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Exam 12: Financial Statement Analysis

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Question 21

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Other things being equal,the higher the debt to equity ratio,the higher the risk of bankruptcy.

A) True
B) False

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Question 22

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TPX Company's 2013 return on assets is:

A) 48.2%.
B) 9.3%.
C) 8.8%.
D) 9.0%.

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

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Question 23

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When a company sells land for cash and makes a $25,000 gain:

Which of the following items is most likely to be reported as an extraordinary loss?

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 debt to equity ratio is:

We report any profits or losses on discontinued operations in the current year,separately from profits and losses on the portion of the business that will continue.

Which of the following is a negative sign that a company is not selling its inventory quickly?

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

Return on equity is calculated by dividing the stock return by average stockholders' equity.

The receivables turnover ratio measures how many times,on average,a company collects its receivables during the year.

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 asset and return on equity ratios.

A discontinued operation refers to:

To be an extraordinary item,an event that produces a gain or loss must be either unusual in nature or infrequent in occurrence.

United Products began the year with an Inventory balance of $180,000,and had a year-end balance of $200,000.Sales of $800,000 generated a gross profit of $150,000.Calculate the inventory turnover ratio for the year.

Which of the following is an aggressive accounting practice?

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

Sideline Sports Products reports a return on assets of 6%,and a return on equity of 10%.Why do these two ratios differ?

A low current ratio indicates that a company has sufficient current assets to pay current liabilities as they become due.

Vertical analysis calculates the amount and percentage change of an account over time.

Changes in accounting estimates usually have no effect on a company's underlying cash flows.