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Comparing changes in net income for one company over time is an example of:


A) Vertical analysis.
B) Horizontal analysis.
C) Diagonal analysis.
D) Both vertical and horizontal analysis.

E) A) and B)
F) All of the above

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The following income statement and balance sheets for Laser World are provided:  Laser World  Income Statement  For the year-ended December 31, 2012  Sales revenue $2,200,000 Cost of goods sold 1,500,000 Gross profit 700,000 Expenses:  Operating expenses 350,000 Depreciation expense 70,000 Loss on sale of land 5,000 Interest expense 25,000 Income tax expense 60,000 Total expenses 510,000 Net income $190,000\begin{array} { | l r | } \hline { \begin{array} { c } \text { Laser World } \\\text { Income Statement }\end{array} } \\ { \text { For the year-ended December 31, 2012 } } \\\hline & \\\text { Sales revenue } & \$ 2,200,000 \\\text { Cost of goods sold } & 1,500,000 \\\text { Gross profit } & 700,000 \\\text { Expenses: } & \\\quad \text { Operating expenses } & 350,000\\\quad \text { Depreciation expense } & 70,000 \\\quad \text { Loss on sale of land } & 5,000 \\\quad \text { Interest expense } & 25,000 \\\quad \text { Income tax expense } &60,000 \\\quad \text { Total expenses } & 510,000 \\\hline \text { Net income } & \$ 190,000\\\hline\end{array} The following income statement and balance sheets for Laser World are provided: \begin{array} { | l r | } \hline { \begin{array} { c } \text { Laser World } \\ \text { Income Statement } \end{array} } \\ { \text { For the year-ended December 31, 2012 } } \\ \hline & \\ \text { Sales revenue } & \$ 2,200,000 \\ \text { Cost of goods sold } & 1,500,000 \\ \text { Gross profit } & 700,000 \\ \text { Expenses: } & \\ \quad \text { Operating expenses } & 350,000\\ \quad \text { Depreciation expense } & 70,000 \\ \quad \text { Loss on sale of land } & 5,000 \\ \quad \text { Interest expense } & 25,000 \\ \quad \text { Income tax expense } &60,000 \\ \quad \text { Total expenses } & 510,000 \\ \hline \text { Net income } & \$ 190,000\\ \hline \end{array} Assuming that all sales were on account, calculate the following risk ratios for 2012: Assuming that all sales were on account, calculate the following risk ratios for 2012: The following income statement and balance sheets for Laser World are provided: \begin{array} { | l r | } \hline { \begin{array} { c } \text { Laser World } \\ \text { Income Statement } \end{array} } \\ { \text { For the year-ended December 31, 2012 } } \\ \hline & \\ \text { Sales revenue } & \$ 2,200,000 \\ \text { Cost of goods sold } & 1,500,000 \\ \text { Gross profit } & 700,000 \\ \text { Expenses: } & \\ \quad \text { Operating expenses } & 350,000\\ \quad \text { Depreciation expense } & 70,000 \\ \quad \text { Loss on sale of land } & 5,000 \\ \quad \text { Interest expense } & 25,000 \\ \quad \text { Income tax expense } &60,000 \\ \quad \text { Total expenses } & 510,000 \\ \hline \text { Net income } & \$ 190,000\\ \hline \end{array} Assuming that all sales were on account, calculate the following risk ratios for 2012:

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TPX Company's 2013 return on assets is:


A) 48.2%.
B) 9.3%.
C) 8.8%.
D) 9.0%.

E) C) and D)
F) None of the above

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Aggressive accounting practices result in reporting higher income, higher assets, and lower liabilities.

A) True
B) False

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Popson Inc. incurred a material loss which was not unusual in character, but was clearly an infrequent occurrence. This loss should be reported as:


A) An extraordinary loss.
B) A loss from discontinued operations.
C) Other revenues and expenses.
D) A separate line item in retained earnings.

E) B) and D)
F) A) and C)

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Stealth Company's 2013 gross profit ratio is:


A) 77.1%.
B) 80.0%.
C) 40.0%.
D) 60.0%.

E) None of the above
F) A) and B)

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Ratios that compare an income statement account with a balance sheet account should express the balance sheet account as an average of the beginning and ending balances.

A) True
B) False

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Which of the following is an example of horizontal analysis?


A) Comparing COGS with sales.
B) Comparing net income across companies.
C) Comparing debt with equity.
D) Comparing the growth in sales over time.

E) All of the above
F) None of the above

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The acid-test ratio is always smaller than the current ratio.

A) True
B) False

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TPX Company's 2013 debt to equity ratio is:


A) 50.0%.
B) 60.0%.
C) 70.0%.
D) 80.0%.

E) A) and B)
F) None of the above

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The acid-test ratio is:


A) 0.25.
B) 0.88.
C) 1.17.
D) 1.58.

E) C) and D)
F) A) and B)

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Listed below are eight terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term placing the number designating the term in the space provided. -     A company's ability to pay its long-term liabilities. 


A)  Liquidity 
B)  Conservative accounting practices 
C)  Solvency 
D)  Extraordinary item 
E)  Discontinued operation 
F)  Horizontal analysis 
G)  Vertical analysis 
H)  Aggressive accounting practices 

I) B) and D)
J) A) and B)

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Horizontal analysis analyzes trends in financial statement data for a single company over time.

A) True
B) False

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United Products began the year with an Inventory balance of $180,000, and had a year-end balance of $200,000. Sales of $800,000 generated a gross profit of $150,000. Calculate the inventory turnover ratio for the year.

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Stealth Company's 2013 average days in inventory is:


A) 60.5 days.
B) 92.2 days.
C) 100.8 days.
D) 89.7 days.

E) B) and D)
F) All of the above

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The location where a loss is reported in the income statement does not really matter as long as the loss is reported.

A) True
B) False

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Which of the following is NOT an example of applying conservatism in accounting?


A) Recording contingent losses that are probable.
B) Expensing all research and development costs are they are incurred.
C) Using the lower-of-cost-or-market rules for inventory accounting.
D) Increasing the useful life used in calculating depreciation.

E) A) and D)
F) A) and C)

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Every liquidity ratio is calculated using one or more current asset accounts.

A) True
B) False

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Richard's Sporting Goods reports net income of $100,000, net sales of $500,000, and average assets of $1,000,000. The profit margin is:


A) 10%.
B) 20%.
C) 50%.
D) 5 times.

E) A) and D)
F) A) and C)

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Barry's BBQ had sales revenue for the year of $200 million and net income of $20 million. Total assets were $70 million at the beginning of the year, and $80 million at the end of the year. Calculate Barry's return on assets, profit margin, and asset turnover ratios.

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