Classroom Response System Questions

1
Classroom Response System Questions

• to accompany
• Needles/Powers, Financial Accounting, Ninth
  Edition
• CHAPTER 14

2
Instructor Notes

• all content comes from Study Guide and Test Bank
• notes page view displays exact source of
  content

3
Question 1

• A general rule in choosing among alternative
  investments is that the higher the risk involved,
  the
• greater the return expected.
• lower the profits expected.
• lower the potential expected.
• greater the price of the investment.

4
Question 1

• A general rule in choosing among alternative
  investments is that the higher the risk involved,
  the
• greater the return expected. Correct Answer
• lower the profits expected.
• lower the potential expected.
• greater the price of the investment.

5
Question 2

• Which of the following is the most useful in
  evaluating whether a company has improved its
  position in relation to its competitors?
• Rule-of-thumb measures
• A companys past performance
• A companys past performance and current
  financial position
• Industry averages

6
Question 2

• Which of the following is the most useful in
  evaluating whether a company has improved its
  position in relation to its competitors?
• Rule-of-thumb measures
• A companys past performance
• A companys past performance and current
  financial position
• Industry averages Correct Answer

7
Question 3

• One of the best places to look for early signals
  of change in a firms profitability is the firms
• interim financial statements.
• year-end financial statements.
• annual report sent to stockholders.
• annual report sent to the SEC.

8
Question 3

• One of the best places to look for early signals
  of change in a firms profitability is the firms
• interim financial statements. Correct Answer
• year-end financial statements.
• annual report sent to stockholders.
• annual report sent to the SEC.

9
Question 4

• Interim financial statements may provide early
  signals of significant changes in a companys
  earnings trend.
• T
• F

10
Question 4

• Interim financial statements may provide early
  signals of significant changes in a companys
  earnings trend.
• T Correct Answer
• F

11
Question 5

• Market strength refers to the ability of a
  company to increase stockholders wealth.
• T
• F

12
Question 5

• Market strength refers to the ability of a
  company to increase stockholders wealth.
• T Correct Answer
• F

13
Question 6

• The principal internal users of financial
  statements are
• SEC administrators.
• managers.
• investors.
• creditors.

14
Question 6

• The principal internal users of financial
  statements are
• SEC administrators.
• managers. Correct Answer
• investors.
• creditors.

15
Question 7

• Using industry norms to evaluate a companys
  financial performance is complicated by
• the existence of diversified companies.
• the use of different accounting procedures by
  different companies.
• the fact that companies in the same industry
  usually differ in some respect.
• all of the above.

16
Question 7

• Using industry norms to evaluate a companys
  financial performance is complicated by
• the existence of diversified companies.
• the use of different accounting procedures by
  different companies.
• the fact that companies in the same industry
  usually differ in some respect.
• all of the above. Correct Answer

17
Question 8

• It is in the best interests of a company to base
  executive compensation on a single performance
  measure.
• T
• F

18
Question 8

• It is in the best interests of a company to base
  executive compensation on a single performance
  measure.
• T
• F Correct Answer

19
Question 9

• Executive officers compensation is typically
  comprised of all of the following, except
• incentive bonuses.
• declared dividends.
• stock option awards.
• annual base salaries.

20
Question 9

• Executive officers compensation is typically
  comprised of all of the following, except
• incentive bonuses.
• declared dividends. Correct Answer
• stock option awards.
• annual base salaries.

21
Question 10

• Market strength refers most closely to the
  ability to
• survive for many years.
• pay bills when they fall due.
• earn a satisfactory net income.
• increase the wealth of stockholders.

22
Question 10

• Market strength refers most closely to the
  ability to
• survive for many years.
• pay bills when they fall due.
• earn a satisfactory net income.
• increase the wealth of stockholders. Correct
  Answer

23
Question 11

• In trend analysis, each item is expressed as a
  percentage of the
• net income figure.
• retained earnings figure.
• base year figure.
• total assets figure.

24
Question 11

• In trend analysis, each item is expressed as a
  percentage of the
• net income figure.
• retained earnings figure.
• base year figure. Correct Answer
• total assets figure.

25
Question 12

• In a common-size balance sheet for a wholesale
  company, which of the following could represent
  the 100 percent figure?
• Merchandise inventory
• Total current assets
• Total property, plant, and equipment
• Total assets

26
Question 12

• In a common-size balance sheet for a wholesale
  company, which of the following could represent
  the 100 percent figure?
• Merchandise inventory
• Total current assets
• Total property, plant, and equipment
• Total assets Correct Answer

27
Question 13

• The best way to study the changes in financial
  statements between two years is to prepare
• common-size statements.
• a trend analysis.
• a horizontal analysis.
• a ratio analysis.

28
Question 13

• The best way to study the changes in financial
  statements between two years is to prepare
• common-size statements.
• a trend analysis.
• a horizontal analysis. Correct Answer
• a ratio analysis.

29
Question 14

• Horizontal analysis is applicable to both an
  income statement and a balance sheet.
• T
• F

30
Question 14

• Horizontal analysis is applicable to both an
  income statement and a balance sheet.
• T Correct Answer
• F

31
Question 15

• Common-size statements show the dollar amount of
  changes in specific items from one year to the
  next.
• T
• F

32
Question 15

• Common-size statements show the dollar amount of
  changes in specific items from one year to the
  next.
• T
• F Correct Answer

33
Question 16

• On a common-size income statement, net income is
  set at 100 percent.
• T
• F

34
Question 16

• On a common-size income statement, net income is
  set at 100 percent.
• T
• F Correct Answer
• Hint Net sales are set at 100 percent.

35
Question 17

• Index numbers are used in
• trend analysis.
• ratio analysis.
• vertical analysis.
• common-size statements.

36
Question 17

• Index numbers are used in
• trend analysis. Correct Answer
• ratio analysis.
• vertical analysis.
• common-size statements.

37
Question 18

• In a common-size income statement, net income is
  set at
• 0 percent.
• the percentage that it is in relation to net
  sales.
• the percentage that it is in relation to
  operating expenses.
• 100 percent.

38
Question 18

• In a common-size income statement, net income is
  set at
• 0 percent.
• the percentage that it is in relation to net
  sales. Correct Answer
• the percentage that it is in relation to
  operating expenses.
• 100 percent.

39
Question 19

• The quick ratio and the debt to equity ratio are
  measures of short-term debt-paying ability.
• T
• F

40
Question 19

• The quick ratio and the debt to equity ratio are
  measures of short-term debt-paying ability.
• T
• F Correct Answer

41
Question 20

• Ratios are most useful in identifying
• causes.
• differences.
• relationships.
• trends.

42
Question 20

• Ratios are most useful in identifying
• causes.
• differences.
• relationships. Correct Answer
• trends.

43
Question 21

• One of the best places to look for early signals
  of change in a firms profitability is the firms
  
• interim financial statements.
• year-end financial statements.
• annual report sent to stockholders.
• annual report sent to the SEC.

44
Question 21

• One of the best places to look for early signals
  of change in a firms profitability is the firms
  
• interim financial statements. Correct Answer
• year-end financial statements.
• annual report sent to stockholders.
• annual report sent to the SEC.

45
Question 22

• A common measure of liquidity is
• return on assets.
• profit margin.
• inventory turnover.
• interest coverage ratio.

46
Question 22

• A common measure of liquidity is
• return on assets.
• profit margin.
• inventory turnover. Correct Answer
• interest coverage ratio.

47
Question 23

• Asset turnover is most closely related to
• profit margin and return on assets.
• profit margin and debt to equity ratio.
• interest coverage ratio and debt to equity ratio.
• earnings per share and profit margin.

48
Question 23

• Asset turnover is most closely related to
• profit margin and return on assets. Correct
  Answer
• profit margin and debt to equity ratio.
• interest coverage ratio and debt to equity ratio.
• earnings per share and profit margin.

49
Question 24

• Which of the following describes the computation
  of the interest coverage ratio?
• Net income minus interest expense divided by
  interest expense
• Net income plus interest expense divided by
  interest expense
• Income before income taxes plus interest expense
  divided by interest expense
• Net income divided by interest expense

50
Question 24

• Which of the following describes the computation
  of the interest coverage ratio?
• Net income minus interest expense divided by
  interest expense
• Net income plus interest expense divided by
  interest expense
• Income before income taxes plus interest expense
  divided by interest expense Correct Answer
• Net income divided by interest expense

51
Question 25

• A company with a 2.0 current ratio experiences a
  decline in the current ratio when it pays a
  short-term liability.
• T
• F

52
Question 25

• A company with a 2.0 current ratio experiences a
  decline in the current ratio when it pays a
  short-term liability.
• T
• F Correct Answer
• Hint The current ratio will increase.

53
Question 26

• Inventory is not a component in the computation
  of the quick ratio.
• T
• F

54
Question 26

• Inventory is not a component in the computation
  of the quick ratio.
• T Correct Answer
• F

55
Question 27

• Inventory turnover equals average inventory
  divided by cost of goods sold.
• T
• F

56
Question 27

• Inventory turnover equals average inventory
  divided by cost of goods sold.
• T
• F Correct Answer
• Hint It equals the cost of goods sold divided by
  average inventory.

57
Question 28

• Which of the following is a measure of long-term
  solvency?
• Current ratio
• Interest coverage ratio
• Asset turnover
• Profit margin

58
Question 28

• Which of the following is a measure of long-term
  solvency?
• Current ratio
• Interest coverage ratio Correct Answer
• Asset turnover
• Profit margin

59
Question 29

• Short-term creditors would probably be most
  interested in which of the following ratios?
• Current ratio
• Days inventory on hand
• Debt to equity ratio
• Quick ratio

60
Question 29

• Short-term creditors would probably be most
  interested in which of the following ratios?
• Current ratio
• Days inventory on hand
• Debt to equity ratio
• Quick ratio Correct Answer

61
Question 30

• Net income is irrelevant in computing which of
  the following ratios?
• Cash flow yield
• Return on assets
• Asset turnover
• Return on equity

62
Question 30

• Net income is irrelevant in computing which of
  the following ratios?
• Cash flow yield
• Return on assets
• Asset turnover Correct Answer
• Return on equity