fs analysis problem

Question 1

Which one of the following is not a characteristic generally evaluated in analyzing financial statements?
A. Liquidity
B. Profitability
C. Marketability
D. Solvency

Answer 1

C. Marketability

Question 2

In common size analysis,
A. a base amount is required.
B. a base amount is optional.
C. the same base is used across all financial statements analyzed.
D. the results of the horizontal analysis are necessary inputs for performing the analysis.

Answer 2

A. a base amount is required.

Question 3

Which of the below statements is (are) incorrect?
A. In horizontal analysis both the amount of and percentage change is shown.
B. The base in horizontal analysis is the last year’s or earlier period data which can be used even if it has a negative balance.
C. In comparing balance sheet items and income statement items using ratio analysis, ONLY balance sheet items should be averaged.
D. Return on asset is computed as operating income after tax divided by average asset.

Answer 3

B. The base in horizontal analysis is the last year’s or earlier period data which can be used even if it has a negative balance.

Question 4

KGA Inc. has a current ratio of 0.50:1 before accounting for the following transactions
I. Payment of accounts payable worth P20,000
II. Retirement of bonds through issuance of equity securities P150,000.
III. Write-off of accounts receivable worth P15,000
Which of the following transactions above will increase the entity’s current ratio?
A. I and II
B. II and III
D. III only
C. I and II
E. None from I, II and III

Answer 4

E. None from I, II and III

Question 5

A company has a current ratio of 2 to 1. The ratio will decrease if the company
A. Borrow cash on a six-month note.
B. Pays a large account payable which had been a current liability. C. Receives a 5% stock dividend on one of its marketable securities.
D. Sells merchandise for more than cost and records the sale using the perpetual inventory method

Answer 5

A. Borrow cash on a six-month note.

Question 6

Mabuhay Corp. has current assets of P180,000 and current liabilities of P360,000. Which of the following transactions would improve Mabuhay’s current ratio?
A. Paying P40,000 of short-term accounts payable.
B. Collecting P20,000 of short-term accounts receivable.
C. Refinancing a P60,000 long-term mortgage with a short-term note.
D. Purchasing P100,000 of merchandise inventory with a short-term accounts payable.

Answer 6

D. Purchasing P100,000 of merchandise inventory with a short-term accounts payable.

Question 7

The ratio that measures a firm’s ability to generate earnings from its resources is
A. Asset turnover.
B. Days’ sales in inventory.
C. Days’ sales in receivables.
D. Sales to working capital.

Answer 7

A. Asset turnover.

Question 8

If a company is profitable and is effectively using leverage, which one of the following ratios is likely to be the largest?
A. Return on total assets.
B. Return on total liabilities.
C. Return on common stockholders’ equity.
D. Cannot be determined

Answer 8

C. Return on common stockholders’ equity.

Question 9

The current ratio is
A. calculated by dividing current liabilities by current assets.
B. used to evaluate a company’s liquidity and short-term debt paying ability.
C. used to evaluate a company’s solvency and long-term debt paying ability.
D. calculated by subtracting current liabilities from current assets

Answer 9

B. used to evaluate a company’s liquidity and short-term debt paying ability.