Analyzing Financial Statements
Chapters 1-8 Exam Questions &
Answers (Grade A+)
A company with a Dec 31 fiscal year end, sold and delivered $5,000
worth of inventory on Dec 15, 20x3, with payments of $1,200 and
$3,800 collected on Dec 28, 20x3 and Jan 25, 20x4, respectively.
Under the accrual method of accounting what amount of revenue
would be recognized in 20x3?
a. $5,000
b. $3,800
c. $1,200
d. $0 -
correct answer ✅a. $5,000
For S Corps, LLCs, Partnerships, and sole proprietorships, which
option is the same as the net profit that appears on the income
statement?
a. net profit after tax
b. net profit before tax
c. ordinary income after tax
d. net profit after dividends -
correct answer ✅b. net profit before tax
,Analyzing Financial Statements
Chapters 1-8 Exam Questions &
Answers (Grade A+)
For what primary reason will a service business have net sales equal
to its gross profit margin near 100%?
a. low net profits
b. little or no product costs
c. high levels of accounts receivable
d. high labor costs -
correct answer ✅b. little or no product costs
how does the accrual method compare with the cash method of
accounting?
a. the accrual method has receivables and payables on the balance
sheet, whereas the cash method does not.
b. the accrual method shows a different revenue amount than the
cash method.
c. the accrual method always shows a lower cash balance than the
cash method.
d. the accrual method shows a different net income than the cash
method. -
correct answer ✅a. the accrual method has receivables and
payables on the balance sheet, whereas the cash method does not.
, Analyzing Financial Statements
Chapters 1-8 Exam Questions &
Answers (Grade A+)
If accounts receivable have increased rapidly, where should a
business banker look first for a possible explanation?
a. change in credit terms
b. growth in credit sales
c. slow collection of accounts
d. increase in allowance for doubtful accounts -
correct answer ✅b. growth in credit sales
If Widgets Inc. has an interest coverage ratio of 0.5x, how should a
business banker interpret that information?
a. the firm has a low level of interest expense.
b. the firm is unable to adequately service the interest on its
existing debt.
c. the firm is covering up the amount of interest it actually pays to
the bank.
d. the debt-to-worth ratio is too low. -
correct answer ✅b. the firm is unable to adequately service the
interest on its existing debt
Chapters 1-8 Exam Questions &
Answers (Grade A+)
A company with a Dec 31 fiscal year end, sold and delivered $5,000
worth of inventory on Dec 15, 20x3, with payments of $1,200 and
$3,800 collected on Dec 28, 20x3 and Jan 25, 20x4, respectively.
Under the accrual method of accounting what amount of revenue
would be recognized in 20x3?
a. $5,000
b. $3,800
c. $1,200
d. $0 -
correct answer ✅a. $5,000
For S Corps, LLCs, Partnerships, and sole proprietorships, which
option is the same as the net profit that appears on the income
statement?
a. net profit after tax
b. net profit before tax
c. ordinary income after tax
d. net profit after dividends -
correct answer ✅b. net profit before tax
,Analyzing Financial Statements
Chapters 1-8 Exam Questions &
Answers (Grade A+)
For what primary reason will a service business have net sales equal
to its gross profit margin near 100%?
a. low net profits
b. little or no product costs
c. high levels of accounts receivable
d. high labor costs -
correct answer ✅b. little or no product costs
how does the accrual method compare with the cash method of
accounting?
a. the accrual method has receivables and payables on the balance
sheet, whereas the cash method does not.
b. the accrual method shows a different revenue amount than the
cash method.
c. the accrual method always shows a lower cash balance than the
cash method.
d. the accrual method shows a different net income than the cash
method. -
correct answer ✅a. the accrual method has receivables and
payables on the balance sheet, whereas the cash method does not.
, Analyzing Financial Statements
Chapters 1-8 Exam Questions &
Answers (Grade A+)
If accounts receivable have increased rapidly, where should a
business banker look first for a possible explanation?
a. change in credit terms
b. growth in credit sales
c. slow collection of accounts
d. increase in allowance for doubtful accounts -
correct answer ✅b. growth in credit sales
If Widgets Inc. has an interest coverage ratio of 0.5x, how should a
business banker interpret that information?
a. the firm has a low level of interest expense.
b. the firm is unable to adequately service the interest on its
existing debt.
c. the firm is covering up the amount of interest it actually pays to
the bank.
d. the debt-to-worth ratio is too low. -
correct answer ✅b. the firm is unable to adequately service the
interest on its existing debt
