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Exam 12: Financial Statement Analysis

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Question 71

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Extraordinary items:

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Question 72

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Which of the following is a conservative accounting practice?

A) The use of a longer service life for depreciation.
B) Waiting to record a litigation loss.
C) Adjust the allowance for uncollectible accounts to a smaller amount.
D) The write-down of overvalued inventory.

E) A) and B)
F) B) and D)

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Question 73

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Use of a longer useful life for depreciation is an example of conservative accounting.

When using vertical analysis,we express income statement accounts as a percentage of

Perform a vertical analysis on the following information:

Paul Pierce Enterprises reports net income of $800,000,average total assets of $2,400,000,and average total liabilities of $400,000.Calculate the return on assets and return on equity ratios.

Popson Inc.incurred a material loss,which was not unusual in character,but was clearly an infrequent occurrence.This loss should be reported as:

The acid-test ratio is always smaller than the current ratio.

A larger estimation of the allowance for uncollectible accounts,the write-down of overvalued inventory and the use of a shorter useful life for depreciation are all examples of conservative accounting.

We use horizontal analysis to analyze trends in financial statement data,such as the dollar amount of change and the percentage change,for one company over time.

Richard's Sporting Goods reports net income of $100,000,net sales of $500,000,and average assets of $1,000,000.The return on assets is:

Nerf Mania reports net income of $500,000,net sales of $4,000,000,and average assets of $2,000,000.The return on assets is:

The average days in inventory converts the inventory turnover ratio into days.

Use the following information to answer the next three questions: A partial balance sheet ($s in thousands) for Captain D's Sportswear is shown below. -The acid-test ratio is:

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

Assuming an acid-test ratio of 1.0,how will the purchase of inventory with cash affect the ratio?

A low receivables turnover ratio is a positive sign that a company can quickly turn its receivables into cash.

The following income statement and balance sheets for Laser World are provided: Earnings per share for the year-ended December 31,2015,is $1.90.The closing stock price on December 31,2015,is $30.40. Calculate the following profitability ratios for 2015:

When using a company's current earnings to estimate future earnings performance,investors normally should exclude discontinued operations and extraordinary items.