Test Bank for Corporate
Financial Accounting
17 Edition By Carl
th
Warren, Jeff Jones,
William Tayler (All
Chapter 1-14, 100%
Original Verified, A+
Grade)
All Chapters Arranged
Reverse: 14-1
,Name: Class: Date:
Chapter 14: Financial Statement Analysis
Indicate whether the statement is true or false.
1. Comparative financial statements are designed to compare the financial statements of two or more corporations.
a. True
b. False
2. In horizontal analysis, the current year is normally used as the base year.
a. True
b. False
3. On a common-sized income statement, all items are stated as a percent of total assets or equities at year-end.
a. True
b. False
4. The analysis of increases and decreases in the amount and percentage of comparative financial statement items is
referred to as horizontal analysis.
a. True
b. False
5. A 15% change in sales will result in a 15% change in net income.
a. True
b. False
6. A financial statement showing each item on the statement as a percentage of one key item on the statement is called a
common-sized financial statement.
a. True
b. False
7. The relationship of each asset item as a percent of total assets is an example of vertical analysis.
a. True
b. False
8. Vertical analysis refers to comparing the financial statements of a single company over several years.
a. True
b. False
9. In a common-sized income statement, each item is expressed as a percentage of net income.
a. True
b. False
10. In the vertical analysis of a balance sheet, the base for current liabilities is total liabilities.
a. True
b. False
11. Using vertical analysis of the income statement, a company's net income as a percentage of sales is 15%; therefore, the
cost of goods sold as a percentage of sales must be 85%.
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,Name: Class: Date:
Chapter 14: Financial Statement Analysis
a. True
b. False
12. In the vertical analysis of an income statement, each item is generally stated as a percentage of total assets.
a. True
b. False
13. Factors that reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred to as
solvency, profitability, and liquidity.
a. True
b. False
14. The excess of current assets over current liabilities is referred to as working capital.
a. True
b. False
15. Dollar amounts of working capital are difficult to assess when comparing companies of different sizes or in comparing
such amounts with industry figures.
a. True
b. False
16. Using measures to assess a business's ability to pay its current liabilities is called current position analysis.
a. True
b. False
17. Current position analysis is used by short-term creditors to assess how quickly they will be repaid.
a. True
b. False
18. An advantage of the current ratio is that it considers the makeup of the current assets.
a. True
b. False
19. If two companies have the same current ratio, their ability to pay short-term debt is the same.
a. True
b. False
20. The ratio of the sum of cash, receivables, and marketable securities to current liabilities is referred to as the current
ratio.
a. True
b. False
21. A balance sheet shows cash, $75,000; marketable securities, $115,000; receivables, $150,000; and inventories,
$222,500. Current liabilities are $225,000. The current ratio is 2.5.
a. True
b. False
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, Name: Class: Date:
Chapter 14: Financial Statement Analysis
22. If a firm has a current ratio of 2.0, the subsequent collection of a 60-day note receivable will cause the ratio to
decrease.
a. True
b. False
23. If a firm has a quick ratio of 1.0, the subsequent payment of an account payable will cause the ratio to increase.
a. True
b. False
24. Solvency analysis focuses on the ability of a business to pay its current and noncurrent liabilities.
a. True
b. False
25. If the accounts receivable turnover for the current year has decreased when compared with the ratio for the preceding
year, there has been an acceleration in the collection of receivables.
a. True
b. False
26. An increase in the accounts receivable turnover may be due to a change in how credit is granted and/or in collection
practices.
a. True
b. False
27. The days' sales in receivables is one means of expressing the relationship between average daily sales and accounts
receivable.
a. True
b. False
28. A firm selling food should have a higher inventory turnover rate than a firm selling office furniture.
a. True
b. False
29. The days' sales in inventory is one means of expressing the relationship between the cost of goods sold and inventory.
a. True
b. False
30. Assuming that the quantities of inventory on hand during the current year were sufficient to meet all demands for
sales, a decrease in the inventory turnover for the current year when compared with the turnover for the preceding year
indicates an improvement in inventory management.
a. True
b. False
31. The ratio of fixed assets to long-term liabilities provides a measure of a firm’s ability to pay dividends.
a. True
b. False
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Financial Accounting
17 Edition By Carl
th
Warren, Jeff Jones,
William Tayler (All
Chapter 1-14, 100%
Original Verified, A+
Grade)
All Chapters Arranged
Reverse: 14-1
,Name: Class: Date:
Chapter 14: Financial Statement Analysis
Indicate whether the statement is true or false.
1. Comparative financial statements are designed to compare the financial statements of two or more corporations.
a. True
b. False
2. In horizontal analysis, the current year is normally used as the base year.
a. True
b. False
3. On a common-sized income statement, all items are stated as a percent of total assets or equities at year-end.
a. True
b. False
4. The analysis of increases and decreases in the amount and percentage of comparative financial statement items is
referred to as horizontal analysis.
a. True
b. False
5. A 15% change in sales will result in a 15% change in net income.
a. True
b. False
6. A financial statement showing each item on the statement as a percentage of one key item on the statement is called a
common-sized financial statement.
a. True
b. False
7. The relationship of each asset item as a percent of total assets is an example of vertical analysis.
a. True
b. False
8. Vertical analysis refers to comparing the financial statements of a single company over several years.
a. True
b. False
9. In a common-sized income statement, each item is expressed as a percentage of net income.
a. True
b. False
10. In the vertical analysis of a balance sheet, the base for current liabilities is total liabilities.
a. True
b. False
11. Using vertical analysis of the income statement, a company's net income as a percentage of sales is 15%; therefore, the
cost of goods sold as a percentage of sales must be 85%.
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,Name: Class: Date:
Chapter 14: Financial Statement Analysis
a. True
b. False
12. In the vertical analysis of an income statement, each item is generally stated as a percentage of total assets.
a. True
b. False
13. Factors that reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred to as
solvency, profitability, and liquidity.
a. True
b. False
14. The excess of current assets over current liabilities is referred to as working capital.
a. True
b. False
15. Dollar amounts of working capital are difficult to assess when comparing companies of different sizes or in comparing
such amounts with industry figures.
a. True
b. False
16. Using measures to assess a business's ability to pay its current liabilities is called current position analysis.
a. True
b. False
17. Current position analysis is used by short-term creditors to assess how quickly they will be repaid.
a. True
b. False
18. An advantage of the current ratio is that it considers the makeup of the current assets.
a. True
b. False
19. If two companies have the same current ratio, their ability to pay short-term debt is the same.
a. True
b. False
20. The ratio of the sum of cash, receivables, and marketable securities to current liabilities is referred to as the current
ratio.
a. True
b. False
21. A balance sheet shows cash, $75,000; marketable securities, $115,000; receivables, $150,000; and inventories,
$222,500. Current liabilities are $225,000. The current ratio is 2.5.
a. True
b. False
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, Name: Class: Date:
Chapter 14: Financial Statement Analysis
22. If a firm has a current ratio of 2.0, the subsequent collection of a 60-day note receivable will cause the ratio to
decrease.
a. True
b. False
23. If a firm has a quick ratio of 1.0, the subsequent payment of an account payable will cause the ratio to increase.
a. True
b. False
24. Solvency analysis focuses on the ability of a business to pay its current and noncurrent liabilities.
a. True
b. False
25. If the accounts receivable turnover for the current year has decreased when compared with the ratio for the preceding
year, there has been an acceleration in the collection of receivables.
a. True
b. False
26. An increase in the accounts receivable turnover may be due to a change in how credit is granted and/or in collection
practices.
a. True
b. False
27. The days' sales in receivables is one means of expressing the relationship between average daily sales and accounts
receivable.
a. True
b. False
28. A firm selling food should have a higher inventory turnover rate than a firm selling office furniture.
a. True
b. False
29. The days' sales in inventory is one means of expressing the relationship between the cost of goods sold and inventory.
a. True
b. False
30. Assuming that the quantities of inventory on hand during the current year were sufficient to meet all demands for
sales, a decrease in the inventory turnover for the current year when compared with the turnover for the preceding year
indicates an improvement in inventory management.
a. True
b. False
31. The ratio of fixed assets to long-term liabilities provides a measure of a firm’s ability to pay dividends.
a. True
b. False
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