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tbch21 - CHAPTER 21 Analysis of Financial Statements...

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C HAPTER 21 Analysis of Financial Statements M ULTIPLE C HOICE Q UESTIONS Theory/Definitional Questions 1 Usefulness of the common-size financial statement 2 Use of common-size statements 3 True/false statements about financial statement analysis 4 Effect of current asset/liability increase on working capital 5 Current ratio as measure of short-term solvency 6 Effect of FIFO to LIFO change just before rising prices 7 Examples of transactions increasing current ratio 8 Use of trade receivables in acid test and receivable turnover 9 Whether a higher current ratio always means a better company 10 Definition of historical cost/constant dollar accounting 11 Definition of current cost/nominal dollar accounting 12 Definition of an unrealized holding gain 13 Example of monetary item 14 Holding bonds payable as a hedge against inflationary times 15 Example of nonmonetary item 16 Current cost accounting--can be either nominal dollars or constant dollars 17 Primary factor in determining functional currency of subsidiary 18 Disclosure of translation adjustments 19 Meeting the needs of international investors Computational Questions 20 Computation of current ratio 21 Computation of accounts receivable turnover 22 Computation of inventory turnover 23 Computation of gross margin 24 Computation of times bond interest earned 25 Computation of return on common stockholders' equity 26 Computation of number of days’ sales in average inventories 27 Computation of price-earnings ratio 28 Computation of times interest earned ratio 29 Computation of inventory turnover 30 Computation of price-earnings ratio 31 Effect of preparing financial statements adjusted for price-level changes 1
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2 Chapter 21 Analysis of Financial Statements 32 Valuation of machinery on a price-level adjusted balance sheet 33 Computation of purchasing power loss on net monetary items 34 Computation of realized holding gain under current cost/nominal dollar accounting 35 Determination of ending inventory on comparative constant purchasing power adjusted balance sheet 36 Computation of unrealized holding gain under current cost/nominal dollar accounting 37 Computation of unrealized holding gain 38 Computation of net monetary position 39 Computation of translated net income 40 Computation of translation adjustment amount P ROBLEMS 1 Prepare common-size balance sheet comparing percentages 2 Computation of inventory turnover rate and number of days' sales in inventory 3 Computation of current ratio, net and gross margin, debt-to-equity ratio, etc. 4 Computation of inventory turnover, number of days' sales in inventory, gross margin 5 Computation of receivables turnover, number of days' sales in receivables 6 Computation of earnings on equity, times bond interest earned, EPS, price-earnings ratio, book value per share, debt-to-equity ratio 7 Computation of total equipment purchases, cash paid for taxes and dividends 8 Computation of end of year purchasing power gains/losses 9 Prepare balance sheet restatement 10
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