Financial Statement Analysis Multiple Choice Questions#3

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

  1. 1)

    Which of the following statements (in general) is CORRECT?

    • A) A low receivables turnover is desirable
    • B) The lower the total debt-to-equity ratio, the lower the financial risk for a firm
    • C) An increase in net profit margin with no change in sales or assets means a weaker ROI
    • D) The higher the tax rate for a firm, the lower the interest coverage ratio

  2. 2)

    Oliver Incorporated has a current ratio equal to 1.6 and a quick ratio equal to 1.2. The company has Rs. 2 million in sales and its current liabilities are Rs. 1 million. what is the value of company's current assets?

    • A) 1,600,000
    • B) 1,200,000
    • C) 3,200,000
    • D) 2,400,000

  3. 3)

    Which one of the following statements is TRUE regarding distributions to stockholders?

    • A) The payment of dividends is not directly related to the profits of a given peri
    • B) Shareholders can individually decide on their distributions
    • C) To receive a corporate dividend, stock must be owned on the date of declaration
    • D) Corporate dividends reduce contributed capital and therefore, stockholders’ equity

  4. 4)

    Cash flow relating to investing activities does NOT present the cash effects of which of the following?

    • A) Plant assets
    • B) Intangible assets
    • C) Investments
    • D) Debt financing

  5. 5)

    Office supplies are purchased on account. The company uses a perpetual inventory system. What is the correct journal entry for this purchase of office supplies?

    • A) Debit - Purchases; Credit - Cash
    • B) Debit - Merchandise Inventory; Credit - Cost of Goods Sold
    • C) Debit - Office Supplies; Credit - Accounts Payable
    • D) Debit - Merchandise Inventory; Credit - Accounts Payable

  6. 6)

    Which of the following is NOT true about the specific identification method?

    • A) It requires a very detailed physical count
    • B) This method allows management to easily manipulate ending inventory cost
    • C) This method is very hard to use on interchangeable goods
    • D) This results in an overstated inventory account during the period of inflation

  7. 7)

    Which of the following statements best describes the nature of depreciation?

    • A) Regular reduction of asset value to correspond to the decline in market value as the asset ages
    • B) A process of correlating the book value of an asset with its gradual decline in physical efficiency
    • C) Allocation of the cost in a manner that will ensure that plant and equipment items are not carried on the balance sheet at amounts in excess of net realizable value

    • D) Allocation of the cost of a plant asset to the periods in which benefits are received

  8. 8)

    Warner Corporation reported net income in excess of its net cash flow from operations. A possible explanation of this difference is:

    • A) Depreciation expense
    • B) Non operating gains
    • C) A decrease in income tax rates
    • D) A decrease in accounts receivable over the period

  9. 9)

    Which of the following opinions state that the financial statements do not present fairly the financial position, results of operations etc, in conformity with GAAP?

    • A) Unqualified opinion
    • B) Qualified opinion
    • C) adverse opinion
    • D) Disclaimer of opinion

  10. 10)

    In a statement of cash flows, the acquisition of land by issuing capital stock:

    • A) Is not shown at all, since no cash was received or disbursed
    • B) Is shown as an investing activity
    • C) Is shown as a financing activity
    • D) Is shown in a supplementary schedule as a non-cash investing and financing transaction