CH24 Self-Assessment Quiz Flashcards
The return on common stock equity is calculated by dividing
Entry field with incorrect answer
net income by ending common stockholders’ equity.
net income less preferred dividends by ending common stockholders’ equity.
net income by average common stockholders’ equity.
net income less preferred dividends by average common stockholders’ equity.
net income less preferred dividends by average common stockholders’ equity.
The payout ratio is calculated by dividing
dividends per share by earnings per share.
cash dividends by market price per share.
cash dividends by net income less preferred dividends.
cash dividends by net income plus preferred dividends.
cash dividends by net income less preferred dividends.
The calculation of the times interest earned involves dividing
net income plus income taxes by annual interest expense.
net income plus income taxes and interest expense by annual interest expense.
net income by annual interest expense.
None of these answers are correct.
net income plus income taxes and interest expense by annual interest expense.
In a vertical analysis, all income statement information is reported as a percentage of total revenue.
True False
True
In percentage analysis, all income statement information is reported as a percentage of net sales.
True
False
True
In percentage analysis, all income statement information is reported as a percentage of net income.
True
False
False
Net sales, not net income.
Which of the following best characterizes the difference between a financial forecast and a financial projection?
Forecasts include a complete set of financial statements, while projections include only summary financial data.
A forecast is normally for a full year or more and a projection presents data for less than a year.
A forecast attempts to provide information on what is expected to happen, whereas a projection may provide information on what is not necessarily expected to happen.
A forecast includes data which can be verified about future expectations, while the data in a projection is not susceptible to verification.
A forecast attempts to provide information on what is expected to happen, whereas a projection may provide information on what is not necessarily expected to happen.
To derive meaning from ratios, analysts must have some standard against which to compare them.
True
False
True
The calculation of liquidity ratios requires information from both the income statement and the balance sheet.
True
False
False
The most significant limitation of ratio analysis is the significant use of estimates.
True
False
False
Probably the greatest limitation of ratio analysis is the difficult problem of achieving comparability among firms in a given industry.
Companies generally present two years of balance sheet information and two years of income statement information.
True
False
False
They typically include two years of balance sheet information and three years of income statement information.
In addition, many companies include in their annual reports five- or ten-year summaries of pertinent data that permit readers to examine and analyze trends.
Cheffing Corp. has estimated that total depreciation expense for the year ending December 31, 2014 will amount to $880,000. In Cheffing’s interim income statement for the three months ended March 31, 2014, what is the total amount of expense relating to this item that should be reported?
$0.
$220,000.
$440,000.
$880,000.
$220,000.
$880,000 ÷ 4 = $220,000.
Virginia Corp. has estimated that total depreciation expense for the year ending December 31, 2014 will amount to $1,280,000, total amortization expense for that period will be $420,000, and employee bonuses for the period will total $320,000. In Virginia’s interim income statement for the six months ended June 30, 2014, what is the total amount of expense relating to this item that should be reported?
$0.
$505,000.
$850,000.
$1,010,000.
$1,010,000
($1,280,000 +$420,000 + $320,000) ÷ 2 = $1,010,000
Who bears the ultimate responsibility for the financial statements and for the company’s system of internal controls?
The stockholders.
The management.
The auditors.
The board of directors.
The management.
management is responsible for preparing the financial statements and establishing and maintaining an effective system of internal controls.
Which of the following Federal Acts requires the SEC to develop guidelines for all publicly traded companies to report on management’s responsibilities for, and assessment of, the internal control system?
Robinson-Patman Act.
Sarbanes-Oxley Act.
Barkley-Patterson Act.
Taft-Hartley Act.
Sarbanes-Oxley Act.
The Sarbanes-Oxley Act requires the SEC to develop guidelines for all publicly traded companies on how to report on management’s responsibility concerning a company’s internal control system.
