Chapter 17 HW

Chapter 17 Homework Assignment
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1. Which of the following is the most useful in analyzing companies of different sizes?
a. comparative analysis
b. common-size financial statements
c. price-level accounting
d. audit report
ANSWER: b
2. On a common-sized income statement, 100% is the

a. net cost of goods sold
b. net income
c. gross profit
d. sales
ANSWER: d
3. Which of the following measures a company’s ability to pay its current liabilities?
a. earnings per share

b. inventory turnover
c. current ratio
d. times interest earned
ANSWER: c
4.Which of the following is not included in the computation of the quick ratio?
a. inventory
b. marketable securities
c. accounts receivable
d. cash
ANSWER: a
5. An acceleration in the collection of receivables will tend to cause the accounts receivable turnover to
a. decrease
b. remain the same
c. either decrease or increase
d. increase
ANSWER: d
6. The tendency of the return on stockholders' equity to vary disproportionately from the return on total assets is
because of
a. leverage
b. solvency
c. yield
d. quick assets
ANSWER: a
Use the information below for Harding Company to answer the questions that follow.
Accounts payable $40,000
Accounts receivable 65,000
Accrued liabilities 7,000
Cash 30,000
Intangible assets 40,000
Inventory 72,000
Long-term investments 110,000
Long-term liabilities 75,000
Marketable securities 36,000
Notes payable (short-term) 30,000
Property, plant and equipment 625,000
Prepaid expenses 2,000
7. Based on the data for Harding Company, what is the amount of quick assets?
a. $205,000
b. $203,000
c. $131,000
d. $66,000
ANSWER: c
8. Based on the data for Harding Company, what is the amount of working capital?
a. $238,000
b. $128,000
c. $168,000
d. $203,000
ANSWER: b
9. Based on the data for Harding Company, what is the quick ratio, rounded to one decimal point?
a. 2.7
b. 2.6
c. 1.7
d. 0.9
ANSWER: c
10. The percent of fixed assets to total assets is an example of
a. vertical analysis
b. solvency analysis
c. profitability analysis
d. horizontal analysis
ANSWER: a
11. In horizontal analysis, each item is expressed as a percentage of the

a. base year figure
b. retained earnings figure
c. total assets figure
d. net income figure
ANSWER: a
12. Assume the following sales data for a company:

Current year $1,025,000
Preceding year 820,000
What is the percentage increase in sales from the preceding year to the current year?
a. 100%
b. 25%
c. 125%
d. 75%
ANSWER: b
13. A company with $70,000 in current assets and $50,000 in current liabilities pays a $1,000 current liability. As a result
of this transaction, the current ratio and working capital will
a. both decrease
b. both increase
c. increase and remain the same, respectively
d. remain the same and decreases, respectively
ANSWER: c
14. The tendency of the return on stockholders' equity to vary disproportionately from the return on total
assets is
because of
a. leverage
b. solvency
c. yield
d. quick assets
ANSWER: a
15. The following information is available for Jase Company:
Market price per share of common stock $25.00

Earnings per share on common stock $1.25
Which of the following statements is correct?

The price-earnings ratio is 20 and a share of common stock was
a. selling for 20 times
The price-earnings ratiothe amount of earnings
is 5% and a share of common stock was
per share
selling at the end of
for 5% moreratio the year.
thanisthe
b. The price-earnings 10amount of of common stock was
and a share
c. earnings per share at the end of the year.
selling for 125 times the amount of earnings
The market
per share at price perofshare
the end and the earnings per share are not
the year.
d.
statistically related to each other.
ANSWER: a
16. Richards Corporation had net income of $250,000 and paid dividends to common stockholders of
$50,000. It had 50,000 shares of common stock outstanding during the entire year. Richards
Corporation's common stock is selling for $35 per share. The price-earnings ratio is
a. 7 times 5
b. 14 times
c. 2 times
d. 5 times
ANSWER: a
17.Corporate annual reports typically do not contain

a. management discussion and analysis
b. an SEC statement expressing an opinion
c. accompanying notes
d. an auditor's report
ANSWER: d
18. Which of the following is required by the Sarbanes-Oxley Act?

a. price-earnings ratio
b. report on internal control
c. vertical analysis
d. common-sized statement
ANSWER: b
19. Which of the following items should be classified as an unusual item on an income statement?
a. a gain on the retirement of a bond payable
b. gain on the sale of a long-term investment
c. loss due to a discounted operation
d. selling treasury stock for more than the company paid for it
ANSWER: c
20. Hsu Company reported the following on its income statement:
Income before income taxes $420,000

Income tax expense 120,000
Net income $300,00
Interest expense was $80,000. Hsu Company's times interest earned ratio is
a. 8 times
b. 6.25 times
c. 5.25 times
d. 5 times
ANSWER: b
n on total assets is
current liability. As a result

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Chapter 17 Homework Assignment

2. On a common-sized income statement, 100% is the

a. earnings per share

10. The percent of fixed assets to total assets is an example of

11. In horizontal analysis, each item is expressed as a percentage of the

12. Assume the following sales data for a company:

15. The following information is available for Jase Company:

Market price per share of common stock $25.00

Which of the following statements is correct?

17.Corporate annual reports typically do not contain

18. Which of the following is required by the Sarbanes-Oxley Act?

20. Hsu Company reported the following on its income statement:

Income before income taxes $420,000

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