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The sale or disposal of a significant component of a company's operations is referred to as:


A) A discontinued operation.
B) Other gains and losses.
C) Other revenues and expenses.

D) A) and B)
E) All of the above

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

A) True
B) False

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

A) True
B) False

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


A) Net income.
B) Gross profit.
C) Sales.

D) All of the above
E) None of the above

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Given the information below,what is the company's gross profit?  Sales Revenue $320,000 Accounts Receivable $50,000 Ending Inventory $100,000 Cost of Goods Sold $250,000 Sales Returns $20,000\begin{array} { | l | r | } \hline \text { Sales Revenue } & \$ 320,000 \\\hline \text { Accounts Receivable } & \$ 50,000 \\\hline \text { Ending Inventory } & \$ 100,000 \\\hline \text { Cost of Goods Sold } & \$ 250,000 \\\hline \text { Sales Returns } & \$ 20,000 \\\hline\end{array}


A) $250,000.
B) $70,000.
C) $220,000.
D) $50,000.

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

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Recent financial statement data for Harmony Health Foods (HHF) Inc.is shown below.HHF's debt to equity ratio is (rounded to two decimal places) :  Current liabilities $180 Income before interest and taxes $12510% Bonds, long-term 360‾ Interest expense 36‾ Total liabilities 540‾ Income betore tax 89 Stockholders’ equity  Income tax 27 Common stock 200 Net income $62‾ Retained earnings 280 Total stockholders’ equity 480‾ Total liabilities and equity $1,020\begin{array} { | l | r | l | r | } \hline \text { Current liabilities } & \$ 180 & \text { Income before interest and taxes } & \$ 125 \\\hline 10 \% \text { Bonds, long-term } & \underline{360} & \text { Interest expense } & \underline{36} \\\hline \text { Total liabilities } & \underline{540} & \text { Income betore tax } & 89 \\\hline \text { Stockholders' equity } & & \text { Income tax } & 27 \\\hline \text { Common stock } & 200 & \text { Net income } & \underline{\$ 62} \\\hline \text { Retained earnings } & 280 & & \\\hline \text { Total stockholders' equity } & \underline{480} & & \\\hline \text { Total liabilities and equity } & \$ 1,020 & & \\\hline\end{array}


A) 0.75.
B) 1.13.
C) 0.38.

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

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Horizontal analysis examines trends in a company


A) Over time.
B) Between income statement accounts in the same year.
C) Between balance sheet accounts in the same year.

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

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

A) True
B) False

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The following is an example of:  Amount % Cash $300,0006.0 Accounts receivable 500,00010.0 Inventory 800,00016.0 Long-term assets 3,400,000‾68.0‾ Total assets $5,000,000100.0\begin{array} { | l | r | r | } \hline & \text { Amount } & \% \\\hline \text { Cash } & \$ 300,000 & 6.0 \\\hline \text { Accounts receivable } & 500,000 & 10.0 \\\hline \text { Inventory } & 800,000 & 16.0 \\\hline \text { Long-term assets } & \underline {3,400,000} & \underline { 68.0 } \\\hline \text { Total assets } & \$ 5,000,000 & 100.0 \\\hline\end{array}


A) Vertical analysis.
B) Horizontal analysis.
C) Diagonal analysis.

D) All of the above
E) B) and C)

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Excerpts from TPX Company's December 31,2018 and 2017,financial statements are presented below: TPX Company's 2018 return on equity is (rounded to one decimal place) : 20182017 Accounts receivable $80,000$72,000 Inventory 84,00070,000 Net sales 400,000372,000 Cost of goods sold 254,000216,000 Total assets 850,000810,000 Total stockholders’ equity 500,000450,000 Net income 75,00056,000\begin{array} { | l | r | r | } \hline & \mathbf { 2 0 1 8 } & \mathbf { 2 0 1 7 } \\\hline \text { Accounts receivable } & \$ 80,000 & \$ 72,000 \\\hline \text { Inventory } & 84,000 & 70,000 \\\hline \text { Net sales } & 400,000 & 372,000 \\\hline \text { Cost of goods sold } & 254,000 & 216,000 \\\hline \text { Total assets } & 850,000 & 810,000 \\\hline \text { Total stockholders' equity } & 500,000 & 450,000 \\\hline \text { Net income } & 75,000 & 56,000 \\\hline\end{array}


A) 16.7%.
B) 15.0%.
C) 15.8%.

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

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Investors view what as the number one measure of company success?


A) Liquidity
B) Solvency
C) Employee satisfaction
D) Profitability

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

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


A) Increase the acid-test ratio.
B) No change to the acid-test ratio.
C) Decrease the acid-test ratio.

D) None of the above
E) All of the above

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A partial balance sheet for Captain D's Sportswear is shown below.(dollars in thousands) The debt to equity ratio is (rounded to two decimal places) :  Assets:  Liabilities:  Cash $60 Accounts payable $240 Accounts receivable (net)  170 Other liabilities 80‾ Investments 50 Total current liabilities 320 Inventory 200 Long-term liabilities 110‾ Prepaid rent 25‾ Total liabilities 430‾ Total current assets 505‾ Stockholders’ equity:  Property & Equipment, (net)  255‾ Common stock 150 Retained earnings 180‾___ Total stockholders’ equity 330‾ Total assets $760‾ Total liabilities and equity $760‾\begin{array} { | l | r | l | r | } \hline \text { Assets: } & & \text { Liabilities: } & \\\hline \text { Cash } & \$ 60 & \text { Accounts payable } & \$ 240 \\\hline \text { Accounts receivable (net) } & 170 & \text { Other liabilities } & \underline{ 80 } \\\hline \text { Investments } & 50 & \text { Total current liabilities } & 320 \\\hline \text { Inventory } & 200 & \text { Long-term liabilities } & \underline { 110 } \\\hline \text { Prepaid rent } & \underline{25} & \text { Total liabilities } & \underline { 430 } \\\hline \text { Total current assets } & \underline { 505 } & \text { Stockholders' equity: } & \\\hline \text { Property \& Equipment, (net) } & \underline { 255 } & \text { Common stock } & 150 \\\hline & & \text { Retained earnings } & \underline { 180 } \\\hline &\_\_\_ & \text { Total stockholders' equity } & \underline { 330 } \\\hline \text { Total assets } & \underline{\$ 760} & \text { Total liabilities and equity } & \underline{\$ 760} \\\hline\end{array}


A) 0.33.
B) 0.77.
C) 1.17.
D) 1.30.

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

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The profit margin ratio indicates the amount of net income achieved for each:


A) collection on a receivable.
B) dollar of inventory.
C) dollar of total assets.
D) dollar of sales.

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

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Excerpts from Stealth Company's December 31,2018 and 2017,financial statements are presented below: Stealth Company's 2018 asset turnover is (rounded to one decimal place) : 20182017 Accounts receivable $40,000$36,000 Inventory 28,00036,000 Net sales 190,000186,000 Cost of goods sold 114,000108,000 Total assets 425,000405,000 Total stockholders’ equity 240,000225,000 Net income 32,50028,000\begin{array} { | l | r | r | } \hline & \mathbf { 2 0 1 8 } & \mathbf { 2 0 1 7 } \\\hline \text { Accounts receivable } & \$ 40,000 & \$ 36,000 \\\hline \text { Inventory } & 28,000 & 36,000 \\\hline \text { Net sales } & 190,000 & 186,000 \\\hline \text { Cost of goods sold } & 114,000 & 108,000 \\\hline \text { Total assets } & 425,000 & 405,000 \\\hline \text { Total stockholders' equity } & 240,000 & 225,000 \\\hline \text { Net income } & 32,500 & 28,000 \\\hline\end{array}


A) 3.7 times.
B) 2.8 times.
C) 2.2 times.
D) 0.5 times.

E) All of the above
F) None of the above

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To calculate a year-to-year percentage change in any financial statement line item such as sales,you should take the current year's amount,subtract the prior year's amount,then divide by ______,and finally multiply the result by 100.


A) net income
B) total assets
C) the current year's amount
D) the prior year's amount

E) All of the above
F) A) and B)

Correct Answer

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Excerpts from Stealth Company's December 31,2018 and 2017,financial statements are presented below: Stealth Company's 2018 return on assets is (rounded to one decimal place) : 20182017 Accounts receivable $40,000$36,000 Inventory 28,00036,000 Net sales 190,000186,000 Cost of goods sold 114,000108,000 Total assets 425,000405,000 Total stockholders’ equity 240,000225,000 Net income 32,50028,000\begin{array} { | l | r | r | } \hline & \mathbf { 2 0 1 8 } & \mathbf { 2 0 1 7 } \\\hline \text { Accounts receivable } & \$ 40,000 & \$ 36,000 \\\hline \text { Inventory } & 28,000 & 36,000 \\\hline \text { Net sales } & 190,000 & 186,000 \\\hline \text { Cost of goods sold } & 114,000 & 108,000 \\\hline \text { Total assets } & 425,000 & 405,000 \\\hline \text { Total stockholders' equity } & 240,000 & 225,000 \\\hline \text { Net income } & 32,500 & 28,000 \\\hline\end{array}


A) 7.1%.
B) 7.8%.
C) 13.5%.

D) A) and C)
E) None of the above

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Asset turnover measures sales volume in relation to the investment in assets,and is calculated as net sales divided by average total assets.

A) True
B) False

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A discontinued operation refers to:


A) The sale or disposal of a significant component of a company's operations.
B) Discontinued inventory items.
C) Inventory items that have been completed and sold.

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

Correct Answer

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The price-earnings (PE)ratio compares a company's share price with its earnings per share.

A) True
B) False

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