INT03- FINANCIAL STATEMENT ANALYSIS

QUIZ # 2

NAME: _________________________________________ SCORE: ______

MULTIPLE CHOICE. Choose the letter of the correct answer.

_____ 1. In horizontal analysis, each item is expressed as a percentage of the:
a. Base year figure c. Net income figure
b. Total assets figure d. Retained earnings figure
_____ 2. In 2017, ABC Company’s net income was P200,000 and in 2018, it was P50,000. What percentage increase in
net income must ABC achieve in 2019 to offset the 2018 decline in net income?
a. 60% b. 300% c. 400% d. 600%
_____ 3. Which of the following is not revealed on a common-size balance sheet?
a. The debt structure of a firm c. The peso amount of assets and liabilities
b. The capital structure of a firm d. The distribution of assets in which funds are invested
_____ 4. On a common-size balance sheet, what would represent 100%.
a. Total assets c. Total current assets
b. Total liabilities d. Total stockholders’ equity
_____ 5. Which of the following is not a characteristic generally evaluated in ratio analysis?
a. Liquidity b. Leverage c. Profitability d. Marketability
_____ 6. For meaningful analysis, ratios are best compared with:
a. Industrial averages c. Historical and industrial averages
b. Historical company averages d. None of the choices
_____ 7. How are financial ratios used in decision making?
a. They remove the uncertainty of the business environment
b. They aren’t useful because decision making is too complex
c. They give clear signals about the appropriate action to take
d. They can help identify the reasons for success and failure in business, but decision making requires
information beyond the ratios
_____ 8. When a balance sheet amount is related to an income statement amount in computing a ratio:
a. Comparisons with industry ratios are not meaningful
b. The balance sheet amount should be converted to an average for the year
c. The income statement amount should be converted to an average for the year
d. The ratio loses its historical perspective because a beginning-of-the-year amount is combined with an end-
of-the-year amount
_____ 9. When calculating ratios involving income, an adjustment is most likely to be made for :
a. Gross profit c. Selling expenses
b. Fixed overhead costs d. non-recurring gains and losses
_____ 10. ABC Company wishes to calculate its return on assets. You know that the return on equity is 12% and that the
debt ratio is 40%. What is the return on assets?
a. 4.80% b. 12% c. 7.20% d. 20%
_____ 11. ABC Company is experiencing a growth rate of 9% with a return on assets of 12%. If the debt ratio is 36% and
the market price of the stock is P38 per share, what is the return on equity?
a. 7.68% b. 12% c. 9% d. 18.75%
_____ 12. The issuance of new shares in a five-for-one split of common stock:
a. Increases total shareholders’ equity c. Decreases total shareholders’ equity
b. Decrease the total book value per share of stock d. Increase the book value per share of stock
_____ 13. The following account balances have been provided for the end of the most recent year:
Total assets P252,000
Total shareholders’ equity 210,000
Total ordinary stock 84,000 (7,000 shares)
Total preference stock 14,000 (1,400 shares)
The book value per share is:
a. P25.00 b. P28.00 c. P30.00 d. P36.00
Page 2. Quiz - midterm
_____ 14. A company had 150,000 shares outstanding on January 1. On March 1, 75,000 additional shares were issued
through a stock dividend. then on November 1, the company issued 60,000 shares for cash. The number of shares to be
used in the denominator of the EPS calculation for the year is:
a. 222,500 shares c. 225,000 shares
b. 235,000 shares d. 285,000 shares
_____ 15. If a stock currently sells for P2,000 and has annual earnings per share of P150, the price-earnings ratio is:
a. 0.075 b. 43 c. 13.33 d. 120
_____ 16. ABC Company purchased 10,000 shares of its ordinary stock at the beginning of the year for cash. This
transaction will affect all of the following except the:
a. Current ratio c. Earnings per share
b. Net profit margin d. Debt to equity ratio
_____ 17. The accounts receivable turnover and inventory turnover ratios are used to analyze:
a. Liquidity c. Profitability
b. Leverage d. Long-term debt-paying ability
_____ 18. When reviewing a credit application, the credit manager should be most concerned with the applicant’s:
a. Working capital and current ratio c. Price-earnings ratio and current ratio
b. Profit margin and return on assets d. Working capital and return on equity
_____ 19. If equal amounts are added to the numerator and the denominator of a current ratio equal to one, the ratio
will:
a. Increase b. Decrease c. Zero d. remain the same
_____ 20. Which of the following would increase the working capital of a company?
a. Cash collection of accounts receivable
b. Payment of a 20-year mortgage payable with cash
c. Cash payment of payroll taxes payable
d. Refinancing a short-term note payable with a two year note payable
_____ 21. The quick ratio:
a. Includes prepaid expenses as part of the numerator
b. Does not include inventory as part of the numerator
c. Does not include all current liabilities in the calculation
d. Is a quick calculation of an approximation of the current ratio
_____ 22. The acid test ratio shows the ability of a company to pay its current liabilities without having to:
a. Collects its receivable c. Borrow additional funds
b. Reduce its cash balance d. Liquidate its inventory
_____ 23. XYZ Company has P16,000 in cash, P8,000 in marketable securities, P29,000 in accounts receivable, P30,000 in
inventories and P34,000 in current liabilities. The company’s current assets consist of cash, marketable securities,
accounts receivable and inventory. The company’s acid-test ratio is closest to:
a. 0.85 b. 1.32 c. 1.56 d. 2.44
_____ 24. A high accounts receivable turnover ratio indicates:
a. The company’s sales have increased
b. Customers are making payments quickly
c. Many customers are not paying their receivables
d. A large portion of the company’s sales are on credit
_____ 25. ABC Company had net credit sales of P1,875,000 and cost of goods sold of P625,000 for the year. The
Accounts Receivables balances at the beginning and end of the year were P100,000 and P87,500, respectively. The
accounts receivable turnover ratio was:
a. 13.33 times b. 18.75 times c. 20 times d. 21.43 times
_____ 26. During 2019, ABC Company purchased P320,000 of inventory. The cost of goods sold was P300,000 and the
ending inventory at year end amounted to P60,000. What was the inventory turnover ratio for the year?
a. 5.0 b. 5.3 c. 6.0 d. 10.00
_____ 27. A company has an average inventory on hand of P23,000 and the days in inventory are 29.20 days. What is
the cost of goods sold?
a. P143,750 b. P287,500 c. P335,800 d. P671,600

GOD BLESS…
03162020