, 2015 155,000 shares
Common stock outstanding at Dec 31, 2015 200,000 shares
The company has no preferred stock outstanding. Calculate the earnings per share for the year 2015.
a) $1.68 per share
b) $0.45 per share
c) $1.30 per share
d) $1.46 per share
19. The following is summary of information presented on the financial statements of a company on December 31, 2015.
Account 2015 2014
Net sales revenue $600,000 $500,000
Cost of goods sold 450,000 400,000
Gross profit 150,000 100,000
Selling expenses 50,000 50,000
Net income before income tax expense 100,000 50,000
Income tax expense 35,000 18,000
Net income 65,000 32,000
What would a horizontal analysis report show with respect to net sales revenue?
a) A decrease of $50,000 in net sales revenue
b) A 120% decrease in net sales revenue
c) A 20% increase in net sales revenue
d) A $50,000 increase in net sales revenue
20. Which of the following is one of the purposes of the statement of cash flows?
a) To predict the growth of a company's assets
b) To predict future net income
c) To evaluate management decisions
d) To evaluate the company's earnings per share