a Yes No b. Yes Yes & No No a No Yes 19, Theoretically, in computing the receivables tumover, the numerator should inchide a. netsales. sales. b. net credit sales. a. credit sales. 20. The rate of return on common stock equity is calculated by dividing a, net income by average common stockholders’ equity. b. net income less preferred dividends by average common stockholders’ equity. c. net income by ending common stockholders’ equity. d. net income less preferred dividends by ending common stockholders’ equity. 21. The payout ratio can be calculated by dividing a. dividends per share by earnings per share. b, cash dividends by net income less preferred dividends. cash dividends by market price per share. d. dividends per share by earnings per share and dividing cash dividends by net income less preferred dividends. 22. Which of the following ratios measures long term solvency? a. Acid-test ratio © Debt io total assets b. Receivables turnover d. Current ratio 23, The calculation of the number of times interest is eamed invelves dividing a, net income by annual interest expense. b. net income plus income taxes by annual interest expense. netincome plus income taxes and interest expense by annual interest expense. d._ none of these. 24. When should an average amount be used for the numerator or denominator? a. When the numerator is a balance sheet item or items b. When the denominator is a balance sheet item or items c. When a ratio consists of an income statement item and a balance sheet item d. When the numerator is an income statement item or items 25, The basic limitations associated with ratio analysis include a. the lack of comparability among firms in a given industry. b. the use of estimated items in accounting, ¢. the use of historical costs in accounting. d. allofthese, 26. Which of the following statements is incorrect? a. Related party transactions and outstanding balances with other entities in a group are disclosed in an entity’s financial statements. b. Intragroup related party transactions and outstanding balances are not eliminated in the preparation of consolidated financial statements of the group. Related party relationships are a normal feature of commerce and business. . A related party relationship could have an effect on the profit or loss and financial position of an entity. e. Knowledge of related party transactions, outstanding balances and relationships may affect assessments of an entity's operations by users of financial statements, including assessments of the risks and opportunities facing the entity. 27. An entity's ability to affect the financial and operating policies of an investee is through the presence of 1. Control IL, Joint control I. Significant influence a.Tonly bor Any of1T, orl d.1, Wand I 28. Which of the following statements is correct? 1, The profit or loss and financial position of an entity may be affected by a related party relationship even if related party transactions do not occur.