The comparison of activity measures of different companies is complicated by the fact that:
Answer different inventory cost flow assumptions may be used.
dollar amounts of assets may be significantly different.
only one of the companies may have preferred stock outstanding.
the number of shares of common stock issued may be significantly different.
Which of the following is an accurate statement regarding a statement of cash flows?
Answer Only cash items that affect the income statement are included.
Only material cash items that affect the income statement are included.
Material non-cash transactions are included.
Immaterial financing activities that affect cash do not need to be included.
None of the above.
Which of the following is(are) an example of a measure of leverage?
Answer Debt yield.
Debt payout ratio.
Preferred dividend coverage ratio.
All of the above.
Asset turnover calculations:
Answer are made by dividing the average asset balance during the year by the sales for the year.
are made by dividing sales for the year by the asset balance at the end of the year.
communicate information about how promptly the entity pays its bills.
should be evaluated by observing the turnover trend over a period of time.
Book value per share of common stock of a manufacturing company:
Answer is not a very useful measure most of the time.
is calculated by dividing market value per share by earnings per share.
reflects the fair market value of the company’s stock.
is the same as the total balance sheet asset value per share of common stock.
A higher P/E ratio means that:
Answer the stock is more reasonably priced.
the stock is relatively expensive.
investors are wary of the stock.
earnings are expected to decrease.
Most entities satisfy the accounting criteria for recognizing an expense when:
Answer a commitment is made to purchase a product or service.
cash is paid to a supplier.
a cost is incurred in the revenue generating process.
a dividend is paid to stockholders.
Which of the following is not a category of financial statement ratios?
Answer Financial leverage.
The inventory turnover calculation:
Answer is wrong unless cost of goods sold is used in the numerator.
is wrong unless sales is used in the numerator.
is an alternative way of expressing the number of days’ sales in inventory.
requires knowledge of the inventory cost flow assumption being used.
The term, “earned,” in revenue recognition refers to which of the following?
Answer The entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits.
The product or service has been exchanged for cash, claims to cash, or an asset that is readily convertible to a known amount of cash or claims to cash.
The entity has received an irrevocable order for goods or services.
Cash has been received with an irrevocable order for goods or services.
None of the above.
The earnings per share of common stock calculation:
Answer is made by dividing net income by the number of shares of common stock outstanding at the end of the year.
is complicated by the declaration of cash dividends during the year.
includes gains or losses from treasury stock transactions.
is complicated by the presence of preferred stock in the capital structure.
An entity’s current ratio will be influenced by:
Answer the inventory cost flow assumption used.
writing off an overdue account receivable against the allowance for uncollectible accounts.
the depreciation method used.
issuance of a stock dividend.
A leverage buyout refers to:
Answer one firm issues stock to take over another firm.
one firm trades its stock for the stock of another firm.
a firm goes heavily into debt in order to obtain the funds to purchase the shares of the public stockholders.
one firm pays cash for the shares of a takeover firm’s shares.
The gross profit ratio is useful to the manager for each of the following purposes except that:
Answer it can be used to determine the selling price to set for an item.
it can be used to estimate the amount of inventory lost in a fire.
it can be used to determine the amount available from a given amount of revenue to cover operating expenses.
it can be used to estimate the amount of operating expenses for a period.