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WEEK 5 CHAPTER 13 ORION

A. return on assets
All of the following are liquidity ratios EXCEPT

A. return on assets
B. current ratio
C. current cash debt coverage
D. quick ratio

B. extraordinary items
Which of the following does NOT affect quality of earnings?

A. alternative accounting methods
B. extraordinary items
C. pro forma income
D. improper recognition

D. It is used to evaluate a company’s liquidity and short-term debt-paying ability.
Which of the following statements about the current ratio is true?

A. It is used to evaluate a company’s solvency and long-term debt-paying ability.
B. It is calculated by dividing current liabilities by current assets.
C. It is calculated by subtracting current liabilities from current assets.
D. It is used to evaluate a company’s liquidity and short-term debt-paying ability.

D. liquidity ratios
What is the best way to measure a company’s short-term ability to pay its maturing obligations and to meet unexpected needs for cash?

A. profitability ratios
B. solvency ratios
C. leverage ratios
D. liquidity ratios

B. by dividing cost of goods sold by the average inventory
How is inventory turnover calculated?
A. by dividing average inventory by cost of goods sold
B. by dividing cost of goods sold by the average inventory
C. by dividing cost of goods sold by the beginning inventory
D. by dividing cost of goods sold by the ending inventory
C. times interest earned
All of the following are profitability ratios EXCEPT

A. payout ratio
B. return on common stockholders’ equity
You got it correct :
C. times interest earned
D. profit margin

C. net sales
In vertical analysis, what is generally used as the base for administrative expense?

A. fixed assets
B. gross profit
C. net sales
D. administrative expense in a previous year

C. in terms of a percent of a base amount
In vertical analysis, each item in a financial statement is expressed

A. in terms of a percentage of the item in the previous year
B. in dollars and cents
C. in terms of a percent of a base amount
D. starting with the highest value down to the lowest value

B. net sales
In vertical analysis, what is the base for cost of goods sold?

A. total expenses
B. net sales
C. total revenues
D. total selling expenses

C. all of the choices are correct
In horizontal analysis, what is being analyzed?

A. only the balance sheet
B. only the income statement
C. all of the choices are correct
D. only the statement of retained earnings

B. the evaluation of financial statement data over a period of time to determine the amount and/or percentage increase or decrease that has taken place
What is horizontal analysis?

A. a tool to measure the income or operating success of a company for a given period of time

B. the evaluation of financial statement data over a period of time to determine the amount and/or percentage increase or decrease that has taken place
C. an evaluation of financial statement data where each item is expressed as a percentage of a base amount
D. the evaluation of financial statement data over a period of time to determine which items are in error

D. trend analysis
What is another term for horizontal analysis?

A. common-size analysis
B. vertical analysis
C. linear analysis
D. trend analysis

D. intracompany comparisons
When a company compares its current financial data with its prior year’s data it is making

A. intercompany comparisons
B. intramural comparisons
C. interior comparisons
D. intracompany comparisons

D. either the one-statement approach or the two-statement approach
Under IFRS, how do you prepare the statement of comprehensive income?

A. under the two-statement approach only
B. either the two-statement approach or the stockholders’ equity statement approach
C. under the one-statement approach only
D. either the one-statement approach or the two-statement approach

B. It is reported at its gross amount as an “other revenue or gain” or “other expense or loss.”
How do you treat an item that meets one but not both of the criteria for an extraordinary item?

A. It only needs to be disclosed in the footnotes of the financial statements.
B. It is reported at its gross amount as an “other revenue or gain” or “other expense or loss.”
C. It may be treated as sales revenue (if it is a gain) and as an operating expense (if it is a loss).
D. It is reported as an “other revenue or gain” or “other expense and loss,” net of tax.

D. The change should be reported retroactively.
What should occur when there is a change in accounting principle?

A. The old principle should be used in reporting the results of operations for the current year.
B. The cumulative effect of the change should be reported in the current year’s retained earnings statement.
C. The new principle should be used in reporting the results of operations of the current year, but there is no change to prior years.
D. The change should be reported retroactively.

B. Most changes in accounting principles are only reported in current periods when the principle change takes place.
Which of the following statements regarding changes in accounting principles is NOT true?

A. Consistency is one of the biggest concerns when a change in accounting principle is undertaken.
B. Most changes in accounting principles are only reported in current periods when the principle change takes place.
C. Changes in accounting principles are allowed when new principles are preferable to old ones.
D. Most changes in accounting principles are retroactively reported.

A. infrequent occurrence and unusual in nature
What characterizes an extraordinary item?

A. infrequent occurrence and unusual in nature
B. infrequent occurrence and uncontrollable nature
C. material and unusual in nature
D. material and uncontrollable in nature

A. discontinued operations
What is the disposal of a significant component of a business called?

A. discontinued operations
B. an extraordinary item
C. an other expense
D. a change in accounting principle

Sustainable Income
___________________ ___________________ is net income that has been adjusted for out-of-the ordinary revenues, gains, expenses, and losses.

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