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acct 203 > Ch 13 Rev > Flashcards

Ch 13 Rev Flashcards

1
Q

The purpose of financial statement analysis for (internal/external) ….
users is to provide information to improve efficiency and effectiveness.

A

internal

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2
Q

Identify which of the following specific areas are considered the building blocks of financial statement analysis.

A

Solvency

Liquidity and efficiency

Profitability

Market prospects

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3
Q

Most users rely on ….
financial statements, which include the (1) income statement, (2) balance sheet, (3) statement of stockholders’ equity, (4) statement of cash flows, and (5) notes to these statements.

A

general purpose

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4
Q

______ reporting refers to the communication of financial information useful for making investment, credit, and other business decisions.

A

Financial

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5
Q

Management’s Discussion and Analysis includes all of the following sections: (Check all that apply.)

A

discussion of risks

critical accounting policies and estimates

overview

financial condition

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6
Q

(Internal/External) ….
users of accounting information rely on financial statement analysis to make more informed decisions when pursuing their goals.

A

External

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7
Q

All of the following are standards used in financial statement analysis for comparisons:

A

competitor

intracompany

industry

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8
Q

Which of the following areas are not considered to be one of the building blocks of financial statement analysis?

A

Ratio analysis

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9
Q

A comparison of a company’s financial condition and performance to a base amount, such as total assets, is called (horizontal/vertical) …
analysis.

A

vertical

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10
Q

Most users rely on general-purpose financial statements, which include which of the following?

A

Statement of stockholders’ equity

Income statement

Notes to financial statements

Statement of cash flows

Balance sheet

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11
Q

… financial statements show financial amounts in side-by-side columns on a single statement.

A

Comparative

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12
Q

Stella, Inc. needs to communicate financial information to external users that is useful for making investment, credit, and other business decisions. This is called (financial/managerial) …
reporting.

A

financial

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13
Q

Small dollar changes can yield large percent changes consistent with their importance.

A

False

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14
Q

Management’s ….
and ….
begins with an overview, followed by critical accounting policies, and a discussion of operating results and financial condition. It is an excellent starting point in understanding a company’s business activities.

A

Discussion; analysis

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15
Q

The formula for dollar change for financial statement analysis is computed by taking the analysis period amount minus the ….
period amount.

A

base

$ change = analysis period - base period

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16
Q

When interpreting measures from financial statement analysis, we need …
(or benchmarks) for comparisons.

A

standards

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17
Q

An analysis of a comparative balance sheet focuses on Blank______ and percent changes.

A

large dollar

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18
Q

A comparison of a company’s financial condition and performance across time is called Blank______ analysis.

A

horizontal

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19
Q

______ analysis is a form of horizontal analysis that can reveal patterns in data across periods by comparing period amounts by base period amounts.

A

Trend

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20
Q

Comparative financial statements show financial information in Blank______ columns.

A

side-by-side

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21
Q

Vertical analysis is also called
…..-…. analysis.

A

Common- size

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22
Q

Vertical analysis is also called
…..-…. analysis.

A

Common- size

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23
Q

Analysts typically use computation of dollar changes and percent changes because:

A

sometimes dollar changes are small, but percents are large

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24
Q

To prepare common-size financial statements, each line item needs to be calculated to a common-size percent. The formula for common-size percent is (Blank______) x 100.

A

analysis amount/base amount

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25
Q

To compute the percent change, divide the (analysis period amount - base period amount) by the Blank______ and multiply the result by 100.

A

base period amount

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26
Q

______ balance sheets express each item as a percent of a base amount. The base amount is assigned a value of 100%.

A

Common-size

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27
Q

______ balance sheets consist of balance sheet amounts from two or more balance sheet dates, arranged side by side.

A

Comparative

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28
Q

Trend percent is computed by taking the (analysis period amount Blank______) x 100.

A

divided by the base period

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29
Q

The base amount used in a common-size income statement is Blank______.

A

revenue

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30
Q

Vertical analysis is a tool to evaluate individual financial statement items or a group of items. When analyzing income statement accounts, the base is usually (revenue/expenses/net income) ….
and for balance sheet accounts, the base is usually total (assets/liabilities/equity) …

A

revenues ; assests

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31
Q

…..-……
financial statements express each item as a percent of a base amount. The base amount is assigned a value of 100%.

A

Common-size

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32
Q

Data visualizations reveal: (Check all that apply.)

A

insights not easily seen by looking at numbers

trends not easily seen by looking at numbers

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33
Q

The base amount used in common-size balance sheets is total Blank______.

A

assets

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34
Q

A(n) (chart/ratio/statement) …
is used to uncover conditions and trends difficult to see by looking at individual amounts. It can be expressed as a percent, rate, or proportion.

A

ratio

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35
Q

…. income statements include amounts for two or more periods, placed side by side.

A

Comparative

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36
Q

_____ refers to the availability of resources to pay short-term cash requirements. Analysis is aimed at a company’s funding requirements.

A

Liquidity

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37
Q

_____ income statements express each item as a percent of a base amount. The base amount is assigned a value of 100%.

A

Common-size

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38
Q

Working capital can be computed by taking current …. minus current …..

A

assets - liabilities

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39
Q

Visualizations are used to identify: (Check all that apply.)

A

sources of financing

investing activities

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40
Q

The Blank______ ratio, or current assets divided by current liabilities, is used to evaluate a company’s ability to pay its short-term obligations.

A

current

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41
Q

A(n) Blank______ is used to uncover conditions and trends which are difficult to see by looking at individual amounts. It can be expressed as a percent, rate, or proportion.

A

ratio

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42
Q

Vito Co. had current assets of $9,000 and current liabilities of $6,000 at the end of the year. Net income during the year was $21,000. The current ratio for the period is:

A

1.5
9,000÷6,000

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43
Q

An investor in Able Inc. would like to understand Able’s availability of resources to pay its short-term cash requirements. This type of analysis is known as a(n) (efficiency/liquidity) …
measure.

A

liquidity

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44
Q

The acid-test ratio takes the sum of cash, short-term investments, andBlank______and divides the total by current liabilities. It helps determine immediate short-term debt-paying ability.

A

current receivables

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45
Q

Accounts receivable are
(increased/decreased) …. by credit sales and are ….
(increased/decreased) by customer payments.

A

Increase; decrease

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46
Q

The amount of current assets minus current liabilities is called ….

A

Working capital

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47
Q

A potential investor in Denzel Co. would like to measure how frequently Denzel converts its account receivables into cash. The investor takes Denzel’s net sales divided by average accounts receivable to determine this information, known as the accounts ….
turnover ratio.

A

receivable

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48
Q

The ….
ratio, or current assets divided by current liabilities, is used to evaluate a company’s ability to pay its short-term obligations.

A

Current

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49
Q

Net sales for a company are $250,000. Average accounts receivable are $10,000. The accounts receivable turnover for this company is …

A

25
250,000÷10,000

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50
Q

Brown Co. had current assets of $15,000, total assets of $30,000 and current liabilities of $9,000 at the end of the year. The current ratio for the period is:

A

1.67
15,000÷9,000

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51
Q

The measure of how long a company holds inventory before selling it is called the …….

A

inventory turnover

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52
Q

The Blank______ ratio takes the sum of cash, short-term investments, and current receivables and divides the total by current liabilities. It helps determine immediate short-term debt-paying ability.

A

acid-test

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53
Q

The formula to compute days’ sales uncollected is:

A

accounts receivable divided by net sales times 365

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54
Q

Which of the following statements is (are) true about accounts receivables? (Check all that apply.)

A

Accounts receivable are increased when credit sales are made.

Accounts receivable reflects the amount owed by customers.

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55
Q

The ratio that measures how frequently a company converts its account receivables into cash by taking net sales divided by average accounts receivable is known as:

A

accounts receivable turnover

56
Q

__ is a measure of how frequently a company collects accounts receivables. It is computed by dividing the current balance of receivables by the annual credit (or net) sales and then multiplying by 365.

A

Days’ sales uncollected

57
Q

he following financial information is available for Siu Co.

20x1

20x0

Net Sales

160,000

155,000

Accounts Receivable

38,000

32,000

Compute accounts receivable turnover for 20x1. Round your answer to one decimal place.

A

4.6
Reason: 160,000/ ((38,000+32,000)/2) = 4.57 rounds to 4.6

58
Q

Days’ sales uncollected is computed by taking accounts receivable, net divided by net ….
multiplied by 365.

A

sales

59
Q

The length of time that a company holds inventory prior to selling it is called the…

A

inventory turnover

60
Q

A company has Total Assets of $135,000 including $29,000 in Accounts Receivable, and Net Sales of $380,000. Days’ sales uncollected is Blank______ days.

A

27.9
Reason: (29,000/380,000)x365=27.9

61
Q

The following annual account balances are taken from ABC Co at year end.

Current year

Previous year

Accounts Receivable

$5,500

$4,000

Net Sales

$58,000

$55,000

Days sales uncollected

? days

? days

Calculate ABC Co.’s days sales uncollected for the current year.

A

34.6 days
Reason: ($5,500/58,000) x 365 = 34.6 days.

62
Q

Days’ sale in inventory is a useful measure in evaluating inventory (efficiency/liquidity) …
. It is computed by taking ending inventory divided by cost of goods sold multiplied by 365.

A

liquidity

63
Q

Days’ sales in inventory is computed by taking Blank______ divided by cost of goods sold multiplied by 365.

A

ending inventory

64
Q

Days’ sales uncollected is a measure of how ….
a company collects accounts receivables computed by dividing the current balance of receivables by the annual credit (or net) sales and then multiplying by 365.

A

frequently

65
Q

Whisper Co. had Beginning Inventory of $20,000 and Ending Inventory of $26,000. Cost of goods sold for the period was $130,000. Days’ sales in inventory is ….
days.

A

73 days
(26,000÷130,000)×365

66
Q

Days’ sales uncollected is computed by taking Blank______, net divided by net sales multiplied by 365.

A

accounts receivable

67
Q

_____ measures a company’s ability to use its assets to generate sales and is an important indication of operating efficiency. It is computed by taking net sales divided by average total assets.

A

Total asset turnover

68
Q

A company has Total Assets of $34,000 including $3,000 in Accounts Receivable, and Net Sales of $40,000. Days’ sales uncollected is Blank______ days

A

27.4
Reason: ($3,000/$40,000) x 365 = 27.4

69
Q

Total asset turnover is computed by taking Blank______

A

net sales divided by average total assets.

70
Q

______ is a useful measure in evaluating inventory liquidity. It is computed by taking ending inventory divided by cost of goods sold multiplied by 365.

A

Days’ sales in inventory

71
Q

Days’ sales in inventory is computed by taking ending inventory divided by Blank______ multiplied by 365.

A

cost of goods sold

72
Q

Total asset turnover is computed by dividing net sales by …
total assets.

A

average

73
Q

Marsh Co. had beginning inventory of $10,000 and ending inventory of $13,000. Cost of goods sold for the period was $65,000. Days’ sales in inventory is Blank______ days.

A

73
(13,000÷65,000)×365

74
Q

Blossom Co. had Net Sales of $3,600 in 2017 and $4,200 in 2018. It had Total Assets of $1,400 in 2017 and $1,600 in 2018. Total asset turnover would be computed in 2018 by taking Blank______.

A

4,200/1,500.
(1,400+1,600)÷2 = 1500

75
Q

…… turnover measures a company’s ability to use its assets to generate sales and is an important indication of operating efficiency. It is computed by taking net sales divided by average total assets.

A

Total asset

76
Q

_____ refers to a company’s makeup of equity and debt financing.

A

Capital structure

77
Q

The Blank______ ratio is a measure of solvency that takes total liabilities divided by total equity.

A

debt-to-equity

78
Q

Days’ sale in inventory is a useful measure in evaluating inventory (efficiency/liquidity) …
. It is computed by taking ending inventory divided by cost of goods sold multiplied by 365.

A

liquidity

79
Q

The debt-to-equity ratio takes total liabilities divided by total …

A

equity

80
Q

Franco Co. reported net sales of $10,000 in year 2 and $8,000 in year 1. Franco reported total assets of $18,000 in year 2 and $22,000 in year 1. Total asset turnover for year 2 would equal ….
(answer should be a decimal number). Hint: compute average total assets first.

A

0.5
10,000÷((22,000+18,000)
÷2) = 0.5

81
Q

At the end of the year, assets for Jordan company are $120,000 and liabilities are $40,000. The debt-to-equity ratio is:

A

0.5
40,000÷(120,000
−40,000)

82
Q

Squire Co. had Net Sales of $3,000 in 2017 and $3,600 in 2018. It had Total Assets of $1,000 in 2017 and $1,400 in 2018. Total asset turnover would be ….
times in 2018.

A

3
3,600÷((1,000+1,400)÷2)

83
Q

Which of the following formulas is used to compute the times interest earned?

A

Income before interest expense and income tax/interest expense

84
Q

______ refers to a company’s ability to meet long-term obligations and generate future revenues.

A

Solvency

85
Q

The amount of income before deductions for interest expense and income taxes is the amount available to pay interest. The……..
ratio takes this income divided by interest expense to determine the risk for creditors.

A

times interest earned

86
Q

The debt-to-equity ratio is a measure of solvency that takes total …
divided by total equity.

A

liabilities

87
Q

The times interest earned ratio is computed by taking income before interest expense and income taxes divided by:

A

interest expense

88
Q

The debt-to-equity ratio is computed by taking:

A

total liabilities divided by total equity

89
Q

A company reports net income before interest expense and income taxes of $18,000. Interest Expense for the period is $500 and Taxes are $4,000. Times interest earned is:

A

36
Reason: 18,000/500=36

90
Q

At the end of the first year, assets for a company are $60,000 and liabilities are $40,000. The debt-to-equity ratio is …

A

2
40,000÷(60,000−40,000)

91
Q

The formula to compute the times interest earned is income before interest expense and income taxes divided by:

A

interest expense

92
Q

_____ refers to a company’s ability to generate an adequate return.

A

Profitability

93
Q

The amount of income before deductions for interest expense and income tax expense is the amount available to pay interest. The Blank______ ratio takes income before interest expense and income tax expense divided by interest expense to determine the risk for creditors.

A

times interest earned

94
Q

Explain how to compute gross profit by completing the following sentence. Gross profit is calculated by taking the net ….
(sales/costs) of a product and ….
(adding/subtracting) the cost of the goods sold.

A

Sales; subtract

95
Q

The times interest earned ratio is computed by taking income before interest expense and income taxes divided by …
expense.

A

interest

96
Q

_____ reflects a company’s ability to earn net income from sales. It is measured by expressing net income as a percent of net sales.

A

Profit margin

97
Q

A company reports net income before interest expense and income taxes of $16,000. Interest Expense for the period is $200 and Interest Income for the period is $400. Times interest earned is:

A

80
Reason: $16,000/200=80

98
Q

Profit margin is computed by taking:

A

net income divided by net sales

99
Q

____ is computed by taking net income divided by average total assets for the period.

A

Return on total assets

100
Q

…. refers to a company’s ability to generate an adequate return.

A

Profitability

101
Q

A company reported Net Income for 2018 of $1,500 and for 2017 of $1,000. It reported Total Assets at the end of 2018 of $13,000 and at the end of 2017 of $11,000. Compute return on total assets for 2018.

A

12.5%
(1,500÷((13,000+11,000)
÷2))×100

102
Q

Determine which of the definitions below describes gross profit.

A

The difference between net sales and the cost of the goods sold

103
Q

… margin measures a company’s ability to earn net income from sales. It is measured by expressing net income as a percent of net sales.

A

Profit

104
Q

Return on total assets is computed by taking:

A

net income divided by average total assets

105
Q

Profit margin is computed by taking net income divided by net …

A

Sales

106
Q

Return on equity measures the amount of Blank______ earned for its owners. It is computed by taking net income divided by average total equity.

A

income

107
Q

Return on total assets reflects solvency. It is computed by taking net income divided by current assets for the period.

A

False

108
Q

The price-…
ratio reveals market expectations.

A

earnings

109
Q

A company reported Net Income for 2018 of $12,000 and for 2017 of $14,000. It reported Total Assets at the end of 2018 of $120,000 and at the end of 2017 of $100,000. Compute return on total assets for 2018.

A

10.9%
(12,000÷((120,000
+100,000)÷2))×100

110
Q

The Blank______ ratio measures a company’s market expectations for future growth.

A

price-earnings

111
Q

A company’s market price is $40.00 per common share, book value is $10.00 per share, and the earnings is $3.00 per share. Compute price-earnings ratio.

A

13.3
Reason: $40 / 3 = $13.3

112
Q

Return on total assets is computed by taking net income divided by:

A

average total assets

113
Q

The price-earnings ratio is computed by taking:

A

market price per common share divided by earnings per share

114
Q

_____ measures the amount of net income earned for its owners. It is computed by taking net income divided by average total equity.

A

Return on equity

115
Q

One way to help identify whether a stock is an income stock or a growth stock is to analyze its Blank______, by taking annual cash dividends per share divided by market value per share.

A

dividend yield

116
Q

A ratio that divides market value (price) per share by earnings per share is called:

A

price-earnings ratio.

117
Q

The ….
ratio is computed by taking market price per common share divided by earnings per share.

A

price-earnings

118
Q

…. is used to compare the dividend-paying performance of different companies. It is computed by taking annual cash dividends per share divided by market price per share.

A

Dividend Yield

119
Q

A company’s market price is $60.00 per common share, book value is $10.00 per share, and the earnings is $5.00 per share. Compute price-earnings ratio

A

12.0
Reason: $60 / 5 = $12.0

120
Q

A company has 10,000 shares of $10 par-value common stock issued and outstanding. Earnings per share were $8, annual cash dividends per share were $0.50, and market price per share is $30. Compute the dividend yield.

A

1.7%
(0.50÷30)×100

121
Q

The price-earnings ratio is computed by taking market price per common share divided by:

A

earnings per share

122
Q

The dividend yield is computed by taking annual cash dividends per share divided by the:

A

market price per share

123
Q

Growth stocks pay large amounts of cash dividends.

A

False
Reason: Growth stocks pay little or no cash dividends.

124
Q

A financial statement ….
report consists of an executive summary, analysis overview, evidential matter, assumptions, key factors, and inferences.

A

analysis

125
Q

Identify and match the major parts of the complete income statement.
1. Continuing operations:
2. Discontinued segments:
3. Earnings per share:

A
  1. Continuing operations: revenues, expenses, and income from ongoing operations.
  2. Discontinued segments: reports income from selling/closing segment and income loss from operating discontinued segment.
  3. Earnings per share: reports info for each of the three subcategories of income.
126
Q

_____ is used to compare the dividend-paying performance of different companies. It is computed by taking annual cash dividends per share divided by market price per share.

A

Dividend yield

127
Q

Gains and losses that are either unusual and/or infrequent are reported as …

A

part of continuing operations after normal revenues and expenses

128
Q

A company has 20,000 shares of $5 par-value common stock issued and outstanding. Earnings per share were $4, annual cash dividends per share were $0.90, and market price per share is $90. Dividend yield is ….
%.

A

1%
(0.90÷90)×100

129
Q

A discontinued segment is reported:

A

separately in the discontinued segments section of the income statement

130
Q

The dividend yield is computed by taking:

A

annual cash dividends per share divided by market price per share

131
Q

The Blank______ application refers to applying a different accounting principle to prior periods as if that principle had always been used.

A

retrospective

132
Q

Identify which of the following sections are part of the six sections that make up an analysis report.

A

Executive summary

Key factors

Assumptions

133
Q

The complete income statement is separated into the following sections:

A

continuing operations

discontinued segments

earnings per share

134
Q

Gains and losses that are either unusual and/or infrequent are reported as part of continuing operations after normal revenues and expenses. Items considered unusual and/or infrequent include:

A

Condemning of property

Hurricane

135
Q

A business (section/segment/class) …
is a part of a company’s operations that is separated by its products or services or by geographic location.

A

segment

136
Q

Changes in accounting principle are reported…

A

retrospectively

acct 203 (14 decks)

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