Andrews University Financial Statement Analysis Mid-Term

AU12-2023

Name:…………………………………………….
Code:……………………………………………..

TRUE-FALSE

1. A common-size balance sheet is useful to the analyst because it facilitates

the structural analysis of the firm. True

2. The statement of stockholders’ equity is an important link between the

True
balance sheet and the income statement.
False
3. Gross profit is the difference between sales and all operating expenses.

4. The objectives of a financial statement analysis will vary depending on the

perspective of the financial statement user. True

5. Three ratios that help the financial analyst assess short-term solvency are
True
the current ratio, the quick ratio and the cash flow liquidity ratio.

MULTIPLE CHOICE

6. Which financial statement presents the results of operations? C

a. Balance sheet.
b. Statement of financial position.
c. Income statement.
d. Statement of cash flows.

7. Which financial statement shows the assets, liabilities and stockholders’ D

equity of the firm on a particular date?
a. Statement of stockholders’ equity.
b. Statement of cash flows.
c. Earnings statement.
d. Balance sheet.

8. Which financial statement provides information about operating, financing

and investing activities? B

a. Statement of financial position.

b. Statement of cash flows.
c. Statement of stockholders’ equity.
d. Income statement.

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Andrews University Financial Statement Analysis Mid-Term
AU12-2023

9. What basic financial statements can be found in a corporate annual report? A

a. Balance sheet, income statement, statement of shareholders' equity, and
statement of cash flows.
b. Balance sheet, auditor's report and income statement.
c. Earnings statement and statement of retained earnings.
d. Statement of cash flows and five-year summary of key financial data.

10. The balancing equation is expressed as: D

a. Assets + Liabilities = Equity.
b. Revenues – Expenses = Net Income.
c. Sales – Costs = Net Profit.
d. Assets = Liabilities + Equity.

11. Which of the following accounts would be classified as current assets on

the balance sheet? A
a. Cash and cash equivalents, accounts receivable, inventory.
b. Marketable securities, accounts payable, property, plant and
equipment.
c. Prepaid expenses, goodwill, long-term investments.
d. Property, plant and equipment, inventory, goodwill.

12. Which method of inventory assumes the last units purchased will remain in
A
ending inventory on the balance sheet?
a. FIFO.
b. LIFO.
c. Average cost.
d. LIFO and FIFO.

Use the following information to answer questions 13 through 14:

ABC Company purchases five products for sale in the order and at the costs
shown:

Unit Cost per Unit

1 $10
2 $12
3 $15
4 $18
5 $13

13. Assume ABC sells two items and uses the FIFO method of inventory
valuation. What amount would appear in ending inventory on the balance
sheet? B

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Andrews University Financial Statement Analysis Mid-Term
AU12-2023

a. $22
b. $46
c. $45
d. $31

14. Assume ABC sells two items and uses the LIFO method of inventory
valuation. What amount would appear for cost of goods sold on the income
statement? D
a. $37
b. $41
c. $22
d. $31

15. Which equation represents an income statement? C

a. Assets = liabilities + stockholders’ equity.

b. Cash in – cash out = net income.
c. Revenues - expenses = net income.
d. Beginning retained earnings + revenues – expenses = ending retained
earnings.

16. How is a common-size income statement prepared? B

a. Each income statement item is expressed as a percentage of total assets.

b. Each income statement item is expressed as a percentage of net sales.
c. Each income statement item is expressed as a percentage of net
income.
d. Each income statement item is expressed as a percentage of cash flow.

17. How is earnings per common share EPS calculated? C

a. Operating profit divided by the average number of common stock
shares outstanding.
b. Net profit divided by the average number of common and preferred
stock shares outstanding.
c. Operating profit divided by the average number of repurchased
common stock shares.
d. Net profit divided by the average number of common stock shares
outstanding.

Use the following information for Jett Co. to answer questions 18.
2023 2022
Sales 1,000 1,000
COGS 800 700
Operating expenses 100 200
Income tax rate 20% 20%

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Andrews University Financial Statement Analysis Mid-Term
AU12-2023

18. Jett Co.'s gross profit, operating profit and net profit margins for 2023 are:
a. 50.0%, 32.0%, 22.0% respectively. B
b. 20.0%, 10.0%, 8.0%, respectively.
c. 30.0%, 10.0%, 10.0%, respectively.
d. 21.0%, 18.0%, 12.0%, respectively.

19. Identify the following as operating (O), investing (I), or financing (F)
activities:
a. Proceeds from borrowing F

b. Purchases of property, plant and equipment I

c. Cash from sale of a business segment I
d. Interest payments to lenders F
e. Cash from sales of goods and services O
f. Payment of dividends F
g. Payments for purchase of inventory O
h. Payments for taxes O
i. Repurchase of a firm’s own shares F
j. Cash collections from loans to others I

20. Which group of people would be the most concerned about the operating
areas that have contributed to the success of the firm and which have not? B
a. Customers.
b. Management.
c. Auditors.
d. Creditors.

-THE END-

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