Accounting Chapter 13

Total revenues and net income for 2011 for Clampton Corporation is $3,500,000 and $280,000, respectively. Clampton Corporation has had 400,000 common shares of stock outstanding for all of 2011. The selling price of a share of Clampton common stock on Dec

C) 0.7

A company wishing to improve its acid-test ratio should:
A) purchase additional inventory for cash.
B) purchase additional inventory on account.
C) sell inventory on account.
D) do all of the above.

C) sell inventory on account

A financial statement showing each item on the statement as a percentage of one key item on the statement, called the base, is referred to as:
A) common-size statement.
B) trend analysis.
C) horizontal analysis.
D) benchmarking.

A) common-size statement

Analyzing the statement of cash flows may help analysts determine the financial health of a company. Which of the following signs below is not an indicator of a financially healthy company?
A) The company's operations are a major use (not a source) of cas

A) the company's operations are a major use (not a source)

Which of the following groups of ratios measure a company's ability to pay its current liabilities?
A) Current ratio, acid-test ratio and the times-interest-earned ratio
B) Current ratio and acid-test ratio
C) Current ratio and times-interest-earned
D) Cu

B) current ratio and acid-test ratio

Horizontal analysis evaluates financial data:
A) for one year.
B) for the future.
C) over a period of time.
D) none of the above.

c) over a period of time

Red flags in financial statement analysis can include:
A) a slowdown in inventory turnover.
B) sales increasing while receivables decrease.
C) debt ratio higher than average.
D) all of the above.

D) all of the above

A vertical analysis is primarily concerned with:
A) the change in key financial statement ratios over a specified period of time.
B) the dollar amount of the change in various financial statement amounts from year to year.
C) percentage changes in the bal

D) individual financial statement items expressed as a percentage of a base

A measure of a company's ability to collect cash from credit customers is the:
A) acid-test ratio.
B) accounts receivable turnover.
C) inventory turnover.
D) earnings per share.

B) accounts receivable turnover

Given the following data:
Cash: 115,000
Current Assets: 955,000
Total Assets: 1,650,000
In a vertical analysis, cash is expressed as:
A) 830%.
B) 1435%.
C) 12%.
D) 7%.

D) 7%

Horizontal analysis focuses on:
A) the balance sheet only.
B) percentage changes in comparative financial statements.
C) the change in key financial statement ratios over a certain time frame.
D) the changes in individual financial statement amounts as a

b) percentage changes in comparative financial statements

Beginning inventory was $28,000 and ending inventory was $22,000. Cost of goods sold was $190,000 and net sales were $360,000. Inventory turnover for the year was closest to:
A) 7.6.
B) 8.64.
C) 6.79.
D) 14.4.

A) 7.6

Which of the following ratios do not directly relate to the analysis of a given stock as an investment?
A) Earnings per share
B) Dividend yield
C) Book value per share of common stock
D) Current ratio

D) current ratio

Compute the current ratio using the following data:
Current assets: 190,000
Current Liabilities: 110,000
Total Assets: 550,000
Total Liabilities: 305,000
A) 1.73
B) 1.8
C) 0.35
D) 0.55

A) 1.73

Of the items listed below, the one most helpful in the comparison of different size companies is:
A) comparison of their net incomes.
B) horizontal analysis.
C) preparation of common-size financial statements.
D) comparison of their working capital balanc

C) preparation of common-size financial statments

Which of the following statements is true?
A) A positive EVA suggests a decrease in stockholder wealth.
B) A positive EVA suggests an increase in stockholder wealth.
C) A positive EVA suggests no change in stockholder wealth.
D) EVA has no relationship to

B) a positive EVA suggests an increase in stockholder wealth

The ratio that tells whether the entity can pay all its current liabilities if they come due immediately is the:
A) acid-test ratio.
B) accounts receivable turnover.
C) inventory turnover.
D) earnings per share.

A) acid-test ratio

Cost of goods sold for the current year was $170,000. Last year's cost of goods sold was $190,000. The percentage change and direction of change for the current year was a:
A) 11.7% increase.
B) 10.5% decrease.
C) 10.5% increase.
D) 11.7% decrease.

b) 10.5 decrease

The ratio that measures a company's success in using its assets to earn income for the entities that finance the business is the:
A) debt ratio.
B) leverage.
C) times-interest-earned ratio.
D) rate of return on total assets.

D) rate of return on total assets

Which of the following is used as the base in a vertical analysis of an income statement?
A) Net sales
B) Net income
C) Gross sales
D) Cash

A) net sales