FOUNDATIONS OF ACCOUNTING FOR
PEREGRINE GLOBAL SERVICES. EXAM
QUESTIONS AND ANSWERS (VERIFIED
AND UPDATED)
Financial statements - ANS provide information that is useful for making investments and
other economic decisions about business
Horizontal analysis - ANS Analysis of percentage increases and decreases in financial
statements across time.
The amount of each line item on the most recent statement is compared with the related item
on earlier statements, and expressed as a percentage change
Vertical analysis - ANS An percentage analysis that is used to show the relationship of each
component to the total within a single statement.
The balance sheet is analyzed by stating each asset item as a percent of total assets. Each
liability and stockholders equity item is stated as a percent of total liabilities and stockholders
equity.
Common side statements - ANS Horizontal and vertical analyses are useful in assessing
trends, in relationships and financial conditions, and operations of a business
@2026/2027 ALLRIGHTS RESERVED.
,Common size income statements - ANS can compare to businesses or more
Solvency and profitability - ANS The ability of a business to repay its debts and earn income
Solvency analysis - ANS Focuses on the ability of a business to pay, or otherwise satisfy its
current and noncurrent liabilities
Current position analysis, working capital - ANS Using metrics to assess a business, is ability
to pay its current liabilities
Current ratio - ANS current assets divided by current liabilities
Quick ratio - ANS quick assets/current liabilities
Accounts Receivable analysis - ANS sales on account increase accounts receivable, whereas
collections from customers decrease accounts receivable. It is desirable to collect receivables as
promptly as possible. The cash generated by prompt collections from customers may be used to
pay or avoid current liabilities and be used in operations for purposes, such as purchasing
merchandise in large quantities at lower prices.
Accounts Receivable Turnover Ratio - ANS net credit sales/average net accounts receivable
number of days' sales in receivables - ANS Average Accounts Receivable / Average Daily Sales
Inventory turnover ratio - ANS cost of goods sold/average inventory
@2026/2027 ALLRIGHTS RESERVED.
, Ratio fixed assets to long-term liabilities - ANS ratio of fixed assets to long-term liabilities is a
solvency measure that indicates the margin of safety for node holders and bond holders. It also
indicates the ability of a business to borrow additional funds on a long-term basis.
Ratio of liabilities to stockholders equity - ANS Claims against the total assets of a business
are divided into two groups, one claims of creditors and two claims of owners. The relationship
between the total claims of the creditors and owners is a solvency measure that indicates the
margin of safety for creditors.
Time Interest Earned - ANS The higher, the ratio, the lower, the risk that interest payments
will not be made, if earnings decrease. Dividing the sum of the income before taxes and interest
expense.
Profitability and market analysis - ANS Profitability analysis focuses, primarily on the
relationship between operating results as reported in the income, statement and resources
available to the business as reported on the balance sheet. Market analysis focuses on how well
a company is doing from the financial markets perspective.
Return on Sales - ANS The ratio of net income to net sales is a profitability measure that is
often called the net profit margin. The ratio shows how much of each dollar and sales flows
through the net income after all expenses are subtracted.
Return on Assets Ratio - ANS The return on assets is computed by adding interest, expense to
net income, and dividing the sum by the average total assets.
Return on stockholders equity - ANS Dividing net income by average total stockholders equity
Leverage - ANS Difference in the rate of return on stockholders equity, and the rate of return
on assets.
@2026/2027 ALLRIGHTS RESERVED.
PEREGRINE GLOBAL SERVICES. EXAM
QUESTIONS AND ANSWERS (VERIFIED
AND UPDATED)
Financial statements - ANS provide information that is useful for making investments and
other economic decisions about business
Horizontal analysis - ANS Analysis of percentage increases and decreases in financial
statements across time.
The amount of each line item on the most recent statement is compared with the related item
on earlier statements, and expressed as a percentage change
Vertical analysis - ANS An percentage analysis that is used to show the relationship of each
component to the total within a single statement.
The balance sheet is analyzed by stating each asset item as a percent of total assets. Each
liability and stockholders equity item is stated as a percent of total liabilities and stockholders
equity.
Common side statements - ANS Horizontal and vertical analyses are useful in assessing
trends, in relationships and financial conditions, and operations of a business
@2026/2027 ALLRIGHTS RESERVED.
,Common size income statements - ANS can compare to businesses or more
Solvency and profitability - ANS The ability of a business to repay its debts and earn income
Solvency analysis - ANS Focuses on the ability of a business to pay, or otherwise satisfy its
current and noncurrent liabilities
Current position analysis, working capital - ANS Using metrics to assess a business, is ability
to pay its current liabilities
Current ratio - ANS current assets divided by current liabilities
Quick ratio - ANS quick assets/current liabilities
Accounts Receivable analysis - ANS sales on account increase accounts receivable, whereas
collections from customers decrease accounts receivable. It is desirable to collect receivables as
promptly as possible. The cash generated by prompt collections from customers may be used to
pay or avoid current liabilities and be used in operations for purposes, such as purchasing
merchandise in large quantities at lower prices.
Accounts Receivable Turnover Ratio - ANS net credit sales/average net accounts receivable
number of days' sales in receivables - ANS Average Accounts Receivable / Average Daily Sales
Inventory turnover ratio - ANS cost of goods sold/average inventory
@2026/2027 ALLRIGHTS RESERVED.
, Ratio fixed assets to long-term liabilities - ANS ratio of fixed assets to long-term liabilities is a
solvency measure that indicates the margin of safety for node holders and bond holders. It also
indicates the ability of a business to borrow additional funds on a long-term basis.
Ratio of liabilities to stockholders equity - ANS Claims against the total assets of a business
are divided into two groups, one claims of creditors and two claims of owners. The relationship
between the total claims of the creditors and owners is a solvency measure that indicates the
margin of safety for creditors.
Time Interest Earned - ANS The higher, the ratio, the lower, the risk that interest payments
will not be made, if earnings decrease. Dividing the sum of the income before taxes and interest
expense.
Profitability and market analysis - ANS Profitability analysis focuses, primarily on the
relationship between operating results as reported in the income, statement and resources
available to the business as reported on the balance sheet. Market analysis focuses on how well
a company is doing from the financial markets perspective.
Return on Sales - ANS The ratio of net income to net sales is a profitability measure that is
often called the net profit margin. The ratio shows how much of each dollar and sales flows
through the net income after all expenses are subtracted.
Return on Assets Ratio - ANS The return on assets is computed by adding interest, expense to
net income, and dividing the sum by the average total assets.
Return on stockholders equity - ANS Dividing net income by average total stockholders equity
Leverage - ANS Difference in the rate of return on stockholders equity, and the rate of return
on assets.
@2026/2027 ALLRIGHTS RESERVED.
