Financial Accounting Question Test IFS No. 6 On Interpretation Of Financial  Statement

True Or False

1.      Financial statements that reflect financial data for two or more periods are often referred to as comparative statements

·        True

·        False

2.      Development of data that measures changes occurring from one accounting period to another is a form of horizontal analysis

·        True

·        False

3.   One form of horizontal analysis is the development of an index-number trend series

·        True

·        False

4.      When preparing an index-number trend series, the first year presented must always be the base(100%)

·        True

·        False

5.      Index numbers can only be computed when amounts are positive

a.       True

b.      False

6.   Common-size financial statements are a widely used vertical analysis technique.

·        True

·        False

7.      A common-size income statement usually shows each revenue or expense item as a percentage of net sales

·        True

·        False

8.      Comparability between enterprises is more difficult to obtain than comparability within a single enterprise.

a.       True

b.      False

9.   Computation of ratios for an accounting period is a form of horizontal analysis

·        True

·        False

10.  Generally, the first concern of a financial analyst is a firm’s liquidity

·        True

·        False

11.  The working capital ratio is regarded as a fundamental measurement of a company’s liquidity

a.       True

b.      False

12.  Normally, an analyst would believe that a manufacturing company with a current ratio of 3 to 1 was in serious liquidity trouble.

·        True

·        False

13.  The acid-test ratio is regarded primarily as a measure of a company’s long-term  liquidity situation

·        True

·        False

14.  Usually a quick ratio of 1.5 to 1 would be considered satisfactory.

a.       True

b.      False

15. The accounts receivable turnover is both a measure of liquidity and a measure of activity

·        True

·        False

16. Average receivables may also be expressed in terms of the number of days’ sales in receivables

·        True

·        False

17.   The receivable position and the approximate collection time may be evaluated by computing the accounts receivable turnover

c.       True

d.      False

18. The inventory turnover is computed by dividing cost of goods sold by average inventory

·        True

·        False

19.  A natural business year relates to a fiscal year ending when operations are at their lowest point

·        True

·        False

20.  Normally a relatively low inventory turnover is desirable

a.       True

b.      False

21.  The ratio of the net sales to total sales is often called the profitability ratio

·        True

·        False

22.   The ratio called profit margin on sales is a measure of the profit percentage per dollar of sales

·        True

·        False

23. Return on investment(ROI) is a measure of overall asset productivity

·        True

·        False

24. The price earning ratio is a measure of the relative attractiveness of common stock as an investment

·        True

·        False

25. The use of borrowed funds is known as trading on the equity.

·        True

·        False