Multiple Choice Answers

The percentage of change in long-term liabilities between two balance sheet dates is an example of:

a. vertical analysis
b. solvency analysis
c. profitability analysis
d. horizontal analysis

Which of the following accounts is reported in the stockholders’ equity section of the corporate balance sheet?

a. Bonds Payable
b. Common Stock
c. Dividends in Arrears
d. Cash

The balance sheets at the end of each of the first two years of operations indicate the following:

2004         2003
Total current assets                                           $600,000 $560,000
Total investments                                               60,000      40,000
Total property, plant, and equipment                 900,000    700,000
Total current liabilities                                        150,000    80,000
Total long-term liabilities                                    350,000    250,000
Preferred 9% stock, $100 par                            100,000    100,000
Common stock, $10 par                                     600,000    600,000
Paid-in capital in excess of par-common stock 60,000      60,000
Retained earnings                                              325,000    210,000
If net income is $130,000 and interest expense is $40,000 for 2004, and the market price is $30, What is the price-earnings ratio on common stock (round to one decimal point)?
a. 14.9
b. 13.8
c. 10.6
d. 20.0

A corporation purchases 10,000 shares of its own $20 par common stock for $35 per share, recording it at cost. What will be the effect on total stockholders’ equity?
a. increase, $200,000
b. increase, $350,000
c. decrease, $200,000
d. decrease, $350,000

The two most widely used methods for determining the cost of inventory are:

a. fifo and lifo
b. fifo and average
c. lifo and average
d. gross profit and average