Financial Statement Analysis Quiz

Financial Statement Analysis Mcqs with answers

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Financial Statement Analysis MCQs with Answers

Here you will find important MCQs with Answers

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The primary objective in the management of accounts receivable is

To achieve a combination of sales volume, bad-debt experience, and receivables turnover that maximizes the profits of the corporation.

To realize no bad debts because of the opportunity cost involved.

To provide the treasurer of the corporation with sufficient cash to pay the company’s bills on time.

To coordinate the activities of manufacturing, marketing, and financing so that the corporation can maximize its profits.

To allow the most liberal credit acceptance policy because increased sales mean increased profits.

Correct! Wrong!

If the investor company owns 30% of the stock of the investee company and the investee company reports profits of $150,000, then the investor company reports equity income of :

$25,000

$35,000

$45,000

$50,000

$55,000

Correct! Wrong!

Selected year-end data for Bayer Company are as follows: Current liabilities $600,000 Acid-test ratio 2.5 Current ratio 3.0 Cost of sales $500,000 Bayer Company’s inventory turnover based on these year-end data is:

1.20

2.40

1.67

Some amount other than those given.

Not determinable from the data given.

Correct! Wrong!

A figure from this year’s statement is compared with a base selected from the current year.

Horizontal common-size statement

Funds statement

Absolute figures

Balance sheet

Correct! Wrong!

Which of the following items would be classified as operating revenue or expense on an income statement of a manufacturing firm?

Interest expense

Advertising expense

Equity income

Dividend income

Cumulative effect of change in accounting principle

Correct! Wrong!

Which of the following statements is incorrect?

Ratios are fractions expressed in percent or times per year.

A ratio can be computed from any pair of numbers.

A very long list of meaningful ratios can be derived.

There is one standard list of ratios.

Comparison of income statement and balance sheet numbers, in the form of ratios, should not be done.

Correct! Wrong!

If a firm has a high current ratio but a low acid-test ratio, one can conclude that:

The firm has a large outstanding accounts receivable balance

The firm has a large investment in inventory

The firm has a large amount of current liabilities

The cash ratio is extremely high

Correct! Wrong!

From the point of view of analysis, which classification of an audit opinion indicates that the financial statements carry the highest degree of reliability.

Unqualified opinion

All-purpose

Disclaimer of opinion

Qualified opinion

Adverse opinion

Correct! Wrong!

Investment instruments used to invest temporarily idle cash balances should have which of the following characteristics?

High expected return, low marketability, and a short term to maturity.

High expected return, readily marketable, and no maturity date.

Low default risk, low marketability, and a short term to maturity.

Low default risk, readily marketable, and a long term to maturity.

Low default risk, readily marketable, and a short term to maturity.

Correct! Wrong!

Which of the following is true when a 10% stock dividend is declared and distributed?

Retained earnings is increased.

Stockholders’ equity is increased.

Stockholders’ equity is decreased.

Authorized shares are increased.

The overall effect is to leave stockholders’ equity in total and each owner’s share of stockholders’ equity unchanged; however, the total number of shares increases.

Correct! Wrong!

Which of the following is true when a cash dividend is declared and paid?

The firm is left with a liability to pay the dividend.

Retained earnings is reduced by the amount of the dividend.

Retained earnings is increased by the amount of the dividend.

Retained earnings is not influenced by the dividend.

Retained earnings is not influenced by Stockholders’ equity is increased.

Correct! Wrong!

Which of the following is a recurring item?

Error of a prior period

Equity in earnings of nonconsolidated subsidiaries

Extraordinary loss

Cumulative effect of change in accounting principle

Discontinued operations

Correct! Wrong!

Which party has the primary responsibility for the financial statements?

Bookkeeper

Auditor

Management

Cost accountant

None of the above

Correct! Wrong!

Management is a user of financial analysis. Which of the following comments does not represent a fair statement as to the management perspective?

Management is not interested in the view of investors

Management is interested in liquidity

Management is interested in profitability

Management is interested in the debt position

Management is interested in the financial structure of the entity

Correct! Wrong!

If assets are $40,000 and stockholders’ equity is $10,000, how much are liabilities?

$30,000

$50,000

$20,000

$60,000

$10,000

Correct! Wrong!

A firm requires short-term funds to cover payroll expenses. These funds can come from:

Trade credit

Collections of receivables

Bank loans

Delayed payments of accounts payable

All of the above

Correct! Wrong!

Which analysis compares each amount with a base amount for a selected base year?

Vertical common-size

Horizontal common-size

Funds statement

Common-size statement

None of these

Correct! Wrong!

Which of the following would be classified as an extraordinary item on the income statement?

Loss from tornado

Loss on disposal of a segment of business

Write-down of inventory

Loss from strike

Correction of an error of the current period

Correct! Wrong!

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Financial Statement Analysis MCQs with Answers

The primary objective in the management of accounts receivable is

If the investor company owns 30% of the stock of the investee company and the investee company reports profits of $150,000, then the investor company reports equity income of :

Selected year-end data for Bayer Company are as follows: Current liabilities $600,000 Acid-test ratio 2.5 Current ratio 3.0 Cost of sales $500,000 Bayer Company’s inventory turnover based on these year-end data is:

A figure from this year’s statement is compared with a base selected from the current year.

Which of the following items would be classified as operating revenue or expense on an income statement of a manufacturing firm?

Which of the following statements is incorrect?

If a firm has a high current ratio but a low acid-test ratio, one can conclude that:

From the point of view of analysis, which classification of an audit opinion indicates that the financial statements carry the highest degree of reliability.

Investment instruments used to invest temporarily idle cash balances should have which of the following characteristics?

Which of the following is true when a 10% stock dividend is declared and distributed?

Which of the following is true when a cash dividend is declared and paid?

Which of the following is a recurring item?

Which party has the primary responsibility for the financial statements?

Management is a user of financial analysis. Which of the following comments does not represent a fair statement as to the management perspective?

If assets are $40,000 and stockholders’ equity is $10,000, how much are liabilities?

A firm requires short-term funds to cover payroll expenses. These funds can come from:

Which analysis compares each amount with a base amount for a selected base year?

Which of the following would be classified as an extraordinary item on the income statement?

A

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