1. Which of the following types of financial statement analysis would be used to see how a company's operating expenses as a percentage of net sales have changed from one year to the next?
a) Analysis of internal control system
b) Ratio analysis
c) Vertical and horizontal analysis
d) Trend analysis
2. Which of the following types of financial statement analysis would be used to see how the sales revenue of a company has changed from one year to the next?
a) Horizontal analysis of balance sheet
b) Vertical analysis of income statement
c) Vertical analysis of balance sheet
d) Horizontal analysis of income statement
3. Which of the following statements accurately describes the statement of cash flows?
a) It indicates when long-term debt will mature
b) It shows the link between book income and earnings per share
c) It shows the relative proportion of debt and assets
d) It shows the link between accrual based income and the cash reported on the balance sheet
4. While preparing a statement of cash flows using the indirect method, the Depreciation Expense _______.
a) Is added back as an adjustment to Net income in the operating activities section
b) Is shown as a negative cash flow in the investing activities section
c) Is added back to purchase of plant assets under investing activities
d) Is shown as a negative cash flow under operating activities
5. Rodriguez Tint Inc. uses the indirect method to prepare its statement of cash flows. Refer to the following portion of the comparative balance sheet:
Rodriguez Inc.
Comparative Balance sheet
December 31, 2014 and 2013
2014 2013 increase/decrease
Cash $21,000 $18,000 $3,000
Accounts Receivable 31,000 35,000 (4,000)
Inventory 53,000 25,000 28,000
Plant and Equipment 123,000 90,000 33,000
Accumulated Depreciation - Plant & equip. (43,000) (40,000) (3,000)
Total Assets $228,000 $168,000 $60,000
Additional information provided by the company includes the following:
1) Equipment costing $65,000 was purchased for cash.
2) Equipment with a cost of $32,000 and accumulated depreciation of $7,000 was sold for $45,000.
6. What was the amount of net cash provided by (used for) investing activities?
a) $120,000
b) $(20,000)
c) $20,000
d) $(120,000)
7. e-Shop Inc. provides the following data:
Assets 2015 2014
Current assets:
Cash and cash equivalents $31,000 $25,000
Accounts receivable, net. 38,000 62,000
Merchandise Inventory 55,000 50,000
Total current assets $124,000 137,000
Property, plant, and equipment, net 121,000 120,000
Total assets 245,000 257,000
Net credit sales $500,000
a) 1 times
b) 4.03 times
c) 0.67 times
d) 1.99 times
8. "Analysts look for red flags in financial statements that may signal financial trouble". Which of the following is a "red flag" suggesting that a company may be in trouble?
a) A decrease in divided payout ratio from year to year
b) A decline in days' sales in inventory
c) Net cash flow from operating activities is consistently lower than net income
d) A reduction in the debt ratio
9. A summary of significant accounting policies and explanations of specific items on the financial statements will be given in _______.
a) The notes to financial statements
b) The balance sheet
c) The report of independent registered public accounting firm
d) The income statement
10. the activities that are included in the operating activities section of the statement of cash flows are ________.
a) Activities that increase or decrease long - term assets
b) Activities that create revenue or expenses
c) Activities that pertain to construction of new facilities
d) Activities that obtain the cash needed to launch and sustain the business
11. Avatar Auto Parts Company uses the indirect method to prepare the statement of cash flows. Refer to the following section of the comparative balance sheet:
Avatar Company
Comparative Balance sheet
December 31, 2014 and 2013
2014 2013 increase/decrease
Accounts payable $4,000 $6,000 $(2,000)
Accrued liabilities 2,000 1,000 1,000
Long - term notes payable 84,000 90,000 (6,000)
Total liabilities $90,000 $97,000 $(7,000)
12. How will the change in Accounts Payable be shown on the statement of cash flows?
a) As a deduction from investing cash flows
b) As an addition to net income
c) As a deduction from net income
d) As an addition to operating cash flows
13. Cash received from the issuance of notes payable is a(n) _____ on the statement of cash flows.
a) Financing activity
b) Investing activity
c) Non - cash activity
d) Operating activity
14. Felix skateboards company used the indirect method to prepare the statement of cash flows. Refer to the following income statement:
Felix Company
Income statement
Year ended December 31, 2015
Sales Revenue $245,000
Interest revenue 2,000
Gain on sale of plant assets 5,000
Total revenues and gains $252,000
Cost of goods sold 118,000
Salary expense 43,000
Depreciation expense 13,000
Other operating expenses 25,000
Interest expense 1,500
Income tax expense 5,500
Total expenses 206,000
Net income (loss) $46,000
Additional information provided by the company includes the following:
1) Current assets, other than cash, increased by $24,000
2) Current liabilities decreased by $1,000
How much is the net cash provided by operating activities?
a) $21,000
b) $34,000
c) $29,000
d) $39,000
15. e-Shop Inc. has net sales on account of $1,200,000. The average net accounts receivable are $600,000. Calculate the days' sales in receivables.
a) 439.8 days
b) 182.5 days
c) 304.0 days
d) 8.7 days
16. The vertical analysis statement of Nobell Inc. is as shown below:
Nobell Inc.
Comparative Income Statement
Years Ended December 31, 2015 and 2014
(In millions) 2016 % of total 2015 % of total
Net sales $6,355 100% $4,920 100%
Cost of Goods sold 3,370 53.0 2,200 44.7
Gross profit $2,985 47.0 $2,720 55.3
Operating expenses
Selling expenses $675 10.6 $580 11.8
Administrative expenses $410 6.5 425 8.6
Total expenses $1,085 17.1 $1,005 20.4
Operating income $1,900 29.9 $1,715 34.9
Other revenue and (expenses)
Interest revenue 0 0 0 0
Interest expense (400) (6.3) (695) (14.1)
Total revenues and (expenses) (400) (6.3) (695) (14.1)
Income before taxes $1,500 23.6 $1,020 20.7
Income tax expense 230 3.6 210 4.3
Net income $1,270 20.0 $810 16.5
The figure 16.5% shown for net income in 2015 signifies that _________.
a) Net income is increased by 16.5% over the previous year
b) Net income is 16.5% of net sales revenues
c) Net income is equal to 16.5 times of the income before income tax
d) Net income is 16.5% of gross profit