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Exam 12: Financial Statement Analysis

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Question 31

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Every liquidity ratio is calculated using one or more current asset accounts.

A) True
B) False

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Question 32

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Profit margin measures the income earned on each dollar of sales,and is calculated by dividing net income by net sales.

A) True
B) False

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Question 33

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Conservative accounting practices are those that result in reporting higher income,higher assets,and lower liabilities.

Excerpts from TPX Company's December 31, 2013 and 2012, financial statements are presented below: $\begin{array}{lrr}&2013&2012\\\text { Accounts receivable } & \$ 80,000 & \$ 72,000 \\\text { Inventory } & 84,000 & 70,000 \\\text { Net sales } & 400,000 & 372,000 \\\text { Cost of goods sold } & 254,000 & 216,000 \\\text { Total assets } & 850,000 & 810,000 \\\text { Total stockholders' equity } & 500,000 & 450,000 \\\text { Net income } & 75,000 & 56,000\end{array}$ -TPX Company's 2013 inventory turnover is:

We use the times interest earned ratio to compare interest payments with a company's income available to pay those charges.

Which of the following ratios is most useful in evaluating solvency?

Solvency refers to a company's ability to pay its current liabilities while liquidity refers to a company's ability to pay its long-term liabilities.

TPX Company's 2013 return on equity is:

HHF's times interest earned ratio is:

We measure income statement accounts at a point in time and balance sheet accounts over a period of time.

Which of the following is an aggressive accounting practice?

The current ratio is calculated as:

A low inventory turnover ratio usually is a positive sign and indicates that inventory is selling quickly.

Which of the following is NOT an example of applying conservatism in accounting?

For vertical analysis,we express each balance sheet item as a percentage of sales.

HHF's debt to equity ratio is:

The debt to equity ratio is:

Which of the following is not a common type of comparison in accounting?

Stealth Company's 2013 receivables turnover ratio is:

Explain the difference between conservative and aggressive accounting practices.Provide an example of a conservative accounting practice and explain why this practice is conservative.Provide an example of an aggressive accounting practice and explain why this practice is aggressive.