Financial Statement Analysis Multiple Choice Questions#1



NOTE: Attempt all Questions to see the Result at the bottom of this page.


  1. 1)

    In the vertical analysis of income statement, all the accounts are expressed as a percentage of which of the following?


    • A) Net sales
    • B) Gross sales
    • C) Net income
    • D) Total expenses

  2. 2)

    A company has a cost of goods sold of Rs. 530,000; the beginning inventory is Rs. 120,000, and ending inventory is Rs. 180,000. Calculate the number of days to sell the inventory. (Round the figures to the nearest whole)


    • A) 83 days
    • B) 125 days
    • C) 104 days
    • D) 100 days

  3. 3)

    Which of the following equations properly represents a derivation of the fundamental accounting equation?


    • A) Assets + liabilities = owner's equity
    • B) Assets = owner's equity
    • C) Cash = assets
    • D) Assets - liabilities = owner's equity

  4. 4)

    What will be effect of purchase of inventory on open account on quick ratio of the company?


    • A) Increase
    • B) No effect
    • C) Decrease

  5. 5)

    Which of the following statement is the LEAST LIKELY to be correct?


    • A) A firm that has a high degree of business risk is less likely to want to incur financial risk
    • B) There exists little or no negotiation with suppliers of capital regarding the financing needs of the firm
    • C) Financial ratios are relevant for making internal comparisons
    • D) It is important to make external comparisons or financial ratios

  6. 6)

    Which of the following provides the basis for the trial balance?


    • A) Income statement
    • B) Statement of cash flow
    • C) Ledger
    • D) Adjusting entries

  7. 7)

    In order to know the percentage of assets financed by creditors, which of the following ratio is calculated?


    • A) Debt Ratio
    • B) Equity Ratio
    • C) Operating credit Ratio
    • D) Quick Ratio

  8. 8)

    The cash flow from investing activities shows the cash effects of which of the following?


    • A) Income statement items
    • B) Long term assets items
    • C) Long term liability & stockholder’s equity
    • D) Long term liability and long term assets

  9. 9)

    In a perpetual inventory system, which of the following is NOT part of the series of journal entries made when merchandise is sold on credit?


    • A) Credit the Cost of Goods Sold account
    • B) Credit the Sales account
    • C) Credit the Merchandise Inventory account
    • D) Debit the Accounts Receivable account

  10. 10)

    As stated in the audit report, or Report of Independent Accountants, the primary responsibility for a company's financial statements lies with which of the following?


    • A) The owners of the company
    • B) Independent financial analysts
    • C) The auditors
    • D) The company's management