Financial Accounting The Cornerstone of Business Decision-Making 6th Edition By Jay Rich, Jeff Jones, Linda Ann Myers ( Test Bank)

Test Bank for Financial
Accounting The
Cornerstone of Business
Decision-Making 6th
Edition By Jay Rich, Jeff
Jones, Linda Ann Myers (All
Chapters 1-12, 100%
Original Verified, A+ Grade)
All Chapters Arranged
Reverse: 12-1

,Name: Class: Date:

Ch 12 Financial Statement Analysis

Indicate whether the statement is true or false.

1. As a general rule, all users of financial statements seek answers to the same questions.
a. True
b. False

2. When trying to predict future profits, analysts often take a top-down approach that starts with gathering economic and
industry data to supplement what they are able to find out about the specific corporations they follow.
a. True
b. False

3. A company that is considering selling goods or providing services to another company wants to know whether its
customers will provide competitive salary and benefits, experiences that will prepare employees to assume increased
responsibility, and a secure job for the foreseeable future.

a. True
b. False

4. Investors who buy stock in a corporation expect to earn returns on their investment from dividends and an increase in
the value of the stock (a capital gain).
a. True
b. False

5. Along with its other financial statements, a public corporation must present its most recent 2 years of income statements
in Item 1 of its Form 10-K.
a. True
b. False

6. Management's Discussion and Analysis is a key part of the 10-K because it provides investors with information
management believes necessary to understand the company and forecast future performance.
a. True
b. False

7. Many companies assist users of financial statements by providing information about the company's accounting policy
choices in the first note to the financial statements.
a. True
b. False

8. Form 8-K is the "current report" companies must file with the SEC to announce major events that are important to
investors and creditors.
a. True
b. False

9. Time series analysis compares a company's financial data with industry averages.
a. True
b. False

Powered by Cognero Page 1

,Name: Class: Date:

Ch 12 Financial Statement Analysis
10. Comparing two companies in the same industry should cause no problem since both companies are required to use the
same accounting principles.
a. True
b. False

11. The analysis of common size financial statements may be included in horizontal or vertical analysis.
a. True
b. False

12. An example of vertical analysis is that the cost of goods sold for the current year is 129% of the amount from the prior
year.
a. True
b. False

13. An increase in a company's revenue and expense accounts will always cause an increase in net income for the period.
a. True
b. False

14. Common size financial statements exclude the dollar amount as a relevant variable in the analysis, which makes
comparison of one period with the next more meaningful.
a. True
b. False

15. When using vertical analysis of the income statement, the base upon which all items are compared is net income.
a. True
b. False

16. The net profit margin percentage reflects the amount of income for each dollar of sales.
a. True
b. False

17. Three measures of liquidity include working capital, the acid test ratio, and the current ratio.
a. True
b. False

18. Inventory is more liquid than accounts receivable because receivables must be collected and some customers may not
be willing to pay, while inventory need only be sold in a retail store.
a. True
b. False

19. The length of the operating cycle is always considered to be a 1-year period, although that 1 year does not have to
begin on January 1.
a. True
b. False

20. The return on equity ratio measures the profit earned by a company through the use of capital supplied by its
bondholders.
Powered by Cognero Page 2

, Name: Class: Date:

Ch 12 Financial Statement Analysis

a. True
b. False

21. Return on assets is computed by adding the after-tax interest expense to net income and then dividing by the average
total assets.
a. True
b. False

22. The stock repurchase payout ratio is calculated by adding the dividend payout ratio to the total payout ratio.
a. True
b. False

23. The least liquid of all assets is cash.
a. True
b. False

24. The amount of working capital is more meaningful to users than the current ratio because working capital provides
information on the composition of the current accounts.
a. True
b. False

25. The acid test ratio is a stricter measure than the current ratio regarding a company's ability to pay its current
obligations as they are due.
a. True
b. False

26. Ratios that focus on cash are more useful than those that focus on income in the evaluation of a company's liquidity.
a. True
b. False

27. Riverdale Drugs has an inventory turnover of 15.00 times, while RJ's Drugs has an inventory turnover of 14.00 times.
RJ's is less efficient in managing its inventory.
a. True
b. False

28. Liquidity refers to a company's ability to pay its current obligations when they come due.
a. True
b. False

29. The best source of information about a particular company is Standard & Poor's industry guide.
a. True
b. False

30. A company with a capital structure that shifts more toward debt financing will appear to be in a stronger position to
pay interest and any principal amount that may be maturing by using its cash flows generated by operating activities.
a. True
Powered by Cognero Page 3